Rathbone Brothers PLC : Annual Financial Report...

Rathbone Brothers Plc ("the Company")
Report and accounts 2011

This is an update to the announcement regarding the publication of the Rathbone Brothers Plc Annual Report and Accounts for the year ended 31 December 2011 ("the 2011 Report and Accounts") made on 18 April 2012.

The information below, which is extracted from the 2011 Report and accounts is included solely for the purposes of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public an annual financial report. It should be read in conjunction with the Company's preliminary announcement issued on 21 February 2012. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2011 Report and Accounts. Page numbers and cross references in the extracted information below refer to page numbers and cross reference in the 2011 Report and Accounts.

Risk Management

Rathbones has a clear risk management framework, the key objective of which is to identify and manage risk within a Board-approved risk appetite.  The Board believes that the most effective way of achieving this is by embedding risk management throughout the organisation.  We achieve this by ensuring that all identified risks are owned by specific committees who have responsibility for risk identification and risk management. These committees in turn report to the risk management committee, which takes a more holistic view of risk, identifying trends and correlations and providing guidance to other committees and to the Board.  This approach allows for risk decisions to be taken at the most appropriate level and also be subject to robust review and challenge. 

Ian Buckley is the executive director with oversight responsibility for risk management. The risk management committee comprises all members of the group executive committee, together with the group heads of personnel, compliance and internal audit.  During 2011, two non-executive directors, Oliver Corbett and Kathryn Matthews, became members of the committee and on 1 March 2012 Kathryn Matthews will become chairman of the committee.

The responsibilities of the risk management committee include:

• advising the Board on the Group's overall risk appetite and risk strategy, taking into account the current and prospective macroeconomic and financial environment;
• overseeing the current risk exposures of the Group;
• reviewing the risk assessment processes;
• supporting the Board's assessment of any proposed strategic business change; and
• assessing reports on any material breaches of risk limits and the adequacy of proposed management action.

The full remit of the committee is detailed within its terms of reference, which is subject to annual review and approval by the Board.  The risk management committee meets on a quarterly basis. The risk management framework is broadly unchanged from 2010.

Risk appetite

Rathbones' risk appetite is defined as the level of risk it is prepared to accept, within defined tolerance levels, in the pursuit of its strategic objectives. The Board recognises that taking risks is a normal part of running a business, and that the business will necessarily bear losses from financial and operational and IT risks which may manifest themselves either as reductions in income or directly or indirectly as operating or opportunity costs. The Board is committed to mitigating such losses as much as possible, but would be prepared to accept loss of up to £10 million in any five year period before it materially changes the current business model.

Risk register

A risk register is maintained which is considered the principal tool for monitoring risks.  During 2011, for reporting purposes, we completed an exercise to classify each major financial and non-financial risk facing the Group as a financial business, or operational and IT risk.  These risks are assessed by management as having a potential material impact on the Company. The 13 major risks are listed below in alphabetical order, grouped within the wider risk categories, together with details of the key mitigators. These are not exhaustive listings.

Risk scoring

During 2011 changes were made to the risk scoring methodology adopted by Rathbones, as approved by the risk management committee.  Each risk is now assessed using a 1 - 4 scoring system; previously a 1 - 5 approach had been utilised. The rationale for this reduction is to remove the tendency, inadvertent or otherwise, to default to the median.

Each risk is rated by assessing the probability of the risk occurring and its impact if it does occur.  The inherent risk is then reduced given an assessment of the internal controls environment or by insurance to give a residual risk score.

Business risks

Risk	Definition	Key mitigators
Competition	Competition risk covers material loss of clients, and a reduced ability to grow the business, as well as key staff loss. Key staff loss is the risk of losing either a member of the group executive committee, a key investment professional or a senior manager.  This could have a negative effect on either the growth of the business or the retention of existing business.	Business Regular reviews of pricing structure. Continued investment in marketing, the investment process and service standards. Staff Competitive remuneration packages. Investment in staff training and development. Contractual clauses with restrictive covenants.
Legal & Compliance	Legal and compliance risk includes the risk of potential loss arising from litigation, as a result of a breach of legislative requirements, such as Companies Act requirements, data protection, employment law or health and safety regulations.	Retained specialist legal advisers. Compliance department. Data protection policy. Documented policies, procedures and practices.
Regulatory	Regulatory risk is the risk that a change in regulation will materially affect the market in which Rathbones operates and increase the risk of non-compliance.	Comprehensive compliance monitoring. Awareness of regulatory developments. Active involvement with representative industry bodies. Close contact with the regulators.
Reputational	Reputational risk covers the risk that negative publicity will lead to a loss of income for Rathbones or litigation. It also includes investment performance risk, which is the risk that portfolios and/or funds fail to achieve performance benchmarks, leading to client dissatisfaction.  Reputational damage is more likely to arise following the materialisation of another risk factor rather than as a standalone risk.	Strong compliance culture. Treating customers fairly governance. Monitoring of media coverage. Proactive communications with shareholders/investor relations. Investment process. Investment management performance monitoring. Investment in staff training and development.

Financial risks

Risk	Definition	Key mitigators
Credit	Credit risk is the risk of a market counterparty defaulting on monies deposited with it, or a counterparty failing to fulfil their contractual obligations.	Robust counterparty limits. Active monitoring of exposure.
Liquidity	Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.	Annual Individual Liquidity Adequacy Assessment (including stress testing). Daily reporting to senior management.
Market	Market risk includes interest rate risk, foreign exchange risk and price risk.  Market risk is the risk that the Company's earnings or capital will be adversely affected by changes in the level or volatility of interest rates, foreign currency exchange rates or market prices.	Documented policies and procedures. Daily monitoring. Robust application of policy and investment limits.

Further detailed discussion of the Group's exposures to financial risks is included in note 28 to the consolidated financial statements.

Operational & IT risks

Risk	Definition	Key mitigators
Business continuity	Business continuity risk is the risk of an event arising which could have a material impact on the operations of the business.  This includes the inability to recover IT systems or the restricted or denied access to office premises.	Documented disaster recovery and crisis/incident management plans. Regular disaster recovery testing. Continuous monitoring of IT systems availability. Off-site data centre.
Data integrity	Data integrity risk includes the risks associated with breaches of client confidentiality, as well as potential failures with the maintenance, accuracy and consistency of stored data.	System access controls. Policy and procedures.
Outsourcing	Outsourcing risk is the risk of failure in respect of the provision of services by a third party.  Any significant disruption to services, or deterioration in the performance of a key supplier, could have a negative impact on the ability of Rathbones to deliver services to our clients.	Active relationship management, including regular service review meetings. Service level agreements and monitoring of key performance indicators.
Processing	Processing risk includes the potential risk of loss of client or company assets through inadequate or failed internal processes and systems or fraud.	Dealing limits and supporting system controls. Continued investment in automated processes. Counter review/4-eyes processes. Segregation of duties. Documented procedures. Annual controls assessment including an ISAE3402 report.
Project management and control	Project management and control risks cover those areas of uncertainty which can arise and have a negative impact on the performance or delivery of a project either in terms of duration, cost or in meeting requirements.	Documented IT strategy. Two-stage assessment, challenge and approval of project plans. Dedicated projects office function. Evolutionary system changes, with close user involvement.
Settlement	Settlement risk is the risk that counterparty will fail to deliver the terms of a contract at the time of settlement.	Daily monitoring of settlement performance. Delivery versus payment approach, wherever possible. Automated processes. Authorisation and management oversight.

Related party transactions

The remuneration of the key management personnel of the Group, who are defined as the Company's directors and other members of senior management who are responsible for planning, directing and controlling the activities of the Group, is set out below.  Historically, the key management personnel of the Group were considered to be limited to the Company's directors.  The comparative balances in this note have been restated to reflect the revised presentation. Further information about the remuneration of individual directors is provided in the audited part of the directors' remuneration report.

	2011 £'000	2010 £'000
Short term employee benefits           Post employment benefits Other long term benefits Share-based payments	6,029 321 964 1,828	5,990 320 1,333 1,876
	9,142	9,519

Dividends totalling £399,000 were paid in the year (2010: £432,000) in respect of ordinary shares held by key management personnel.

At 31 December 2011, the Group had provided interest-free season ticket loans of £8,000 (2010: £7,000) to key management personnel.

At 31 December 2011, key management personnel and their close family members had gross outstanding deposits of £1,040,000 (2010: £1,395,000) and gross outstanding banking loans of £1,685,000 (2010: £1,299,000), of which £1,685,000 (2010: £1,299,000) were made on normal business terms.  A number of the Company's directors and their close family members make use of the services provided by companies within the Group. Charges for such services are made at various staff rates.

The Group's transactions with the pension funds are described in note 24. At 31 December 2011, £10,000 was due from the pension schemes (2010: £4,000).

The Group managed 18 unit trusts and OEICs during 2011 (2010: 16 unit trusts and OEICs). Total annual management charges of £14,451,000 (2010: £12,823,000) were earned, calculated on the bases published in the individual fund prospectuses, which also state the terms and conditions of the management contract with the Group. Annual management fees owed to the Group as at 31 December 2011 totalled £1,208,000 (2010: £1,078,000).

All amounts outstanding with related parties are unsecured and will be settled in cash.  No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.

Going Concern basis

Details of the Group's business activities, results, cash flows and resources, together with the risks it faces and other factors likely to affect its future development, performance and position are set out in the chairman's statement, chief executive's statement, strategy and business performance, business review, financial review and risk management report.  In addition, notes 28 and 29 to the consolidated financial statements provide further details.

The Company is regulated by the FSA and performs annual capital adequacy assessments which include the modelling of certain extreme stress scenarios. The Company publishes Pillar III disclosures annually on its website which provide detail about its regulatory capital resources and requirements. Since 6 April 2011, the Group has had no external borrowings and is fully equity financed.

In 2011, the Group has continued to generate organic growth in client funds under management despite the unhelpful market conditions, and this is expected to continue. The directors believe that the Company is well placed to manage its business risks successfully despite the continuing uncertain economic and political outlook.

As the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. In forming their view, the directors have considered the Company's prospects for a period exceeding 12 months from the date the financial statements are approved.

Responsibility statement of Directors on the annual report

The responsibility statement below has been prepared in connection with the Group's full annual report for the year ending 31 December 2011. Certain parts thereof are not included within this announcement.

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and its undertakings included in the consolidation taken as a whole; and
• the directors' report, together with the information provided in the business review, financial review and risk management report, includes a fair view of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By Order of the Board

A D Pomfret
Chief Executive

20 February 2012

Legal Notice

This document contains certain forward-looking statements which were made by the directors in good faith based on the information available to them at the time of their approval of the 2011 Report and Accounts. Forward looking statements contained within the document should be treated with some caution due to the inherent uncertainties, including economic, regulatory and business risk factors, underlying any such forward looking statements.

Richard Loader
Company Secretary

020 7399 0000

19 April 2012

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Source: Rathbone Brothers PLC via Thomson Reuters ONE

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