Rathbones Group Annual Report 2008

Plain-text annual report

Rathbone Brothers Plc Report and accounts 2008 Rathbone Brothers Plc is a leading independent provider of high-quality, personalised investment and wealth management services for private investors and trustees. This includes discretionary investment management, unit trusts, tax planning, trust and company management, pension advice and banking services. As at 31 December 2008, Rathbones managed £10.46 billion of client funds of which £9.43 billion are managed by Rathbone Investment Management. Contents 2008 highlights Chairman’s statement Chief executive’s statement Rathbones at a glance Strategy and key performance indicators Business review Directors Governance Directors’ report Corporate governance report Remuneration report Audit committee report Nomination committee report Corporate responsibility report Directors’ responsibilities Consolidated accounts Independent auditors’ report to the members of Rathbone Brothers Plc Consolidated income statement Consolidated balance sheet Consolidated cash ﬂow statement Consolidated statement of recognised income and expense Notes to the consolidated accounts Company accounts Independent auditors’ report to the members of Rathbone Brothers Plc Company balance sheet Statement of total recognised gains and losses Notes to the individual accounts Notice of Annual General Meeting Five year record Corporate information Our ofﬁces 1 2 3 6 8 10 24 27 28 32 37 46 48 49 58 59 60 62 63 64 65 66 113 114 116 117 118 124 130 131 132 2008 business highlights 7 January 2008 8 September 2008 Rathbone Investment Management International expands its investment team with the appointment of four new investment managers. Rathbones wins the Investment Management Award at the Charity Times Awards (held in partnership with the Charity Commission and the Community Foundation). s t h g i l i h g h 8 0 0 2 1 April 2008 24 September 2008 1 Rathbones establishes an ofﬁce in Exeter with the acquisition of Citywall Financial Management Limited. Paul Stockton joins the Board as group ﬁnance director. 21 May 2008 Rathbones extends its specialist ethical investment service by launching Rathbone Greenbank Investments in Liverpool. 6 June 2008 Rathbone Unit Trust Management awarded a mandate from a Canadian mutual fund company, Stone & Co, to manage its Europlus Dividend Growth Fund marketed in Canada. 16 June 2008 Rathbones announces the appointment of a third senior investment professional to the charity team within the space of six months. 21 July 2008 Rathbones opens a new ofﬁce in Birmingham. 15 October 2008 Rathbone Brothers Plc announces that it has completed the sale of its offshore trust operations in Jersey to Hawksford Holdings Limited. 1 November 2008 Charity Finance magazine’s annual investment management survey sees Rathbones move to 15th place by value of funds. Rathbones ranks 3rd by number of segregated discretionary funds. 22 December 2008 Giles Coode-Adams retired from the Board. David Harrel took on the role of senior independent director and Oliver Corbett became chairman of the Audit Committee. 2008 ﬁnancial highlights 2008 2007 % change Funds under management Operating income (continuing operations)1 Proﬁt before tax (continuing operations)1 Basic earnings per share (continuing operations)1 Basic earnings per share Dividends per share £10.46bn £131.8m £42.8m 68.47p 44.45p 42.0p £13.12bn £134.5m £47.3m 77.79p 87.88p 41.0p (20.3)% (2.0)% (9.5)% (12.0)% (49.4)% 2.4% 1 Continuing operations exclude businesses disposed of and classiﬁed as held for sale (see note 12 to the consolidated ﬁnancial statements) Rathbone Brothers Plc Report and accounts 2008 Chairman’s statement t n e m e t a t s s n a m ’ r i a h C 2 In 2008 we saw extremely volatile and challenging conditions in ﬁnancial markets. Despite this turmoil, Rathbones has achieved a net organic growth rate of 7.4% in our core discretionary investment management business. In October, we successfully completed the sale of our overseas trust operations in Jersey for £28.5 million. Results and dividend Proﬁt before tax from continuing operations for the year to 31 December 2008 was £42.8 million, a decrease of 9.5% from £47.3 million in 2007. The FTSE 100 Index fell from 6454 at the beginning of 2008 to 4434 by the end of year, a fall of 31.3%. Basic earnings per share from continuing operations fell by 12.0% from 77.79p to 68.47p, including the impact of a £1.4 million charge relating to the Financial Services Compensation Scheme. Basic earnings per share were 49.4% lower at 44.45p, compared with 87.88p in 2007, including the impact of the sale of the overseas trust businesses (discontinued operations). The Board is recommending that the ﬁnal dividend be increased by 4.0% to 26.0p (2007: 25.0p) making a total of 42.0p for the year (2007: 41.0p). This reﬂects our strong ﬁnancial position and conﬁdence in the ability of the business to withstand, and take advantage of, testing market conditions. The ﬁnal dividend will be paid on 13 May 2009. Market and environment Early in 2008, the market was faced with considerable liquidity challenges arising from sub-prime mortgage losses in the USA. As the year unfolded, the repercussions led to the demise of a number of high proﬁle ﬁnancial institutions and unprecedented levels of government support for the ﬁnancial system. Money market fragility and economic uncertainty continued for the remainder of 2008 driving stock market indices markedly lower in the second half of the year. Rathbone Brothers Plc Report and accounts 2008 Funds under management in Rathbone Investment Management (including Rathbone Investment Management International) fell during 2008 by 16.0% to £9.43 billion (2007: £11.23 billion) compared to a fall in the FTSE/APCIMS Balanced Index of 20.1%. In spite of these difﬁcult market conditions, we achieved an underlying net organic growth rate in funds under management within our core discretionary investment management business of 7.4% in the year compared to 7.8% in 2007. The Board considers that this continued level of growth reﬂects the increasing reputation of Rathbones’ investment process and service, where each client is the responsibility of an individual investment manager. In contrast, our unit trust business has experienced a disappointing year, reﬂecting difﬁcult market conditions and some performance issues. Composition of the Board In November we announced the retirement of Giles Coode- Adams from the Board with effect from 22 December 2008. Giles ﬁrst joined Rathbones in 1999 and we have beneﬁted enormously from his contribution over that time, particularly in his role as chairman of the Audit Committee. In September we were delighted to welcome Paul Stockton as group ﬁnance director. In December David Harrel took on the role of senior independent director and Oliver Corbett became chairman of the Audit Committee. Both bring a great deal of experience and expertise with them, and we look forward to the additional value they will bring to us in these roles. Outlook In these extremely challenging times, Rathbones will continue its focus on building strong long-term client relationships by encouraging direct client contact with investment managers who provide individual investment solutions to private investors and trustees. Rathbones is well placed to weather the difﬁcult climate and is in a strong position to take advantage of opportunities we expect to arise to grow the business. We remain conﬁdent of our future prospects. Mark Powell Chairman 3 March 2009 There is no doubt that 2008 has been a challenging year for all asset classes and we are acutely aware of the effects this has had on our clients’ portfolios, particularly for those who rely on income levels. Replicating high levels of income is, and will continue to be, one of the great challenges of 2009. Rathbones has continued to work hard to search for investment opportunities for clients in the current climate and to enhance screening processes. We continue to place great emphasis on high levels of communication between investment managers and their clients, which we believe is fundamental to our ability to serve our clients now and over the longer-term. ’ t n e m e t a t s s e v i t u c e x e f e i h C 3 Financial performance Operating income from continuing operations of £131.8 million in 2008 decreased 2.0% (compared to £134.5 million in 2007). Falls in stock markets were reﬂected in fee levels in Rathbone Investment Management (including Rathbone Investment Management International); however, this was offset by strong levels of net organic growth and high levels of interest income earned by our banking operation, which beneﬁted from increasing client liquidity and exceptionally high credit spreads, especially in the ﬁnal three months of the year when LIBOR and base rate differed substantially. We would not necessarily expect such high net interest levels to continue in 2009. Rathbone Unit Trust Management saw a high level of outﬂows as disappointing investment performance resulted in net redemptions of £234 million that, along with falling markets, reduced funds under management to £1.03 billion at 31 December 2008 (from £1.89 billion at 31 December 2007). Action has been taken to reduce costs to a level commensurate with the business’ current size, and considerable time is being dedicated to improving investment performance, notwithstanding that net fund sales cannot be expected to improve in the short-term. Proﬁt before tax for continuing operations of £42.8 million decreased 9.5% on the £47.3 million in 2007, largely reﬂecting market conditions and an increase of £1.4 million in the levy from the Financial Services Compensation Scheme mainly in relation to the Bradford & Bingley failure. Expenses were contained by our continued policy that performance related staff awards substantially reﬂect changes in bottom line proﬁt before tax levels. We will continue to monitor cost levels carefully in 2009. Chief executive’s statement Key highlights • Strong ﬁnancial performance and organic growth in challenging market conditions • Disposal of trust businesses • Improvements to our investment process • Prudent treasury management • Opportunities for future growth Rathbones’ ﬁnancial performance was strong in 2008 in spite of the turmoil we saw in ﬁnancial markets. Our core discretionary investment management business added £0.8 billion of net new funds from new and existing clients in the year ended 31 December 2008 (2007: £0.8 billion) in addition to a further £0.4 billion as a result of business and team acquisitions (2007: £0.1 billion). Rathbones’ predominantly discretionary investment management business is a strong and compelling business model. Coupled with a very strong balance sheet we are well placed in these challenging times. In 2008 we restructured our business to complement our core investment management activity. In addition to growing our core business through the acquisition of Citywall Financial Management in April, we progressed substantially in disposing of our offshore trust operations through the completion in October of the sale of our Jersey trust operations. In February 2009 we completed the sale of our Geneva business. The disposals of Singapore and BVI operations are well advanced. These disposals will complete our exit from the offshore trust business – a move we started in 2008. We took the view that the businesses would best develop their potential if they were owned offshore by their management in light of the changing climate for the use of offshore structures and services. We remain committed to our UK trust business and expect to continue to invest in its growth in 2009. Rathbone Brothers Plc Report and accounts 2008 ’ t n e m e t a t s s e v i t u c e x e f e i h C 4 Chief executive’s statement continued Marketing and business development The Rathbone Investment Process We have continued to invest signiﬁcantly in the Rathbone Investment Process, which guides investment managers as they tailor individual portfolios to differing client circumstances. This adds to detailed sector, asset class and geographical commentaries, and macroeconomic analysis to provide internal support and input to our asset allocation and stock selection committees. Communication amongst investment managers has been enhanced to ensure investment ideas and market opportunities are more effectively shared amongst investment managers. Rathbones is committed to its independent stance, which allows us to look across the whole of the marketplace for the best available products in which to invest our clients’ assets. This is something we continue to place great emphasis upon as managers look increasingly for future value opportunities in depressed markets and for risk mitigation strategies that best match client requirements. Corporate activity We completed the sale of our Jersey trust operations in October, and the Geneva business in February 2009. The disposals of our Singapore and BVI operations are also well advanced. None of these transactions will affect Rathbones’ investment management business in the Channel Islands (Rathbone Investment Management International) or its UK-based tax and trust services (Rathbone Trust Company Limited). Regulatory capital In 2009 we completed our discussions with the Financial Services Authority (FSA) regarding the amount of capital we are expected to hold for regulatory purposes. Our £49.6 million capital surplus over a minimum capital requirement of £63.7 million places us in a strong position to take advantage of future market opportunities. The underlying rate of net organic growth of 7.4% in investment management funds under management in 2008 has in large part been driven from existing clients or new clients taken on by investment managers who are not operating under earn out arrangements. The Rathbones brand is becoming increasingly known in the marketplace, and this, together with the instability we have seen in many other ﬁnancial institutions, has allowed us to beneﬁt from the adverse market conditions. The number of our charity clients has grown by 9% in the year and charity funds under management were £1.1billion at 31 December 2008. It was very satisfying to win the Investment Management award at the Charity Times Awards (held in partnership with the Charity Commission and the Community Foundation) in September and due credit goes to the individuals involved. We have also recognised that IFAs are increasingly turning to Rathbones for investment management expertise. In 2008 the principles underlying the Retail Distribution Review placed increased and often unwanted responsibilities on distributors, who are increasingly looking for a partner to help manage their client needs. We still see considerable potential for growth in this area. The stability of Rathbones and strength of our systems and investment processes has combined well with our ‘whole-of-market’ approach to investment, creating a strong proposition to IFAs. In October we launched our online valuations facility. This provides web-based portfolio valuations, which very much enhances our service offering to clients and intermediaries. We continue to develop our approach to SIPP panels and are a recognised provider of discretionary investment management services through several life company SIPP products. Our Edinburgh ofﬁce has seen considerable growth this year, working closely with selected providers. SIPPs are a very powerful product for retirement planning for our typical client and an attractive way of growing funds under management. The number of SIPPs managed has grown by 28% in 2008. Rathbone Pension & Advisory Services separately offers the Rathbone SIPP and provides a range of independent ﬁnancial advice, largely to Rathbones clients. This business is growing well and saw the number of new SIPPs it has advised on increase by 18.1%. Our highly qualiﬁed pensions advisory team (which now has chartered planner status) works closely with many investment managers and their clients. Rathbone Brothers Plc Report and accounts 2008 ’ t n e m e t a t s s e v i t u c e x e f e i h C 5 Treasury and ﬁnancing Regulation Whilst the fair treatment of clients has always been central to Rathbones’ way of doing business, we have further enhanced our management information, governance and monitoring processes in this area as a response to improved FSA guidance. We also anticipate that the impact of recent market events will create a proportionate regulatory response that will impact our banking operations. We will continue to monitor developments closely. Outlook Financial markets are expected to remain volatile for some time to come and in addition the economy is expected to face a prolonged period of very low interest rates. Whilst these factors will impact on our operating income in the short term, our track record for growth is strong and our continued investment in our people and operations means that we are in a strong position to take advantage of opportunities that may arise to grow our business both organically and through acquisition. Andy Pomfret Chief executive 3 March 2009 As a net provider of liquidity to the banking markets Rathbones does not rely on wholesale funding to ﬁnance its operations and does not anticipate that this will change. The turmoil in the credit markets has required us to be especially vigilant. As a regulated deposit taker we are able to make use of a range of appropriate instruments issued by a relatively wide number of counterparties with Fitch ratings of A and above when placing funds in the money markets. As liquidity in client portfolios rose to £1.1 billion in the year (31 December 2007: £1.0 billion) and credit markets tightened considerably, we worked hard to set appropriate exposure limits and monitor counterparty quality throughout the year to keep within our conservative treasury policy, which recognises the fundamental importance of ﬁnancial stability to our clients. Rathbones is virtually ungeared with borrowings of £9.2 million (2007: £12.5 million). Investing in people Staff turnover at Rathbones has continued to be low in 2008 at 10%, which is very much in line with expectations and in keeping with our culture of stability and maintaining longer-term client relationships. Equity ownership by staff and former staff remains at approximately 20%, with UK Share Incentive Plan (‘SIP’) participation at 88% and we will continue to encourage share ownership by Rathbones staff in 2009. We continue to place a high premium on training, completing our structured graduate training programme and supplementing core regulatory training with management and personal development which amounts, on average, to two full days of training per employee (2007: two days). Operations and resources We have continued to invest in the efﬁciency of the business and now complete the vast majority of security trades and a large proportion of unit trust trades using electronic settlement platforms on a ‘straight through’ basis. After detailed consideration of project priorities in light of current market conditions, we would still expect to invest at similar levels in 2009 to continue to improve business efﬁciency and support business growth in the long term. We have also aligned lease terms in both our New Bond Street ofﬁces and we are now a long way through the major refurbishment programme being conducted by the landlord of our Liverpool ofﬁces. Although the level of disruption has been considerable, I would like to thank all of our staff in Liverpool for their patience in working through the issues associated with this development. Rathbone Brothers Plc Report and accounts 2008 Rathbones at a glance Total Rathbones Investment Management The investment management division provides mainly discretionary investment management services to private investors and charities with portfolios held in discretionary accounts, trust structures, ISA accounts or self-invested personal pensions from offices in the UK and Jersey. The majority of clients have a fee-based service with securities held in a Rathbone nominee company and surplus cash held by Rathbone Investment Management, an authorised banking institution. Rathbone Pension & Advisory Services advises clients on retirement planning options and offers the Rathbone SIPP. Principal trading names • Rathbone Investment Management • Rathbone Investment Management International • Rathbone Pension & Advisory Services Direct employees (average full time equivalents) • 438 (145 investment professionals) Ofﬁces • Birmingham • Bristol • Cambridge • Chichester • Edinburgh • Exeter • Jersey • Kendal • Liverpool • London • Winchester Business head • Richard Lanyon Websites • General www.rathbones.com • Offshore services www.rathboneimi.com • Ethical investment www.rathbonegreenbank.com Top ten UK private client wealth managers (ranked by discretionary assets under management) £m Coutts Brewin Dolphin Rathbones Barclays/Gerrard Rensburg Sheppards UBS Merrill Lynch Morgan Stanley PWM Goldman Sachs Discretionary AUM 10,368 10,200 9,414 8,193 8,150 7,014 4,590 4,524 4,447 Total AUM 12,960 18,700 10,460 27,309 11,450 19,483 9,000 11,600 15,883 Source: Canaccord Adams estimates. Private Client Wealth Managers report, January 2009. Funds under management e c n a l g a t a s e n o b h t a R 6 Investment Management Unit Trusts 2008 £bn 9.43 1.03 10.46 2007 £bn 11.23 1.89 13.12 Operating income (continuing operations) Investment Management Unit Trusts Trust and Tax Central shared services 2008 £m 113.9 12.5 5.4 – 131.8 2007 £m 109.3 18.8 5.1 1.3 134.5 Proﬁt before tax (continuing operations) Investment Management Unit Trusts Trust and Tax Central shared services 2008 £m 40.4 2.4 0.6 (0.6) 42.8 2007 £m 40.1 6.9 0.1 0.2 47.3 Rathbone Brothers Plc Report and accounts 2008 Unit Trusts The unit trusts division has a range of unit trusts which are distributed mainly through independent ﬁnancial advisers in the UK. These funds are purchased through ﬁnancial supermarkets, life assurance companies and through direct contact with ﬁnancial advisers. Funds cover the UK stock market, embracing small, medium and large companies to achieve growth and income. In addition we manage an ethical bond fund and one global fund focused on international opportunities. e c n a l g a t a s e n o b h t a R 7 Principal trading name • Rathbone Unit Trust Management Direct employees (average full time equivalents) • 31 Ofﬁces • London Business head • Peter Pearson Lund Website • www.rutm.com Trust and Tax The trust and tax division is based in the UK and provides taxation services (compliance and planning), probate services, trust services (trust formation, administration, accounting and provision of trustees and protectors), and family ofﬁce services. Principal trading name • Rathbone Trust Company Direct employees in continuing operations (average full time equivalents) • 43 Ofﬁces • Liverpool, London Business head Ian Buckley • Website • www.rathbones.com Client base breakdown Discretionary vs non-discretionary (by funds under management) As at 31 Dec 2008 Discretionary Non-discretionary % 94.2 5.8 Account type (by funds under management) As at 31 Dec 2008 Private client Trust and settlements ISAs Charities Pensions, inc SIPPs Other Account size (by value) As at 31 Dec 2008 Over £1million £500,000 — £1million £250,000 — £499,999 £100,000 — £249,999 £50,000 — £99,999 Up to £50,000 % 46.3 17.3 11.7 11.0 9.6 4.1 % 44.7 17.3 17.7 15.2 4.0 1.1 Rathbone Brothers Plc Report and accounts 2008 s r o t a c i d n i e c n a m r o f r e p y e k d n a y g e t a r t S 8 Strategy and key performance indicators Rathbones operates in the UK wealth management industry, providing clients with discretionary investment management, unit trust and advisory services. Rathbones has three key strategic objectives which drive the business Our aim is to be a leading provider of high-quality, personalised investment management and trust, tax and pension advisory services to private individuals, charities and trustees Key performance indicators • Total funds under management • Organic growth rate in funds under management • Funds under management per investment manager • Operating margin Our aim is to provide shareholders with a growing stream of dividend income, delivered by steady and consistent growth in earnings per share as market conditions allow Key performance indicators • Proﬁt before tax by segment • Earnings per share • Dividend per share • Annualised return on funds under management • Growth in funds under management vs FTSE 100 and APCIMS Balanced indices • Operating margin Our business model differentiates us in our marketplace • Strong focus on providing a fee-based discretionary service • Client investment is based on an independent whole-of-market approach • Clients deal with a named investment manager who manages their investments • The Rathbone Investment Process guides stock selection and asset allocation, and controls use of alternative asset classes • Complementary trust, tax and pensions advisory services are offered to private investors, charities, intermediaries and trustees • Continued investment is made in operations and infrastructure to deliver timely and meaningful information to investment managers and clients • A range of unit trust funds is marketed to intermediaries • Short-term secured loans may also be granted to investment management or trust clients of Rathbones • Flexibility in working with external client advisers • Investment management performance-related remuneration directly linked to proﬁt before tax (rather than revenue or business contribution) and new business generation • Consistent investment in underlying infrastructure and systems to maintain operational efﬁciency and support a wide range of investment choices for clients • Optimal use of automation to realise scale economies and support growth • Restrict the use of our banking licence to exclude risky activities such as mortgages or low margin cheque books, credit and debit cards Our aim is to provide staff with an interesting and stimulating career environment, involving a commitment for all staff to share in the equity and proﬁts of Rathbones, and to encourage and reward organic growth • Proﬁt before tax and funds growth-based remuneration structures which encourage quality investment business and sustained growth in funds under management • High level of employee share ownership • Vigorous development and defence of our intellectual property • Geared awards for higher performers Key performance indicators • Employee share ownership • Share incentive plan (SIP) participation rates • Staff turnover • Investment in training Rathbone Brothers Plc Report and accounts 2008 Rathbones has a long history of stability, and offers independent, personalised and whole-of-market investment advice to over 30,000 individual investors, charities and trustees. Key objectives govern, develop and grow the business Our performance in 2008 • Strongly uphold ‘treating clients • The business has generated an Proﬁt before tax (£’000) s r o t a c i d n i e c n a m r o f r e p y e k d n a y g e t a r t S 9 underlying annualised rate of organic growth in funds under management of 7.4% in 2008 in spite of market turmoil. Purchased funds added a further 3.7% growth • 2008 proﬁts reﬂected market conditions, but also beneﬁtted from strong growth • 2008 operating margin has been consistently maintained in recent years • Unit trust performance has been disappointing in 2008 2008: 42,756 2007: 47,302 12006: 44,720 12005: 35,298 12004: 28,492 Operating margin (%) 2008: 33.3 2007: 34.5 12006: 31.8 12005: 31.0 12004: 25.6 • Underlying earnings per share in 2008 fell by 6.4% compared to a 31.3% fall in the FTSE 100 and a 20.1% fall in the FTSE APCIMS Balanced Index • Dividend per share has been increased to 42p in 2008 in spite of challenging market conditions fairly’ principles • Manage portfolios imaginatively in the light of clients’ stated objectives, risk proﬁle and circumstances, paying regard to the Rathbone Investment Process • Maintain high standards of client communication • Adhere to standard fee schedules • Encourage clients with more limited sums to invest to collectives on a best-of-breed basis • Purchase institutional units for clients wherever possible to ensure that unit trust purchases maximise value for clients and charges are transparent • Deliver upper quartile unit trust performance As market conditions allow: • Maintain a steady and consistent approach to dividend policy • Maintain annualised income returns at circa 1% of funds under management • Deliver net organic growth in funds under management at 5% or above • Maintain regulatory capital at prudent levels • Maintain a conservative banking and treasury policy limiting investment to straightforward, instruments, rated A or above by Fitch over short investment horizons • Maximise use of straight through processing in security and unit trust transactions • Proactively manage pension beneﬁts to provide attractive levels of reward for fair and optimal cost • Selectively recruit high-calibre individuals who will complement and strengthen Rathbones’ culture • Provide the right level of training for staff throughout the business seeking the highest possible professional and ethical standards • Rathbones is a stable business that actively encourages employee share ownership as a means of aligning interests with that of shareholders • Staff turnover has been consistent at around 10% in recent years • Investment manager turnover continues • Share ideas and best practice to be very low through timely and effective employee consultation and communications • Use investment portfolio management tools and workﬂow systems to enhance the workplace experience • Commitment to acting as a fair employer providing equal opportunities to staff Rathbone Brothers Plc Report and accounts 2008 Net organic growth in Investment Management funds under management (%) 2008: 7.4 2007: 7.8 2006: 7.2 2005: 5.8 2004: 4.8 Underlying earnings per share (pence) 2008: 70.81 2007: 75.66 12006: 71.28 12005: 59.60 12004: 45.44 Dividend per share (pence) 2008: 42.0 2007: 41.0 2006: 35.0 2005: 30.0 2004: 27.5 Number of shares held by UK SIP participants 2008: 1,290,392 2007: 1,270,641 2006: 1,136,132 2005: 986,463 2004: 733,688 Staff turnover (%) 2008: 10 2007: 8 2006: 11 2005: 11 2004: 8 1 Figures for 2004 to 2006 include the results of discontinued operations Business review This business review has been prepared in line with guidance provided by the Accounting Standards Board to provide a balanced picture of Rathbones’ business and prospects, without prejudicing the conﬁdential nature of commercially sensitive information. This business review contains certain forward-looking statements which are made by the directors in good faith based on the information available to them at the time of their approval of this review. Statements contained within the business review should be treated with some caution due to the inherent uncertainties, including economic, regulatory and business risk factors, underlying any such forward looking statements. The business review has been prepared by Rathbone Brothers Plc to provide information to its shareholders and should not be relied upon by any other party or for any other purpose. w e i v e r s s e n i s u B 0 1 Investment Management Table 1. Key performance indicators for Investment Management Underlying rate of net organic growth in investment management funds under management1 Funds under management at 31 December1 Average net operating income basis point return2 2008 2007 7.4% 7.8% £9.43bn £11.23bn 104 bps 94 bps 1 See Table 3 2 Net operating income (see Table 4) excluding interest on own reserves divided by the average funds under management on the quarterly billing dates (see Table 5) Business environment The behaviour of ﬁnancial markets in 2008 has been very well-publicised as the credit crunch took its toll on all asset classes and all sectors, particularly in the second half of the year. Rathbone Investment Management funds under management fell 16.0% over the year from £11.23 billion to £9.43 billion compared to falls of 31.3% and 20.1% in the FTSE 100 and the FTSE APCIMS Balanced indices respectively. Table 2. Investment Management – funds under management and market levels1 12,000 10,000 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 Investment Management funds under management FTSE 100 Index FTSE APCIMS Balanced Index 1 FTSE APCIMS Balanced and FTSE 100 indices rebased to 6865 Rathbone Brothers Plc Report and accounts 2008 Organic inﬂows represent the amount of new funds brought in by our existing fund managers, either from existing clients or from new clients, and totalled £1.56 billion in the year ended 31 December 2008, up 7.6% from £1.45 billion in 2007. Net organic growth (stated after fund outﬂows which naturally occur because clients withdraw capital and/or income from portfolios to meet other ﬁnancial requirements, or close their account) was £833 million, which translates into an annualised rate of 7.4%. This was a strong performance in difﬁcult market conditions. Investment managers who joined us recently also added £413 million of acquired funds under management during the year, which was exceptional compared to the £150 million in 2007. Outﬂows of funds continued at normal levels, around 6.5% of funds under management, and account closures were also at expected levels in spite of the challenging market conditions. Table 3. Investment Management – funds under management As at 1 January Inﬂows1 – organic – acquired Outﬂows1 Market adjustment2 As at 31 December Net organic new business3 Underlying rate of net organic growth4 2008 £bn 11.23 1.97 1.56 0.41 (0.73) (3.04) 9.43 0.83 2007 £bn 10.38 1.60 1.45 0.15 (0.64) (0.11) 11.23 0.81 7.4% 7.8% 1 Valued at the date of transfer in/out 2 Impact of market movements and relative performance 3 Organic inﬂows less outﬂows 4 Net organic new business as a % of opening funds under management Rathbones has a signiﬁcant presence in the small to medium charity market (ie those charities with less than £50 million of funds under management) and, according to this year’s Charity Finance survey, is placed 15th by value of funds (up two places on 2007) and 3rd place (2007: 3rd) when measured by number of segregated discretionary funds. In September, Rathbones won the Investment Management award at the Charity Times Awards (held in partnership with the Charity Commission and the Community Foundation). Charity funds under management of £1.1billion at 31 December 2008 were at similar levels to last year as net inﬂows offset market movements. The number of charity clients has grown by 9% in the year. IFA-sourced growth continued to be strong. In October we launched our online valuations facility, allowing access to clients portfolios. This signiﬁcantly enhanced our service offering. Investment Management continued Table 5. Investment Management – average funds under management The number of SIPPs managed has grown by 28% in the year ended 31 December 2008. Growth in total SIPP funds held with Rathbone Investment Management under the Rathbone SIPP helped to reduce the impact of falling markets as funds fell by 7.5% to £225.3 million (from £243.6 million in 2007). Our Edinburgh ofﬁce saw considerable growth this year by working closely with selected providers, and Rathbone Pension & Advisory Services saw the number of new SIPPs upon which it has advised increased by 18.1% to 789 (2007: 668). The overall basis point return on funds under management increased in 2008 largely as a result of exceptionally high net interest income, itself a consequence of the abnormally high credit spreads experienced throughout the year. Financial performance Table 4. Investment Management – ﬁnancial performance Net fee income1 Commission Interest and other income2 Net operating income Underlying operating expenses3 Underlying proﬁt before tax Financial Services Compensation Scheme levy Proﬁt before tax 2008 £m 54.3 28.2 31.4 2007 £m 57.7 32.5 19.1 113.9 109.3 (72.1) (69.2) 41.8 (1.4) 40.4 40.1 – 40.1 Underlying operating % margin4 36.7% 36.7% 1 Net fee income is stated after deducting fees and commissions expenses paid to introducers 2 Interest and other income is presented net of interest expense paid on client accounts 3 See table 6 4 Investment Management proﬁt before tax and exceptional items divided by net operating income Net fee income decreased by 5.9% from £57.7 million to £54.3 million in 2008, largely reﬂecting falls in the average quarter calendar end FTSE 100 Index (when clients are billed). An average FTSE of 5227 in 2008 is 19% down on the average in 2007. Average funds under management on the quarterly billing dates of £10.14 billion were 8.8% down compared to £11.12 billion in 2007. Valuation dates for billing – 5 April – 30 June – 30 September – 31 December – Average 2008 £bn 10.75 10.49 9.87 9.43 10.14 2007 £bn 10.93 11.16 11.14 11.23 11.12 w e i v e r s s e n i s u B 1 1 Commission income of £28.2 million in 2008 was 13.2% lower than the previous year (2007: £32.5 million) as higher trading levels in the ﬁrst half slowed in the second half due largely to considerable market uncertainty. Interest income beneﬁted both from the exceptionally high credit spreads which were seen throughout the year, and higher levels of client liquidity which rose to £1.1 billion at 31 December 2008 from £1.0 billion at 31 December 2007. It is expected that interest income in 2009 will be adversely impacted by future reduction in credit spreads, margin erosion and possible regulation, in what will be an environment of exceptionally low interest rates. Net operating income for 2008 of £113.9 million increased 4.2% from £109.3 million in 2007 as market effects on fees and commission levels were more than offset by higher interest income. Table 6. Investment Management – operating expenses Staff costs1 – ﬁxed – variable Total staff costs1 Other operating expenses Underlying operating expenses Financial Services Compensation Scheme levy Operating expenses 2008 £m 24.1 13.6 37.7 34.4 72.1 1.4 73.5 2007 £m 22.8 14.0 36.8 32.4 69.2 – 69.2 Underlying cost/income ratio2 63.3% 63.3% 1 Represents the costs of investment managers and teams directly involved in client facing activities 2 Operating expenses before Financial Services Compensation Scheme costs divided by operating income excluding gains from disposal of available for sale securities Rathbone Brothers Plc Report and accounts 2008 Business review continued Investment Management continued Unit Trusts w e i v e r s s e n i s u B 2 1 Underlying operating expenses for 2008 were £72.1million, compared to £69.2 million in 2007, an increase of 4.2%. This largely reﬂects inﬂationary salary increases and new ofﬁce costs offset by lower performance related rewards. Full time equivalent headcount was 438 at 31 December 2008 compared to 405 at 31 December 2007. The proportion of variable staff costs to proﬁt before tax was 33.7% in 2008 (2007: 34.9%) reﬂecting the fact that investment managers are largely incentivised based on a share of proﬁt before tax as well as other schemes which are aimed at maintaining and growing the value of funds they manage. Whilst the recruitment of investment managers will generally result in a decrease in operating margins until they have attracted sufﬁcient funds to cover their employment costs, the impact for 2008 has not been signiﬁcant. Other operating expenses include property, depreciation, settlement, IT, ﬁnance and other central support services costs. These are largely ﬁxed and were 47.7% of total operating expenses in 2008 (2007: 46.8%). The recent arrangements put in place by the Financial Services Compensation Scheme (‘FSCS’) to protect the depositors of Bradford & Bingley and other failed deposit- taking institutions will result in a signiﬁcant increase in the levies made by the FSCS on the industry. Rathbones has recorded a provision of £1.4 million in respect of its share of the estimated cost of FSCS borrowings; this additional charge is expected to be billed as part of the 2008/09 and 2009/10 levy years. Further levy charges are likely to be incurred in future years although the ultimate cost remains uncertain. Outlook In spite of recent market conditions, the business remains strong and continues to beneﬁt from solid growth. Rathbones’ reputation as one of the leading providers of discretionary investment management services to private investors, charities and trustees remains an important asset. Whilst 2009 will undoubtedly be a challenging year, our long-term investment approach together with our ongoing investment in efﬁciency and other distribution sources will see the business well-placed to grow and take advantage of opportunities that may arise from the general market instability. We will continue to seek to attract new investment managers to join Rathbones with their clients. We will also continue to look for acquisitions which will enhance the overall quality of our business and take advantage of our operational efﬁciency and ability to service both small and large clients. Table 7. Key performance indicators for Unit Trusts Funds under management at 31 December Underlying rate of net growth in funds under management 2008 2007 £1.03bn £1.89bn (12.2)% 9.1% Business environment The retail asset management sector had a very difﬁcult year in 2008 with some high proﬁle names ﬁnding life very difﬁcult as a result of the fall out effects of market turmoil. As reported by the Investment Management Association industrywide outﬂows were circa 17% of industry funds under management in the year and typical of an industry that can be volatile in a downturn as intermediaries rebalance client portfolios and institutional monies move to safer havens. Table 8. Unit Trusts – funds under management As at 1 January Net (outﬂows)/inﬂows – inﬂows1 – outﬂows1 Market adjustment2 As at 31 December 2008 £bn 1.89 (0.23) 0.15 (0.38) (0.63) 1.03 Underlying rate of net growth3 (12.2)% 1 Valued at the date of transfer in/out 2 Impact of market movements and relative performance 3 Net inﬂows as a % of opening funds under management 2007 £bn 1.86 0.17 0.52 (0.35) (0.14) 1.89 9.1% Funds managed fell 45.5% in 2008 from £1.89 billion to £1.03 billion as adverse market movements combined with total net redemptions of £234 million. These effects not only reﬂect the general market turbulence, but also our market positioning, which has historically been largely focused on an income fund sector which has been generally out of favour during 2008. The performance of the largest fund (the Rathbone Income Fund) was disappointing, slipping into the fourth quartile over one year and three years and the third quartile over ﬁve years. This reﬂects a concentration in small and mid cap stocks, which have suffered in recent times. Progress has been made in adjusting the composition of this fund. Rathbone Brothers Plc Report and accounts 2008 Relationships “We do not sell products – we offer a service. For us, that is an important distinction. “We strongly believe that clients value having direct access to the person who is managing their investments. “We aim to build long-term relationships with individuals, their families and advisers.” w e i v e r s s e n i s u B 3 1 Rathbone Brothers Plc Report and accounts 2008 The Boardroom in Rathbones’ Edinburgh ofﬁce. Business review continued Unit Trusts continued Table 11. Units Trusts – operating expenses Staff costs1 – ﬁxed – variable Total staff costs1 Other operating expenses Operating expenses Cost/income ratio 2008 £m 2.8 3.4 6.2 3.9 2007 £m 2.8 4.4 7.2 4.7 10.1 80.8% 11.9 63.3% 1 Represents the costs of investment managers and teams directly involved in investment or distribution activities Fixed staff costs of £2.8 million for the year ended 2008 were consistent with 2007. Full time equivalent headcount was 27 at 31 December 2008 compared to 31 at 31 December 2007. The ratio of variable staff costs to proﬁt before tax was 141.7% in 2008 (2007: 63.8%) largely reﬂecting the way in which costs of the proﬁt share schemes for this business are accounted for. As costs of three year bonus schemes are required to be spread over the employee service period, the effect has been to distort 2008 performance with costs which were derived from higher proﬁt levels in previous years. The following table demonstrates the effect this has had. Table 12. Units Trusts – variable staff costs Total variable staff costs Deferred proﬁt share adjustment Variable staff costs excluding deferred proﬁt share Variable staff costs excluding deferred proﬁt share as a % of proﬁt before tax and total variable staff costs Outlook 2008 £m 3.4 (1.7) 1.7 2007 £m 4.4 1.5 5.9 29.3% 52.2% 2008 has been a difﬁcult year for the unit trust business and actions are already underway to maximise proﬁtability. We expect investor conﬁdence to remain brittle although we will place considerable focus on improving fund performance whilst maintaining continuity of service and contact with advisers and distribution platforms, which should facilitate a recovery of new business levels when markets improve in the medium term. w e i v e r s s e n i s u B 4 1 Table 9. Units Trusts – fund details Ethical Bond Fund Global Opportunities Fund Income Fund High Income Fund Income and Growth Fund Smaller Companies Fund Special Situations Fund Other Morningstar Fund Stars 2 4 4 N/A 4 3 2 N/A 31 Dec 2008 £m 36 52 544 16 34 24 54 269 31 Dec 2007 £m 46 60 1,112 25 54 47 164 379 Total 1,029 1,887 Actions are underway to reduce the cost base of the business and improve future investment performance. Financial performance Table 10. Unit Trusts – ﬁnancial performance Initial charges net of discounts Annual management charges Net dealing proﬁts Interest and other income Initial commission payable Rebates and trail commission payable Net operating income Operating expenses Proﬁt before tax 2008 £m 0.9 17.7 0.5 1.3 20.4 (0.1) (7.8) 12.5 (10.1) 2.4 2007 £m 1.0 26.1 1.7 1.5 30.3 (0.4) (11.1) 18.8 (11.9) 6.9 Operating % margin1 19.2% 36.7% 1 Unit trust proﬁt before tax divided by net operating income The 32.2% reduction in annual management charges from £26.1million in 2007 to £17.7 million in 2008 is almost entirely reﬂective of the reduction in funds under management. Average funds under management in 2008 decreased by 28.6% from £2.1 billion to £1.5 billion. Annual management charges as a percentage of average funds under management remained consistent at 1.2% (2007: 1.2%). Rebates and trail commission payable as a percentage of annual management charge income were 44.1% compared to 42.5% in 2007. Managers’ box dealing proﬁts constituted 4.0% of net operating income in the year (2007: 9.0%) largely as a consequence of fund and market movements. Net operating income as a percentage of average funds under management was 0.8% in 2008 compared to 0.9% in 2007. Rathbone Brothers Plc Report and accounts 2008 Independence “Rathbones is an independent, listed company. “This independent status is key to our philosophy. “The Rathbone Investment Process guides investment managers’ decision- making, but their judgement and expertise, along with their knowledge of their clients’ individual requirements, remain paramount. “We are not restricted on what investment products and assets we select for clients and look across the market at the full universe of opportunities, including funds and alternative investments.” w e i v e r s s e n i s u B 5 1 Rathbone Brothers Plc Report and accounts 2008 Rathbones sponsored two boats at Cowes, summer 2008. w e i v e r s s e n i s u B 6 1 Business review continued Trust and Tax (continuing operations) Table 13. Key performance indicators for Trust and Tax Operating % margin1 2008 % 11.1 2007 % 2.0 1 Trust and tax proﬁt before tax from continuing operations divided by trust and tax net operating income (see Table 15) Business environment Following discussions with the management of the respective offshore trust businesses, Rathbones reviewed the most appropriate ownership structure for these businesses in light of the changing focus of regulators and ﬁscal authorities. This review resulted in the sale of our offshore trust business in Jersey on 15 October 2008 to Hawksford Holdings Limited for £28.5 million, consisting of a cash consideration of £23.5 million and deferred consideration of unsecured subordinated loan notes with an initial issue value of £5 million. The loan notes will be repaid on the earlier of a future sale or listing of the Jersey trust business. The sale of the Geneva business to its management was completed on 10 February 2009 and it is anticipated that the sale of the Singapore and British Virgin Islands businesses will be completed in the ﬁrst half of 2009. The resulting impairment charges recognised in the results for 2008, arising from the disposal of these businesses, is shown in the table below. Table 14. Impairment loss on disposals As at 31 Dec 2008 Planned disposals – Singapore – Geneva – BVI Completed disposal – Jersey Total related professional costs Value of consideration £’000 Carrying value £’000 Impairment £’000 48 (16) 186 1,249 190 330 1,201 206 144 1,551 10,678 451 12,680 The continuing business is now concentrated wholly in the UK and it is closely aligned with our core discretionary investment management business so as to beneﬁt from available synergies within the UK client base. Our continuing operations comprise: • the UK trust business which provides advice on tax planning, including wills and inheritance tax, family ofﬁce services and trust and estate administration; and Rathbone Brothers Plc Report and accounts 2008 • the taxation services business which prepares tax returns for individuals and trusts, provides income and capital tax planning services as well as the ability to assist with tax investigations. Both of these businesses have performed satisfactorily in 2008 with considerable focus being placed on managing increasingly complex regulation for clients as well as improving administration processes. Table 15. Trust and Tax – ﬁnancial performance Net operating income Operating expenses Proﬁt before tax from continuing operations Discontinued operations Proﬁt before tax 2008 £m 5.4 (4.8) 0.6 2.2 2.8 2007 £m 5.1 (5.0) 0.1 4.9 5.0 Operating % margin1 11.1% 2.0% 1 Trust and tax proﬁt before tax from continuing operations divided by net operating income Operating income increased by 5.9% from £5.1million in 2007 to £5.4 million in 2008. Changes in inheritance tax legislation for trusts in the 2006 Finance Act drove increased activity levels and fees in the ﬁrst half of 2008 as restructuring of accumulation and maintenance trusts and life interest trusts had to be completed before April 2008. Table 16. Trust and Tax – operating expenses Staff costs1 – ﬁxed – variable Total staff costs1 Other operating expenses Operating expenses 2008 £m 2.7 0.4 3.1 1.7 4.8 2007 (restated) £m 3.0 0.4 3.4 1.6 5.0 Cost/income ratio 88.9% 98.0% 1 Represents the costs of fee earning staff and teams involved in client facing activities Fixed staff costs of £2.7 million for 2008 reduced by 10.0% due to lower headcount. Full time equivalent headcount was 44 at 31 December 2008 compared to 49 at 31 December 2007. Other operating expenses represent property, depreciation, settlement costs, fees, IT and other support costs which are largely ﬁxed and were 35.4% of total operating expenses in 2008 (2007: 32.0%). Outlook In the UK, proposed changes in legislation for 2009 appear benign in terms of capital taxation but other changes in personal taxation may result in an increase in activity for private clients. We will continue to seek opportunities to grow the business on a selective basis in 2009. Tax The effective tax rate for the year is 31.5% (2007: 30.0%), calculated as the total tax charge on continuing operations of £13.5 million (2007: £14.2 million) divided by the proﬁt before income tax on continuing operations of £42.8 million (2007: £47.3 million). The effective rate of tax in 2008 is higher than the composite UK standard rate of 28.5% due principally to the effect of disallowable expenditure, a fall in the expected deduction for share based payments and the release of certain deferred tax assets held in prior years. Rathbones has adopted the standardised approach to calculating its Pillar I credit risk component and the basic indicator approach to calculating its operational risk component. Rathbones is well capitalised and does not rely on the wholesale market to fund its operations. Whilst susceptible to market conditions, future earnings are protected somewhat by variable rewards being closely linked to proﬁt before tax. It is estimated that Rathbone Investment Management would in theory be proﬁtable should it be faced with a scenario that the FTSE Index remain at a level around 2500 for a sustained period. w e i v e r s s e n i s u B 7 1 A full reconciliation of income tax expense is included in note 11 to the consolidated accounts. Rathbones’ Pillar III disclosure is given on our website at www.rathbones.com. Dividend Treasury and ﬁnancing An interim dividend of 16p per share was paid to shareholders on 8 October 2008 and the Board is recommending a ﬁnal dividend of 26.0p, resulting in a total payment of 42.0p (2007: 41.0p). This dividend is covered 1.1 times by reported basic earnings per share and 1.7 times by underlying earnings per share. Capital A summary of the capital position for the Group at 31 December 2008 is shown in the table below. Table 17. Regulatory capital 31 Dec 2008 £m Tier 1 capital resources Share capital Share premium Other reserves (excluding available for sale reserve) Retained earnings1 Deduction for intangibles Total Tier 1 capital Tier 2 capital resources Upper Tier 2 – available for sale reserve – deduction – material holdings Total Tier 2 capital resources Total Tier 1 and Tier 2 capital resources after deductions Total capital requirement Surplus of capital resources over capital requirement 1 Excluding £2.2 million in Rathbone Insurance Limited 2.1 29.0 32.6 116.6 (68.2) 112.1 2.1 (0.9) 1.2 113.3 63.7 49.6 Rathbone Investment Management holds most of the Group’s surplus liquidity on its balance sheet and this includes clients’ cash that it holds in its capacity as a deposit taker, which is authorised and regulated by the Financial Services Authority. The treasury department of Rathbone Investment Management, reporting through the banking committee to the Board, operates in accordance with procedures set out in an approved treasury manual and monitors exposure to market, credit and liquidity risk, as set out in note 31 to the consolidated ﬁnancial statements. The turmoil in the credit markets has resulted in a considerable amount of activity for the banking committee which has continued to manage the Group’s counterparty risk. Our banking licence allows our treasury department to make use of a range of appropriate instruments issued by a relatively wide number of counterparties. Counterparties must be A rated or higher by Fitch and are regularly reviewed to prevent ratings being out of date. As liquidity in client portfolios rose to £1.1 billion (2007: £1.0 billion) during 2008 and credit markets tightened considerably, we worked hard to set appropriate exposure limits and monitor counterparty quality throughout the year to keep within our conservative treasury policy, which recognises the fundamental importance of ﬁnancial stability and continuity to our clients. No losses have been incurred on treasury counterparty exposures. As a net provider of liquidity to the banking markets Rathbones does not rely on wholesale funding to ﬁnance its operations and does not anticipate that this will change. External borrowings are limited to a term loan facility of £9.2 million at 31 December 2008 from Barclays Bank PLC. An amount of £3.1 million was repaid during the year. The balance is repayable in six-monthly equal instalments ending on 4 April 2011. Rathbone Brothers Plc Report and accounts 2008 Business review continued Cash ﬂow Operations and resources As Group fee income is largely debited directly from client portfolios, Rathbones operates with modest working capital. Larger cash ﬂows are principally generated from the Group’s banking/treasury operations. Excluding these cash ﬂows, the most signiﬁcant non-operating cash ﬂows during the year were as follows: w e i v e r s s e n i s u B 8 1 • Cash outﬂows relating to the payment of dividends of £17.5 million. • £11.3 million of capital expenditure. • Net cash inﬂows of £16.3 million on the disposal of the Jersey trust business. Pensions Rathbones operates two deﬁned beneﬁt schemes (both of which are closed to new members) and a deﬁned contribution pension scheme. At 31 December 2008, the combined accounting deﬁcit for the two deﬁned beneﬁt schemes totalled £5.7 million (2007: £6.5 million). Details of the assumptions supporting the accounting valuation are included in note 28 to the accounts on page 91. The Board recognises that the calculation of the pension deﬁcit is subjective. International Accounting Standards require that pension liabilities be discounted based upon a 15 year AA rated corporate bond rate. In 2008, credit spreads on corporate bonds were artiﬁcially high. Following completion of the triennial review of the Rathbones 1987 Scheme in 2008, and after taking into account the sensitivity of the valuation to discount rate changes shown in note 28 to the ﬁnancial statements, the Board has approved a schedule of contributions of £22.0 million for the next eight years to fund the scheme deﬁcit. During the year, the Group made contributions of £2.3 million into the Rathbone 1987 Scheme. A triennial valuation of the Laurence Keen Scheme as at 31 December 2008 is planned for 2009. Rathbones’ Information Technology department has continued to provide a robust operations infrastructure. Our integrated core systems, comprising 3i’s core Rhymesight processing engine, the internally developed Rathbone Investment Desk and Equipos’ STR client reporting package, operated very successfully during the year. 2008 also saw us complete our planned transition to a Microsoft desktop. There have been a large number of different developments in our investment systems and our business support systems to drive forward our business and its efﬁciency. Some of the more signiﬁcant examples have been: • signiﬁcant enhancements to the intermediary and client website; • an improved data repository for electronic copies of valuations and reports, allowing easy access and e-mail functionality; • introduction of market leading contribution analysis and attribution software to support existing sophisticated performance software; • regulation-driven upgrades eg PEP to ISA migrations, capital gains tax, Budget and VAT changes; • further developments to electronic workﬂow for account opening and account amendment, allowing smooth handling of record levels of business; and • launch of a branded ‘white label’ service for an intermediary, covering documentation, reporting and client website. We have also completed a full migration of our unit trust outsourcing contract to IFDS and HSBC successfully moving the business platform to our own core Rhymesight/RID investment platform with new direct electronic links to HSBC. Rathbones’ particular strength is that we offer bespoke solutions with different approaches for different client needs through various approaches. In addition we do not aim to generate ‘index’ returns over short periods but look to provide longer-term wealth management. From an investment perspective, this means that we need to provide a full range of assets to our clients including traditional equities and bonds, fund of hedge funds, structured products and investment into areas such as commodities, private equity and property funds when appropriate. This requires greater operational capabilities. In the latter part of 2008, for example, we adapted a number of operational processes to ensure that higher volumes of gilt and treasury bill orders could be settled efﬁciently. Rathbone Brothers Plc Report and accounts 2008 Stability “Rathbones is a long-established, leading investment manager that has built a strong reputation for quality and permanence. “We value our people and are committed to developing their skills. “Our high staff retention gives clients conﬁdence that the individuals at Rathbones they know and trust will remain with us for years to come. “Many of our client relationships are with several members of one family and may have lasted for a number of generations.” w e i v e r s s e n i s u B 9 1 Rathbone Brothers Plc Report and accounts 2008 Rathbones’ Bristol ofﬁce in Queen Square. Business review continued w e i v e r s s e n i s u B 0 2 Operations and resources continued This year we achieved our best ever CREST and overseas settlement rates, and will continue to invest in our core processes to secure future efﬁciencies. In 2009 we expect to begin a two year development of a comprehensive client documentation and relationship management solution, review our key market data providers following the recent decision of Global Topic to withdraw from the market, upgrade our Microsoft Ofﬁce suite to Ofﬁce 2007 and invest in our Sun accounting systems. This year has seen a major refurbishment project in our Port of Liverpool Building premises (part of a World Heritage Site) resulting in a number of operational difﬁculties which we have worked hard to overcome. The majority of the project is now complete although some work will inevitably continue into 2009. Rental rates are ﬁxed at attractive levels until 2013. In London we have now agreed to terms which align leases on our 159 and 161 New Bond Street premises. Fit out work in our new Exeter and Birmingham ofﬁces has been completed and we have relocated to an attractive new ofﬁce in Bristol. We will continue to work hard to secure optimal use of space as part of our overall plans to manage costs carefully. Risks and uncertainties The principal risks and uncertainties that face Rathbones are: Financial risks The principal ﬁnancial risks that the Group faces, together with the policies and procedures for the monitoring and management of those risks, are set out in note 31 to the consolidated ﬁnancial statements. Non-ﬁnancial risks The signiﬁcant non-ﬁnancial risks that face Rathbones are: Competition risk Rathbones operates in a competitive market and therefore there is a risk of loss of existing clients or failure to gain new clients due to poor performance or service, failure to respond to changes and demands in the marketplace, inadequate investment in marketing or distribution, or the loss of key investment professionals. To mitigate this risk, we continue to invest in the people and resources required to ensure the Rathbone Investment Process remains robust, ﬂexible and capable of meeting a variety of needs. The business continuously monitors developments in the marketplaces in which it operates and the Group invests in enhancing or broadening the services offered where we believe it will contribute to growth in earnings. Investment is maintained in the marketing and operational resource to continue to develop distribution channels for all parts of the business. Recruitment policies stress the importance of recruiting high quality staff and, through regular benchmarking, we ensure that remuneration packages remain appropriate. Staff training and development is supported by the employment of a dedicated training manager and contracts of employment for all fee earning staff are reviewed regularly and updated when necessary. Reputational risk Rathbones has a reputation as a high quality provider of investment management and wealth management services. There is a risk that signiﬁcant damage to reputation could lead to the loss of existing clients and failure to gain new clients, which would lead to ﬁnancial loss. Reputational risk could arise for many reasons including poor performance or service, and regulatory censure leading to negative publicity. This risk is mitigated by preserving and building on our established culture of seeking the highest possible professional and ethical standards, and fostering a strategic focus, throughout the business, on the provision of a ﬁrst class service to our clients. The Group also places signiﬁcant emphasis on compliance with all relevant regulation and statutes, in particular the Training and Competence regime of the Financial Services Authority and the principle of Treating Clients Fairly. This is monitored by internal auditors as well as the Group’s compliance department. Regulatory risk The ﬁnancial services sector in which we operate is heavily regulated. Failure to comply with regulatory requirements could lead to ﬁnes or other disciplinary action. There is also a risk that changes in, or additional, regulation could adversely affect proﬁtability. We monitor regulatory changes, assess the impact any changes may have on our business and plan to ensure we have sufﬁcient resource to implement those changes. Rathbone Brothers Plc Report and accounts 2008 Focus w e i v e r s s e n i s u B 1 2 “We are focused on providing high-quality, personalised investment management and wealth management services to private clients, charities and trustees. “Over 30,000 clients entrust their assets to Rathbones because they know we have their interests at heart and have grown our business around their needs. “We work hard to provide a consistent service cost-effectively for transparent, standardised fee rates. “While investment management services continue to account for over 85% of our income, we also offer additional wealth management services where clients require them. These often increase the strength of client relationships.” Rathbone Brothers Plc Report and accounts 2008 Rathbones’ Winchester ofﬁce. Business review continued w e i v e r s s e n i s u B 2 2 Risks and uncertainties continued Technology risk The continuing delivery of high quality services to clients is to a large extent dependent on a robust and ﬂexible IT infrastructure. Failure of IT strategy or implementation would have an adverse impact on the business. IT infrastructure is given a high priority. There are a number of business led IT-focused steering committees in place but overall responsibility for strategy rests with the Group IT Steering Committee, chaired by a main board director. IT projects are reviewed by the Group committee on a monthly basis and formal documented procedures exist for approving IT changes or developments. In the UK, we have duplicate core systems in our London and Liverpool ofﬁces that can be accessed from disaster recovery sites in Leatherhead and Warrington. Operational risk Operational risk arises from the risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. The Group has implemented policies and procedures, designed to minimise these risks, that are communicated to staff and other third parties. The Group also regularly monitors the performance of its controls and adherence to these guidelines through the Risk Management Committee. Key components of the Group control environment include modelling of operational risk exposure and scenario testing, management review of activities, documentation of policies and procedures, contingency planning and embedding systems and controls within our key processes. Group risk The Group will continue to grow in line with its acquisitive strategy. Where Group entities fail to consider the impact of their activities on other parts of the Group, or the risks arising from these activities, there may be a potentially adverse impact on the Group’s proﬁtability. In addition to reputational risk, discussed above, there are two other components of group risk: Strategic This is the risk that the Group’s strategy is inappropriate or that the Group is unable to implement its strategy. Management stretch Management stretch is the risk that business growth might cause the management structure to become overly complex or existing management resource might not be sufﬁcient to cope with growth, undermining accountability and control within the Group, and making the identiﬁcation, analysis and control of risks more complex. The Executive Committee, which consists of ﬁve executive directors, retains close day-to-day contact with key management throughout the Group’s entities and ensures that activities are appropriately coordinated and controlled in accordance with the Group’s strategy. A clear, hierarchical monitoring and governance structure is in place to provide effective oversight throughout the Group and to provide a transparent mechanism for the escalation of issues. Rathbone Brothers Plc Report and accounts 2008 Operational excellence w e i v e r s s e n i s u B 3 2 “We believe that high-quality administration underpins successful long-term client relationships. “Private clients are frequently family groups of two or more (sometimes considerably more) and their investment assets will encompass a wide range of structures. “In order to meet the needs of diverse investment strategies and structures there is a growing range of options in the investment universe that we must support. These include fund of hedge funds, structured products and investment into areas such as commodities, private equity and property funds when appropriate. “Meeting client expectations efﬁciently at a reasonable cost to the client remains a challenge and one in which we continue to invest.” Rathbone Brothers Plc Report and accounts 2008 Rathbones’ operations department is housed in one of the ‘Three Graces’ on Liverpool’s waterfront, a World Heritage site. Directors 1 s r o t c e r i D 4 2 2 4 6 8 3 5 7 9 Rathbone Brothers Plc Report and accounts 2008 3 Ian Buckley* 7 Peter Pearson Lund s r o t c e r i D 5 2 Peter Pearson Lund, aged 61, is the director responsible for Rathbones’ unit trust business and is chief executive of Rathbone Unit Trust Management Limited. He was appointed to the Board in January 2005. Before joining Rathbones, Peter worked for Gartmore for 14 years where he was a group director and managing director of Gartmore Fund Managers, the unit trust division. Peter joined Rathbones in 1999 when the Group decided to develop its unit trust activities and promote them externally. 8 Richard Smeeton Richard Smeeton, aged 44, has, as his principal responsibility, the management of the Group’s investment management business in London and Jersey. He also manages a large number of client portfolios. Having trained with County Bank, he joined Laurence Keen in 1988 prior to its acquisition by Rathbones in 1995. He was appointed to the Board in November 2000. He chairs the Group’s Alternative Asset Committee. 9 Paul Stockton* Paul Stockton, aged 43, is the ﬁnance director. He qualiﬁed as a chartered accountant with PricewaterhouseCoopers in 1992. In 1999 he joined Old Mutual Plc as group ﬁnancial controller, becoming director of ﬁnance in 2001 and ﬁnance director of Gerrard Limited eight months later. Following the sale of Gerrard to Barclays in 2003, he left in 2005 and has since worked for Euroclear in Brussels and as a division ﬁnance director of the Pearl Group. He joined Rathbones in August 2008 and was appointed to the Board on 24 September 2008. * Members of the Executive Committee Ian Buckley, aged 58, is chief executive of the Group’s trust and tax business and the director responsible for its pensions and advisory business. He is also chairman of the Group’s IT Steering Committee and the director responsible for marketing. He qualiﬁed as a chartered accountant with Peat, Marwick, Mitchell & Co. (now KPMG) in 1975. He was chief executive of Smith & Williamson for ten years from 1985 to 1995, and subsequently chief executive of EFG Private Bank Limited and Tenon Group Plc. He was appointed to the Board in December 2001. He is the senior independent director of NXT Plc. 4 Paul Chavasse* Paul Chavasse, aged 44, is the chief operating ofﬁcer responsible for the Group’s investment operations, IT infrastructure and facilities. He started his career working for the institutional fund management arm of NatWest, which was later merged with Gartmore. After a period in the private client businesses of NatWest and Coutts, his ﬁnal role before joining the Group in 2001 was as head of NatWest Portfolio Management in Bristol. He was appointed to the Board in September 2001. 5 Richard Lanyon* Richard Lanyon, aged 57, is the director responsible for Rathbones’ investment management business. Initially with Laurence Prust, he moved to Framlington Group Plc in 1986 where he was the Board member responsible for pension funds. Richard joined the Group in 1992 to concentrate on private client discretionary investment management and was appointed to the Board in March 1996. 6 Andrew Morris Andrew Morris, aged 44, is the director responsible for Rathbones’ investment management business in Liverpool, Edinburgh, Kendal and Birmingham. He also manages a large number of client portfolios. He has spent his entire working career at Rathbones in private client investment management and was appointed to the Board in November 2000. He is chairman of the Group’s Training and Competence Committee. Chairman 1 Mark Powell Mark Powell, aged 63, is the chairman with principal responsibility for the strategy of the Group. He moved to a non-executive role with effect from 1 January 2008 and is not considered to be independent for the purposes of the Combined Code. He has been involved in investment management for private clients throughout his career. From 1968 to 1989 he worked in what became Credit Lyonnais Securities and was chief executive of CL-Alexanders Laing & Cruickshank Holdings. In 1989 he joined Laurence Keen as chief executive and was appointed to the Rathbones’ Board as managing director of the Group following its acquisition in March 1995. He was appointed as chairman in May 2003. He is also non-executive chairman of SVM Active Fund Plc. He is a former chairman of the Association of Private Client Investment Managers & Stockbrokers (APCIMS) and a member of the Takeover Panel. He is chairman of the Nomination Committee. Executive directors 2 Andy Pomfret* Andy Pomfret, aged 48, is the chief executive. He is chairman of the Executive Committee which manages the day-to-day affairs of the Group and of the Group’s Social and Environmental Committee. He qualiﬁed as a chartered accountant with Peat, Marwick, Mitchell & Co. (now KPMG). Prior to joining Rathbones in July 1999, he spent over 13 years with Kleinwort Benson (now Dresdner Kleinwort) as a corporate ﬁnancier, venture capitalist and latterly ﬁnance director of the investment management and private banking division. He was appointed to the Board in August 1999 and became chief executive in October 2004. He is also the senior independent director of Beazley Group plc and a director of the Association of Private Client Investment Managers & Stockbrokers (APCIMS). Rathbone Brothers Plc Report and accounts 2008 Directors continued s r o t c e r i D 6 2 1 Non-executive directors 4 Oliver Corbett Oliver Corbett, aged 44, is group ﬁnance director of Novae Group plc. He is a chartered accountant and worked for SG Warburg, Phoenix Securities (later Donaldson Lufkin Jenrette) and Dresdner Kleinwort Wasserstein (now Dresdner Kleinwort), where he was managing director, emerging companies, before joining Novae Group (formerly SVB Holdings PLC) in October 2003. He was appointed to the Board in March 2006 and is considered to be independent. He was appointed as chairman of the Audit Committee on the retirement of Giles Coode-Adams on 22 December 2008. 5 John May John May, aged 53, has been an executive director at Caledonia Investments plc since 2003. He has over 30 years’ experience in advising, managing and investing in listed and unlisted companies, including more than 20 years with the Hambros Group, where he was joint managing director of Hambro Countrywide Plc and an executive director of Hambros Bank, and subsequently with his own private equity investment and consultancy business. He was appointed to the Board in December 2007. He is a director of a major shareholder, Caledonia Investments plc, and it is recognised that he is not considered to be independent for the purposes of the Combined Code. 6 Mark Robertshaw Mark Robertshaw, aged 40, is chief executive ofﬁcer of The Morgan Crucible Company plc. Prior to joining Morgan Crucible in 2004 he was chief ﬁnancial ofﬁcer of Gartmore Investment Management Plc for four years. He previously worked for the NatWest Group and also spent nine years as a management consultant with Marakon Associates. He was appointed to the Board in March 2006 and is considered to be independent. 2 3 4 5 6 1 David Harrel David Harrel, aged 60, was one of the founding partners of S J Berwin LLP in 1982, and was made senior partner in 1992. He relinquished this role in 2006 and is now a consultant to the ﬁrm. David has a variety of other appointments: he is a non-executive director of Wichford Plc and chairman of The Kyte Group Limited, a member of the Board of the English National Opera and a trustee of the Clore Dufﬁeld and John Aspinall Foundations. He was appointed to the Board in December 2007 and is considered to be independent. He was appointed as the senior independent director on the retirement of Giles Coode-Adams on 22 December 2008. 2 James Barclay James Barclay, aged 63, has many years’ experience in the ﬁnancial services and banking sector. As chairman and chief executive of Cater Allen Holdings Plc, he was responsible for creating a market leader that was ultimately sold to Abbey National in 1998. Currently, he is non-executive chairman of M&G Equity Investment Trust PLC and a director of Thos. Agnew’s and Sons Limited, a leading West End international art dealer. In 2000 he was appointed as an adviser to the UK Debt Management Ofﬁce and was chairman of its audit committee for four years. He was appointed to the Board in November 2003 and is considered to be independent. 3 Caroline Burton Caroline Burton, aged 59, is a highly experienced ﬁgure within the asset management industry. She spent 26 years with Guardian Royal Exchange Plc where she was executive director in charge of investments from 1990 until 1999. She was also a director of The Scottish Metropolitan Property Plc until June 2000 and was a member of the service authority for the National Crime Squad and National Criminal Intelligence Service until March 2006. She is a non-executive director of TR Property Investment Trust Plc. She was appointed to the Board in November 2003 and is considered to be independent. She is chairman of the Remuneration Committee. Rathbone Brothers Plc Report and accounts 2008 Governance Contents Directors’ report Corporate governance report Remuneration report Audit committee report Nomination committee report Corporate responsibility report Directors’ responsibilities 28 32 37 46 48 49 58 Rathbone Brothers Plc Report and accounts 2008 e c n a n r e v o G 7 2 Directors’ report Group activities Rathbone Brothers Plc is the parent company of a group of companies which offers a range of investment management services and related professional advice to private individuals, trustees, charities, pension funds and the professional advisers of these clients. The Group also provides ﬁnancial planning, private banking, offshore fund management and trust administration services. The Group’s principal activity is discretionary investment management for private clients, carried out by Rathbone Investment Management Limited from ten ofﬁces in the UK and by Rathbone Investment Management (C.I.) Limited (which trades as Rathbone Investment Management International) in Jersey. Rathbone Investment Management Limited is authorised and regulated by the Financial Services Authority and provides private banking services. The company also offers an ethical investment service (Rathbone Greenbank Investments) and is the investment adviser to ﬁve venture capital trusts. In addition, the Rathbone Group continues to provide some advisory stockbroking services. Rathbones manages nine authorised unit trusts through Rathbone Unit Trust Management Limited and is the Authorised Corporate Director of four Open Ended Investment Companies (OEICs). Rathbone Trust Company Limited provides a wide range of trust, company management and taxation services in the UK. Regarding Rathbone Trust International, the business in Jersey was sold on 15 October 2008 whilst agreement was reached regarding the sale of the Singapore business on 30 January 2009. A non-binding heads of terms agreement was also signed on that day in respect of the BVI business. The sale of the offshore trust business in Geneva was completed on 10 February 2009. Rathbone Pension & Advisory Services Limited offers a pension advice service, SIPP administration and other ﬁnancial planning services. Business review A full review of the Group’s business activities are set out in the Business review on pages 10 to 22. Information about environmental, employee and social and community issues are set out in the Corporate responsibility report on pages 49 to 57. t r o p e r ’ s r o t c e r i D 8 2 Post balance sheet events Details of events after the balance sheet date are set out in note 36 to the accounts on page 112 . Group results and Company dividends The Group proﬁt after taxation for the year ended 31 December 2008 was £19,000,000 (2007: £37,380,000). The directors recommend a ﬁnal dividend of 26.0p (2007: 25.0p) payable on 13 May 2009 to shareholders on the register on 17 April 2009 and this, together with the interim dividend of 16.0p (2007: 16.0p), results in total dividends of 42.0p (2007: 41.0p) per ordinary share for the year. These dividends amount to £17,984,000 (2007: £17,479,000) – see note 13 on page 80 . Capital structure The Company’s share capital is comprised of one class of ordinary shares of 5p each. At 31 December 2008, 42,858,196 shares were in issue (2007: 42,689,942). The shares carry no rights to ﬁxed income and each share carries the right to one vote at general meetings. All shares are fully paid. There are no speciﬁc restrictions on the size of a shareholding or on the transfer of shares, which are both covered by the provisions of the Articles of Association and prevailing legislation. The Board currently has the authority to allot 14.0 million shares (approximately 33% of the issued share capital at 5 March 2008). Following a recommendation from the Rights Issue Review Group, the Association of British Insurers’ recommended ceiling on Annual General Meeting share allotment authorities was increased from one third of a company’s issued share capital to two thirds for fully pre-emptive rights issues of shares in guidance issued in December 2008. In view of this change, a resolution seeking this additional authority will be proposed at the AGM. Rathbone Brothers Plc Report and accounts 2008 Regarding the appointment and replacement of directors, the Company is governed by the Company’s Articles of Association, the Combined Code, the Companies Acts and related legislation. Amendment of the Articles of Association requires a special resolution of shareholders. Directors and their interests The directors at the year end and who served during the year, and their interests in the share capital of the Company are shown in Table 1. There were no changes between 31 December 2008 and 3 March 2009. Details of directors’ share options are shown in Table 5 on page 42. Table 1. Directors’ shareholdings Number of 5p ordinary shares at 1 January 2008* Number of 5p ordinary shares at 31 December 2008 Beneﬁcial Non-beneﬁcial Beneﬁcial Non-beneﬁcial 309,167 12,500 302,350 12,500 29,014 20,394 229,900 48,609 11,007 61,565 122,823 – 2,130 2,130 533 – – 1,533 – – – – – – – – – – – – – – 31,055 40,865 211,505 41,523 11,612 68,443 115,928 – 2,674 2,674 1,008 8 1,480 2,008 t r o p e r ’ s r o t c e r i D 9 2 – – – – – – – – – – – – – – Chairman G M Powell Executive I M Buckley P D G Chavasse R P Lanyon A T Morris P G Pearson Lund A D Pomfret R I Smeeton R P Stockton Non-executive J C Barclay C M Burton O R P Corbett D T D Harrel J M May M Robertshaw * or date of appointment if later Executive directors The directors with executive responsibilities are Andy Pomfret, Ian Buckley, Paul Chavasse, Richard Lanyon, Andrew Morris, Peter Pearson Lund, Richard Smeeton and Paul Stockton (who was appointed to the Board on 24 September 2008). Their biographies are on pages 24 and 25. Non-executive directors The directors with non-executive responsibilities are Mark Powell, James Barclay, Caroline Burton, Oliver Corbett, David Harrel, John May and Mark Robertshaw. Their biographies are on page 26. The senior independent director, Giles Coode-Adams, retired from the Board on 22 December 2008. Following his retirement, David Harrel was appointed as the senior independent director and any comment or enquiry regarding the affairs of the Company may be addressed to him. The Board considers that, with the exception of Mark Powell and John May, all non-executive directors are independent. Retirement and re-appointment of directors Oliver Corbett and Mark Robertshaw retire by rotation at the next Annual General Meeting and, being eligible, offer themselves for re-election. Rathbone Brothers Plc Report and accounts 2008 Directors’ report continued Substantial shareholdings t r o p e r ’ s r o t c e r i D 0 3 At 2 March 2009, the Company had received notiﬁcations in accordance with the Financial Services Authority’s Disclosure and Transparency Rule 5.1.2 of the following interests of 3% or more in the issued ordinary share capital of the Company. Table 2. Substantial shareholdings at 2 March 2009 Notiﬁer Date of notiﬁcation Direct Indirect Direct Indirect Number of shares (and voting rights) % of voting rights AEGON UK Group of Companies 27 Nov 2008 2,005,287 213,983 4.68% BlackRock Inc. 21 Jan 2009 – 4,301,428 Caledonia Investments plc 5 Feb 2007 4,562,000 Legal & General Group Plc 23 Jan 2009 1,700,574 – – Lloyds Banking Group plc 14 Mar 2007 1,347,780 130,032 Prudential plc 24 Apr 2008 1,293,836 Royal Bank of Scotland plc as Trustee of the Merrill Lynch UK Special Situations Fund 2 Oct 2007 1,290,701 – – – 10.79% 3.96% 3.19% 3.02% 3.02% 0.50% 10.03% – – 0.31% – – Political and charitable donations No contributions were made for political purposes during the year (2007: nil). Details of the Company’s charitable donations can be found in the Corporate responsibility report on page 57. Employees Details of the Company’s employment practices, its policy regarding the employment of disabled persons and its employee involvement practices can be found in the Corporate responsibility report on pages 55 to 56. Employee share schemes A settlement created in 2000 between Rathbone Brothers Plc and Investec Trust (Guernsey) Limited holds ordinary shares in the Company for subsequent transfer to directors receiving Long Term Incentive Plan awards. The trustee does not exercise voting rights and has waived all dividends payable. At 31 December 2008, the trust held 47,193 shares. Shares are also held by Equiniti Share Plan Trustees Limited and by Lloyds TSB Offshore Trustees Limited as trustees of the Rathbone Brothers Plc UK and International Share Incentive Plans (SIPs). Voting rights are only exercised on receipt of instructions from the beneﬁcial employee shareowner. Policy on the payment of creditors Rathbones does not follow a published code or standard on payment practice. Its policy is to ﬁx terms of payment with each supplier in accordance with its requirements and ﬁnancial procedures. Rathbones ensures that suppliers are aware of those terms and abides by them subject to the resolution of any disagreement regarding the supply. In the majority of cases, the terms agreed with suppliers are for payment within 30 days of their invoice date. Trade creditors of the UK subsidiaries at 31 December 2008 represented 30 days of annual purchases (2007: 27 days). The Company itself has no trade creditors. Financial instruments and risk management The risk management objectives and policies of the Group are set out in note 31 to the accounts on pages 97 to 109. Rathbone Brothers Plc Report and accounts 2008 Indemniﬁcation of directors On 6 April 2005 changes to company law came into effect which allowed companies to indemnify its directors and ofﬁcers against any liability incurred by them to any person (other than the company or associated company) in connection with any negligence, default, breach of duty or breach of trust (but not criminal ﬁnes or regulatory penalties) in respect of that company, associated company, pension fund or share scheme. The legislation also permitted the funding of defence costs (which are repayable if the case is lost). At the AGM on 2 May 2007, shareholders approved changes to the Company’s Memorandum and Articles of Association to reﬂect these provisions. Speciﬁc indemnities, which are uncapped, have been granted to all directors and the company secretary by way of deed. Share price The mid market price of the Company’s shares at 31 December 2008 was £8.335 (2007: £10.50) and the range during the year was £6.965 to £11.34 (2007: £10.29 to £14.20). Auditors The Audit Committee reviews the appointment of the external auditors and their relationship with the Group, including monitoring the Group’s use of the auditors for non-audit services. Note 9 to the ﬁnancial statements sets out details of the auditors’ remuneration. Having reviewed the independence and effectiveness of the external auditors, the Audit Committee has recommended to the Board that the existing auditors, PricewaterhouseCoopers LLP, be reappointed. PricewaterhouseCoopers LLP have indicated their willingness to continue in ofﬁce and ordinary resolutions reappointing them as auditors and authorising the directors to set their remuneration will be proposed at the 2009 AGM. t r o p e r ’ s r o t c e r i D 1 3 The directors in ofﬁce at the date of signing of this report conﬁrm that there is no relevant audit information of which the auditors are unaware and that each director has taken all reasonable steps to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. Annual General Meeting The 2009 Annual General Meeting will be held on Thursday 7 May 2009 at 12.00 noon at 159 New Bond Street, London, W1S 2UD. The notice of the meeting is on pages 124 to 129 with details of the resolutions proposed and explanatory notes. Special business The resolutions proposed include an ordinary resolution classiﬁed by the Articles of Association as non-routine special business to renew the existing authority to the directors to allot up to 14 million shares (with an aggregate nominal amount of up to £700,000). As explained earlier, this authority is being extended, giving the directors the authority to allot up to a further 14 million shares for fully pre-emptive rights issues of shares. The Board are also seeking to renew, by special resolution, the existing authorities to waive pre-emption rights and to make market purchases of ordinary shares under certain stringent conditions (both subject to limits). It is anticipated that all directors, including the chairmen of the Audit, Remuneration and Nomination Committees, will be at the AGM and available to answer questions. By Order of the Board Richard Loader Company secretary 3 March 2009 Registered Ofﬁce: 159 New Bond Street London W1S 2UD Rathbone Brothers Plc Report and accounts 2008 Corporate governance report Corporate governance report t r o p e r e c n a n r e v o g e t a r o p r o C 2 3 In relation to compliance with the Combined Code this report together with the Directors’ report states the position at 3 March 2009. The Combined Code compliance statement The revised Combined Code on Corporate Governance (‘the Code’) was issued in June 2006 by the Financial Reporting Council (‘FRC’) and applies for reporting periods beginning on or after 1 November 2006. Explanations of how the Code principles and supporting principles have been applied are set out in the Governance sections of the report and accounts. The directors believe the Company was in compliance with Section 1 of the Code throughout the year with the following two exceptions: Independence of the chairman on appointment The chairman did not, on appointment, meet the independence criteria set out in the Code since he had been an employee and executive director of the Company since 1995. Composition of the Board There are currently 15 directors, of which ﬁve (33%) are independent non-executive directors. The Code requires that at least half the board, excluding the chairman, should be independent non-executive directors. The number of senior practitioners from within the operating subsidiaries on the Board does result in a sizeable number of executive directors, making the achievement of the Code target difﬁcult. Board meetings The Board meets a minimum of seven times per annum with one meeting devoted entirely to strategic issues. In months where no formal Board meeting is scheduled, an informal meeting of the non-executive directors and the chairman and chief executive is held. The non-executive directors have informal meetings without the chairman or chief executive present. Board membership The Board currently consists of a non-executive chairman, eight executive directors and six other non-executive directors. The roles of chairman, Mark Powell, and chief executive, Andy Pomfret, are separated and are clearly deﬁned in writing and agreed by the Board. The chairman is primarily responsible for the working of the Board and the chief executive for the running of the business and implementation of Board strategy and policy. The Board considers that ﬁve of the seven non-executive directors are independent, the exceptions being Mark Powell (as explained above) and John May, who is a director of a major shareholder, Caledonia Investments plc. The non-executive directors participate fully with their executive colleagues in Board meetings and have access to any information they need to perform their duties. They bring an independent judgement to bear on Group policies and strategies as well as management actions and performance, including resourcing and standards of conduct. The senior independent non-executive director is now David Harrel (following the retirement from the board of Giles Coode-Adams on 22 December 2008). The senior independent director is available to shareholders if they have concerns that they would rather not address to the chairman or executive directors or which remain unresolved after an approach through the normal channels. The Board has a formal schedule of matters reserved for its attention, which covers key areas of the Group’s business. These include determination of the Group’s aims and the strategy to be adopted in achieving those aims, reviews of budgets and ﬁnancial statements, company acquisitions and disposals, major capital expenditure and the review of decisions taken by the boards of subsidiary companies. Rathbone Brothers Plc Report and accounts 2008 Board performance The Board, Audit and Remuneration Committees carry out appraisals of their operation and performance on an annual basis. In 2008, an internal questionnaire was used. This was developed and executed with assistance from Lintstock Limited, a London based corporate advisory ﬁrm. The results were discussed by the full Board and an action plan agreed. Areas for Board focus identiﬁed included the greater use of short, written executive director reports in Board packs and increased Board exposure to senior staff via a programme of presentations on key business issues. Individual appraisal of each director’s performance is undertaken either by the chief executive (for the executive directors) or chairman (for the non-executive directors) each year and involves meetings with each director on a one-to-one basis. The non- executive directors, led by the senior independent director, carry out an appraisal of the performance of the chairman. Board training t r o p e r e c n a n r e v o g e t a r o p r o C 3 3 Rathbones is committed to the training and development of all staff to ensure professional standards are maintained and enhanced. All directors are required to dedicate a certain number of hours to their own development – internally established standards for this exceed regulatory requirements. Training and development would include activities to keep up to date with Rathbones’ speciﬁc issues and industry, market and regulatory changes. New directors are involved in a thorough induction process designed to enable them to become quickly familiar with the business. This includes meeting staff in a number of key business areas, attendance at routine meetings and demonstrations of systems and key business processes. Board Committees The four principal Board Committees are the Executive, Audit, Remuneration and Nomination Committees. The Board has delegated full authority to the Executive Committee, subject to a list of matters which are reserved for decision by the full Board. The other Board Committees have formal terms of reference, which are reviewed and approved by the Board on an annual basis. These are available on request from the Company’s registered ofﬁce and on the Company website. Executive Committee The Executive Committee is chaired by the chief executive, Andy Pomfret, and comprises Ian Buckley, Paul Chavasse, Richard Lanyon and Paul Stockton (who joined the Committee on his appointment to the Board on 24 September 2008). The purpose of the Executive Committee is to monitor every aspect of the Group businesses on a continuing basis and to analyse and plan all business proposals in detail for submission to and consideration by the Board. The Executive Committee meets monthly and more frequently when required. Audit Committee Current members of the Audit Committee are Oliver Corbett (chairman), James Barclay, Caroline Burton, David Harrel and Mark Robertshaw. Details of its work are set out in the Audit Committee report. Remuneration Committee Current members of the Remuneration Committee are Caroline Burton (chairman), James Barclay, Oliver Corbett, David Harrel and Mark Robertshaw. Full details of its role are set out in the Remuneration report. Nomination Committee Current members of the Nomination Committee are Mark Powell (chairman), James Barclay, Caroline Burton, Oliver Corbett, David Harrel, Andy Pomfret and Mark Robertshaw. Full details of its role are set out in the Nomination Committee report. Rathbone Brothers Plc Report and accounts 2008 Corporate governance report continued Conﬂicts of interest With effect from 1 October 2008, a director has a duty under the Companies Act 2006 (‘the Act’) to avoid a situation where he has, or can have, a direct or indirect interest that conﬂicts or possibly may conﬂict with the Company’s interests. The Act allows the Board to authorise a director’s conﬂict or potential conﬂict of interest where the Articles of Association contain a provision to this effect and also allows the Articles of Association to contain other provisions for dealing with directors’ conﬂicts of interest to avoid a breach of duty. Shareholders approved the necessary changes to the Company’s Articles of Association (with effect from 1 October 2008) at the AGM on 7 May 2008. There are safeguards which apply when directors decide whether to authorise a conﬂict or potential conﬂict. Only independent directors (those who have no interest in the matter being considered) are able to take the relevant decision, and in taking the decision the directors must act in a way which they consider, in good faith, will be most likely to promote the Company’s success. The directors are also able to impose limits or conditions when giving authorisation. A register of actual or potential conﬂicts notiﬁed and authorised is maintained and reviewed regularly by the Board. Other Board issues t r o p e r e c n a n r e v o g e t a r o p r o C 4 3 The Company has appropriate insurance cover in place in respect of legal action against its directors. Any director has access to the advice and services of the company secretary and may seek independent professional advice, if necessary, at the Company’s expense. The company secretary is responsible to the Board for ensuring Board procedures are followed and compliance with rules and regulations applicable to the Company. Any removal or appointment of the company secretary is decided by the Board. Table 1. Board meeting and committee attendance in 2008 Plc Board* Executive Committee* Audit Committee Remuneration Committee* Nomination Committee J C Barclay I M Buckley C M Burton P D G Chavasse J G S Coode-Adams O R P Corbett D T D Harrel R P Lanyon J M May A T Morris P G Pearson Lund A D Pomfret G M Powell M Robertshaw R I Smeeton R P Stockton 7/7 7/7 6/7 7/7 6/7 6/7 6/7 6/7 7/7 7/7 7/7 7/7 7/7 6/7 7/7 3/3 – 11/12 – 11/12 – – – 11/12 – – – 11/12 – – – 3/3 5/6 – 5/6 – 6/6 6/6 6/6 – – – – – – 4/6 – – 4/4 – 4/4 – 4/4 4/4 4/4 – – – – – – 3/4 – – 1/2 – 1/2 – 2/2 1/2 1/2 – – – – 1/2 2/2 1/2 – – * This table only shows details of attendance at meetings in the pre-arranged annual meeting calender. Other ad-hoc meetings were held during the year. Rathbone Brothers Plc Report and accounts 2008 Shareholder relations The Company is committed to ensuring that there is effective communication with all shareholders. All regulatory news announcements, press releases and ﬁnancial reports are available on the Company website. Following the publication of the interim and full year results, presentations are given to major shareholders, fund managers, analysts and employees. The presentation packs used and any web-casts are also on the website. Meetings with major shareholders provide an opportunity to discuss governance and strategy issues and to introduce other directors including non-executive directors. Feedback from these meetings is reported to the Board. All shareholders have the opportunity to meet non-executive directors at the AGM. At least 20 business days’ notice of the AGM is given to allow time for proper consideration of the resolutions by shareholders. Separate resolutions are proposed for each substantially separate issue. Every effort is made to ensure that all Board members, and in particular committee chairmen, are at the meeting. The Board welcomes questions and comments from shareholders. Votes are taken on a show of hands (unless a poll is requested) and full details of proxy voting ﬁgures are disclosed after the vote and on the website. t r o p e r e c n a n r e v o g e t a r o p r o C 5 3 Risk management and internal control The Board of directors has overall responsibility for the Group’s systems of internal control. However, such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The chairman ensures that Board members receive sufﬁcient and timely information regarding corporate and business issues to enable them to discharge their duties and canvasses the views of non-executive directors upon the adequacy of the management information. The Risk Management Committee reports to the Board and comprises members of the Executive Committee together with the Group heads of personnel, compliance and internal audit. This committee is an important element in the Group’s overall control system and undertakes a review of risk within the Group at its quarterly meetings. It reports on a regular basis to the Board both on the identiﬁcation of risks and the steps being taken to control or mitigate such risks. Risk review procedures have been in place throughout the year and up to 3 March 2009. The other key elements of the Group’s overall control systems include: • a formal structure of committees and subsidiary company boards where senior staff oversee the operation of the business on a regular basis; • an annual budgeting, regular forecasting and monthly ﬁnancial reporting system for all Group divisions, which enables trends to be evaluated and variances to be acted upon; • an internal capital adequacy assessment process (ICAAP) required by FSA prudential rules which requires regular assessments of the amounts, types and distribution of capital that the Group considers adequate to cover the nature and level of the risks to which it is or might be exposed; • a deﬁned set of policies and procedures for treasury operations with limits set by the Banking Committee; • a conﬁdential reporting policy, which encourages employees to raise serious concerns about a colleague’s or Group company’s practice; and • the Audit Committee which, on the Board’s behalf, examines the effectiveness of the systems of control as explained below. On behalf of the Board, the Audit Committee conﬁrms that it has reviewed the effectiveness of the systems of internal control in existence in the Group for the year ended 31 December 2008 and has taken account of material developments since the year end. Necessary actions have been or are being taken to remedy any signiﬁcant failings or weaknesses identiﬁed from that review. This process meets the requirements of the ‘Guidance on Internal Control (The Turnbull Guidance)’ published in September 1999 and revised in October 2005. Rathbone Brothers Plc Report and accounts 2008 Corporate governance report continued Going concern The directors conﬁrm that they are satisﬁed that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. The Group is well capitalised, very lowly geared and does not rely on the wholesale market to fund its operations. As explained on page 17, at 31 December 2008 it had surplus regulatory capital of £49.6 million. Regulation Rathbone Investment Management Limited, Rathbone Stockbrokers Limited, Rathbone Unit Trust Management Limited and Rathbone Pension & Advisory Services Limited are all authorised and regulated by the Financial Services Authority. Rathbone Investment Management Limited is registered as an investment adviser with the US Securities and Exchange Commission. Rathbone Investment Management (C.I.) Limited is regulated by the Jersey Financial Services Commission. Rathbone Insurance Limited is regulated by the Guernsey Financial Services Commission. Rathbone Bank (BVI) Limited is regulated by the BVI Financial Services Commission. Rathbone Stockbrokers Limited is a member ﬁrm of the London Stock Exchange. Rathbone Trust Company SA is a member ﬁrm of the Association Romande des Intermédiaries Financiers. Rathbone Trust (Singapore) Pte. Limited is regulated by the Monetary Authority of Singapore. The Board together with the Executive Committee and the Audit Committee have implemented systems and procedures to achieve adherence to the statutes and regulations relevant to each of the Group companies. t r o p e r e c n a n r e v o g e t a r o p r o C 6 3 Model Code The Company has its own internal dealing rules which extend the Financial Services Authority Listing Rules Model Code provisions to all employees. Rathbone Brothers Plc Report and accounts 2008 Remuneration report The Board presents the Remuneration report for the year ended 31 December 2008. Remuneration policy for executive directors The aim of the remuneration policy is to provide a competitive remuneration package, having regard to comparable companies in the ﬁnancial sector, which is sufﬁcient to attract and retain the quality of director needed to manage and develop the Company successfully. The stated policy shall apply in 2009 and, subject to review, in subsequent ﬁnancial years. Remuneration packages Remuneration packages are designed to include ﬁxed and variable elements, and to provide rewards for both the long and short term as follows: Fixed Variable Short term Long term Basic salary and beneﬁts Proﬁt share Pension Long Term Incentive Plan The Remuneration Committee (the Committee) considers that the key objectives of a remuneration package are to motivate directors to generate long-term shareholder value and to increase short-term proﬁtability. The ﬁrst objective is met by long-term incentive plan (LTIP) awards, providing directors with the opportunity to build a meaningful shareholding in the Company, subject to meeting stretching performance targets. Executive directors are actively encouraged to build up and maintain a shareholding to the equivalent value of at least one year’s salary within ﬁve years of their appointment to the Board. The second objective is met by proﬁt share payments. The Committee does not speciﬁcally take into account corporate performance on environmental, social and governance issues when considering the remuneration of executive directors but it is satisﬁed that the incentive structure does not increase risks in these areas by inadvertently motivating irresponsible behaviour. In the light of current economic circumstances, the Committee has considered remuneration arrangements and the risk/ reward proﬁle that these present at executive director level, and are comfortable that these arrangements remain appropriate. t r o p e r n o i t a r e n u m e R 7 3 Basic salary and beneﬁts An executive director’s basic salary is determined by the Committee and any change implemented on 1 January of each year or when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers salaries throughout the Group as a whole and the information obtained on comparable companies in the ﬁnancial sector. In view of the difﬁcult trading conditions experienced towards the end of 2008, directors’ basic salaries were not increased on 1 January 2009. Total board salary and fee costs were broadly unchanged in the year. When setting salary levels, use is made of survey data and information provided by the advisers to the Committee. The views of the chairman and chief executive are also taken into consideration in respect of other Board positions. All directors are entitled to take part in the Share Incentive Plan (SIP) on the same terms as all other employees. This allows all employees to purchase shares in the Company and currently these are matched on a one-for-one basis by the Company. Performance related SIP shares are also offered to employees if there is year on year EPS growth over the rate of inﬂation. In addition Rathbones provides a range of beneﬁts, the most signiﬁcant of which is a company car (or cash alternative). From January 2008 the provision of cars is being phased out. Proﬁt share Certain executive directors on the Executive Committee are eligible for a discretionary proﬁt share payment from a pool based on approximately 1% of Group proﬁt before tax. In 2008, proﬁts for proﬁt sharing purposes were adjusted to exclude the loss recognised on remeasurement of assets of the disposal group of £12.7 million (see note 12). The Committee considered that executive directors’ proﬁt share should be based on the results of the continuing business and that they should not be penalised by the one-off impact of the implementation of this strategic decision initiated by the Board to create longer term shareholder value. Directors with direct responsibility for investment management, unit trust or trust and tax departments receive a proﬁt share payment based on the proﬁts of the department concerned. This may be supplemented by a payment from the pool. Proﬁt share payments are not capped and are not pensionable. Details of payments for 2008 are shown in Table 1. Rathbone Brothers Plc Report and accounts 2008 Remuneration report continued Proﬁt share continued In 2008, the proﬁt share payable to members of the Executive Committee totalled £380,000, 0.89% of continuing Group pre-tax proﬁt (2007: £498,000, 1.05%). Total proﬁt share for all executive directors was £1,182,000 , 2.76 % of continuing Group pre-tax proﬁts (2007: £2,030,500, 4.29%). From 2009 onwards, payments will also be made to the head of the Investment Management division, Richard Lanyon, from an increased central Executive Committee pool, replacing the payment from the Investment Management division. The pool will be based on a total of between 1.0% and 2.5% of Group pre-tax proﬁts at the discretion of the Remuneration Committee, having regard to the contributions of individual participants and the external circumstances in which the Company has operated. It is anticipated that in a typical year the payment would normally be 1.75% of Group proﬁts. Table 1. Directors’ remuneration (audited information) t r o p e r n o i t a r e n u m e R 8 3 Chairman G M Powell Executive A D Pomfret (chief executive) I M Buckley P D G Chavasse R P Lanyon A T Morris P G Pearson Lund R I Smeeton R P Stockton Non-executive J C Barclay C M Burton J G S Coode-Adams O R P Corbett D T D Harrel J M May M Robertshaw Former executive directors Former non-executive directors Payments in lieu of pension contri- butions £’000 Salary or fee1 £’000 Proﬁt sharing £’000 Beneﬁts2 £’000 2008 total £’000 2007 total £’000 2008 Pension contri- butions3 £’000 2007 Pension contri- butions3 £’000 165 348 213 232 232 182 191 213 63 35 40 40 35 35 35 35 – – 2,094 – – – – – – 4 – – – – – – – – – – – 4 – 1 166 415 200 62 100 241 115 182 232 50 – – – – – – – – – 1 1 1 1 17 1 1 – – – – – – – – – – 549 276 333 474 314 378 446 113 35 40 40 35 35 35 35 – – 504 253 329 454 310 1,039 431 – 30 35 35 30 3 3 30 210 58 – 37 24 – – – – – 8 – – – – – – – – – – 32 21 – – – – – – – – – – – – – – – 1,182 24 3,304 4,169 69 53 1 Reviewed annually on 1 January 2 Beneﬁts include the provision of a company car and medical insurance 3 During the year, retirement beneﬁts accrued under money purchase schemes in relation to three directors (2007: two) Long Term Incentive Plan (LTIP) At an Extraordinary General Meeting in November 2000, a long-term incentive plan (LTIP) was approved by shareholders to start in 2001. No awards from the current plan will be made after November 2010. Executive directors are provisionally awarded rights to acquire ordinary shares at the start of a three-year plan cycle (the provisional award). The maximum value of a provisional award is 75% of a participant’s basic salary. At the end of each plan cycle, the Company’s performance is assessed against the performance targets for that cycle. The extent to which the targets have been achieved determines the actual number of shares (if any) attributable to each participant (the actual award). The performance targets used to date have been a mixture of growth in earnings per share (EPS) and total shareholder return (TSR). TSR is a measure of the overall return to shareholders. It reﬂects both the change in the share price and dividends, and any other cash payments made, assuming that they are reinvested. Rathbone Brothers Plc Report and accounts 2008 Long Term Incentive Plan (LTIP) continued If a participant ceases to be employed as an executive director by reason of retirement at normal retirement age (or earlier with the Company’s consent), ill-health, redundancy or death, or any other circumstances which the Committee deems to be appropriate, the Committee may, at its discretion, recommend to the trustee that any distribution be based on the performance during the plan cycle as a whole but that the actual award be reduced pro rata to reﬂect the fact that the participant was not an executive director for the whole plan cycle. Prior to the 2005/07 plan, absolute measures were used. The performance targets for the 2005/07 plan onwards were changed, replacing the absolute TSR target with a relative TSR target comparing TSR performance to the FTSE All Share Index. The use of a peer group rather than a broad index was ruled out due to the small number of similar businesses in the speciality and other ﬁnance sector, and the risk that numbers would fall still further due to consolidation. The Committee consider that the current targets are as demanding as those put in place for earlier cycles were considered to be at the time. On 31 December 2007, the trustee held 74,794 Rathbone Brothers Plc ordinary shares. On 12 March 2008, 27,601 shares were awarded to 2005/07 Plan participants. 47,193 shares were held as at 31 December 2008. Dividend entitlements in respect of this holding have been waived and voting rights will not be exercised. 2006/08 plan cycle Basic EPS, adjusted to exclude the loss recognised on remeasurement of assets of the disposal group of £12.7 million (see note 12), increased from 60.13p in 2005 to 74.11p in 2008, an increase of 23.25% which triggered a 52.5% award for this element of the plan. The TSR for the three-year period was -7.35%, which ranked the Company at the 68th percentile relative to the constituents of the FTSE All Share Index, triggering a 72.4% award from this element of the Plan. Details of the actual awards to be made in March 2009 are shown in Table 4. The Committee may recommend that a proportion of an award may be paid in cash rather than shares, primarily to enable the director to meet the income tax and national insurance payable. t r o p e r n o i t a r e n u m e R 9 3 2007/09, 2008/10 and 2009/11 plan cycles Details of the provisional awards for the 2007/09, 2008/10 and 2009/11 plan cycles are also set out in Table 4. Were the maximum possible provisional awards to be made in shares to current and former directors, 354,142 ordinary shares (2007: 331,245) would be awarded, representing 0.8% (2007: 0.8%) of the issued share capital at 31 December 2008. Chart 1. Total Shareholder Return (TSR) over the last ﬁve ﬁnancial years % R S T 90 80 70 60 50 40 30 20 10 0 31 Dec 2003 31 Dec 2004 31 Dec 2005 31 Dec 2006 31 Dec 2007 31 Dec 2008 Rathbone Brothers Plc – Total Shareholder Return FTSE All Share – Total Shareholder Return Source: Datastream Chart 1 shows the Company’s TSR against the FTSE All Share Index. TSR is calculated assuming that dividends are reinvested on receipt. The FTSE All Share Index has been selected as a comparator as it is a suitably broad market index and has been used as a performance comparator for LTIP plan cycles since 2005/07. Rathbone Brothers Plc Report and accounts 2008 Remuneration report continued Long Term Incentive Plan (LTIP) continued Long term incentive arrangements for Peter Pearson Lund Following his appointment to the Board, Peter Pearson Lund has continued to participate in the Rathbone Unit Trust Management Limited (RUTM) deferred proﬁt sharing plan rather than the LTIP. A deferred proﬁt sharing pool is allocated to participants on the recommendation of a RUTM Plan Committee. Allocations are held in trust and invested on behalf of participants. The release of an award is conditional on continued employment (unless the participant is a ‘good’ leaver). Funds are released in two equal tranches two and three years after the period end. Table 2. Awards held by Peter Pearson Lund under the RUTM Deferred Bonus Plan (audited information) Year of award 2004 2005 2006 2007 2008 Total Awards outstanding at 1 January 2008 (£value on award) 59,592 218,675 317,317 462,557 – Award made in 2008 (£value on award) – – – – 191,950 Awards vesting in 2008 (£value on award) (£value on funds released) Awards outstanding at 31 December 2008 (£value on award) 59,592 109,337 – – – 69,535 120,757 – – – – 109,338 317,317 462,557 191,950 1,058,141 191,950 168,929 190,292 1,081,162 Table 3. LTIP performance targets (2005/07 and subsequent plans) t r o p e r n o i t a r e n u m e R 0 4 Release dates 2007/08 2008/09 2009/10 2010/11 2011/12 % of award 50% 50% Shares distributed as % of shares provisionally awarded in the TSR part 0% Straight line increase 100% Shares distributed as % of shares provisionally awarded in the EPS part 0% 25% Straight line increase 100% a TSR over the plan cycle b EPS growth over the plan cycle a TSR TSR ranking relative to the constituents of the FTSE All Share Index Below the 50th percentile Between the 50th and 75th percentiles At or above the 75th percentile b EPS EPS growth over the plan cycle Less than 15% 15% Over 15% but less than 37.5% 37.5% or greater Rathbone Brothers Plc Report and accounts 2008 t r o p e r n o i t a r e n u m e R 1 4 Long Term Incentive Plan (LTIP) continued Table 4. LTIP actual and provisional awards of ordinary shares (audited information) Plan cycle Status Date of provisional award End of performance period I M Buckley P D G Chavasse R P Lanyon A T Morris A D Pomfret G M Powell R I Smeeton R P Stockton Former directors Total Market value of shares at date of provisional award 2006/08 Actual award 31 December 2005 31 December 2008 8,812 8,568 9,303 7,834 11,996 7,507 7,834 – 8,205 70,059 2007/09 2008/10 Maximum provisional award Maximum provisional award 31 December 2007 31 December 2010 31 December 2006 31 December 2009 11,673 13,179 12,364 10,418 17,259 16,317 10,418 – 12,238 14,825 16,220 16,220 12,697 22,151 – 14,825 11,259 – 2009/11 Maximum provisional award 31 December 2008 31 December 2011 18,905 20,685 20,685 16,192 28,247 – 18,905 18,460 – 103,866 108,197 142,079 £9.56 £11.95 £10.75 £8.43 Notes 1 The provisional LTIP awards listed above are the maximum awards achievable assuming all performance targets are met and that the participant is an executive director for the whole plan cycle. The value of these awards when made was 75% of a participant’s basic salary. The market value of shares at the date of the provisional award is the average mid-market price over the 20 dealing days prior to the start of the plan 2 The provisional LTIP award to Paul Stockton for the 2008/10 plan cycle was made in August 2008 and was reduced pro-rata to reﬂect the fact that he joined Rathbones part way through the plan cycle Share options Historically, share options were granted to senior employees whom it was considered would have a signiﬁcant impact on the earnings and proﬁtability of the Group during the following ﬁve years. The Board is of the view that, following the introduction of International Financial Reporting Standards, share options are increasingly expensive to administer and that there is a mis-match between their cost to the business and their perceived value to employees. In future, option grants will only be made in exceptional circumstances. Options are no longer granted to directors after their appointment to the Board. Options granted prior to 21 June 2004 can be exercised if the earnings per share of the Group during the period from grant to the date of notiﬁcation of exercise has increased in percentage terms by more than the increase in the Retail Price Index (RPI) plus 2% per annum (or pro rata for any part thereof). Options granted after 21 June 2004 can be exercised if the earnings per share of the Group between the accounting period immediately prior to the option grant and the accounting period immediately prior to the third anniversary of grant has increased in percentage terms by more than the increase in the RPI plus 3% per annum (or pro rata for any part thereof). Option grants to a participant in a ten year rolling period are capped at four times remuneration. There is no automatic waiving of performance conditions in the event of a change of control or the early termination of a participant’s employment. Options may not normally be exercised before the third anniversary of the date of grant and expire on the tenth anniversary of grant. Details of outstanding options at the start and end of the year together with details of options exercised during the year are set out in Table 5. The terms and conditions of all options have remained unchanged during the year. Rathbone Brothers Plc Report and accounts 2008 Remuneration report continued Share options continued Table 5. Outstanding share options and movements in the year (audited information) At 1 January 2008* Exercised in 2008 At 31 December Latest 2008 Date of grant exercise date exercise date Earliest Exercise price Exercise date Market value at date of exercise t r o p e r n o i t a r e n u m e R 2 4 Grant prior to Board appointment P D G Chavasse A T Morris P G Pearson Lund P G Pearson Lund P G Pearson Lund P G Pearson Lund P G Pearson Lund R I Smeeton R P Stockton Grant on or after Board appointment P D G Chavasse A T Morris P G Pearson Lund A D Pomfret A D Pomfret 15,491 10,000 8,350 9,966 5,000 10,000 10,000 12,000 30,000 33,334 16,667 10,000 50,000 62,500 15,491 – 25/09/01 25/09/04 25/09/11 665.33p 23/12/08 855.00p 10,000 10/04/00 10/04/03 10/04/10 932.50p 8,350 09/09/99 09/09/02 09/09/09 814.17p 9,966 24/04/01 24/04/04 24/04/11 827.50p 5,000 24/04/02 24/04/05 24/04/12 810.00p 10,000 14/03/03 14/03/06 14/03/13 415.00p 10,000 16/03/04 16/03/07 16/03/14 743.50p 12,000 10/04/00 10/04/03 10/04/10 932.50p 30,000 22/08/08 22/08/11 22/08/18 813.50p 33,334 14/03/03 14/03/06 14/03/13 415.00p 16,667 14/03/03 14/03/06 14/03/13 415.00p 10,000 15/03/05 15/03/08 15/03/15 852.00p 50,000 09/09/99 09/09/02 09/09/09 814.17p 62,500 14/03/03 14/03/06 14/03/13 415.00p * or date of appointment if later. 283,308 15,491 267,817 1 No options lapsed in 2008 or 2007 2 The mid-market closing price of the Company’s shares on 31 December 2008 was £8.335 (2007: £10.50) and the range during the year was £6.965 to £11.34 (2007: £10.29 to £14.20) 3 Options granted to directors in 2003 and 2004 will vest in one-third phases, on the third, fourth and ﬁfth anniversaries of grant (subject to the performance condition being met) Dilution Not more than 15% of the issued ordinary share capital of the Company (adjusted for bonus and rights issues) should be issued for all share incentive schemes operated by the Company in any ten-year period. Of that 15%, not more than 10% applies to shares allotted under share option schemes and not more than 5% to shares allotted under both the LTIP and SIP. In the ten years to 31 December 2008, options over 2,649,537 ordinary shares (2007: 2,775,787) have been granted, which represents 6.2% of the issued share capital at that date (2007: 6.5%). 905,367 ordinary shares (2007: 905,367) have been allotted in respect of the SIP, representing 2.1% of the issued share capital at 31 December 2008 (2007: 2.1%). No shares have been allotted for the LTIP to date with awards satisﬁed by market purchased shares held in trust. Rathbone Brothers Plc Report and accounts 2008 Pension arrangements UK employees who joined Rathbones prior to 1 April 2002 were offered membership of the Rathbone 1987 Pension Scheme (the Scheme). The Scheme provides for members to retire at the age of 60 with a pension based on ﬁnal pensionable salary. Prior to 1 April 2006, the accrual rate was 1/60th for each year of membership. With effect from 1 April 2006, employees were given the choice of either remaining on a 1/60th accrual rate (but increasing their contribution rate from 5% to 6.5% at 1 April 2006 and to 8% from 1 January 2008) or switching to a 1/70th accrual rate for future pensionable service (but continuing to contribute at 5%). Details of the Company’s contributions are set out in note 28 to the accounts. Since1 April 2002, new employees have been offered membership of a Group deﬁned contribution plan, established with Scottish Widows. In the case of certain directors and senior staff, the Group contributes to their personal pension arrangements. Paul Chavasse, Richard Lanyon, Andrew Morris, Peter Pearson Lund and Richard Smeeton are members of the Scheme. Ian Buckley, Peter Pearson Lund, Andy Pomfret and Paul Stockton participate in the Scheme for death in service beneﬁts only. Ian Buckley and Andy Pomfret have arrangements under self-invested personal pension schemes whilst Paul Stockton is a member of the Group deﬁned contribution plan. Rathbones pays annual contributions of 11.5% of salary to those schemes, subject to HM Revenue and Customs maximum limits, where applicable. In the case of Peter Pearson Lund, employer pension contributions and death in service beneﬁts ceased on 31 October 2007. Additional salary payments are now made in lieu with no overall increase in cost to the Company. These are disclosed separately in Table 1. The changes in pension entitlements arising in the ﬁnancial year, required to be disclosed by the UK Listing Authority, are shown in Table 6 . There have been no changes in the terms of directors’ pension entitlements during the year. There are no unfunded pension promises or similar arrangements for directors. Following the introduction of the Government’s simpliﬁcation of the pension taxation regime on 6 April 2006 the Company has taken action, where required, to ensure that the pension arrangements for staff conform to the new regime. Where possible, for all UK employees, death in service cover has been extended to age 65 for those that stay in service beyond age 60. t r o p e r n o i t a r e n u m e R 3 4 Table 6. Directors’ accrued beneﬁts under deﬁned beneﬁt schemes (audited information) Age at 31.12.08 Years Years service at 31.12.08 P D G Chavasse R P Lanyon A T Morris P G Pearson Lund R I Smeeton 44 57 44 61 44 8 17 20 9 20 1 Accrued beneﬁt at 31.12.08 £ 26,333 58,222 55,504 23,244 61,444 2 Increase in accrued beneﬁts excluding inﬂation £ 4,663 6,140 4,064 750 6,471 3 Increase in accrued beneﬁts including inﬂation £ 5,651 8,325 6,147 1,622 8,777 Transfer value of 2 less directors’ contributions £ Transfer value of accrued beneﬁts at 31.12.08 £ Transfer value of accrued beneﬁts at 31.12.07 £ 4 Increase in transfer value less directors’ contributions £ 26,415 206,971 143,840 816,092 119,961 1,036,507 542,270 432,162 413,073 394,504 507,028 384,541 40,458 29,906 48,838 45,131 202,415 95,548 18,569 104,120 During 2008, ﬁve directors (2007: six) accrued beneﬁts under deﬁned beneﬁt schemes Notes 1 The pension entitlement shown above for the ﬁve participating directors is that which would be paid annually on retirement at age 60 based on service to 31 December 2008 (or normal retirement date, if earlier) 2 The additional pension earned in the year excluding UK inﬂation 3 The additional pension earned in the year including UK inﬂation 4 The increase in transfer value represents the additional capital amount less director’s contributions necessary to fund the increase in the accrued pension that a director would take with him as part of the total transfer value if he were to leave the Company and move his beneﬁts to another scheme The directors have the option to take early retirement on or after their 50th birthday, in which case their pension beneﬁts would reduce by 0.5% per month of early retirement or by other actuarially based rates. Pensions will increase at a rate of 5% per annum (or the lesser of 5% per annum or the rise in the Retail Price Index if less for pension entitlement accrued after 1 April 2001 or for pension accrued under the Laurence Keen Scheme and being in excess of the Guaranteed Minimum Pension) after early retirement subject to HM Revenue and Customs limits. There is no undertaking or expectation for any other pension beneﬁt to be arranged for any director by the Company. Rathbone Brothers Plc Report and accounts 2008 Remuneration report continued Service contracts for executive directors The Company has service contracts with its executive directors. It is Company policy that such contracts should not normally contain notice periods of more than 12 months. Details of the contracts of employment of directors serving during the year are as follows: Executive director I M Buckley P D G Chavasse R P Lanyon A T Morris P G Pearson Lund A D Pomfret R I Smeeton R P Stockton Date of contract Notice period 27 November 2003 5 December 2002 10 October 1997 1 July 2003 5 January 2005 1 October 2004 9 March 1995 18 August 2008 6 months 6 months 12 months 6 months 6 months 12 months 6 months 6 months There are no provisions within the contracts to provide automatic payments in excess of payment in lieu of notice upon termination by the Company and no pre-determined compensation package exists in the event of termination of employment. Payment in lieu of notice would include basic salary, pension contributions and beneﬁts. There are no provisions for the payment of liquidated damages or any statements in respect of the duty of mitigation. Compensation payments will be determined on a case-by-case basis in the light of current market practice. Compensation will include loss of salary and other contractual beneﬁts but mitigation will be applied where appropriate. In the event of entering into a termination agreement, the Board will take steps to impose a legal obligation on the director to mitigate the loss incurred. There are no clauses in contracts amending employment terms and conditions on a change of control. Executive directors’ contracts of service, which include details of remuneration, will be available for inspection at the Annual General Meeting. t r o p e r n o i t a r e n u m e R 4 4 Shareholdings New executive directors are encouraged to build up and maintain a shareholding at least equivalent to the value of one year’s basic salary within ﬁve years of taking up their appointment. External appointments Executive directors are encouraged to take on external appointments as non-executive directors, but are discouraged from holding more than one position in a major company. Prior approval of any new appointment is required by the Board with fees generally being payable to the Company. An exception is Ian Buckley, who was appointed to the board of NXT Plc prior to joining Rathbones. In 2008, Ian Buckley received fees of £25,000 from NXT Plc (2007: £25,000). Remuneration Committee The current members of the Remuneration Committee are the independent non-executive directors Caroline Burton (chairman), James Barclay, Oliver Corbett, David Harrel and Mark Robertshaw. Giles Coode-Adams served on the Committee until his retirement from the Board on 22 December 2008. The chairman and chief executive, at the invitation of the Committee, attend the meetings but are not present when their own remuneration is discussed. The Committee had four scheduled meetings in 2008 but also met on a further three occasions giving a total of seven meetings (2007: ﬁve). Details of attendance at meetings are shown on page 34. Rathbone Brothers Plc Report and accounts 2008 Advisers to the Remuneration Committee At a meeting on 19 February 2002, the Remuneration Committee appointed Deloitte & Touche LLP (Deloitte) as advisers to the Committee. Deloitte attend at least one Remuneration Committee meeting per annum and advise on best practice and latest developments in senior executive remuneration. Deloitte also advises the Group on share scheme issues, tax planning and assists on ad hoc internal audit assignments. The appointment is reviewed annually. The Committee is also assisted by the personnel department and by the company secretary. Non-executive directors Non-executive directors do not have contracts of employment but, as with all other directors, are required to stand for election at the Annual General Meeting following their appointment and thereafter every three years. The effectiveness of the non-executive directors is subject to an annual assessment. The executive directors are responsible for determining the fees of the non-executive directors, who do not receive pension or other beneﬁts from the Group and do not participate in any group incentive scheme, other than the SIP. The basic non-executive director fee in 2008 was £35,000 per annum with an additional payment of £5,000 per annum made to the chairmen of the Audit and Remuneration Committees. With effect from 1 January 2009, this additional payment has been increased to £7,500 for the chairman of the Audit Committee. A fee of £5,000 per annum is now payable to the senior independent director where he/she is not chairman of the Audit or Remuneration Committees. Annual General Meeting (AGM) The Committee considers that, taken together, these various remuneration components help to align the interests of directors with those of shareholders and conform to the principles laid down in the revised Combined Code on Corporate Governance published in June 2006 and effective for accounting periods beginning on or after 1 November 2006. The Board will move at the AGM an ordinary resolution seeking approval of the Directors’ Remuneration report for 2008. Notice of the AGM is on pages 124 to 129. t r o p e r n o i t a r e n u m e R 5 4 Approved by the Board on 3 March 2009 and signed on its behalf by Caroline Burton Chairman of the Remuneration Committee Rathbone Brothers Plc Report and accounts 2008 Audit committee report Committee members The current members of the Audit Committee are the independent non-executive directors Oliver Corbett (chairman), James Barclay, Caroline Burton, David Harrel and Mark Robertshaw. Giles Coode-Adams chaired the Committee from 2002 until his retirement from the Board on 22 December 2008. The Board is satisﬁed that at least one member of the Committee has recent and relevant ﬁnancial experience.The chairman is a chartered accountant whilst other members have considerable experience of corporate ﬁnancial matters. The Committee met on six occasions in 2008 (2007: ﬁve). Details of attendance by members are set out on page 34. Role and responsibilities of the Committee These are set out in the terms of reference of the Committee, which are reviewed annually. Financial reporting t r o p e r e e t t i m m o c t i d u A 6 4 The Committee considers: • the signiﬁcant ﬁnancial reporting issues and judgements made in connection with the Company’s ﬁnancial reporting • the Group’s accounting policies and any proposed changes • narrative statements and disclosures, to check that they are reasonable and consistent with the reported results. Internal controls and risk management systems The review of the effectiveness of the Group’s internal ﬁnancial controls is achieved primarily by reviews of the work of the Group internal audit department, reports produced by the compliance functions, the half-year and annual ﬁnancial statements, the scope and ﬁndings of the annual external audit, and periodic reviews with senior management. During 2008, the Committee received a presentation on Data Security in Financial Services following the publication of a report by the Financial Crime and Intelligence Division of the Financial Services Authority. It also considered new Financial Reporting Council Guidance on auditor liability limitation agreements and on audit committees. A separate Risk Management Committee considers risk management issues (see page 35). Internal audit The Group internal audit department reviews Group operations on a continuing basis and the frequency of the reviews is determined by an internal risk-based audit programme which is approved by the Audit Committee. The Audit Committee also regularly reviews the resources and authority of the Group internal audit department. Rathbone Brothers Plc Report and accounts 2008 External audit The Audit Committee is responsible for reviewing external audit arrangements and for any recommendation to the Board regarding the rotation of audit partner or change of audit ﬁrm. This review includes consideration of the external auditor’s period in ofﬁce, their compensation and the scope, quality, and cost-effectiveness of their work. The last review and re-tendering process was undertaken in 2006 which culminated in the appointment at the 2007 AGM of PricewaterhouseCoopers (replacing KPMG). The Audit Committee reviews the independence and the nature of non-audit services supplied and non-audit fee levels relative to the audit fee. Prior approval by the Audit Committee is required where the fee for an individual non-audit service is anticipated to exceed £25,000. Fees for non-audit services paid to the auditors should not, in aggregate, exceed 50% of the audit fee in any year without the prior written approval of the Audit Committee. The Committee recognises that, given their knowledge of the business, there are often advantages in using the auditors to provide certain non-audit services. The Committee is satisﬁed that the independence of the auditors has not been impaired by providing these services. Details of the auditors’ fees are shown in note 9 on page 78. The Committee also reviews the audit engagement letters each year and has discussions with the auditors with no management present. Regarding the 2008 audit, presentations were received from the auditors on audit progress, ﬁndings and recommendations and unadjusted errors. Feedback on the 2007 audit was obtained from Committee members, senior management and members of the ﬁnance, internal audit and compliance teams. Whistleblowing The Audit Committee also approves signiﬁcant changes to the Group’s Public Interest Disclosure Act conﬁdential reporting (or whistleblowing) policy. Other On invitation, the ﬁnance director, other executive directors, compliance ofﬁcers, senior internal audit staff and the external auditors attend meetings to assist the Committee to fulﬁl its duties. The Committee can access independent professional advice if it considers it necessary. The Committee performs an annual review of its performance and this is also reviewed by the Board. t r o p e r e e t t i m m o c t i d u A 7 4 Rathbone Brothers Plc Report and accounts 2008 t r o p e r e e t t i m m o c n o i t a n m o N i 8 4 Nomination committee report Committee members Members of the Nomination Committee are Mark Powell (chairman), James Barclay, Caroline Burton, Oliver Corbett, David Harrel, Andy Pomfret and Mark Robertshaw, who all served on the Committee throughout 2008. Giles Coode-Adams served on the Committee until his retirement from the Board on 22 December 2008. The Committee met formally on two occasions in 2008 (2007: three). Details of attendance by members are set out on page 34. It also had informal discussions on a number of other occasions during the year. Role of the Committee The Committee considers and makes recommendations to the Board for the appointment of directors; the Board as a whole decides upon any such appointment. An external search consultancy and/or open advertising are used when recruiting new directors. When considering possible candidates, the Committee evaluates the skills, knowledge and experience of the candidates and, in the case of non-executive appointments, their other commitments. Regarding the recruitment of a new ﬁnance director, three committee members were closely involved in the process. Six ﬁrms of head-hunters were approached in late 2007 and one ﬁrm appointed. A shortlist of candidates was then produced and after ﬁrst and second interviews a recommendation was made to the Committee that Paul Stockton be appointed. This recommendation was approved by the Committee and, subsequently, the Board. Recognising that having served on the Board for over nine years Giles Coode-Adams was no longer considered independent by the Combined Code, discussions took place regarding his retirement and the appointment of David Harrel as senior independent director and Oliver Corbett as chairman of the Audit Committee. Non-executive committee members are exposed to senior management below Board level during visits to Group ofﬁces, Audit Committee and strategy day presentations, and attendance at Rathbone Investment Management Limited Board meetings. All directors are required to seek election by the members at the AGM following their appointment, and re-election every three years. A non-executive director is not appointed for a ﬁxed term but would not normally serve as a director for more than nine years. The Committee are mindful of the Combined Code requirement that any term beyond six years for a non-executive director should be subject to particularly vigorous review and should take into account the need for progressive refreshing of the Board. Rathbone Brothers Plc Report and accounts 2008 Corporate responsibility report Our social and environmental policy aims to ensure that social, environmental and ethical considerations are taken into account in all aspects of our activities. The Social & Environmental Committee (SEC) oversees the continual development and implementation of the Group’s environmental, social and community policies. Through this work, the SEC is also able to identify and communicate any potential areas of non-ﬁnancial risk. The SEC has responsibility for ongoing development of the social and environmental policy framework, and its implementation, improvement, management and monitoring. The Committee is chaired by the Group’s chief executive; it meets on a quarterly basis and reports to the Board. The implementation of the social and environmental policy is managed on a day-to-day basis by committee members and a network of site-based personnel. During 2008, the SEC appointed Carbon Smart to assist with the collection, veriﬁcation and reporting of carbon footprint data for its UK ofﬁces. The Committee was pleased to see that our efforts in addressing social, environmental and ethical challenges continued to be recognised by the FTSE4Good policy committee, and that the Company remains a constituent of the FTSE4Good Index Series. Socially responsible investment (SRI) We acknowledge that Rathbones’ most signiﬁcant social and environmental impacts arise indirectly as a result of its investment activities. While the primary consideration is to maximise risk-adjusted returns to clients, we recognise that non-ﬁnancial considerations can impact the long-term value of companies. Although general investment activities are not covered by a formal Socially Responsible Investment (SRI) policy, social, environmental and ethical considerations are taken into account for speciﬁc mandates throughout the Group, but particularly by our Bristol-based specialist ethical investment service, Rathbone Greenbank Investments. In 2008, Rathbones participated as a signatory to the Carbon Disclosure Project’s (CDP) sixth request for information from the world’s largest companies about their greenhouse gas emissions, together with the risks and opportunities presented by climate change. Along with other institutional investors, Rathbone Greenbank Investments continues to lend its support to this project, for which the current iteration began in February 2009. In November 2008, Rathbones was a signatory to the ‘Investor Statement on a Global Agreement on Climate Change’ produced by an international coalition of institutional investor groups looking to inﬂuence public policy on climate change and affect decisions on investment. During 2008, the Group continued to implement its policy on proxy voting, which covers all companies in the FTSE 350 and those where it holds 3% or more of the issued share capital (with the exception of Rathbone Brothers Plc). Voting is also undertaken on any company if requested by an underlying shareholder. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 9 4 Environment Policy Rathbones aims to reduce the environmental impact of its operational activities through a reduction in consumption and the conservation of resources. Efﬁcient resource usage to deliver environmental beneﬁts and cost savings will be achieved through using energy and natural resources economically and efﬁciently, and by reducing emissions and waste levels. Where reducing consumption is not a viable option, we aim to utilise materials derived from sustainable or recycled sources. We recognise the need to reduce greenhouse gas emissions and support the UK Government’s commitment to do this. We are demonstrating our commitment to this in our aim to develop systems to monitor energy use, promote more efﬁcient use of energy in all buildings and encourage practices which reduce energy consumption. Rathbone Brothers Plc Report and accounts 2008 Corporate responsibility report continued Environment continued Performance Scope and Boundaries This report provides a summary of Rathbones’ environmental performance between 1 October 2007 and 30 September 2008. This environmental section of this report was prepared with the assistance of external environmental consultants Carbon Smart and approved by Rathbones’ Social and Environmental Committee and by the Board on 3 March 2009. The report covers 92% of Group employees at 31 December 2008. The scope of the data collected covers UK operations only, excluding the new Birmingham ofﬁce (which opened on 21 July 2008) and Kendal ofﬁce due to lack of data availability and relatively small size of these ofﬁces. Data Collection and Calculation Our long-term goal is to obtain information from all Rathbones’ ofﬁces for all environmental indicators on an annual basis and to use the ﬁndings for reviewing and improving the Group’s environmental performance. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 0 5 The collection of good quality data was difﬁcult in certain areas, particularly where utility costs formed part of landlord service charges and where travel destinations were not recorded on expense claims. The data collection process included site visits to London, Bristol and Liverpool, where 90% of employees under the reporting scope are based. Data has been calculated and reported following the World Resources Institute (WRI) Greenhouse Gas (GHG) Protocol – A Corporate and Accounting Standard and the Department for Environment, Food and Rural Affairs (DEFRA) 2008 Guidelines to GHG Conversion Factors (July 2008). We have expressed our carbon footprint in terms of CO2 equivalent1 (CO2e) to accommodate conversion factors used for business travel that include non-CO2 greenhouse gas emissions. Our priority this year has been to improve the quality of the data reported. We have measured our performance in three key areas: carbon footprint, waste and recycling and paper consumption. For the ﬁrst time, we have included emissions from business travel. We have reported our carbon footprint following the World Resources Institute GHG Protocol. Emissions are classiﬁed as follows: Scope 1 – direct emissions from fossil fuels under our direct control (e.g. natural gas, company car fuel) Scope 2 – indirect emissions from purchased electricity Scope 3 – other indirect emissions that we cause but that are not from emission sources that we own (e.g. from our supply chain and air travel) Table 1. Absolute and relative CO2e from Rathbones’ ofﬁces under scope2 Total Per employee CO2e (tonnes) CO2e tonnes per employee Electricity consumption Gas consumption Business travel (air, rail and road3) Waste Paper (stationery and print) 1,999,470 kWh 1,455,655 kWh 2,223,556 km 239 tonnes 89 tonnes 2,840 kWh 2,068 kWh 3,158 km 339 kg N/A Total 1,074 300 469 N/A N/A 1,843 1.5 0.4 0.7 N/A N/A 2.6 1 Carbon dioxide equivalent is a measure used to compare the emissions from various greenhouse gases, such as nitrogen oxides (NOx), based upon their global warming potential. For more information consult the IPCC website, www.ipcc.ch 2 Ofﬁces under scope are: London, Liverpool, Edinburgh, Bristol, Cambridge, Winchester, Chichester and Exeter. Total number of employees as of 31 December 2008: 704. Total ﬂoor area of ofﬁces as of 31 December 2008: 11,061 m2 3 Road travel includes car use including taxis and company cars Rathbone Brothers Plc Report and accounts 2008 Environment continued Chart 1. Carbon footprint by emission source and scope (tonnes CO2e) Scope 1: 17% Natural gas Company cars Scope 2: 58% Electricity Scope 3: 25% Flights Non company cars National rail Taxis Total Tonnes CO2e 300 19 1,074 265 93 87 5 1,843 The majority of our GHG emissions are derived from scope 2 (purchased electricity), followed by scope 1 (natural gas). As is typical of the ﬁnancial services industry, scope 3 business travel-related emissions are relatively signiﬁcant. Scope 1 Natural gas Natural gas consumption amounted to 1,455,655kWh, equivalent to 300 tonnes of CO2e. Gas data was difﬁcult to obtain and the use of industry benchmarks4 was necessary to estimate the consumption for most of the ofﬁces. Company cars The company car ﬂeet includes a mixture of both petrol and diesel vehicles. Total distance travelled during the reported year for business travel purposes amounted to 83,416km, emitting an equivalent of 19 tonnes of CO2e. To reduce our environmental impact, the Group has continued to phase out the provision of company cars. The number of cars fell from 35 at the start of the year to 26 at 31 December 2008. Scope 2 Electricity We have compared our performance against benchmarks (Energy Efﬁciency Best Practice Programme for Energy Use in Ofﬁces5) and identiﬁed those ofﬁces most in need of improvement. We are pleased to see that our London ofﬁce6 shows alignment with the benchmark for good ofﬁces. This is mostly due to energy efﬁciency investment over the past two years. Offices under the reported scope used a total of 1,999,470 kWh, generating emissions equivalent to1,074 tonnes of CO2e. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 1 5 Chart 2. Electricity use by benchmark (kWh/m2) 0 50 100 150 200 250 Rathbone ofﬁce Benchmark typical ofﬁce Benchmark good ofﬁce London Liverpool Other air conditioned standard Rathbone ofﬁces Other naturally ventilated open plan Rathbone ofﬁces Other naturally ventilated cellular Rathbone ofﬁces 4 It was not possible to obtain gas consumption ﬁgures for Liverpool, Cambridge, Bristol (Prince House) and Chichester. Gas consumption was calculated using the ofﬁces ﬂoor area and the kWh/m2 benchmark for a typical ofﬁce (Energy Efﬁciency Best Practice Programme for Energy Use in Ofﬁces – Guide 19) 5 Ofﬁces are classiﬁed into 4 types: air conditioned prestige, air conditioned standard, naturally ventilated open plan and naturally ventilated cellular 6 Classiﬁed as air conditioned standard Rathbone Brothers Plc Report and accounts 2008 t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 2 5 Corporate responsibility report continued Environment continued Objectives for 2009 Electricity usage in ofﬁces with higher than expected consumption (relative to the benchmark) will be reviewed. An environmental action plan will be prepared with a focus on energy efﬁcient technology, habits in the workplace and energy management. Scope 3 Business travel (excluding company cars) This year a full assessment of the Group’s business travel activities was conducted, focusing on ﬂights, rail, taxis and car travel. Travel emissions are dominated by ﬂights. Consequently, our priority for the coming year is to reduce their number. This will include the continued promotion and use of video conferencing. To improve data collection and travel policy adherence we plan to move to a single travel provider. Chart 3. Business travel 2007/08 (tonnes CO2e) Flights Non company cars National rail Taxis Total Tonnes CO2e 265 93 87 5 450 Flights The most frequent journeys were between London and Edinburgh, UK mainland and Jersey, and London and Geneva. Over 77% of ﬂights were UK domestic. We will aim to reduce this over the next 12 months by switching to rail where possible. Following the sale of our offshore trust businesses, the number of overseas ﬂights should decline. Rail National rail accounts for the majority of business travel journeys. We will continue to promote the use of rail travel as the preferred mode of transport between ofﬁces in the UK. We plan to improve the recording of rail journey details in 2009. Taxis and non-company cars The use of taxis and non-company cars may result in signiﬁcant emissions. We plan to monitor staff use of their vehicles for business travel and will continue to encourage the use of public transport where practical. Landﬁll waste and recycling This year we have improved coverage of our waste and recycling reporting to cover all main ofﬁces in the Group. Table 2. Waste and recycling data 2007/08 Paper and cardboard Secure shredding Other materials Total recycling Residual landﬁll waste Total waste Mass collected (kg) Proportion of total Mass/employee (kg) 80,224 67,678 14,118 162,020 76,666 238,686 34% 28% 6% 68% 32% 100% 114 96 20 230 109 339 All ofﬁces have an active recycling programme with high levels of participation that cover at a minimum paper and cardboard. In most ofﬁces shredded paper, glass, plastic bottles and cans are also recycled. Of the 339kg of waste produced per employee per annum, it is estimated that 230kg is recycled. Redundant IT equipment is passed to EOL IT Services (an approved WEEE disposal agent with a zero to landﬁll policy) for re-use or recycling. Wherever possible we continue to recycle ﬂuorescent tubes, batteries, toner cartridges and mobile telephones. Rathbone Brothers Plc Report and accounts 2008 Environment continued Recycling rates for the business have been calculated from supplier provided data, and sampling. Average recycling rate is estimated at 68%, with Liverpool, Cambridge, Winchester and Edinburgh ofﬁces achieving rates of over 74%. Objectives for 2009 Improving overall recycling rate and coverage of recyclable materials will be a target for Rathbones in 2009. The London ofﬁce is investigating the possibility of moving to a ‘zero to landﬁll’ waste management approach with residual waste being taken to a waste to energy plant by specialists Paper Round Ltd. Paper usage From this year we will report paper usage within the Group.This will include stationery paper and paper used for printing. Table 3. Paper usage 100% recycled Some recycled content Virgin stock Total Stationery purchased (tonnes) Printing stock purchased (tonnes) Total (tonnes) 37 – 6 43 32 8 6 46 69 8 12 89 Total paper consumption amounts to 89 tonnes, which is approximately equivalent to 14 million A4 sheets. Paper is an energy and carbon intensive product to produce. We aim, where possible, to reduce usage, purchase recycled paper and to work with our print suppliers to reduce waste in the printing of our reports and brochures. We are pleased that our paper usage is dominated by recycled stock; this represents 78% of our paper consumption by weight. The majority of the stationery paper purchased is Evolve brand. We have chosen this as a 100% recycled product made exclusively from UK post consumer waste. In London our paper recycling waste stream returns to the mills in Kent that produce Evolve paper. Paper usage was unusually high in late 2007 due to the production of new client documentation following the implementation of the Markets in Financial Instruments Directive. We have estimated that our paper consumption this year has caused emissions of 175 tonnes CO2e. However, as no agreed standard currently exists for GHG emissions estimation for paper, we have excluded this from the overall carbon footprint. Objectives for 2009 A paper usage reduction plan will be developed; this will address three themes: • Reduction of paper use in Rathbones’ ofﬁces – better printer management and staff working habits • Reduction of paper documents used for client communication • Improved waste management at our printers Whilst Financial Services Authority rules require the posting of paper valuations to clients at least twice a year, the introduction of on-line client access to information regarding their investment portfolio should reduce the printing of ad-hoc reports. We will also continue to seek cost effective ways to reduce use of virgin stock where possible. Conclusions Rathbones will aim to reduce its carbon footprint over the next few years by, for example, reducing its paper consumption and, where possible, business travel, particularly by air. We will also be investigating the introduction of carbon offset arrangements with a view to making Rathbones carbon neutral. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 3 5 Rathbone Brothers Plc Report and accounts 2008 Corporate responsibility report continued Environment continued Carbon Smart Opinion Statement Carbon Smart has been commissioned by Rathbone Brothers Plc to measure Rathbones’ carbon footprint for selected UK ofﬁces7 for its 2008 Corporate responsibility report. In addition, Carbon Smart has provided Rathbones with guidance with regards to the collection of data and identiﬁcation of practical actions for its Environmental Action Plan. Through this engagement Carbon Smart has assured Rathbones that the reported carbon footprint is representative of the UK business and that the data presented is credible, coherent and compliant with appropriate standards and industry practices. Data has been collected and calculated following the WRI GHG Protocol tools and principles. When assessed against the GHG Protocol principles of completeness, consistency and accuracy, we conclude the following: 7 London, Liverpool, Bristol, Edinburgh, Cambridge, Winchester and Exeter Relevance We have ensured the GHG inventory appropriately reﬂects the GHG emissions of the Company and serves the decision- making needs of users – both internal and external to the Company. Completeness Reported environmental data covers 92% of worldwide employees including all entities that meet the criteria of being subject to control or signiﬁcant inﬂuence of the reporting organisation. Assessment of the data gathering processes reveal that the completeness of quantitative data reported needs further improvement. Consistency Due to changes in the scope of the review and data quality, it was decided to use 2007/08 data as a new baseline to improve comparability over time. Transparency Given the limitations in data quality and completeness, we have had to make assumptions in some cases, especially in business travel. Appropriate references to the accounting and calculation methodologies and data sources have been made in this report. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 4 5 Accuracy Data is considered accurate within the limits of the quality and completeness of the data provided. Carbon Smart has assessed the data quality against the GHG Protocol principles. Data from each emission source has been rated 1 (poorest) to 5 (best). For this year, overall data quality has been rated 2.6. Rathbones’ goal is to increase this rating to 4 by 2010 by strengthening its data gathering systems. Scope Data quality rating Comments Overall Scope 1 Scope 2 Scope 3 Paper Waste and recycling 2.6 2 3 2 4 2 A signiﬁcant portion of gas data was not available and benchmarks had to be used. Company car data required minor assumptions and estimates. Majority of electricity related data is free from assumptions and estimations. However, it includes extrapolations and pro rata calculations. Flight data quality was good with minor assumptions and estimates. Rail and car data required signiﬁcant extrapolation. Taxi data was based on cost benchmarks. High level of good quality data coverage. Signiﬁcant level of data sampling and extrapolation required. About Carbon Smart Carbon Smart is a carbon and sustainability consultancy headquartered in London. Our team of sustainability, environmental, business and academic experts cover energy efﬁciency, waste and recycling, green procurement, travel, renewable energy, carbon offset, carbon management, communications and wider sustainability issues. London, 3 March 2009. Signed Ben Murray Director Carbon Smart Limited Rathbone Brothers Plc Report and accounts 2008 Esther Rodriguez Associate Director Carbon Smart Limited t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 5 5 Employees As with all professional services ﬁrms, Rathbones’ greatest asset is its people. Their health, well-being, development, remuneration and involvement are all vital to the continuing success of the business. Health and welfare Rathbones is committed to providing a safe and healthy environment in which its employees can work. With the help of external consultants our health and safety policy for the UK ofﬁces is regularly updated to reﬂect current legislation and best practice. We provide a range of training courses for those staff with health and safety responsibilities and a steering group comprising representatives from all our ofﬁces meets quarterly to share knowledge and to ensure that health and safety standards are maintained. Upon completion of a qualifying period, all UK employees (and their direct family members) are eligible for private medical cover paid for by the Company. All UK staff have the opportunity to attend an annual medical examination and a biennial eye test and Rathbones also provides an independent and conﬁdential employee assistance programme offering advice on employment, personal and legal concerns. Equality and diversity Rathbones is an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of their race, gender, marital status, age, disability, religious belief or sexual orientation. It is our policy and practice to give full and fair consideration to applications for employment by disabled people. If employees become disabled during their service with Rathbones, wherever practicable, arrangements and adjustments are made to continue their employment and training. Should this not be possible we provide support in the form of a permanent health insurance scheme which pays a monthly income in lieu of salary and pays pension contributions on behalf of the employer and employee. Work-life balance The review and implementation of our work-life balance policies have continued over the last year. On average, 42 staff now take advantage of the childcare voucher scheme (up 17% on 2007). Despite the increase to holiday entitlement made for 2008 the popular holiday purchase scheme has again been offered and 115 employees are opting to buy up to ﬁve additional days of leave to take in 2009, but we are mindful that this can lead to greater pressure on other staff. Maternity beneﬁts remain considerably in excess of those required under statutory provisions. In 2008, only ﬁve women out of the 20 due to return from maternity leave chose not to return to work. Career breaks of up to two years are also available for those with childcare responsibilities. Flexible working policies are offered with a high number of successful applications, particularly from parents with young children. Expected changes in legislation which will extend the opportunity and right to apply for ﬂexible working will be incorporated into our policies. On completion of ﬁve years’ service, employees have the opportunity to take up to three months’ unpaid leave once in every ten years without any loss of service-related beneﬁts such as pension or death in service cover. The uptake and effectiveness of these policies is monitored together with other indicators of staff satisfaction levels such as average annual sickness rates and staff turnover. Training and development Professional development Rathbones is committed to the professional development of its staff. The Company gives full support to those studying to achieve professional examinations. This year saw signiﬁcant changes in our chosen qualiﬁcations. The ﬁrst stage for investment professionals is the Certiﬁcate in Securities – Retail awarded by the Securities and Investment Institute (SII). This has been enhanced with an additional module on investment and risk. The second signiﬁcant change has been the move by the SII to streamline their diplomas to give practitioners in the private client investment industry a dedicated professional qualiﬁcation. The SII Masters Programme (Wealth Management) has been designed in conjunction with the industry and is entirely relevant to our business. Rathbones is now encouraging its staff to take this qualiﬁcation and there are already some who are due to complete the course in early 2009. The Company has also extended its use of the Chartered Financial Analyst (CFA) examinations beyond the unit trust business. The increase in numbers of staff taking this internationally recognised qualiﬁcation is to ensure the maintenance of capability in ﬁnancial analysis. Following qualiﬁcation, all regulated staff are required to maintain a high level of continuous professional development by attending training courses, seminars and to keep up to date through industry related reading. Rathbones has established a standard for continuing professional development which is above that recommended by the SII. Rathbone Brothers Plc Report and accounts 2008 Corporate responsibility report continued Employees continued t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 6 5 Graduate programme Our ﬁrst formal graduate programme concluded in 2008 with participants taking up roles during September in investment management teams. The scheme provided delegates with specialist knowledge and work experience across the business in both investment and support functions. It is expected that the knowledge gained and the appreciation of the business as a whole will be beneﬁcial not only for the individuals concerned but also the wider team in which they work. Management Development Programmes Rathbones has continued with its commitment to improving networking, knowledge of the business and engagement with staff through a formal development programme sponsored by our chief executive. The Rathbone Development Programme, now in its third year, brings together cross functional, multi-location groups of staff to facilitate their development in skills such as negotiation, presentation and team working. A signiﬁcant element of the programme involves delegates working on live business projects. Projects are identiﬁed by senior managers or are business improvement ideas suggested by the employees on the programme. IT training There is now a dedicated IT training team in place, focusing on improving IT skills across the business, both on Rathbones’ speciﬁc investment systems and the widely used Microsoft packages. Rewards and beneﬁts Employees are encouraged to identify and to become involved with the ﬁnancial performance of the Group. We have used equity as part of the package for investment managers bringing business into the ﬁrm and, in 2001, Rathbones was one of the ﬁrst companies in the country to launch a Share Incentive Plan (SIP). Under the SIP, which is open to all employees, the Company matches every share purchased by individual employees with another free of charge. Shares are also given free of charge if earnings growth conditions are achieved. Take-up of the SIP is high, with employees at all levels and in all locations participating. A member of staff who has been in the SIP since launch and has made the maximum monthly contributions now owns 4,428 shares, which were valued at £36,907 as at 31 December 2008. To encourage the use of public transport, we offer interest-free loans for season tickets to all staff on satisfactory completion of their probationary period. We have introduced a Cycle to Work scheme in 2008 and 19 employees have taken up the option. Rathbones recognises its responsibility to assist in the ﬁnancial welfare of its employees when they reach retirement age and pays contributions to provide death in service cover and beneﬁts on retirement. The opportunity to sacriﬁce proﬁt share payments into pension arrangements is now available to staff. We believe that the beneﬁts provided are generous and worthwhile, and are valued by all permanent employees eligible to join the schemes available. We continually monitor this area to ensure the provision of beneﬁts and practices remain up-to- date and in line with rapidly changing legislative requirements. Employee involvement Communication with staff takes place through a variety of means including internal email, and a quarterly internal newsletter to which all staff are actively encouraged to contribute both information and news about business issues, as well as articles on social, environmental and community issues. Employees have easy access to policies, procedures, organisation charts, announcements and company news through a web-based shared workspace. Presentations to staff on full and half year results are given by Board members. All investment managers across Rathbone Investment Management’s ten ofﬁces in the UK and in Jersey are linked by telephone for a daily morning meeting to hear key market news and by telephone and video conference weekly for a more in-depth discussion of market trends, asset allocation and individual investment matters. Non-investment management staff are also welcome to attend these meetings. Consultation with staff takes place when major changes to beneﬁts such as pensions are being considered and a range of internal committees and working parties draw in participation from across the ﬁrm on key issues such as IT, training, business continuity and marketing. We were named as a runner up as Employer of the Year for 2008 by Executive PA magazine. Rathbone Brothers Plc Report and accounts 2008 Community Rathbones continues to review community activities, both on a group and a local scale, and supports employees’ participation in a wide range of activities involving both local and international charities. We encourage employees to take up voluntary and charitable positions, and the Board supports participation in such activities. For example, the chairman is deputy chairman of Fight for Sight and the chief executive is involved with an educational charity. Many of our staff are involved with schools, colleges, charities, civic, youth and religious groups in various capacities. Donations and fundraising During the year, the Group made charitable donations of £165,478, representing 0.39% of continuing Group pre-tax proﬁts (2007: £205,079, representing 0.43% of continuing Group pre-tax proﬁts). This included £45,000 as part of a four year commitment totalling £150,000 made to support four Liverpool secondary schools in their bids for Specialist Schools and Academies Trust status. In addition to this ﬁnancial support, a number of individuals from our Liverpool ofﬁce sit on the governing bodies of the four schools, thus helping to forge strong working relationships with each school whilst bringing a range of skills to their committees. It also provides the members of staff involved with the opportunity to develop their wider professional and management skills. A number of initiatives have been implemented with the individual schools to cater to their particular needs and we have agreed to provide two work experience places for each school annually. Additionally, as part of our contribution to the celebrations for the 2008 Liverpool Capital of Culture, we hosted a Summer Exhibition of artistic works in conjunction with the four schools. In 2008, Help for Heroes and the Roy Castle Lung Cancer Foundation were selected by employee ballot as the charities we would support for 2008 and 2009. Payments of £250 each were made to 20 charities that were not selected. Employees were encouraged to support the charities through participating in various events such as sweepstakes, an Oktoberfest celebration and Christmas party rafﬂes, and in 2008 raised £7,000. Staff are encouraged to donate to charity in a tax efﬁcient manner through the Give As You Earn (GAYE) payroll giving scheme. In 2008, Rathbone staff made regular payments totalling £107,783 (2007: £66,879) through this scheme, which is administered by the Charities Aid Foundation. The Company matched staff donations of up to £200 per month made through GAYE and in 2008 donated £77,843 (2007: £40,729) to causes chosen by employees through this method. Following the active promotion of GAYE to staff 115 UK staff (16%) now use this way of donating to charity. t r o p e r y t i l i b i s n o p s e r e t a r o p r o C 7 5 Sponsorships As well as direct charitable donations, Rathbones provides support in the form of sponsorship, advertising and attendance at events organised by charities and arts organisations. Rathbone Greenbank Investments continues to support Schumacher UK in its aims to promote sustainable development through its co-sponsorship of the organisation’s Bristol series of lectures. Rathbone Greenbank Investments has also maintained its sponsorship of The Funding Network, a UK-based organisation which brings people together in a marketplace to help fund charitable projects. Rathbone Brothers Plc Report and accounts 2008 Directors’ responsibilities The directors are responsible for preparing the Annual Report and the Group and Company ﬁnancial statements, in accordance with law and regulations. Company law requires the directors to prepare Group and parent Company ﬁnancial statements for each ﬁnancial year. Under that law the directors are required to prepare the Group ﬁnancial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and have elected to prepare the parent company ﬁnancial statements in accordance with UK accounting standards. The Group ﬁnancial statements are required by law and IFRS as adopted by the EU to present fairly the ﬁnancial position and performance of the Group; the Companies Act 1985 provides in relation to such ﬁnancial statements that references in the relevant part of that Act to ﬁnancial statements giving a true and fair view are references to their achieving a fair presentation. The parent company ﬁnancial statements are required by law to give a true and fair view of the state of affairs of the parent company. In preparing each of the Group and parent Company ﬁnancial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • for the Group ﬁnancial statements, state whether they have been prepared in accordance with IFRS as adopted by the EU; • for the parent company ﬁnancial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent company ﬁnancial statements; and • prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. The directors conﬁrm that they have complied with the above requirements in preparing the ﬁnancial statements. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the ﬁnancial position of the parent company and enable them to ensure that its ﬁnancial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ report, Remuneration report and Corporate governance statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. In the case of persons who were directors of the Company at the date when this report was approved: • so far as each of the directors is aware, there is no relevant audit information (as deﬁned in the Companies Act 1985) of which the Company’s auditors are unaware; and • each of the directors has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information (as deﬁned) and to establish that the Company’s auditors are aware of that information. s e i t i l i b i s n o p s e r ’ s r o t c e r i D 8 5 Responsibility Statement We conﬁrm that to the best of our knowledge: (1) (2) the ﬁnancial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Directors’ report, together with information provided in the Chairman’s and Chief executive’s statements, Strategy and KPIs and Business review 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 the description of the principal risks and uncertainties they face. By Order of the Board A D Pomfret Chief executive 3 March 2009 Rathbone Brothers Plc Report and accounts 2008 Consolidated accounts Contents Independent auditors’ report to the members of Rathbone Brothers Plc Consolidated income statement Consolidated balance sheet Consolidated cash ﬂow statement Consolidated statement of recognised income and expense Notes to the consolidated accounts 60 62 63 64 65 66 s t n u o c c a d e t a d i l o s n o C 9 5 Rathbone Brothers Plc Report and accounts 2008 Independent auditors’ report to the members of Rathbone Brothers Plc We have audited the Group ﬁnancial statements of Rathbone Brothers Plc for the year ended 31 December 2008, which comprise the Consolidated income statement, the Consolidated balance sheet, the Consolidated cash ﬂow statement, the Consolidated statement of recognised income and expense and the related notes. These Group ﬁnancial statements have been prepared under the accounting policies set out therein. We have reported separately on the parent company ﬁnancial statements of Rathbone Brothers Plc for the year ended 31 December 2008 and on the information in the Remuneration report that is described as having been audited. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the Group ﬁnancial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of directors’ responsibilities. Our responsibility is to audit the Group ﬁnancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the Group ﬁnancial statements give a true and fair view and whether the Group ﬁnancial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ report is consistent with the Group ﬁnancial statements. The information given in the Directors’ report includes that speciﬁc information presented in the Business review, which is cross referenced from the Business review section of the Directors’ report. In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information speciﬁed by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the Corporate governance statement reﬂects the Company’s compliance with the nine provisions of the Combined Code (2006) speciﬁed for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited Group ﬁnancial statements. The other information comprises only the Chairman’s statement, Chief executive’s statement, Business review, Directors’ report, Corporate governance report and all of the other information listed on the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group ﬁnancial statements. Our responsibilities do not extend to any other information. e h t o t t r o p e r ’ s r o t i d u a t n e d n e p e d n I c l P s r e h t o r B e n o b h t a R f o s r e b m e m 0 6 Rathbone Brothers Plc Report and accounts 2008 Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group ﬁnancial statements and the part of the Remuneration report to be audited. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the Group ﬁnancial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁcient evidence to give reasonable assurance that the Group ﬁnancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Group ﬁnancial statements. Opinion In our opinion: • the Group ﬁnancial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2008 and of its proﬁt and cash ﬂows for the year then ended; • the Group ﬁnancial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and • the information given in the Directors’ report is consistent with the Group ﬁnancial statements. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 3 March 2009 e h t o t t r o p e r ’ s r o t i d u a t n e d n e p e d n I c l P s r e h t o r B e n o b h t a R f o s r e b m e m 1 6 Rathbone Brothers Plc Report and accounts 2008 Consolidated income statement for the year ended 31 December 2008 Interest and similar income Interest expense and similar charges Net interest income Fee and commission income Fee and commission expense Net fee and commission income Dividend income Net trading income Net income from sale of available for sale securities Other operating income Operating income Operating expenses Additional levy for Financial Services Compensation Scheme Other operating expenses Profit before income tax from continuing operations Income tax expense Profit after income tax from continuing operations Discontinued operations Profit before income tax from discontinued operations Income tax credit/(charge) on profit from discontinued operations Loss recognised on remeasurement of assets of the disposal group Net (loss)/profit from discontinued operations Profit for the year attributable to equity holders of the Company Dividends paid and proposed for the year per ordinary share (p) Dividends paid and proposed for the year (£’000) Earnings per share for the year attributable to equity holders of the Company: Basic (p) Diluted (p) Earnings per share from continuing operations for the year attributable to equity holders of the Company: Basic (p) Diluted (p) Note 5 5 6 6 7 8 9 11 12 13 13 14 14 2008 £’000 69,095 (38,035) 31,060 106,656 (8,565) 98,091 134 480 – 1,986 131,751 (88,995) (1,404) (87,591) 42,756 (13,489) 29,267 2,215 198 (12,680) (10,267) 19,000 42.00p 17,984 44.45p 44.09p 2007 £’000 restated (note 1) 51,573 (32,282) 19,291 122,130 (11,499) 110,631 67 1,676 1,297 1,518 134,480 (87,178) – (87,178) 47,302 (14,212) 33,090 4,922 (632) – 4,290 37,380 41.00p 17,479 87.88p 86.46p 68.47p 67.90p 77.79p 76.54p t n e m e t a t s e m o c n i d e t a d i l o s n o C 2 6 Rathbone Brothers Plc Report and accounts 2008 Consolidated balance sheet as at 31 December 2008 Assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment securities – available for sale – held to maturity Assets of disposal groups classified as held for sale Intangible assets Property, plant and equipment Deferred tax asset Prepayments, accrued income and other assets Total assets Liabilities Deposits by banks Settlement balances Due to customers Accruals, deferred income, provisions and other liabilities Current tax liabilities Liabilities of disposal groups classified as held for sale Long term employee benefits Total liabilities Equity Share capital Share premium Other reserves Retained earnings Total equity Note 15 16 17 18 18 12 19 20 21 22 23 25 26 12 28 29 29 30 30 2008 £’000 351 15,751 175,973 39,412 81,991 874,979 5,813 68,232 6,816 2,483 38,646 2007 £’000 275 21,573 250,103 39,380 6,948 765,274 – 85,734 8,131 3,528 45,677 1,310,447 1,226,623 9,201 14,048 1,044,351 42,450 6,035 4,008 5,723 1,125,816 2,143 28,957 34,740 118,791 184,631 12,460 19,926 946,608 49,637 6,790 – 6,452 1,041,873 2,134 27,758 54,181 100,677 184,750 Total equity and liabilities 1,310,447 1,226,623 Approved by the Board of directors on 3 March 2009 and signed on its behalf by A D Pomfret Chief executive R P Stockton Finance director t e e h s e c n a l a b d e t a d i l o s n o C 3 6 Rathbone Brothers Plc Report and accounts 2008 Consolidated cash ﬂow statement for the year ended 31 December 2008 Cash flows from operating activities Profit before income tax from continuing operations Net interest income Net income from sale of available for sale securities Impairment losses on loans and advances to customers Profit on disposal of property, plant and equipment Depreciation and amortisation Net unrealised gains on foreign exchange Defined benefit pension scheme charges Share based payment charges Interest paid Interest received Changes in operating assets and liabilities – net decrease in loans and advances to banks and customers – net decrease/(increase) in settlement balance debtors – net decrease/(increase) in prepayments, accrued income and other assets – net increase in amounts due to customers and deposits by banks – net (decrease)/increase in settlement balance creditors – net (decrease)/increase in accruals, deferred income, provisions and other liabilities Cash generated from operations Defined benefit pension contributions paid Tax paid Discontinued operations Net cash inflow from operating activities Cash flows from investing activities Acquisition of businesses, net of cash acquired Disposal of businesses, net of cash transferred Purchase of property, equipment and intangible assets Proceeds from sale of property and equipment Purchase of investment securities Proceeds from sale and redemption of investment securities Discontinued operations Net cash used in investing activities Cash flows from financing activities Purchase of shares for share-based schemes Issue of ordinary shares Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Amounts reclassified as assets of businesses held for sale Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the year Note 2008 £’000 2007 £’000 restated (note 1) 42,756 (31,060) – 58 (45) 4,614 (361) 1,942 1,299 (38,617) 69,150 49,736 33,735 5,822 5,360 89,287 (5,878) (3,302) 174,760 (2,715) (10,950) 2,145 163,240 47,302 (19,291) (1,297) – (3) 4,150 (91) 2,554 2,692 (31,525) 46,985 51,476 15,276 (1,945) (2,129) 280,980 1,848 8,537 354,043 (6,595) (12,730) 3,481 338,199 (734) 16,340 (11,311) 151 (2,545,080) 2,435,375 (266) (422) – (9,775) 29 (1,276,420) 1,070,811 (409) (105,525) (216,186) (1,728) 1,208 (17,503) (18,023) 39,692 214,220 (791) 1,109 254,230 (3,210) 2,963 (15,914) (16,161) 105,852 108,343 – 25 214,220 35 13 35 Rathbone Brothers Plc Report and accounts 2008 t n e m e t a t s w o l f h s a c d e t a d i l o s n o C 4 6 Consolidated statement of recognised income and expense for the year ended 31 December 2008 Profit for the year Exchange translation differences Actuarial (loss)/gain on long term employment benefits Revaluation of available for sale investment securities: – net (loss)/gain from changes in fair value – net profit on disposal transferred to income during the period Deferred tax on equity items: – available for sale investment securities – actuarial gains and losses – share-based payments Net (expense)/income recognised directly in equity Recognised income and expense for the year attributable to equity holders of the Company Note 28 18 18 21 2008 £’000 19,000 1,001 (44) (3,957) – (3,957) 1,108 12 (515) 605 (2,395) 2007 £’000 37,380 14 270 2,069 (1,297) 772 (93) 34 694 635 1,691 16,605 39,071 e s n e p x e d n a e m o c n i d e s i n g o c e r f o t n e m e t a t s d e t a d i l o s n o C 5 6 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts 1 Principal accounting policies Rathbone Brothers Plc (the ‘Company’) is a public company incorporated in Great Britain. The consolidated accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). The Company has elected to prepare its individual accounts in accordance with generally accepted accounting principles in the UK (UK GAAP); these are presented on pages 116 to 123. Changes in accounting policies and disclosure The comparative balances have been restated in the Income statement, Cash ﬂow statement and the related notes where applicable to reﬂect the presentation of certain subsidiary entities as disposal groups in accordance with IFRS 5, ‘Non-current assets held-for-sale and discontinued operations’. Further details, including the impact on the ﬁnancial statements, are given in note 12. Developments in reporting standards and interpretations The following interpretations issued by the International Financial Reporting Interpretations Committee (‘IFRIC’) are effective for the ﬁrst time in the current ﬁnancial year and have been adopted by the Group, although there was no impact on the consolidated results or ﬁnancial position: • IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’. • IFRIC 14, ‘IAS 19 – The limit on a deﬁned beneﬁt asset, minimum funding requirements and their interaction’. The following standards and interpretations issued by the International Accounting Standards Board (‘IASB’) or the IFRIC that are mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods but which the Group has not early adopted and which may, in the opinion of the directors, materially impact the ﬁnancial statements in the period of initial application: • IFRS 8, ‘Operating segments’ (effective from 1 January 2009). The new standard requires segment information to be presented on the same basis as that used for internal reporting purposes. Some amendments to the disclosures made for segmental performance are likely although it is not expected that the number of reportable segments will change. • IAS 1 (revised), ‘Presentation of ﬁnancial statements’ (effective from 1 January 2009 subject to endorsement by the EU). This requires changes to the presentation of ﬁnancial statements and adopts revised titles for the primary statements, although companies may continue to use the existing titles. • IFRS 3 (revised), ‘Business combinations’ (effective from 1 January 2009 subject to endorsement by the EU). The changes impact on the initial and subsequent valuation of purchase consideration, the calculation of goodwill and the treatment of transaction costs. The impact of the standard on future acquisitions is not readily determinable. • IAS 36 (amendment), ‘Impairment of assets’ (effective from 1 January 2009 subject to endorsement by the EU). This amendment requires additional disclosures to be provided where fair value less costs to sell is calculated on the basis of discounted cash ﬂows. • IAS 19 (amendment), ‘Employee beneﬁts’ (effective from 1 January 2009 subject to endorsement by the EU). This clariﬁes and amends certain aspects of accounting for deﬁned beneﬁt schemes. The impact of this amendment on the consolidated results or ﬁnancial position has not yet been determined. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 6 6 The following standards and interpretations issued by the IASB or the IFRIC that are also mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods but which the Group has not early adopted but which are not likely, in the opinion of the directors, to impact materially the ﬁnancial statements in the period of initial application: • IAS 23 (amendments), ‘Borrowing costs’ (effective from 1 January 2009). • IFRS 2 (amendment), ‘Share-based payment’ (effective from 1 January 2009). • IAS 32 (amendment), ‘Financial Instruments: Presentation’/IAS 1 (amendment), ‘Presentation of ﬁnancial statements – Puttable ﬁnancial instruments and obligations arising on liquidation’ (effective from 1 January 2009). • IAS 27 (revised), ‘Consolidated and separate ﬁnancial statements’ (effective from 1 July 2009). • IFRS 5 (amendment), ‘Non-current assets held-for-sale and discontinued operations’ (effective from 1 July 2009). • IAS 28 (amendment), ‘Investments in associates’ (effective from 1 January 2009). Rathbone Brothers Plc Report and accounts 2008 1 Principal accounting policies continued • IAS 39 (amendment), ‘Financial Instruments: Recognition and measurement’ (effective from 1 January 2009). • IAS 1 (amendment), ‘Presentation of ﬁnancial instruments’ (effective from 1 January 2009). The following standards and interpretations issued by the IASB or the IFRIC that are also mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods but which, in the opinion of the directors, are not relevant to the operations of the Group: • IFRS 1 and IAS 27 (amendment), ‘First-time Adoption’ and ‘Consolidated and Separate Financial Statements’. This amendment is relevant to the Company. • IAS 38 (amendment), ‘Intangible assets’. • IAS 16 (amendment), ‘Property, plant and equipment’. • IFRIC 16 , ‘Hedges of a net investment in a foreign operation’. • IAS 27 (amendment), ‘Consolidated and separate ﬁnancial statements’. • IAS 29 (amendment), ‘Financial Reporting in hyperinﬂationary economies’. • IAS 31 (amendment), ‘Investment in joint ventures’. • IAS 40 (amendment), ‘Investment Property’. • IAS 41 (amendment), ‘Agriculture’. • IAS 20 (amendments), ‘Accounting for government grants’. • IAS 39 (amendment), ‘Financial instruments: Recognition and measurement’ (effective 1 July 2008). • IFRS 7 (amendment), ‘Financial instruments: Disclosures’, on the ‘Reclassiﬁcation of ﬁnancial assets’ (effective 1 July 2008). • IFRIC 15, ‘Agreements for construction of real estates’. • IFRIC 17, ‘Distributions of non cash assets to owners’ (effective 1 July 2009). • IFRIC 18, ‘Transfer of assets from customers’ (effective 1 July 2009). Basis of consolidation The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and entities controlled by the Company (its subsidiaries), together the ‘Group’, made up to 31 December each year. Subsidiaries are all entities in which the Company has a controlling interest, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity is a subsidiary of the Company. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identiﬁable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. 7 6 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 1 Principal accounting policies continued Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The consolidated ﬁnancial statements incorporate the ﬁnancial statements of Rathbone International Finance B.V., which is effectively controlled by the Company, although the Company does not own any of the entity’s share capital. Basis of presentation The ﬁnancial statements have been prepared on the historical cost basis, except for the revaluation of certain ﬁnancial instruments. The principal accounting policies adopted, which are set out below, have, unless otherwise stated, been applied consistently to all periods presented in the consolidated accounts. Impairment Goodwill and other intangible assets with indeﬁnite useful lives are tested for impairment both when there is an indication of impairment and annually. Other ﬁnancial assets are assessed at the reporting date or if there is objective evidence of impairment during the accounting period. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Held to maturity investment securities and loans and receivables are considered individually for impairment. Where an asset does not generate cash ﬂows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount of non-ﬁnancial assets is the higher of fair value less any cost to sell and value in use. In assessing value in use, the estimated future cash ﬂows are discounted to their present values using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset for which the estimates of future cash ﬂows have not been adjusted. The recoverable amount of held to maturity investment securities and loans and receivables is calculated as the present value of estimated future cash ﬂows, discounted at the effective interest rate of the asset on recognition. Impairment of available for sale securities is calculated as the cumulative loss that has been previously recognised directly in equity at the time that objective evidence of impairment is identiﬁed. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset, except for equity instruments, or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss (excluding goodwill) subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. An impairment loss in respect of a held to maturity security or loans and receivables is reversed if the subsequent increase can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss in respect of an investment in equity instruments classiﬁed as available for sale is not reversed through proﬁt or loss. If the fair value of a debt instrument classiﬁed as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in proﬁt or loss, the impairment is reversed through proﬁt or loss. Interest income and expense Interest income and expense are recognised as earned in the income statement for all instruments measured at amortised cost and for available for sale debt instruments using the effective interest method. Interest payable and receivable on derivative ﬁnancial instruments and dividends receivable from money market funds are included within net interest income. The effective interest method is a method of calculating the amortised cost of a ﬁnancial asset or a ﬁnancial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the ﬁnancial instrument or, when appropriate, a shorter period to the net carrying amount of the ﬁnancial asset or ﬁnancial liability. When calculating the effective interest rate, the Group estimates cash ﬂows considering all contractual terms of the ﬁnancial instrument but does not consider future credit losses. The calculation includes all fees and interest paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 8 6 1 Principal accounting policies continued Once a ﬁnancial asset or a group of similar ﬁnancial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash ﬂows for the purpose of measuring the impairment loss. Dividend income Dividend income from ﬁnal dividends on equity securities is accounted for on the date the security becomes ex-dividend. Interim dividends are recognised when paid. Operating leases Payments made under operating leases are recognised in the income statement on a straight line basis over the term of the lease. Lease incentives are recognised in the income statement as an integral part of the total lease expense. Fees and commissions Portfolio and other management advisory and service fees are recognised over the period the service is provided. Asset management fees are recognised rateably over the period the service is provided. Commissions receivable and payable are accounted for in the period in which they are earned. To the extent that retained initial charge income received on the sale of units arises from an identiﬁable brokerage service, the income is recognised on the performance of that service. Other retained initial charges are deferred and recognised as income on a straight line basis over the estimated average life of the unit holding. Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is charged so as to write off the cost of assets to their estimated residual value over their estimated useful lives, using the straight line method, on the following bases: Leasehold property: Plant, equipment and computer hardware: over the lease term over three to ﬁve years The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. Intangible assets a Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identiﬁable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and is reviewed for impairment at least annually, or when other occasions or changes in circumstances indicate that it might be impaired. Any impairment is recognised immediately in the proﬁt and loss and is not subsequently reversed. Goodwill arising on acquisition is allocated to groups of cash generating units that correspond with the Group’s segments, as these represent the lowest level within the Group at which management monitor goodwill for purposes of impairment testing. Cash generating units are identiﬁed as the smallest identiﬁable group of assets that generates cash inﬂows that are largely independent of the cash inﬂows from other assets or groups of assets. On disposal of a subsidiary the attributed amount of goodwill that has not been subject to impairment is included in the determination of the proﬁt or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. b Computer software and software development costs Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the speciﬁc software. These costs are amortised on the basis of the expected useful lives (three to four years). Costs that are directly associated with the production of identiﬁable and unique software products controlled by the Group, which are expected to generate economic beneﬁts exceeding costs beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets are amortised using the straight line method over their useful lives (not exceeding four years). Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 9 6 Notes to the consolidated accounts continued 1 Principal accounting policies continued Intangible assets continued Costs associated with developing or maintaining computer software programs that are not recognised as assets are recognised as an expense as incurred. Client relationships c Client relationships acquired are shown at historical cost. Those in respect of business combinations are initially recognised at fair value. Client relationships have a ﬁnite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of the client lists over their estimated useful lives (ﬁve to ﬁfteen years). Financial assets The Group classiﬁes its ﬁnancial assets in the following categories: ﬁnancial assets at fair value through proﬁt or loss, loans and receivables, held to maturity investments and available for sale ﬁnancial assets. The classiﬁcation of ﬁnancial assets is determined at initial recognition. Financial assets at fair value through proﬁt or loss a This category has two sub-categories: ﬁnancial assets held for trading, and those designated at fair value through proﬁt or loss at inception. A ﬁnancial asset is classiﬁed in this category if acquired principally for the purpose of selling in the short term or if so designated. Derivatives are also categorised as held for trading and are reported within other assets or other liabilities. Loans and receivables b Loans and receivables are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services to a debtor or purchases a loan with no intention of trading the receivable. c Held to maturity Held to maturity investments are non-derivative ﬁnancial assets with ﬁxed or determinable payments and ﬁxed maturities that the Group’s management has the positive intention and ability to hold to maturity, other than those that meet the deﬁnition of loans and receivables or that the Group has classiﬁed as available for sale or fair value through proﬁt or loss. Available for sale d Available for sale ﬁnancial assets are non-derivatives that are either designated in this category or not classiﬁed in any of the other categories. Available for sale investments are those intended to be held for an indeﬁnite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Purchases and sales of ﬁnancial assets at fair value through proﬁt or loss, held to maturity and available for sale are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all ﬁnancial assets not carried at fair value through proﬁt or loss. Financial assets are derecognised when the rights to receive cash ﬂows from the ﬁnancial assets have expired or been effectively transferred, or where the Group has transferred substantially all risks and rewards of ownership. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 0 7 Available for sale ﬁnancial assets and ﬁnancial assets at fair value through proﬁt or loss are subsequently carried at fair value. Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the ‘ﬁnancial assets at fair value through proﬁt or loss’ category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available for sale ﬁnancial assets are recognised directly in equity (except for changes arising from ﬂuctuations in foreign exchange rates, which are recognised as income or expenditure in the income statement for monetary assets and directly in equity for non-monetary assets), until the ﬁnancial asset is sold, derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in the income statement. However, interest calculated using the effective interest method is recognised in the income statement. The fair values of quoted ﬁnancial instruments in active markets are based on current bid prices. If the market for a ﬁnancial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash ﬂow analysis, option pricing models and other valuation techniques commonly used by market participants. Rathbone Brothers Plc Report and accounts 2008 1 Principal accounting policies continued Deposits and borrowings All deposits and borrowings are initially recognised at the fair value of the consideration received. After initial recognition, deposits and borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs and any discounts or premia on settlement. Borrowing costs are recognised as an expense in the period in which they are incurred. Work in progress Trust work in progress is included within other assets and is valued at the expected recoverable amount, including an appropriate portion of proﬁt, calculated by reference to the stage of completion of the service rendered. The corresponding income is recognised within fees and commissions receivable. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event which it is probable will result in an outﬂow of economic beneﬁts that can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the obligation. The increase in the provision due to the passage of time is recognised within interest expense. Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring which has been notiﬁed to affected parties. Foreign currencies The Group’s functional and presentational currency is sterling. Transactions in currencies other than the relevant Group entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary ﬁnancial assets carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net proﬁt or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity. On consolidation, the assets and liabilities of the Group’s overseas operations are translated into the Group’s presentational currency at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in equity within the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Gains and losses arising on translation are taken to the Group’s translation reserve. The Group has elected to treat goodwill and fair value adjustments denominated in a currency other than the Group’s functional currency arising on acquisitions before the date of transition to IFRS as non-monetary foreign currency items and they are translated using the exchange rate applied on the date of acquisition. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N Retirement benefit costs 1 7 The cost of providing beneﬁts under deﬁned beneﬁt plans are determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside of proﬁt and loss and are presented in the statement of recognised income and expense. Past service cost is recognised immediately to the extent that the beneﬁts are already vested, and otherwise is amortised on a straight line basis over the average period until the amended beneﬁts become vested. The amount recognised in the balance sheet represents the present value of the deﬁned beneﬁt obligation reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan. Payments to deﬁned contribution retirement beneﬁt schemes are charged as an expense as they fall due. Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 1 Principal accounting policies continued Income tax Tax on the proﬁt or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the ﬁnancial statements and the corresponding tax basis used in the computation of taxable proﬁt. In principle, deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable proﬁts will be available against which deductible temporary differences may be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill (or negative goodwill) for which amortisation is not deductible for tax purposes or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction, which affects neither the tax proﬁt nor the accounting proﬁt. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amounts of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁts will be available to allow all or part of the asset to be recovered. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the liability is settled or when the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Cash and cash equivalents Cash comprises cash on hand and demand deposits which may be accessed without penalty. Cash equivalents comprise short-term highly liquid investments with a maturity of less than three months from the date of acquisition. For the purposes of the Consolidated cash ﬂow statement, cash and cash equivalents consist of cash and cash equivalents as deﬁned above, net of outstanding bank overdrafts. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not vested as of 1 January 2005. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 2 7 The Group engages in equity settled share-based payment transactions in respect of services received from certain employees. The fair value of the services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The cost of the employee services received in respect of the shares or share options granted is recognised in the income statement over the vesting period, with a corresponding credit to equity. The fair value of the options granted is determined using option pricing models, which take into account the exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the Company’s share price over the life of the option/award and other relevant factors. Except for those which include terms related to market conditions, vesting conditions included in the terms of the grant are not taken into account in estimating fair value. Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of employee services so that ultimately the amount recognised in the income statement reﬂects the number of vested shares or share options, with a corresponding adjustment to equity. Where vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the market related vesting condition is met, provided that the non-market vesting conditions are met. Shares purchased and issued are charged directly to equity. Rathbone Brothers Plc Report and accounts 2008 1 Principal accounting policies continued Segmental reporting A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Direct costs are allocated to the segment that generated the cost. Indirect costs are allocated to reporting segments so as to reﬂect the proportion of the cost that each segment has generated, on a pro rata basis. Fiduciary activities The Group commonly acts as trustee and in other ﬁduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement beneﬁt plans and other institutions. These assets and income arising thereon are excluded from these ﬁnancial statements, as they are not assets of the Group. The Group holds money on behalf of some clients in accordance with the Client Money Rules of the Financial Services Authority. Such monies and the corresponding liability to clients are not shown on the face of the balance sheet as the Group is not beneﬁcially entitled thereto. Financial guarantees Financial guarantees issued by the Group are initially recognised in the balance sheet at fair value. Guarantees are subsequently measured at the higher of the best estimate of any amount to be paid to settle the guarantee and the amount initially recognised less cumulative amortisation, which is recognised over the life of the contract. 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 £5,723,000 are given in note 28. 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 28. Impairment of goodwill s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 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 £47,023,000. The assumptions underlying the value in use calculation are set out in note 19. 3 7 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. The assumptions used are set out in note 29. Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 2 Critical accounting judgements and key sources of estimation and uncertainty continued 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, net of related provisions for impairment, amounted to £6,300,000, of which £4,545,000 was included within disposal groups (2007: £13,363,000). 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. 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 and Tax Central Shared Services £’000 (continuing) £’000 Total (continuing) £’000 Trust and Tax (dis- continued) £’000 Total £’000 At 31 December 2008 Investment Management £’000 151,723 Gross external revenues Fee, commission and interest expense (39,130) 1,284 Revenues from other segments Unit Trusts £’000 20,337 (6,738) (1,160) 12,439 (8,305) (1,771) 6,291 (732) (124) 5,435 (3,711) (1,089) – – – – (26,390) 25,707 113,877 (50,589) (22,847) 40,441 2,363 635 (683) 178,351 (46,600) – 131,751 (88,995) – 18,643 – – 196,994 (46,600) – 18,643 (16,428) – 150,394 (105,423) – 42,756 (13,489) – 2,215 198 (12,680) 44,971 (13,291) (12,680) 29,267 (10,267) 19,000 1,231,678 10,611 31,125 31,220 1,304,634 5,813 1,310,447 1,076,507 5,950 17,155 22,196 1,121,808 4,008 1,125,816 11,018 4,407 1,010 298 4,622 97 72 71 – – 196 135 145 52 – – – 131 – – 11,311 4,614 1,357 350 4,622 487 529 745 – 480 11,798 5,143 2,102 350 5,102 Operating income Operating expenses Recharges Profit before tax Taxation Impairment charge Profit for the year Total assets Total liabilities s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 4 7 Other segment items: Capital expenditure Depreciation and amortisation Other non-cash expenses Provisions charged in the period Provisions utilised in the period Rathbone Brothers Plc Report and accounts 2008 3 Segmental information continued a Business segments continued At 31 December 2007 (restated – note 1) Investment Management £’000 Gross external revenues 141,075 Fee, commission and interest expense (33,368) 1,606 Revenues from other segments Unit Trusts £’000 30,303 (9,943) (1,606) 109,313 (47,810) (21,411) 18,754 (10,205) (1,669) Trust and Tax Central Shared Services £’000 (continuing) £’000 Total (continuing) £’000 Trust and Tax (dis- continued) £’000 Total £’000 5,586 (470) – 5,116 (4,011) (1,019) 1,297 – – 178,261 (43,781) – 20,331 (286) – 198,592 (44,067) – 1,297 (25,152) 24,099 134,480 (87,178) – 20,045 (15,123) – 154,525 (102,301) – 40,092 6,880 86 244 47,302 (14,212) 4,922 (632) 52,224 (14,844) 33,090 4,290 37,380 1,115,899 27,837 19,828 23,165 1,186,729 39,894 1,226,623 974,760 21,390 13,121 27,261 1,036,532 5,341 1,041,873 Operating income Operating expenses Recharges Profit before tax Taxation Profit for the year Total assets Total liabilities Other segment items: Capital expenditure Depreciation and amortisation Other non-cash expenses Provisions charged in the period Provisions utilised in the period 9,043 3,711 1,852 1,080 5,512 262 148 256 – – 593 290 159 58 121 – – 406 – – 9,898 4,149 2,673 1,138 5,633 319 574 149 853 801 10,217 4,723 2,822 1,991 6,434 Unallocated external revenues comprise gains on disposal of available for sale securities. b Geographical segments During 2008, the Group’s operations were 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 United Kingdom Jersey Rest of the world 2008 £’000 170,924 17,581 8,489 196,994 2007 £’000 171,556 21,686 5,350 198,592 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 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: 5 7 Assets allocated to business segments United Kingdom Jersey Rest of the world Rathbone Brothers Plc Report and accounts 2008 2008 £’000 1,245,186 8,070 25,971 1,279,227 2007 £’000 1,145,684 37,123 20,651 1,203,458 Notes to the consolidated accounts continued 3 Segmental information continued b Geographical segments continued Additions to property, plant and equipment and intangible assets United Kingdom Jersey Rest of the world c Total gross revenues Interest and similar income Fee and commission income Dividend income Net trading income Net income from sale of available for sale securities Other operating income Discontinued operations Total gross revenues Interest expense and similar charges Fee and commission expense Discontinued operations Total operating income (including discontinued operations) 4 Business combinations 2008 £’000 11,297 445 70 11,812 2008 £’000 69,095 106,656 134 480 – 1,986 18,643 196,994 (38,035) (8,565) – 150,394 2007 £’000 9,790 301 126 10,217 2007 £’000 restated (note 1) 51,573 122,130 67 1,676 1,297 1,518 20,331 198,592 (32,282) (11,499) (286) 154,525 On 1 April 2008, the Group acquired the entire share capital of Citywall Financial Management Limited for cash consideration of £1,214,000. Contingent, deferred consideration is also payable dependent on the value of discretionary funds under management introduced by the business at 5 April 2009 and 30 September 2009. The acquired business’ net assets at the acquisition date were as follows: Cash and cash equivalents Other current assets Property, plant and equipment Client relationships Current liabilities Net identifiable assets acquired Goodwill on acquisition Purchase consideration Recognised Fair value values adjustments £’000 £’000 Carrying amounts £’000 – – – 565 – 565 480 115 10 – (225) 380 480 115 10 565 (225) 945 664 1,609 Included within the Consolidated income statement for the year is a loss before tax, including acquisition costs, of £62,000 relating to the acquired business. If the business had been acquired on 1 January 2008, consolidated operating income from continuing operations would have been £131,986,000 and consolidated profit before income tax from continuing operations would have been £42,779,000. The goodwill arising on the acquisition is attributable to the anticipated profitability of incorporating the business into the Group’s operating model. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 6 7 5 Net interest income Interest income Investment securities Other Interest expense Banks and customers 6 Net fee and commission income Fee and commission income Investment Management Unit Trusts Trust and Tax Fee and commission expense Investment Management Unit Trusts 7 Dividend income 2008 £’000 48,937 20,158 69,095 2008 £’000 38,035 2008 £’000 83,168 18,589 4,899 2007 £’000 restated (note 1) 34,327 17,246 51,573 2007 £’000 restated (note 1) 32,282 2007 £’000 restated (note 1) 90,166 27,057 4,907 106,656 122,130 2008 £’000 1,827 6,738 8,565 2007 £’000 1,559 9,940 11,499 Dividend income comprises income from available for sale equity securities of £134,000 (2007: £67,000). 8 Net trading income s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N Unit Trusts net dealing profits Increase/(decrease) in value of derivative financial instruments (note 24) 2008 £’000 458 22 480 7 7 2007 £’000 1,721 (45) 1,676 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 9 Operating expenses Staff costs (note 10) Depreciation of property, plant and equipment (note 20) Amortisation of internally generated intangible assets included in operating expenses (note 19) Amortisation of purchased intangible assets included in operating expenses (note 19) Auditor’s remuneration (see below) Impairment losses on loans and advances (note 17) Operating lease rentals Other Other operating expenses Additional levy for Financial Services Compensation Scheme(i) Total operating expenses 2008 £’000 57,859 2,122 276 2,216 525 58 4,173 20,362 87,591 1,404 88,995 2007 £’000 restated (note 1) 59,378 2,161 228 1,760 550 – 3,572 19,529 87,178 – 87,178 (i) The recent arrangements put in place by the Financial Services Compensation Scheme (‘FSCS’) to protect the depositors of Bradford & Bingley and other failed deposit-taking institutions will result in a significant increase in the levies made by the FSCS on the industry. The Group has accrued £1.4 million in 2008 in respect of its share of the cost of FSCS borrowings; this additional charge is expected to be billed as part of the 2008/9 and 2009/10 levy years. Further charges are likely to be incurred in future years although the ultimate cost remains uncertain (note 33). A more detailed analysis of auditor’s remuneration is provided below: Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and their associates for other services to the Group: – audit of the Company’s subsidiaries pursuant to legislation – other services pursuant to legislation – tax services – other services Total auditor’s remuneration for continuing operations Discontinued operations Total s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 8 7 10 Staff costs Wages and salaries Social security costs Share based payments Pension costs (note 28): – defined benefit schemes – defined contribution schemes Rathbone Brothers Plc Report and accounts 2008 2008 £’000 127 248 95 23 32 525 77 602 2008 £’000 48,165 5,472 1,299 1,942 981 2,923 57,859 2007 £’000 restated (note 1) 122 228 94 – 106 550 114 664 2007 £’000 restated (note 1) 47,708 5,686 2,692 2,554 738 3,292 59,378 10 Staff costs continued The average number of employees during the year was as follows: Investment Management Unit Trusts Trust and Tax Central Shared Services Continuing operations Discontinued operations 11 Income tax expense Current tax Adjustments in respect of previous years Deferred tax (note 21) 2008 438 31 43 172 684 126 810 2007 restated (note 1) 409 31 47 157 644 150 794 2008 £’000 11,434 (178) 2,233 13,489 2007 £’000 restated (note 1) 11,942 (32) 2,302 14,212 The tax charge on profit from continuing operations for the year is higher (2007: higher) than the standard rate of corporation tax in the UK of 28.5% (2007: 30%). The differences are explained below: Tax on profit from ordinary activities at the standard rate of 28.5% (2007 – 30%) Effects of: Disallowable expenses Share-based payments Tax on overseas earnings Underprovision for tax in previous years Effect of change in corporation tax rate 2008 £’000 12,185 388 273 64 579 – 2007 £’000 restated (note 1) 14,190 596 (854) (311) 45 546 Income tax expense 13,489 14,212 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 £605,000 has been credited directly to equity (2007: £635,000 credited to equity). The standard rate of corporation tax in the UK applicable for the accounting year ended 31 December 2008 takes account of the reduction in the UK tax rate to 28% from 30% effective on 6 April 2008. 12 Disposal groups and discontinued operations On 17 July 2008, the Group announced its intention to exit its international trust businesses. On 15 October 2008 the Group disposed of its subsidiaries Rathbone Trust Company Jersey Limited and Rathbone Jersey Limited. On 10 February 2009, the Group disposed of its subsidiary Rathbone Trust Company SA. On 30 January 2009, agreement was reached regarding the sale of Rathbone Trust (Singapore) Pte. Limited and non- binding heads of terms were signed with the management of Rathbone Trust Company (BVI) Limited. The sales of these companies have conditions precedent that remain unfulfilled. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 9 7 Notes to the consolidated accounts continued 12 Disposal groups and discontinued operations continued The results of the discontinued operations, which have been included in the consolidated income statement, were as follows: Operating income Operating expenses Profit before tax from discontinued operations Attributable tax credit/(expense) Profit after tax from discontinued operations Loss recognised on remeasurement of assets of the disposal group Attributable tax expense Loss from discontinued operations 2008 £’000 18,643 (16,428) 2,215 198 2,413 (12,680) – (10,267) 2007 £’000 20,045 (15,123) 4,922 (632) 4,290 – – 4,290 The operations of these businesses are included within Trust and Tax in the segmental analysis in note 3. The major classes of assets and liabilities comprising the operations classified as held for sale are as follows: Cash and balances at central banks Loans and advances to banks Loans and advances to customers Intangible assets Property, plant and equipment Prepayments, accrued income and other assets Non-current assets held for sale Accruals, deferred income, provisions and other liabilities Non-current liabilities held for sale Net assets of the disposal group 13 Dividends Amounts recognised as distributions to equity holders in the year: – final dividend for the year ended 31 December 2007 of 25.0p (2006: 21.5p) per share – interim dividend for the year ended 31 December 2008 of 16.0p (2007: 16.0p) per share Proposed final dividend for the year ended 31 December 2008 of 26.0p (2007: 25.0p) per share 2008 £’000 21 790 4,153 46 148 655 5,813 4,008 4,008 1,805 2008 £’000 2007 £’000 10,662 6,841 17,503 9,107 6,807 15,914 11,143 10,672 The interim dividend of 16.0p per share was paid on 8 October 2008 to shareholders on the register at the close of business on 19 September 2008. The final dividend declared of 26.0p per share is payable on 13 May 2009 to shareholders on the register at the close of business on 17 April 2009. 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. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 0 8 14 Earnings per share Basic earnings per share has been calculated by dividing the proﬁts attributable to shareholders of £19,000,000 (2007: £37,380,000) by the weighted average number of shares in issue throughout the year of 42,745,197 (2007: 42,536,821). 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). Weighted average number of ordinary shares in issue during the year – basic Effect of ordinary share options Effect of dilutive shares issuable under the Share Incentive Plan Effect of contingently issuable ordinary shares under the Long Term Incentive Plan 2008 2007 42,745,197 172,845 7,998 172,823 42,536,821 461,167 85,535 148,431 Diluted weighted average number of ordinary shares 43,098,863 43,231,954 Earnings per share from discontinued operations and underlying earnings per share were as follows. Earnings per share from discontinued operations for the year attributable to equity holders of the Company: Basic (p) Diluted (p) Underlying earnings per share from continuing operations for the year attributable to equity holders of the Company: Basic (p) Diluted (p) 2008 2007 (24.02)p (23.82)p 70.81p 70.23p 10.09p 9.92p 75.66p 74.44p Underlying earnings per share has been calculated with reference to the proﬁts after tax from continuing operations, excluding the post-tax charge arising from the additional levy for the Financial Services Compensation Scheme of £1,004,000 (2007: £nil) and post-tax gains on disposal of London Stock Exchange Plc shares of £nil (2007: £908,000). 15 Cash and balances at central banks Cash in hand (note 35) Mandatory reserve deposits 2008 £’000 3 348 351 2007 £’000 4 271 275 Mandatory reserve deposits, which are held with central banks, are not available for use in the Group’s day to day operations. Cash in hand, balances with central banks and mandatory reserve deposits are non-interest bearing. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 1 8 Notes to the consolidated accounts continued 16 Loans and advances to banks Repayable: – on demand or at short notice – 3 months or less excluding on demand or at short notice – 1 year or less but over 3 months Amounts include loans with: – variable interest rates – fixed interest rates – non interest bearing 2008 £’000 2007 £’000 25,900 150,073 – 175,973 27,188 148,614 171 175,973 101,774 143,329 5,000 250,103 38,794 211,014 295 250,103 The fair value of loans and advances is not materially different to their carrying amount. Fair value has been calculated as the discounted amount of estimated future cash flows expected to be received using current market rates. Loans and advances to banks included in cash and cash equivalents at 31 December 2008 were £175,227,000 (2007: £214,216,000). The Group’s exposure to credit risk arising from loans and advances to banks is described in note 31. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 2 8 Rathbone Brothers Plc Report and accounts 2008 17 Loans and advances to customers Repayable: – on demand or at short notice – 3 months or less excluding on demand or at short notice – 1 year or less but over 3 months – 5 years or less but over 1 year – over 5 years Less: allowance for losses on loans and advances Amounts include loans with: – variable interest rates – fixed interest rates – non interest bearing 2008 £’000 11,243 5,883 14,823 7,155 483 (175) 39,412 25,695 5,887 7,830 39,412 2007 £’000 20,402 11,268 7,835 514 – (639) 39,380 21,510 4,918 12,952 39,380 The fair value of loans and advances is not materially different from their carrying amount. Fair value has been calculated as the discounted amount of estimated future cash flows expected to be received using current market rates. Debtors arising from the Group’s trust and pensions advisory activities are non interest bearing. No banking loans and advances to customers were impaired as at 31 December 2008 (2007: none impaired). The allowance for losses on loans and advances relate to debtors for trust and pension services. The total debtors in relation to trust and pension services included in loans and advances to customers as at 31 December 2008 amount to £1,021,000 (2007: £11,034,000). Included within loans and advances to customers repayable within 5 years but after more than 1 year are vendor loan notes (‘notes’) with a nominal value of £5,000,000 that were issued on disposal of the Company’s holding of two subsidiaries (see note 12) under a management buy-out (MBO). The notes are repayable on the occurrence of certain events, principally the refinancing of the businesses disposed of under the MBO. The notes bear no interest for three years from issue. Interest is then receivable at the Bank of England base rate on half of the notes’ nominal value (currently £2,500,000) for the following two years. Thereafter, interest is receivable on the notes’ full nominal value at the Bank of England base rate. The carrying value of the notes has been discounted to £3,268,000 at 31 December 2008 and interest income is recognised over the expected life of the notes under the effective interest rate method. Allowance for losses on loans and advances At 1 January Exchange rate adjustment Amounts written off Charge to the income statement – continuing operations – discontinued operations Transferred on disposal of business Transferred to non-current assets held for sale At 31 December 2008 £’000 639 130 (350) 58 732 (427) (607) 175 2007 £’000 690 13 (194) – 130 – – 639 The Group’s exposure to credit risk arising from loans and advances to customers is described in note 31. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 3 8 Notes to the consolidated accounts continued 18 Investment securities Available for sale securities Equity securities – at fair value: – listed – unlisted Money market funds – unlisted Held to maturity securities Debt securities – at amortised cost: – listed – unlisted Maturity of debt securities Due within 1 year Due after more than 1 year 2008 £’000 1,529 1,462 79,000 81,991 2008 £’000 1,001 873,978 874,979 2008 £’000 849,979 25,000 874,979 2007 £’000 5,934 1,014 – 6,948 2007 £’000 10,061 755,213 765,274 2007 £’000 765,274 – 765,274 Debt securities comprise bank and building society certificates of deposit, Gilts and treasury bills. Certificates of deposit and Gilts have fixed coupons. Treasury bills are non interest bearing. The fair value of debt securities at 31 December 2008 was £894,968,000 (2007: £780,444,000). Fair value for held to maturity assets is based on market bid prices. Available for sale securities include money market funds and direct holdings in equity securities. Equity securities do not bear interest. Money market funds, which declare daily dividends that are in the nature of interest at a variable rate and which are realisable on demand, have been included within cash equivalents (note 35). The Group has not reclassified any financial asset from being measured at amortised cost to being measured at fair value through profit and loss during the year (2007: none reclassified). The Group has not designated at initial recognition any financial asset as at fair value through profit or loss. Realised gains on disposal of available for sale securities in the year were £nil (2007: £1,297,000, arising from the sale of 100,000 shares of London Stock Exchange Group Plc). The Group continues to hold 300,000 shares in London Stock Exchange Group Plc. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 4 8 The movement in investment securities may be summarised as follows: At 1 January 2007 Exchange rate adjustment Additions Disposals (sale and redemption) Gain from changes in fair value At 1 January 2008 Additions Disposals (sale and redemption) Loss from changes in fair value At 31 December 2008 Rathbone Brothers Plc Report and accounts 2008 Available for sale £’000 Held to maturity £’000 6,152 24 – (1,297) 2,069 6,948 369,000 (290,000) (3,957) 558,368 – 1,276,420 (1,069,514) – 765,274 2,545,080 (2,435,375) – Total £’000 564,520 24 1,276,420 (1,070,811) 2,069 772,222 2,914,080 (2,725,375) (3,957) 81,991 874,979 956,970 19 Intangible assets Goodwill Other intangible assets Goodwill Cost At 1 January Exchange rate adjustment Adjustment to goodwill Transferred to assets held for sale Additions Disposals Accumulated impairment losses At 1 January Impairment charge recognised in the year Transferred to assets held for sale 2008 £’000 47,023 21,209 68,232 2007 £’000 70,536 15,198 85,734 2008 £’000 2007 £’000 70,536 247 – (887) 677 (23,550) 47,023 – 887 (887) – 69,965 20 (17) – 568 – 70,536 – – – – Net carrying amount of goodwill at 31 December 47,023 70,536 Additions to goodwill include £664,000 arising on the acquisition of Citywall Financial Management Limited (see note 4) and £13,000 of additional deferred consideration paid following the acquisition of Rathbone Trust Singapore Pte. Limited on 2 April 2007. The net book value of goodwill transferred to assets held-for-sale was £nil (note12). Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows: Investment Management Trust and Tax (UK) Trust and Tax (Jersey) Trust and Tax (Rest of the World) 2008 £’000 45,069 1,954 – – 47,023 2007 £’000 44,405 1,954 23,550 627 70,536 The recoverable amounts of goodwill allocated to the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates and growth rates during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management, covering the forthcoming year, extrapolated based on a medium to long term growth rate of 2% (2007: 3%). The pre-tax rate used to discount the forecast cash flows is 11.50% (2007: 10.55%). Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 5 8 Notes to the consolidated accounts continued 19 Intangible assets continued Other intangible assets Cost At 1 January 2007 Exchange adjustment Internally developed in year Purchased in year Acquired through business combinations At 31 December 2007 Exchange adjustment Internally developed in year Purchased in year Acquired through business combinations (note 4) Disposals Transferred to non-current assets held for sale (note 12) At 31 December 2008 Amortisation At 1 January 2007 Charge for the year – continuing – discontinued At 31 December 2007 Charge for the year – continuing – discontinued Disposals Transferred to non-current assets held for sale (note 12) Software Acquired client development costs £’000 relationships £’000 Purchased software £’000 Total £’000 10,023 4 – 4,261 93 14,381 (8) – 6,317 565 – (87) 1,100 – 325 – – 1,425 – 433 – – – – 8,125 – – 1,235 – 9,360 – – 1,268 – (46) – 19,248 4 325 5,496 93 25,166 (8) 433 7,585 565 (46) (87) 21,168 1,858 10,582 33,608 507 643 6,815 7,965 974 15 1,496 1,310 26 – (41) 228 – 871 276 – – – 786 – 1,988 15 7,601 9,968 906 – (46) – 2,492 26 (46) (41) At 31 December 2008 2,791 1,147 8,461 12,399 Carrying amount at 31 December 2008 18,377 711 2,121 21,209 Carrying amount at 31 December 2007 Carrying amount at 1 January 2007 12,885 9,516 554 457 1,759 15,198 1,310 11,283 Purchased software with a cost of £6,756,000 (2007: £5,948,000) has been fully amortised but is still in use. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 6 8 Rathbone Brothers Plc Report and accounts 2008 20 Property, plant and equipment Cost At 1 January 2007 Exchange adjustments Additions Acquired through business combinations Disposals At 31 December 2007 Exchange adjustment Additions Acquired through business combinations (note 4) Transferred to non-current assets held for sale (note 12) Disposals At 31 December 2008 Depreciation At 1 January 2007 Exchange adjustments Charge for the year – continuing – discontinued Disposals At 31 December 2007 Exchange adjustments Charge for the year – continuing – discontinued Acquired through business combinations Transferred to non-current assets held for sale (note 12) Disposals At 31 December 2008 Carrying amount at 31 December 2008 Carrying amount at 31 December 2007 Carrying amount at 1 January 2007 Short term leasehold property £’000 5,184 7 2,429 – (245) 7,375 74 1,415 – (245) (1,982) 6,637 2,020 4 882 38 (243) 2,701 56 697 72 – (198) (407) 2,921 3,716 4,674 3,164 Plant and equipment £’000 17,439 44 1,967 9 (4,776) 14,683 454 2,365 116 (1,541) (2,442) 13,635 14,140 38 1,279 521 (4,752) 11,226 419 1,425 431 106 (1,440) (1,632) 10,535 3,100 3,457 3,299 Total £’000 22,623 51 4,396 9 (5,021) 22,058 528 3,780 116 (1,786) (4,424) 20,272 16,160 42 2,161 559 (4,995) 13,927 475 2,122 503 106 (1,638) (2,039) 13,456 6,816 8,131 6,463 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N All property included above is occupied by the Group for its own activities. The fair value of property, plant and equipment is not materially different from its carrying value. 7 8 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 21 Deferred tax asset Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 28% (2007: 28%). The movement on the deferred tax account is as follows: ` At 1 January Adjustments in respect of prior years: – charged to the income statement – (charged)/credited directly to equity Other movements in deferred tax: – amounts charged to the income statement – actuarial gains and losses – share based payments – available for sale securities: – fair value measurement – transfer to net profit Effect of change in corporation tax rate on deferred tax: – charged to the income statement – credited directly to equity Disposals At 31 December Deferred tax assets Excess of depreciation Share based payments Staff related costs Pensions Deferred income Deferred tax liabilities Available for sale securities Intangible assets Unremitted overseas earnings s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 8 8 The deferred tax charge in the income statement comprises the following temporary differences: Excess of depreciation Share based payments Staff related costs Pensions Unremitted overseas earnings Intangible assets Other provisions Effect of change in corporation tax rate Discontinued operations Rathbone Brothers Plc Report and accounts 2008 2008 £’000 (489) 661 754 217 339 678 73 – 2,233 (490) 1,743 2008 £’000 3,528 (87) (419) (1,656) 12 (96) 1,108 – – – 93 2007 £’000 5,321 (4) 160 (1,977) (75) 588 (621) 389 (447) 194 – 2,483 3,528 2008 £’000 709 658 1,627 1,602 396 4,992 2008 £’000 824 1,346 339 2,509 2007 £’000 220 1,833 2,381 1,807 461 6,702 2007 £’000 1,926 848 400 3,174 2007 £’000 restated (note 1) 854 117 (449) 1,131 – 136 (34) 547 2,302 126 2,428 21 Deferred tax asset continued Deferred income tax liabilities of £684,000 (2007: £554,000) have not been recognised in respect of unremitted earnings of certain subsidiaries as such amounts are not expected to be remitted to the UK. Unremitted earnings totalled £3,804,000 at 31 December 2008 (2007: £3,080,000). 22 Prepayments, accrued income and other assets Trust work in progress Prepayments Accrued income 23 Deposits by banks 2008 £’000 664 5,475 32,507 38,646 2007 £’000 3,661 9,629 32,387 45,677 The Group has drawn down £9,201,000 (2007: £12,267,000) of an unsecured term loan which is repayable in six six-monthly instalments ending on 4 April 2011. Interest is payable on the loan at 0.7% above the London Inter-Bank Offer Rate. At 31 December 2007, deposits by banks also included short term overdraft balances totalling £193,000. The fair value of deposits by banks was not materially different from the carrying value. Fair value has been calculated as the discounted amount of estimated future cash flows expected to be paid using current market rates. 24 Derivative ﬁnancial instruments From time to time, the Group uses over the counter Forward Rate Agreements (FRAs) to manage its net exposure to interest rate risk. The Group’s interest in these contracts does not meet the requirements of IAS 39 to qualify for hedge accounting. No FRAs were outstanding at 31 December 2008 (2007: FRAs with a nominal value of £10,000,000). The total liability recognised in relation to contracts with a negative fair value at 31 December 2008 was £nil (2007: £22,000) (note 26). 25 Due to customers Repayable: – on demand or at short notice – 3 months or less excluding on demand or at short notice – 1 year or less but over 3 months – 5 years or less but over 1 year Amounts include: – variable interest rates – fixed interest rates – non interest bearing 2008 £’000 2007 £’000 677,056 349,751 13,656 3,888 1,044,351 639,197 394,678 10,476 1,044,351 639,880 305,381 1,302 45 946,608 554,640 382,931 9,037 946,608 The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value of deposits with no stated maturity, which includes non interest bearing deposits, is the amount repayable on demand. The estimated fair value of fixed-interest bearing deposits is based on discounted cash flows using interest rates for new debts with similar remaining maturity. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 9 8 Notes to the consolidated accounts continued 26 Accruals, deferred income, provisions and other liabilities Creditors Derivative financial instruments (note 24) Accruals and deferred income Other provisions (note 27) 2008 £’000 8,295 – 25,191 8,964 42,450 2007 £’000 10,097 22 31,359 8,159 49,637 On 5 November 2008, Rathbone Unit Trust Management Limited, a subsidiary of the Group, issued 22,225 ‘B’ Shares. The ‘B’ Shares entitle the holder to require another subsidiary of the Group to purchase the ‘B’ Shares at a value determined with reference to the growth in value of Rathbone Unit Trust Management Limited, compared to its value at 31 December 2007. At 31 December 2008, £65,000 was included in Creditors, representing the estimated present value of the future liability. The fair value of the ‘B’ Shares will be updated at each reporting date with changes in value being taken to profit or loss. 27 Other provisions At 1 January 2008 Exchange adjustments Charged to the income statement – continuing Unused amount credited to the income statement – continuing Net credit to the income statement(i) Capitalised during the year(ii) Utilised/paid during the year Transferred to non-current liabilities held for sale (note 12) Transferred on disposal of business At 31 December 2008 Current Non-current Deferred contingent consideration £’000 Client compensation and other £’000 Litigation related £’000 5,843 – – – – 6,712 (4,628) – – 7,927 5,705 2,222 7,927 1,975 35 298 (940) (642) – (210) (76) (75) 1,007 1,007 – 1,007 341 8 52 – 52 – (264) (13) (94) 30 30 – 30 Total £’000 8,159 43 350 (940) (590) 6,712 (5,102) (89) (169) 8,964 6,742 2,222 8,964 (i) In addition to the net credit of £590,000 (2007: charge on continuing operations of £1,184,000) to the income statement in the above table, a net charge of £nil (2007: credit from continuing operations of £119,000) has been recognised in the income statement during the period in relation to expected insurance recoveries resulting in a net credit to the income statement for other provisions of £590,000 (2007: charge on continuing operations of £1,065,000). (ii) Amounts capitalised during the period comprise £395,000 deferred consideration in relation to the acquisition of Citywall Financial Management Limited (see note 4) and £6,317,000 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 2008, anticipated insurance recoverables relating to client compensation and litigation related provisions of £450,000 (2007: £477,000) 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. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 0 9 28 Long term employee beneﬁts 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 £952,000 (2007: £697,000). The Group also operates defined contribution schemes for overseas employees, for which the total contributions were £518,000 (2007: £581,000) of which £489,000 relates to discontinued operations (2007: £540,000). 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 Group provides death in service benefits to all employees through the 1987 pension scheme. Third party insurance is purchased for the benefits where available and £864,000 of related insurance premia were expensed to the income statement in the year (2007: £624,000). The estimated present value of the uninsured death in service benefits is included in long term employee benefits liabilities. 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 follows: Rathbone 1987 Scheme Laurence Keen Scheme 31 December 2007 31 December 2005 The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale covered, by the liability, may not necessarily be borne out in practice. The principal actuarial assumptions used, which reflect the different membership profiles of the schemes, were: Rate of increase in salaries Rate of increase in pensions in payment Rate of increase in deferred pensions Discount rate Expected return on scheme assets Inflation assumption * 5% for service prior to April 2001 2008 Laurence Keen Scheme % 2008 Laurence Keen Scheme % Rathbone 1987 Scheme % 2007 2007 Rathbone 1987 Scheme % 4.05 3.40 2.80 6.15 5.30 2.80 4.55 *3.60 3.30 5.70 6.10 3.30 4.05 2.80 2.80 6.15 6.40 2.80 4.55 *3.20 3.30 5.70 7.10 3.30 The assumed duration of the liabilities for both schemes is 25 years (2007: 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 PA00 actuarial tables. In 2008, 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, with a 0.75% underpin for males and a 0.5% underpin for females. The assumed life expectations on retirement were: Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 1 9 Notes to the consolidated accounts continued 28 Long term employee beneﬁts continued Retiring today – aged 60 – aged 65 Retiring in 20 years – aged 60 – aged 65 2008 Males 26.7 21.9 28.4 23.5 2008 Females 29.0 24.1 30.3 25.3 2007 Males 24.7 20.0 25.9 21.1 2007 Females 27.7 22.9 28.7 23.9 The amount included in the balance sheet arising from the Group’s obligations in respect of the schemes is as follows: Present value of defined benefit obligations Fair value of scheme assets Deficit in schemes Death in service benefit reserve (unfunded) 2008 Laurence Keen Scheme £’000 2008 Rathbone 1987 Scheme £’000 2007 Laurence Keen Scheme £’000 2007 Rathbone 1987 Scheme £’000 2008 Total £’000 2007 Total £’000 (9,750) 8,760 (54,243) 50,551 (63,993) (10,301) 59,311 9,708 (60,274) 54,415 (70,575) 64,123 (990) – (3,692) (1,041) (4,682) (1,041) (593) – (5,859) – (6,452) – Total deficit (990) (4,733) (5,723) (593) (5,859) (6,452) The amounts recognised in the income statement, within operating expenses, are as follows: Current service cost Interest cost Expected return on scheme assets 2008 Laurence Keen Scheme £’000 2008 Rathbone 1987 Scheme £’000 2008 Total £’000 – 579 (615) 2,556 3,435 (4,013) 2,556 4,014 (4,628) 2007 Laurence Keen Scheme £’000 – 532 (551) 2007 Rathbone 1987 Scheme £’000 3,083 2,897 (3,407) 2007 Total £’000 3,083 3,429 (3,958) (36) 1,978 1,942 (19) 2,573 2,554 Actuarial gains and losses have been reported in the statement of recognised income and expense. The actual return on scheme assets was a fall in value of £1,100,000 (2007: £621,000 increase in value) for the Laurence Keen Scheme and a fall in value of £7,750,000 (2007: £3,317,000 increase in value) 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: At 1 January Actuarial (losses)/gains recognised in the year 2 9 At 31 December 2008 Laurence Keen Scheme £’000 2008 Rathbone 1987 Scheme £’000 593 (888) (295) 123 844 967 2007 Laurence Keen Scheme £’000 2007 Rathbone 1987 Scheme £’000 245 348 593 201 (78) 123 2008 Total £’000 716 (44) 672 2007 Total £’000 446 270 716 Movements in the present value of defined benefit obligations were as follows: 2008 Laurence Keen Scheme £’000 10,301 – 579 – (827) (303) 2008 Rathbone 1987 Scheme £’000 60,274 2,556 3,435 1,267 (11,521) (727) 2008 Total £’000 70,575 2,556 4,014 1,267 (12,348) (1,030) 2007 Laurence Keen Scheme £’000 10,423 – 532 – (278) (376) 2007 Rathbone 1987 Scheme £’000 53,982 3,083 2,897 1,030 (12) (706) 2007 Total £’000 64,405 3,083 3,429 1,030 (290) (1,082) 9,750 55,284 65,034 10,301 60,274 70,575 At 1 January Service cost (employer’s part) Interest cost Contributions from members Actuarial gains Benefits paid At 31 December Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 28 Long term employee beneﬁts continued Movements in the fair value of scheme assets were as follows: At 1 January Expected return on scheme assets Actuarial gains/(losses) Contributions from the sponsoring companies Contributions from scheme members Benefits paid 2008 Laurence Keen Scheme £’000 9,708 615 (1,715) 455 – (303) 2008 Rathbone 1987 Scheme £’000 54,415 4,013 (10,677) 2,260 1,267 (727) 2008 Total £’000 64,123 4,628 (12,392) 2,715 1,267 (1,030) 2007 Laurence Keen Scheme £’000 8,996 551 70 467 – (376) 2007 Rathbone 1987 Scheme £’000 44,646 3,407 (90) 6,128 1,030 (706) 2007 Total £’000 53,642 3,958 (20) 6,595 1,030 (1,082) At 31 December 8,760 50,551 59,311 9,708 54,415 64,123 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 Equity instruments Debt instruments Cash Rathbone 1987 Scheme Equity instruments Debt instruments Interest rate swap funds Cash 1.1.08 Expected return % 1.1.07 Expected return % 7.35 4.10 2.00 7.60 4.40 4.40 2008 Fair value £’000 3,494 4,694 572 2007 Fair value £’000 5,180 4,161 367 8,760 9,708 2008 Current allocation % 2007 Current allocation % 40 54 6 53 43 4 1.1.08 Expected return % 1.1.07 Expected return % 7.35 6.15 4.10 2.00 7.60 5.70 n/a 4.40 2008 Fair value £’000 33,232 5,431 9,135 2,753 2007 Fair value £’000 42,099 9,323 – 2,993 50,551 54,415 2008 Current allocation % 2007 Current allocation % 67 11 16 6 77 17 – 6 On 15 May 2008, the Rathbone 1987 Scheme acquired 496 shares in an interest rate swap fund for £5,000,000. The fund is invested in long dated interest rate swaps, the duration of which is intended to broadly align with the duration of the scheme’s liabilities. The expected return on equities was assumed to be 3.25% above the return on long dated Gilts (2007: 3.20% 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: UK equities Overseas equities Fixed interest stocks Cash deposits Laurence Keen Scheme Rathbone 1987 Scheme 35% – 55% 0% – 15% 45% – 65%* 45% – 65%* 43% – 57% 21% – 35% 14% – 28% 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. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 3 9 Notes to the consolidated accounts continued 28 Long term employee beneﬁts continued The sensitivities regarding the principal assumptions used to measure the schemes’ liabilities are set out below: 0.5% increase to: – Discount rate – Rate of inflation – Rate of salary growth 1 year increase to longevity at 60 The history of experience adjustments is as follows: Laurence Keen Scheme Present value of defined benefit obligations (£’000) Fair value of scheme assets (£’000) Combined Impact on Schemes’ Liabilities (Decrease)/Increase £’000 (Decrease)/Increase % (6,071) 4,701 2,923 1,620 (9.5) 7.3 4.6 2.5 2008 2007 2006 2005 2004 (9,750) (10,301) 8,760 9,708 (10,423) 8,996 (11,697) 8,118 (9,552) 6,836 Deficit in the scheme (£’000) (990) (593) (1,427) (3,579) (2,716) Experience adjustments on scheme liabilities: – amount (£’000) – percentage of scheme liabilities Experience adjustments on scheme assets: – amount (£’000) – percentage of scheme assets Rathbone 1987 Scheme 248 3% 104 1% 1,592 15% 1,864 16% 1,715 20% 70 1% 85 1% 539 7% 466 5% 359 5% 2008 2007 2006 2005 2004 Present value of defined benefit obligations (£’000) Fair value of scheme assets (£’000) (55,284) 50,551 (60,274) (53,982) (50,501) (38,214) 25,947 54,415 44,646 35,370 Deficit in the scheme (£’000) (4,733) (5,859) (9,336) (15,131) (12,267) Experience adjustments on scheme liabilities: – amount (£’000) – percentage of scheme liabilities (%) Experience adjustments on scheme assets: – amount (£’000) – percentage of scheme assets (%) 2,937 5% 1,264 2% 3,038 6% 7,138 14% 1,881 5% 10,677 21% 90 – 753 2% 4,297 12% 1,132 4% The total regular contributions made by the Group to the Rathbone 1987 Scheme during the year were £2,260,000 (2007: £2,238,000) based on 13.9% of pensionable salaries (2007: 13.9%). No additional lump sum contributions were paid in 2008 (2007: £3,890,000). Following the triennial valuation of the Rathbone 1987 Scheme, the Group has committed to make additional contributions to the scheme of £2,750,000 per year until 2016. 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 £455,000 (2007: 467,000). 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. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 4 9 29 Share capital The total authorised number of ordinary shares at 31 December 2008 was 100,000,000 (2007: 100,000,000) with a par value of £0.05 per share. All issued shares are fully paid. The following movements in share capital occurred during the period: At 1 January 2007 Issue of shares in relation to: – share incentive plan – exercise of options At 1 January 2008 Issue of shares in relation to: – exercise of options At 31 December 2008 Number of shares 42,276,852 Exercise price Pence Share capital £’000 Share premium £’000 Total £’000 2,114 24,518 26,632 55,693 357,397 1,174.0 372.0 – 1,172.0 3 17 651 2,589 654 2,606 42,689,942 2,134 27,758 29,892 168,254 415.0 – 852.0 9 1,199 1,208 42,858,196 2,143 28,957 31,100 Share incentive plan and long term incentive plan The Group operates a share incentive plan (SIP), which is available to all employees. Employees can contribute up to £125 per month to acquire shares which are acquired twice a year at the end of six month accumulation periods. The Group currently matches employee contributions on a one for one basis to acquire matching shares. The Group also provides performance related free shares, with eligible employees receiving shares valued at the rate of £100 per 1% real increase in EPS up to a maximum of £3,000 per annum. For UK employees, SIP dividends are reinvested and used to purchase shares, whilst for overseas employees dividends are paid in cash. Details of the general terms of the Long Term Incentive Plan are set out in the Remuneration report on pages 37 to 45. As at 31 December 2008, the trustees of the Share Incentive Plan held 1,290,392 (2007: 1,275,224) ordinary shares of 5p each in Rathbone Brothers Plc with a total market value of £10,755,417 (2007: £13,389,852). No dividends on these shares have been waived. Of the total number of shares held by the trustees 412,701 (2007: 505,001) have been conditionally gifted to employees. At 31 December 2008, the trustees of the Long Term Incentive Plan held 47,193 (2007: 74,794) ordinary shares of 5p each in Rathbone Brothers Plc with a total market value of £393,354 (2007: £785,337). Dividends on these shares have been waived by the trustees. Equity settled share option scheme The Company has a share option scheme for all employees of the Group. Under the scheme, certain employees hold options to subscribe for shares in the Company at prices ranging from 415p to 1172p under the share option schemes approved by shareholders in 1993 (as amended in 1996), 1996 and 2000. Options are conditional on the employee completing three years’ service (the vesting period) and are exercisable three years from grant date. The options have a contractual option term of seven years from the date that they become exercisable. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 5 9 Notes to the consolidated accounts continued 29 Share capital continued Movements in the number of share options outstanding were as follows: At 1 January Granted in the year Forfeited in the year Exercised in the year At 31 December 2008 Number of share options 1,049,099 30,000 (3,882) (168,254) 906,963 2008 Weighted average exercise price (£) 7.64 8.14 9.07 7.17 7.74 2007 Number of share options 1,413,651 – (7,155) (357,397) 1,049,099 2007 Weighted average exercise price (£) 7.56 – 8.45 7.29 7.64 The weighted average share price at the dates of exercise for share options exercised during the year was £9.24 (2007: £12.76). The options outstanding at 31 December 2008 had a weighted average contractual life of 4.0 years (2007: 4.9 years). Options exercisable at 31 December 2008 had a weighted average exercise price of £7.11 (2007: £7.12). Options with an aggregate estimated fair value of £49,000, determined using a binomial valuation model including expected dividends, were granted on 22 August 2008. The inputs into the binomial model for options granted during the year, as at the date of issue, were as follows: Share price Exercise price Expected volatility Risk free rate Expected dividend yield £8.14 £8.14 26.0% 4.6% 5.0% The number of share options outstanding at the end of the year, the periods in which they were granted and the periods in which they may be exercised are given below: Year of grant 1998 1999 1999 2000 2001 2001 2001 2001 2002 2003 2004 2004 Exercisable at 31 December 2007 2005 Exercisable at 31 December 2008 2006 2006 2008 Exercise price (p) 643.30 732.50 814.17 932.50 985.00 827.50 915.80 665.33 810.00 415.00 743.50 690.00 Exercise period 2001–2008 2002–2009 2002–2009 2003–2010 2004–2011 2004–2011 2004–2011 2004–2011 2005–2012 2006–2013 2007–2014 2007–2014 852.00 2008–2015 1172.00 1116.00 813.50 2009–2016 2009–2016 2011–2018 2008 No. – 24,550 58,350 101,810 22,500 66,184 38,110 – 71,351 181,528 76,956 – 189,676 831,015 35,948 10,000 30,000 906,963 2007 No. 7,000 34,090 58,350 101,810 22,500 70,059 40,004 20,000 77,851 202,031 90,084 35,000 758,779 243,884 36,436 10,000 – 1,049,099 The Group recognised total expenses of £1,299,000 in relation to equity settled share based payments transactions in 2008 (2007: £2,692,000). Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 6 9 30 Reserves and retained earnings At 1 January 2007 Profit for the year Translation differences arising in the year Dividends paid Actuarial gains and losses Revaluation of investment securities Net gains transferred to net profit on disposal of available for sale investment securities Share based payments – value of employee services – cost of shares issued/purchased Tax on equity items At 1 January 2008 Profit for the year Translation differences arising in the year Dividends paid Actuarial gains and losses Revaluation of investment securities Transfer of merger reserve to retained earnings on disposal of subsidiary Share based payments – value of employee services – cost of shares issued/purchased Tax on equity items Merger Available for reserve sale reserve £’000 £’000 Translation reserve £’000 Total other reserves £’000 49,428 4,289 (229) 53,488 14 14 2,069 2,069 (1,297) (1,297) (93) (93) Retained earnings £’000 79,029 37,380 (15,914) 270 2,692 (3,508) 728 49,428 4,968 (215) 54,181 100,677 19,000 1,001 1,001 (17,503) (44) (3,957) (3,957) (17,593) (17,593) 17,593 1,108 1,108 1,299 (1,728) (503) At 31 December 2008 31,835 2,119 786 34,740 118,791 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. 31 Financial risk management The Group has identified the risks arising from its activities and has established policies and procedures to manage these items in accordance with its risk appetite, as described in the Group’s Internal Capital Adequacy Assessment Process, prepared in accordance with the requirements of the Financial Services Authority (the FSA) in its application of the Capital Requirements Directive. The Group categorises its financial risks into three areas: (i) (ii) (iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, currency risk and price risk). credit risk; liquidity risk; and The sections below outline the Group’s risk appetite and explain how it defines and manages each category of financial risk. The Group’s risk management policies are designed to identify and analyse the risks that the Group faces, to set appropriate risk limits and controls and to monitor the risks and adherence to limits by means of reliable and up to date information systems. The Group regularly reviews its risk management policies and systems to reflect changes in the business, counterparties, markets and the range of financial instruments that it utilises. The Group’s overall strategy and policies for monitoring and management of financial risk are set by the board of directors (the Board). The Board has embedded risk management within the business through the boards of directors of the Group’s operating subsidiaries and certain of the Board’s standing committees. The principal committees that have responsibility for the identification, mitigation and management of risks are the Executive Committee, the Audit Committee, the Risk Management Committee and the Banking Committee, which is a standing committee of the board of directors of Rathbone Investment Management Limited. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 7 9 Notes to the consolidated accounts continued 31 Financial risk management continued The Treasury Department, reporting through the Banking Committee, has principal responsibility for monitoring exposure to credit risk, liquidity risk and market risk. Procedures and delegated authorities are documented in a Group Treasury Manual and policy documents are in place to cover the management and monitoring of each type of risk. The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the Group’s risk appetite. (i) Credit risk The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its Banking, Treasury, Trust and Pensions advisory activities. The principal source of credit risk arises from placing funds with other banks and holding interest bearing securities. The Group also has exposure to credit risk through its loan books and guarantees given on clients’ behalf. It is the Group’s policy to place funds generated internally and from deposits by clients with a range of high quality financial institutions. Investments are spread to avoid excessive exposure to any individual counterparty. Loans made to clients are secured against clients’ assets that are held and managed by Group companies. Exposure to credit risk is managed through setting appropriate ratings requirements and lending limits. Limits are reviewed regularly, taking into account the ability of borrowers and potential borrowers to meet repayment obligations. The Group categorises its exposures based on the long-term ratings awarded to counterparties by Fitch Ratings Ltd (‘Fitch’) or Moody’s Corporation (‘Moody’s’). Each exposure is assessed individually, both at inception and in ongoing monitoring. In addition to formal external ratings, the banking committee also utilises market intelligence information to assist its ongoing monitoring. Settlement balances Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a daily basis. The Investment Management and Unit Trust businesses have exposure to market counterparties in the settlement of trades. Settlement balances of £6,322,000 were past due but not impaired at 31 December 2008 (2007: £1,123,000). No settlement balances were impaired at the balance sheet date (2007: nil). Loans and advances to banks and debt and other securities The Group has exposures to a wide range of financial institutions through its treasury portfolio, which includes bank deposits, certificates of deposit, money market funds and government bonds. These exposures principally arise from the placement of surplus investment management client cash, which is held under a banking relationship, and the Group’s own reserves. The Group’s policy requires that all such exposures are only taken with counterparties that have been awarded a minimum long-term rating of ‘A’ by Fitch or equivalent rating by Moody’s. Counterparty limits are also in place to limit exposure to an individual counterparty or connected group of counterparties. Counterparty exposures are monitored on a daily basis and reviewed by the Banking Committee on a monthly basis. The Banking Committee may suspend dealing in a particular counterparty, or liquidate specific holdings, in the light of adverse market information. Loans and advances to customers The Group provides loans to clients through its Investment Management operations (the Investment Management loan book) and via Rathbone International Finance B.V. (the Rathbone International Finance loan book). The Group is also exposed to credit risk on trade debtors arising from the trust and tax and pensions advisory businesses (Trust and Pension debtors). (a) Overdrafts Overdrafts on clients’ investment management accounts arise from time to time due to short-term timing differences between the purchase and sale of assets on clients’ behalf. Overdrafts are actively monitored and reported to the banking committee on a monthly basis. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 8 9 31 Financial risk management continued (i) Credit risk continued (b) Investment Management loan book Loans and short term overdrafts are provided as a service to Investment Management clients who are generally asset rich but have short to medium term cash requirements. Such loans are normally made on a fully secured basis against portfolios held in Rathbones’ nominee name and are advanced for a maximum of one year. Extensions to the initial loan period may be granted if required. The lending exposure limit for the Investment Management loan book is £25m. The Banking Committee reviews all loans on a monthly basis and approves all loan extensions. Where necessary, repayment plans are established with clients before the loan becomes overdue or uncovered. At 31 December, the total lending exposure limit for the Investment Management loan book was £25,000,000 (2007: £25,000,000) of which £12,459,000 had been advanced (2007: £11,889,000) and a further £4,555,000 had been committed (2007: £4,492,000). (c) Rathbone International Finance loan book Loans are also provided to non-UK borrowers to assist trust structures where the Group acts as trustee or provides some form of advisory role. Such loans are backed by loans to the Group from third parties which are on identical repayment and interest rate repricing terms. Loans are secured either by a legal charge over client cash or other assets under the Group’s control, or by waiver of right of recall from the third party lender in the event that the borrower is unable to repay. New loan applications and applications to extend existing facilities under the Rathbone International Finance loan book are reviewed by the directors of Rathbone International Finance B.V. and require pre-approval by the chief executive of the trust and tax business. At 31 December loans outstanding in the Rathbone International Finance loan book totalled £18,323,000 (2007: £14,343,000). (d) Trust and Pension debtors Trust and Pension debtors relate to fees which have been invoiced but not yet settled by clients. The collection and ageing of Trust and Pension debtors are reviewed on a monthly basis by the management committees of the Group’s trust and pension advisory companies. Impairment provisions are made for any debts which are considered to be doubtful for collection. (e) Other debtors Other loans and advances to customers is constituted by a vendor loan note made to Hawksford International Holdings Limited on its acquisition of Rathbone Trust Company Jersey Limited and Rathbone Jersey Limited from the Group on 15 October 2008 (see note 12). Derivatives The Group makes limited use of derivative financial instruments exclusively to manage interest rate risk and not for speculative purposes (see note 24). The Group maintains control limits on net open derivative positions (i.e. the difference between purchase and sale contracts), by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the Group (i.e. contracts with a positive fair value), which in relation to derivatives is only a small fraction of the notional value of the contract. Impairment and provisioning policies Impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date, based on objective evidence of impairment. All credit exposures are reviewed individually, at least annually or more regularly when individual circumstances require. Impairment allowances on credit exposures are determined by an evaluation of the incurred loss at balance sheet date on a case-by-case basis. The assessment considers, where applicable, the value of any collateral held, any changes to the external credit rating and the anticipated receipts for each individual exposure. Impairment provisions for credit risk, which relate solely to Trust and Pension debtors, are set out in note 17. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 9 9 Notes to the consolidated accounts continued 31 Financial risk management continued (i) Credit risk continued Maximum exposure to credit risk Credit risk relating to on balance sheet exposures: Settlement balances Loans and advances to banks Loans and advances to customers – Overdrafts – Investment Management loan book – International Finance loan book – Trust and pension debtors – Other debtors Investment securities – Unlisted debt securities and money market funds – Listed debt securities Other financial assets Credit risk relating to off balance sheet exposures: Loan commitments Financial guarantees 2008 £’000 2007 £’000 15,751 175,973 4,492 12,483 18,323 1,021 5,000 952,978 1,001 31,731 4,555 859 21,573 250,103 2,753 11,889 14,343 11,034 – 755,213 10,061 35,871 4,492 724 The above table represents the gross credit risk exposure of the Group at 31 December 2008 and 2007, without taking account of any collateral held or other credit enhancements attached. For on balance sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet. As shown above, 17.8% of the total maximum exposure is derived from loans and advances to banks and customers (2007: 25.9%) and 77.9% represents investments in debt securities (2007: 68.4%). 1,224,167 1,118,056 Loans and advances Loans and advances are summarised as follows: Neither past due nor impaired Past due but not impaired Impaired Gross carrying value Less: allowance for impairment (note 17) s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 0 0 1 Net carrying value 2008 Loans and advances to banks £’000 175,973 – – 175,973 – 175,973 2008 Loans and advances to customers £’000 38,627 716 244 39,587 (175) 39,412 2007 Loans and advances to banks £’000 250,103 – – 250,103 – 250,103 2007 Loans and advances to customers £’000 35,241 3,792 986 40,019 (639) 39,380 No loans and advances have been renegotiated (2007: nil). Rathbone Brothers Plc Report and accounts 2008 31 Financial risk management continued (i) Credit risk continued (a) Neither past due nor impaired The credit quality of loans and advances to customers that were neither past due nor impaired at 31 December, which are all externally unrated, is analysed below between those loans that remain within the standard lending criteria required at the inception of the loan, which are described on page 99, and those loans that no longer meet the initial lending criteria. An exposure is reported as past due when the contractual due date for settlement has passed and the balance has not been repaid, except in the case of Trust and Pension debtors where a normal settlement period of seven days is expected. At 31 December 2008 Standard lending criteria Outside standard lending criteria At 31 December 2007 Standard lending criteria Outside standard lending criteria Investment International Finance loan book £’000 Management loan book £’000 Trust and Pension debtors £’000 Overdrafts £’000 4,492 – 12,483 – 14,878 3,224 4,492 12,483 18,102 282 – 282 Investment Management loan book £’000 11,889 – International Finance loan book £’000 11,725 2,450 Overdrafts £’000 2,753 – Trust and Pension debtors £’000 6,424 – Total loans and Other advances to customers £’000 debtors £’000 – 3,268 32,135 6,492 3,268 38,627 Total loans and advances to customers £’000 32,791 2,450 Other debtors £’000 – – 2,753 11,889 14,175 6,424 – 35,241 The credit quality of loans and advances to banks that were neither past due nor impaired at 31 December is analysed below by reference to the long-term credit rating awarded by Fitch, or equivalent rating by Moody’s as at the balance sheet date. AA– to AA+ A to A+ Other 2008 £’000 71,074 104,481 418 175,973 2007 £’000 159,970 89,999 134 250,103 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 1 0 1 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 31 Financial risk management continued (i) Credit risk continued (b) Past due but not impaired Loans and advances that are past due are not considered impaired unless other information is also available to indicate the contrary. The gross amount of loans and advances by class to customers that were past due but not impaired at 31 December were: At 31 December 2008 <90 days overdue 90–180 days overdue 180–270 days overdue 270–365 days overdue >365 days overdue At 31 December 2007 <90 days overdue 90–180 days overdue 180–270 days overdue 270–365 days overdue >365 days overdue Investment International Finance loan book £’000 Management loan book £’000 Trust and Pension debtors £’000 Overdrafts £’000 Total loans and Other advances to customers £’000 debtors £’000 – – – – – – – – – – – – – – – – 221 221 Investment Management loan book £’000 International Finance loan book £’000 Overdrafts £’000 – – – – – – – – – – – – – – 168 – – 168 221 81 56 25 112 495 Trust and Pension debtors £’000 1,478 1,016 491 392 247 3,624 – – – – – – 221 81 56 25 333 716 Total loans and advances to customers £’000 Other debtors £’000 – – – – – – 1,478 1,016 659 392 247 3,792 (c) Impaired Allowance has been made for individually impaired Trust and Pension debtors. The balance of individually impaired Trust and Pension debtors is £244,000 (2007: £986,000). There were no other impaired credit exposures at 31 December 2008 (2007: none). Debt securities The table below presents an analysis of debt securities by rating agency designation, as at 31 December, based on Fitch’s or Moody’s long-term rating designation. 2008 Government securities market funds £’000 £’000 2008 2008 Money Certificates of deposit £’000 2007 2008 Government Total £’000 2007 Money securities market funds £’000 £’000 2007 Certificates of deposit £’000 2007 Total £’000 AAA AA– to AA+ A to A+ 25,759 – – 79,000 95,351 200,110 – 529,853 529,853 – 224,016 224,016 10,061 – – – 10,061 – – 455,201 455,201 – 300,012 300,012 25,759 79,000 849,220 953,979 10,061 – 755,213 765,274 Concentration of credit risk The Group has counterparty concentration risk within its treasury assets in that exposure is to a number of similar credit institutions. The banking committee actively monitors counterparties and may reduce risk by either suspending dealing or liquidating investments in the light of adverse market information, for example in anticipation of or in response to any formal Fitch or Moody’s rating downgrade. This may happen in relation to specific banks or banks within a particular country or sector. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 2 0 1 31 Financial risk management continued (i) Credit risk continued (a) Geographical sectors The following table analyses the Group’s credit exposures, at their carrying amounts, by geographical region as at the balance sheet date. In this analysis, exposures are categorised based on the country of domicile of the counterparty. At 31 December 2008 Settlement balances Loans and advances to banks Loans and advances to customers – Overdrafts – Investment Management loan book – International Finance loan book – Trust and pension debtors – Other debtors Investment securities – Unlisted debt securities and money market funds – Listed debt securities Other financial assets At 31 December 2007 Settlement balances Loans and advances to banks Loans and advances to customers – Overdrafts – Investment Management loan book – International Finance loan book – Trust and pension debtors – Other debtors Investment securities – Unlisted debt securities and money market funds – Listed debt securities Other financial assets United Kingdom £’000 11,664 47,554 3,482 11,874 – 846 – Jersey £’000 Rest of the World £’000 Total £’000 4,087 – 15,751 – 128,419 175,973 470 – – – 3,268 540 609 18,323 – – 4,492 12,483 18,323 846 3,268 476,961 1,001 19,435 – 476,017 952,978 1,001 – – 31,731 12,228 68 572,817 3,806 640,223 1,216,846 United Kingdom £’000 Jersey £’000 Rest of the World £’000 Total £’000 20,109 147,387 – 21,573 1,464 1,881 100,835 250,103 1,623 9,329 – 1,271 – 329 359 – 6,176 – 801 2,201 14,343 2,948 – 2,753 11,889 14,343 10,395 – 316,328 10,061 – 438,885 755,213 10,061 – – 25,813 80 9,978 35,871 531,921 8,825 571,455 1,112,201 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 3 0 1 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 31 Financial risk management continued (i) Credit risk continued (b) Industry sectors The Group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties operate, were: At 31 December 2008 Public sector £’000 Financial institutions £’000 Private clients and other £’000 – – Settlement balances Loans and advances to banks Loans and advances to customers – Overdrafts – Investment Management loan book – International Finance loan book – Trust and pension debtors – Other debtors Investment securities – Unlisted debt securities and money market funds 24,758 1,001 – Listed debt securities 211 Other financial assets – – – – – 15,751 175,973 – – – – 3,268 928,220 – 18,027 25,970 1,141,239 – – 4,492 12,483 18,323 846 – – – 13,493 49,637 At 31 December 2007 Settlement balances Loans and advances to banks Loans and advances to customers – Overdrafts – Investment Management loan book – International Finance loan book – Trust and pension debtors – Other debtors Investment securities – Unlisted debt securities and money market funds – Listed debt securities Other financial assets Public sector £’000 – – Financial institutions £’000 21,573 250,103 Private clients and other £’000 – – – – – – – – 10,061 87 10,148 – – – – – 755,213 – 19,713 1,046,602 2,753 11,889 14,343 10,395 – – – 16,071 55,451 Total £’000 15,751 175,973 4,492 12,483 18,323 846 3,268 952,978 1,001 31,731 1,216,846 Total £’000 21,573 250,103 2,753 11,889 14,343 10,395 – 755,213 10,061 35,871 1,112,201 (ii) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due. The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements. The treasury department has primary responsibility for ensuring compliance with the Group’s liquidity policy, which requires that Rathbone Investment Management (the Bank) maintains a surplus of immediately realisable assets over its liabilities such that all known and potential cash obligations can be met. Liquidity mismatches are monitored on a daily basis against the liquidity limits set by the banking committee and the Financial Services Authority’s liquidity mismatch guidelines. Liquidity risk is primarily managed by holding cash and marketable instruments which are realisable at short notice. The Group operates a strict set of criteria for counterparties to ensure that investments are liquid and are with high quality counterparties, defined as those who have been awarded a long-term rating of ‘A’ or above by Fitch or equivalent by Moody’s. The Group does not rely on external funding for its activities. Current market conditions have resulted in an increase in the level of liquidity in investment management clients’ portfolios as investment managers position assets more defensively. Consequently, the Group is increasingly a net provider of liquidity to the banking markets. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 4 0 1 31 Financial risk management continued (ii) Liquidity risk continued Non-derivative cash ﬂows The table below presents the cash flows receivable and payable by the Group under non-derivative financial assets and liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual, undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash flows. At 31 December 2008 Cash flows arising from financial assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment debt securities and money market funds Other financial assets On demand £’000 Not more After 3 months but not more than 1 year £’000 than 3 months £’000 After 1 year but not more than 5 years £’000 3 – 25,908 10,497 350 15,751 151,614 6,936 – – – 12,838 – – – 11,522 After 5 years £’000 – – – 1,765 Total £’000 353 15,751 177,522 43,558 79,022 103 631,817 13,792 240,792 6 28,078 23 – – 979,709 13,924 Cash flows arising from financial assets 115,533 820,260 253,636 39,623 1,765 1,230,817 Cash flows arising from financial liabilities Deposits by banks Settlement balances Due to customers Other financial liabilities – – 677,488 9 1,533 14,048 352,961 25,615 1,901 – 12,685 343 6,516 – 5,857 11,869 – 9,950 14,048 – – 1,048,991 37,836 – Cash flows arising from financial liabilities 677,497 394,157 14,929 24,242 – 1,110,825 Net liquidity gap (561,964) 426,103 238,707 15,381 1,765 119,992 At 31 December 2007 Cash flows arising from financial assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment debt securities and money market funds Other financial assets On demand £’000 Not more than 3 months £’000 After 3 months but not more than 1 year £’000 After 1 year but not more than 5 years £’000 4 – 102,001 7,190 274 21,573 145,154 16,946 – – 5,132 12,328 11,606 142 509,601 17,352 269,238 193 – – – 5,494 – 360 After 5 years £’000 – – – 856 Total £’000 278 21,573 252,287 42,814 – – 790,445 18,047 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N Cash flows arising from financial assets 120,943 710,900 286,891 5,854 856 1,125,444 5 0 1 Cash flows arising from financial liabilities Deposits by banks Settlement balances Due to customers Other financial liabilities 193 – 637,991 38 1,534 19,926 300,551 27,610 2,061 – 5,765 340 10,094 – 5,166 10,152 – – – – 13,882 19,926 949,473 38,140 Cash flows from financial liabilities 638,222 349,621 8,166 25,412 – 1,021,421 Net liquidity gap (517,279) 361,279 278,725 (19,558) 856 104,023 Included within the amounts due to customers due on demand disclosed above are balances that are repayable on demand or that do not have a contractual maturity date, which historical experience shows are unlikely to be called in the short-term. Derivative cash ﬂows (derivatives settled on a net basis) As described in note 24 the Group employs Forward Rate Agreements in managing interest rate risk. The Group’s liquidity risk in relation to net settled derivative contracts is limited to the fair value of unsettled contracts. There were no unsettled contracts at 31 December 2008. Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 31 Financial risk management continued (ii) Liquidity risk continued Off balance sheet items Cash flows arising from the Group’s off balance sheet financial liabilities (note 33) are summarised in the table below. The contractual value of the Group’s commitments to extend credit to clients and maximum potential value of financial guarantees are analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are reported by their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment. After 3 At 31 December 2008 Loan commitments Financial guarantees Operating lease commitments Capital commitments Not more months but After 1 year not more but not more than 5 years £’000 than 3 months £’000 than 1 year £’000 4,555 850 1,263 150 – – 3,774 – – 9 14,813 – After 5 years £’000 – – 11,984 – Total £’000 4,555 859 31,834 150 Total off balance sheet items 6,818 3,774 14,822 11,984 37,398 Not more than 3 months £’000 4,492 709 286 1,189 After 3 months but not more than 1 year £’000 After 1 year but not more than 5 years £’000 – – 4,438 – – 15 14,000 – After 5 years £’000 – – 9,037 – Total £’000 4,492 724 27,761 1,189 6,676 4,438 14,015 9,037 34,166 After 3 On demand £’000 Not more months but After 1 year not more but not more than 5 years £’000 than 3 months £’000 than 1 year £’000 After 5 years £’000 Total £’000 677,497 394,157 – 6,818 – – 14,929 – 3,774 24,242 – 14,822 – 1,110,825 – – 37,398 11,984 677,497 400,975 18,703 39,064 11,984 1,148,223 Not more than 3 months £’000 After 3 months but not more than 1 year £’000 After 1 year but not more than 5 years £’000 On demand £’000 638,222 349,621 22 6,676 – – 8,166 – 4,438 25,412 – 14,015 After 5 years £’000 Total £’000 – 1,021,421 – 22 34,166 9,037 638,222 356,319 12,604 39,427 9,037 1,055,609 At 31 December 2007 Loan commitments Financial guarantees Operating lease commitments Capital commitments Total off balance sheet items Total liquidity requirement At 31 December 2008 Cash flows arising from financial liabilities Net derivative cash outflows Total off balance sheet items At 31 December 2007 Cash flows arising from financial liabilities Net derivative cash outflows Total off balance sheet items Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 6 0 1 31 Financial risk management continued (iii) Market risk Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets and liabilities. In particular, customer accounts and loan balances are repriced very shortly after changes in base rates, whereas the yield on the Group’s interest bearing assets is correlated to the future expectation of base rates and varies depending on the maturity profile of the Group’s treasury portfolio. The average maturity mismatch is controlled by the banking committee, which generally lengthens the mismatch when the yield curve is rising and shortens it when the yield curve is falling. The tables below and overleaf show the consolidated repricing profile of the Group’s financial assets and liabilities, stated at their carrying amounts, categorised by the earlier of contractual repricing or maturity dates. At 31 December 2008 Assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment securities – equity securities – debt securities and money market funds Other financial assets Total financial assets Liabilities Deposits by banks Settlement balances Due to customers Other financial liabilities More than 3 months but not more More than 6 months than but not more than 1 year £’000 6 months £’000 Not more than 3 months £’000 More than 1 year but not more than 5 years £’000 More than Non-interest bearing £’000 5 years £’000 Total £’000 348 – 175,803 23,525 – – – 6,911 – – – – – – – 663 – – 672,217 246,762 – – – 10,000 – – 25,000 – – – – 483 – – – 3 15,751 351 15,751 170 175,973 39,412 7,830 2,991 2,991 – 953,979 31,731 31,731 871,893 253,673 10,000 25,663 483 58,476 1,220,188 1,533 – 1,017,440 – – – 15,341 – 1,533 – – – 6,135 – 663 – – – 483 – 9,201 – 14,048 14,048 10,424 1,044,351 37,998 37,998 Total financial liabilities 1,018,973 15,341 1,533 6,798 483 62,470 1,105,598 Nominal value of interest rate derivatives – – – – Interest rate repricing gap (147,080) 238,332 8,467 18,865 – – – – (3,994) 114,590 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 7 0 1 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 31 Financial risk management continued (iii) Market risk continued At 31 December 2007 Assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment securities – equity securities – debt securities and money market funds Other financial assets Total financial assets Liabilities Deposits by banks Settlement balances Due to customers Other financial liabilities Total financial liabilities More than 3 months but not more than 6 months £’000 Not more than 3 months £’000 More than 6 months but not more than 1 year £’000 More than 1 year but not more than 5 years £’000 More than Non-interest bearing £’000 5 years £’000 Total £’000 271 – 244,808 25,439 – – 5,000 602 – – 500,085 214,173 – – – – – 67 – 51,016 – – – – 320 – – – 770,603 219,775 51,083 320 12,460 – 934,542 – – – 2,372 – 947,002 2,372 – – 245 – 245 – – – 45 – 45 – – – – – – – – – – – 367 – 4 21,573 275 21,573 295 250,103 39,380 12,952 6,948 6,948 – 765,274 35,871 35,871 77,643 1,119,424 – 19,926 12,460 19,926 9,037 946,608 40,447 40,447 367 69,410 1,019,441 – – 10,000 Nominal value of interest rate derivatives 10,000 – Interest rate repricing gap (166,399) 217,403 50,838 275 (367) 8,233 109,983 The banking committee has set an overall pre-tax interest rate exposure limit of £5,000,000 (2007: £5,000,000) for the total profit or loss resulting from an unexpected, immediate and sustained 2% movement in sterling interest rates for the Bank, the principal operating subsidiary. The potential total profit or loss is calculated on the basis of the average number of days to repricing of the interest bearing liabilities compared with the period to repricing on a corresponding amount of interest bearing assets. At 31 December 2008, the Bank had £993.4 million (2007: £902.3 million) of sterling interest bearing liabilities averaging 4 days (2007: 3 days) to repricing which were matched by sterling assets averaging 52 days (2007: 50 days) to repricing, creating an exposure of 48 days (2007: 47 days). The total potential impact on profit after tax and equity was £1,894,000 (2007: £1,650,000) at the balance sheet date for a 2% decrease or increase in interest rates. The Group held no forward rate agreements at 31 December 2008. The impact of the Group’s forward rate agreements at 31 December 2007 was to reduce this exposure by £35,000. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 8 0 1 Rathbone Brothers Plc Report and accounts 2008 31 Financial risk management continued (iii) Market risk continued Foreign exchange risk The Group monitors its currency exposures that arise in the ordinary course of business on a daily basis and significant exposures are managed through the use of spot contracts so as to reduce any currency exposure to a minimal amount. At 31 December 2008, the Group was also subject to a structural currency exposure on its net investments in overseas subsidiaries, primarily in Switzerland, Singapore and the British Virgin Islands. The Group does not have any material exposure to transactional foreign currency risk and, therefore, no sensitivity analysis is presented. The table below summarises the Group’s exposure to foreign currency translation risk at 31 December. Included in the table are the Group’s financial assets and liabilities, at carrying amounts, categorised by currency. At 31 December 2008 Assets Cash and balances at central banks Settlement balances Loans and advances to banks Loans and advances to customers Investment securities – equity securities – debt securities and money market funds Other financial assets Liabilities Deposits by banks Settlement balances Due to customers Other financial liabilities Sterling £’000 US Dollar £’000 Euro £’000 Other £’000 Total £’000 3 14,689 148,478 20,338 348 579 12,994 99 – 392 11,158 18,972 – 91 351 15,751 3,343 175,973 39,412 3 1,534 953,979 30,906 – – 20 1,457 – 801 – 2,991 – 953,979 31,731 4 1,169,927 14,040 32,780 3,441 1,220,188 9,201 13,395 1,002,126 36,680 – 232 10,696 103 – 216 28,653 1,202 – 205 9,201 14,048 2,876 1,044,351 37,998 13 Net on balance sheet position 108,525 3,009 2,709 347 114,590 1,061,402 11,031 30,071 3,094 1,105,598 Loan commitments At 31 December 2007 Total financial assets Total financial liabilities Net on balance sheet position Loan commitments 4,555 – Sterling £’000 US Dollar £’000 – Euro £’000 – 4,555 Other £’000 Total £’000 1,077,642 982,139 9,869 6,333 26,142 28,408 5,771 1,119,424 2,561 1,019,441 95,503 3,536 (2,266) 3,210 99,983 4,492 – – – 4,492 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through its holdings of equity investment securities, which are reported at their fair value (note 18). At 31 December 2008, the fair value of equity securities recognised on the balance sheet was £2,991,000 (2007: £6,948,000). A 10% fall in global equity markets would, in isolation, result in a pre-tax impact on net assets of £299,000 (2007: £695,000) there would be no impact on profit after tax. Fair values The fair values of the Group’s financial assets and liabilities are not materially different from their carrying values, with the exception of held to maturity investment securities (note 18). 9 0 1 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 32 Capital management Accounting capital is deﬁned as the total of share capital, share premium, retained earnings and other reserves. Total capital at 31 December 2008 was £184,631,000 (2007: £184,750,000). Regulatory capital is derived from the Group Internal Capital Adequacy Assessment Process (ICAAP), which is a requirement of the Capital Requirements Directive. The ICAAP draws on the Group’s risk management process which is embedded within the individual businesses, function heads and executive committees within the Group. The Group’s objectives when managing capital are: • to comply with the capital requirements set by the regulators of the banking and other regulated markets where the entities within the Group operate; • to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and beneﬁts for other stakeholders; and • to maintain a strong capital base to support the development of its business. The Group’s regulatory capital is monitored by the treasury department and is divided into two tiers: • Tier 1 capital, which is the total of issued share capital, retained earnings and reserves created by appropriations of retained earnings, net of the book value of goodwill and other intangible assets; and • Tier 2 capital, which is unrealised gains arising on the fair valuation of equity instruments held as available for sale. In calculating the capital requirement, the Group has adopted the standardised approach to credit risk and the basic indicator approach to operational risk. The ICAAP was approved by the Rathbone Brothers Plc board in December 2008 and was formally reviewed and agreed with the Financial Services Authority in February 2009. There have been no capital requirement breaches during the course of the year. 33 Contingent liabilities and commitments (a) Indemnities are provided to a number of directors and employees in our Trust and Tax division in connection with them acting as directors on client structures in the normal course of business. (b) Capital expenditure authorised and contracted for at 31 December 2008 but not provided in the accounts amounted to £150,000 (2007: £1,189,000). (c) The contractual amounts of the Group’s commitments to extend credit to its clients are as follows: Guarantees Undrawn commitments to lend of 1 year or less 2008 £’000 859 4,555 5,414 2007 £’000 724 4,492 5,216 s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 0 1 1 The fair value of the guarantees is £nil (2007: £nil). (d) The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The future minimum lease payments under non-cancellable operating leases were as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years 2008 £’000 5,037 14,813 11,984 31,834 2007 £’000 4,724 14,000 9,037 27,761 (e) In addition to the Financial Services Compensation Scheme levies accrued in the year (note 9) further levy charges are likely to be incurred in future years although the ultimate cost remains uncertain. Rathbone Brothers Plc Report and accounts 2008 34 Related party transactions Certain of the directors of Rathbone Trust Company Jersey Limited (disposed of on 15 October 2008, see note 12) are also partners of Nigel Harris & Partners. During the year £808,000 (2007: £685,000) was paid to Nigel Harris & Partners for services supplied to Rathbone Trust Company Jersey Limited for the year ended 31 December 2008. Certain of the directors of Rathbone Trust Company Jersey Limited (disposed of on 15 October 2008, see note 12) are also partners of Galsworthy & Stones. During the year, £270,000 (2007: £336,000) was received from Galsworthy & Stones for services supplied by Rathbone Trust Company Jersey Limited. The remuneration of the key management personnel of the Group, who are defined as the Company’s directors, is set out in the audited part of the Remuneration report on pages 37 to 45. At 31 December 2008 key management and their close family members had gross outstanding deposits of £635,000 (2007: £381,000) and gross outstanding loans of £396,000 (2007: £181,000), of which £281,000 (2007 £181,000) was secured against portfolios held in Rathbones’ nominee name, that 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. One of the Group’s non-executive directors is an executive director of Novae Group plc, a related entity of which underwrites part of the Group’s professional indemnity insurance policy. During the year, an estate, of which one of the Group’s directors is an executor, received and repaid in full a loan of £511,000 from Rathbone Investment Management Limited on normal business terms. The Group’s transactions with the pension funds are described in note 28. At 31 December 2008 no monies were owed to or due from the pension schemes (2007: £3,230, due from the pension schemes). Rathbone Trust Company Jersey Limited (disposed of on 15 October 2008, see note 12) was the tenant of a property in St Helier, Jersey, the freehold of which is owned by a number of the directors of the Company. The lease expired on 31 December 2008. Unless otherwise specified, 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. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 1 1 1 Rathbone Brothers Plc Report and accounts 2008 Notes to the consolidated accounts continued 35 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. Cash and balances at central banks (note 15) Loans and advances to banks (note 16) Available for sale investment securities (note 18) Cash flows arising from the issue of ordinary shares in the year comprise: Share capital issued (note 29) Share premium on issue of ordinary shares (note 29) Shares issued in relation to share based schemes for which no consideration recieved Net cash inflow from issue of shares 36 Events after the balance sheet date 2008 £’000 3 175,227 79,000 254,230 2008 £’000 9 1,199 – 1,208 2007 £’000 4 214,216 – 214,220 2007 £’000 20 3,240 (297) 2,963 On 10 February 2009, the Group completed the disposal of Rathbone Trust Company SA, for cash consideration of £98,000 and deferred consideration, receivable after two years, of up to £98,000. On 10 February 2009, the Group made an interest free loan to Rathbone Trust Company SA of £1,111,000 which is repayable over three years. At 10 February 2009, the net assets of Rathbone Trust Company SA were £9,000. s t n u o c c a d e t a d i l o s n o c e h t o t s e t o N 2 1 1 Rathbone Brothers Plc Report and accounts 2008 Company accounts Contents Independent auditors’ report to the members of Rathbone Brothers Plc Company balance sheet Statement of total recognised gains and losses Notes to the individual accounts Notice of Annual General Meeting Five year record Corporate information Our ofﬁces 114 116 117 118 124 130 131 132 Rathbone Brothers Plc Report and accounts 2008 Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a y n a p m o C 3 1 1 Independent auditors’ report to the members of Rathbone Brothers Plc We have audited the Company ﬁnancial statements of Rathbone Brothers Plc for the year ended 31 December 2008, which comprise the Company balance sheet, Statement of total recognised gains and losses and the related notes. These Company ﬁnancial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Remuneration report that is described as having been audited. We have reported separately on the Group ﬁnancial statements of Rathbone Brothers Plc for the year ended 31 December 2008. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report, the Remuneration report and the Company ﬁnancial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of directors’ responsibilities. Our responsibility is to audit the Company ﬁnancial statements and the part of the Remuneration report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the Company ﬁnancial statements give a true and fair view and whether the Company ﬁnancial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ report is consistent with the Company ﬁnancial statements. The information given in the Directors’ report includes that speciﬁc information presented in the Business review, which is cross referenced from the Business review section of the Directors’ report. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information speciﬁed by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited Company ﬁnancial statements. The other information comprises only the Chairman’s statement, Chief executive’s statement, Business review, Directors’ report, Corporate governance report, the unaudited part of the Remuneration report and all other information listed on the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Company ﬁnancial statements. Our responsibilities do not extend to any other information. e h t o t t r o p e r ’ s r o t i d u a t n e d n e p e d n I c l P s r e h t o r B e n o b h t a R f o s r e b m e m 4 1 1 Rathbone Brothers Plc Report and accounts 2008 Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Company ﬁnancial statements and the part of the Remuneration report to be audited. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the Company ﬁnancial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁcient evidence to give reasonable assurance that the Company ﬁnancial statements and the part of the Remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Company ﬁnancial statements and the part of the Remuneration report to be audited. Opinion In our opinion: • the Company ﬁnancial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company’s affairs as at 31 December 2008; • the Company ﬁnancial statements and the part of the Remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors’ report is consistent with the Company ﬁnancial statements. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 3 March 2009 Rathbone Brothers Plc Report and accounts 2008 e h t o t t r o p e r ’ s r o t i d u a t n e d n e p e d n I c l P s r e h t o r B e n o b h t a R f o s r e b m e m 5 1 1 Company balance sheet for the year ended 31 December 2008 Fixed assets Tangible fixed assets Investments in subsidiaries Available for sale equity securities Total fixed assets Current assets Debtors Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income Cash at bank and in hand Total current assets Creditors: amounts falling due within one year Bank loans Amounts owed to subsidiary undertakings Other taxes and social security costs Accruals and deferred income Total current liabilities Net current assets Total assets less current liabilities Pension liability Net assets Called up share capital Share premium account Available for sale reserve Profit and loss account Equity shareholders’ funds Note 40 41 41 42 43 44 45 46 46 46 2008 £’000 – 22,562 2,991 25,553 30,103 3,966 841 34,910 13 34,923 (9,201) (182) (906) (330) (10,619) 24,304 49,857 (4,121) 45,736 2,143 28,957 2,943 11,693 45,736 2007 £’000 7,478 30,856 6,948 45,282 12,639 2,680 81 15,400 54 15,454 (12,267) (96) (1,127) (605) (14,095) 1,359 46,641 (4,645) 41,996 2,134 27,758 6,900 5,204 41,996 Approved by the Board of directors on 3 March 2009 and signed on its behalf by A D Pomfret Chief executive R P Stockton Finance director t e e h s e c n a l a b y n a p m o C 6 1 1 Rathbone Brothers Plc Report and accounts 2008 Statement of total recognised gains and losses for the year ended 31 December 2008 Profit after taxation for the year Actuarial (losses)/gains Share based payments (Loss)/gain from change in fair value of available for sale equity securities Deferred tax taken (charged)/credited directly to equity shareholders’ funds Total recognised gains and losses Note 38 44 46 41 2008 £’000 24,968 (44) (429) (3,957) (503) 20,035 2007 £’000 7,288 270 (816) 2,069 728 9,539 Rathbone Brothers Plc Report and accounts 2008 s e s s o l d n a s n i a g d e s i n g o c e r l a t o t f o t n e m e t a t S 7 1 1 Notes to the individual accounts 37 Signiﬁcant accounting policies Basis of accounting The separate financial statements of the Company are presented as required by the Companies Act 1985. They have been prepared under the historical cost convention, as modified by the revaluation of certain financial instruments, and in accordance with applicable United Kingdom accounting standards and law. The Company has taken advantage of the exemption conferred by FRS 29 not to present the disclosures required by that standard relating to financial risks in the Company’s solus accounts. The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year. Impairment Tangible fixed assets are subject to review for impairment in accordance with FRS 11: ‘Impairment of fixed assets and goodwill’. The carrying values of tangible fixed assets are written down by the amount of any permanent impairment and the loss is charged as an operating cost to the profit and loss account in the period in which this occurs. The carrying value of tangible fixed assets may be written up to a value no higher than the original depreciated cost, should an external event reverse the effects of a previous impairment. At each balance sheet date the Company reviews the carrying amount of its financial assets to determine whether there is any indication that those assets have suffered an impairment loss. Where there is objective evidence that an available for sale security is impaired the cumulative loss that has been recognised in reserves is removed from reserves and recognised in the profit and loss account. An impairment loss in respect of an investment in equity instruments classified as available for sale is not reversed through profit or loss. If the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment is reversed through the profit and loss account. Fixed assets Fixed assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line basis over its expected useful life, as follows: Leasehold premises: Plant, equipment and computer hardware: over the lease term over three to five years Investments in subsidiaries Investments in subsidiaries are carried at cost less provisions for impairment. Available for sale equity securities Available for sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Equity investments are initially recognised at fair value. For unlisted securities, the Company establishes fair value by using valuation techniques, including the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or been effectively transferred, or where the Company has transferred substantially all risks and rewards of ownership. Equity investments are subsequently carried at fair value. Gains and losses arising from changes in the fair value are recognised directly in equity (except for changes arising from fluctuations in foreign exchange rates, which are recognised as income or expenditure in the profit and loss account for monetary assets and directly in equity for non-monetary assets), until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in profit or loss. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 8 1 1 37 Signiﬁcant accounting policies continued Share based payments The Company’s equity settled share option programme allows employees to acquire shares of the Company. The fair value of options and share awards in relation to the Company’s Share Incentive Plan and Long Term Incentive Plan granted to employees after 7 November 2002 and not vested as at 1 January 2005 is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. Share based payment costs in relation to subsidiaries' directors and staff are recharged to those subsidiaries. Post-retirement benefits The Company operates pension schemes providing benefits based on final pensionable pay. The assets of the schemes are held separately from those of the Company. Pension scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full, net of any related deferred tax asset or liability. The movement in the scheme surplus/deficit is split between operating charges, finance items and actuarial gains and losses. Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Deferred taxation Full provision, without discounting, is made for deferred taxation arising from timing differences which have arisen but not reversed at the balance sheet date, except where otherwise required by accounting standards. Deferred tax assets are recognised to the extent that it is more certain than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Guarantees Where the Company enters into financial guarantee contracts to guarantee the indebtedness of subsidiaries, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. Loans and receivables Loans and receivables are initially measured at fair value and subsequently carried at amortised cost using the effective interest rate method. 38 Proﬁt for the year As permitted by Section 230 of the Companies Act 1985 the Company has elected not to present its own profit and loss account for the year. Rathbone Brothers Plc reported a profit after tax for the financial year ended 31 December 2008 of £24,968,000 (2007: £7,288,000). Auditor’s remuneration for audit and other services to the Company is set out in note 9. The average number of employees during the year was as follows: Investment Management Unit Trusts Trust and Tax Central Shared Services Rathbone Brothers Plc Report and accounts 2008 2008 430 31 43 172 676 2007 398 31 47 157 633 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 9 1 1 Notes to the individual accounts continued 39 Dividends Details of the Company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 13. 40 Tangible ﬁxed assets Cost at 1 January 2008 Disposals Cost at 31 December 2008 Depreciation at 1 January 2008 Disposals Depreciation at 31 December 2008 Net book value at 31 December 2008 Net book value at 1 January 2008 Short term leasehold property £’000 Plant and equipment £’000 Total £’000 5,619 26,603 20,984 (5,619) (20,984) (26,603) – – – 2,520 16,605 (2,520) (16,605) 19,125 (19,125) – – – – – – 3,099 4,379 7,478 With effect from 1 January 2008, the Company transferred all of its tangible fixed assets to its subsidiary undertaking, Rathbone Investment Management Limited. 41 Investments At 1 January 2008 Disposals Net loss from change in fair value At 31 December 2008 Investments in subsidiaries £’000 Available for sale equity securities £’000 Total £’000 30,856 (8,294) – 6,948 – (3,957) 37,804 (8,294) (3,957) 22,562 2,991 25,553 On 15 October 2008 the Company disposed of its entire holding in Rathbone Trust Company Jersey Limited and Rathbone Jersey Limited to the management of those businesses for £23,500,000 cash and £5,000,000 in vendor loan notes (see note 42). At 31 December 2008, the principal subsidiary undertakings, all of which were wholly owned, were as follows: Subsidiary undertaking Country of incorporation Activity and operation Rathbone Investment Management Limited Great Britain Rathbone Bank (BVI) Limited* Rathbone Investment Management (C.I.) Limited* Rathbone Trust Company Limited Rathbone Stockbrokers Limited* Rathbone Unit Trust Management Limited* Rathbone Trust Company B.V. Rathbone Trust Company SA* Rathbone Trust Company (BVI) Limited* Rathbone Pension & Advisory Services Limited Rathbone Trust (Singapore) Pte. Limited* * held by subsidiary undertaking British Virgin Islands Jersey Great Britain Great Britain Great Britain The Netherlands Switzerland British Virgin Islands Great Britain Singapore Investment management and banking services Banking Investment management Trust services Stockbroking Unit trust management Trust services Trust services Trust services Pension advisory services Trust services A full list of the Company’s subsidiaries will be included in the Company’s annual return to Companies House. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 0 2 1 42 Other debtors Deferred tax asset Corporation tax debtor Loans and receivables 2008 £’000 658 40 3,268 3,966 2007 £’000 2,539 141 – 2,680 Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 28% (2007: 28%). The movement on the deferred tax account is as follows: At 1 January Charged to the profit and loss account Taken to equity – share based payments The deferred tax asset is attributable to the following items: Excess of depreciation Share based payments 2008 £’000 2,539 (1,366) (515) 658 2008 £’000 – 658 658 2007 £’000 2,103 (258) 694 2,539 2007 £’000 705 1,834 2,539 Loans and receivables comprise vendor loan notes (‘notes’) with a nominal value of £5,000,000 that were issued on disposal of the Company’s holding of two subsidiaries (see note 41) under a management buy out (MBO). The notes are repayable on the occurrence of certain events, principally the refinancing of the businesses disposed of under the MBO. The notes are expected to be repaid after more than one year. The notes bear no interest for three years from issue. Interest is then receivable at the Bank of England base rate on half of the notes’ nominal value (currently £2,500,000) for the following two years. Thereafter, interest is receivable on the notes’ full nominal value at the Bank of England base rate. 43 Bank loans The Company has drawn down a term loan of £9,201,000 (2007: £12,267,000) which is repayable in six six-monthly instalments ending on 4 April 2011. Interest is payable on the loan at 0.7% above the London Inter-Bank Offer Rate. 44 Pension liability Details of the defined benefit pension schemes operated by the Company and changes thereto are materially similar to those of the Group, which are provided in note 28 to the consolidated accounts. The pension liability reported for the Company is stated net of related deferred tax. Gross pension liability (note 28) Related deferred tax (note 21) Rathbone Brothers Plc Report and accounts 2008 2008 £’000 5,723 (1,602) 4,121 2007 £’000 6,452 (1,807) 4,645 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 1 2 1 Notes to the individual accounts continued 45 Share capital Details of the share capital of the Company together with changes thereto, options thereon and share based payments are provided in note 29 to the consolidated accounts. 46 Reserves At 1 January 2008 Profit for the year Dividends paid Shares issued Actuarial gains and losses Revaluation of investment securities Share based payments – value of employee services – cost of shares issued/purchased Tax on equity items At 31 December 2008 47 Reconciliation of movements in shareholders’ funds Opening shareholders’ funds Profit for the year Dividends paid Other recognised gains and losses relating to the year Share based payments Share capital issued Net addition to/(reduction in) shareholders’ funds for the year Closing shareholders’ funds 48 Contingent liabilities and commitments The Company’s obligations under operating leases are borne by a subsidiary undertaking. Share premium £’000 Available for sale Profit and reserve loss account £’000 £’000 27,758 6,900 1,199 (3,957) 5,204 24,968 (17,503) (44) 1,299 (1,728) (503) 28,957 2,943 11,693 2008 £’000 41,996 24,968 (17,503) (4,504) (429) 1,208 3,740 45,736 2007 £’000 46,408 7,288 (15,914) 1,076 (122) 3,260 (4,412) 41,996 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 2 2 1 Rathbone Brothers Plc Report and accounts 2008 49 Related party transactions The Company has taken advantage of the exemption given by FRS 8 not to disclose transactions and balances with its subsidiaries. The remuneration of the key management personnel of the Company, who are defined as the directors, is set out in the audited part of the Remuneration report on pages 37 to 45. At 31 December 2008, key management and their close family members had gross outstanding deposits of £635,000 (2007: £381,000) and gross outstanding loans of £396,000 (2007: £181,000), of which £281,000 (2007: £181,000) was secured against portfolios held in Rathbones nominee name, that 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. One of the Company’s non-executive directors is an executive director of Novae Group plc, a related entity of which underwrites part of the Company’s professional indemnity insurance policy. During the year, an estate, of which one of the Company's directors is an executor, received and repaid in full a loan of £511,000 from Rathbone Investment Management Limited on normal business terms. The Company’s transactions with the pension funds are described in note 28 to the consolidated financial statements. At 31 December 2008 no monies were owed to or due from the pension schemes (2007: £3,230, due from the pension schemes). Unless otherwise specified, 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. Rathbone Brothers Plc Report and accounts 2008 s t n u o c c a l a u d i v i d n i e h t o t s e t o N 3 2 1 Notice of Annual General Meeting Notice is hereby given that the thirty-eighth Annual General Meeting of the Company will be held at 159 New Bond Street, London W1S 2UD on Thursday 7 May 2009 at 12.00 noon to consider and, if thought ﬁt, pass the following resolutions. Resolutions 1 to 10 are ordinary resolutions requiring a majority of more than 50%. Resolution 10 is an ordinary resolution but is classiﬁed by Article 61 of the Articles of Association of the Company as non-routine, special business. Resolutions 11 to 14 are special resolutions requiring a majority of 75% or more. 2008 Report and Accounts 1 2 To adopt the Report of the directors and the Audited Accounts for the year ended 31 December 2008. To approve the Remuneration report for the year ended 31 December 2008. The Remuneration report can be found on pages 37 to 45 . Part 15 of the Companies Act 2006 requires the preparation of this report which must be approved by shareholders in general meeting. This does not affect the directors’ entitlements to remuneration and the result of this resolution is advisory only. Final dividend 3 To approve the ﬁnal dividend of 26p per share for the year ended 31 December 2008. The payment of the ﬁnal dividend requires the approval of shareholders in general meeting. Election and re-election of directors 4 5 6 To elect Mr R P Stockton as a director of the Company. To re-elect Mr O R P Corbett as a director of the Company. To re-elect Mr M Robertshaw as a director of the Company. Biographical details of the directors seeking election or re-election can be found on pages 24 to 26 . Paul Stockton was appointed to the Board on 24 September 2008. Article 95 of the Articles of Association of the Company requires that each director who has not been elected or re-elected by the members at either of the two immediately previous Annual General Meetings shall retire from ofﬁce and seek election or re-election. Following formal performance evaluation by the Board and individual appraisal by the Chairman, the Board conﬁrms that all directors seeking election or re-election continue to be effective and demonstrate commitment to the role. Auditors 7 To appoint PricewaterhouseCoopers LLP as auditors until the conclusion of the next Annual General Meeting before which accounts are laid. 8 To authorise the directors to agree the remuneration of the auditors. The auditors of a public company must be appointed for each ﬁnancial year at the meeting at which the accounts for the previous ﬁnancial year are laid. Political donations 9 That in accordance with section 366 of the Companies Act 2006 the Company and any company which is or becomes a subsidiary of the Company during the period to which this resolution relates be and is hereby authorised: (a) to make political donations to political parties, political organisations or independent election candidates; and to incur political expenditure, (b) Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 4 2 1 Political donations continued Provided that: (i) (ii) (iii) the authority conferred by this resolution shall commence on the date on which it is passed and expire 15 months after the passing of this resolution or, if earlier, on the date of the next Annual General Meeting (or adjournment thereof) after the passing of this resolution; the aggregate amount of such donations and expenditure shall not exceed £50,000 and the amount authorised under each of paragraphs (a) and (b) above shall also be limited to such amount; and in this resolution the expressions ‘political donation’, ‘political parties’, ‘political organisation’, ‘political expenditure’ and ‘independent election candidate’ have the meanings set out in Part 14 of the Companies Act 2006. Part 14 of the Companies Act 2006 prohibits the Company and its subsidiaries from making donations of more than £5,000 in any twelve month period to a political party or other political organisations or to an independent election candidate unless they have been authorised to make donations by the Company’s shareholders. The Company has a policy that it does not make donations to political parties, political organisations or independent election candidates and the Board will not use these authorities, if given, to do so. However, the Companies Act 2006 includes broad and ambiguous deﬁnitions of political donations and expenditure, which may have the effect of covering some normal business activities, and therefore presents potential for inadvertent or technical breach. The Board therefore considers that it would be prudent to obtain shareholder approval for the Company to make donations to political parties, political organisations and independent election candidates and to incur political expenditure up to the speciﬁed limit in the forthcoming year. Authority to allot relevant securities 10 (a) That the directors be and they are hereby generally and unconditionally authorised in accordance with section 80 of the Companies Act 1985 (the ‘Act’) to exercise all the powers of the Company to allot: (i) relevant securities (as deﬁned in section 80 of the Act) up to an aggregate nominal amount of £700,000; and (ii) equity securities (as deﬁned in section 94 of the Act) up to a further aggregate nominal amount of £700,000 in connection with an offer by way of a rights issue, such authorities to expire 15 months after the passing of this resolution or, if earlier, on the date of the next Annual General Meeting (or adjournment thereof) after the passing of this resolution. Notwithstanding such expiry, the authorities shall in each case still permit the Company to make allotments of relevant securities in respect of offers or agreements made before such expiry, which would or might require relevant securities to be allotted after such expiry. All previous authorities to directors pursuant to section 80 of the Act are hereby revoked without prejudice to any allotment of securities pursuant thereto. (b) For the purposes of this resolution ‘rights issue’ means an offer to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings (and, if applicable, to the holders of any other class of equity security in accordance with the rights attached to such class) to subscribe further securities by means of the issue of a renounceable letter (or other negotiable document) which may be traded for a period before payment for the securities is due, subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to (i) fractions of such securities, (ii) the issue, transfer and/or holding of any securities in certiﬁcated form or in uncertiﬁcated form, (iii) the use of one or more currencies for making payments in respect of such offer, (iv) any such shares or other securities being represented by depositary receipts, (v) treasury shares or (vi) any legal or practical problems arising under the laws of, or the requirements of any regulatory body or any stock exchange, in any territory. Paragraph (a)(i) of this resolution is proposed annually in order to provide a measure of authority to the directors to allot ordinary shares, limited to approximately 33% of the issued share capital of the Company at 3 March 2009, in circumstances deﬁned by the resolution so as to enable them to respond, in the interests of the Company, to any appropriate opportunities that may arise. In addition, this resolution seeks to authorise the directors to allot more ordinary shares, limited to the amount set out in paragraph (a)(ii) being approximately a further 33% of the issued share capital of the Company at 3 March 2009. This authority may be used for fully pre-emptive rights issues and is consistent with guidance issued by the Association of British Insurers on 31 December 2008. Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 5 2 1 Notice of Annual General Meeting continued Power to waive pre-emption rights 11 (a) That the directors be and they are hereby empowered in accordance with section 95 of the Companies Act 1985 (the ‘Act’) to allot equity securities (as deﬁned in section 94 of the Act), payment for which is to be wholly in cash: (i) pursuant to the authority given by paragraph (a)(i) of resolution 10 in the notice of this meeting: (A) in connection with any rights issue, open offer or other pre-emptive offer, open for acceptance for a period determined by the directors, to the holders of ordinary shares on the register on any ﬁxed record date in proportion to their holdings of ordinary shares (and, if applicable, to the holders of any other class of equity security in accordance with the rights attached to such class), subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to (i) fractions of such securities, (ii) the issue, transfer and/or holding of any securities in certiﬁcated form or in uncertiﬁcated form, (iii) the use of one or more currencies for making payments in respect of such offer, (iv) any such shares or other securities being represented by depositary receipts, (v) treasury shares or (vi) any legal or practical problems arising under the laws of, or the requirements of any regulatory body or any stock exchange in, any territory; and (B) other than pursuant to paragraph (a)(i)(A) above, up to an aggregate nominal amount of £100,000; and (ii) pursuant to the authority given by paragraph (a)(ii) of resolution 10 in the notice of this meeting in connection with a rights issue: as if section 89(1) of the Act did not apply to any such allotment. References herein to the allotment of equity securities shall include the sale of treasury shares (within the meaning of section 162A of the Act). (b) The powers given by this resolution shall expire 15 months after the passing of this resolution or, if earlier, on the date of the next Annual General Meeting (or adjournment thereof) after the passing of this resolution. Notwithstanding such expiry, the authority shall still permit the Company to make allotments of equity securities in respect of offers or agreements made before such expiry which would or might require equity securities to be allotted after such expiry. All previous disapplications of section 89(1) of the Act are hereby revoked without prejudice to any allotment of securities pursuant thereto. (c) For the purposes of this resolution ‘rights issue’ has the same meaning as in resolution 10 in the notice of this meeting. This ﬁrst special resolution seeks authority, limited to approximately 5% of the issued share capital of the Company at 3 March 2009, regarding allotments, other than to members proportionately to their respective shareholdings and for which payment is to be wholly in cash. Additionally, the resolution seeks authority for the Company to sell or otherwise deal with treasury shares (being shares acquired and held by the Company) without necessarily involving shareholders. Over the three years to 31 December 2008, shares with a nominal value of £79,594 were allotted for cash, representing 3.7% of the issued share capital at that date. This compares with institutional shareholder guideline limits of 7.5% in any three-year period. Renewal of this limited authority will enable the directors to issue shares, in the interests of the Company, in response to any appropriate opportunities that may arise. For transactions of a substantial nature involving the allotment of shares, it is normal for the UK Listing Authority or company law to require shareholder approval for the speciﬁc transaction notwithstanding this general authority. Authority to purchase ordinary shares 12 That the directors be and they are hereby granted pursuant to Article 12 of the Articles of Association of the Company general and unconditional authority to make market purchases (as deﬁned by section 163(3) of the Companies Act 1985) of any of its ordinary shares of 5p each upon and subject to the following conditions: (a) the maximum number of ordinary shares in the Company hereby authorised to be acquired is 2,000,000 shares (being approximately 5% of the issued share capital of the Company at 3 March 2009); (b) the minimum price which may be paid for an ordinary share is 5p; Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 6 2 1 Authority to purchase ordinary shares continued (c) (d) the maximum price which may be paid for an ordinary share is the higher of (i) an amount equal to 105% of the average of the middle market quotations for an ordinary share taken from the London Stock Exchange Daily Ofﬁcial List for the ﬁve business days immediately preceding the day on which the share is purchased and (ii) the amount stipulated by Article 5(i) of the Buy-back and Stabilisation Regulation 2003 (in each case, exclusive of expenses); and the authority hereby conferred shall (unless previously renewed) expire 15 months after the passing of this resolution or, if earlier, on the date of the next Annual General Meeting (or adjournment thereof) after the passing of this resolution except that the Company may at any time prior to the expiry of such authority enter into a contract for the purchase of ordinary shares which would or might be completed wholly or partly after the expiry of such authority and may complete a purchase of ordinary shares in pursuance of any such contract. This second special resolution is to renew the authority granted to the directors at the Annual General Meeting on 7 May 2008 to purchase the Company’s own ordinary shares under certain stringent conditions. The authority will be used only when the directors consider that it would be advantageous to the Company and the effect would be to enhance earnings per share. Shares purchased will be held as treasury shares as deﬁned in section 162A of the Companies Act 1985. At 3 March 2009 there were options outstanding to subscribe for 906,963 new ordinary shares in the Company. This represents approximately 2.1% of the issued ordinary share capital of the Company at that date and would represent approximately 2.2% if the authority to buy back shares under this resolution were used in full. Authority for the convening of general meetings of the Company on 14 clear days' notice 13 That any general meeting of the Company, other than an Annual General Meeting, may be convened by the giving of not less than 14 clear days' notice. This third special resolution is required to reﬂect the proposed implementation in August 2009 of the Shareholder Rights Directive. The regulation implementing this Directive will increase the notice period for general meetings of the Company to 21 days. The Company is currently able to call general meetings (other than an Annual General Meeting) on 14 clear days’ notice and would like to preserve this ability. In order to be able to do so after the implementation of the Directive, shareholders must have approved the calling of meetings on 14 days’ notice. Resolution 13 seeks such approval. The approval will be effective until the Company’s next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general meeting on 14 days' notice. Amendment to the Articles of Association 14 That with effect from 00.01 a.m. on 1 October 2009: (a) the Articles of Association of the Company be amended by deleting all the provisions of the Company’s Memorandum of Association which, by virtue of section 28 of the Companies Act 2006, are to be treated as provisions of the Company’s Articles of Association; and (b) the Articles of Association produced to the meeting and initialled by the Chairman of the meeting for the purpose of identiﬁcation be adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association. It is proposed in special resolution 14 to adopt new Articles of Association (the ‘New Articles’) in order to update the Company’s current Articles of Association to take account of changes in applicable company law brought about by the Companies Act 2006 (the ‘2006 Act’). The 2006 Act is being implemented in phases with additional provisions being brought into force on 1 October 2009. Accordingly, the resolution adopting the New Articles will only become effective on 1 October 2009. The principal changes introduced in the New Articles are summarised below: (i) The Company's objects The provisions regulating the operations of the Company are currently set out in the Company’s Memorandum and Articles of Association. The Company’s Memorandum contains, among other things, the objects clause which sets out the scope of the activities which the Company is authorised to undertake. This is drafted to give a wide scope. Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 7 2 1 Notice of Annual General Meeting continued Amendment to the Articles of Association continued The 2006 Act signiﬁcantly reduces the constitutional signiﬁcance of a company’s memorandum. The 2006 Act provides that a memorandum will record only the names of subscribers and the number of shares each subscriber has agreed to take in the company. The objects clause and all other provisions which are currently contained in a company’s memorandum will be deemed to be contained in a company’s articles of association with effect from 1 October 2009. The Company can remove these provisions by special resolution. Further, the 2006 Act abolishes the need for companies to have objects clauses. For this reason the Company is proposing to remove its objects clause together with the other provisions of its Memorandum which will be deemed to be contained in its Articles of Association with effect from 1 October 2009. Resolution 14(a) conﬁrms the removal of these provisions for the Company. As the effect of this resolution will be to remove the statement currently in the Company’s Memorandum of Association regarding limited liability, the New Articles also contain an express statement regarding the limited liability of the shareholders. (ii) Authorised share capital and unissued shares The 2006 Act abolishes the requirement for a company to have an authorised share capital and the New Articles reﬂect this. Directors will still be limited as to the number of shares they can at any time allot because allotment authority continues to be required under the 2006 Act, save in respect of employee share schemes. The New Articles showing all the changes to the existing Memorandum and Articles of Association are available for inspection, as noted on page129 of this document. By Order of the Board Richard Loader Company secretary 31 March 2009 Registered Ofﬁce: 159 New Bond Street London W1S 2UD Notes 1 Pursuant to Regulation 41 of the Uncertiﬁcated Securities Regulations 2001 and subject to the provisions for proxies, the Company speciﬁes that only those shareholders registered in the register of members of the Company as at 6.00pm on 5 May 2009 (or, if the meeting is adjourned, 6.00pm on the day two days prior to the day ﬁxed for the adjourned meeting) shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Subsequent changes to the entries on the register will be disregarded in determining the rights of any person to attend or to vote at the meeting. 2 Members entitled to attend, speak and vote are entitled, if they so wish, to appoint one or more proxies to attend, speak and vote in their stead provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A proxy need not be a member. Proxy forms should be completed and returned to the Company’s Registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6ZL by no later than 12.00 noon on 5 May 2009. The completion and return of the form of proxy will not prevent you from attending and voting at the Annual General Meeting if you so wish. The ‘vote withheld’ option is provided on the proxy card to enable you to abstain on any particular resolution. However, it should be noted that a ‘vote withheld’ is not a vote in law and will not be counted in the calculation of the proportion of votes ‘for’ and ‘against’ a resolution. 3 CREST members who wish to appoint a proxy or proxies through CREST electronic proxy appointment service may do so for the Annual General Meeting to be held on Thursday 7 May 2009 and any adjournment thereof by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider, should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 8 2 1 Notes continued In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with the specifications of CREST’s operator, Euroclear UK & Ireland Limited (‘Euroclear’) and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by Equiniti (ID RA19) by no later than 12.00 noon on 5 May 2009. No message received through the CREST network after this time will be accepted. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which our registrars are able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider take) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertiﬁcated Securities Regulations 2001. 4 Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a ‘Nominated Person’) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 5 The statement of rights of members in relation to the appointment of proxies in paragraphs 2 and 3 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. 6 As at 4 March 2009 (being the last practicable date prior to the printing of this Notice) the Company’s issued share capital consists of 42,858,196 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 4 March 2009 are 42,858,196. 7 A memorandum of the terms of all contracts of service between Directors and the Company (or any of its subsidiaries) is available for inspection at the Registered Ofﬁce during business hours on any weekday (public holidays excluded). The memorandum will also be available for inspection at the place of the Annual General Meeting for at least 15 minutes prior to the meeting and during the meeting. In addition, a copy of the proposed new Articles of Association of the Company and a copy of the existing Memorandum and Articles of Association of the Company marked to show the changes being proposed by resolution 14 will be available for inspection at the Registered Ofﬁce during business hours on any weekday (public holidays excluded) from 31 March 2009 to the date of the meeting, and at the place of the Annual General Meeting for at least 15 minutes prior to the meeting, and during the meeting. 8 In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. Rathbone Brothers Plc Report and accounts 2008 g n i t e e M l a r e n e G l a u n n A f o e c i t o N 9 2 1 Five year record Total revenue Operating income Operating profit Exceptional items Profit before tax Tax Profit after tax Equity dividends paid and proposed Basic earnings per share Diluted earnings per share Net dividends per ordinary share IFRS 2008 £’000 178,351 131,751 44,160 (1,404) 42,756 (13,489) 29,267 (17,984) 68.47p 67.90p 42.0p IFRS 2007 £’000 178,261 134,480 47,302 – 47,302 (14,212) 33,090 (17,479) 77.79p 76.54p 41.0p IFRS 2006 £’000 163,348 133,686 44,720 – 44,720 (12,582) 32,138 (14,786) 76.62p 74.71p 35.0p IFRS 2005 £’000 135,064 113,185 36,679 (1,381) 35,298 (10,617) 24,681 (12,351) 60.13p 58.84p 30.0p IFRS 2004 £’000 110,280 95,527 28,492 – 28,492 (8,540) 19,952 (11,221) 48.99p 48.07p 27.5p Equity shareholders’ funds 184,631 184,750 159,149 130,417 117,440 Total funds under management £10.46bn £13.12bn £12.24bn £9.48bn £7.68bn The amounts disclosed for 2004 to 2006 include the results of operations that were discontinued in 2008. d r o c e r r a e y e v i F 0 3 1 Rathbone Brothers Plc Report and accounts 2008 Corporate information Company secretary and registered office R E Loader FCA Rathbone Brothers Plc 159 New Bond Street London W1S 2UD Company No. 1000403 www.rathbones.com richard.loader@rathbones.com Registrars and transfer office Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA www.equiniti.com Rathbone Brothers Plc Report and accounts 2008 n o i t a m r o f n I e t a r o p r o C 1 3 1 Port of Liverpool Building Pier Head Liverpool L3 1NW Tel +44 (0)151 236 6666 Fax +44 (0)151 243 7001 Fiennes House 32 Southgate Street Winchester Hampshire SO23 9EH Tel +44 (0)1962 857 000 Fax +44 (0)1962 857 001 Rathbone Investment Management (C.I.) Limited Rathbone House, 15 Esplanade St Helier Jersey JE1 2RB Channel Islands Tel +44 (0)1534 740500 Fax +44 (0)1534 740599 Unit trusts Rathbone Unit Trust Management Limited 159 New Bond Street London W1S 2UD Tel +44 (0)20 7399 0399 Fax +44 (0)20 7399 0057 Trust offices Rathbone Trust Company Limited 159 New Bond Street London W1S 2UD Tel +44 (0)20 7399 0000 Fax +44 (0)20 7399 0011 Port of Liverpool Building Pier Head Liverpool L3 1NW Tel +44 (0)151 236 6666 Fax +44 (0)151 243 7001 Our offices Head office 159 New Bond Street London W1S 2UD Tel +44 (0)20 7399 0000 Fax +44 (0)20 7399 0011 Investment management offices Rathbone Investment Management Limited 159 New Bond Street London W1S 2UD Tel +44 (0)20 7399 0000 Fax +44 (0)20 7399 0011 Temple Point 1 Temple Row Birmingham B2 5LG Tel +44 (0)121 233 2626 Fax +44 (0)121 236 7966 10 Queen Square Bristol BS1 4NT Tel +44 (0)117 929 1919 Fax +44 (0)117 929 1939 West Wing, Freemasons Hall Bateman Street Cambridge CB2 1NA Tel +44 (0)1223 345 370 Fax +44 (0)1223 307 500 5 North Pallant Chichester West Sussex PO19 1TJ Tel +44 (0)1243 775 373 Fax +44 (0)1243 776 103 Charlotte House 2 South Charlotte Street Edinburgh EH2 4AW Tel +44 (0)131 247 8100 Fax +44 (0)131 247 8200 The Senate Southernhay Gardens Exeter EX1 1UG Tel +44 (0)1392 201 000 Fax +44 (0)1392 201 001 The Stables Levens Hall Kendal Cumbria LA8 0PB Tel +44 (0)1539 561 457 Fax +44 (0)1539 561 367 s e c ﬁ f o r u O 2 3 1 Rathbone Brothers Plc Report and accounts 2008 It is important to us that all materials used in the production of this document are environmentally sustainable. The paper is FSC certified and contains 50% recycled fibre and 50% virgin fibre from sustainable sources. Once you have finished with this report please recycle it. Designed and produced by Linnett Webb Jenkins. Rathbone Brothers Plc 159 New Bond Street London W1S 2UD Tel +44 (0)20 7399 0000 Fax +44 (0)20 7399 0011 www.rathbones.com

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