Rathbone Brothers Plc
Report and accounts 2012
Rathbone Brothers Plc
Rathbone Brothers Plc is a
leading provider of high-quality,
personalised investment and
wealth management services
for private clients, charities and
trustees. This includes discretionary
investment management, unit
trusts, tax planning, trust and
company management, pension
advice and banking services.
As at 31 December 2012,
Rathbones managed £17.98 billion
of client funds, of which
£16.71 billion were managed
by Rathbone Investment
Management.
Contents
About Rathbones
1
2
4
8
9
10
Highlights of the year
Chairman’s statement
Chief Executive’s statement
Our business model
Our services
Key investor information
Understanding our strategy
12
14
Strategy and key performance indicators
Rathbones at a glance
Our business performance
16
22
27
32
Business review
Financial review
Group risk committee report
Corporate responsibility report
Governance
42
45
49
53
61
63
64
Directors
Directors’ report
Corporate governance report
Remuneration report
Audit committee report
Nomination committee report
Statement of directors’ responsibilities in respect
of the report and accounts
Consolidated financial statements
66
68
69
70
71
72
Independent auditor’s report to the members of
Rathbone Brothers Plc
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated balance sheet
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company financial statements
122
123
124
125
Company statement of changes in equity
Company balance sheet
Company statement of cash flows
Notes to the Company financial statements
Further information
Five year record
Corporate information
143
143
144 Our offices
Report and accounts online
We aim to provide easy and transparent access to
shareholder information. As well as the printed annual
report and accounts, we have developed an online
version which presents a flexible way of accessing the
information you need. We hope you find it a valuable
addition to our suite of reporting materials and would
value any feedback you may have via the link
provided on the site.
www.rathbones.com/ra2012
Highlights of the year
Financial highlights
Business highlights
Funds under management
2012: £17.98bn
2011: £15.85bn
Operating income
2012: £155.6m
2011: £144.5m
Underlying1 profit before tax
2012: £45.1m
2011: £46.2m
Profit before tax
2012: £38.8m
2011: £39.2m
+13.4%
+7.7%
-2.4%
-1.0%
Rathbones purchase Taylor Young
Investment Management Limited’s
UK investment management private
client base.
See page 5
Rathbone Brothers Plc raises
£24.7 million of gross proceeds
through a non pre-emptive
institutional placing of
2,000,000 shares.
See page 24
Other purchases of the private
client investment management
businesses of R.M. Walkden & Co.
Limited and AIB Jersey.
Underlying1 earnings per share
See page 5
2012: 77.96p
2011: 78.79p
Basic earnings per share
2012: 67.00p
2011: 66.72p
-1.1%
+0.4%
Rathbones wins the Charity
Times Investment Manager
of the Year and the Investors
Chronicle/Financial Times Best
Wealth Manager for Alternative
Investments awards.
Dividends paid and proposed per share
See page 19
2012: 47.0p
2011: 46.0p
+2.2%
The Rathbone Active Income Fund
for Charities is launched.
1 Underlying profit before tax and underlying earnings per share exclude amortisation
of client relationships, head office relocation costs and, in 2011, gains on disposal of
financial securities
See page 21
Rathbone Brothers Plc Report and accounts 2012
1
Chairman’s statement
Mark Nicholls
Chairman
Governance, Board and senior
management group
We have considered our Board composition carefully
and how it relates to our evolving management structure.
As foreshadowed in my statement last year we have reduced
the size of our Board so that it can increasingly focus its
attention on strategy, monitoring performance and
Our investment performance was strong in
2012 and we have grown funds under
management through both performance and
by continuing to attract experienced
investment managers – both individually
and through acquisitions.
2012 was a challenging year. Most of the markets in
which we invest remained broadly flat throughout the
period and the investment management industry generally
has suffered from economic and regulatory uncertainty.
Nevertheless, I am pleased to say that our performance
demonstrates our resilience and the benefits of continuing
to grow our business. Our investment performance was
strong in 2012 and we have grown funds under management
through both performance and by continuing to attract
experienced investment managers – both individually and
through acquisitions. Our reputation as an investment
manager and an employer remains high.
The private client investment management industry in the
UK faces a number of challenges. The introduction of
the Retail Distribution Review (RDR) on 1 January 2013
– which will regulate all advisers in the retail investment
market – will, inter alia, lead to greater transparency of the
charges levied by our competitors and intermediaries. Some
intermediaries will disappear but the strongest and best
run will remain significant players, and we will continue to
work with them. The full implications of RDR will not be
clear for some time, but we believe we are well-positioned.
ensuring that effective governance and
risk management processes are in place.
Ian Buckley, Andrew Morris and
Richard Smeeton agreed to stand down
from the Board at the end of 2012 but will
continue their management responsibilities.
My thanks go to them and we look forward
to their continuing strong contribution
to the growth of the business. This means
the only executive directors on the Board are
the chief executive, the head of investment
management and the finance director. This change makes the
current Board composition compliant with the UK Corporate
Governance Code as the majority of directors (excluding me)
are now independent non-executive directors.
There are currently five non-executive directors apart from
me. Caroline Burton, however, has now completed nine
years’ service and will be standing down at the next Annual
General Meeting (AGM). Kate Avery has also asked to stand
down after three years’ service. We are grateful to both
Caroline and Kate for their contribution to our Board and
to Caroline also for her service as chairman of the
remuneration committee, from which she stood down on
1 November. I am very grateful to David Harrel for agreeing
to chair the committee after Caroline.
We will be looking to appoint a new non-executive
director in 2013. When we do so we will appoint the best
available candidate, having regard to their skills, experience
and overall suitability. The benefits of Board diversity will,
of course, be a consideration in this.
We appointed Paul Chavasse as head of
investment management with effect from
1 March 2012. He succeeded Richard
Lanyon, who held the position for over 10
years and deserves much credit for managing
a growing business so effectively. Paul has
introduced a more formalised structure to
More generally, we need to spend more time
on succession planning at all levels and this is
a priority for the coming year.
manage the business and is involving a wider group of senior
investment managers (the ‘senior management group’),
which I welcome heartily. We must continue to invest in
management talent to support and grow our business. I touch
on the implications of this for our remuneration policy below.
More generally, we need to spend more time on
succession planning at all levels and this is a priority for
the coming year.
2
Rathbone Brothers Plc Report and accounts 2012
Chairman’s statement continued
Strategy
Risk
We continue to debate our strategy, both in the boardroom
and within the senior management group, recognising that
our capital resources and risk appetite determine our speed
of growth. We have been able to grow our core business well,
both organically and by acquisition, and our recent placing
has provided us with further resources to continue doing so.
At our annual strategy discussion in November there was a
strong consensus that the greatest growth potential lies in
our core business and we should prioritise this. Although we
continue to develop our offering, both to reflect the different
market segments we touch and the channels through which
we get our business, the service of our clients and our
personal relationship with them remain our core strengths
and will not be diluted.
The Board is responsible for defining our risk appetite
and ensuring effective risk management. Kathryn Matthews,
as non-executive chairman of the group risk committee, has
overseen the continuing development of our risk governance
and reporting framework. Apart from the uncertainties
of the global environment in which all investment managers
operate, the biggest risks to Rathbones arise from our
ambition to grow our business and from regulatory
intervention in our sector.
Shareholders
We have an enviable shareholder list. This enabled us to
raise £24 million in a placing last November at a small
We have made some acquisitions this year
which we believe will benefit the business.
We suspect there will be more opportunities
in the medium term and, if they arise, the
Board will ensure we act in the best interests
of our shareholders.
discount to the market price. We regard it as
important to maintain a good dialogue with
our major shareholders on the issues that
arise out of the challenges and opportunities
we face.
At the AGM, in line with best practice
under the UK Corporate Governance Code
requirements, we are giving shareholders the
opportunity to vote on the re-appointment
of every Board member. Biographies of each director are set
out on pages 42 to 44.
The Board is committed to creating long term shareholder
value. I hope you will find this year’s annual report provides
a clear account of how we run the business and what we
have achieved during the year.
Mark Nicholls
Chairman
19 February 2013
We have made some acquisitions this year which we
believe will benefit the business. We suspect there will be
more opportunities in the medium term and, if they arise,
the Board will ensure we act in the best interests of our
shareholders. We also wish to grow our banking business,
but are mindful of the growing regulatory burden on all banks.
Remuneration
Remuneration has been another area the Board has spent
considerable time on. We have been considering ways to
ensure that our performance-driven culture is reinforced by
our remuneration structure right across the business. Greater
accountability is now being introduced for both the senior
management group (who are investment managers that spend
significant time on the management of the business) and for
executive directors. Individual investment managers have
clear performance measures. As I mentioned earlier, David
Harrel has become chairman of the remuneration committee
and we will all benefit from his considerable experience in
managing a successful ‘people’ business.
The Board is committed to creating long term
shareholder value. I hope you will find this
year’s annual report provides a clear account
of how we run the business and what we have
achieved during the year.
Rathbone Brothers Plc Report and accounts 2012
3
Chief Executive’s statement
Andy Pomfret
Chief Executive
In terms of commission the year began and ended positively,
but activity was fairly subdued in between, with the worst
three months for commission occurring in the second half of
the year as a result of holidays and the Christmas period.
Looking at credit markets, the second half of the year saw
concerted action within Europe to stave off the eurozone
crisis (at least for the time being) and this significantly
reduced volatility towards the end of 2012.
As a bank, the cash in our investment
management clients’ accounts is held with us
on a banking basis and is then placed in the
money markets. We have been monitoring
our counterparties carefully during the year
and the small amount of money that had
been placed directly with Spanish and Italian
counterparties was reduced to zero during
the first half of 2012. We continue to
monitor the counterparties in our treasury
book and have recently opened an account
with the Bank of England which currently pays base rate and
in theory has zero risk. The activities of the UK Government
and the Bank of England have continued to reduce money
market rates, so the interest rate margin that we are able to
earn on our treasury book is much reduced and continues to
be under pressure. At the end of the year, three month
certificates of deposit were paying close to 40 basis points.
During the year we have taken the opportunity to grow
our loan book to £65.1 million from £36.4 million in 2011.
These loans are made to investment management clients
on a short term basis and are generally secured against the
discretionary portfolio which we manage for them. These
loans are seen as very attractive for those clients that require
short term borrowing. We are keen to expand this loan book
during 2013 without changing our risk criteria.
Funds under management (FUM)
• Investment Management
• Unit Trusts
Underlying operating income
• Investment Management
• Unit Trusts
2012
£bn
16.71
1.27
2011
£bn
14.76
1.09
17.98
15.85
2012
£m
146.7
8.9
2011
£m
135.1
8.2
155.6
143.3
As expected, 2012 presented a demanding
investment climate for both Rathbones and
our clients. Whilst we continued to grow,
increases in operating expenses, which were
predominantly planned, contributed to a
fall of 1.0% in profit before tax.
Results and financial highlights
As expected, 2012 presented a demanding investment
climate for both Rathbones and our clients. Whilst we
continued to grow, increases in operating expenses, which
were predominantly planned, contributed to a fall of
1.0% in profit before tax to £38.8 million in 2012
(2011: £39.2 million). Underlying profit (before amortisation
of client relationships, head office relocation costs and,
in 2011, gains on disposal of financial securities) fell from
£46.2 million to £45.1 million. Basic earnings per share
rose to 67.00p from 66.72p in 2011, an increase of 0.4%
(mainly due to a lower corporate tax rate).
As markets are more positive, the Board has decided to
increase the final dividend for the year by 1p. Economic
uncertainties remain, but there are a number of acquisition
opportunities that we are currently reviewing, and we expect
there to be more in 2013. We are keen to maintain capital
to take advantage of these opportunities, and this was part
of the reason for our recent placing which was announced
and completed in November, raising £24.0 million, net
of transaction costs.
The financial markets
The market as measured by the level of the FTSE has been
volatile during 2012 (with a maximum swing of 14.7% from
high to low), but on average was similar to market levels in
2011 on our key charging dates. In 2012, sentiment in the
market was often adversely affected by continuing worries
about the future of the eurozone, but in the latter half of the
year these seem to have abated in spite of medium and long
term concerns in parts of Europe (Greece and Spain, in
particular) not being resolved. At the very end of the year, the
United States managed to avoid, or at least defer, the ‘fiscal
cliff’, which helped year end market levels. Our 2012 income
benefited for a full year from the small change to our charges
that we made at the end of the first quarter of 2011.
4
Rathbone Brothers Plc Report and accounts 2012
Chief Executive’s statement continued
Acquisitions and growth in 2012
Funds under management have grown 13.4% to £17.98
billion for Rathbones as a whole (2011: £15.85 billion).
Although at a headline level this represents a very satisfactory
rate of growth, it has become much harder to achieve net
organic growth with two factors working against us. Firstly,
a number of clients have suffered a reduction in the income
level that can be achieved from their portfolio over the last
few years and as a result are withdrawing capital in order to
maintain lifestyle. Secondly, the number of introductions we
have had from independent financial advisers (IFAs) has
decreased in the second half of 2012 as many have spent the
last few months concentrating on their preparedness for the
Retail Distribution Review (RDR), which came into effect
on 1 January 2013. We believe that both of these significant
impacts are likely to continue into 2013 although in the
longer term the changes in the IFA market may well lead to
further consolidation of IFAs and give us opportunities
to develop some significant relationships with some of the
better, higher-quality and well-established IFA groups.
We made a number of acquisitions during the year including
the purchase of Taylor Young Investment Management
Limited’s private client base in November. This transaction
is expected to add up to £350 million to funds under
management in 2013 as clients are migrated to Rathbones.
Eight Taylor Young staff have already joined us as part of the
acquisition. Earlier in the year we acquired 100% of the
share capital of R.M. Walkden & Co. Limited, successfully
adding £76 million of funds under management, and the
investment management business of Allied Irish Bank Jersey,
which provided our Jersey office with a boost of some £51
million of funds under management and one member of staff.
We have also announced the acquisition of a small team of
investment managers who are setting up a new office in
Lymington in early 2013 and we have recently opened an
office in Newcastle.
In October 2012, we acquired a 19.9% stake in a high
quality IFA business based in the South West called Vision
Independent Financial Planning Limited, along with its sister
company, Castle Investment Solutions Limited (together,
As markets are more positive, the Board
has decided to increase the final dividend
for the year by 1p. Economic uncertainties
remain, but there are a number of acquisition
opportunities that we are currently reviewing.
‘Vision’). Vision is a business that has been
set up relatively recently, principally with
advisers who primarily used to work for
clearing banks. The acquisition allows us
access to a wider network of clients and
Vision continues to introduce these clients
to both us and a number of investment
managers on their panel. Prior to our
purchase, Vision had already introduced
2012 was also adversely impacted by a couple of client
losses. Firstly the loss of the management contract for
the Albany Investment Trust, which had been managed by
our Liverpool office for over 60 years, but was the only
investment trust we managed. Secondly, we received notice
that our arrangement with Cavanagh Asset Management
was coming to an end during November following
Cavanagh’s takeover by Close Brothers in February 2012.
By the end of 2012 this had led to the loss of £31 million
out of the funds originally introduced to us by Cavanagh.
Relationships with significant introducers can be very
beneficial as they introduce clients to us with little marketing
effort, but equally there is the danger that material amounts
can be withdrawn at very short notice. On a more positive
note we added some significant new clients, particularly
in our charity business which now has over £2 billion under
management. Our Bristol office has also recently reached
£1 billion of funds under management.
some £122 million of funds under management to us. We not
only expect the introductions to Rathbones to continue, but
our relationship with Vision will allow us to keep close to the
changes that are taking place following the introduction of
RDR. We also have an option to acquire the remaining
80.1% of Vision in three years’ time.
We must never forget that the most attractive clients for us
are those that come to us directly. In 2012 we have improved
the marketing, advertising and support we give our offices
around the country. We have also run some events that have
attracted a great deal of interest and produced new client
leads. One of these is the very successful Annual Charity
Symposium that we ran at the British Museum in September
2012, where we had some 335 trustees in attendance.
We have also received very favourable publicity for our
sponsorship of lacrosse in Scotland’s schools and a number
of financial awareness days that we run for children of
our clients in our London and Liverpool offices.
Rathbone Brothers Plc Report and accounts 2012
5
Chief Executive’s statement continued
Acquisitions and growth in 2012 continued
Funds under management have grown 13.4%
to £17.98 billion for Rathbones as a whole.
During the year we conducted a significant number of
workshops with our staff and have had input from a number
of external focus groups on our brand and how we should
best use it in our marketing material. This has led to
considerable refinement of our brochures and with several
changes to our paperwork required by regulatory changes
(such as the splitting of the Financial Services Authority (FSA)
into the Financial Conduct Authority (FCA) and the Prudential
Regulation Authority (PRA)), we will be making a number
of further changes to our marketing and client documentation
during 2013.
Our unit trust business has performed well in a difficult
marketplace during 2012; by the end of the year we had seen
nine continuous quarters of net growth. The performance
of all of the publicly quoted funds was also good with the
majority of funds being in the first or second quartile for the
three years to the end of 2012. The traditional funds have
been supplemented by three multi asset portfolios which
now also have a three year track record and which are very
well-placed to provide solutions for clients of IFAs in a
post-RDR world.
Our unit trust business has performed well
in a difficult marketplace during 2012; by the
end of the year we had seen nine continuous
quarters of net growth.
of schools in the Liverpool area over several
years. It also underlines the importance of
our Liverpool office, where we have over
350 people in some 65,000 square feet at
The Port of Liverpool building. This gives us
ample room to expand and is where we
have centred our operational activities for
several years.
During the year we modified our New Business Scheme
to align awards more closely with the objective of getting
investment managers to grow their business. We also decided
to enrol all staff that join us from 1 January 2013 into
pension arrangements and have been actively encouraging
all existing staff to join our pension schemes well in advance
of the statutory deadline of October 2013.
Regulation
During the year the FSA moved to adopt the ‘twin peaks’
approach to regulation by establishing teams that will
ultimately form the FCA and the PRA. We have continued to
work closely with our regulators and have had meetings with
the teams from the FCA and the PRA and look forward to
the situation being formalised on 1 April 2013. As a bank,
we will have prudential regulation from the PRA, but our
conduct of business will be regulated by the FCA. This will
inevitably increase our regulatory
burden, but we will be working with
both regulators to try to ensure that
duplication is minimised.
RDR came into effect on 1 January 2013
and all of our client-facing staff are suitably
qualified. The impact on the IFA community
is potentially more marked and it will be
Investing in the business
We continue to believe that when other companies are
facing challenges and everyone is nervous about the overall
direction of the market, it is often a good time for us to
make acquisitions and to invest in technology to improve our
efficiency and the overall client experience. To that end we
have made some significant investments in technology in
recent years and will continue to do so in 2013. We are
rolling out an asset allocation modelling tool, developing a
new online platform for both our clients and IFAs, and are
continuing to roll out improved versions of our document
management system. We have moved to a much better
investment markets tool to support investment managers and
are spending more money on our internal research process,
both in terms of people and the tools they have. We continue
to invest in staff by spending more on training and coaching
and have recently introduced an apprenticeship programme
in our Liverpool office which should see six apprentices
joining us from local schools to start a full time career
with us. This continues the theme of investing in the local
community and the close links we have had with a number
interesting to see how this impacts their business in the
coming year. Benefits for clients are that not only will the fees
that they pay be more transparent, but also that trail
commission is effectively being banned. Although this has a
small negative effect on our income, it is a move we have
supported for many years and we are very pleased to see the
beginning of the end of trail commission.
The regulators have also focused on the use of Unregulated
Collective Investment Schemes (UCIS) and we are expecting
some developments on this in 2013.
The Financial Services Compensation Scheme (FSCS)
charge of £1.0 million in 2012 was some £0.6 million higher
than we have seen in previous years due to a larger number
of failures and results of levy restatement exercises. We
have been involved in the consultation on how the FSCS is
funded in the future and await the final outcome of this
consultation process.
Alongside other industry members, we will be responding to
FSA papers in the early part of 2013 on conflicts of interest
and outsourcing.
6
Rathbone Brothers Plc Report and accounts 2012
Chief Executive’s statement continued
Other matters
Outlook
I am particularly pleased to announce that Philip Howell
will be joining us on 4 March as deputy chief executive. Most
recently Philip has been chief executive of Williams de Broë
and his considerable experience will add to the strength and
depth of our management team. Along with Mike Webb (the
chief executive of our unit trust business) he will join the
Group’s executive committee. I look forward to working
with them both.
The new committees that were established during 2012 under
our new head of investment management, Paul Chavasse,
have all started well. These committees are the management
committee, which looks after the day to day management of
the investment management business, the client committee,
which is concerned with marketing, client experience and
growth of the business, and finally the investment committee,
which is the custodian of our investment process. The
investment committee also coordinates research activities
and how recommendations are communicated to investment
managers who ultimately make investment decisions for
their clients.
Our primary aim is to continue what we have done for
many years – namely to look after clients well. Although the
markets are likely to remain volatile for some time to come,
we believe we provide a very valuable service for our clients
and charge them fairly for it. We will continue to invest to
improve the client experience and to grow the business, both
organically and by acquisition. We continue to be mindful
of increases in our cost base but recognise that it is important
to continue to strengthen the business. We remain well-
positioned to make acquisitions, if the culture fits, and they
can be purchased on a basis which will be earnings
enhancing for our shareholders.
Andy Pomfret
Chief Executive
19 February 2013
Our primary aim is to continue what we have
done for many years – namely to look after
clients well. Although the markets are likely
to remain volatile for some time to come, we
believe we provide a very valuable service for
our clients and charge them fairly for it.
At the half year we announced that we had issued
proceedings to confirm insurance cover against the insurers
on the excess layer of our civil liability (professional
indemnity) policy. We had done this to protect the
Company’s interests as we were aware that a claim relating
to the management of a Jersey trust had been filed against
a former director of Rathbone Trust Company Jersey
Limited, which was owned by us from March 2000 until
October 2008. A trial date for the insurance coverage claim
has been set for Autumn 2013, but the underlying case in
Jersey is unlikely to be heard until 2014. We will keep the
market informed of any material changes.
Rathbone Brothers Plc Report and accounts 2012
7
Our business model
Rathbone Brothers Plc is one of the UK’s leading providers of investment
and wealth management services for private clients, charities and trustees.
We offer a range of complementary services to support our core
investment services, providing our clients with a wide range of solutions
to meet their individual needs.
T r u s t and tax services
F i n a ncial planning
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Clients
Rathbones serve three main client groups: private clients,
charities and trustees.
We have over 39,000 clients predominantly managed on a
discretionary basis, representing a total of £17.98 billion of
funds under management.
Our charities team advises over 900 charities, with funds
under management totalling £2.09 billion.
The services we offer to financial intermediaries assist them
in providing discretionary investment management services to
their clients. Intermediaries include financial advisers, lawyers
and accountants. We hold £2.93 billion in accounts managed
on behalf of the clients of financial intermediaries.
8
Rathbone Brothers Plc Report and accounts 2012
Our services
Core services
Investment Management
Investment management teams provide investment
management services to our clients with portfolios held in
discretionary accounts, individual savings accounts (ISAs),
self-invested personal pensions (SIPPs) and trust structures.
The personal service we offer is underpinned by a
well-researched, robust investment process which informs
our investment managers as they tailor portfolios to
individual clients’ needs.
Investment professionals from across our business participate
in the investment process. The outputs of this process are
derived from our combined expertise and experience and
help to ensure that the investments selected are suitable. Our
internal performance monitoring and risk control processes
ensure that the quality of service and fulfillment of client
objectives can be achieved.
Complementary services
Banking services
Our ethical investment service continually develops its
extensive expertise in understanding how financial and
ethical issues can be integrated within portfolios to meet
the overall objectives of clients.
As a licensed deposit taker, we are able to offer our
clients a range of banking services including currency,
payment services, fixed interest term deposits and loans
secured against investment portfolios.
Our Jersey office provides our clients access to offshore
investment management services.
We also offer a unitised portfolio service to both private
investors who wish to invest a lower level of funds than
would be economically optimal for a full discretionary
service and to financial advisers with larger groups of clients.
Unit Trusts
Rathbone Unit Trust Management offers a range of unit
trusts and open-ended investment companies (OEICs) for
private investors with £1,000 or more to invest. These are
distributed mainly through financial advisers in the UK.
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, a strategic
bond fund and a global fund which is focused on
international opportunities.
Rathbone multi asset funds provide the building blocks
for a collective solution for private clients, delivered via our
unitised portfolio service. These funds are also available
to investors with as little as £1,000 to invest.
Investment process
The Rathbone investment process underpins all of the core
services we offer. It is fundamental to the service we provide,
guiding the thinking of our investment managers yet allowing
enough flexibility to ensure that our clients’ individual needs
are met. It is constantly evolving and we continue to invest
in the people and resources required to ensure it remains
intellectually robust and capable of meeting a variety
of needs.
As alternative asset classes and investment products such
as hedge funds and structured products have become more
accessible and available to individual investors, we have
invested significant resource to ensure we can analyse these
wider options and incorporate them where we deem this
suitable for our clients.
Financial planning
Rathbone Pension & Advisory Services advises clients
on financial planning options, including retirement and
inheritance tax planning. We also offer the Rathbone SIPP.
For clients that do not have a financial adviser, we are able
to offer fully-independent financial advice through our
chartered financial planners.
Trust and tax services
Rathbone Trust Company provides advisory and
compliance services in relation to taxation, probate and
trusts. In addition, we offer family office support to
clients that stand to benefit from it.
We report on the subsidiaries of Rathbone Brothers Plc as follows:
Investment Management
Unit Trusts
Rathbone Investment Management
Rathbone Investment
Management International
Rathbone Pension & Advisory Services
Rathbone Trust Company
Rathbone Unit Trust Management
Rathbone Brothers Plc Report and accounts 2012
9
Key investor information
In spite of difficult economic conditions, the UK wealth market
continues to benefit from positive demographics and a critical need to
save. Rathbones is well placed in a growing wealth market as a stable
business with the right skills and qualities to take advantage of future
growth opportunities.
Our market
Rathbones in context
• £483 billion of assets managed in the UK by private client
• We manage £17.98 billion, which equates approximately
wealth managers1
to a 4% market share
• The UK market comprises circa 2.0 million2 individuals
• We provide investment management services to over
with liquid assets >£100,000
39,000 clients
• Of an estimated 522,400 high net worth individuals
with liquid assets >£500,0002 approximately 300,000
employ an investment manager3
• Our investment management client portfolios range in size
from £100,000 to over £100 million
• Over 50% of the money we manage is in client
• Over 150 companies offer wealth management services
relationships of greater than £1 million
in the UK4
The competitive landscape
UK Market by discretionary assets under management (AUM) at 31 December 20114
Discretionary AUM5
£m
Total AUM
£m
41,828
15,523
14,400
13,912
13,389
12,600
9,679
9,652
9,616
9,308
8,744
8,200
49,795
15,523*
24,000
14,800
32,539*
12,600
12,735
33,282*
24,039*7
31,025*
11,658
8,200
Coutts & Co
GLG Partners
Brewin Dolphin
Rathbones
HSBC6
Lloyds TSB Private Banking
Investec Wealth & Investment
UBS Wealth Management
Hargreaves Lansdown Asset Management
Goldman Sachs International
Smith & Williamson Investment Management
Cazenove Capital Management
Our performance
e
g
a
t
n
e
c
r
e
P
60
50
40
30
20
10
0
-10
-20
-30
-40
31 December 2007
31 December 2008
31 December 2009
31 December 2010
31 December 2011
31 December 2012
–– Rathbone Brothers Plc – Total shareholder return
–– FTSE All Share – Total shareholder return
1 The City UK, Fund Management 2012 report
2 MDRC, UK high net worth 2013 report
3 Canaccord Adams Wealth Management report, January 2009
4 Source: Private Asset Managers directory 2012
5 Barclays Wealth and St James’s Place Wealth Management (total assets
under management: £549.8bn and 28.5bn respectively) do not provide
a breakdown of their discretionary assets under management
6 Combined data for HSBC Global Asset Managers and HSBC Private Bank
7
* Private Asset Managers directory estimate
Includes assets under administration
10
Rathbone Brothers Plc Report and accounts 2012
Understanding our strategy
12
14
Strategy and key performance indicators
Rathbones at a glance
Rathbone Brothers Plc Report and accounts 2012
11
Strategy and key performance indicators
Our strategy
Clients
To be a leading provider of
high-quality, personalised investment
management, trust, tax and pension
advisory services to private clients,
charities and trustees.
How we achieve our aims
• Focus on providing
• Manage functions
discretionary investment
management services through
a direct relationship with an
investment manager.
• Ensure that the price of
our services is fair, sustainable
transparent and competitive.
• Provide robust support to
in-house where we have
scale to ensure that risks
are controlled and services
are managed to our
high standards.
• Encourage regular
feedback from our clients
and act upon it.
investment managers making
asset allocation and stock
selection decisions.
• Offer unit trust and multi asset
funds tailored to meet private
client investment needs.
• Ensure our clients can
• Provide supporting tax, trust
access a range of investments
across global markets.
and financial planning services.
Shareholders
To provide shareholders with a
growing stream of dividend income
and a consistent growth in earnings
per share and capital return as
market conditions allow.
Employees
To provide staff with an interesting
and stimulating career environment,
encourage all staff to share in the
equity and profits of Rathbones and
to reward organic growth.
• Review supplier relationships
to ensure we secure value
for money.
• Conservatively manage
treasury assets within clear
risk-based guidelines.
• Provide clear management
accountability for operational
and business risks.
• Maintain optimal capital
and liquidity levels, having
regard to market conditions,
regulatory requirements
and growth opportunities.
• Provide training for
staff, seeking the highest
professional and
personal standards.
• Share ideas and best practice
throughout the organisation
through timely consultation
and communication.
• Invest in our people
and systems to support
client service.
• Pursue acquisition
opportunities which will
increase shareholder value
and fit our culture.
• Ensure revenue margins
remain competitive and
appropriate to the value of
the services we offer.
• Manage operating cost
levels in line with growth
in the size of the business.
• Invest in infrastructure to
drive ongoing cost efficiency
and service quality.
• Ensure that all remuneration
schemes meet regulatory
requirements and
encourage appropriate
behaviour.
• Benchmark rewards to
ensure that awards remain
fair, competitive and aligned
with shareholder interests.
• Aim for directors to build up
a meaningful shareholding
over a five year period.
• Offer share-based incentives
to staff across the business.
• Recruit to ensure that new
employees fit our culture.
12
Rathbone Brothers Plc Report and accounts 2012
Strategy and key performance indicators continued
Principal risks to strategy
Measuring our success
Key performance indicators
Performance and advice
See risk F on page 29
Processing
See risk O on page 31
Regulatory
See risk G on page 30
Reputational
See risk H on page 30
Business model
See risk E on page 29
Credit
See risk A on page 29
Pension
See risk D on page 29
Business change
See risk I on page 30
People
See risk N on page 31
Our net organic growth rates and
number of clients are important
indicators of how successful we
are in attracting new clients and
retaining existing relationships.
The simplicity of our business
model means that profits,
earnings per share and
margins are good indicators
of success for both investors
and employees. We aim for
stable dividend growth (with
dividend cover typically
ranging from 1x to 2x earnings
depending on where we are
in the economic cycle). Total
shareholder return for the
last five financial years is
shown on page 10.
As a service-based business,
we recognise that continuity of
client service often means
continuity of employees who are
happy to promote and represent
the firm. One way to measure
our success is to look at how
many people join and leave the
organisation and how many
employees hold shares in our
share incentive plan (SIP).
Net organic growth rates in
Investment Management funds
under management %
2012: 3.0
2011: 5.4
2010: 5.3
2009: 6.7
2008: 7.4
Total funds under
management £bn
2012: 17.98
2011: 15.85
2010: 15.63
2009: 13.10
2008: 10.46
Unit Trusts funds under
management £m
2012: 1,266
2011: 1,085
2010: 1,043
2009: 935
2008: 1,029
Number of Investment
Management clients ’000
2012: 39.5`
2011: 38.4
2010: 37.4
2009: 33.8
2008: 31.2
Profit before tax £’000
Earnings per share p
2012: 38,812
2011: 39,152
2010: 30,083
2009: 29,468
2008: 42,306
2012: 67.00
2011: 66.72
2010: 49.76
2009: 46.87
2008: 67.57
Operating margin %
Dividend per share p
2012: 24.9
2011: 27.1
2010: 23.7
2009: 25.2
2008: 32.3
2012: 47.0
2011: 46.0
2010: 44.0
2009: 42.0
2008: 42.0
Staff costs as a percentage
of operating expenses %
Average full time
equivalent employees
2012: 62.2
2011: 61.3
2010: 60.8
2009: 64.8
2008: 65.1
Number of shares held by
SIP participants
2012: 1,428,214
2011: 1,394,076
2010: 1,316,557
2009: 1,346,948
2008: 1,290,392
2012: 789
2011: 746
2010: 699
2009: 681
2008: 675
Staff turnover %
2012: 4
2011: 5
2010: 6
2009: 3
2008: 6
Rathbone Brothers Plc Report and accounts 2012
13
Rathbones at a glance
as at 31 December 2012
Key measures
Market capitalisation at (£m)
Total assets (£m)
Total equity (£m)
Basel III Tier 1 ratio (%)
Profit before tax (£m)
2012
596.9
1,137.7
229.5
20.1
38.8
2011
461.7
1,183.8
190.7
16.2
39.2
Investment Management
Unit Trusts
• Funds under management: £16.71bn
• Funds under management: £1.27bn
Service type
Fund
• Rathbone Income Fund
• Rathbone Global
Opportunities Fund
• Rathbone Ethical Bond Fund
• Rathbone Recovery Fund
• Rathbone Blue Chip
%
38.2
15.0
8.1
4.7
Income and Growth Fund
3.6
• Rathbone Strategic Bond Fund 3.4
• Rathbone Active Income
Fund for Charities
• Rathbone Multi Asset
Portfolios
• Other funds
8.7
16.6
1.7
• Discretionary
• Non-discretionary
• Private client
• Trust and settlements
• ISAs
• Charities
• Pensions including SIPPs
• Other
• Over £1million
• £500,000 – £1million
• £250,000 – £499,999
• £50,000 – £249,999
• Up to £50,000
%
93.7
6.3
%
44.5
14.1
14.0
12.4
11.3
3.7
%
55.2
17.0
15.2
12.1
0.5
Account type
Account size
Principal trading names
• Rathbone Investment Management
• Rathbone Investment
Management International
• Rathbone Pension & Advisory Services
• Rathbone Trust Company
• Rathbone Unit Trust Management
Direct employees
Offices
Head
Websites
• 550
• 12
• 30
• 1
• Paul Chavasse (Investment Management)
• Ian Buckley (Other)
• Mike Webb
• General
www.rathbones.com
• Ethical investment
www.rathbonegreenbank.com
• www.rutm.com
14
Rathbone Brothers Plc Report and accounts 2012
Our business performance
16
22
27
32
Business review
Financial review
Group risk committee report
Corporate responsibility report
Rathbone Brothers Plc Report and accounts 2012
15
Business review
As detailed in Rathbones at a glance on page 14, the business
is managed through two key operating segments, namely
Investment Management and Unit Trusts.
Investment Management
T r u s t and tax services
F i n a ncial planning
B a n king services
h
R a t
b o n e
s
n
e
v
I n
Discre ti o
i n vestment pr
t m e n t Managem
i n v estment man
y
t h i c a l investment
O ff s h o r e investm
ent
ent
a
g
e
e
a
m
E
r
n
t
o
c
e
s
s
Client
p
U
o
n
r
i
t
f
t
i
s
o
l
i
e
d
o
s
The lack of sustained momentum in financial markets
during 2012 meant that conditions for investors continued
to be challenging. Despite the persistent market headwinds,
we have continued to attract new clients at a healthy rate,
both organically and through acquisitions. In total, 25 new
investment managers and supporting staff joined Rathbones
in 2012, taking the number of Investment Management
investment managers to 205 at 31 December 2012 from
184 at the end of 2011 (see chart 1).
Chart 1. Investment Management – number of clients and
investment managers
Number of Investment Management clients
2012: 39,500
2011: 38,400
2010: 37,400
2009: 33,800
2008: 31,200
Key performance indicators
Number of investment managers
Investment Management performance is largely driven by
the value of funds under management. Revenue margins
are expressed as a basis point return, which depends on
a mix of tiered fee rates, commission volumes and the
interest margin earned on cash in client portfolios. Funds
are closely managed by investment managers, who maintain
relationships that are critical to the retention of client
accounts.
Year on year changes in the key performance indicators for
Investment Management are shown in table 1, below:
Table 1. Investment Management – key performance indicators
2012: 205
2011: 184
2010: 170
2009: 157
2008: 145
In spite of challenging conditions, the total number of clients
(or groups of closely related clients) increased from 38,400
to 39,500 during the year (see chart 1). We expect to
welcome some 600 clients in early 2013 as a result of our
purchase of Taylor Young Investment Management Limited’s
private client base in November 2012.
2012
2011
Fund flows
Funds under management at 31 December1
£16.71bn £14.76bn
Underlying rate of net organic growth
in Investment Management funds
under management1
Underlying rate of total net growth in
Investment Management funds
under management1
3.0%
5.4%
6.2%
7.5%
Average net operating basis point return2
85bps
84bps
Number of Investment Management clients
39,500
38,400
Number of investment managers
205
184
1 See table 2
2 See table 5
In total, Investment Management funds under management
increased by 13.2% to £16.71 billion at 31 December 2012
from £14.76 billion at the start of the year. This increase is
analysed below:
Table 2. Investment Management – funds under management
As at 1 January
Inflows
– organic1
– acquired2
Outflows1
Market adjustment3
As at 31 December
Net organic new business4
Underlying rate of net organic growth5
Underlying rate of total net growth6
2012
£bn
14.76
2.08
1.60
0.48
(1.16)
1.03
2011
£bn
14.59
1.97
1.66
0.31
(0.87)
(0.93)
16.71
14.76
0.44
3.0%
6.2%
0.79
5.4%
7.5%
1 Value at the date of transfer in/(out)
2 Value at 31 December
3 Represents the impact of market movements and the relative performance of funds
compared to the FTSE APCIMS Balanced Index
4 Organic inflows less outflows
5 Net organic new business as a % of opening funds under management
6 Net organic new business and acquired inflows as a % of opening funds
under management
16
Rathbone Brothers Plc Report and accounts 2012
Business review continued
Investment Management continued
Acquired inflows of £0.48 billion in the year include:
Continued economic uncertainty and equity markets that
were range bound for most of 2012 adversely impacted on
underlying net organic growth, measured as funds introduced
by new or existing clients to existing investment managers,
which fell to 3.0% of opening funds under management in
the year (2011: 5.4%).
We continue to see growth across all areas of our business
though, including referrals by existing clients, which
remain an important source of new business. Charity funds
under management continued to grow strongly, reaching a
milestone of £2.09 billion at 31 December 2012, up 24.4%
from £1.68 billion at the start of the year. This performance
was recognised when Rathbones won Investment Manager
of the Year at the Charity Times Awards in October 2012.
Our relationships with financial intermediaries continue
to be an increasingly important source of new business,
although many intermediaries were busy with the Retail
Distribution Review (RDR) preparation in 2012. At
31 December 2012, £2.93 billion of Investment Management
funds under management were linked to independent
financial advisers (IFAs) and provider panel relationships
(2011: £2.47 billion).
We announced in October 2012 that we had acquired a
19.9% holding in Vision Independent Financial Planning
Limited, along with its sister company, Castle Investment
Solutions Limited (together, ‘Vision’). Vision is a fast-growing
independent specialist financial advice network with which
we had an existing discretionary fund management panel
relationship. Vision will remain an independent network
with a focus on selecting the most suitable discretionary
investment management service for its private clients.
The Group’s share of Vision’s results is reported in the
Investment Management segment as other income.
• £76 million from the acquisition of R.M. Walkden & Co.
Limited in April 2012;
• £51 million from Allied Irish Bank (AIB) Jersey; and
• £51 million from our new team to be based in Lymington.
The impact on funds under management from our recent
purchase of Taylor Young Investment Management Limited’s
private client base will be seen in 2013.
Total net organic and acquired growth has added £0.92
billion to funds under management in 2012 (2011: £1.10
billion), representing an underlying rate of total net growth in
funds under management of 6.2% (2011: 7.5%). The FTSE
100 Index and the FTSE APCIMS Balanced Index rose by
5.9% and 5.8% respectively over the year, helping to bring
about a positive market adjustment of £1.03 billion (2011:
£0.93 billion negative adjustment). Investment performance
in 2012 was positive overall against the APCIMS Balanced
Index, whereas performance in the latter part of 2011 was
less favourable largely due to a bias towards corporate bonds
versus the relatively high gilt weighting in the APCIMS
Balanced Index.
Financial performance
Investment Management income is derived from:
• a tiered scale of investment management or advisory fees,
which are applied based on the value of clients’ funds
under management, and a flat fee for each account;
• commissions which are levied on transactions undertaken
on behalf of clients; and
• an interest margin earned on the cash held in
clients’ portfolios.
Chart 2. Investment Management – funds under management five year growth
14.59
14.76
16.71
12.16
9.43
n
b
£
18
16
14
12
10
8
6
4
2
0
2008
2009
2010
2011
2012
–– Funds under management
–– FTSE 100 (£bn)*
–– FTSE APCIMS Balanced (£bn)*
* FTSE 100 and FTSE APCIMS figures show how funds under management would have changed between 2008 and 2012 if they had tracked each index
Rathbone Brothers Plc Report and accounts 2012
17
Business review continued
Investment Management continued
Table 4. Investment Management – average funds under management
Table 3. Investment Management – financial performance
Net investment management fee income2
Net commission income
Net interest income3
Fees from advisory services4 and other income
Underlying net operating income
Underlying operating expenses5
Underlying profit before tax
Underlying operating margin6
2012
£m
89.6
37.4
9.9
9.8
20111
£m
80.1
36.2
10.0
8.8
146.7
(102.1)
135.1
(89.7)
44.6
45.4
30.4%
33.6%
1 Comparatives restated due to re-presentation of segmental information (see note 3 to the
consolidated financial statements)
2 Net fee income is stated after deducting fees and commission expenses paid to introducers
3 Interest is presented net of interest expense paid on client accounts
4 Fees from advisory services include income from trust, tax and pensions advisory services
5 See table 6
6 Underlying profit before tax as a % of underlying net operating income
Net fee income increased by 11.9% from £80.1 million
to £89.6 million in 2012, benefiting from continuing
growth in funds under management as well as the full year
impact of increased charges (introduced from the end of
the first quarter in 2011). For the majority of clients, fees
are calculated based on the value of funds at our quarterly
charging dates. Average funds under management on these
billing dates in 2012 were £15.97 billion, up 8.2% from
2011 (reflecting market movements, investment performance
and net new funds).
Rathbones’ Annual Charity
Symposium 2012
Rathbones’ Annual Charity Symposium
2012 took place on the afternoon of
Wednesday 12 September 2012 at
the British Museum, London. Around
300 charity trustees and their advisers
joined Rathbones charity investment
managers for an afternoon of
stimulating presentations and debate
which addressed current financial and
legislative issues within the sector.
Speakers included James Codrington,
investment director at Rathbones,
Mark Spofforth (president of the
Institute of Chartered Accountants
for England and Wales) and Laurence
Dallaglio OBE. A panel discussion was
also held which pitted members of
Rathbones’ charity team against each
other in a balloon style debate.
A video and photos from the day are
available on the Rathbones website
at: www.rathbones.com/rathbones-
annual-charity-symposium-2012.
Valuation dates for billing:
– 5 April
– 30 June
– 30 September
– 31 December
Average
Average FTSE 100 level
2012
£bn
2011
£bn
15.55
15.50
16.12
16.71
15.97
5734
14.98
15.27
14.04
14.76
14.76
5663
Commissions were seasonally strong in the first quarter of
2012, but suffered from the lack of direction in investment
markets until the last two months of the year, ending the year
at £37.4 million (2011: £36.2 million).
Net interest income of £9.9 million in 2012 was consistent
with 2011 (£10.0 million) as lower income from treasury
assets, in spite of higher average liquidity, was offset by
£0.4 million of additional interest on client loans. The above
factors resulted in a marginal increase in basis point (bps)
return on average funds under management to 85bps
from 84bps in 2011, as shown in the table below:
Table 5. Investment Management – revenue margin
Basis point return1 from
– fee income
– commission
– interest
Basis point return on funds under management
2012
bps
2011
bps
56
24
5
85
54
25
5
84
1 Underlying net operating income (see table 3) excluding interest on own reserves, fees
from advisory services and other income, divided by the average funds under management
on the quarterly billing dates (see table 4)
Fees from advisory services and other income of
£9.8 million were 11.4% higher than 2011, reflecting the
impact of new charges and business growth.
Underlying operating expenses in Investment Management
for 2012 were £102.1 million, compared to £89.7 million
in 2011, an increase of 13.8%. This is highlighted in
table 6, below:
Table 6. Investment Management – underlying operating expenses
Staff costs1
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
2012
£m
36.1
16.8
52.9
49.2
102.1
2011
£m
31.6
15.8
47.4
42.3
89.7
Underlying cost/income ratio2
69.6%
66.4%
1 Represents the costs of investment managers and teams directly involved in
client-facing activities
2 Underlying operating expenses as a % of underlying net operating income (see table 3)
18
Rathbone Brothers Plc Report and accounts 2012
Business review continued
Investment Management continued
Award-winning
Rathbones was named ‘Best Wealth
Manager for Alternative Investments’
at the Investors Chronicle/FT Wealth
Management Awards in May 2012.
The award recognises the breadth
of our investment expertise, which
includes alternative as well as
traditional investment strategies.
Further accolades in 2012 included
the ‘Investment Manager of the Year’
award at the Charity Times Awards in
October and in November the ‘Incisive
Media Gold Standard for Discretionary
Portfolio Management’ at the Incisive
Media Gold Standard Awards 2012.
Paul Chavasse, head of investment
management, said of the Gold
Standard win: “We are particularly
pleased to have won an award
which places such emphasis on
our values of first class investment
management and high-quality
client service. In an industry that
is increasingly automated and
models-based, we believe in giving
clients direct access to the person
managing their money. The Gold
Standard underlines our ongoing
commitment to our clients.”
Fixed staff costs of £36.1 million increased by 14.2%
year on year, principally reflecting the addition of revenue
generating staff and salary inflation. Variable staff costs are
marginally higher year on year, reflecting positive investment
performance and a higher year end Rathbone Brothers Plc
share price.
Other operating expenses of £49.2 million include property,
depreciation, settlement, IT, finance and other central support
services costs. The year to year increase of £6.9 million
(16.3%) reflects higher marketing spend, a busy project
agenda and planned investment in property and IT.
In addition, other operating expenses include higher
Financial Services Compensation Scheme (FSCS) levies of
£1.0 million in 2012 (2011: £0.4 million) and £0.8 million
of legal fees arising from proceedings to confirm insurance
cover against the insurers on the excess layer of our civil
liability (professional indemnity) policy. Action was taken to
protect the Company’s interests as the Company was aware
that a claim relating to the management of a Jersey trust
had been filed against a former director of Rathbone Trust
Company Jersey Limited (owned by Rathbones from March
2000 until October 2008).
Rathbone Brothers Plc Report and accounts 2012
19
Net inflows of Unit Trusts funds under management in 2012
were £66 million, compared to £97 million in 2011, with
the business now reporting positive net sales for the last nine
consecutive quarters to 31 December 2012. This represents a
positive development from difficult times in 2008 and 2009.
Chart 3. Unit Trusts – annual net flows
2012: 66
2011: 97
2010: (30)
2009: (234)
2008: (234)
At 31 December 2012, the value of assets managed in each
fund was as follows:
Table 9. Unit Trusts – fund assets
Rathbone Income Fund
Rathbone Global Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Recovery Fund
Rathbone Blue Chip Income and Growth Fund
Rathbone Strategic Bond Fund
Rathbone Active Income Fund for Charities
Rathbone Multi Asset Portfolios
Other funds
2012
£m
484
190
102
59
46
43
21
110
211
2011
£m
453
136
79
62
60
15
–
100
180
1,266
1,085
During 2012, funds performed well with each now boasting
a strong three year track record, which is so critical to
securing future sales.
Table 10. Unit Trusts – fund performance
2012/(2011) quartile ranking1 over:
1 year
3 years
5 years
Rathbone Blue Chip Income and
Growth Fund
Rathbone Ethical Bond Fund
Rathbone Global Opportunities Fund
Rathbone Income Fund
Rathbone Recovery Fund2
Rathbone Strategic Bond Fund3
1 (3)
1 (4)
3 (1)
2 (2)
2 (3)
4 (n/a)
2 (2)
1 (1)
1 (1)
1 (1)
2 (3)
2 (3)
2 (1)
3 (3)
1 (n/a) n/a (n/a)
n/a (n/a)
n/a (n/a)
1 Ranking of retail share classes
2 Performance data for the Rathbone Recovery Fund is not yet available beyond three years
as the fund was launched on 13 July 2009
3 Performance data for the Rathbone Strategic Bond Fund is not yet available beyond one
year as the fund was launched on 3 October 2011
Business review continued
Unit Trusts
b o n e
h
R a t
i n vestment pr
o
c
e
s
s
Client
U
nit Trusts
Key performance indicators
Unit Trusts performance is largely driven by the value and
growth of funds managed.
Year on year changes in the key performance indicators for
Unit Trusts are shown in table 7, below:
Table 7. Unit Trusts – key performance indicators
Funds under management at 31 December1
£1.27bn
£1.09bn
2012
2011
Underlying rate of net growth in Unit Trusts funds
under management1
Profit before tax2
1 See table 8
2 See table 11
Fund flows
6.4%
9.6%
£0.6m
£0.8m
The retail asset management industry saw the depressed
trend in net retail sales, which began in the second half of
2011, continue through 2012. Industry concentration in
a small number of funds and focus on mainstream fixed
income funds provided a difficult backdrop for the business.
The uncertain direction of financial markets during the year
led to a 24.3% drop in industry-wide net retail sales (as
reported by the Investment Management Association) to
£13.7 billion, compared to £18.1 billion in 2011. Despite
these negative trends, Unit Trusts funds under management
increased by 16.5% year on year to £1.27 billion from
£1.09 billion, supported both by market movements and net
growth in funds as shown in table 8, below:
Table 8. Unit Trusts – funds under management
As at 1 January
Net inflows
– inflows1
– outflows1
Market adjustments2
As at 31 December
Underlying rate of net growth3
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
2012
£bn
1.09
0.07
0.27
(0.20)
0.11
1.27
6.4%
2011
£bn
1.04
0.10
0.24
(0.14)
(0.05)
1.09
9.6%
20
Rathbone Brothers Plc Report and accounts 2012
Business review continued
Unit Trusts continued
Table 12. Unit Trusts – underlying operating expenses
On 9 July 2012, we extended our range of funds with the
launch of the Rathbone Active Income Fund for Charities,
a specialist fund that provides a tax-efficient investment
opportunity for charities. By the end of 2012, the fund had
added £21 million to the value of funds under management.
During 2012, we created institutional units on all of our
funds as planned, to ensure RDR compliance. Institutional
units carry a lower annual management charge (typically
half that of retail units) and do not allow for any form of
trail commission to advisers who must now levy their own
charges directly to investors.
Financial performance
Unit Trusts income is primarily derived from:
Staff costs
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
2012
£m
2011
£m
2.9
0.9
3.8
4.5
8.3
2.5
1.1
3.6
3.8
7.4
Underlying cost/income ratio1
93.3%
90.2%
1 Underlying operating expenses as a % of net operating income (see table 11)
Fixed staff costs of £2.9 million for year ended 31 December
2012 were 16.0% higher than the previous year due to salary
increases and an increase in headcount over the year from an
average full time equivalent of 29 to 30.
• annual management charges, which are calculated on
the daily value of funds under management, net of rebates
and trail commission payable to intermediaries; and
Variable staff costs of £0.9 million were down 18.2% on
2011 as the impact of spreading higher profit share awards
in 2007 and 2008 fell out of the segment’s results in 2011.
Other operating expenses have increased by 18.4% to
£4.5 million, principally as a result of higher third party
administration costs following the mandatory launch of
institutional class shares and increased office costs after the
move of the head office to 1 Curzon Street, London
in February 2012.
Financial awareness for
young people
Rathbones has a healthy interest
in the education sector. 30%
of charitable funds managed by
Rathbones are in the educational
sector and over the years we have
undertaken various initiatives
with schools.
We are aware that there is a
limited focus on financial guidance
in mainstream education and we feel
we have a social responsibility to try
and fill this gap. As part of a long term
initiative, we are using our in-house
resource and expertise to run a
number of financial awareness events
both in our offices and in schools
throughout 2012 and 2013.
For more information, visit:
www.rathbones.com/financialawareness.
• net dealing profits which are earned on the bid-offer
spread from sales and redemptions of units and market
movements on the small stock of units that are held on
our books overnight.
Table 11. Unit Trusts – financial performance
Initial charges net of discounts
Annual management charges
Net dealing profits
Interest and other income
Rebates and trail commission payable
Net operating income
Underlying operating expenses1
Profit before tax
Operating % margin2
1 See table 12
2 Profit before tax divided by net operating income
2012
£m
0.5
15.0
0.6
0.2
16.3
(7.4)
8.9
(8.3)
0.6
2011
£m
0.5
13.9
0.5
0.2
15.1
(6.9)
8.2
(7.4)
0.8
6.7%
9.8%
Annual management charges increased 7.9% to £15.0
million in 2012, in line with a rise in average funds under
management. Annual management charges as a percentage
of average funds under management remained consistent at
1.3% (2011: 1.3%). Rebates and trail commission payable,
as a percentage of annual management charges was
49.3% compared to 49.6% in 2011.
Net dealing profits of £0.6 million were similar to the £0.5
million in 2011, as the level of gross sales remained broadly
flat over both years. Net operating income as a percentage
of average funds under management was consistent at
0.8% in 2012 and 2011.
Rathbone Brothers Plc Report and accounts 2012
21
Financial review
Consolidated financial performance
Underlying operating expenses
Table 13. Extracts from the consolidated statement of
comprehensive income
Operating income
Underlying operating expenses
Underlying profit before tax1
Underlying operating margin2
Profit before tax
Effective tax rate
Taxation
Profit after tax
Underlying earnings per share
Earnings per share
Dividend per share3
2012
£m
(unless stated)
2011
£m
(unless stated)
155.6
144.5
110.5
45.1
97.1
46.2
29.0%
32.2%
38.8
39.2
24.7%
26.7%
(9.6)
(10.4)
29.2
28.7
77.96p
78.79p
67.00p
66.72p
47p
46p
1 Profit before tax excluding amortisation of client relationships, head office relocation costs
and, in 2011, gains on disposal of financial securities
2 Underlying profit before tax as a % of operating income, excluding gains on disposal of
financial securities in 2011
3 The total interim and final dividend proposed for the financial year
Operating income
The Group’s operating income has increased 7.7% to
£155.6 million in 2012, driven by higher fee and commission
income from steadily growing funds under management.
Operating income in 2011 included £1.1 million of gains
on disposal of financial securities which were excluded from
underlying results (see below).
Chart 4. Underlying operating expenses
Underlying operating expenses have increased 13.8% to
£110.5 million and reflect a combination of business growth
and investment as well as some other factors (see chart 4).
Average full time equivalent headcount grew 5.8% to 789
(2011: 746), which largely reflected new revenue generating
teams joining us or new roles aimed at business development
and enhancing investment process. Variable staff costs,
including variable awards for business support staff, increased
by 9.3% to £21.1 million, reflecting improved investment
performance versus the APCIMS Balanced Index (to some
extent a reversal of the lower performance reported in the
last quarter of 2011 as a result of a strong gilt market) and
a higher share price which increased the cost of cash-settled
share-based awards.
As planned, infrastructure costs increased by £3.3 million
largely as a result of higher property costs in London and
Liverpool and IT expenditure. In addition though, underlying
operating expenses also included £1.0 million of FSCS levies,
up £0.6 million from 2011, legal expenses, which include
£0.8 million of legal fees arising from proceedings to confirm
insurance cover against the insurers on the excess layer
of our civil liability (professional indemnity) policy, and
pension service costs. Pension service costs increased
£1.4 million largely as a result of the impact of lower
long-dated gilt yields at the start of 2012, which also
reduced expected investment returns.
m
£
115.0
110.0
105.0
100.0
95.0
90.0
85.0
People
Infrastructure
2.0
1.5
1.8
1.5
1.9
97.1
2.9
110.5
1.8
2011
underlying
expenses
Inflation
Client
facing
Support
staff
Variable
rewards
Investment
Property
Other
2012
underlying
expenses
22
Rathbone Brothers Plc Report and accounts 2012
Financial review continued
Consolidated financial performance continued
Taxation
Underlying profit before tax/operating margin
Segment financial information in the business review is
presented on an underlying basis, as it is considered to be a
better reflection of true business performance. Measures such
as ‘underlying profit before tax’ and ‘underlying earnings per
share’ have been adopted by research analysts covering the
Group. Underlying profit before tax decreased 2.4% in the
year to £45.1 million, from £46.2 million in 2011, as cost
inflation more than offset growth and positive market effects.
Items of income and expense falling in the categories
explained below are excluded from underlying results.
A full reconciliation between underlying profit and profit
attributable to shareholders is provided in note 12 to the
consolidated financial statements.
Amortisation of client relationships (note 21)
Client relationship intangible assets are created in the
course of acquiring funds under management. The
amortisation charge associated with these assets
represents a significant non-cash item. It has, therefore,
been excluded from underlying profit, which represents
largely cash-based earnings. Charges for amortisation
of client relationship intangibles in the year ended 31
December 2012 were £6.0 million (2011: £5.1 million).
Head office relocation costs (note 8)
In February 2012, we relocated our head office to
1 Curzon Street, taking advantage of the opportunity to
bring London-based employees together, with most now
sitting on the same floor of a single building. Charges
in 2012 of £0.3 million (2011: £3.0 million) associated
with this move were separately highlighted and excluded
from underlying profit due to their material and non-
recurring nature. Associated operating lease costs of
£3.3 million per annum are included within underlying
operating expenses.
Gains on disposal of financial securities (note 6)
Included within operating income in 2011 was a
non-recurring gain of £1.1 million from the sale of
certain financial assets that were previously held in
nominee accounts and which the passage of time had
demonstrated that any claims against those assets
had been exhausted. They were consequently
recognised following FSA approval. No such gains
were recognised in 2012.
The consolidated underlying operating margin, which
is calculated as the ratio of underlying profit before tax
to underlying operating income, fell to 29.0% in 2012
compared to 32.2% in 2011, reflecting the year on year
change in profitability.
The tax charge for 2012 was £9.6 million
(2011: £10.4 million), and represents an effective tax
rate of 24.7% (2011: 26.7%).
The effective tax rate has fallen since 2011 primarily due
to a reduction in the UK corporation tax rate. The effective
tax rate is slightly higher than the derived UK standard
rate of corporation tax of 24.5% due to the impact of
disallowable expenses, which has been largely offset by the
impact of a small overprovision in 2011. A full reconciliation
of the income tax expense is provided in note 10 to the
consolidated financial statements.
The UK Government has proposed that the UK corporation
tax rate be reduced to 21.0% over the next two years.
At 31 December 2012, only an element of this reduction,
taking the UK tax rate to 23.0% in 2013, had been
substantively enacted.
Earnings per share and dividends
Basic earnings per share for the year ended 31 December
2012 were 67.00p, up 0.4% on 66.72p in 2011,
incorporating exceptional income and costs and the reduction
in the effective tax rate noted above. On an underlying basis,
earnings per share decreased by 1.1% to 77.96p in 2012
(see note 12 to the consolidated financial statements).
In light of the results for the year, the Board have
proposed a final dividend for 2012 of 30p. This results
in a full year dividend of 47p, an increase of 1p on 2011.
The proposed dividend is covered 1.4 times by basic
earnings and 1.7 times by underlying earnings.
London office move
The move of the Rathbones’ head
office from New Bond Street to
1 Curzon Street in Mayfair completed
on 27 February 2012. The new
London office covers some 44,200
square feet split over two floors,
representing a 10% increase in
floor space. The enlarged premises
accommodate all of Rathbones’
London-based employees and offer
improved facilities for a growing
client-base, underlying a commitment
to the highest levels of client service.
Rathbones’ chief executive Andy
Pomfret said: “Rathbones is a growing
business which continues to grow,
both organically and by acquisition.
Our new offices will ensure we
can continue to accommodate the
high number of face-to-face client
meetings and, for the first time, will
see Rathbones’ employees based on
a single floor. The additional space
will also help meet the needs of the
continued investment in technology
and infrastructure which is essential
in providing operational efficiency. ”
Rathbone Brothers Plc Report and accounts 2012
23
Financial review continued
Consolidated balance sheet and
capital resources
Table 14. Extracts from the consolidated balance sheet and components
of regulatory capital
Capital resources
– Tier 1 capital ratio1
– Total equity
Other resources
– Total assets
– Treasury assets2
– Investment management loan book3
– Intangible assets from acquired growth4
– Tangible assets and software5
Liabilities
– Due to customers6
– Retirement benefit obligations
2012
£m
(unless stated)
2011
£m
(unless stated)
20.1%
229.5
16.2%
190.7
1,137.7
896.4
65.1
92.8
16.6
1,183.8
974.6
36.4
88.8
14.7
828.4
2.1
908.7
7.3
1 Tier 1 capital as a proportion of total risk weighted assets, calculated on a Basel III basis
2 Balances with central banks, loans and advances to banks and investment securities
(excluding available for sale equity investments)
3 See note 15 to the consolidated financial statements
4 Net book value of acquired client relationships and goodwill (note 21)
5 Net book value of property, plant and equipment and computer software (notes 18 and 21)
6 Total amounts of cash in client portfolios held by Rathbone Investment Management as
a bank (note 23)
The Group’s Pillar III disclosures are published annually on
our website (www.rathbones.com/investor-relations/results-
and-presentations/pillar-3-disclosures) and provide further
details about regulatory capital resources and requirements.
As required under FSA rules, we perform an Internal
Capital Adequacy Assessment Process annually, which
includes performing a range of stress tests to determine the
appropriate level of regulatory capital that the Group needs
to hold. In addition, we monitor a wide range of capital
and liquidity statistics on a daily, monthly or less frequent
basis as required. Capital levels are forecast on a monthly
basis, taking account of proposed dividends and investment
requirements, to ensure that appropriate buffers are
maintained. Investment of proprietary funds is controlled
by our treasury department.
The Group’s Tier 1 capital ratio, calculated on a Basel III
basis, is much higher than the banking industry norm and
reflects the low risk nature of the Group’s banking activity
and the lack of debt financing. The Tier 1 ratio has risen
to 20.1% from 16.2% at the previous year end mainly due
to the impact of the successful share placing completed in
November 2012 (see below).
Regulatory capital
Capital resources
Rathbones is classified as a banking group under the
Capital Requirements Directive and we are therefore required
to operate within a wide range of restrictions on capital
resources and banking exposures that are prescribed by
the prudential rules of the FSA. At 31 December 2012, the
Group had regulatory capital resources of £118.4 million
(2011: £89.8 million), which were calculated as follows:
Table 15. Regulatory capital resources
Share capital and share premium
Reserves
Less:
– Own shares
– Intangible assets1
– Other regulatory adjustments2
2012
£m
64.5
170.9
(5.8)
(97.4)
(13.8)
2011
£m
36.4
159.0
(4.7)
(92.8)
(8.1)
Total regulatory capital resources
118.4
89.8
1 Net book value of goodwill, client relationship intangibles and software are deducted directly
from capital resources
2 Including committed pension funding contributions and balances related to the Group’s
captive insurance company
The consolidated balance sheet remains healthy with total
equity of £229.5 million at 31 December 2012, up 20.3%
from £190.7 million at the end of 2011. The business
remains well capitalised and does not rely on wholesale
markets to fund its operations. The Group is fully funded
by equity.
On 7 November 2012, we successfully completed the
placing of 2,000,000 new ordinary shares at a price of
£12.35 per share, which raised £24.7 million before
transaction costs, at a discount of 2.99% to the market price.
The capital was raised to allow us to take advantage of
the increase in acquisition opportunities that we expect to
see in the near future (such acquisitions result in a reduction
in regulatory capital as intangible assets are immediately
deducted from regulatory capital resources; see table 15)
and to expand the loan book.
Total assets
Total assets at 31 December 2012 were £1,137.7 million
(2011: £1,183.8 million), of which £828.4 million
(2011: £908.7 million) represents the cash held in banking
client portfolios.
24
Rathbone Brothers Plc Report and accounts 2012
Financial review continued
Consolidated balance sheet and capital resources continued
Treasury assets
As a licensed deposit taker, Rathbone Investment
Management holds the Group’s surplus liquidity on its
balance sheet together with clients’ cash held on a banking
basis. Cash in client portfolios of £833.9 million, including
£5.5 million held in client money accounts, represented 5.0%
of total investment management funds at 31 December 2012
compared to 6.2% at the end of 2011.
The treasury department of Rathbone Investment
Management, reporting through the banking committee
to the Board, operates in accordance with procedures set
out in a Board-approved treasury manual and monitors
exposure to market, credit and liquidity risk as described
in note 30 to the consolidated financial statements. The
treasury department invests in a range of securities issued
by a relatively large number of counterparties. These
counterparties must be ‘A’ rated or higher by Fitch and
are regularly reviewed by the banking committee.
Loan book
Loans are provided as a service to investment management
clients who have short to medium term cash requirements.
Such loans are normally made on a fully secured basis against
portfolios held in Rathbones’ nominee name (see note 30
to the consolidated financial statements) and are usually
advanced for a maximum of one year. All loans (and any
extensions to the initial loan period) are subject to approval
by the banking committee. Our ability to provide such loans
is a valuable additional service, for example, for clients that
require bridging finance when moving home and, in the
current low interest rate climate, the yield on such low-risk
loans supports our overall interest rate margin.
In 2012 we saw increased demand for client loans.
Outstanding loans totalled £65.1 million at the end of 2012
(2011: £36.4 million). This activity is an important part of
building our relationship with clients.
Intangible assets
Intangible assets arise principally from acquired growth in
funds under management and are categorised as goodwill
and client relationships. At 31 December 2012, the total
carrying value of intangible assets arising from acquired
growth was £92.8 million (2011: £88.8 million). During the
year, client relationship intangible assets of £10.0 million
were capitalised (2011: £5.7 million), including £2.2 million
from the acquisition of R.M. Walkden & Co. Limited.
Further client relationship intangible assets will be recognised
in 2013 as a result of clients joining Rathbones following the
purchase of Taylor Young Investment Management Limited’s
private client base and AIB’s Jersey-based investment
management business. No goodwill was acquired during
2011 or 2012.
Client relationship intangibles are amortised over the
estimated life of the client relationship, generally over a
period of 10 to 15 years. When client relationships
are lost, any related intangible is derecognised in the year.
The total amortisation charge for client relationships,
including the impact of lost relationships, in 2012 was
£6.0 million (2011: £5.1 million).
Goodwill which arises from business combinations is
not amortised, but is subject to a test for impairment at
least annually. No goodwill was found to be impaired
during 2011 or 2012.
Further details on the Group’s intangible assets are provided
in note 21 to the consolidated financial statements.
Capital expenditure
During 2012, we have continued to invest for future growth
with capitalised expenditure on our premises and systems
totalling £6.1 million (2011: £9.0 million). We continue to
work at improving the efficiency of our systems and our back
office and investment in new systems continues at a steady
pace. Although some of this is driven by regulatory change,
much is driven by our desire to optimise the service that
our clients receive and to give our investment managers the
tools they need to manage portfolios more easily.
Capital expenditure on property in 2012 included
£2.0 million of fit-out and related costs in relation to the
relocation of our head office in February (2011: £4.8 million)
and a further £0.3 million of related costs have been charged
to profit in 2012 (2011: £3.0 million).
In 2013, we expect capital expenditure to remain at
2012 levels as we continue to invest in our internet portal
for clients and advisers and open additional offices in
Lymington and Newcastle.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of
which have been closed to new members for several years.
Actuarial valuations of the schemes as at 31 December 2010
were carried out during 2011 and we have not needed to
revisit these during 2012.
Continued market volatility in 2012, in particular in relation
to interest rates and inflation expectations, has meant that
our pension scheme deficits have also been volatile during
the year. At 31 December 2012, the combined accounting
deficit on the two defined benefit schemes had fallen to
£2.1 million (2011: £7.3 million). This decrease is mainly
due to continued funding, improved asset returns and higher
discount rates. Full details of the assumptions underlying
the accounting valuation and associated sensitivities are
included in note 26 to the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2012
25
Financial review continued
Consolidated balance sheet and capital resources continued
Funding valuations, which form the basis of the annual
contributions that we make into the schemes, are required to
be more prudent than valuations used for financial reporting,
which must be based on management’s best estimate of
the schemes’ position. Regular annual contributions to the
schemes for ongoing service by scheme members were
£3.8 million in 2012, based on 22.6% of pensionable
salaries. From 2013, this will reduce to 14.8% of pensionable
salaries. In addition, further funding contributions of up
to £3.1 million per year are payable until 2017 under the
current agreement. The next funding valuation will be carried
out on the schemes’ position at 31 December 2013.
Liquidity and cash flow
Table 16. Extracts from the consolidated statement of cash flows
2012
£m
Cash and cash equivalents at the end of the year
230.2
Net cash (outflows)/inflow from operating activities (176.8)
Net increase in cash and cash equivalents
100.3
2011
£m
129.9
177.3
50.8
Fee income is largely collected directly from client portfolios
and expenses, by and large, are predictable; consequently
Rathbones operates with a modest amount of working
capital. Larger cash flows are principally generated from
banking/treasury operations when investment managers
make asset allocation decisions about the amount of cash to
be held in client portfolios. As a bank, Rathbones is subject
to the FSA’s Internal Liquidity Adequacy Assessment regime,
which requires us to hold a suitable Liquid Asset Buffer to
ensure that short term liquidity requirements can be met
under certain stressed scenarios. Liquidity risks are actively
managed on a daily basis and depend on operational and
investment transaction activity.
Cash and balances at central banks was £116.0 million at
31 December 2012, primarily reflecting amounts held in a
reserve account with the Bank of England, which was opened
during the year.
Cash and cash equivalents, as defined by accounting
standards, includes cash, money market funds and banking
deposits which had an original maturity of less than three
months (see note 35 to the consolidated financial statements).
Net cash flows from operating activities include the effect
of a £80.2 million decrease in banking client deposits
(2011: £143.8 million increase) and a £131.2 million increase
in the component of treasury assets placed in term deposits
for more than three months (2011: £8.5 million increase).
Offsetting these outflows was a net inflow of
£284.9 million from the maturity of certificates of deposit
and the liquidation of holdings in money market funds
(2011: £92.9 million net outflows), shown within investing
activities in the consolidated statement of cash flows.
The most significant non-operating cash flows during the
year were as follows:
• a net inflow of £24.0 million from the proceeds of the
share placing (2011: £nil);
• outflows relating to the payment of dividends of
£20.1 million (2011: £19.5 million);
• outflows relating to payments to acquire intangible assets
of £7.7 million (2011: £5.8 million); and
• £4.0 million of capital expenditure on property, plant and
equipment (2011: £6.9 million, including £4.8 million
paid in relation to the relocation of the head office).
The 2012 Review, which comprises the chairman’s statement, chief executive’s
statement, strategy and key performance indicators, business review, financial
review and group risk committee report, 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.
It 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 annual report. Statements contained within the 2012
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 2012 Review has been prepared by
Rathbone Brothers Plc to provide information to its shareholders and should
not be relied upon for any other purpose.
26
Rathbone Brothers Plc Report and accounts 2012
Group risk committee report
Group risk committee chairman’s statement
The responsibilities of the group risk committee include:
2012 has seen the considerable enhancement of our risk
management processes. In May 2012 we recruited a senior
risk analyst and now have a small stand-alone risk team who
have developed our risk register and, in particular, the
supporting management information.
• advising the Board on the Group’s overall risk appetite
and risk strategy, taking into account the current and
prospective macroeconomic and financial environment;
• overseeing the current risk exposures of the Group;
In 2013, we expect to see further enhancement to the
Company’s defined risk appetite with the identification and
embedding of risk appetite metrics in relation to growth and
shareholder value, the management of capital and liquidity
and risk of unexpected loss to earnings. This appetite
framework will be applied though the use of principles, risk
tolerances and limits documented within a company risk
appetite statement and defined for each risk category. Work
on the quantification of operational risk is also planned.
Committee members
The group risk committee, chaired by Kathryn Matthews,
comprises two non-executive directors (Oliver Corbett and
Kathryn Matthews), members of the executive committee,
the chief executive of Rathbone Unit Trust Management
and the group heads of HR, compliance, internal audit and
treasury. Ian Buckley is the executive committee member
with responsibility for risk management.
Role and responsibilities of the committee
Rathbones has a risk management framework, the key
objective of which is to identify and manage risk within a
Board-approved risk appetite. The Board is responsible for
the Group’s system of risk management and governance
framework which is designed to manage rather than
eliminate the risks of failure to achieve business objectives.
Rathbones believes that the most effective way of achieving
this is by embedding risk management throughout the
organisation and the risk framework is designed to ensure
that all identified risks are owned by management, business
units and specific committees, all with responsibility for
identifying, evaluating and managing risk. The system has
been in place through the period under review and is a
continuing process supported by independent risk and
compliance functions.
Committees within the governance framework report
through the risk management framework to the group risk
committee, which takes a more holistic view of risk, defining
risk appetite, identifying trends and correlations and
providing guidance to other committees and to the Board.
This approach allows for risk decisions to be taken at the
most appropriate level and also be subject to robust review
and challenge.
• reviewing the risk assessment processes;
• supporting the Board’s assessment of any proposed
strategic business change; and
• assessing reports on any material breaches of
risk tolerances and the adequacy of proposed
management action.
The full remit of the committee is detailed within its terms
of reference, which is subject to annual review and approval
by the Board. The group risk committee meets on a
quarterly basis.
Risk appetite
Rathbones’ risk appetite is defined as the level of risk the
Company is prepared to accept, within defined tolerance
levels, in the pursuit of its strategic objectives. The Board
recognises that taking risks is a normal part of running a
business, and that the business will necessarily bear losses
from financial and operational risks which may manifest
themselves either as reductions in income or as either
operating or opportunity costs. The Board is committed to
mitigating risk as much as possible, but would be prepared
to accept unexpected losses of up to £10 million in any
five year period before it materially changes the current
business model.
Risk register
A risk register is maintained which is considered the principal
tool for monitoring risks. During 2012 a review was
conducted of the Company’s risk universe to ensure the
system of risk management remains fit for purpose to enable
the identification and evaluation of all material risks facing
the Group. Risks are classified at different levels. The highest
level (Level 1) groups risks as either business, financial or
operational. The next level (Level 2) contains 15 risk
categories which are listed below. Detailed risks (Level 3) are
a subset of Level 2 risks and are captured and maintained
across the Company within business unit risk registers.
Rathbone Brothers Plc Report and accounts 2012
27
Group risk committee report continued
Risk scoring
Risk heat map
The risk heat map illustrates the relative overall positioning
of our Level 2 risk categories (as described on pages 29 to 31)
in terms of residual impact and likelihood.
A
I
L
M
H
D
J
N
K
C
B
G
E
F
O
e
r
e
v
e
S
t
c
a
p
m
I
w
o
l
y
r
e
V
Unlikely
Likelihood
Almost certain
The risk scoring methodology adopted by Rathbones and
approved by the group risk committee assesses each risk
using a 1 – 4 scoring system. Each Level 3 risk is rated by
assessing both the probability of the risk occurring and its
impact should it occur. A residual risk score is then derived
taking into account an assessment of the internal control
environment or related insurance.
Principal risks and uncertainties
The Board believes that the principal risks and uncertainties
facing the Group are identified within the information
below. Our overall risk profile is analysed at the Level 2
risk category and these are defined below together
with key factors that mitigate these risks. These are not
exhaustive listings.
Risk profile
Thirty-three Level 3 risks currently form the basis of the
Group’s risk register, each of which is classified under one of
the 15 Level 2 risk categories.
Rathbones’ approach for managing risk is underpinned by
our understanding of our current risk exposures and how our
risks change over time.
The full risk register is monitored closely by executive
management, the group risk committee and the Board.
The risk heat map (opposite) summarises the overall risk
rating of each Level 2 risk.
The risk profile and ratings for the majority of Level 2 risks
have remained consistent during 2012. Changes to Level 2
risks are presented in the table below.
Risk change in 2012
Description of risk change
Risk
Credit
Liquidity
Pension
Business change
Market conditions have
improved along with the credit
quality of our counterparties.
Increased balances held with
the Bank of England.
Lower scheme deficit.
Significant activity and
increasing number of projects
planned for 2013.
28
Rathbone Brothers Plc Report and accounts 2012
Group risk committee report continued
Financial risks
Reference
Level 2 risk
Impact
Likelihood
Definition
Key mitigators
Residual rating
A
Credit
High
Very low
B
Liquidity
Low
Low
C
Market
Low
Low
D
Pension
Medium
Low
Risk associated with one or more
counterparties failing to fulfil its
contractual obligations, including stock
settlement.
Risk of insufficient financial resources to
meet obligations as they fall due, or can
only secure access to such resources at
excessive cost.
Risk that earnings or capital will be
adversely affected by changes in the
level or volatility of interest rates,
foreign currency exchange rates or
market prices.
Risk that the obligation to fund any
deficit arising from defined benefit
schemes materially affects dividend,
reserves and capital.
• Banking committee oversight.
• Counterparty limits and credit reviews.
• Treasury policy and procedures manual.
• Active monitoring of exposures.
• Annual Individual Capital Adequacy
Assessment Process.
• Banking committee oversight.
• Daily reconciliations and reporting
to senior management.
• Cash flow forecasting.
• Contingency funding plan.
• Annual Individual Liquidity Adequacy
Assessment (including stress testing).
• Banking committee oversight.
• Documented policies and procedures.
• Daily monitoring of interest rates,
exchange rates and maturity mismatch.
• Robust application of policy and
investment limits.
• Management and trustee oversight.
• Monthly valuation estimates.
• Triennial independent actuarial
valuations.
• Investment policy and oversight.
• Monthly management information.
• Annual Individual Capital Adequacy
Assessment Process.
Further detailed discussion of the Group’s exposures to financial risks is included in note 30 to the consolidated
financial statements.
Business risks
Reference
Level 2 risk
Impact
Likelihood
Definition
Key mitigators
Residual rating
E
F
Business
model
Medium
Medium
Risk that the business model does
not respond in an optimal manner to
changing market conditions such that
sustainable growth or market share is
adversely affected.
Performance Medium
and advice
Medium
Risk of inappropriate financial or
investment advice, inadequate
documentation, unsuitable portfolios or
inadequate performance failing to meet
our clients’ investment and/or other
objectives or expectations.
• Board and executive oversight.
• Documented strategy.
• Annual business targets, subject to
regular review and challenge.
• Regular reviews of pricing structure.
• Continued investment in marketing,
the investment process and
service standards.
• Trade body participation.
• Investment governance and
structured committee oversight,
specifically strategic asset
allocation and stock selection.
• Management oversight and
active client service, performance
measurement and attribution analysis.
• Weekly investment
management meetings.
• Monthly investment manager
peer reviews.
• Consistent and competitive
remuneration schemes.
• Compliance monitoring.
Rathbone Brothers Plc Report and accounts 2012
29
Group risk committee report continued
Business risks continued
Residual rating
Reference
Level 2 risk
Impact
Likelihood
Definition
Key mitigators
G
Regulatory High
High
H
Reputational Medium
Low
Risk that the introduction of new
regulation or changes to interpretation
or enforcement of existing regulation
materially affects the business model,
services or operations.
Risk of reputational damage from
financial and non-financial events
or failing to meet stakeholders’
expectations.
• Active involvement with representative
industry bodies.
• Compliance monitoring and oversight
of regulatory developments.
• Close contact with the regulators.
• Documented policy and procedures.
• Board and executive oversight with
a strong compliance culture.
• Investment in staff training
and development.
• Proactive communications with
shareholders/investor relations.
• Investment process, management
and performance monitoring.
• Treating clients fairly culture, values
and governance.
• Monitoring of media coverage.
Operational risks
Residual rating
Reference
Level 2 risk
Impact
Likelihood
Definition
Key mitigators
I
J
K
Business
change
High
Low
Risk that the planning or implementation
of change is ineffective or fails to deliver
desired outcomes.
• Project and IT committees.
• Dedicated project office function.
• Documented business plans and
Business
continuity
Medium
Low
Risk that an internal or external event
results in either failure or detriment to
core business processes or services.
Data integrity Low
and security
Low
Risk of inappropriate access to,
disclosure of or integrity of client or
company sensitive information.
IT strategy.
• Two-stage assessment, challenge
and approval of project plans.
• Documented project and
change procedures.
• Group business continuity
committee oversight.
• Documented crisis/incident
management and disaster
recovery plans.
• Regular disaster recovery testing.
• Continuous monitoring of IT
systems availability.
• Off-site data centre.
• Data security committee oversight.
• Data protection policy and procedures.
• System access controls.
• Training and employee
awareness programmes.
• Office and physical security within
all locations.
30
Rathbone Brothers Plc Report and accounts 2012
Group risk committee report continued
Operational risks continued
Residual rating
Reference
Level 2 risk
Impact
Likelihood
Definition
Key mitigators
L
Legal and
compliance
Medium
Low
Risk of remediation, censure, fines
or legal action as a result of a failure
to identify or inability to comply with
regulatory or legislative requirements.
M
Outsourcing Medium
Low
N
People
Low
Low
O
Processing
Low
Medium
Risk of one or more third parties failing
to provide or perform outsourced
services to standards expected by the
Group, impacting the ability to deliver
core services.
Risk of loss of key staff (or group),
insufficiently skilled resources and
inappropriate (individual or group)
behaviour or actions.
Risk that the design or execution of
client/financial/settlement transaction
processes (including dealing activity)
are inadequate or fail to deliver an
appropriate level of service and
protection to client or company assets.
• Executive oversight.
• Retained specialist legal advisers.
• Compliance department.
• Data protection policy and
compliance monitoring.
• Documented policies and procedures.
• Training and employee
awareness programmes.
• Executive oversight.
• Active relationship management,
including regular service
review meetings.
• Service level agreements and
monitoring of key performance
indicators.
• Compliance monitoring.
• Executive oversight.
• Succession and contingency planning.
• Transparent, consistent and
competitive remuneration schemes.
• Investment in staff training and
development.
• Contractual clauses with
restrictive covenants.
• Authorisation limits and
management oversight.
• Dealing limits and supporting
system controls.
• Active investment in
automated processes.
• Counter review/four-eyes processes.
• Segregation of duties.
• Documented procedures.
• Annual controls assessment
(ISAE3402 report).
Kathryn Matthews
Chairman of the group risk committee
Rathbone Brothers Plc Report and accounts 2012
31
Corporate responsibility report
Introduction
Our strategy
I am pleased to introduce the fifth annual corporate
responsibility report of the social and environmental
committee (SEC), which I chair. The SEC is responsible for
ensuring that Rathbones effectively manages its sustainability
issues. It is formed by members of staff from key functions
such as facilities, HR, marketing, IT and investment
management. It meets on a quarterly basis and reports
directly to the executive committee of the Board.
With regard to environmental, social and governance (ESG)
matters as they affect our business, the Board believes that
the SEC has identified and assessed the significant risks to the
Company’s short and long term value.
2012 was a challenging year for our IT and facilities
teams with the move of our head office in February and a
number of other office changes and planned openings.
I am pleased that our new London office uses approximately
5% less electricity per square metre than our old London
offices. However, we are now in a shared office which
makes energy usage measurement and waste recycling rather
more challenging.
•
•
Rathbones’ corporate responsibility strategy can be
summarised as follows:
•
•
Environment
Manage our environmental impact and reduce our carbon
footprint by the efficient use of resources.
Clients
Maintain and develop the relationships we have with our
clients, treat them fairly and continue to meet their needs.
• Investments
Consider corporate responsibility and governance
issues in the companies in which we invest on behalf of
our clients.
Employees
Motivate and reward appropriately, encouraging their
development.
Communities
Engage in the communities in which we operate.
Despite the growth in our business, our total carbon
footprint has remained broadly unchanged at 2,362 tonnes
of carbon dioxide equivalent (tCO2e). I am pleased to report
that our carbon intensity per employee has fallen by 5.6%
in 2012 following on from a fall of 4.7% in 2011.
The Company has continued its partnership with
ClimateCare and offset 2,300 tCO2e in 2012. We will,
however, continue to strive to reduce our environmental
impact wherever possible.
Rathbones is committed to act as a good corporate citizen
and takes its responsibilities as investment manager, employer
and purchaser seriously. The Company remains a constituent
company of the FTSE4Good Index Series.
Andy Pomfret
Chief Executive
Chairman of the SEC
Environment
As a responsible business, Rathbones believes that
environmental concerns should be central to our strategy,
so we take responsibility for, and action to, reduce our
impact on the environment. We have been calculating our
greenhouse gas emissions (from buildings and business
travel), paper use and waste generation for the past five years
and we continue to use this data to drive reductions.
2013 is going to see a change in corporate reporting. UK
registered companies are to be required under the Companies
Act 2006 to calculate and declare their CO2-equivalent
emissions using an established methodology, including a
‘CO2 intensity ratio’ – for example, kilograms of CO2 per
square metre of floor area.
Whilst these requirements will only take effect for next year’s
reporting period, we are confident that the accuracy and
transparency of the reporting herein, and for the previous
four years, more than meets the requirements.
Scope
Our reporting period covers the year to 30 September
2012 (2011/12) with comparative figures for our previous
reporting period (2010/11) and baseline year (2007/8).
Building energy use
This year has seen a change in our London operations.
In February 2012 we moved into a modern new head office
at 1 Curzon Street. For the previous 12 years we were in
two adjacent buildings on New Bond Street.
Factors such as this and a warmer winter1 have meant that
our CO2 from gas and electricity per m2 of floor area has
dropped by 10% across our offices compared to 2010/112.
32
Rathbone Brothers Plc Report and accounts 2012
Corporate responsibility report continued
Environment continued
Our new head office uses approximately
5% less electricity per m2 of floor area than
our previous offices
These and other factors have resulted in
our travel CO2 emissions per staff member
decreasing 18% since 2007/8, although this
has increased 3% since 2010/11 which is
due to an overall increase in journeys. For
example, the distance we travelled on trains
has gone up 23%. This is largely due to a
number of regional investment managers
spending an increased amount of their time
Building kgCO2 per m2
2011/12: 141
2010/11: 157
2007/8: 173
We are also using our space more efficiently: our CO2
emissions from gas and electricity have reduced by 3% per
employee compared with 2010/11 across our offices.
Tonnes of CO2 from buildings per full time equivalent (FTE) staff member
2011/12: 2.4
2010/11: 2.6
2007/8: 2.9
in the London office, along with the roll out across all offices
of a major IT project.
Paper
We consider the two key environmental performance
indicators for us are:
•
•
the recycled content of our paper and printed
material; and
the total amount of printed material we use per £bn
funds under management (FUM).
Tens of thousands of A4 sheets equivalent per £bn funds under
management at 31 December
This has contributed to a steady reduction in the total
CO2 emissions from gas and electricity of 4% since 2007/8
(the year in which data first became available).
2011/12: 117
2010/11: 122
2007/8: 160
Travel
Business travel accounts for 19% of our carbon footprint
and we are taking steps to make reductions in this area.
We have rolled out video conferencing facilities across all our
offices, and our travel team have been encouraging employees
to use the most effective way of travelling from a cost and
CO2 perspective.
Travel kgCO2 per full time equivalent staff member
The overall weight of paper used has gone up 16% since
2010/11. This is partly due to the development of our
marketing material, including an improved private client
magazine, Rathbones Review, which now has a significantly
increased circulation, and an expanded range of marketing
material issued to a larger number of potential clients.
Percentage of the pulp that went into making our paper and printed
materials that was post-consumer (recycled)
2011/12: 583
2010/11: 565
2007/8: 714
2011/12: 54
2010/11: 66
2007/8: 78
The recycled content of our paper and printed materials
has decreased from 78% in 2007/8 to 54%. This is linked
to the increase in marketing materials. The quality of high
recycled content paper was seen to be too low for our
marketing purposes. However, we aim to use paper with the
highest recycled content acceptable, and we always require
that our paper stocks are covered by a chain of custody
certificate such as Forest Stewardship Council (FSC), which
ensures that the wood used to make the paper is obtained
from sustainably managed forests.
All printed material issued by Rathbone Greenbank
Investments uses 100% recycled paper.
Rathbone Brothers Plc Report and accounts 2012
33
1 2011/12 was warmer than 2010/11: there were approximately 10% fewer heating
degree days (Liverpool and London average)
2 During 2010/11, core IT and communications facilities in our London office were
outsourced to an offsite data centre. As per the Greenhouse Gas Protocol, electricity
consumed by the data centre since the relocation has been included under Scope 3
emissions. However, where we have stated herein a figure that includes electricity use
we have included the data centre, as we felt that to exclude it would be misleading
Corporate responsibility report continued
Environment continued
Waste and recycling
50 tonnes of furniture was sent for reuse
when we moved offices in London.
We have achieved an absolute reduction of
5% in our total tCO2e since 2007/8. At the
same time, our business has expanded; for
every billion pounds of FUM, we produce
131 tCO2e, a 13% reduction since 2010/11
and a 45% reduction since 2007/8.
Gathering robust waste and recycling data is proving
challenging. We have had to recognise that we cannot draw
conclusions from our waste data this year.
All our offices have recycling facilities and we are confident
that we are recycling a significant proportion of our waste,
but we are not able to support this with robust data.
One of our objectives for the coming year is to ensure
(with Carbon Smart’s help) that we put in place protocols to
capture robust data on our waste management performance.
These protocols will help to ensure that next year we can
establish whether we are continuing our previous good
practice in managing the environmental impact of our
waste streams.
Carbon footprint
Our carbon footprint of 2,362 tCO2e3 includes 455 tCO2e
from our staff business travel; this includes air (189 tCO2e),
cars (140 tCO2e), trains (120 tCO2e) and taxis (6 tCO2e).
• Electicity
• Business travel
• Gas
Total
tCO2e
1,625
455
282
2,362
Total tCO2e per £bn FUM
2011/12: 131
2010/11: 150
2007/8: 237
We consider FUM to be a key indicator of our business
activity, so tCO2e per £bn FUM is an important metric for
how well we are managing our environmental impact.
Other metrics for 2011/12 include:
• 15.18 tCO2e per £m operating income: down 8% from
2010/11 and 19% from 2007/8
• 3.03 tCO2e per full time equivalent staff member: down
6% from 2010/11 and 18% from 2007/8
• 0.17 tCO2e from building energy use per m2 internal floor
area: down 11% from 2011/12 and 23% since 2007/8
CO2 intensity
Staff (FTE)
Net internal area (m2)
Operating income (£m)
Funds under management (£bn)
*
tCO2e per: FTE; m2; £m of operating income; £bn funds under management
CO2 intensity*
2011/12
2010/11
2007/8
2011/12
2010/11
780
13,567
155.6
17.98
741
12,475
144.5
15.85
673
11,496
131.8
10.46
3.03
0.17
15.18
131
3.21
0.19
16.48
150
2007/8
3.69
0.22
18.83
237
3 Throughout this report, we have expressed our carbon footprint in terms of tonnes of
CO2 equivalent (tCO2e) to accommodate non-CO2 greenhouse gas emissions
4 The Greenhouse Gas Protocol defines three scopes of CO2e emissions. Scope 1
consists of all direct operational emissions mainly from fuels combusted at Rathbones’
sites (natural gas for heating) and our company cars, Scope 2 covers purchased
electricity and Scope 3 consists of significant indirect operational emissions, primarily
from business travel
5 During 2010/11, core IT and communications facilities in our London office were
outsourced to a data centre. As per the Greenhouse Gas Protocol, electricity consumed
by the data centre since the relocation has been included under Scope 3 emissions.
In 2011/12, the amount of equipment installed and data traffic through the data centre
increased significantly. However, where we have stated herein a figure that includes
electricity use we have included the data centre, as we felt that to exclude it would
be misleading
6 In accordance with reporting standards, the 2010/11 emissions have been recalculated
using the latest emission factors. This has resulted in a reduction of 14 tCO2e
34
Rathbone Brothers Plc Report and accounts 2012
3 Clarify expenses procedures to ensure journey details are
provided for all flights and rail journeys.
2011/12
2010/11
2007/8
On track
282
–
282
1
293
17
If we receive an expenses claim that does not detail ‘to’
and ‘from’ we send it back and ask for more information.
4
Improve our waste data quality rating to 3 in 2012.
1,503
1,628
1,691
Not achieved
Corporate responsibility report continued
Environment continued
Carbon footprint
Scope 14
Natural gas
Company cars
Scope 24
Electricity
Scope 3
Data centre5
Business travel
122
455
50
420
–
481
Total tonnes of CO2e
2,362
2,3816
2,482
Procedures and calculations used in compiling this data are in
accordance with the requirements of the following standards:
the World Resources Institute (WRI) Greenhouse Gas (GHG)
Protocol (revised version); Defra Guidance on How to Report
GHG Emissions (September 2009) and ISO 14064 – part 1.
Carbon offsetting
This year we have again taken responsibility for our
unavoidable business emissions, by purchasing 2,300 tonnes
of carbon credits through high-quality emission reduction
projects offered by ClimateCare.
We chose the projects not only for their robust approach
to emissions reductions but also because each one
contributes towards the sustainable development of local
communities, whilst helping to improve incomes, health
and education opportunities.
The specific projects we have invested in are certified under
the Voluntary Carbon Standard and the Gold Standard for
Verified Emissions Reduction7.
Further details are available from the ClimateCare website
(www.climatecare.org).
Objectives
The objectives we set for 2011/12
1 Ensure our new London office is more energy efficient
than the previous London offices.
Achieved
Approximately 5% less electricity per m2 floor area (gas
data is less reliable, as we only have cost data from the
landlord).
2 Encourage the increased use of video conferencing and
reduce the number of domestic flights.
On track
There is video conferencing in all offices and we have
made a 5% reduction in the number of domestic flights.
7 The three projects are: Improved Cook Stoves in Cambodia, Wayang Windu geothermal
in Indonesia and Gyapa Stoves in Ghana
Waste data quality downgraded to 1. Objective carried
over to next year.
5
Increase the proportion of clients who receive portfolio
information in digital format rather than hardcopy.
On track
Approximately 10% of our clients now receive their
portfolio information solely in digital format, up from
2% in 2010/11.
Our objectives for 2012/13
1 Continue to grow our business without a corresponding
increase in our CO2 emissions.
2 Put in place protocols to capture robust data on our
waste management performance.
3 Include the CO2 from our paper use and waste
generation in our carbon footprint and start to use this
to drive reductions.
4 Investigate the opportunities for improving the quality of
data that we have on our energy use at our head office.
Rathbone Brothers Plc Report and accounts 2012
35
Transparency
Where relevant, we have included appropriate references to
the accounting and calculation methodologies, assumptions
and re-calculations performed.
Accuracy
To our knowledge, data is considered accurate within the
limits of the quality and completeness of the data provided.
Data quality
Carbon Smart has assessed the data quality against the
WRI GHG Protocol principles. Data from each emission
source has been rated 1 (poorest) to 5 (best). For this year,
overall data quality has been reduced to 3.0 from 3.6 in
2010/11. Contributing factors include:
• Head office gas data is derived from a monetary figure
provided by the landlord;
• Head office electricity data is derived from an overall
kWh figure provided by the landlord; and
• The Birmingham, Exeter and Jersey offices could
not provide energy data, so benchmarks were used
(Birmingham provided electricity data, but not gas).
%
Carbon
footprint
2011/12
100%
13%
64%
23%
–
–
Data quality rating
2011/12
2010/11
2007/8
3.0
3.0
3.0
4.0
4.0
1.0
3.6
4.0
4.0
4.0
4.0
2.0
2.6
2.0
3.0
2.0
4.0
2.0
Overall
Scope 1
Scope 2
Scope 3
Paper
Waste and recycling
Ben Murray
Director
Carbon Smart Limited
19 February 2013
Corporate responsibility report continued
Environment continued
Carbon Smart opinion statement
Carbon Smart’s statement provides Rathbones and its
stakeholders with a third party assessment of the quality
and reliability of Rathbones’ carbon footprint data for the
reporting period 1 October 2011 to 30 September 2012.
It does not represent an independent third party assurance
of Rathbones’ management approach to sustainability.
Carbon Smart has been commissioned by Rathbones
for the fifth consecutive year to calculate Rathbones’
carbon footprint for all offices for its 2012 corporate
responsibility report. Through this engagement Carbon
Smart has assured Rathbones that the reported carbon
footprint is representative of the business and that the
data presented is credible and compliant with appropriate
standards and industry practices. Data has been collected
and calculated following the ISO 14064 – part 1 standard
and verified against the WRI GHG Protocol principles
of completeness, consistency and accuracy.
Carbon Smart’s work has included interviews with key
Rathbones’ personnel, a review of internal and external
documentation, interrogation of source data and data
collection systems including comparison with, and
appropriate recalculation of, the previous years’ data.
Carbon Smart has concluded the points listed below.
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
Rathbones continues to use the financial control
approach and calculate total direct Scope 1, 2 and major
Scope 3 emissions. Reported environmental data covers
all employees and all entities that meet the criteria of being
subject to control or significant influence of the reporting
organisation. We recommend that Rathbones continues to
improve its data collection processes, particularly in the
area of waste management.
Consistency
In order to ensure comparability, we have used the same
calculation methodologies and assumptions as previous
years and changed the emission factors used for the newest
appropriate releases.
36
Rathbone Brothers Plc Report and accounts 2012
Corporate responsibility report continued
Clients and investments
Responsible investment
Although general investment activities are not covered
by a formal responsible investment policy, we take into
account social, environmental and ethical considerations for
specific mandates throughout the Group, particularly those
managed by our specialist ethical investment unit, Rathbone
Greenbank Investments.
As at 31 December 2012, Rathbone Greenbank Investments
had £525 million of funds under management, representing
3.1% of funds managed by Investment Management.
Through Rathbone Greenbank Investments and Rathbone
Unit Trust Management’s Ethical Bond Fund, the Company
is able to provide investment services tailored to clients’
interests in the area of socially responsible or sustainable
investment. Where appropriate, the Company is also able
to participate in new share issues offered by companies
that provide environmentally or socially beneficial products
or services.
Affiliations
Rathbone Brothers Plc has been a signatory to the
Carbon Disclosure Project (CDP) since 2006 and to its
Water Disclosure programme since 2010.
The Group also became a signatory to the UN-backed
Principles for Responsible Investment in September 2009.
In addition, Rathbone Greenbank Investments is a
long-standing member of influential groups such as the
UK Sustainable and Investment Finance association (UKSIF)
and the Ecumenical Council for Corporate Responsibility,
as well as being a founding endorser of the Forest Footprint
Disclosure Project, which will become part of the CDP
from 2013.
Voting
The Group’s voting activity is coordinated by its corporate
governance committee. Composed of investment managers
and representatives of internal teams from across the
business, the committee maintains Group policy on corporate
governance, and ensures its application in proxy voting
through the maintenance of a contract with an external
corporate governance consultant. Advice and research
received by the committee supplements the analysis carried
out by the stock selection and collectives committees as
part of the investment process.
The committee was established in line with Rathbones’
obligations under the Principles for Responsible Investment
(PRI), and pays heed to the Stewardship Code, set up by
the Financial Reporting Council. Rathbone Unit Trust
Management, as an institutional investor, meets its
obligations as a signatory to the Stewardship Code,
while Rathbone Investment Management exercises the
voting rights attached to approximately 90% of the
UK equity it holds on behalf of its clients. Voting is
also undertaken on any company if requested by an
underlying shareholder.
During 2012, the committee oversaw active proxy voting
at 269 company meetings and on 3,428 resolutions in total.
Voting on these resolutions include consideration of such
issues as executive remuneration, auditor independence,
appointment of directors and non-financial reporting,
among others.
Engagement
Engagement with companies on ESG matters is mainly
undertaken by Rathbone Greenbank Investments’
ethical research team. This ranges from low-level contact
with companies on issues relating to ESG disclosure
to participation in co-filing and voting on shareholder
resolutions at company AGMs. These activities may
occur as a result of fundamental analysis of companies’
ESG reporting or through collaborative efforts initiated
by interest groups such as UKSIF or the PRI’s
Engagement Clearinghouse.
FTSE4Good ESG ratings scores for Rathbones
As institutional investors around the world put increasing
focus on the ESG practices of the companies they invest
in, ESG risk measures are an increasingly important part
of the investment process.
The FTSE4Good Index and ratings have been designed to
measure the performance of companies that meet or exceed
globally recognised standards.
The Index’s latest semi-annual review in September 2012
confirmed Rathbone Brothers Plc as a constituent of the
FTSE4Good Index Series, awarding the Company the
following ESG ratings.
Overall ESG rating (0 – 5)
Environment
3
Social
3
Governance
4
Absolute score
3.4
FTSE4Good ESG ratings also award an overall score
relative to each company’s super-sector, which, in the case
of Rathbone Brothers Plc, is Financial Services. An adjusted
score based on the level of risk associated with our super-sector
is calculated and then readjusted relative to our peers. On this
basis, Rathbones scored 78 out of 100 in this review.
Rathbone Brothers Plc Report and accounts 2012
37
Corporate responsibility report continued
Employees
Our approach
As with all professional services firms, Rathbones’ greatest
asset is its people. Employee relations, learning and
development, performance management, remuneration and
benefits and resourcing are all key objectives sitting at the
heart of Rathbones human resources (HR) strategy and
contribute to the continuing success of the business.
Employee relations
Rathbones aims to provide objective and consistent support
to all staff, underpinned by clear policies and procedures,
ensuring that we continue to be a fair employer and provide
a supportive working environment.
Work-life balance
Rathbones recognises the importance of an appropriate
work-life balance both to the health and welfare of
employees and to the business. Holiday entitlements are
25 days increasing to 30 days after five years’ service.
Employees are able to buy up to five additional days of leave
with the agreement of their manager. We also provide time
off for dependants, parental leave and paternity leave and
have a childcare voucher scheme in place.
Maternity benefits remain in excess of those required under
statutory provisions. 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. On completion of five years’ service,
employees have the opportunity to take up to three months’
unpaid leave once in every 10 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.
Staff 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 twice a year to share knowledge and to ensure that
health and safety standards are maintained.
During 2012 we committed to the Government’s Health
at Work initiative, the Workplace Wellbeing Charter. The
initiative promotes the positive links between health and
work and aims to help more people with health conditions
to stay in or return to employment.
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 Rathbones also provides an independent and confidential
employee assistance programme offering advice on
employment, personal and legal concerns.
Learning and development
Rathbones ensures that all employees have the opportunity
to develop the skills, knowledge and behaviours to fulfil
their current roles effectively and are supported to realise
their potential.
Our investment in the development of our employees makes
good business sense and this year has seen the introduction of
new development programmes along with the continuation
of our existing successful programmes and a focus on
regulatory requirements in particular as a result of RDR.
We expect high standards of performance from all employees
and therefore take an inclusive approach to development
that means we encourage employees at all levels to focus on
enhancing their skills.
RDR – Professionalism
We successfully obtained Statements of Professional
Standing (SPS) for all of our employees who give advice on
investments. This has been the culmination of four years
work to ensure that they all held appropriate qualifications,
attended additional ‘gap fill’ training courses and maintained
their expertise through regular learning sessions. Over that
period the direct cost of qualifications and ‘gap fill’ was
£167,000 plus the additional time away from the desk. The
investment has been high and we continue to support the
aims of RDR; we are committed to implementing the ongoing
Continuing Professional Development (CPD) requirements
to achieve the maximum benefits for our clients, employees
and the Company.
We continue to run a number of development programmes at
different levels; all use a similar ‘learn – do – review’ formula
that we have found to be successful.
This means that the programmes are run over a period of
9 – 18 months and comprise modules covering topics that
are directly relevant to the participant’s role. The feedback
suggests that participants find it helpful to review how they
have used the training and to learn from others in similar
positions.
There have also been two new programmes established in
2012 at opposite ends of the business; a graduate programme
for talent new to the business and a leadership programme
for our senior managers.
38
Rathbone Brothers Plc Report and accounts 2012
Corporate responsibility report continued
Employees continued
Graduate development programme
This year we created a programme to bring together recent
graduate level joiners and provide training to help them
understand the business and their role within it, to enable
them to translate exam theory into practical day to day
application back at the desk and to create a supportive
group. We now have 14 graduates taking part.
Leadership development programme
This year we started a leadership development programme
for some of our senior managers. This is the first time we
have run a programme of this type and it is indicative of
a growing and increasingly complex organisation where a
continuous updating of leadership capabilities is crucial.
To ensure application of learning to the business the
participants are working together on relevant corporate
projects, the aim of which is to deliver enhanced service to
our clients. We are partnering with experienced business
school tutors to deliver this programme.
Other programmes
We continue with some of our well-established and successful
training programmes. Now in its sixth year, the Rathbone
development programme targets a different audience each
year. The 2012 group is made up of early career investment
managers from across the UK. In addition to the stated aims
of improving skills in developing new business and enhancing
client relationships, the benefits of the internal relationships
that are created though this shared experience has long
lasting advantages.
We continue to run the introduction to management
course which culminates in the achievement of a nationally
recognised management qualification awarded by the
Chartered Management Institute. The team-working for
results programme also continues; this has been designed
to provide team members, who are performing well, have
a track record of achievement and have potential for the
future, with the skills to work effectively in a team by
recognising and building on their strengths.
Coaching and mentoring
Many of the training programmes include individual
coaching or mentoring to help with applying the learning
to particular circumstances. Additionally, internal and
external coaching is made available across the business where
employees are seeking further skills enhancements; this can
be a valuable way of helping implementation of personal
development plans.
IT training
The team responsible for this activity has grown this year in
response to the ever increasing development and complexity
of our IT systems. Given the high investment in our core IT
systems development it is vital that we assist employees to
maximise their IT literacy to achieve the greatest efficiencies
and levels of service.
Training opportunities
In addition to formal ongoing programmes we support
employees to gain appropriate qualifications and attend
external specialist courses. In 2012 our investment in
training was an average of £707 per head (2011: £589
per head) and 2.6 days (2011: 2.2 days). The increase is
due to the newly established programmes, for example,
graduates and leadership development along with
supporting executive coaching.
Performance management
We ensure that fair and consistent practices are in place
to enable managers and employees to work together
to recognise achievements, address issues and
agree objectives which will motivate and encourage
high performance.
In common with most organisations we operate a
performance appraisal system, the aim of which is to support
employees to contribute fully to the organisation and to assist
them to fulfil their potential. During the year, we updated
our process to include more specific competencies and key
performance indicators. This has facilitated more discussion
about individuals’ development and progression.
Remuneration and benefits
Rathbones provides remuneration and financial/non-
financial benefits which attract, retain, motivate and reward
employees, ensuring that we remain competitive through
regular review and benchmarking.
Resourcing
We attract, recruit and retain people with the right skills and
experience who demonstrate high levels of professionalism
and enthusiasm which impact positively on the business.
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.
Rathbone Brothers Plc Report and accounts 2012
39
Corporate responsibility report continued
Communities
Donations and fundraising
During the year, the Group made total charitable
donations of £206,000, representing 0.53% of Group
pre-tax profits (2011: £196,000, representing 0.50%
of Group pre-tax profits).
Employees are encouraged to donate to charity in a tax
efficient manner through the Give As You Earn (GAYE)
payroll giving scheme. In 2012, Rathbone employees made
payments totalling £167,000 (2011: £189,000) 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 2012
donated £118,000 (2011: £108,000) to causes chosen by
employees through this method.
In addition to corporate and payroll giving, for many
years Rathbones has selected charities by employee ballot
with funds being raised by a number of events. For 2012
and 2013, employees voted to support the Claire House
Hospice for children in the North West and The Oliver
King Foundation, a Liverpool based charity which raises
awareness of Sudden Arrhythmic Death Syndrome.
In 2012, £15,000 was raised for these good causes.
Lacrosse sponsorship
Rathbones is the proud sponsor of
both the National Schools Lacrosse
Championships and Lacrosse
Scotland.
40
Rathbone Brothers Plc Report and accounts 2012
Governance
42
45
49
53
61
63
64
Directors
Directors’ report
Corporate governance report
Remuneration report
Audit committee report
Nomination committee report
Statement of directors’ responsibilities in respect
of the report and accounts
Rathbone Brothers Plc Report and accounts 2012
41
Directors
Chairman
Mark Nicholls
Title: Chairman
Appointment: 1 December 2010
Age: 63
Board committees: Re N
Mark Nicholls is a lawyer and corporate financier. After
studying law at Cambridge he took articles at Linklaters
before joining S G Warburg in 1976. He became a director
in 1984 and head of investment banking in 1994. In
1996 he joined Royal Bank of Scotland and became head
of their private equity group, leaving in 2003 to pursue
a plural career. He is currently chairman of the West
Bromwich Building Society and a non-executive director
of Northern Investors Company PLC. He became chairman
following the AGM on 11 May 2011 and is considered to
be independent.
Executive directors
Andy Pomfret
Title: Chief Executive
Appointment: 1 August 1999
Age: 52
Board committees: E N Ri
Andy Pomfret 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 as a corporate financier, venture
capitalist and latterly finance director of the investment
management and private banking division. He became
chief executive in October 2004. He is also a non-executive
director of Graphite Enterprise Trust plc and a director
of the Association of Private Client Investment Managers
& Stockbrokers (APCIMS). He chairs the Group’s executive
and social and environmental committees.
Ian Buckley
Title: Head of the Trust, Tax and
Pension Advisory Businesses;
Head of Risk Management
Appointment: 21 December 2001
Age: 62
Board committees: E Ri
Ian Buckley qualified as a chartered accountant with
Peat, Marwick, Mitchell & Co. (now KPMG) in 1975.
He was chief executive of Smith & Williamson for 10 years
from 1985 to 1995, and subsequently chief executive of
EFG Private Bank Limited and Tenon Group Plc. He is
responsible for marketing and is also chairman of the
Group’s IT steering committee. He is also a committee
member of Family Assurance Friendly Society and is on the
board of Miller Insurance Services LLP. He stepped down
from the Board at the end of 2012.
Paul Chavasse
Title: Head of Investment
Management
Appointment: 26 September 2001
Age: 48
Board committees: E Ri
Paul Chavasse 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 as chief operating officer in 2001 was as head of
NatWest Portfolio Management in Bristol. He became head
of investment management on 1 March 2012.
Andrew Morris
Title: Head of Investment Management
– Liverpool and other Northern Offices
Appointment: 1 November 2000
Age: 48
Board committees: None
Andrew Morris has spent his entire working career at
Rathbones in private client investment management. He is
chairman of the Group’s business continuity and training
and competence committees and manages a large number
of client portfolios. He stepped down from the Board at
the end of 2012.
42
Rathbone Brothers Plc Report and accounts 2012
Directors continued
Executive directors continued
Richard Smeeton
Title: Head of Investment Management
– London and Jersey
Appointment: 1 November 2000
Age: 48
Board committees: None
Richard Smeeton trained with County Bank and joined
Laurence Keen in 1988 prior to its acquisition by Rathbones
in 1995. He sits on a number of the Group’s management
and investment committees and also manages a large number
of client portfolios. He stepped down from the Board at the
end of 2012.
Paul Stockton
Title: Finance Director
Appointment: 24 September 2008
Age: 47
Board committees: E Ri
Paul Stockton qualified as a chartered accountant with
Price Waterhouse (now PwC) 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 is also
a non-executive director of the Financial Services
Compensation Scheme.
Board committees
The principal Board committees are
the executive, audit, remuneration,
nomination and group risk 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 Group website.
E Executive committee
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.
A Audit committee
Full details of its role are set out in the
audit committee report on page 61.
Re Remuneration committee
Full details of its role are set out in the
remuneration report on page 53.
N Nomination committee
Full details of its role are set out in
the nomination committee report on
page 63.
Ri Group risk committee
Full details of its role are set out in the
group risk committee report on page 27.
Commitee membership
Mark Nicholls
Andy Pomfret
Ian Buckley
Paul Chavasse
Andrew Morris
Richard Smeeton
Paul Stockton
David Harrel
Kate Avery
Caroline Burton
Oliver Corbett
Kathryn Matthews
• Committee chairman
• Committee member
Executive
Audit
Remuneration
Nomination
Group risk
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Rathbone Brothers Plc Report and accounts 2012
43
Directors continued
Non-executive directors
David Harrel
Title: Senior Independent Director
Appointment: 1 December 2007
Age: 64
Board committees: A Re N
Intelligence Service until March 2006. She is a non-executive
director of TR Property Investment Trust Plc, LV Friendly
Society and Blackrock Smaller Companies Trust plc.
She stood down as chairman of the remuneration committee
on 1 November 2012 when, for UK Corporate Governance
Code purposes, she was no longer considered to be
independent, having served on the Board for nine years.
She will remain on the audit, nomination and remuneration
committees until her retirement from the Board at the
AGM on 14 May 2013.
David Harrel 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 non-executive chairman of
Savile Group Plc, a member of the board of the English
National Opera and a trustee of the Clore Duffield
Foundation. He became chairman of the remuneration
committee with effect from 1 November 2012.
Oliver Corbett
Title: Non-executive Director
(Independent)
Appointment: 7 March 2006
Age: 48
Board committees: A Re Ri N
Oliver Corbett is the chief financial officer of LCH.Clearnet
Group Limited. He is a chartered accountant and worked
for SG Warburg, Phoenix Securities (later Donaldson Lufkin
and Jenrette) and Dresdner Kleinwort Wasserstein, where he
was managing director of investment banking. He was group
finance director of Novae Group plc from October 2003 to
November 2012. He is chairman of the audit committee.
Kathryn Matthews
Title: Non-executive Director
(Independent)
Appointment: 6 January 2010
Age: 53
Board committees: A Re Ri N
Kathryn Matthews has spent her entire career in investment
management, most recently as chief investment officer, Asia
Pacific (ex Japan) for Fidelity International. Prior to that,
she held senior appointments with William M Mercer, AXA
Investment Managers, Santander Global Advisers and Baring
Asset Management. She is a non-executive director of Royal
London, Hermes Fund Managers Limited, Aperam, S.A.
Fidelity Asian Values Plc, Montanaro UK Smaller Companies
Investment Trust Plc and J P Morgan Chinese Investment
Trust Plc. She is chairman of the group risk committee.
Kate Avery
Title: Non-executive Director
(Independent)
Appointment: 6 January 2010
Age: 53
Board committees: A Re N
Kate Avery began her career with Barclays Plc, where she
worked for some 18 years, becoming managing director of
Barclays Bank Trust Company and Barclays Stockbrokers.
She subsequently joined Legal and General Group Plc and
served on its main board for eight years until January 2009,
latterly as group executive director for wealth management.
She also served as a non-executive director with Kelda Group
plc until its sale to an infrastructure fund in 2008. She is
currently chairman of Openwork Holdings Limited and is a
non-executive director of the Newcastle Building Society.
She is standing down from the Board at the AGM on
14 May 2013.
Caroline Burton
Title: Non-executive Director
(Independent)
Appointment: 1 November 2003
Age: 63
Board committees: A Re N
Caroline Burton 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
44
Rathbone Brothers Plc Report and accounts 2012
Directors’ report
The information contained in the chairman’s statement, chief executive’s statement, Rathbones at a glance, strategy
and key performance indicators, business review, financial review, group risk committee report, directors’ profiles, corporate
governance report, audit committee report, nomination committee report, corporate responsibility report and directors’
responsibility statement form part of the directors’ report.
Group results and Company dividends
The Rathbone Brothers Plc Group profit after taxation for the year ended 31 December 2012 was £29,216,000
(2011: £28,706,000).
The directors recommend the payment of a final dividend of 30.0p (2011: 29.0p) on 16 May 2013 to shareholders
on the register on 26 April 2013. An interim dividend of 17.0p (2011: 17.0p) was paid on 3 October 2012 to shareholders
on the register on 14 September 2012. This results in total dividends of 47.0p (2011: 46.0p) per ordinary share for the year.
These dividends amount to £21,220,000 (2011: £20,001,000) – see note 11 to the consolidated financial statements.
A full review of the Group’s business performance is set out in the business review and financial review on pages 16 to 26.
Information about environmental, employee and social and community issues are set out in the corporate responsibility
report on pages 32 to 40.
Post balance sheet events
Details of events after the balance sheet date are set out in note 36 to the consolidated financial statements.
Capital structure
The Company’s share capital comprises one class of ordinary shares of 5p each. At 31 December 2012, 45,954,071 shares
were in issue (2011: 43,561,140). 50,000 shares were held in treasury (2011: 50,000). 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.
The purported purchase of 50,000 shares on 7 December 2012 was not effective (and those shares accordingly were not in
treasury as at 31 December 2012) as, although the Company had sufficient distributable reserves at the time of the transaction,
the Company had not filed the requisite interim accounts at Companies House to demonstrate such distributable reserves.
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 14,400,000 shares (approximately one third of the issued share capital at
12 March 2012). The Board currently has the authority to buy back up to 2,100,000 shares under certain stringent conditions.
Regarding the appointment and replacement of directors, the Company is governed by the Company’s Articles of Association,
the UK Corporate Governance Code (‘the Code’), the Companies Act 2006 and related legislation. Amendment of the Articles
of Association requires a special resolution of shareholders.
Rathbone Brothers Plc Report and accounts 2012
45
Directors’ report continued
Directors and their interests
The interests of directors and connected persons in the share capital of the Company are shown in table 1. Since 31 December
2012, I M Buckley (1,303 shares), A T Morris (651 shares), A D Pomfret (1,303 shares), R P Stockton (651 shares) and R I
Smeeton (1,303 shares) acquired shares under the terms of the Save As You Earn Scheme. Details of directors’ share options
are shown in table 6 on page 59.
Table 1. Directors’ shareholdings
Chairman
M P Nicholls
Executive
I M Buckley
P D G Chavasse
A T Morris
A D Pomfret
R I Smeeton
R P Stockton
Non-executive
C R R Avery
C M Burton
O R P Corbett
D T D Harrel
K A Matthews
Number of 5p
ordinary shares at
1 January 2012
Beneficial
Number of 5p
ordinary shares at
31 December 2012
Beneficial
2,146
3,513
49,622
70,159
66,747
111,115
134,572
18,430
6,335
4,207
2,381
161
623
60,276
81,694
75,540
112,171
137,989
32,952
6,658
4,692
2,833
529
1,009
Since the date of this report and 7 March 2013, the last practicable date for inclusion in this report before its publication,
I M Buckley sold 14,803 shares and R I Smeeton sold 20,609 shares.
Executive directors
The directors with executive responsibilities are Andy Pomfret, Paul Chavasse and Paul Stockton. Ian Buckley,
Andrew Morris and Richard Smeeton stepped down from the Board at the year end. Their biographies are on pages 42 and
43. Richard Lanyon retired from the Board at the AGM on 10 May 2012.
Non-executive directors
The directors with non-executive responsibilities are Mark Nicholls, Kate Avery, Caroline Burton, Oliver Corbett,
David Harrel and Kathryn Matthews. Their biographies are on pages 42 and 44. The senior independent director is David
Harrel, who 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 considers that all
non-executive directors are independent.
Retirement and re-appointment of directors
In accordance with provision B.7.1 of the Code, all directors are subject to annual election by shareholders.
Substantial shareholdings
At 19 February 2013, 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 voting rights of the Company.
Table 2. Substantial shareholdings at 19 February 2013
Shareholder
BlackRock Inc.
Lindsell Train Ltd.
Massachusetts Financial Services Company
BlackRock UK Emerging Companies Hedge Fund
Date of
notification
1 February 2013
2 August 2012
19 May 2011
8 January 2013
Number of
voting rights
6,892,241
4,021,768
2,254,063
1,384,853
% of voting
rights
15.03%
9.18%
5.19%
3.02%
There were no changes between the date of this report and 7 March 2013.
46
Rathbone Brothers Plc Report and accounts 2012
Directors’ report continued
Political and charitable donations
No contributions were made for political purposes during the year (2011: nil). Details of the Company’s charitable donations
can be found in the corporate responsibility report on page 40.
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 38 and 39.
The Company encourages the involvement of its employees in its performance through both a Share Incentive Plan launched
in 2001 and a Save As You Earn scheme launched in 2009.
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 2012 represented 24 days of annual purchases (2011: 36 days). The 2011 figure was unusually high due to
high levels of capital expenditure on the new London office incurred towards the year end.
Financial instruments and risk management
The risk management objectives and policies of the Group are set out in note 30 to the consolidated financial statements.
Indemnification of directors
The Company has granted indemnities, which are uncapped, to all directors and to the company secretary by way of deed.
Qualifying third party indemnity provisions as defined by Section 234 of the Companies Act 2006 were therefore in place
throughout 2012 and remain in force at the date of this report.
Share price
The mid-market price of the Company’s shares at 31 December 2012 was £12.99 (2011: £10.60) and the range during the
year was £10.35 to £13.73 (2011: £9.77 to £12.57).
Auditor
The audit committee reviews the appointment of the external auditor and their relationship with the Group, including
monitoring the Group’s use of the auditor for non-audit services. Note 7 to the consolidated financial statements sets out
details of the auditor’s remuneration. Having reviewed the independence and effectiveness of the external auditor, the audit
committee has recommended to the Board that the existing auditor, KPMG Audit Plc, be reappointed. KPMG Audit Plc have
indicated their willingness to continue in office and ordinary resolutions reappointing them as auditor and authorising the
directors to set their remuneration will be proposed at the 2013 AGM.
The directors in office at the date of signing of this report confirm that there is no relevant audit information of which the
auditor is unaware and that each director has taken all reasonable steps to make him or herself aware of any relevant audit
information and to establish that the auditor is aware of that information.
Rathbone Brothers Plc Report and accounts 2012
47
Directors’ report continued
Going concern
Details of the Group’s business activities, results, cash flows and resources, together with the risks it faces and other
factors likely to affect its future development, performance and position are set out in the chairman’s statement, chief
executive’s statement, strategy and key performance indicators, business review, financial review and group risk committee
report. In addition, notes 30 and 31 to the consolidated financial statements provide further details.
The Company is regulated by the FSA and performs annual capital adequacy assessments which include the modelling of
certain extreme stress scenarios. The Company publishes Pillar III disclosures annually on its website, which provide detail
about its regulatory capital resources and requirements. During the year, and as at 31 December 2012, the Group has had
no external borrowings and is fully equity financed.
In 2012, the Group has continued to generate organic growth in client funds under management despite challenging market
conditions and this is expected to continue. The directors believe that the Company is well placed to manage its business risks
successfully despite the continuing uncertain economic and political outlook.
As the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence
for the foreseeable future, they continue to adopt the going concern basis of accounting in preparing the annual financial
statements. In forming their view, the directors have considered the Company’s prospects for a period exceeding 12 months
from the date the financial statements are approved.
Annual General Meeting
The 2013 AGM will be held on Tuesday 14 May 2013 at 12.00 noon at 1 Curzon Street, London W1J 5FB. Full details of all
resolutions and explanatory notes are set out in the separate notice of the meeting.
Special business
The resolutions proposed include an ordinary resolution to give the directors the authority to allot up to 15.1 million shares
(with an aggregate nominal amount of up to £755,000). The Board is 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). The annual special resolution seeking the authority to convene a general meeting (other than the
AGM) with not less than 14 days’ notice is also proposed.
A resolution will also be proposed regarding the payment of the interim dividend. Distributions made by a company must not
exceed the distributable profits as reported in the last set of ‘relevant accounts’ of the company. In addition, Section 831 of the
Companies Act 2006 imposes an additional requirement on a public company which may only make a distribution if its net
assets are not less than the aggregate of its called up share capital and undistributable reserves and the distribution does not
reduce the amount of those assets to less than that aggregate.
At the date of the payment of the interim dividend on 7 October 2012, the relevant accounts were the 2011 annual accounts.
Following the payment of the 2011 final dividend and when taking into account treasury shares and other own shares held
in employee benefit trusts (which reduce the amount distributable under the test in Section 831), the 2012 interim dividend
exceeded the value of the Company’s net assets less the aggregate of its called up share capital and undistributable reserves (as
stated in the 2011 annual report and accounts).
This technical non-compliance with the terms of the Companies Act 2006 could, in theory, result in a right for the Company
to claim for repayment of the relevant dividends from shareholders who received those dividend payments and/or from the
directors who approved the payments. In order to put the shareholders and directors into the position in which they were
always intended to be, the Company proposes to release and waive any such claims. A resolution will be put to shareholders at
the AGM to approve such release and waiver and to protect current and former directors and shareholders against any claim
in connection with the 7 October 2012 interim dividend payment.
It is anticipated that all directors will be at the AGM and available to answer questions.
By Order of the Board
Richard Loader
Company Secretary
19 February 2013
Registered office: 1 Curzon Street, London W1J 5FB
48
Rathbone Brothers Plc Report and accounts 2012
Corporate governance report
In relation to compliance with the UK Corporate Governance Code, this report together with the directors’ report states the
position at 19 February 2013.
The UK Corporate Governance Code compliance statement
The UK Corporate Governance Code (‘the Code’) was issued in June 2010 by the Financial Reporting Council (FRC).
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 the Code throughout the year with the following exception:
Composition of the Board (Provision B.1.2)
During 2012, the Company was not in compliance with the Code requirement that at least half the Board, excluding the
chairman, should be independent non-executive directors. However, following the Board changes made at the year end there
are now a majority of independent non-executive directors on the Board.
Board meetings
The Board meets a minimum of seven times per annum with one meeting devoted entirely to strategic issues. Some Board
meetings are preceded by Board dinners which allow for broader discussions. In months where no formal Board meeting is
scheduled, an informal meeting of the non-executive directors and the chairman and chief executive is generally held. The
non-executive directors also have informal meetings without the chairman or chief executive present.
Board membership
The Board currently consists of a non-executive chairman, three executive directors and five other non-executive directors.
The roles of the chairman, Mark Nicholls, and the chief executive, Andy Pomfret, are separated and are clearly defined in
writing and agreed by the Board. The chairman’s role includes setting a Board agenda which is primarily focused on strategy,
performance, value creation and accountability and ensuring that issues relevant to these areas are reserved for Board decision.
The chief executive is the most senior executive director on the Board, with responsibility for proposing strategy to the Board,
and for delivering the strategy as agreed.
The Board considers that all of the non-executive directors are independent. Caroline Burton was appointed to the Board
on 1 November 2003. Provision B.1.1 of the Code notes that board service of over nine years is a factor that a board should
consider when assessing the independence of a director. Whilst still considered to be independent, Caroline stood down as
chairman of the remuneration committee on 1 November 2012 and will retire from the Board at the AGM on 14 May 2013.
Kate Avery is also standing down from the Board at the AGM.
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
director is David Harrel, who 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.
Board performance
The Board undertakes an annual review of its operation and performance. In 2012 this was carried out based on an internal
questionnaire, developed and executed with assistance from Lintstock Limited, a London-based corporate advisory firm.
On completion of the review process, Lintstock produced a report highlighting the key issues raised. In the review there was
a consensus that the Board was working better than in the previous year. It was not felt that the Board lacked any specific
area of non-executive expertise but that we should recruit a second person with appropriate financial expertise to support the
chairman of the audit committee. It was agreed that there should be more discussion of strategic matters at Board meetings
and Board papers should reflect better a strategic context. Other actions arising from the review included the arrangement of
regular discussions with the management layer below Board level and improvements to Board papers to ensure that the key
issues were highlighted.
Rathbone Brothers Plc Report and accounts 2012
Rathbone Brothers Plc Report and accounts 2012
49
49
Corporate governance report continued
Board performance continued
Directors
Individual appraisal of each director’s performance is undertaken by the chief executive (in respect of the executive directors’
executive roles) and the chairman (for all directors in respect of their contribution to the Board). This 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
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. Training and
development 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 important internal meetings and
demonstrations of systems and key business processes.
Board committees
The principal Board committees are the executive, audit, remuneration, nomination and group risk 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 Group website.
Executive committee
The executive committee is chaired by the chief executive, Andy Pomfret, and comprises Ian Buckley, Paul Chavasse and Paul
Stockton together with the chief operating officer, Andrew Butcher. 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. It meets monthly and more frequently when required.
Audit committee
Current members of the audit committee are Oliver Corbett (chairman), Kate Avery, Caroline Burton, David Harrel and
Kathryn Matthews. Details of its work are set out in the audit committee report.
Group risk committee
Current members of the group risk committee are Kathryn Matthews (chairman), Ian Buckley, Paul Chavasse, Oliver Corbett,
Richard Lanyon, Andy Pomfret and Paul Stockton together with the chief operating officer, chief executive of Rathbone Unit
Trust Management, heads of compliance, internal audit, HR and treasury. Full details of its role are set out in the group risk
committee report.
Remuneration committee
Current members of the remuneration committee are David Harrel (chairman), Kate Avery, Caroline Burton, Oliver Corbett,
Kathryn Matthews and Mark Nicholls. Full details of its role are set out in the remuneration report.
Nomination committee
Current members of the nomination committee are Mark Nicholls (chairman), Kate Avery, Caroline Burton, Oliver Corbett,
David Harrel, Kathryn Matthews and Andy Pomfret. Full details of its role are set out in the nomination committee report.
50
Rathbone Brothers Plc Report and accounts 2012
Corporate governance report continued
Conflicts of interest
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 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
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 2012
C R R Avery
I M Buckley
C M Burton
P D G Chavasse
O R P Corbett
D T D Harrel
R P Lanyon
K A Matthews
A T Morris
M P Nicholls
A D Pomfret
R I Smeeton
R P Stockton
1 Scheduled bi-monthly meeting
2 Scheduled monthly meeting
Plc Board1
Executive
committee2
Audit
committee
Remuneration
committee
Nomination
committee
Group risk
committee
6/7
7/7
7/7
6/7
6/7
7/7
2/2
7/7
7/7
7/7
7/7
6/7
7/7
12/12
10/12
3/4
12/12
12/12
5/7
6/7
7/7
7/7
7/7
7/7
7/7
7/7
6/7
6/7
7/7
1/2
2/2
2/2
2/2
2/2
2/2
1/2
4/4
4/4
4/4
3/4
4/4
4/4
3/4
Rathbone Brothers Plc Report and accounts 2012
51
Corporate governance report continued
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 Group website. Following the publication of the
interim and full year results, presentations are given to major shareholders, investment managers, analysts and employees.
The presentation packs used and any webcasts are also on the Group 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 directors, 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 reported at the
meeting and on the Group website.
Going concern
The Company’s business activities, risks and uncertainties, financial performance in 2012 and the financial position at
31 December 2012 are summarised in the business and financial review on pages 16 to 26 and group risk committee report on
pages 27 to 31. Note 30 to the consolidated financial statements summarises how the Group manages its financial risk.
Regulation
Rathbone Investment Management Limited, Rathbone Unit Trust Management Limited and Rathbone Pension & Advisory
Services Limited are all authorised and regulated by the Financial Services Authority (FSA).
Rathbone Investment Management Limited is registered as an investment adviser with the US Securities and Exchange
Commission.
Rathbone Investment Management International Limited is regulated by the Jersey Financial Services Commission.
The Board together with the executive committee and the audit committee have implemented systems and procedures to ensure
adherence to the statutes and regulations relevant to each of the Group companies.
Model code
The Company has its own internal dealing rules which extend the FSA Listing Rules Model Code provisions to all employees.
52
Rathbone Brothers Plc Report and accounts 2012
Remuneration report
The Board presents the remuneration report for the year ended 31 December 2012.
Remuneration committee chairman’s statement
The 2012 AGM season was marked by a few high-profile cases of shareholder unhappiness at a perceived disconnect in some
companies between pay and performance, which was branded the ‘shareholder spring’ in the media. I am pleased to report
that our 2011 remuneration report was well received by shareholders in May 2012 with 99.7% approval.
2012 was a year of little change to remuneration at main Board level. The committee has however continued to review the
structure of directors’ remuneration packages, and in particular, the Long Term Incentive Plan (LTIP) where the identification
of suitable performance targets remains a challenge. Rathbones has few listed peers, which makes peer comparison difficult,
whilst its performance is closely linked to stock market performance, which is a factor management are unable to influence.
During 2012, the committee reviewed changes to the new business incentive arrangements which reward investment managers
for the introduction of new clients. Awards are deferred, linked to revenue earned and are subject to clawback in certain
circumstances (for example, if a client account is closed within three years).
The Board considers that the Company’s remuneration arrangements are consistent with the risk profile of the business.
David Harrel
Chairman of the remuneration committee
Remuneration committee
The Board has delegated the determination of executive director remuneration to the remuneration committee (‘the
committee’). The current members of the committee are the independent non-executive directors David Harrel (chairman),
Kate Avery, Caroline Burton, Oliver Corbett and Kathryn Matthews. Mark Nicholls was considered to be independent on
his appointment as Company chairman and is also a member of the committee. Caroline Burton chaired the committee until
1 November 2012.
The chief executive attends meetings at the invitation of the committee. Neither the chairman nor chief executive is present
when their own remuneration is discussed. The committee met on seven occasions in 2012 (2011: six). Details of attendance
at meetings are shown on page 51.
Remuneration policy for executive directors
The overall aim of the remuneration policy is to support our longer term business objectives and promote behaviours which
support value creation for shareholders, whilst at the same time providing a competitive remuneration package which is
sufficient to attract and retain directors of the quality needed to manage and develop the Company successfully. Total reward
is designed to include a balance of fixed and variable pay with a high level of deferral. External data is used to validate rather
than to benchmark total reward.
The current remuneration package for an executive director has four main elements: basic salary and benefits, profit share,
equity incentives and pension. The various elements are designed to:
• align the interests of the directors with shareholders in generating long term shareholder value. Achieved through
participation in:
– an LTIP with a relative total shareholder return performance condition; and
– profit share deferrals invested in Rathbone Brothers Plc shares.
• align remuneration practices with effective risk management. Achieved by the use of:
– profit share based on profit before tax rather than an income or contribution based bonus; and
– deferred awards (LTIP and partial deferral of profit share).
The committee also ensures that up-to-date, best practice contracts are adopted. The committee is satisfied that the incentive
structure does not increase environmental, social and governance risks by inadvertently encouraging irresponsible behaviour.
Rathbone Brothers Plc Report and accounts 2012
Rathbone Brothers Plc Report and accounts 2012
53
53
Remuneration report continued
The elements of remuneration packages are summarised below.
Total executive director reward for 2012
Table 1. Directors’ remuneration (audited information)
Payments in
lieu of pension
Salary or fee1 contributions
£’000
£’000
Profit sharing
Cash
£’000
Deferred
shares2
£’000
Benefits3
£’000
2012
total
£’000
2011
2012
pension
total contributions4
£’000
£’000
Chairman
M P Nicholls
Executive
A D Pomfret (Chief Executive)
I M Buckley
P D G Chavasse
R P Lanyon
A T Morris
R I Smeeton
R P Stockton
Non-executive
C R R Avery
C M Burton
O R P Corbett
D T D Harrel
K A Matthews
Former chairman
Total
120
340
206
221
91
203
228
233
40
48
50
52
48
–
1,880
–
–
–
–
9
–
–
–
–
–
–
–
–
–
9
–
86
53
79
42
56
74
80
–
–
–
–
–
–
–
172
105
157
83
112
148
159
–
–
–
–
–
–
2
4
4
4
2
4
4
4
3
3
3
3
3
–
122
99
602
368
461
227
375
454
476
43
51
53
55
51
–
640
364
457
567
345
508
445
41
48
49
48
41
62
–
39
24
–
–
–
–
22
–
–
–
–
–
–
2011
pension
contributions4
£’000
–
38
23
–
–
–
–
22
–
–
–
–
–
–
470
936
43
3,338
3,714
85
83
1 Reviewed annually on 1 January. P D G Chavasse’s paid salary reflects a short sabbatical taken during the year. His full year salary was £249,000
2 This is the cash equivalent of deferred share awards at the date of the award. Deferred share awards vest after three years
3 Benefits include medical insurance and the value of SIP free shares and matching shares
4 During the year, retirement benefits accrued under money purchase schemes in relation to three directors (2011: three)
Basic salary and benefits
An executive director’s basic salary is determined by the committee. Any change is 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 as provided
by the advisers to the committee. The views of the chairman and chief executive are also taken into consideration when
considering the salaries of other directors.
Salaries were increased by 3.0% on 1 January 2012 in line with the increase given to most employees. The only exception was
Richard Lanyon whose salary was unchanged in view of his retirement from the Board on 10 May 2012. Following the Board
restructuring on 1 January 2013, the salaries of the executive directors (Andy Pomfret, Paul Chavasse and Paul Stockton) were
increased by 2.5%.
In addition Rathbones provides a range of benefits including life, private medical and permanent health insurance.
54
Rathbone Brothers Plc Report and accounts 2012
Remuneration report continued
Profit share
The current profit sharing scheme was introduced on 1 January 2010. Awards to all executive directors are made from a pool
of profits of 3% – 5% of Group profit before tax with an expectation that in a normal year the percentage is around 4%. The
percentage for 2012 was 4% (2011: 4%). An additional profit share payment of £61,000 was made to Richard Smeeton in
2011 as a result of his giving up legacy entitlements.
The committee has the discretion to adjust the calculation of Group profit before tax for the purposes of the profit share to
ensure that it appropriately reflects underlying business performance. No adjustments were made in 2012 or 2011.
Awards to individual directors are determined by the committee following recommendations by the chief executive and
chairman, having due regard of the performance of the director, the results of the business for which the director has
responsibility (where relevant) and market data where this is available. Awards are capped at 200% of basic salary.
Awards are made in both cash (one third) and deferred shares (two thirds) with interim, on account awards payable during the
financial year, and final awards made shortly after the announcement of the Group’s results for the year. The proportion paid
in cash may be increased at the request of the participant but this will cause the overall award to be reduced such that the total
will be reduced by a maximum of one third if 100% of the award is taken in cash. No executive directors chose to increase the
cash element of the award in 2012 or 2011.
No performance criteria are attached to the deferred share awards. The committee’s view is that share price movements
reflect the performance of the business and therefore further performance conditions are not necessary. Half of deferred share
awards will lapse if a director is a ‘bad leaver’. Deferred shares attract the monetary equivalent of declared dividends over the
deferral period from the end of the financial year of the award. Awards vest on the third anniversary of the financial year end
at which point a nil paid option will be granted over the deferred share award (including a further number of additional shares
representing the value of dividends received and reinvested in relation to vested shares). This option may be exercised within
seven years of grant.
The final deferred share award for 2011 was made on 20 March 2012. An interim deferred share award for 2012 was made
on 25 September 2012. Awards were also made following dividend payments in May and October. The final award for 2012
will be made following the announcement of the 2012 results on 20 February 2013.
Table 2. Profit share – deferred share awards in 2012 (audited information)
Date of award
Market price at award date
I M Buckley
P D G Chavasse
R P Lanyon
A T Morris
A D Pomfret
R I Smeeton
R P Stockton
Total
Opening
balance
15,536
17,801
33,896
14,155
31,174
35,083
17,204
2011
final award
20/03/12
£12.61
Dividend
17/05/12
£12.08
2012
interim award
25/09/12
£13.185
Dividend
03/10/12
£13.05
4,321
7,409
7,004
3,965
8,056
5,149
6,739
476
605
981
435
941
965
574
4,110
5,077
6,327
3,667
7,858
5,682
5,480
264
336
545
241
523
536
319
Closing
balance
24,707
31,228
48,753
22,463
48,552
47,415
30,316
164,849
42,643
4,977
38,201
2,764
253,434
Rathbone Brothers Plc Report and accounts 2012
55
Remuneration report continued
Equity incentives
Long Term Incentive Plan (LTIP)
Executive directors are awarded rights to acquire ordinary shares at the start of a three year plan cycle. Awards are limited to
75% of salary other than in exceptional circumstances when the committee considers that a 100% limit would be appropriate.
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.
A new LTIP was approved by shareholders at the AGM on 11 May 2011 and came into effect for the 2011/13 plan cycle.
The performance conditions for the earlier plan cycles are as follows:
Performance targets
2009/11 and 2010/12 plan cycles
Table 3. LTIP performance targets (2009/11 and 2010/12 plan cycles)
% of award
a Total Shareholder Return (TSR) over the plan cycle
b Earnings per Share (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 over
2011/13 and future plan cycles
50%
50%
Vesting of award (TSR element)
0%
Straight line increase
100%
Vesting of award (EPS element)
0%
25%
Straight line increase
100%
A combination of two performance targets will continue to be used. Whilst the EPS performance target will continue
unchanged, changes to the TSR performance target were approved as detailed below in table 4.
Table 4. LTIP TSR performance target (2011/13 and future plan cycles)
TSR over the plan cycle (50%)
Rathbone Brothers Plc Total Return Index (TRI) relative to the FTSE All Share TRI
Below the percentage change in the FTSE All Share TRI
Equal to the percentage change in the FTSE All Share TRI
Greater than the percentage change in the FTSE All Share TRI by 0.1% to 9.9%
Equal to or greater than the percentage change in the FTSE All Share TRI plus 10%
Vesting of award (TSR element)
0%
25%
Straight line increase
100%
As mentioned earlier in this report, the LTIP performance targets are under review. Whilst they have limitations, the current
combination of EPS and TSR are commonly used and ensure not only a focus on a key financial driver (via EPS), but also
alignment of shareholder interests (via TSR), reflecting both the change in the share price and dividends, assuming that they
are reinvested.
If a participant ceases to be employed for ‘good leaver’ reasons, the award shall normally continue in effect and vest on the
original date set for vesting, but with the award based on the performance during the plan cycle as a whole, reduced pro rata
to reflect the fact that the participant was not an executive director for the whole plan cycle. In all other circumstances, any
provisional award would lapse on cessation of employment.
Vesting of historic awards
2009/11 plan cycle
The TSR for the three year period was 46.2%, which ranked the Company at the 40th percentile relative to the constituents
of the FTSE All Share Index. Basic EPS decreased from 67.02p in 2008 to 66.72p in 2011. No awards were therefore made
from either element of the plan.
56
Rathbone Brothers Plc Report and accounts 2012
Remuneration report continued
Equity incentives continued
2010/12 plan cycle
The TSR for the three year period was 84.0%, which ranked the Company at the 80th percentile relative to the constituents
of the FTSE All Share Index resulting in an award of 100% of the TSR element of the plan. Continuing basic EPS increased
from 46.87p in 2009 to 67.00p in 2012, an increase of 43.0%, resulting in awards of 100% of the EPS element of the plan.
The market value of the Rathbone Brothers Plc shares at the date of the awards was £8.23 compared with a market value
at 31 December 2012 of £12.99.
2011/13 and 2012/14 plan cycles
Details of the awards for the 2011/13 and 2012/14 plan cycles are set out in table 5. The market value of Rathbone
Brothers Plc shares at the date of awards for the 2011/13 plan was £10.825 and for the 2012/14 plan was £12.61.
Were the maximum possible awards to be made in shares to current and former directors as shown in table 5, 214,683
ordinary shares (2011: 257,231) would be awarded, representing 0.5% (2011: 0.6%) of the issued share capital at
31 December 2012, excluding shares held in treasury. In practice, awards under the LTIP are intended to be satisfied using
market purchased shares. Expected actual awards are difficult to predict with any accuracy.
Table 5. LTIP awards of ordinary shares (audited information)
I M Buckley
P D G Chavasse
R P Lanyon
A T Morris
A D Pomfret
R I Smeeton
R P Stockton
Total
Plan cycle
At 1 January
2012
Granted in
2012
Vested in
2012
At
Lapsed in 31 December
2012
2012
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
2010/12
2011/13
2012/14
16,904
13,856
–
21,187
16,766
–
21,187
16,766
–
16,585
13,648
–
28,933
22,863
–
19,365
15,311
–
18,909
14,951
–
–
–
12,252
–
–
14,825
–
–
14,393
–
–
12,073
–
–
20,222
–
–
13,536
–
–
13,221
(16,904)
–
–
(21,187)
–
–
(16,479)
–
–
(16,585)
–
–
(28,933)
–
–
(19,365)
–
–
(18,909)
–
–
–
–
–
–
–
–
(4,708)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,856
12,252
–
16,766
14,825
–
16,766
14,393
–
13,648
12,073
–
22,863
20,222
–
15,311
13,536
–
14,951
13,221
2010/12
2011/13
2012/14
143,070
114,161
–
–
– 100,522
(138,362)
–
–
(4,708)
–
–
–
114,161
100,522
Share Incentive Plan (SIP) and Save As You Earn (SAYE)
All directors are entitled to take part in the 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. SIP shares are included
in the table of directors’ share interests on page 46.
Executive directors may also participate in the Rathbones SAYE scheme on the same terms as all other employees. Details
of grants to directors are shown in table 6. It is anticipated that a further grant will be made in March 2013 following the
announcement of the 2012 results.
Rathbone Brothers Plc Report and accounts 2012
57
Remuneration report continued
Equity incentives continued
Table 6. The Rathbones SAYE scheme (audited information)
Grant date
23/12/09
23/12/09
23/12/09
23/12/09
29/03/11
23/12/09
23/12/09
23/12/09
29/03/11
At
1 January
2012
Granted in
2012
Exercised in
2012
At
Lapsed in 31 December
2012
2012
Earliest
exercise
date
Latest
exercise
date
Exercise
price
pence
1,303
1,303
1,303
651
483
1,303
1,303
651
483
8,783
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,303 01/02/13 01/08/13
1,303 01/02/13 01/08/13
1,303 01/02/13 01/08/13
651 01/02/13 01/08/13
483 01/05/14 01/11/14
1,303 01/02/13 01/08/13
1,303 01/02/13 01/08/13
651 01/02/13 01/08/13
483 01/05/14 01/11/14
8,783
696
696
696
696
934
696
696
696
934
I M Buckley
P D G Chavasse
R P Lanyon
A T Morris
A T Morris
A D Pomfret
R I Smeeton
R P Stockton
R P Stockton
Total
Dilution
Not more than 10% of the issued ordinary share capital of the Company (adjusted for bonus and rights issues) will be issued
for all LTIP and share incentive schemes operated by the Company in any rolling 10 year period. While it remains best practice
to do so, treasury shares will be treated as newly issued shares for the purposes of dilution calculations. The Company satisfies
the various equity-based schemes it operates using a combination of market purchased, newly issued and treasury shares.
Total shareholder return (TSR)
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.
Chart 1. Total Shareholder Return (TSR) over the last five financial years
e
g
a
t
n
e
c
r
e
P
60
50
40
30
20
10
0
-10
-20
-30
-40
31 December 2007
31 December 2008
31 December 2009
31 December 2010
31 December 2011
31 December 2012
–– Rathbone Brothers Plc – Total shareholder return
–– FTSE All Share – Total shareholder return
Pension arrangements
UK employees who joined Rathbones prior to 1 April 2002 were offered membership of a defined benefit scheme, the
Rathbone 1987 Pension Scheme, with a normal retirement age of 60. 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%). With effect from
1 July 2009, future service benefits are based on career average revalued earnings (CARE) with a normal retirement age
of 65 rather than 60.
Details of the Company’s contributions are set out in note 26 to the consolidated financial statements.
Since 1 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.
58
Rathbone Brothers Plc Report and accounts 2012
Remuneration report continued
Pension arrangements continued
Paul Chavasse, Andrew Morris and Richard Smeeton are members of the Rathbone 1987 Pension Scheme. Richard
Lanyon transferred out of this scheme on 15 March 2011 and has since been paid 10% of salary in lieu of pension scheme
contributions. Ian Buckley, Richard Lanyon, Andy Pomfret and Paul Stockton participate in the scheme for death in service
benefits only.
Richard Smeeton is also a member of the Laurence Keen Retirement Benefits Scheme for service prior to 1 October 1999.
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.
The changes in pension entitlements arising in the year, required to be disclosed by the UK Listing Authority, are shown in
table 7. 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. The increases in transfer values are mainly due to changed
assumptions for inflation, post-retirement discount rates and future mortality.
Table 7. Directors’ accrued benefits under defined benefit schemes (audited information)
Age at
31/12/12
Years of
service at
31/12/12
48
48
48
12
24
24
Accrued
benefit at
31/12/121
£
46,702
76,873
88,570
Increase in
accrued
benefits
excluding
inflation2
£
3,879
3,780
3,190
Transfer value
Increase in
of increase
in accrued
accrued
benefits benefits less
including
directors’
inflation3 contributions
£
£
Transfer
value of
accrued
benefits at
31/12/12
£
Transfer
Increase
value
in transfer
of accrued
value less
benefits at
directors’
31/12/11 contributions4
£
£
5,167
5,977
5,758
702,659
705,399
38,649
59,718 1,544,731 1,562,614
36,490 1,518,673 1,559,473
(17,201)
(34,123)
(59,008)
P D G Chavasse
A T Morris
R I Smeeton
During 2012, three directors (2011: four) accrued benefits under defined benefit schemes
1 The pension entitlement shown above for the three participating directors is that which would be paid annually on retirement at age 60 or 65 based on service to 31 December 2012
(or normal retirement date, if earlier)
2 The additional pension earned in the year excluding UK inflation (RPI)
3 The additional pension earned in the year including UK inflation (RPI)
4 A 0.3% increase in the discount rate used to calculate the transfer value of accrued benefits has either resulted in a modest fall or very small increase in transfer values in 2012, depending on
the length of pensionable service. The ‘Increase in transfer value less directors’ contributions’ figures are therefore negative
There is no undertaking or expectation for any other pension benefit to be arranged for any director by the Company.
Service contracts for executive directors
The Company has service contracts with its executive directors which were reviewed and modernised in 2011. Following his
appointment as head of investment management, Paul Chavasse’s notice period was increased from 6 to 12 months. It is
Company policy that such contracts should not normally contain notice periods of more than 12 months. Details of the notice
periods in the contracts of employment of executive directors serving during the year are as shown in table 8.
Table 8. Executive directors’ service contracts
Executive Director
I M Buckley
P D G Chavasse
A T Morris
A D Pomfret
R I Smeeton
R P Stockton
Date of contract
24 October 2011
15 November 2011
26 October 2011
13 October 2011
9 December 2011
14 October 2011
Notice period
6 months
12 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 any 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 AGM.
Rathbone Brothers Plc Report and accounts 2012
59
Remuneration report continued
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 other position in a quoted company given the time commitment. Prior approval of any new
appointment is required by the Board with fees generally being payable to the Company.
An exception is Ian Buckley. Following his appointment as a committee member of the Family Assurance Friendly Society on
14 December 2009, he retains the fee paid of £32,000 per annum (2011: £30,000). Following his appointment to the board
of Miller Insurance Services LLP on 1 May 2012, he retains the fee payable of £50,000 per annum.
Advisers to the remuneration committee
The remuneration committee has appointed Deloitte LLP (‘Deloitte’) as advisers to the committee. Deloitte attend at least
one committee meeting per annum and advise on best practice and latest developments in senior executive remuneration.
The committee is confident that their advice is objective and independent and they operate in line with the executive
remuneration consulting voluntary code of conduct.
Deloitte also provides occasional ad hoc advice to the Company, particularly on share scheme issues. The appointment is
reviewed annually. The committee is also assisted by the HR 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 now required to stand for
re-election annually in accordance with the UK Corporate Governance Code. 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.
Non-executive directors’ fees
Fees were increased with effect from 1 January 2012 as shown in table 9. No change was made on 1 January 2013.
Table 9. Non-executive directors’ fees
Basic fee
Additional fees
– Chairman of the audit committee
– Chairman of the remuneration committee
– Chairman of the group risk committee
– Senior independent director
2012
£40,000
£10,000
£10,000
£10,000
£10,000
2011
£38,000
£8,000
£7,000
–
£8,000
The chairman, Mark Nicholls, received a fee at the rate of £60,000 per annum prior to his appointment as chairman on
11 May 2011. From that date his fee has been paid at the rate of £120,000 per annum.
Annual General Meeting
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 UK Corporate Governance Code published in
June 2010. The Board will move at the AGM an ordinary resolution seeking approval of the directors’ remuneration report
for 2012. The Notice of Annual General Meeting has been circulated separately.
Approved by the Board on 19 February 2013 and signed on its behalf by
David Harrel
Chairman of the remuneration committee
60
Rathbone Brothers Plc Report and accounts 2012
Audit committee report
Audit committee chairman’s statement
2012 was a busy year for the audit committee in spite of relatively modest changes to the financial reporting regime.
In addition to its regular activities, the committee considered the judgement areas referred to below, reviewed the accounting
implications of the head office move, approved a revised policy on non-audit services provided by the auditors and reviewed
Group recharges between legal entities. Internal audit reported its findings to the committee across a wide range of topics
on a regular basis. In addition, the committee undertook detailed and specific training on reporting and regulatory matters,
and reviewed auditor rotation.
Areas of particular focus in 2013 will include the key regulatory capital and liquidity reports, a review of acquisitions made
in 2012, the impact on capital and reserves of any future acquisitions and the efficacy of the external audit process.
Committee members
The current members of the audit committee are the independent non-executive directors Oliver Corbett (chairman),
Kate Avery, Caroline Burton, David Harrel and Kathryn Matthews.
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 extensive experience of financial matters and of the financial
services industry.
The committee met on seven occasions in 2012 (2011: seven). Details of attendance by members are set out on page 51.
Role and responsibilities of the committee
These are set out in the terms of reference of the committee, which are reviewed annually.
Financial reporting
The committee regularly considers:
• significant financial reporting issues and judgements made in connection with the parent company and consolidated
financial statements;
• the appropriateness of accounting policies and bases;
• narrative statements and disclosures to ensure that they are reasonable and consistent with the reported results; and
• regulatory financial reporting.
Key judgement areas considered in 2012 included the carrying value of the Jersey loan notes received on the sale of the
Group’s Jersey trust operation in 2008, the valuation of goodwill and intangible assets, provisions and the valuation of defined
benefit pension obligations.
Internal controls and risk management systems
The review of the effectiveness of the Group’s internal financial controls is achieved primarily by the assessment 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 of identified risks and mitigating controls
undertaken by senior management.
A separate group risk committee report considers risk management issues (see page 27).
Rathbone Brothers Plc Report and accounts 2012
Rathbone Brothers Plc Report and accounts 2012
61
61
Audit committee report continued
Internal audit
The Group internal audit department reviews Group operations on a continuing basis. The frequency of reviews is determined
by an internal risk-based audit programme which is approved by the audit committee. This ensures that whilst the focus is
on higher risk areas, all parts of the business are covered over a three year cycle. Regular updates are given to the committee
on the findings of internal audit reviews, the status of scheduled work and on the follow up of reviews to ensure that agreed
recommendations are acted upon promptly. The committee sees all reviews containing a high risk-related recommendation and
a sample of other reviews.
The internal audit department will also undertake occasional ad hoc reviews at the request of management or the committee.
The committee also regularly reviews the resources and authority of the internal audit department.
External audit
The committee is responsible for reviewing external audit arrangements and for any recommendation to the Board regarding
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 audit services contract tender process was undertaken in June
2009, which led to the appointment of KPMG as auditors. The committee plan to undertake an audit services contract tender
process again before the tenth anniversary of their appointment.
The committee reviews the independence and the nature of non-audit services supplied by the auditor and non-audit fee
levels relative to the audit fee. Prior approval by the committee is required where the fee for an individual non-audit service is
expected to exceed £25,000. Fees for non-audit services paid to the auditor should not, in aggregate, exceed 50% of the audit
fee in any year without the prior written approval of the committee.
Non-audit fees payable to the auditor in 2012 were £65,000. This represents 13.1% of the fees for assurance services of
£497,000, which includes the audit of regulatory returns and of the interim statement (2011: £114,000, 23.2% of £491,000).
The committee recognises that, given their knowledge of the business, there are often advantages in using the auditor to
provide certain non-audit services.
The committee is satisfied that the independence of the auditor has not been impaired by providing these services. Details
of the auditor’s fees are shown in note 7 to the consolidated financial statements. The committee also reviews the audit
engagement letters each year and has discussions with the auditor with no management present.
Regarding the year end audit, presentations were received from the auditor on audit progress, findings and recommendations
and any adjusted and unadjusted errors.
Confidential reporting policy
The committee annually reviews the Group’s Public Interest Disclosure Act 1998 confidential reporting policy and approves
any changes to the document. It also receives details of any reports made.
Other
On invitation, the finance and other executive directors, compliance officers, senior finance and internal audit staff and the
external auditor 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.
Oliver Corbett
Chairman of the audit committee
62
Rathbone Brothers Plc Report and accounts 2012
Nomination committee report
Committee members
The current members of the nomination committee are Mark Nicholls (chairman), Kate Avery, Caroline Burton, Oliver
Corbett, David Harrel, Kathryn Matthews and Andy Pomfret.
The committee met formally on two occasions in 2012 (2011: one). Details of attendance by members are set out on page 51.
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. During the year, the remit of the committee was widened to cover issues such as
appraisals, training and director development.
An external search consultancy and/or open advertising are generally used when recruiting new non-executive directors and
may often be used when recruiting executive 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.
The committee is mindful of the benefits of a diverse Board with a broad range of skills and experience and this has been
reflected in recent Board appointments.
During 2012, the committee focused on the Board effectiveness review process, the proposed reduction in Board size and
succession planning.
With regard to the Board effectiveness review, it was agreed that an independent third party be used to oversee the process
and, having interviewed a number of candidates, it was agreed to re-appoint Lintstock with a wider brief.
With regard to the reduction in size of the Board, it was agreed that the Board should ensure it had more exposure to a
broader range of attendees who would be asked to attend and speak on specific topics. It was also agreed that non-executive
directors should have more interaction with senior executives and that a programme of lunches and informal meetings
would be arranged.
With regard to succession planning it was agreed that we needed to formalise both short term (emergency) and long term
succession plans for executives in management roles and for non-executives. This would reinforce and supplement the
current process whereby the Board is regularly exposed to senior management below Board level during visits to other
offices, attendance at internal meetings and presentations by senior managers to the Board. Regarding non-executive director
succession, the committee will be looking to recruit in 2013 following the retirement from the Board of Kate Avery and
Caroline Burton at the 2013 AGM. In particular, the committee are mindful of the need to ensure that the audit committee
includes members with accounting and/or auditing experience. It will be looking to recruit a suitably qualified accountant
to provide support for the current chairman of the committee and to potentially succeed him as audit committee chairman in
due course.
In accordance with the UK Corporate Governance Code, all directors are required to seek election by the members at the
AGM following their appointment, and re-election every year thereafter. 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 is mindful of the UK Corporate Governance 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.
Mark Nicholls
Chairman of the nomination committee
Rathbone Brothers Plc Report and accounts 2012
Rathbone Brothers Plc Report and accounts 2012
63
63
Statement of directors’ responsibilities in respect
of the report and accounts
The directors are responsible for preparing the annual report and the consolidated and parent company financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare consolidated and parent company financial statements for each financial year.
Under that law they are required to prepare the consolidated financial statements in accordance with International Financial
Reporting Standards (IFRSs), as adopted by the EU and applicable law and have elected to prepare the parent company
financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each
of the consolidated 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;
•
state whether they have been prepared in accordance with IFRSs as adopted by the EU; 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 are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
company’s transactions and 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 2006. 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, directors’
remuneration report and corporate governance report that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Group website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of information to the auditor
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there
is no relevant audit information of which the Company’s auditors are unaware; and each director has taken all the steps that
he or she ought to have taken as a director to make him or herself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Statement as a result of the Disclosure and Transparency Rules of the Financial
Services Authority
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the parent company and its undertakings included in the
consolidation taken as a whole; and
the directors’ report, together with the information provided in the business review, financial review and group risk
committee report, includes a fair view of the development and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face.
By Order of the Board
A D Pomfret
Chief Executive
19 February 2013
64
Rathbone Brothers Plc Report and accounts 2012
Consolidated Financial Statements
66
Independent auditor’s report to the members of
Rathbone Brothers Plc
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated balance sheet
Consolidated statement of cash flows
Notes to the consolidated financial statements
68
69
70
71
72
Rathbone Brothers Plc Report and accounts 2012
65
Independent auditor’s report to the members of
Rathbone Brothers Plc
We have audited the financial statements of Rathbone Brothers Plc for the year ended 31 December 2012 set out on pages 68
to 141. The financial reporting framework that has been applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement set out on page 64, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit,
and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at
31 December 2012 and of the Group’s profit for the year then ended;
the consolidated financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as
regards the consolidated financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
•
the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the directors’ report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
66
Rathbone Brothers Plc Report and accounts 2012
Independent auditor’s report to the members of Rathbone Brothers Plc continued
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent company financial statements and the part of the directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; and
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
•
•
the directors’ statement, set out on page 48, in relation to going concern;
the part of the corporate governance report on page 49 relating to the Company’s compliance with the nine provisions of
the UK Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on directors’ remuneration.
I Cummings (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
19 February 2013
Rathbone Brothers Plc Report and accounts 2012
67
Consolidated statement of comprehensive income
for the year ended 31 December 2012
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
Gains on disposal of financial securities
Other operating income
Share of profit of associates
Operating income
Amortisation of acquired client relationships
Head office relocation costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Profit for the period attributable to equity holders of the Company
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net actuarial gain/(loss) on retirement benefit obligations
Deferred tax relating to net actuarial gain/(loss) on retirement benefit obligations
Items that may be reclassified to profit or loss
Net gain/(loss) from changes in fair value of available for sale
investment securities
Deferred tax relating to revaluation of available for sale investment securities
Other comprehensive income net of tax
Total comprehensive income for the year net of tax
attributable to equity holders of the Company
Dividends paid and proposed for the year per ordinary share
Dividends paid and proposed for the year
Earnings per share for the period attributable to equity holders of the Company:
– basic
– diluted
Note
4
5
6
6
6
6
20
7
8
7
10
26
19
16
19
11
12
2012
£’000
11,162
(1,258)
9,904
152,154
(8,756)
143,398
110
562
–
1,586
21
155,581
(6,025)
(300)
(110,444)
(116,769)
38,812
(9,596)
29,216
29,216
660
(399)
923
(154)
1,030
30,246
47.00p
21,220
67.00p
66.41p
2011
£’000
11,259
(1,238)
10,021
141,484
(10,029)
131,455
98
480
1,095
1,303
–
144,452
(5,134)
(3,028)
(97,138)
(105,300)
39,152
(10,446)
28,706
28,706
(6,383)
1,477
(134)
94
(4,946)
23,760
46.00p
20,001
66.72p
65.90p
The accompanying notes form an integral part of the consolidated financial statements.
68
Rathbone Brothers Plc Report and accounts 2012
Consolidated statement of changes in equity
for the year ended 31 December 2012
At 1 January 2011
Profit for the year
Net actuarial loss on retirement
benefit obligations
Revaluation of available for sale
investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
–
tax on share-based payments
At 1 January 2012
Profit for the year
Net actuarial gain on retirement
benefit obligations
Revaluation of available for sale
investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
–
tax on share-based payments
Note
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Available
for sale
reserve
£’000
2,169
32,488
31,835
2,219
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
(2,899) 119,562 185,374
28,706
28,706
26
16
19
11
27
28
28
19
26
16
19
11
27
28
28
19
(134)
94
(40)
–
9
–
–
1,728
2,178
34,216
31,835
2,179
(6,383)
(6,383)
(134)
1,477
1,571
–
(4,906)
(19,491)
(4,946)
(19,491)
1,737
(2,955)
1,125
1,989
(1,125)
239
1,989
(2,955)
–
239
(4,729) 124,974 190,653
29,216
29,216
923
(154)
–
–
–
769
–
120
27,944
660
660
923
(399)
(553)
261
(20,074)
1,030
(20,074)
28,064
(1,630)
515
2,129
(515)
105
2,129
(1,630)
–
105
At 31 December 2012
2,298
62,160
31,835
2,948
(5,844) 136,096 229,493
The accompanying notes form an integral part of the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2012
69
Consolidated balance sheet
as at 31 December 2012
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– available for sale
– held to maturity
Prepayments, accrued income and other assets
Property, plant and equipment
Net deferred tax asset
Investment in associates
Intangible assets
Total assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Accruals, deferred income, provisions and other liabilities
Current tax liabilities
Retirement benefit obligations
Total liabilities
Equity
Share capital
Share premium
Merger reserve
Available for sale reserve
Own shares
Retained earnings
Total equity
Total liabilities and equity
Note
13
14
15
16
16
17
18
19
20
21
22
23
24
26
27
27
28
2012
£’000
116,003
12,606
169,795
71,711
55,749
559,025
40,279
11,950
1,930
1,237
97,423
2011
£’000
4
13,443
65,008
47,787
68,563
843,983
38,413
10,660
3,134
–
92,844
1,137,708
1,183,839
518
18,592
828,443
55,004
3,528
2,130
908,215
2,298
62,160
31,835
2,948
(5,844)
136,096
229,493
513
22,196
908,656
50,924
3,557
7,340
993,186
2,178
34,216
31,835
2,179
(4,729)
124,974
190,653
1,137,708
1,183,839
The financial statements were approved by the Board of directors and authorised for issue on 19 February 2013 and were
signed on its behalf by:
A D Pomfret
Chief Executive
R P Stockton
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
70
Rathbone Brothers Plc Report and accounts 2012
Consolidated statement of cash flows
for the year ended 31 December 2012
Cash flows from operating activities
Profit before tax
Share of profit of associates
Net interest income
Net impairment charges/(recoveries) on impaired loans and advances
Net charge for provisions
Profit on disposal of property, plant and equipment
Depreciation and amortisation
Defined benefit pension scheme charges
Defined benefit pension contributions paid
Share-based payment charges
Interest paid
Interest received
Changes in operating assets and liabilities:
– net increase in loans and advances to banks and customers
– net decrease in settlement balance debtors
– net increase in prepayments, accrued income and other assets
– net (decrease)/increase in amounts due to customers and deposits by banks
– net decrease in settlement balance creditors
– net (decrease)/increase in accruals, deferred income, provisions
and other liabilities
Cash (used in)/generated from operations
Tax paid
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Purchase of equity-accounted associate
Acquisition of subsidiaries, net of cash received
Purchase of property, plant, equipment and intangible assets
Proceeds from sale of property, plant and equipment
Purchase of investment securities
Proceeds from sale and redemption of investment securities
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Purchase of shares for share-based schemes
Issue of ordinary shares
Dividends paid
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
20
15
25
26
26
9
20
16
16
35
11
35
The accompanying notes form an integral part of the consolidated financial statements.
2012
£’000
38,812
(21)
(9,904)
801
290
(9)
10,237
2,859
(7,409)
3,232
(1,272)
12,523
50,139
(131,154)
837
(3,209)
(80,208)
(3,604)
(742)
(167,941)
(8,885)
(176,826)
(1,216)
(1,244)
(11,690)
42
(1,353,137)
1,638,004
2011
£’000
39,152
–
(10,021)
(1)
2,465
(17)
8,997
1,484
(7,170)
2,604
(1,282)
10,359
46,570
(8,523)
4,726
(1,133)
143,841
(1,516)
3,725
187,690
(10,345)
177,345
–
–
(12,976)
41
(1,565,418)
1,472,520
270,759
(105,833)
–
26,434
(20,074)
6,360
100,293
129,872
230,165
(2,259)
1,041
(19,491)
(20,709)
50,803
79,069
129,872
Rathbone Brothers Plc Report and accounts 2012
71
Notes to the consolidated financial statements
1
Principal accounting policies
Rathbone Brothers Plc (‘the Company’) is a public company incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1
Developments in reporting standards and interpretations
Standards affecting the reported results or the financial position
In the current year, there have been no new or revised standards and interpretations that have been adopted and which have
had a significant impact on the amounts reported in these financial statements.
Standards not affecting the reported results or the financial position
The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not
had any significant impact on the amounts reported in these financial statements but may impact the accounting for future
transactions and arrangements:
• amendments to IAS 1 ‘Presentation of items in other comprehensive income’ (this amendment has been adopted earlier
than its mandatory date);
• amendments to IFRS 7 ‘Financial instruments: Disclosures’.
New standards and interpretations
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after
1 January 2012 and have not been applied in preparing these consolidated financial statements. None of these is expected to
have a significant effect on the consolidated financial statements of the Group except for IFRS 9 ‘Financial Instruments’, which
is not expected to become mandatory for periods commencing before 1 January 2015, and IAS 19 ‘Employee Benefits’, which
is mandatory for periods that commenced on or after 1 January 2013.
IFRS 9 ‘Financial Instruments’ could change the classification and measurement of financial assets. The Group does not plan to
adopt this standard early and the extent of the impact has not been determined. IFRS 9 ‘Financial Instruments’ has not yet
been adopted by the EU.
IAS 19 ‘Employee Benefits’ is mandatory for the Group’s consolidated financial statements for the year ending 31 December
2013. The amendments to IAS 19, if applied for the year ended 31 December 2012, would reduce profit after tax by
approximately £230,000 and reduce the actuarial gain in other comprehensive income by the same amount. There would be no
effect on total comprehensive income or total equity.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries and special purpose entities), 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. Special purpose entities are
consolidated where the substance of the Group’s relationship with the entity indicates control by the Group.
Subsidiaries and special purpose entities are fully consolidated from the date on which control is obtained and deconsolidated
from the date that control ceases; their results are included in the consolidated financial statements up to the date that
control ceases.
Intercompany transactions and balances between Group companies are eliminated on consolidation.
Associates are companies over which the Group has significant influence, either by holding 20% or more of the voting rights of
the associate and/or through other means (note 1.4).
For associates with non-coterminous year ends, financial statements are drawn up to 31 December for the purposes of
equity accounting.
72
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
1.3 Business combinations
Business combinations are accounted for using the acquisition method. The consideration for each acquisition is measured at
the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss
as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost
of acquisition where they arise within 12 months of the acquisition date. Later changes in the fair value of contingent
consideration are charged to profit or loss or other comprehensive income, except for obligations that are classified as equity,
which are not remeasured.
The acquiree’s identifiable assets, liabilities and contingent liabilities are recognised at their fair value at the acquisition date,
except for deferred tax assets or liabilities, and liabilities or assets related to employee benefit arrangements which are
measured in accordance with applicable accounting policies described in this note.
1.4
Investments in associates
Investments in associates are accounted for under the equity method and are recognised initially at cost. The consolidated
financial statements include the Group’s share of the profit or loss and other comprehensive income of the associates from the
date that significant influence commences until the date that significant influence ceases.
1.5 Basis of preparation
The consolidated and Company financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU. The Company financial statements are presented on pages 122 to 141.
The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are
measured at fair value (notes 1.13 and 1.17). The principal accounting policies adopted are set out below and, unless otherwise
stated, have been applied consistently to all periods presented in the consolidated financial statements.
1.6 Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the
going concern basis of accounting in preparing the financial statements. Further detail is contained in the directors’ report on
page 48.
1.7
Foreign currencies
The Company’s functional and presentational currency is sterling. The Group’s 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. Gains and losses arising on retranslation
are included in profit or loss for the period.
1.8
Income
Net interest income
Interest income or expense from interest-bearing financial instruments, except those classified as held for trading, is calculated
using the effective interest method and recognised within net interest income. Dividends received from money market funds are
included in net interest income when received.
The effective interest method is the method of calculating the amortised cost of a financial asset or liability (or group of assets
and liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is
the rate that exactly discounts the expected 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 instrument. The application of the
method has the effect of recognising income (or expense) receivable (or payable) on the instrument evenly in proportion to the
amount outstanding over the period to maturity or repayment. In calculating effective interest, the Group estimates cash flows
considering all contractual terms of the financial instrument but excluding future credit losses.
Rathbone Brothers Plc Report and accounts 2012
73
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
Net fee and commission income
Portfolio or asset management fees, trail commissions receivable or payable and fees from advisory services are recognised on
a continuous basis over the period that the related service is provided.
Commission charges for executing transactions on behalf of clients are recognised when the transaction is dealt.
Initial charges receivable from the sale of unit holdings in the Group’s collective investment schemes and related rebates are
recognised at the point of sale.
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 received.
1.9 Operating leases
Lease agreements which do not transfer substantially all of the risks and rewards of ownership of the leased assets to the
Group are classified as operating leases. Payments made under operating leases are recognised in profit or loss on a straight
line basis over the term of the lease. The impact of any lease incentives is spread over the term of the lease.
1.10 Share-based payments
The Group engages in cash-settled and equity-settled share-based payment transactions in respect of services received from its
employees.
Equity-settled awards
For equity-settled share-based payments, the fair value of the award is measured by reference to the fair value of the shares or
share options granted on the grant date. The cost of the employee services received in respect of the shares or share options
granted is recognised in profit or loss over the vesting period, with a corresponding credit to equity.
The fair value of the awards or options granted is determined using a binomial pricing model, which takes into account the
current share price, the risk-free interest rate, the expected volatility of the Company’s share price over the life of the option or
award, any applicable exercise price and other relevant factors. Only those vesting conditions that include terms related to
market conditions are 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 profit or loss 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 any non-market vesting
conditions are also met. Shares purchased and issued are charged directly to equity.
Cash-settled awards
For cash-settled share-based payments, a liability is recognised for the services received to the balance sheet date, measured at
the fair value of the liability. At each subsequent balance sheet date and at the date on which the liability is settled, the fair
value of the liability is remeasured with any changes in fair value recognised in profit or loss.
1.11 Taxation
Current tax
Current tax is the expected tax payable or receivable on net taxable income for the year. Current tax is calculated using tax
rates enacted or substantively enacted by the balance sheet date, together with any adjustment to tax payable or receivable in
respect of previous years.
74
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
Deferred tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences using tax rates (and
laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the liability is
settled or when the asset is realised. 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, except where the temporary difference arises:
•
•
•
from the initial recognition of goodwill;
from the initial recognition of other assets and liabilities in a transaction, which affects neither the tax profit nor the
accounting profit, other than in a business combination; or
in relation to investments in subsidiaries and associates, where the Group is able to control the reversal of the temporary
difference and it is the Group’s intention not to reverse the temporary difference in the foreseeable future.
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.
1.12 Cash and cash equivalents
Cash comprises cash in hand.
Cash equivalents comprise money market funds which are realisable on demand and loans and advances to banks with a
maturity of less than three months from the date of acquisition.
For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
1.13 Financial assets
Initial recognition
Financial assets are initially recognised at fair value.
Classification and subsequent valuation
Financial assets are classified in the following categories:
• At fair value through profit or loss
Financial instruments are classified in this category if they are held for trading, or if they are designated in this category by
the Group. Financial assets held at fair value through profit or loss are carried at fair value, with gains and losses arising
from changes in fair value taken directly to profit or loss.
Derivatives are categorised as held for trading. Fair values of derivatives are determined using valuation techniques,
including discounted cash flow models and option pricing models as appropriate. All derivatives are included in assets
when their fair value is positive, and liabilities when their fair value is negative, unless the Company has the legal ability
and intention to settle net.
• Loans and receivables
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 or other
debtor with no intention of trading the receivable. Loans and receivables are measured at amortised cost using the effective
interest method (note 1.8), less any impairment.
If the fair value of the loan on initial recognition is lower than the amount advanced, the shortfall is charged to profit
or loss.
• Held to maturity
Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities
(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) that the Group has the positive intention and ability to hold to maturity. Held to maturity
investments are measured at amortised cost using the effective interest method (note 1.8), less any impairment.
Rathbone Brothers Plc Report and accounts 2012
75
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
•
Available for sale
Available for sale financial assets are non-derivative financial assets 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, and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates
or equity prices.
Available for sale financial assets are subsequently carried at fair value. Gains and losses arising from changes in the fair
value of available for sale financial assets are recognised in other comprehensive income and presented in the available for
sale reserve in equity. When the financial asset is sold, derecognised or impaired, the cumulative gain or loss previously
recognised in equity is recycled to profit or loss.
Trade date accounting
Financial assets, excluding loans and receivables, are recognised on trade date, being the date on which the Group commits to
purchase the asset. Loans and receivables are recognised when cash is advanced to the borrowers.
Financial assets are derecognised when the rights to receive cash flows have expired or the Group has transferred substantially
all the risks and rewards of ownership.
Fair value measurement
The fair values of quoted financial instruments in active markets are based on current bid prices. If an active market for a
financial asset does not exist, 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.
Impairment of financial assets
• Financial assets carried at amortised cost
If there is objective evidence that a financial asset carried at amortised cost, or a group of such financial assets, has suffered
an impairment loss, the recoverable amount of the asset, or group of assets, is estimated in order to determine the extent of
the impairment loss. The Group measures the amount of the impairment loss as the difference between the carrying
amount of the asset, or group of assets, and the present value of estimated future cash flows from the asset, or group of
assets, discounted at the effective interest rate of the asset, or group of assets, at initial recognition. The present value of
estimated future cash flows excludes future credit losses that have not been incurred. Any impairment loss is recognised in
profit or loss.
All impairment losses are reviewed at least at each reporting date. If subsequently the amount of the loss decreases as a
result of a new event, the relevant element of the outstanding impairment loss is reversed through profit or loss.
Interest on impaired financial assets is recognised at the original effective interest rate applied to the carrying amount as
reduced by an allowance for impairment.
• Financial assets carried at fair value
When a decline in the fair value of a financial asset classified as available for sale has been recognised in other
comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from equity
and recognised in profit or loss. The loss is measured as the difference between the amortised cost of the financial asset and
its current fair value. Impairment losses on available for sale equity instruments are not reversed through profit or loss, but
those on available for sale debt instruments are reversed, if there is an increase in fair value that is objectively related to a
subsequent event.
1.14 Property, plant and equipment
All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less
accumulated depreciation and impairment losses. 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:
over the lease term
• plant, equipment and computer hardware:
over three to 10 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 and these are included in profit or loss.
76
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
1.15
Intangible assets
Goodwill
Goodwill arises through business combinations and 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 business at the date of acquisition.
Goodwill is recognised as an asset and is allocated to groups of cash generating units. 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 1 January 2004, being the date of the Group’s transition to IFRS, has been retained at
the previous UK GAAP carrying amounts and is tested for impairment annually.
Client relationships
Individually purchased client relationships are initially recognised at cost. Client relationships acquired as part of a business
combination are initially recognised at fair value. Client relationships are subsequently carried at cost less accumulated
amortisation, which is calculated using the straight line method over their estimated useful lives (normally 10 to 15 years,
but not more than 15 years).
When client relationships are lost, the full amount of unamortised cost is recognised immediately in profit or loss and the
intangible asset is derecognised.
Computer software and software development costs
Costs incurred to acquire and bring to use computer software licences are capitalised and amortised through profit or loss over
their 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 are
recognised as intangible assets when the Group is expected to benefit from future use of the software and the costs are reliably
measurable. Other costs of producing software are charged to profit or loss as incurred. Computer software development costs
recognised as assets are amortised using the straight line method over their useful lives (not exceeding four years).
1.16
Impairment of goodwill and intangible assets
At each balance sheet date the Group reviews the carrying amounts of its intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. 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). Where the 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 is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money.
Goodwill is tested for impairment at least annually. For the purposes of impairment testing, goodwill is allocated to the
Group’s cash generating units. The carrying amount of each cash generating unit is compared to its value-in-use, calculated
using a discounted cash flow method. If the recoverable amount of the cash generating unit is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying amount of the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit.
Client relationship intangibles are tested for impairment on a portfolio basis by comparing the fair value of funds under
management for each acquired portfolio of clients with their associated amortised value.
If the recoverable amount of any asset other than client relationships or goodwill is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
Any impairment loss is recognised immediately in profit or loss.
Rathbone Brothers Plc Report and accounts 2012
77
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
1.17 Financial liabilities
Financial liabilities are initially recognised at fair value and classified as fair value through profit or loss (if designated as such
or if held for trading) or at amortised cost.
The Group has not designated any liabilities as fair value through profit or loss and holds no liabilities as held for trading.
Deposits and borrowings
After initial recognition, deposits and borrowings are subsequently measured at amortised cost using the effective interest rate
method through net interest income (note 1.8). Amortised cost is calculated by taking into account any issue costs and any
discounts or premiums on settlement.
1.18 Provisions and contingent liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is
probable that an outflow of economic benefits that can be reliably estimated will occur. Provisions are measured at the present
value of the expenditures expected to be required to settle the obligation, discounted 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 as an interest expense.
Contingent liabilities are possible obligations that depend on the outcome of uncertain future events or those present
obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not
recognised in the financial statements but are disclosed unless the likelihood of crystallisation is judged to be remote.
1.19 Retirement benefit obligations
The cost of providing benefits under defined benefit plans is 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 in other comprehensive income.
Past service cost is recognised immediately to the extent that the associated changes to benefits are already vested. Where
changes to benefits do not vest immediately, past service cost is amortised on a straight line basis over the average vesting
period until the amended benefits become vested.
The amount recognised in the balance sheet represents the present value of the defined benefit obligations 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.
The amount recognised in the balance sheet for death in service benefits represents the present value of the estimated
obligation, reduced by the extent to which any future liabilities will be met by insurance policies.
Contributions to defined contribution retirement benefit schemes are charged to profit or loss as an expense as they fall due.
1.20 Segmental reporting
The Group determines and presents operating segments based on the information that is provided internally to the executive
committee, which is the Group’s chief operating decision maker. Operating segments are organised around the services
provided to clients; a description of the services provided by each segment is given in our services on page 9. No operating
segments have been aggregated in the Group’s financial statements.
Transactions between operating segments are reported within the income or expenses for those segments; intra-segment
income and expenditure is eliminated at Group level. Indirect costs are allocated between segments in proportion to the
principal cost driver for each category of indirect costs that is generated by each segment.
1.21 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. Such assets and income arising thereon are excluded from
these financial statements, as they are not assets of the Group. Largely as a result of cash and settlement processing, the Group
holds money on behalf of some clients in accordance with the Client Money Rules of the Financial Services Authority (FSA) or
the Jersey Financial Services Commission, as applicable. Such monies and the corresponding amounts due to clients are not
shown on the face of the balance sheet as the Group is not beneficially entitled to them.
78
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
1.22 Financial guarantees
The Group provides a limited number of financial guarantees, which are backed by assets in clients’ portfolios. Financial
guarantees 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 guarantee.
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.
2.1 Loan notes (note 15)
The Group holds loan notes (‘Notes’) with a nominal value of £5,000,000 issued by the acquirer of the Group’s Jersey trust
operations in 2008. The Notes are repayable on the occurrence of certain events, principally the refinancing of the operations
disposed of.
The carrying value of the Notes, net of provision for impairment, was £2,821,000 at 31 December 2012. The impairment has
been calculated using a discounted cash flow model based on the estimated repayment date of the Notes, using a discount rate
equal to the initial effective interest rate of the loan. Changing the estimated repayment date of the Notes by one year would
result in an increase or decrease in their carrying value, net of provision for impairment, of approximately £230,000. A 1%
increase/decrease in the assumed rate at which interest accrues under the loan would increase/decrease the net carrying value,
net of provision for impairment, by approximately £110,000, with a consequent equal change in profit before tax.
2.2 Client relationship intangibles (note 21)
The Group makes estimates as to the expected duration of client relationships to determine the period over which related
intangible assets are amortised. The amortisation period is estimated with reference to historical data on account closure rates
and expectations for the future. During the year client relationship intangible assets were amortised over a 10 to 15 year
period. Amortisation of £6,025,000 was charged during the year. A reduction in the average amortisation period of one year
would increase the amortisation charge by approximately £516,000. At 31 December 2012, the carrying value of client
relationship intangibles was £45,548,000.
In determining whether a client relationship is lost, the Group considers factors such as the level of funds withdrawn and the
existence of other retained family relationships.
2.3 Retirement benefit obligations (note 26)
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. 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 principal assumptions underlying the reported deficit of £2,130,000, the history of experience adjustments and
information on the sensitivity of the retirement benefit obligations to changes in underlying estimates is set out in note 26.
2.4 Financial Services Compensation Scheme levies (note 32)
The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors
from loss in the event of failure of financial institutions has resulted in significant levies on the industry in recent years. The
financial impact of unexpected FSCS levies are largely out of the Group’s control as they result from other industry failures.
There is significant uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry
failures. The Group contributes to the deposit class, investment fund management class and investment intermediation levy
classes and accrues levy costs for future levy years when the obligation arises.
The FSCS announced in its November outlook statement that it expected to face a total deficit on the investment fund
management and investment intermediation sub-classes of £36,000,000 as a result of tariff data resubmissions. This amount is
in addition to a potential £25,000,000 levy on the investment intermediation sub-classes arising from the failures of Pritchard
Stockbrokers, Worldspreads and MF Global. A final announcement concerning the levy on deposit takers on the unrecoverable
cost of five major depositor failures is expected in early 2013.
Rathbone Brothers Plc Report and accounts 2012
79
Notes to the consolidated financial statements continued
2 Critical accounting judgements and key sources of estimation and uncertainty continued
Levies of £1,022,000 have been included within administrative expenses in 2012 (2011: £425,000). It is only possible for the
Group to estimate its share of these losses until invoices are received.
In July 2012, the FSA issued a consultation paper following its preliminary review of the funding arrangements for the FSCS.
Feedback on the consultation paper was published on 18 January 2013 but a further consultation was launched at that time
into the cross-subsidy arrangements between levy paying classes within the scheme. The result of this review may have a
potentially significant impact on the Group’s future share of levies raised.
3
Segmental information
For management purposes the Group is currently organised into two operating segments: Investment Management and Unit
Trusts. The products and services from which each reportable segment derives its revenues are described in our services on
page 9. Complementary services, as described in our services, are reported within the Investment Management segment. These
segments are the basis on which the Group reports its performance to the executive committee, which is the Group’s chief
operating decision maker. Certain items of income are presented within different categories of operating income in the financial
statements compared to the presentation for internal reporting. Staff costs for internal reporting purposes include only those
staff directly involved in the provision of the services from which each segment’s revenue is generated. The cost of staff
providing support services is included in indirect expenses.
The presentation of underlying operating income has been amended to show net interest income separately from other income.
Other income is now presented together with fees from advisory services. This change follows a change in presentation in the
information provided to the executive committee and facilitates easier analysis of the Group’s revenue margin on funds under
management. Comparatives have been re-presented accordingly.
31 December 2012
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Amortisation of client relationships (note 21)
Segment profit before tax
Head office relocation costs (unallocated) (note 8)
Profit before tax attributable to equity holders of the Company
Taxation (note 10)
Profit for the year attributable to equity holders of the Company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
89,607
37,403
9,904
9,766
146,680
(36,116)
(16,774)
(52,890)
(16,052)
(33,171)
(102,113)
44,567
(6,025)
38,542
Unit Trusts
£’000
8,160
–
–
741
8,901
(2,877)
(913)
(3,790)
(2,189)
(2,352)
(8,331)
570
–
570
Investment
Management
£’000
1,102,144
Unit Trusts
£’000
19,837
Total
£’000
97,767
37,403
9,904
10,507
155,581
(38,993)
(17,687)
(56,680)
(18,241)
(35,523)
(110,444)
45,137
(6,025)
39,112
(300)
38,812
(9,596)
29,216
Total
£’000
1,121,981
15,727
1,137,708
80
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
3 Segmental information continued
31 December 2011 (re-presented)
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Gains on disposal of financial securities (note 6)
Amortisation of client relationships (note 21)
Segment profit before tax
Head office relocation costs (unallocated) (note 8)
Profit before tax attributable to equity holders of the Company
Taxation (note 10)
Profit for the year attributable to equity holders of the Company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
80,086
36,170
10,021
8,832
135,109
(31,649)
(15,770)
(47,419)
(13,284)
(29,013)
(89,716)
45,393
1,095
(5,134)
41,354
Investment
Management
£’000
1,154,085
The following table reconciles underlying operating income to operating income:
Underlying operating income
Gains on disposal of financial securities (note 6)
Operating income
Unit Trusts
£’000
7,562
–
–
686
8,248
(2,503)
(1,071)
(3,574)
(1,828)
(2,020)
(7,422)
826
–
–
826
Unit Trusts
£’000
16,428
2012
£’000
155,581
–
155,581
Total
£’000
87,648
36,170
10,021
9,518
143,357
(34,152)
(16,841)
(50,993)
(15,112)
(31,033)
(97,138)
46,219
1,095
(5,134)
42,180
(3,028)
39,152
(10,446)
28,706
Total
£’000
1,170,513
13,326
1,183,839
2011
£’000
143,357
1,095
144,452
Included within Investment Management net fee and commission income is £1,797,000 (2011: £1,547,000) of fee and
commission income receivable from Unit Trusts. Intersegment sales are charged at prevailing market prices.
Centrally incurred indirect expenses are allocated to operating segments on the basis of the cost drivers that generate the
expenditure; principally the headcount of staff directly involved in providing those services from which the segment earns
revenues, the value of funds under management and the segment’s total revenue.
Geographic analysis
The following table presents underlying operating income analysed by the geographical location of the Group entity providing
the service:
United Kingdom
Jersey
Underlying operating income
2012
£’000
150,822
4,759
155,581
2011
£’000
139,128
4,229
143,357
Rathbone Brothers Plc Report and accounts 2012
81
Notes to the consolidated financial statements continued
3 Segmental information continued
The following is an analysis of the carrying amount of non-current assets analysed by the geographical area in which the assets
are located:
United Kingdom
Jersey
Major clients
2012
£’000
107,603
1,770
109,373
The Group is not reliant on any one client or group of connected clients for generation of revenues.
4
Net interest income
Interest income
Cash and balances with central banks
Held to maturity investment securities
Available for sale investment securities
Loans and advances to banks
Loans and advances to customers
Interest expense
Banks and customers
Net interest income
5
Net fee and commission income
Fee and commission income
Investment Management
Unit Trusts
Fee and commission expense
Investment Management
Unit Trusts
Net fee and commission income
2012
£’000
107
7,783
490
1,286
1,496
11,162
(1,258)
9,904
2012
£’000
136,590
15,564
152,154
(3,149)
(5,607)
(8,756)
143,398
2011
£’000
102,641
863
103,504
2011
£’000
–
9,016
309
881
1,053
11,259
(1,238)
10,021
2011
£’000
126,980
14,504
141,484
(4,634)
(5,395)
(10,029)
131,455
6
Dividend, net trading and other operating income
Dividend income
Dividend income comprises income from available for sale equity securities of £110,000 (2011: £98,000).
Net trading income
Net trading income of £562,000 (2011: £480,000) comprises unit trust net dealing profits.
Gains on disposal of financial securities
In 2011, a one-off gain of £1,095,000 was recognised in relation to certain long stock positions held by firms acquired by the
Group in the 1990s. All claims against these holdings were considered to be exhausted and they were recognised in the
Group’s financial statements following regulatory approval.
82
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
6 Dividend, net trading and other operating income continued
Other operating income
Other operating income of £1,586,000 (2011: £1,303,000) comprises rental income from sub-leases on certain properties
leased by Group companies and sundry income.
7
Operating expenses
Staff costs (note 9)
Depreciation of property, plant and equipment (note 18)
Amortisation of internally generated intangible assets included in operating expenses (note 21)
Amortisation of purchased software (note 21)
Auditor's remuneration (see below)
Net impairment charges/(recoveries) on impaired loans and advances (note 15)
Operating lease rentals
Other
Other operating expenses
Amortisation of client relationship intangible assets (note 21)
Head office relocation costs (note 8)
Total operating expenses
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 financial statements
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
– audit-related assurance services
tax compliance services
–
–
tax advisory services
– other assurance services
2012
£’000
72,610
2,720
401
1,091
562
801
6,294
25,965
110,444
6,025
300
116,769
2012
£’000
88
236
173
42
–
23
562
2011
£’000
64,503
2,384
357
1,122
605
(1)
7,366
20,802
97,138
5,134
3,028
105,300
2011
£’000
87
236
168
34
5
75
605
Of the above, audit-related services for the year totalled £497,000 (2011: £491,000).
Fees for audit-related assurance services include £75,000 for the audit of the Group’s regulatory returns and review of the
interim statement (2011: £71,000).
8
Head office relocation costs
Rathbones completed the move of its head office premises to 1 Curzon Street, London W1J 5FB, on 27 February 2012.
Charges of £300,000 relating to the move have been recognised during the year ended 31 December 2012 (2011: £3,028,000).
In addition to the above costs charged to profit or loss, a further £2,023,000 (2011: £4,815,000) of costs for fitting out the
new London premises have been capitalised during the year (note 18).
Rathbone Brothers Plc Report and accounts 2012
83
Notes to the consolidated financial statements continued
9
Staff costs
Wages and salaries
Social security costs
Share-based payments
Pension costs (note 26):
– defined benefit schemes
– defined contribution schemes
The average number of employees, on a full time equivalent basis, during the year was as follows:
investment management services
Investment Management:
–
– advisory services
Unit Trusts
Shared services
10
Income tax expense
Current tax:
– charge for the year
– adjustments in respect of prior years
Deferred tax (note 19):
– charge for the year
– adjustments in respect of prior years
2012
£’000
57,250
7,024
3,232
2,859
2,245
5,104
72,610
2012
483
67
30
209
789
2012
£’000
9,218
(378)
718
38
9,596
2011
£’000
52,554
6,090
2,604
1,484
1,771
3,255
64,503
2011
467
66
29
184
746
2011
£’000
9,766
(470)
1,219
(69)
10,446
The tax charge on profit for the year is higher (2011: higher) than the standard rate of corporation tax in the UK of 24.5%
(2011: 26.5%). The differences are explained below:
Tax on profit from ordinary activities at the standard rate of 24.5% (2011: 26.5%)
Effects of:
– disallowable expenses
share-based payments
–
tax on overseas earnings
–
– overprovision for tax in previous years
– other
Effect of change in corporation tax rate on deferred tax
2012
£’000
9,508
747
(146)
(258)
(340)
80
5
9,596
2011
£’000
10,373
513
(15)
81
(539)
(24)
57
10,446
84
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
11 Dividends
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2011 of 29.0p
–
(2010: 28.0p) per share
interim dividend for the year ended 31 December 2012 of 17.0p
(2011: 17.0p) per share
Dividends paid in the year of 46.0p (2011: 45.0p) per share
Proposed final dividend for the year ended 31 December
2012 of 30.0p (2011: final dividend of 29.0p) per share
2012
£’000
2011
£’000
12,640
7,434
20,074
12,123
7,368
19,491
13,786
12,633
An interim dividend of 17.0p per share was paid on 3 October 2012 to shareholders on the register at the close of business on
14 September 2012 (2011: 17.0p).
A final dividend declared of 30.0p per share is payable on 16 May 2013 to shareholders on the register at the close of
business on 26 April 2013. The final dividend is subject to approval by shareholders at the AGM on 14 May 2013 and has
not been included as a liability in these financial statements.
12
Earnings per share
Earnings used to calculate earnings per share on the bases reported in these financial statements were:
Underlying profit attributable to shareholders
Gains on disposal of financial securities (note 6)
Amortisation of client relationships (note 21)
Head office relocation costs (note 8)
2012
Pre-tax
£’000
45,137
–
(6,025)
(300)
2012
Taxation
£’000
(11,145)
–
1,476
73
2012
Post-tax
£’000
33,992
–
(4,549)
(227)
2011
Pre-tax
£’000
46,219
1,095
(5,134)
(3,028)
2011
Taxation
£’000
(12,318)
(290)
1,360
802
2011
Post-tax
£’000
33,901
805
(3,774)
(2,226)
Profit attributable to shareholders
38,812
(9,596)
29,216
39,152
(10,446)
28,706
Basic earnings per share has been calculated by dividing profit attributable to shareholders by the weighted average number of
shares in issue throughout the period of 43,604,542 (2011: 43,027,127).
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 period – basic
Effect of ordinary share options/Save As You Earn
Effect of dilutive shares issuable under the Share Incentive Plan
Effect of contingently issuable ordinary shares under the Long Term Incentive Plan
Diluted ordinary shares
Underlying earnings per share for the year attributable to equity holders of the Company:
– basic
– diluted
2012
43,604,542
122,257
5,589
258,180
43,990,568
2011
43,027,127
201,651
98,654
235,027
43,562,459
2012
2011
77.96p
77.27p
78.79p
77.82p
Rathbone Brothers Plc Report and accounts 2012
85
Notes to the consolidated financial statements continued
13 Cash and balances with central banks
Cash in hand
Balances with central banks
2012
£’000
3
116,000
116,003
2011
£’000
4
–
4
Balances with central banks are interest-bearing and repayable on demand. The fair value of balances with central banks is not
materially different to their carrying amount.
14
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
– 5 years or less but over 1 year
Amounts include loans with:
–
variable interest rates
– fixed interest rates
– non-interest-bearing
2012
£’000
52,614
51,060
65,902
219
169,795
52,831
116,637
327
169,795
2011
£’000
33,254
31,004
750
–
65,008
33,102
31,754
152
65,008
The fair value of loans and advances to banks 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 2012 were £62,611,000 (note 35) (2011:
£64,258,000).
The Group’s exposure to credit risk arising from loans and advances to banks is described in note 30.
15
Loans and advances to customers
Overdrafts
Investment management loan book
Trust and pension debtors
Other debtors
2012
£’000
2,939
65,067
884
2,821
71,711
2011
£’000
4,887
36,434
742
5,724
47,787
86
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
15 Loans and advances to customers continued
The fair value of loans and advances to customers 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. Debtors
arising from the trust and pensions businesses are non-interest-bearing.
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
– greater than 5 years
With no fixed maturity date
Less: allowance for losses on loans and advances (see below)
Amounts include loans with:
variable interest rates
–
– non-interest-bearing
2012
£’000
2,959
20,730
40,894
4,026
386
3,581
(865)
71,711
70,785
926
71,711
2011
£’000
7,844
11,443
25,342
–
–
3,268
(110)
47,787
46,550
1,237
47,787
Included within other debtors are loan notes (‘Notes’) that were issued by the acquirer of the Group’s Jersey trust operations in
2008. The Notes are unsecured and have no fixed maturity, being repayable on the occurrence of certain events, principally the
refinancing of the Jersey trust operations by its existing owner. The Notes are carried at amortised cost, less provision for
impairment.
In light of the prevailing economic conditions, at 31 December 2012, the Group revised their estimate of the likely timing of
repayment of the Notes, which reduced the estimated present value of future cash flows from the Notes due to the impact of
discounting. In accordance with IAS 36, the carrying value of the Notes was written down to £2,821,000 (being the estimated
present value of future cash flows), resulting in an impairment loss of £760,000 in the year.
At 31 December 2011, loans and advances to customers repayable within three months included a Swiss franc denominated
loan to the acquirer of the Group’s former Switzerland-based trust operations with a nominal value equivalent to £406,000.
The loan did not bear interest and the final instalment was repaid on 10 February 2012.
Allowance for losses on loans and advances to customers
At 1 January
Amounts written off
Amounts recovered
Charge to profit or loss
At 31 December
2012
Trust and
pension
debtors
£’000
110
(46)
–
41
105
2012
Other
debtors
£’000
–
–
–
760
760
2011
Trust and
pension
debtors
£’000
143
(32)
(6)
5
110
2012
Total
£’000
110
(46)
–
801
865
2011
Other
debtors
£’000
–
–
–
–
–
2011
Total
£’000
143
(32)
(6)
5
110
No banking loans and advances to customers were impaired as at 31 December 2012 (2011: none impaired).
The Group’s exposure to credit risk arising from loans and advances to customers is described in note 30.
Rathbone Brothers Plc Report and accounts 2012
87
Notes to the consolidated financial statements continued
16
Investment securities
Available for sale securities
Equity securities – at fair value:
–
listed
– unlisted
Money market funds – at fair value:
– unlisted
Held to maturity securities
Debt securities – at amortised cost:
– unlisted
Maturity of debt securities
Due within 1 year
Due after more than 1 year
2012
£’000
3,584
614
51,551
55,749
2012
£’000
559,025
559,025
2012
£’000
559,025
–
559,025
2011
£’000
2,384
569
65,610
68,563
2011
£’000
843,983
843,983
2011
£’000
833,983
10,000
843,983
Available for sale securities include money market funds and direct holdings in equity securities. Equity securities do not bear
interest. The Group continues to hold 300,000 shares in London Stock Exchange Group Plc. 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).
Debt securities comprise bank and building society certificates of deposit, which have fixed coupons, and in 2011 the Group
also held UK treasury bills.
The fair value of debt securities at 31 December 2012 was £561,768,000 (2011: £848,096,000). Fair value for held to
maturity assets is based on market bid prices.
The Group has not reclassified any financial asset between being measured ‘at amortised cost’ and being measured ‘at fair
value through profit or loss’ during the year (2011: none reclassified).
The change in the Group’s holdings of investment securities in the year is summarised below:
At 1 January 2011
Additions
Disposals (sales and redemption)
Loss from changes in fair value
At 1 January 2012
Additions
Disposals (sales and redemption)
Gain from changes in fair value
At 31 December 2012
Available
for sale
£’000
42,587
455,110
(429,000)
(134)
68,563
619,425
(633,162)
923
55,749
Held to
maturity
£’000
751,085
1,565,418
(1,472,520)
–
843,983
1,353,046
(1,638,004)
–
559,025
Total
£’000
793,672
2,020,528
(1,901,520)
(134)
912,546
1,972,471
(2,271,166)
923
614,774
Included within additions to available for sale securities is £91,000 (2011: £nil) of financial instruments that are not classified
as cash and cash equivalents.
88
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
17
Prepayments, accrued income and other assets
Trust work in progress
Derivative financial instruments (note 20)
Prepayments and other assets
Accrued income
2012
£’000
995
784
9,943
28,557
40,279
2011
£’000
961
–
8,952
28,500
38,413
Included within prepayments and other assets is an investment property which is carried at fair value. The Group’s interest in
the investment property was acquired on 1 June 2012 and was initially recognised in the balance sheet at cost of £733,000. As
at 31 December 2012, the fair value of the investment property was £752,000 (2011: £nil).
18
Property, plant and equipment
Cost
At 1 January 2011
Additions
Disposals
At 1 January 2012
Additions
Acquisitions through business combinations
Disposals
At 31 December 2012
Depreciation
At 1 January 2011
Charge for the year
Disposals
At 1 January 2012
Charge for the year
Disposals
At 31 December 2012
Carrying amount at 31 December 2012
Carrying amount at 31 December 2011
Carrying amount at 1 January 2011
Short term
leasehold
improvement
£’000
Plant and
equipment
£’000
7,807
5,189
–
12,996
1,719
–
(3,449)
11,266
4,329
906
–
5,235
1,013
(3,449)
2,799
8,467
7,761
3,478
11,772
1,736
(1,076)
12,432
2,316
8
(3,169)
11,587
9,107
1,478
(1,052)
9,533
1,707
(3,136)
8,104
3,483
2,899
2,665
Total
£’000
19,579
6,925
(1,076)
25,428
4,035
8
(6,618)
22,853
13,436
2,384
(1,052)
14,768
2,720
(6,585)
10,903
11,950
10,660
6,143
Short term leasehold improvements and plant and equipment include additions totalling £1,448,000 (2011: £4,483,000) and
£575,000 (2011: £332,000) respectively, in relation to the relocation of our head office to 1 Curzon Street, London W1J 5FB.
Rathbone Brothers Plc Report and accounts 2012
89
Notes to the consolidated financial statements continued
19 Net deferred tax asset
Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate
of 23.0% (2011: 25.0%).
The UK Government has proposed that the UK corporation tax rate be reduced to 21.0% over the next two years.
At 31 December 2012 only an element of this reduction, taking the UK tax rate to 23.0% in 2013, had been substantively
enacted. Consequently deferred tax assets and liabilities are calculated at 23.0%.
The movement on the deferred tax account is as follows:
As at 1 January 2011
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive income
in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Deferred
capital
allowances
£’000
Pensions
£’000
Share-based
payments
£’000
Staff-
related
costs
£’000
Other
provisions
£’000
Available
for sale
securities
£’000
Intangible
assets
£’000
Total
£’000
738
2,306
919
(527)
72
(820)
(214)
2,474
88
(73)
(55)
(40)
–
–
–
–
–
–
–
–
(1,758)
–
47
(1,711)
1,691
–
(214)
1,477
–
–
–
–
29
13
(58)
(16)
–
–
–
–
377
(106)
(32)
239
506
129
(3)
632
(71)
–
(1)
(72)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
59
94
–
–
–
–
44
–
13
57
(1,162)
69
(57)
(1,150)
–
–
–
–
–
–
–
–
1,726
–
(155)
1,571
377
(106)
(32)
239
(726)
(157)
3,134
As at 31 December 2011
698
2,072
1,142
105
Deferred tax assets
Deferred tax liabilities
As at 31 December 2011
Deferred
capital
allowances
£’000
698
–
698
Pensions
£’000
2,072
–
Share-based
payments
£’000
1,142
–
2,072
1,142
Staff-
related
costs
£’000
105
–
105
Other
provisions
£’000
–
–
–
Available
for sale
securities
£’000
–
(726)
(726)
Intangible
assets
£’000
–
(157)
(157)
Total
£’000
4,017
(883)
3,134
90
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
19 Net deferred tax asset continued
As at 1 January 2012
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive income
in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Deferred
capital
allowances
£’000
Pensions
£’000
Share-based
payments
£’000
Staff-
related
costs
£’000
Other
provisions
£’000
Available
for sale
securities
£’000
Intangible
assets
£’000
Total
£’000
698
2,072
1,142
105
126
(37)
(61)
(1,347)
–
163
28
(1,184)
–
–
–
–
–
–
–
–
(162)
–
(237)
(399)
–
–
–
–
372
–
(99)
273
–
–
–
–
157
(20)
(32)
105
116
(1)
(19)
96
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(726)
(157)
3,134
–
–
–
–
(226)
–
72
(154)
–
–
–
–
20
–
11
31
–
–
–
–
–
–
–
–
(713)
(38)
(5)
(756)
(388)
–
(165)
(553)
157
(20)
(32)
105
(880)
(126)
1,930
As at 31 December 2012
726
489
1,520
201
Deferred tax assets
Deferred tax liabilities
As at 31 December 2012
Deferred
capital
allowances
£’000
726
–
726
Pensions
£’000
Share-based
payments
£’000
489
–
489
1,520
–
1,520
Staff-
related
costs
£’000
201
–
201
Other
provisions
£’000
Available
for sale
securities
£’000
Intangible
assets
£’000
–
–
–
–
(880)
(880)
–
(126)
(126)
Total
£’000
2,936
(1,006)
1,930
The impact of calculating deferred tax at 21.0% would be to reduce the net deferred tax asset to £1,758,000 at 31 December 2012.
Rathbone Brothers Plc Report and accounts 2012
91
Notes to the consolidated financial statements continued
20
Investment in associates and related derivatives
On 5 October 2012, the Group purchased 19.9% of the ordinary share capital of Vision Independent Financial Planning
Limited and Castle Investment Solutions Limited, as well as certain options over the equity instruments of those companies,
for a total consideration of £2,000,000. The total consideration was constituted as follows:
Investment in associates
Fair value of associated derivative contracts (note 17)
Investment in associates
2012
£’000
1,216
784
2,000
2011
£’000
–
–
–
Although the Group holds less than 20% of the equity shares of both companies, it exercises significant influence by virtue of
its contractual right to appoint one director to the board of directors of both companies.
The movements in the Group’s investment in associates are as follows:
At 1 January
Additions
Share of profit
At 31 December
2012
£’000
–
1,216
21
1,237
2011
£’000
–
–
–
–
The results of the associates, and their aggregated assets and liabilities as at 31 December 2012, are as follows:
Name
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Country of incorporation
England and Wales
England and Wales
Group’s share of profit
Derivative financial instruments
Assets
£’000
Liabilities
£’000
Revenues
£’000
Profit
£’000
% interest
held
227
175
402
69
7
76
167
55
222
19.9
19.9
51
52
103
21
As part of the transaction to acquire these holdings, the Group has also entered into certain option contracts over the equity
instruments of these companies. Under these contracts the Group has the right to acquire the remaining 80.1% of the share
capital of both associates for a variable exercise price in the third quarter of 2015.
If the Group does not exercise its right to acquire the associates’ remaining share capital, the founders of the associates have
the right to re-purchase the Group’s stakes in the associates for £2,000,000 in the fourth quarter of 2015.
The Group also has the right to sell its entire holdings in the associates to the founders for consideration of £1 at any time
until 29 February 2016.
The option contracts were initially recognised at their fair value of £784,000. At 31 December 2012, the fair value of the
option contracts remained at £784,000. The fair value of the option contracts is calculated using a probability weighted
expected return model (note 30).
92
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
21
Intangible assets
Goodwill
Other intangible assets
Goodwill
2012
£’000
47,241
50,182
97,423
2011
£’000
47,241
45,603
92,844
The cost and carrying value of goodwill as at 31 December 2012 was £47,241,000 (2011: £47,241,000). No impairment was
recognised during the year.
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 has been allocated as follows:
Investment management
Trust and tax
2012
£’000
45,287
1,954
47,241
2011
£’000
45,287
1,954
47,241
The recoverable amounts of goodwill allocated to the CGUs are determined from value-in-use calculations. The Group
prepares cash flow forecasts derived from the most recent financial budgets approved by the Board, covering the forthcoming
year. The key assumptions underlying the budgets are that organic growth rates, revenue margins and profit margins will be
in line with recent historical rates and equity markets will be flat for the forthcoming year. Budgets are extrapolated for up to
10 years based on a medium to long term growth rate of 3% for the investment management CGU and 2% for the trust and
tax CGU based on the Group’s expectation of future industry growth rates. A 10 year extrapolation period is chosen based
on a prudent assessment by the Group of the likely duration of client relationships. The Group 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 pre-tax rate used to discount the forecast cash flows is 10% for investment management and 12% for trust and tax
(2011: 10% and 12% respectively), based on a risk-adjusted weighted average cost of capital. The Group judges that these
discount rates appropriately reflect the markets in which the CGUs operate and, in particular, the relatively small size of the
trust and tax CGU.
Sensitivity analysis of the key assumptions did not result in any scenarios which would have resulted in an impairment loss.
Rathbone Brothers Plc Report and accounts 2012
93
Notes to the consolidated financial statements continued
21
Intangible assets continued
Other intangible assets
Cost
At 1 January 2011
Internally developed in the year
Purchased in the year
Disposals
At 1 January 2012
Internally developed in the year
Purchased in the year
Acquired through business combinations
Disposals
At 31 December 2012
Amortisation
At 1 January 2011
Charge for the year
Disposals
At 1 January 2012
Charge for the year
Disposals
At 31 December 2012
Carrying amount at 31 December 2012
Carrying amount at 31 December 2011
Carrying amount at 1 January 2011
Client
relationships
£’000
Software
development
costs
£’000
49,713
–
5,692
(1,072)
54,333
–
7,873
2,154
(1,536)
62,824
8,725
5,134
(1,072)
12,787
6,025
(1,536)
17,276
45,548
41,546
40,988
2,520
340
–
–
2,860
345
–
–
–
3,205
1,780
357
–
2,137
401
–
2,538
667
723
740
Purchased
software
£’000
12,468
–
1,723
–
14,191
–
1,727
–
(959)
14,959
9,735
1,122
–
10,857
1,091
(956)
10,992
3,967
3,334
2,733
Total
£’000
64,701
340
7,415
(1,072)
71,384
345
9,600
2,154
(2,495)
80,988
20,240
6,613
(1,072)
25,781
7,517
(2,492)
30,806
50,182
45,603
44,461
Purchases of client relationships relate to payments made to investment managers and third parties for the introduction of
client relationships. Client relationships acquired through business combinations during the year relate to the acquisition
of R.M. Walkden & Co. Limited (note 33).
Client relationship intangibles in relation to the purchase of Taylor Young Investment Management Limited’s private client
base will not be recognised until 2013, when the Group starts to earn revenues on the funds under management transferred.
Purchased software with a cost of £8,964,000 (2011: £8,881,000) has been fully amortised but is still in use.
22 Deposits by banks
On 31 December 2012, deposits by banks included overnight cash book overdraft balances of £518,000 (2011: £513,000).
The fair value of deposits by banks was not materially different to their carrying value. Fair value has been calculated as the
discounted amount of estimated future cash flows expected to be paid using current market rates.
94
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
23 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
variable interest rates
Amounts include:
–
– fixed interest rates
– non-interest-bearing
2012
£’000
793,526
34,347
570
828,443
792,860
25,841
9,742
828,443
2011
£’000
866,427
41,879
350
908,656
862,285
40,437
5,934
908,656
The fair value of amounts due to customers was not materially different to their carrying value. The estimated fair value
of deposits with no stated maturity, which include 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.
24 Accruals, deferred income, provisions and other liabilities
Creditors
Accruals and deferred income
Other provisions (note 25)
25 Other provisions
At 1 January 2011
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the period
At 1 January 2012
Charged to profit or loss
Unused amount credited to profit or loss
Net (credit)/charge to profit or loss
Other movements
Utilised/paid during the period
At 31 December 2012
Payable within 1 year
Payable after 1 year
2012
£’000
19,135
24,660
11,209
55,004
Deferred, variable
costs to acquire client
relationship intangibles
£’000
Legal and
compensation
£’000
Property-related
and other
£’000
5,092
–
–
–
5,692
(3,988)
6,796
–
–
–
9,497
(6,126)
10,167
622
1,245
(10)
1,235
–
(191)
1,666
300
(598)
(298)
–
(1,152)
216
476
1,636
(406)
1,230
–
(159)
1,547
1,070
(482)
588
–
(1,309)
826
Deferred, variable
costs to acquire client
relationship intangibles
£’000
5,752
4,415
10,167
Legal and
compensation
£’000
Property-related
and other
£’000
216
–
216
40
786
826
2011
£’000
13,128
27,787
10,009
50,924
Total
£’000
6,190
2,881
(416)
2,465
5,692
(4,338)
10,009
1,370
(1,080)
290
9,497
(8,587)
11,209
Total
£’000
6,008
5,201
11,209
Rathbone Brothers Plc Report and accounts 2012
95
Notes to the consolidated financial statements continued
25 Other provisions continued
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction
of client relationships, which have been capitalised, and include £1,081,000 (2011: £nil) in relation to deferred consideration
payable following the acquisition of R.M. Walkden & Co. Limited (note 33).
During the ordinary course of business the Group may be subject to complaints as well as threatened and actual legal
proceedings (which may include lawsuits brought on behalf of clients or other third parties) both in the UK and overseas.
Any such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate,
to determine the likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than
not that a payment will be made, a provision is established to the Group’s best estimate of the amount required to settle the
obligation at the relevant balance sheet date. The timing of settlement of provisions for client compensation or litigation is
dependent, in part, on the duration of negotiations with third parties.
Property-related and other provisions include £797,000 in relation to dilapidation provisions expected to arise on leasehold
premises held by the Group (2011: £950,000). Dilapidation provisions are calculated using a discounted cash flow model;
during the year, the impact of discounting has increased the provisions by £51,000.
Provisions payable after one year are expected to be settled within two years of the balance sheet date, except for property-
related provisions of £786,000, which are expected to be settled within 24 years of the balance sheet date, which corresponds
to the longest lease for which a dilapidations provision is being held.
26
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
£2,223,000 (2011: £1,750,000). The Group also operates a defined contribution scheme for overseas employees, for which
the total contributions were £22,000 (2011: £21,000).
The Group operates two defined benefit pension schemes; the Rathbone 1987 Scheme and the Laurence Keen Scheme. The
schemes are currently both clients of Rathbone Investment Management, with investments managed on a discretionary basis,
in accordance with the statements of investment principles agreed by the trustees. Scheme assets are held separately from those
of the Group.
The trustees of the schemes are required to act in the best interest of the schemes’ beneficiaries. The appointment of trustees 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 schemes.
The Laurence Keen Scheme was closed to new entrants and future accrual with effect from 30 September 1999. Past service
benefits continue to be calculated by reference to final pensionable salaries. From 1 October 1999, 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.
The Group provides death in service benefits to all employees through the Rathbone 1987 Scheme. Third party insurance is
purchased for the benefits where possible and £614,000 of related insurance premiums were expensed to profit or loss in the
year (2011: £539,000). 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 at least every three years using the projected unit credit method, which
looks at the value of benefits accruing over the years following the valuation date, based on projected salary to the date of
termination of services, discounted to a present value using a rate that reflects the characteristics of the liability. The valuations
are updated at each balance sheet date in between full valuations. The latest full actuarial valuations were carried out as at
the following dates:
Rathbone 1987 Scheme
Laurence Keen Scheme
31 December 2010
31 December 2010
96
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
26 Long term employee benefits continued
The assumptions used by the actuaries, to estimate the schemes’ liabilities, are the best estimates chosen from a range of
possible actuarial assumptions. Due to the timescale covered by the liability, these assumptions may not necessarily be borne
out in practice. The principal actuarial assumptions used, which reflect the different membership profiles of the schemes, were:
2012
Laurence Keen
Scheme %
2011
Laurence Keen
Scheme %
2012
Rathbone 1987
Scheme %
2011
Rathbone 1987
Scheme %
Rate of increase in salaries
Rate of increase of pensions in payment
Rate of increase of deferred pensions
Discount rate
Expected return on scheme assets
Inflation*
* Inflation assumptions are based on the Retail Prices Index
4.00
3.40
3.00
4.50
4.50
3.00
4.10
3.40
3.10
4.70
4.60
3.10
4.00
3.00
3.00
4.50
4.80
3.00
4.10
3.10
3.10
4.70
5.00
3.10
The assumed duration of the liabilities for the Laurence Keen Scheme is 18 years (2011: 18 years) and the assumed duration
for the Rathbone 1987 Scheme is 24 years (2011: 24 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.
The normal retirement age for members of the Laurence Keen Scheme is 65 (60 for certain former directors). The normal
retirement age for members of the Rathbone 1987 Scheme is 60 for service prior to 1 July 2009 and 65 thereafter, following
the introduction of pension benefits based on Career Average Revalued Earnings (CARE) from that date. The assumed life
expectancy for the membership of both schemes is based on the S1NA actuarial tables. The assumed life expectations on
retirement were:
Retiring today:
Retiring in 20 years:
– aged 60
– aged 65
– aged 60
– aged 65
2012
Males
28.8
24.0
31.3
26.3
2012
Females
30.9
26.0
33.0
28.0
2011
Males
28.7
23.8
31.2
26.1
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
2012
Laurence
Keen
Scheme
£’000
2012
Rathbone
1987 Scheme
£’000
2012
Total
£’000
(14,077)
14,492
(114,740)
112,195
(128,817)
126,687
2011
Laurence
Keen
Scheme
£’000
2011
Rathbone
1987 Scheme
£’000
(13,421)
12,902
(103,113)
96,292
(116,534)
109,194
Total surplus/(deficit)
415
(2,545)
(2,130)
(519)
(6,821)
(7,340)
The amounts recognised in profit or loss, within operating expenses, are as follows:
Current service cost
Interest cost
Expected return on scheme assets
2012
Laurence
Keen
Scheme
£’000
2012
Rathbone
1987 Scheme
£’000
–
622
(603)
2,950
4,915
(5,025)
2012
Total
£’000
2,950
5,537
(5,628)
2011
Laurence
Keen
Scheme
£’000
2011
Rathbone
1987 Scheme
£’000
–
642
(718)
2,479
4,843
(5,762)
2011
Total
£’000
2,479
5,485
(6,480)
19
2,840
2,859
(76)
1,560
1,484
Actuarial gains and losses have been reported in other comprehensive income. The actual return on scheme assets was a rise in
value of £1,185,000 (2011: £500,000 rise) for the Laurence Keen Scheme and a rise in value of £9,294,000 (2011: £8,844,000
rise) for the Rathbone 1987 Scheme.
Rathbone Brothers Plc Report and accounts 2012
97
2011
Females
30.8
25.9
32.9
27.9
2011
Total
£’000
Notes to the consolidated financial statements continued
26 Long term employee benefits continued
The cumulative actuarial gains and losses reported in other comprehensive income since the adoption of IFRS is as follows:
At 1 January
Net actuarial gains/(losses) recognised in the year
2012
Laurence
Keen
Scheme
£’000
2012
Rathbone
1987 Scheme
£’000
2012
Total
£’000
(1,733)
180
(15,609)
480
(17,342)
660
2011
Laurence
Keen
Scheme
£’000
(472)
(1,261)
2011
Rathbone
1987 Scheme
£’000
2011
Total
£’000
(10,487)
(5,122)
(10,959)
(6,383)
At 31 December
(1,553)
(15,129)
(16,682)
(1,733)
(15,609)
(17,342)
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Service cost (employer’s part)
Interest cost
Contributions from members
Actuarial loss
Benefits paid
At 31 December
2012
Laurence
Keen
Scheme
£’000
13,421
–
622
–
402
(368)
2012
Rathbone
1987 Scheme
£’000
103,113
2,950
4,915
1,321
3,789
(1,348)
2012
Total
£’000
116,534
2,950
5,537
1,321
4,191
(1,716)
2011
Laurence
Keen
Scheme
£’000
12,041
–
642
–
1,043
(305)
2011
Rathbone
1987 Scheme
£’000
89,312
2,479
4,843
1,283
8,204
(3,008)
2011
Total
£’000
101,353
2,479
5,485
1,283
9,247
(3,313)
14,077
114,740
128,817
13,421
103,113
116,534
Movements in the fair value of scheme assets were as follows:
At 1 January
Expected return on scheme assets
Actuarial gain
Contributions from the sponsoring companies
Contributions from scheme members
Benefits paid
2012
Laurence
Keen
Scheme
£’000
12,902
603
582
773
–
(368)
2012
Rathbone
1987 Scheme
£’000
96,292
5,025
4,269
6,636
1,321
(1,348)
2012
Total
£’000
109,194
5,628
4,851
7,409
1,321
(1,716)
2011
Laurence
Keen
Scheme
£’000
11,951
718
(218)
756
–
(305)
2011
Rathbone
1987 Scheme
£’000
82,759
5,762
3,082
6,414
1,283
(3,008)
2011
Total
£’000
94,710
6,480
2,864
7,170
1,283
(3,313)
At 31 December
14,492
112,195
126,687
12,902
96,292
109,194
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
At 31 December
Rathbone 1987 Scheme
Equity instruments
Debt instruments
Interest rate swap funds
Cash
At 31 December
31/12/12
Expected
return
%
31/12/11
Expected
return
%
5.95
3.19
0.50
6.05
3.40
0.50
2012
Fair
value
£’000
7,246
6,991
255
2011
Fair
value
£’000
6,198
6,208
496
2012
Current
allocation
%
2011
Current
allocation
%
50
48
2
48
48
4
14,492
12,902
31/12/12
Expected
return
%
31/12/11
Expected
return
%
5.95
3.12
2.70
0.50
6.05
3.25
2.80
0.50
2012
Fair
value
£’000
70,787
31,551
6,636
3,221
2011
Fair
value
£’000
2012
Current
allocation
%
2011
Current
allocation
%
63,504
21,791
8,707
2,290
63
28
6
3
66
23
9
2
112,195
96,292
98
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
26 Long term employee benefits continued
At 31 December 2012 the Rathbone 1987 Scheme held 291 shares (2011: 335) with a nominal value of £6,828,000 (2011:
£8,417,000) in an interest rate swap fund. During the year, the trustees switched the fund’s holdings into inflation-linked
interest rate swaps. The swaps are long-dated and their duration is intended to broadly align with the duration of the
scheme’s liabilities.
The expected return on equities is assumed to be 3.25% above the return on long-dated gilts (2011: 3.25% above). The
expected rate of return on debt instruments is based on long term yields at the start of the year. Cash has been assumed to
generate a similar return to the Bank of England base rate.
The statements of investment principles set by the trustees require that the assets of the schemes are invested in a balanced
portfolio in the following asset classes and proportions:
UK equities
Overseas equities
Fixed interest stocks
Cash deposits
Laurence Keen
Scheme
35% – 55%
0% – 20%
45% – 65%*
45% – 65%*
Rathbone 1987 Scheme
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 80% 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 the total portfolio can be invested in hedge
funds. The trustees have initiated a programme of reducing the equity exposure of the portfolio over the next 10 years as the
scheme matures by switching a proportion of the scheme’s assets into fixed income and index-linked securities on the
occurrence of a series of time-based and/or market-based trigger events. At 31 December 2012, £19,657,000 (2011:
£17,277,000) of the scheme’s assets had been switched under the programme.
In the Laurence Keen Scheme, not more than 55% of the assets may be held in equities. A maximum of 15% of UK equities
may be invested in companies outside the FTSE 350 and not more than 15% of the assets may be held in alternative assets.
The sensitivities regarding the principal assumptions used to measure the total of the two schemes’ liabilities are set out below:
0.5% increase in:
– discount rate
–
–
1 year increase to longevity at 60
rate of inflation
rate of salary growth
The history of experience adjustments is as follows:
Laurence Keen Scheme
Present value of defined benefit obligations
Fair value of scheme assets
Surplus/(deficit) in the scheme
Experience adjustments on scheme liabilities:
– amount
– percentage of scheme liabilities
Experience adjustments on scheme assets:
– amount
– percentage of scheme assets
Combined impact on schemes’ liabilities
(Decrease)/increase
£’000
(Decrease)/increase
%
(14,813)
10,390
4,504
3,740
2012
£’000
2011
£’000
2010
£’000
2009
£’000
(14,077)
14,492
(13,421)
12,902
(12,041)
11,951
(11,086)
10,299
(11.5)
8.1
3.5
2.9
2008
£’000
(9,750)
8,760
415
(519)
(90)
(787)
(990)
–
–
582
4%
474
4%
(218)
(2%)
–
–
575
5%
395
4%
940
9%
(248)
(3%)
(1,715)
(20%)
Rathbone Brothers Plc Report and accounts 2012
99
Notes to the consolidated financial statements continued
26 Long term employee benefits continued
Rathbone 1987 Scheme
Present value of defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
Experience adjustments on scheme liabilities:
– amount
– percentage of scheme liabilities
Experience adjustments on scheme assets:
– amount
– percentage of scheme assets
2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
(114,740)
112,195
(103,113)
96,292
(89,312)
82,759
(75,581)
66,955
(55,284)
50,551
(2,545)
(6,821)
(6,553)
(8,626)
(4,733)
–
–
4,338
4%
(635)
(1%)
305
–
2,937
5%
4,269
4%
3,082
3%
4,099
5%
6,314
9%
(10,677)
(21%)
The total regular contributions made by the Group to the Rathbone 1987 Scheme during the year were £3,762,000 (2011:
£3,664,000) based on 22.6% of pensionable salaries (2011: 22.6%). Additional lump sum contributions of £2,874,000 were
paid in 2012 (2011: £2,750,000). From 2013, the Group’s regular contributions will fall to 14.8% of pensionable salaries and
the Group has committed to make additional annual contributions to the scheme of £1,750,000 in 2013 and £2,750,000 per
annum thereafter until 30 June 2017. With effect from 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 £756,000 (2011: £756,000).
Additional lump sum contributions of £17,000 were paid in 2012 (2011: £nil). Annual contributions of £756,000 will
continue to be made to the Laurence Keen Scheme until April 2013. Thereafter, annual contributions of £336,000 will be
made until December 2017. 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.
27
Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2011
Shares issued:
–
–
– on exercise of options
to Share Incentive Plan
to Save As You Earn scheme
At 1 January 2012
Shares issued:
– on placing
–
–
– on exercise of options
to Share Incentive Plan
to Save As You Earn scheme
At 31 December 2012
Number of shares
43,376,790
147,229
1,288
35,833
43,561,140
2,000,000
204,079
1,160
187,692
45,954,071
Exercise/
issue price
pence
Share
capital
£’000
Share
premium
£’000
Total
£’000
2,169
32,488
34,657
890.0 – 1,117.0
696.0
415.0 – 852.0
7
–
2
1,451
9
268
1,458
9
270
1,235.0
1,150.0 – 1,351.0
696.0
415.0 – 1,172.0
2,178
34,216
36,394
100
10
–
10
23,856
2,564
8
1,516
23,956
2,574
8
1,526
2,298
62,160
64,458
The total number of issued and fully paid up ordinary shares at 31 December 2012 was 45,954,071 (2011: 43,561,140) with
a par value of 5p per share.
The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote
per share at meetings of the Company. The ordinary shareholders are entitled to any residual assets on the winding up of
the Company.
On 6 November 2012, the Company issued two million ordinary shares by way of a placing for cash consideration which
raised £23,956,000, net of £744,000 transaction costs.
100
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
28 Own shares
The following movements in own shares occurred during the year:
At 1 January 2011
Acquired in the year
Released on vesting
At 1 January 2012
Acquired in the year
Released on vesting
At 31 December 2012
Number of
shares
310,285
285,728
(120,559)
475,454
126,764
(71,371)
530,847
£’000
2,899
2,955
(1,125)
4,729
1,630
(515)
5,844
Own shares represent the cost of the Company’s own shares, either purchased in the market or issued by the Company, that
are held by the Company or in an employee benefit trust to satisfy future awards under the Group’s share-based payment
schemes (note 29). The number of own shares held as treasury shares by the Company at 31 December 2012 was 50,000
(2011: 50,000). In addition, 106,604 shares were held in the Employee Benefit Trust at 31 December 2012 (2011: 106,604)
and a further 374,243 (2011: 318,850) shares were held by the trustees of the Share Incentive Plan but are not yet
unconditionally gifted to employees.
29
Share-based payments
Share 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 partnership shares which are purchased or allotted 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 dividend shares (up to £1,500 in any tax year), whilst
for Jersey employees dividends are paid in cash.
As at 31 December 2012, the trustees of the SIP held 1,428,214 (2011: 1,394,076) ordinary shares of 5p each in Rathbone
Brothers Plc with a total market value of £18,553,000 (2011: £14,777,000). No dividends on these shares have been waived.
Of the total number of shares held by the trustees, 366,596 (2011: 310,426) have been conditionally gifted to employees and
7,647 (2011: 8,424) remain unallocated.
Long Term Incentive Plan
Details of the general terms of this plan are set out in the remuneration report on page 56. The total shareholder return-based
performance criteria have been treated as market-based vesting conditions.
Historically, the Group has settled substantially all of the LTIP awards in cash as an alternative to shares. As a consequence of
this, the Group treats awards under the LTIP as cash-settled rather than equity-settled. At the year end, a liability of
£2,278,000 (2011: £1,175,000) has been recognised for the estimated fair value of future awards.
At 31 December 2012, the trustees held 106,604 (2011: 106,604) ordinary shares of 5p each in Rathbone Brothers Plc with
a total market value of £1,385,000 (2011: £1,130,000). Dividends on these shares have been waived by the trustees.
Executive profit share
Details of the terms of the executive profit share scheme are set out in the remuneration report on page 55. Shares for plan
awards, all of which are yet to vest, will be provided by market purchase or treasury shares.
Rathbone Brothers Plc Report and accounts 2012
101
Notes to the consolidated financial statements continued
29 Share-based payments continued
Savings-related share option or Save As You Earn (SAYE) plan
Under the SAYE plan, employees can contribute up to £250 per month to acquire shares at the end of a three or five year
savings period. Further information on the scheme is given in the remuneration report on pages 57 to 58.
Options with an aggregate estimated fair value of £180,000, determined using a binomial valuation model including expected
dividends, were granted on 29 March 2012 to directors and staff under the SAYE plan. The inputs into the binomial model for
options granted during 2012, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2012
1,276
984
33%
0.6%
3.7%
2011
1,196
934
32%
2.4%
3.7%
The number of share options outstanding for the SAYE plan at the end of the year, the period in which they were granted and
the date on which they may be exercised are given below:
Year of grant
2009
2011
2012
At 31 December
Share option scheme
Exercise
price
pence
696.0
934.0
984.0
Exercise
period
2012
Number
of share
options
2011
Number
of share
options
2013
2014 and 2016
2015 and 2017
174,253
50,332
52,549
179,151
54,053
–
277,134
233,204
Under the share option scheme approved by shareholders in 2000, certain employees hold options to subscribe for shares in
the Company at prices ranging from 743.5p to 1,172p. 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 they become exercisable. The Group has no legal or constructive obligation to repurchase or settle
the options in cash.
The number of share options outstanding for the share option scheme at the end of the year, the periods in which they were
granted and the periods in which they may be exercised, dependent on certain earnings per share targets being met, are
given below:
Year of grant
2002
2003
2004
2005
2006*
2006*
At 31 December
Exercise
price
pence
810.0
415.0
743.5
852.0
1,172.0
1,116.0
Exercise
period
2005 – 2012
2006 – 2013
2007 – 2014
2008 – 2015
2009 – 2016
2009 – 2016
2012
Number
of share
options
–
–
13,440
44,309
12,341
10,000
2011
Number
of share
options
64,851
1,500
59,698
116,187
–
–
80,090
242,236
* In 2012, the Group decided to exclude the impact of the loss on the disposal of the Jersey operations, recognised in 2008, from the earnings per share growth criteria
calculation. This exclusion rendered the options exercisable in 2012.
102
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
29 Share-based payments continued
Movements in the number of share options outstanding for both the SAYE plan and the share option scheme were as follows:
At 1 January
Granted in the year
Forfeited in the year
Exercised in the year
Other*
At 31 December
* See footnote to the table above.
2012
Number
of share
options
475,440
53,089
(9,533)
(188,852)
27,080
357,224
2012
Weighted average
exercise price
pence
782.0
984.0
882.0
812.0
1,151.0
821.0
2011
Number
of share
options
648,807
54,964
(35,833)
(192,498)
–
475,440
2011
Weighted average
exercise price
pence
802.0
934.0
753.0
900.0
–
782.0
The weighted average share price at the dates of exercise for share options exercised during the year was £12.60 (2011:
£11.91). The options outstanding at 31 December 2012 had a weighted average contractual life of 1.7 years (2011: 2.1 years).
Options exercisable at 31 December 2012 had a weighted average exercise price of £8.21 (2011: £7.82).
The Group recognised total expenses of £3,232,000 in relation to share-based payment transactions in 2012 (2011:
£2,604,000).
30
Financial risk management
The Group has identified the financial, business and operational 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 risk committee report on
pages 27 to 31.
The Group categorises its financial risks into the following primary areas:
(i)
credit risk (which includes counterparty default risk);
(ii)
liquidity risk;
(iii)
market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price
risk); and
(iv)
pension risk.
The Group’s exposures to pension risk are set out in note 26.
The Group’s financial risk management policies are designed to identify and analyse the financial risks that the Group faces, to
set appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means of
reliable and up-to-date information systems. The Group regularly reviews its financial risk management policies and systems to
reflect changes in the business, counterparties, markets and the range of financial instruments that it utilises.
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 prescribe 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.
Rathbone Brothers Plc Report and accounts 2012
103
Notes to the consolidated financial statements continued
30 Financial risk management continued
Eurozone credit crisis
Following the escalation of the eurozone credit crisis in 2011, the second half of 2012 saw concerted action within Europe to
address the crisis. This reduced volatility in the credit markets towards the end of the year.
The banking committee has continued to be vigilant during the year in assessing the risks of exposure to the eurozone and the
exposures that had been placed with Spanish and Italian counterparties was reduced to zero in the first half of 2012.
In response to the ongoing issues within the eurozone, the analysis of geographical concentration of credit exposures has been
amended to show separately the total exposure to counterparties based in the UK, the eurozone and the rest of the world.
Comparatives have been re-presented accordingly.
The Group’s treasury portfolio remains well diversified and includes £276,500,000 of certificates of deposit and holdings in
money market funds issued or managed by a number of banks based in the eurozone (2011: £444,500,000). At 31 December
2012, the Group had no direct exposure to eurozone sovereign entities (2011: none). The controls around the treasury
portfolio are set out below.
(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 in the money market and holding interest-bearing securities. The Group also has exposure to credit risk through its loan
book, guarantees given on clients’ behalf and loans made to the acquirers of the Group’s Jersey operations in 2008 (note 15).
It is the Group’s policy to place funds generated internally and from deposits by clients with a range of high-quality financial
institutions, including the Bank of England. 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.
The Group’s financial assets are categorised as follows:
Cash and balances with central banks
The Group has exposure to central banks through its deposits held with the Bank of England.
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 Trusts businesses have exposure to market counterparties in the settlement of trades.
Settlement balances arising in the Investment Management segment are primarily in relation to client trades and risk of
non-settlement is borne by clients.
104
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
(i) Credit risk continued
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 and money market funds. These exposures principally arise from the placement of clients’ cash, where it
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 by the
treasury department and reviewed by the banking committee on a monthly basis, or more frequently when necessary. 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).
The Group is also exposed to credit risk on trade debtors arising from the trust, 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 a client’s behalf. Overdrafts are actively monitored and reported to the banking
committee on a monthly basis.
(b) Investment management loan book
Loans 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. Extensions to the initial loan period may be granted subject to credit criteria.
The banking committee reviews all loans on a monthly basis and approves all loan extensions. Where possible, repayment
plans are established with clients before loans become overdue or uncovered.
At 31 December 2012, the total lending exposure limit for the investment management loan book was £85,000,000 (2011:
£60,000,000), of which £65,067,000 had been advanced (2011: £36,434,000) and a further £3,002,000 had been
committed (2011: £6,925,000).
(c) 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.
(d) Other debtors
Other loans and advances to customers are principally constituted by loans made to the acquirers of the Group’s Jersey
trust operations in 2008 (note 15). Such debts do not usually arise within the course of the Group’s day to day operations
and therefore they are not subject to formalised standard lending criteria.
Derivative financial instruments
At 31 December 2012, the only derivative financial instruments held by the Group were the option contracts over shares in the
Group’s associates (note 20). These options expose the Group to credit risk from the potential for non-delivery by the associate
companies’ founders, who are private individuals.
Rathbone Brothers Plc Report and accounts 2012
105
Notes to the consolidated financial statements continued
30 Financial risk management continued
(i) Credit risk continued
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 the 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 and other debtors, are set out in note 15.
Maximum exposure to credit risk
investment management loan book
trust and pension debtors
Credit risk relating to on-balance sheet exposures:
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
–
–
– other debtors
Debt securities:
– unlisted debt securities and money market funds
Derivative financial instruments
Other financial assets
Credit risk relating to off-balance sheet exposures:
Loan commitments
Financial guarantees
2012
£’000
116,000
12,606
169,795
2,939
65,067
989
5,000
610,576
784
31,140
3,002
578
2011
£’000
–
13,443
65,008
4,887
36,434
852
7,463
909,593
–
31,155
6,925
578
1,018,476
1,076,338
The above table represents the gross credit risk exposure to the Group at 31 December 2012 and 2011, 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 gross carrying amounts.
23.9% of the total maximum exposure is derived from loans and advances to banks and customers (2011: 10.7%) and 59.9%
represents investments in debt securities (2011: 84.5%).
Cash and balances with central banks
All cash and balances with central banks were neither past due nor impaired. The credit quality of these balances 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.
AAA
Settlement balances
Settlement balances are summarised as follows:
Neither past due nor impaired
Past due but not impaired < 90 days
Past due but not impaired > 90 days
Carrying value
2012
£’000
116,000
2012
£’000
9,424
3,166
16
12,606
2011
£’000
–
2011
£’000
11,812
1,615
16
13,443
106
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
(i) Credit risk continued
Loans and advances
Loans and advances are summarised as follows:
Neither past due nor impaired
Past due but not impaired
Impaired (see (c) below)
Gross carrying value
Less: allowance for impairment (note 15)
Net carrying value
2012
Loans and
advances
to banks
£’000
169,795
–
–
169,795
–
169,795
2012
Loans and
advances
to customers
£’000
68,409
471
3,696
72,576
(865)
71,711
2011
Loans and
advances
to banks
£’000
65,008
–
–
65,008
–
65,008
2011
Loans and
advances
to customers
£’000
47,255
504
138
47,897
(110)
47,787
No loans and advances have been renegotiated (2011: none).
(a) Neither past due nor impaired
The credit quality of loans and advances to banks that were neither past due nor impaired at 31 December 2012 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*
* Cash held within the Employee Benefit Trust
2012
£’000
41,590
127,803
402
169,795
2011
£’000
21,007
44,001
–
65,008
The credit quality of loans and advances to customers that were neither past due nor impaired at 31 December 2012,
which are all externally unrated, is analysed below between those loans that are subject to standard lending criteria, which
are described on page 105, and, where applicable, those loans for which there are no standard lending criteria. All loans
initially made subject to standard lending criteria remained within those criteria at 31 December 2012 (2011: all loans).
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 up to 30 days is expected.
At 31 December 2012
Standard lending criteria
At 31 December 2011
Standard lending criteria
Not subject to standard lending criteria
Investment
management
loan book
£’000
Trust and
pension
debtors
£’000
Overdrafts
£’000
2,939
65,067
2,939
65,067
403
403
Investment
management
loan book
£’000
Trust and
pension
debtors
£’000
Overdrafts
£’000
Total
loans and
advances to
customers
£’000
68,409
68,409
Total
loans and
advances to
customers
£’000
Other
debtors
£’000
–
–
Other
debtors
£’000
4,887
36,434
–
–
4,887
36,434
210
–
210
–
41,531
5,724
5,724
5,724
47,255
Rathbone Brothers Plc Report and accounts 2012
107
Notes to the consolidated financial statements continued
30 Financial risk management continued
(i) Credit risk continued
(b) Past due but not impaired
Loans and advances that are past due are assessed for impairment and provided against where objective evidence of
impairment exists. Trust and pension debtors may be outstanding for some time before collection, but this is not
necessarily an indication that the debt will not ultimately be collected. At 31 December 2012 and 2011, no overdrafts,
loans and other debtors were past due but not impaired. The gross amounts of trust and pension debtors that were past
due but not impaired were:
At 31 December
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
(c) Impaired
Allowance has been made for individually impaired loans and advances to customers, as set out below:
Movement in impairment provision during the year
At 1 January 2012
Amounts written off
Charge to profit or loss
At 31 December 2012
Gross carrying value of impaired loans and advances to customers
As at 31 December 2012
As at 31 December 2011
Investment
management
loan book
£’000
Trust and
pension
debtors
£’000
Overdrafts
£’000
–
–
–
–
–
–
–
–
–
–
–
–
110
(46)
41
105
115
138
2012
£’000
156
181
43
53
38
471
2011
£’000
162
202
52
59
29
504
Total
loans and
advances to
customers
£’000
110
(46)
801
865
Other
debtors
£’000
–
–
760
760
3,581
3,696
–
138
There were no other impaired credit exposures at 31 December 2012 (2011: £nil).
During the year, an impairment of £760,000 has been recognised on the loan notes issued by the vendor of the Jersey trust
business due to a change in the expected timing of repayment, as discussed in note 15.
Debt securities
The table below presents an analysis of debt securities by rating agency designation, as at 31 December 2012, based on Fitch
or Moody’s long term rating designation.
AAA
AA+ to AA-
A+ to A-
2012
Government
securities
£’000
–
–
–
–
2012
Money
market
funds
£’000
51,551
–
–
2012
Certificates
of deposit
£’000
–
149,025
410,000
2012
Total
£’000
2011
Government
securities
£’000
2011
Money
market
funds
£’000
51,551
149,025
410,000
86,983
–
–
65,610
–
–
2011
Certificates
of deposit
£’000
–
258,000
499,000
2011
Total
£’000
152,593
258,000
499,000
51,551
559,025
610,576
86,983
65,610
757,000
909,593
108
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
(i) Credit risk continued
Concentration of credit risk
The Group has counterparty credit 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.
(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 2012
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
–
–
– other debtors
Debt securities:
– unlisted debt securities and money market funds
Derivative financial instruments
Other financial assets
investment management loan book
trust and pension debtors
At 31 December 2011 (re-presented)
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
–
–
– other debtors
Debt securities:
– unlisted debt securities and money market funds
Other financial assets
investment management loan book
trust and pension debtors
United
Kingdom
£’000
116,000
11,704
169,795
2,471
62,890
884
–
Eurozone
£’000
Rest of
the World
£’000
Total
£’000
–
20
–
37
487
–
–
–
882
–
116,000
12,606
169,795
431
1,690
–
2,821
2,939
65,067
884
2,821
199,076
784
28,512
276,500
–
1,577
135,000
–
1,013
610,576
784
31,102
592,116
278,621
141,837 1,012,574
United
Kingdom
£’000
12,479
65,008
4,310
34,758
742
2,050
Eurozone
£’000
Rest of
the World
£’000
Total
£’000
162
–
21
556
–
–
802
–
13,443
65,008
556
1,120
–
3,674
4,887
36,434
742
5,724
317,093
28,800
444,500
1,764
148,000
591
909,593
31,155
465,240
447,003
154,743 1,066,986
Materially all eurozone exposures at 31 December 2012 were to counterparties based in the Netherlands, France, Finland,
Germany and Ireland.
As described on page 104, the comparative figures in the above table have been re-presented to group separately exposures
to counterparties based in the eurozone.
Rathbone Brothers Plc Report and accounts 2012
109
Notes to the consolidated financial statements continued
30 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 2012
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
–
–
– other debtors
Debt securities:
– unlisted debt securities and money market funds
Derivative financial instruments
Other financial assets
investment management loan book
trust and pension debtors
At 31 December 2011
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
–
–
– other debtors
Debt securities:
– unlisted debt securities and money market funds
Other financial assets
investment management loan book
trust and pension debtors
Public
sector
£’000
Financial
institutions
£’000
Clients
and other
corporates
£’000
Total
£’000
116,000
–
–
–
12,606
169,795
–
–
–
116,000
12,606
169,795
–
–
–
–
–
–
–
–
–
–
–
2,939
65,067
884
2,821
2,939
65,067
884
2,821
610,576
–
2,894
–
784
28,208
610,576
784
31,102
116,000
795,871
100,703
1,012,574
Public
sector
£’000
–
–
–
–
–
–
Financial
institutions
£’000
13,443
65,008
Clients
and other
corporates
£’000
Total
£’000
–
–
13,443
65,008
–
–
–
–
4,887
36,434
742
5,724
4,887
36,434
742
5,724
86,983
–
822,610
5,580
–
25,575
909,593
31,155
86,983
906,641
73,362 1,066,986
(ii)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that
are settled by delivering cash or another financial asset.
The primary objective of the Group’s treasury policy is to manage short to medium term liquidity requirements. In addition to
setting the treasury policy, Rathbone Investment Management (‘the Bank’) performs an annual assessment of liquidity
adequacy in accordance with the regulatory requirements of the FSA (our ‘Individual Liquidity Adequacy Assessment’). The
Bank faces two principal risks, namely that a significant proportion of client funds are withdrawn over a short period of time
(retail funding risk) and the risk that marketable assets may not be capable of being realised in the time and at the value
required (marketable assets risk).
Retail funding risks are monitored by daily cash mismatch analyses and Basel Committee ratios using expected cash and asset
maturity profiles and regular forecasting work. This is supported by stress tests which cover firm-specific idiosyncratic
scenarios and/or the effects of unforeseen market wide stresses. Marketable assets risk is primarily managed by holding cash
and marketable instruments that are realisable at short notice. The Group operates strict criteria to ensure that investments are
liquid and placed with high-quality counterparties. A minimum liquid assets buffer (to be held in eligible liquid assets) is set by
the Board at least annually in addition to an amount being prescribed by the FSA.
The Group does not rely on external funding to finance its activities.
110
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
(ii) Liquidity risk continued
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the Group under non-derivative financial
assets and liabilities analysed by the remaining contractual maturities at the balance sheet date.
At 31 December 2012
Cash flows arising from financial assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities and money market funds
Other financial assets
On
demand
£’000
Not more
than
3 months
£’000
116,003
–
52,614
2,959
49,074
940
45
12,606
51,307
20,730
306,031
26,805
After 3
months
but not
more than
1 year
£’000
–
–
66,269
41,664
257,010
300
After 1
year but
not more
than
5 years
£’000
–
–
219
4,166
–
237
Cash flows arising from financial assets
221,590
417,524
365,243
4,622
After 5
years
£’000
No fixed
maturity
date
£’000
Total
£’000
–
–
–
386
–
7
393
–
–
–
5,255
–
–
116,048
12,606
170,409
75,160
612,115
28,289
5,255 1,014,627
Cash flows arising from financial liabilities
Deposits by banks
Settlement balances
Due to customers
Other financial liabilities
518
–
793,527
1,651
–
18,592
34,363
21,938
–
–
573
5,464
–
–
–
14,558
–
–
–
1,883
Cash flows arising from financial liabilities
795,696
74,893
6,037
14,558
1,883
–
–
–
–
–
518
18,592
828,463
45,494
893,067
Net liquidity gap
(574,106)
342,631
359,206
(9,936)
(1,490)
5,255
121,560
Cumulative net liquidity gap
(574,106)
(231,475)
127,731
117,795
116,305
121,560
At 31 December 2011
Cash flows arising from financial assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
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
After
5 years
£’000
4
–
33,254
4,944
65,653
825
–
13,443
31,078
12,244
484,863
26,056
–
–
771
27,865
355,457
9
–
–
–
–
10,602
50
Cash flows arising from financial assets
104,680
567,684
384,102
10,652
Cash flows arising from financial liabilities
Deposits by banks
Settlement balances
Due to customers
Other financial liabilities
513
–
866,431
969
–
22,196
41,897
27,109
–
–
351
94
–
–
–
10,119
Cash flows arising from financial liabilities
867,913
91,202
445
10,119
Net liquidity gap
(763,233)
476,482
383,657
533
No fixed
maturity
date
£’000
–
–
–
5,203
–
–
Total
£’000
4
13,443
65,103
50,256
916,575
26,940
5,203 1,072,321
–
–
–
–
–
513
22,196
908,679
38,291
969,679
5,203
102,642
–
–
–
–
–
–
–
–
–
–
–
–
–
Cumulative net liquidity gap
(763,233)
(286,751)
96,906
97,439
97,439
102,642
Liabilities which do not have a contractual maturity date are categorised as ‘on demand’. Included within the amounts due to
customers on demand are balances which historical experience shows are unlikely to be called in the short term. A prudent
level of highly liquid assets is retained to cover reasonably foreseeable short term changes in client deposits. All debt securities
are readily marketable and can be realised through disposals.
The Group holds £4,198,000 of equity investments (2011: £2,953,000) which are subject to liquidity risk but are not included
in the table above. These assets are held as available for sale securities and have no fixed maturity date; cash flows arise from
receipt of dividends or through sale of the assets.
Rathbone Brothers Plc Report and accounts 2012
111
Notes to the consolidated financial statements continued
30 Financial risk management continued
(ii) Liquidity risk continued
Derivative cash flows
The Group’s exposure to derivative financial instruments is limited to option contracts over the equity instruments of its
associates. These contracts do not create an obligation for the Group to deliver cash or a financial asset and therefore they are
not included in the liquidity tables (note 20).
Off-balance sheet items
Cash flows arising from the Group’s off-balance sheet financial liabilities (note 32) 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.
At 31 December 2012
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2011
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2012
Cash flows arising from financial liabilities
Total off-balance sheet items
At 31 December 2011
Cash flows arising from financial liabilities
Total off-balance sheet items
Not more
than
3 months
£’000
3,002
–
1,369
470
After
3 months
but not
more than
1 year
£’000
–
–
4,188
–
After
1 year but
not more
than
5 years
£’000
–
578
21,401
–
After
5 years
£’000
–
–
28,852
–
Total
£’000
3,002
578
55,810
470
4,841
4,188
21,979
28,852
59,860
Not more
than
3 months
£’000
6,925
–
1,171
2,223
After
3 months
but not
more than
1 year
£’000
–
–
1,855
–
After
1 year but
not more
than
5 years
£’000
–
578
20,981
–
After
5 years
£’000
–
–
34,448
–
Total
£’000
6,925
578
58,455
2,223
10,319
1,855
21,559
34,448
68,181
On
demand
£’000
795,696
–
Not more
than
3 months
£’000
74,893
4,841
After
3 months
but not
more than
1 year
£’000
6,037
4,188
After
1 year but
not more
than
5 years
£’000
14,558
21,979
After
5 years
£’000
Total
£’000
1,883
28,852
893,067
59,860
795,696
79,734
10,225
36,537
30,735
952,927
On
demand
£’000
867,913
–
Not more
than
3 months
£’000
91,202
10,319
After
3 months
but not
more than
1 year
£’000
445
1,855
After
1 year but
not more
than
5 years
£’000
10,119
21,559
After
5 years
£’000
Total
£’000
–
34,448
969,679
68,181
867,913
101,521
2,300
31,678
34,448 1,037,860
112
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 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 expected to rise and shortens it when the
yield curve is expected to fall.
The table below shows 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 2012
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– equity securities
– debt securities and money market funds
Derivative financial instruments
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Other financial liabilities
Total financial liabilities
Interest rate repricing gap
After
3 months
but not
more than
6 months
£’000
After
6 months
but not
more than
1 year
£’000
After
1 year but
not more
than
5 years
£’000
After
5 years
£’000
Not more
than
3 months
£’000
116,000
–
103,709
70,785
–
355,576
–
–
–
–
65,759
–
–
175,000
–
–
–
–
–
–
–
80,000
–
–
646,070
240,759
80,000
518
–
818,131
–
818,649
–
–
570
–
570
–
–
–
–
–
(172,579)
240,189
80,000
Non-
interest-
bearing
£’000
3
12,606
327
926
4,198
–
784
31,102
Total
£’000
116,003
12,606
169,795
71,711
4,198
610,576
784
31,102
49,946 1,016,775
–
18,592
9,742
38,633
518
18,592
828,443
38,633
66,967
886,186
(17,021)
130,589
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Rathbone Brothers Plc Report and accounts 2012
113
Notes to the consolidated financial statements continued
30 Financial risk management continued
(iii) Market risk continued
At 31 December 2011
Assets
Cash and balances with 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
Interest rate repricing gap
After
3 months
but not
more than
1 year
£’000
After
6 months
but not
more than
6 months
£’000
After
1 year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
Not more
than
3 months
£’000
–
–
64,091
46,586
–
–
750
–
–
–
–
–
–
–
–
–
–
551,750
–
–
289,843
–
–
58,000
–
–
10,000
–
662,427
290,593
58,000
10,000
513
–
902,372
134
903,019
–
–
350
–
350
–
–
–
–
–
–
–
–
–
–
(240,592)
290,243
58,000
10,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
13,443
167
1,201
4
13,443
65,008
47,787
2,953
–
31,155
2,953
909,593
31,155
48,923 1,069,943
–
22,196
5,934
31,580
513
22,196
908,656
31,714
59,710
963,079
(10,787)
106,864
The banking committee has set an overall pre-tax interest rate exposure limit of £5,000,000 (2011: £5,000,000) for the total
potential 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 2012, the Bank had £792.2 million (2011: £876.2 million) of sterling interest-bearing liabilities averaging two
days (2011: two days) to repricing, which were matched by sterling assets averaging 51 days (2011: 65 days) to repricing,
creating an exposure of 49 days (2011: 63 days). The total potential impact on profit after tax and equity was £2,126,000
(2011: £2,211,000) at the balance sheet date for a 2% decrease or increase in interest rates. The Group held no forward rate
agreements at 31 December 2012 (2011: none).
Foreign exchange risk
The Group is exposed to translational foreign exchange risk as it undertakes transactions in foreign currencies and is therefore
exposed to foreign exchange rate fluctuations. 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, from time to time, so as to
reduce any currency exposure to a minimal amount. The Group has no structural foreign currency exposure.
114
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
(iii) Market risk continued
The Group does not have any material exposure to transactional foreign exchange risk. The table below summarises the
Group’s exposure to foreign currency translational risk at 31 December 2012. Included in the table are the Group’s financial
assets and liabilities, at carrying amounts, categorised by currency.
At 31 December 2012
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
Derivative financial instruments
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Other financial liabilities
Total financial liabilities
Net on-balance sheet position
Loan commitments
At 31 December 2011
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
Net on-balance sheet position
Loan commitments
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
116,003
11,999
133,163
70,263
3,589
610,576
784
30,909
–
397
25,177
709
–
–
–
193
–
91
5,568
692
609
–
–
–
–
119
5,887
47
–
–
–
–
116,003
12,606
169,795
71,711
4,198
610,576
784
31,102
977,286
26,476
6,960
6,053 1,016,775
479
16,000
793,332
38,633
–
1,607
23,978
–
–
768
5,468
–
39
217
5,665
–
518
18,592
828,443
38,633
848,444
25,585
6,236
5,921
886,186
128,842
3,002
Sterling
£’000
4
12,070
44,225
45,543
2,389
909,593
31,089
891
–
US dollar
£’000
–
331
12,967
901
–
–
66
724
–
Euro
£’000
–
879
3,805
928
564
–
–
132
130,589
–
3,002
Other
£’000
Total
£’000
–
163
4,011
415
4
13,443
65,008
47,787
–
–
–
2,953
909,593
31,155
1,044,913
14,265
6,176
4,589 1,069,943
285
21,103
883,631
31,688
–
807
15,266
26
–
–
5,494
–
228
286
4,265
–
513
22,196
908,656
31,714
936,707
16,099
5,494
4,779
963,079
108,206
(1,834)
682
(190)
106,864
6,925
–
–
–
6,925
A 10% weakening of the US dollar against sterling, occurring on 31 December 2012, would have reduced equity and profit
after tax by £67,000 (2011: increased by £135,000). A 10% weakening of the euro against sterling, occurring on 31 December
2012, would have reduced equity and profit after tax by £55,000 (2011: reduced by £50,000). A 10% strengthening of the US
dollar or euro would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other
exchange rates, remain constant.
Rathbone Brothers Plc Report and accounts 2012
115
Notes to the consolidated financial statements continued
30 Financial risk management continued
(iii) Market risk continued
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 foreign exchange risk). The Group is exposed to price risk
through its holdings of equity investment securities, which are reported at their fair value (note 16).
At 31 December 2012, the fair value of equity securities recognised on the balance sheet was £4,198,000 (2011: £2,953,000).
A 10% fall in global equity markets would, in isolation, result in a pre-tax impact on net assets of £420,000 (2011: £295,000);
there would be no impact on profit after tax. A 10% rise in global markets would have had an equal and opposite effect.
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 16).
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation
technique used to determine the fair value.
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
or indirectly.
• Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2012
Assets
Available for sale securities:
– equity securities
– money market funds
Derivative financial instruments
Total financial assets
At 31 December 2011
Assets
Available for sale securities:
– equity securities
– money market funds
Total financial assets
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
3,584
–
–
–
51,551
–
614
–
784
4,198
51,551
784
3,584
51,551
1,398
56,533
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
2,384
–
–
65,610
569
–
2,953
65,610
2,384
65,610
569
68,563
There have been no transfers between levels during the year. The fair value of listed equity securities is their quoted price.
Money market funds are demand securities and changes to estimates of interest rates will not affect their fair value. The fair
value of money market funds is their daily redemption value.
Level 3 financial instruments
Available for sale equity securities
The fair value of unlisted equity securities is calculated by reference to net asset values with a liquidity discount applied.
A 5 percentage point increase in the liquidity discount applied to the calculation of the fair value of the unlisted equity
securities would, in isolation, result in a decrease in fair value of £41,000 (2011: £38,000). A 5 percentage point decrease
would have an equal and opposite effect.
Derivative financial instruments
The fair value of the option contracts is calculated using a probability weighted expected return model, based on potential
valuation outcomes under a range of business growth forecast scenarios. The key assumptions underlying the forecast growth
in profitability of the associates in the model are the growth of funds under management, revenue margins and the discount
rate used to calculate the present value of the cash flows. The key assumptions are flexed in each scenario to generate a
potential valuation for the options. The probability of each scenario occurring is estimated, based on the Group’s judgement in
light of the economic conditions prevailing at the time. The fair value of the options is calculated as the weighted average of
the valuations derived under each scenario, taking account of the associated probabilities of occurrence.
116
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
30 Financial risk management continued
Fair values continued
The sensitivities regarding the key assumptions are set out below:
Increase in
the assumption
£’000
Impact on fair value of:
Decrease in
the assumption
£’000
10% increase/decrease in the fees and commission charged to Vision clients
5 percentage point increase/decrease in the share of fees and commission
paid away to IFAs
10% increase/decrease in the rate of growth in funds under management
1 percentage point increase/decrease in the discount rate
512
(507)
281
(118)
Changes in the fair values of financial instruments categorised as level 3 within the fair value hierarchy were as follows:
At 1 January
Total gains and losses recognised in other
comprehensive income
Acquired during the year (note 20)
At 31 December
31
Capital management
2012
Available for
sale equity
securities
£’000
2012
Derivative
financial
instruments
£’000
569
45
–
614
–
–
784
784
2011
Available for
sale equity
securities
£’000
2011
Derivative
financial
instruments
£’000
2012
Total
£’000
569
45
784
574
(5)
–
1,398
569
–
–
–
–
(512)
506
(280)
130
2011
Total
£’000
574
(5)
–
569
Rathbone Brothers Plc’s capital is defined for accounting purposes as total equity. As at 31 December 2012 this totalled
£229,493,000 (2011: £190,653,000). From time to time, the Group runs small overnight overdraft balances as part of
working capital. The Group has no other external borrowings at 31 December 2012 (2011: £nil).
The Group’s objectives when managing capital are 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;
• maintain a strong capital base to be able to support the development of the business when required;
• optimise the distribution of capital across Group companies reflecting the requirements of each business;
•
strive to make capital freely transferable across the Group where possible; and
• comply with regulatory requirements at all times.
Rathbones is classified under the Capital Requirements Directive (CRD) as a banking group and performs an Internal Capital
Adequacy Assessment Process (ICAAP), which is presented to the FSA on an annual basis. Regulatory capital resources for
ICAAP purposes are calculated in accordance with CRD rules. These require certain adjustments to and certain deductions
from accounting capital, the latter largely in respect of intangible assets. The ICAAP compares regulatory capital resources
against regulatory capital requirements derived using the CRD’s Pillar I and Pillar II methodology. The Group has adopted the
standardised approach to calculating its Pillar I credit risk component and the basic indicator approach to calculating its
operational risk component. Capital management policy and practices are applied at both Group and entity level.
At 31 December 2012 the Group’s regulatory capital resources, including retained earnings for 2012, were £118,378,000
(2011: £89,770,000). Resources increased during 2012 following the share placing on 6 November 2012 (note 27).
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury
activity, capital levels are monitored and forecasted on a monthly basis to ensure that dividends and investment requirements
are appropriately managed and appropriate buffers are kept against adverse business conditions.
Regulatory capital requirements have been met throughout the financial years ended 31 December 2011 and 2012.
Rathbone Brothers Plc Report and accounts 2012
117
Notes to the consolidated financial statements continued
32
Contingent liabilities and commitments
(a) Indemnities are provided in the normal course of business to a number of directors and employees who provide tax
and trust advisory services in connection with them acting as trustees/directors of client companies and providing
other services.
A claim relating to the management of a Jersey trust has been filed against a former employee (and director) of Rathbone
Trust Company Jersey Limited. Rathbone Trust Company Jersey Limited was a subsidiary of the Company from March
2000 until October 2008. Although the Board believe this claim will be unsuccessful, a possible obligation may exist which
is contingent on whether the claim (or any parts of it) is upheld.
The Group has sought to confirm the position of the Company’s civil liability (professional indemnity) insurers in relation
to the claim. Based on information currently available, the Company’s primary layer insurer has confirmed cover (including
its share of the excess layer) subject to policy terms and conditions and unless the proceedings referred to below rule there
is no liability. The remaining excess insurers have to date refused to confirm cover. On 25 July 2012, the Company issued
proceedings to confirm insurance cover against the excess insurers.
Due to the complexity of the claim, the number of parties involved and the impact of insurance cover available to the
trustees, it is not practicable to estimate reliably the value of any possible obligation for the Company.
The Board considers that it is unlikely that a material liability to the Group will arise from this claim, and accordingly no
provision has been made.
(b) Capital expenditure authorised and contracted for at 31 December 2012 but not provided in the financial statements
amounted to £470,000 (2011: £2,223,000).
(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
The fair value of the guarantees is £nil (2011: £nil).
2012
£’000
578
3,002
3,580
2011
£’000
578
6,925
7,503
(d) The Group leases various offices and other assets under non-cancellable operating lease agreements. The leases have
varying terms and renewal rights. The Company’s agreement to lease space at 1 Curzon Street, London, under which total
payments over the lease term at 31 December 2012 were £34,616,000, provides for an upward only reset to market rents
in 2018.
Payments under non-cancellable operating leases
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2012
£’000
5,557
21,401
28,852
55,810
2011
£’000
3,026
20,981
34,448
58,455
(e) In addition to the Financial Services Compensation Scheme levies accrued in the year further levy charges may be incurred
in future years, although the ultimate cost remains uncertain. Further information is given in note 2.
118
Rathbone Brothers Plc Report and accounts 2012
Notes to the consolidated financial statements continued
33
Business combinations
On 5 April 2012, the Group acquired the entire share capital of R.M. Walkden & Co. Limited; an investment management
company, which also offers tax advisory services. At 31 December 2012, the acquisition had added £75,562,000 to the
Group’s funds under management. In addition to a cash consideration of £1,842,000, which was paid during the year,
a deferred consideration of £1,081,000 is payable based on the value of funds under management retained by the Group
at 31 October 2012; this is due to be paid on 5 April 2013.
The acquired business’ net assets at the acquisition date were as follows:
Carrying amounts
£’000
Fair value adjustments
£’000
Recognised values
£’000
Loans and advances to banks
Loans and advances to customers
Prepayments, accrued income and other assets
Property, plant and equipment
Intangible assets
Accruals, deferred income and other liabilities
Current tax liabilities
Total net assets acquired
Total consideration
598
213
38
8
–
(73)
(15)
769
–
–
–
–
2,154
–
–
2,154
598
213
38
8
2,154
(73)
(15)
2,923
2,923
Included within the consolidated statement of comprehensive income for the year ended 31 December 2012 is operating
income of £231,000 and a loss before tax of £505,000 relating to the acquired business, after taking account of redundancy
costs of £214,000, as the acquired business’ trade was transferred to a fellow subsidiary following acquisition. If the business
had been acquired on 1 January 2012, the consolidated results would have included operating income of £471,000 and a loss
before tax of £527,000.
The fair value of acquired receivables is equal to the contractual amounts receivable, all of which are expected to be collected.
Acquisition-related costs totalling £123,000 for legal and professional advice and stamp duty have been recognised in other
operating expenses in the period (2011: £nil).
34
Related party transactions
The remuneration of the key management personnel of the Group, who are defined as the Company’s directors and other
members of senior management who are responsible for planning, directing and controlling the activities of the Group, is set
out below. Further information about the remuneration of individual directors is provided in the audited part of the directors’
remuneration report on pages 53 to 60.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2012
£’000
8,013
777
438
2,122
11,350
2011
£’000
6,029
321
964
1,828
9,142
Dividends totalling £418,000 were paid in the year (2011: £399,000) in respect of ordinary shares held by key management
personnel and their close family members.
At 31 December 2012, the Group had provided interest-free season ticket loans of £6,000 (2011: £8,000) to key management
personnel.
At 31 December 2012, key management personnel and their close family members had gross outstanding deposits of
£1,112,000 (2011: £1,040,000) and gross outstanding banking loans of £559,000 (2011: £1,685,000), all of which (2011: all)
were made on normal business terms. A number of the Group’s key management personnel 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.
Rathbone Brothers Plc Report and accounts 2012
119
Notes to the consolidated financial statements continued
34 Related party transactions continued
The Group’s transactions with the pension schemes are described in note 26. At 31 December 2012, no amounts were due
from the schemes (2011: £10,000).
The Group managed 19 unit trusts and OEICs during 2012 (2011: 18 unit trusts and OEICs). Total annual management
charges of £16,110,000 (2011: £14,451,000) were earned, calculated on the bases published in the individual fund
prospectuses, which also state the terms and conditions of the management contract with the Group. Annual management fees
owed to the Group as at 31 December 2012 totalled £1,172,000 (2011: £1,208,000).
All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or
received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
35
Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with
less than three months until maturity from the date of acquisition:
Cash and balances at central banks (note 13)
Loans and advances to banks (note 14)
Available for sale investment securities (note 16)
2012
£’000
116,003
62,611
51,551
230,165
Available for sale investment securities are amounts invested in money market funds which are realisable on demand.
Cash flows arising from issue of ordinary shares comprise:
Share capital issued (note 27)
Share premium on shares issued (note 27)
Shares issued in relation to share-based schemes for which
no cash consideration was received
2012
£’000
120
27,944
(1,630)
26,434
2011
£’000
4
64,258
65,610
129,872
2011
£’000
9
1,728
(696)
1,041
36
Events after the balance sheet date
There have been no material events occurring between the balance sheet date and the date of signing this report.
120
Rathbone Brothers Plc Report and accounts 2012
Company financial statements
122
123
124
125
Company statement of changes in equity
Company balance sheet
Company statement of cash flows
Notes to the Company financial statements
Rathbone Brothers Plc Report and accounts 2012
121
Company statement of changes in equity
for the year ended 31 December 2012
At 1 January 2011
Profit for the year
Net actuarial loss on retirement benefit obligations
Revaluation of available for sale investment securities
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
–
tax on share-based payments
At 1 January 2012
Profit for the year
Net actuarial gain on retirement benefit obligations
Revaluation of available for sale investment securities
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
–
tax on share-based payments
Note
Share
capital
£’000
Share
premium
£’000
Available
for sale
reserve
£’000
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
2,169
32,488
2,219
(2,899)
(134)
94
30,785
15,027
64,762
15,027
(6,383)
(6,383)
(134)
1,477
1,571
–
9
–
(40)
1,728
–
(4,906)
(19,491)
(4,946)
(19,491)
1,737
(2,955)
1,125
2,178
34,216
2,179
(4,729)
923
(154)
–
–
769
–
120
27,944
1,989
(1,125)
239
1,989
(2,955)
–
239
22,518
30,921
56,362
30,921
660
660
923
(399)
(553)
261
(20,074)
1,030
(20,074)
28,064
(1,630)
515
2,129
(515)
105
2,129
(1,630)
–
105
48
16
45
11
49
49
49
45
48
16
45
11
49
49
49
45
At 31 December 2012
2,298
62,160
2,948
(5,844)
35,345
96,907
The accompanying notes form an integral part of the Company financial statements.
122
Rathbone Brothers Plc Report and accounts 2012
Company balance sheet
as at 31 December 2012
Non-current assets
Investment in subsidiaries
Investment in associates
Other investments
Trade and other receivables
Deferred tax
Current assets
Trade and other receivables
Current tax asset
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Employee benefits
Total liabilities
Net assets
Equity
Share capital
Share premium
Available for sale reserve
Own shares
Retained earnings
Equity shareholders' funds
Note
2012
£’000
2011
£’000
(restated – note 37)
41
42
43
44
45
44
46
47
48
49
49
49
62,608
1,216
4,198
3,605
1,129
72,756
70,088
308
1,430
71,826
144,582
(36,533)
(9,012)
(45,545)
26,281
(2,130)
(47,675)
96,907
2,298
62,160
2,948
(5,844)
35,345
96,907
37,975
–
2,953
3,268
2,488
46,684
50,718
991
1,158
52,867
99,551
(28,175)
(7,674)
(35,849)
17,018
(7,340)
(43,189)
56,362
2,178
34,216
2,179
(4,729)
22,518
56,362
The financial statements were approved by the Board of directors and authorised for issue on 19 February 2013 and were
signed on its behalf by:
A D Pomfret
Chief Executive
R P Stockton
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the Company financial statements.
Rathbone Brothers Plc Report and accounts 2012
123
Company statement of cash flows
for the year ended 31 December 2012
Cash flows from operating activities
Profit before tax
Interest and dividends received
Finance costs
Impairment charges
Net charge for provisions
Defined benefit pension scheme charges
Defined benefit pension scheme contributions paid
Share-based payment charges
Interest paid
Changes in operating assets and liabilities:
– net decrease in trade debtors
– net increase in prepayments, accrued income and other assets
– net increase in accruals, deferred income, provisions and other liabilities
Cash (used in)/generated from operations
Tax received
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Interest received
Intercompany dividends received
Other dividends received
Purchase of equity-accounted associate
Liquidation of subsidiary, net of cash transferred
Investment in subsidiaries
Purchase of other investment
Net cash generated from investing activities
Cash flows from financing activities
Purchase of shares for share-based payments
Issue of ordinary shares
Repayments of borrowings
Dividends paid
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
44
47
48
48
49
42
41
41
16
35
11
54
2012
£’000
2011
£’000
(restated – note 37)
31,264
(30,595)
–
760
473
2,859
(7,409)
3,232
–
584
93
(21,341)
8,119
(12,545)
1,258
(11,287)
485
30,000
110
(1,216)
917
(25,550)
(91)
4,655
–
26,434
–
(20,074)
6,360
(272)
1,158
886
14,430
(16,770)
10
–
1,196
1,484
(7,170)
2,604
(20)
(4,236)
158
(2,377)
12,429
5,974
1,802
7,776
672
16,000
98
–
–
–
–
16,770
(2,259)
1,041
(3,089)
(19,491)
(23,798)
748
410
1,158
The accompanying notes form an integral part of the Company financial statements.
124
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements
37
Significant accounting policies
Statement of compliance
The individual financial statements of the Company are presented as required by the Companies Act 2006 and have been
prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU.
On publishing the parent company financial statements here together with the Group financial statements, the Company is
taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual statement of
comprehensive income and related notes that form a part of these approved financial statements.
Changes in accounting policies and disclosures
Intercompany balances and provisions
The Group makes payments to new investment managers for the introduction of clients to the Company’s operating
subsidiaries. The cost of these payments is recharged to the Company’s subsidiaries and, historically, the related provisions
were recognised in the accounts of the subsidiaries. The underlying obligation to make these payments follows the employment
contracts, which are with the Company. Consequently, in these financial statements the presentation of provisions for earn-out
payments has been amended to show the legal obligation and the related recoverable amounts from subsidiaries. This has
resulted in both an increase in the amounts owed by Group undertakings and an increase in provisions for liabilities and
charges at 31 December 2011 of £6,478,000 (2010: £3,305,000).
Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in note 1 to the consolidated financial statements.
Principal accounting policies
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial
instruments. The principal accounting policies adopted are as set out below:
Investments in subsidiaries and associates
Investments in subsidiaries and associates are stated at cost less, where appropriate, provision for impairment.
Management charges
Intra-Group management charges arise in relation to staff costs and other administrative expenses that are initially borne by
the Company and then recharged to other Group companies, when incurred.
Accounting policies in relation to impairment, interest income, dividend income, operating leases, borrowings, foreign
currency, retirement benefit obligations, taxation, cash and cash equivalents and share-based payments are set out in note 1 to
the consolidated financial statements.
38
Critical accounting judgements and key sources of estimation and uncertainty
The critical accounting judgements and key sources of estimation and uncertainty arise from the Company’s defined
benefit pension schemes and loan notes issued by former subsidiaries. These are described in note 2 to the consolidated
financial statements.
Rathbone Brothers Plc Report and accounts 2012
125
Notes to the Company financial statements continued
39
Profit for the year
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own statement of
comprehensive income for the year. Rathbone Brothers Plc reported a profit after tax for the financial year ended 31 December
2012 of £30,921,000 (2011: £15,027,000).
Auditor’s remuneration for audit and other services to the Company are set out in note 7 to the consolidated financial statements.
The average number of employees, on a full time equivalent basis, during the year was as follows:
investment management services
Investment Management:
–
– advisory services
Unit Trusts
Shared services
40 Dividends
2012
469
67
30
209
775
2011
455
66
29
184
734
Details of the Company’s dividends paid and proposed for approval at the AGM are set out in note 11 to the consolidated
financial statements.
41
Investment in subsidiaries
At 1 January and 31 December 2011
Additions
Realised on liquidation
At 31 December 2012
Equities
Equities
£’000
22,725
24,050
(917)
45,858
Subordinated
loans to
Group
undertakings
£’000
15,250
1,500
–
16,750
Total
£’000
37,975
25,550
(917)
62,608
During the year, the Company acquired a further 325,000 ordinary shares of Rathbone Investment Management for a cash
consideration of £24,050,000.
A resolution was passed on 18 November 2011 to commence a members’ voluntary liquidation of Neilson Cobbold Holdings Plc.
This process was completed on 17 October 2012.
At 31 December 2012 the principal subsidiary undertakings were as follows:
Subsidiary undertaking
Country of incorporation
Activity and operation
Rathbone Investment Management Limited
England & Wales
Investment management and
Rathbone Investment Management International Limited*
Rathbone Trust Company Limited
Rathbone Unit Trust Management Limited*
Rathbone Pension & Advisory Services Limited
R.M. Walkden & Co. Limited*
* Held by subsidiary undertaking
Jersey
England & Wales
England & Wales
England & Wales
England & Wales
banking services
Investment management
Trust and tax services
Unit trust management
Pension advisory services
Investment management
The Company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiaries. A full list of the Company’s
subsidiaries will be included in the Company’s annual return to Companies House.
126
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
41
Investment in subsidiaries continued
Subordinated loans to Group undertakings
The amounts subject to subordinated loan agreements are shown below:
Counterparty
Repayment date
Rathbone Investment Management Limited
Rathbone Pension & Advisory
Services Limited
Rathbone Investment Management
Not less than 5 years written notice
Not less than 2 years written notice
Not less than 2 years written notice but subject to approval by
International Limited
the Jersey Financial Services Commission
2012
£’000
15,000
250
1,500
16,750
2011
£’000
15,000
250
–
15,250
The fair value of the subordinated loans is not materially different to their carrying amount.
All subordinated loans accrue interest at the Bank of England base rate plus 2.5% to a maximum of 5.0%.
The Group has not had any defaults of principal, interest or other breaches with respect to its subordinated loans during the period.
42
Investment in associates and related derivatives
On 5 October 2012, the Company purchased 19.9% of the ordinary share capital of Vision Independent Financial Planning
Limited and Castle Investment Solutions Limited, as well as certain options over the equity instruments of those companies,
for a total consideration of £2,000,000. The total consideration was constituted as follows:
Investment in associates
Fair value of associated derivative contracts (note 44)
2012
£’000
1,216
784
2,000
As part of the transaction to acquire these holdings, the Company has also entered into certain option contracts over the
equity instruments of these companies, as described in note 20. The options are carried at fair value of £784,000 at
31 December 2012 (note 44).
43 Other investments
Available for sale securities
Equity securities – at fair value:
–
listed
– unlisted
2012
£’000
3,584
614
4,198
2011
£’000
–
–
–
2011
£’000
2,384
569
2,953
Rathbone Brothers Plc Report and accounts 2012
127
Notes to the Company financial statements continued
44
Trade and other receivables
Loan notes
Derivative financial instruments (note 42)
Prepayments and other receivables
Amounts owed by Group undertakings
Current
Non-current
2012
£’000
2,821
784
4,563
65,525
73,693
70,088
3,605
73,693
2011
£’000
(restated –
note 37)
3,674
–
2,407
47,905
53,986
50,718
3,268
53,986
2010
£’000
(restated –
note 37)
3,832
–
603
47,332
51,767
48,229
3,538
51,767
Loan notes were issued by the acquirer of the Group’s Jersey trust operations in 2008 (‘the Notes’). The Notes are unsecured
and have no fixed maturity, being repayable on the occurrence of certain events, principally the refinancing of the Jersey trust
operations by its existing owner. The Notes are carried at amortised cost, less provision for impairment.
In light of the prevailing economic conditions, at 31 December 2012, the Company revised its estimate of the likely timing of
repayment of the Notes, which reduced the estimated present value of future cash flows from the Notes due to the impact of
discounting. In accordance with IAS 36, the carrying value of the Notes was written down to £2,821,000 (being the estimated
present value of future cash flows), resulting in an impairment loss of £760,000 in the year.
In 2010 and 2011, loans and advances to customers repayable within three months included a Swiss franc denominated loan
to the acquirer of the Group’s former Switzerland-based trust operations with a nominal value equivalent to £406,000 at
31 December 2011 and £565,000 at 31 December 2010. The loan did not bear interest and the final instalment was received
on 10 February 2012.
Allowance for losses on loan notes
At 1 January
Charge to profit or loss
At 31 December
2012
£’000
–
760
760
2011
£’000
–
–
–
128
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
45 Deferred tax
Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of
23.0% (2011: 25.0%).
The UK Government has proposed that the UK corporation tax rate be reduced to 21.0% over the next two years.
At 31 December 2012 only an element of this reduction, taking the UK tax rate to 23.0% in 2013, had been substantively
enacted. Consequently deferred tax assets and liabilities are calculated at 23.0%.
The movement on the deferred tax account is as follows:
As at 1 January 2011
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive income
in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
As at 31 December 2011
Deferred tax assets
Deferred tax liabilities
As at 31 December 2011
Pensions
£’000
2,306
(1,758)
–
47
(1,711)
1,691
–
(214)
1,477
–
–
–
–
2,072
Pensions
£’000
2,072
–
2,072
Share-based
payments
£’000
919
29
13
(58)
(16)
–
–
–
–
377
(106)
(32)
239
1,142
Share-based
payments
£’000
1,142
–
1,142
Available
for sale
securities
£’000
(820)
–
–
–
–
35
–
59
94
–
–
–
–
(726)
Available
for sale
securities
£’000
–
(726)
(726)
Total
£’000
2,405
(1,729)
13
(11)
(1,727)
1,726
–
(155)
1,571
377
(106)
(32)
239
2,488
Total
£’000
3,214
(726)
2,488
Rathbone Brothers Plc Report and accounts 2012
129
Notes to the Company financial statements continued
45 Deferred tax continued
As at 1 January 2012
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive
income in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Pensions
£’000
2,072
(1,347)
–
163
(1,184)
(162)
–
(237)
(399)
–
–
–
–
Share-based
payments
£’000
1,142
372
–
(99)
273
–
–
–
–
157
(20)
(32)
105
Available
for sale
securities
£’000
(726)
–
–
–
–
(226)
–
72
(154)
–
–
–
–
Total
£’000
2,488
(975)
–
64
(911)
(388)
–
(165)
(553)
157
(20)
(32)
105
As at 31 December 2012
489
1,520
(880)
1,129
Deferred tax assets
Deferred tax liabilities
As at 31 December 2012
Pensions
£’000
489
–
489
Share-based
payments
£’000
1,520
–
1,520
Available
for sale
securities
£’000
–
(880)
(880)
The impact of calculating deferred tax at 21.0% would be to reduce the net deferred tax asset to £1,031,000 at
31 December 2012.
46
Trade and other payables
Accruals, deferred income and other creditors
Amounts owed to Group undertakings
Other taxes and social security costs
2012
£’000
31,931
1,189
3,413
36,533
The fair value of trade and other payables is not materially different to their carrying amount.
All amounts owed to Group undertakings are repayable on demand and non-interest-bearing.
Total
£’000
2,009
(880)
1,129
2011
£’000
25,611
58
2,506
28,175
130
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
47
Provisions for liabilities and charges
Deferred, variable
costs to acquire client
relationship intangibles
£’000
As at 1 January 2011 (restated – note 37)
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the period
As at 31 December 2011 (restated – note 37)
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the period
As at 31 December 2012
Payable within 1 year
Payable after 1 year
3,305
–
–
–
6,315
(3,142)
6,478
–
–
–
6,877
(5,117)
8,238
3,923
4,315
8,238
Property-
related
and other
£’000
–
1,576
(380)
1,196
–
–
1,196
774
(301)
473
–
(895)
774
–
774
774
Total
£’000
3,305
1,576
(380)
1,196
6,315
(3,142)
7,674
774
(301)
473
6,877
(6,012)
9,012
3,923
5,089
9,012
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of
client relationships, which have been capitalised.
Property-related and other provisions include £774,000 in relation to dilapidations provisions expected to arise on leasehold
premises held by the Company (2011: £920,000). Dilapidation provisions are calculated using a discounted cash flow model;
during the year, the impact of discounting has increased the provisions by £50,000.
Provisions payable after 1 year are expected to be settled within 2 years of the balance sheet date, except for property-related
provisions of £774,000. These are expected to be settled within 24 years of the balance sheet date, which corresponds to the
longest lease for which a dilapidations provision is being held.
48
Employee benefits
Details of the defined benefit pension schemes operated by the Company are provided in note 26 to the consolidated
financial statements.
49
Share capital, own shares and share-based payments
Details of the share capital of the Company and ordinary shares held by the Company together with changes thereto are
provided in notes 27 and 28 to the consolidated financial statements. Details of options on the Company’s shares and share-
based payments are set out in note 29 to the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2012
131
Notes to the Company financial statements continued
50
Financial instruments
The Company’s risk management policies and procedures are integrated with the wider Rathbone Group’s risk management
process. The Rathbone Group has identified the risks arising from all of its activities, including those of the Company, and has
established policies and procedures to manage these items in accordance with its risk appetite. The Company categorises its
financial risks into the following primary areas:
(i)
credit risk;
(ii)
liquidity risk;
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(iv)
pension risk.
The Company’s exposures to pension risk are set out in note 48.
The sections below outline the Group risk appetite, as applicable to the Company, and explain how the Company defines and
manages each category of financial risk.
The Company’s financial risk management policies are designed to identify and analyse the financial risks that the Company
faces, to set appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means
of reliable and up-to-date information systems. The Company regularly reviews its financial risk management policies and
systems to reflect changes in the business and the wider industry.
The Company’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 executive committee and senior management.
(i)
Credit risk
The Company 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 trading activities. The principal sources of credit risk arise from depositing funds with banks and
through providing long term and working capital financing for subsidiaries. The Company also took on credit exposure
through the provision of loans as part of the disposal of its subsidiaries in Jersey in 2008.
The Company places surplus funds with its banking subsidiary, which operates under the Group’s credit risk management
policies. Group policy requires that funds are placed with a range of high-quality financial institutions. Investments are spread
to avoid excessive exposure to any individual counterparty.
For the purposes of financial reporting the Company categorises its exposures based on the long term ratings awarded to
counterparties by Fitch Ratings Ltd. (‘Fitch’) or Moody’s Corporation (‘Moody’s’).
The Company’s financial assets are categorised as follows:
Trade and other receivables
Trade and other receivables relate to amounts placed with subsidiaries and loans provided to subsidiaries and former
subsidiaries. The collection and ageing of trade and other receivables are reviewed on a periodic basis by management.
Impairment provisions are made for any debts which are considered to be doubtful for collection.
Trade and other receivables includes derivative financial instruments which relate to option contracts over shares in the
Company’s associates (note 42). These options expose the Company to credit risk from the potential for non-delivery by the
associate companies’ founders, who are private individuals.
Cash and cash equivalents (balances at banks)
The Company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
132
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
50 Financial instruments continued
(i) Credit risk continued
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 the balance sheet date on
a case by case basis.
Impairment provisions for credit risk, which relate solely to loan notes, are set out in note 44. No other impairment losses
arose during the year (2011: none).
Maximum exposure to credit risk
loan notes
Trade and other receivables:
–
– amounts owed by Group undertakings
– derivative financial instruments
– other financial assets
Balances at banks
2012
£’000
5,000
82,275
784
972
1,430
90,461
2011
£’000
(restated –
note 37)
5,413
63,155
–
82
1,158
69,808
The above table represents the gross credit risk exposure of the Company at 31 December 2012 and 2011, without taking
account of any collateral held or other credit enhancements attached.
Loan notes and derivative financial instruments are not subject to standard lending criteria. All other trade and other
receivables are within normal terms and conditions of lending at the balance sheet date (2011: all within normal terms and
conditions of lending).
The terms attached to loan notes are set out in note 44. Amounts owed to Group undertakings do not have specific repayment
dates and are paid down periodically as trading requires.
Trade and other receivables
Trade and other receivables are summarised as follows:
Neither past due nor impaired
Impaired
Gross carrying value
Less: allowance for impairment (note 44)
Net carrying value
2012
£’000
83,993
3,581
87,574
(760)
86,814
2011
£’000
66,911
–
66,911
–
66,911
Balances at banks
All balances at banks were neither past due nor impaired. The credit quality of these balances 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.
A+ to A
Other*
* Cash held within the Employee Benefit Trust
2012
£’000
1,028
402
1,430
2011
£’000
1,158
–
1,158
Rathbone Brothers Plc Report and accounts 2012
133
Notes to the Company financial statements continued
50 Financial instruments continued
(i) Credit risk continued
Concentration of credit risk
The Company has counterparty credit risk within its balances at banks in that the principal exposure is to its banking
subsidiary. The Board sets and monitors the Group policy for the management of Group funds, which include the placement of
funds with a range of high-quality financial institutions.
(a) Geographical sectors
The following table analyses the Company’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 2012
loan notes
Trade and other receivables:
–
– amounts owed by Group undertakings
– derivative financial instruments
– other financial assets
Balances at banks
At 31 December 2011 (restated – note 37)
loan notes
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
United
Kingdom
£’000
–
82,275
784
564
1,430
85,053
United
Kingdom
£’000
–
63,027
16
1,158
64,201
Rest of
the World
£’000
2,821
–
–
370
–
3,191
Rest of
the World
£’000
3,674
128
66
–
3,868
(b) Industry sectors
The Company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our
counterparties operate, were:
At 31 December 2012
loan notes
Trade and other receivables:
–
– amounts owed by Group undertakings
– derivative financial instruments
– other financial assets
Balances at banks
At 31 December 2011 (restated – note 37)
loan notes
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
Financial
institutions
£’000
–
62,291
–
–
1,430
63,721
Financial
institutions
£’000
–
48,168
–
1,158
49,326
Other
corporates
£’000
2,821
19,984
784
934
–
24,523
Other
corporates
£’000
3,674
14,987
82
–
18,743
Total
£’000
2,821
82,275
784
934
1,430
88,244
Total
£’000
3,674
63,155
82
1,158
68,069
Total
£’000
2,821
82,275
784
934
1,430
88,244
Total
£’000
3,674
63,155
82
1,158
68,069
134
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
50 Financial instruments continued
(ii)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities
that are settled by delivering cash or another financial asset. The Company places its funds in short term or demand facilities
with financial institutions to ensure liquidity. The Company has no bank loans (2011: £nil) and does not rely on external
funding for its activities.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the Company on its non-derivative financial
assets and liabilities by remaining contractual maturities at the balance sheet date.
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
After
5 years
£’000
No fixed
maturity
date
£’000
Total
£’000
–
65,525
–
887
66,412
–
123
428
182
733
–
377
300
143
–
17,595
237
219
820
18,051
–
–
7
–
7
5,255
–
–
–
5,255
83,620
972
1,431
5,255
91,278
At 31 December 2012
loan notes
Cash flows arising from financial assets
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
Cash flows arising from financial assets
Cash flows arising from financial liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
Cash flows arising from financial liabilities
1,332
16,827
3,769
14,382
1,870
1,189
143
–
16,827
–
3,769
–
14,382
–
1,870
–
–
–
1,189
36,991
38,180
Net liquidity gap
65,080
(16,094)
(2,949)
3,669
(1,863)
5,255
53,098
Cumulative net liquidity gap
65,080
48,986
46,037
49,706
47,843
53,098
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
After
5 years
£’000
No fixed
maturity
date
£’000
Total
£’000
At 31 December 2011 (restated – note 37)
loan notes
Cash flows arising from financial assets
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
–
45,855
–
1,158
413
129
35
–
–
2,441
1
–
–
17,081
46
–
Cash flows arising from financial assets
47,013
577
2,442
17,127
Cash flows arising from financial liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
58
134
–
13,997
–
167
–
14,784
Cash flows arising from financial liabilities
192
13,997
167
14,784
Net liquidity gap
46,821
(13,420)
2,275
2,343
–
–
–
–
–
–
–
–
–
5,203
–
–
–
5,616
65,506
82
1,158
5,203
72,362
–
–
–
58
29,082
29,140
5,203
43,222
Cumulative net liquidity gap
46,821
33,401
35,676
38,019
38,019
43,222
Included within trade and other payables 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.
The Company holds £4,198,000 of equity investments (2011: £2,953,000), which are subject to liquidity risk but are not
included in the table above. These assets are held as available for sale securities and have no fixed maturity date; cash flows
arise from receipt of dividends or through sale of the assets.
Rathbone Brothers Plc Report and accounts 2012
135
Notes to the Company financial statements continued
50 Financial instruments continued
(ii) Liquidity risk continued
Derivative cash flows
The Company’s exposure to derivative financial instruments is limited to option contracts over the equity instruments of its
associates. These contracts do not create an obligation for the Company to deliver cash or a financial asset and therefore they
are not included in the liquidity tables.
Off-balance sheet items
Cash flows arising from the Company’s off-balance sheet financial liabilities arise solely from operating leases (note 52) and
are summarised in the table below. Future minimum lease payments under non-cancellable operating leases are reported by
their contractual payment dates.
Operating lease commitments
At 31 December 2012
At 31 December 2011
Total liquidity requirement
At 31 December 2012
Cash flows arising from financial liabilities
Total off-balance sheet items
At 31 December 2011 (restated – note 37)
Cash flows arising from financial liabilities
Total off-balance sheet items
Not more
than
3 months
£’000
1,352
1,140
On
demand
£’000
1,332
–
Not more
than
3 months
£’000
16,827
1,352
After 3
months
but not
more than
1 year
£’000
4,136
1,772
After 3
months
but not
more than
1 year
£’000
3,769
4,136
After 1
year but
not more
than
5 years
£’000
21,362
20,871
After 1
year but
not more
than
5 years
£’000
14,382
21,362
After
5 years
£’000
Total
£’000
28,853
34,448
55,703
58,231
After
5 years
£’000
1,870
28,853
Total
£’000
38,180
55,703
1,332
18,179
7,905
35,744
30,723
93,883
On
demand
£’000
192
–
Not more
than
3 months
£’000
13,997
1,140
After 3
months
but not
more than
1 year
£’000
167
1,772
After 1
year but
not more
than
5 years
£’000
14,784
20,871
After
5 years
£’000
Total
£’000
–
34,448
29,140
58,231
192
15,137
1,939
35,655
34,448
87,371
136
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
50 Financial instruments 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 Company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its
financial assets and liabilities.
The table below shows the repricing profile of the Company’s financial assets and liabilities, stated at their carrying amounts,
categorised by the earlier of contractual repricing or maturity dates.
At 31 December 2012
loan notes
Assets
Other investments
Trade and other receivables:
–
– amounts owed by Group undertakings
– derivative financial instruments
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
Total financial liabilities
Interest rate repricing gap
At 31 December 2011 (restated – note 37)
Assets
loan notes
Other investments
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
–
2,821
16,750
–
–
1,282
20,853
–
–
–
20,853
Not more
than
3 months
£’000
–
3,268
17,300
–
1,018
21,586
–
134
134
21,452
Non-
interest-
bearing
£’000
4,198
–
65,525
784
934
148
71,589
1,189
30,164
31,353
40,236
Non-
interest-
bearing
£’000
2,953
406
45,855
82
140
49,436
58
24,132
24,190
25,246
Total
£’000
4,198
2,821
82,275
784
934
1,430
92,442
1,189
30,164
31,353
61,089
Total
£’000
2,953
3,674
63,155
82
1,158
71,022
58
24,266
24,324
46,698
A 1% parallel increase/decrease in the sterling yield curve would result in an increase/decrease in profit after tax and equity of
£86,000 (2011: £73,000).
Rathbone Brothers Plc Report and accounts 2012
137
Notes to the Company financial statements continued
50 Financial instruments continued
(iii) Market risk continued
Foreign exchange risk
The Company does not have any material exposure to transactional foreign exchange risk. The table below summarises
the Company’s exposure to foreign currency translational risk at 31 December 2012. Included in the table are the Company’s
financial assets and liabilities, at carrying amounts, categorised by currency.
At 31 December 2012
loan notes
Assets
Other investments
Trade and other receivables:
–
– amounts owed by Group undertakings
– derivative financial instruments
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
Total financial liabilities
Net on-balance sheet position
At 31 December 2011 (restated – note 37)
Assets
loan notes
Other investments
Trade and other receivables:
–
– amounts owed by Group undertakings
– other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
– amounts owed to Group undertakings
– other financial liabilities
Total financial liabilities
Net on-balance sheet position
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
3,589
–
609
2,821
82,275
784
741
1,430
91,640
1,189
30,164
31,353
–
–
–
193
–
193
–
–
–
60,287
193
Sterling
£’000
US dollar
£’000
–
–
–
–
–
609
–
–
–
609
Euro
£’000
–
–
–
–
–
–
–
–
–
–
–
Other
£’000
4,198
2,821
82,275
784
934
1,430
92,442
1,189
30,164
31,353
61,089
Total
£’000
2,389
–
564
–
2,953
3,268
63,155
16
1,158
69,986
58
24,266
24,324
–
–
66
–
66
–
–
–
–
–
–
–
406
–
–
–
3,674
63,155
82
1,158
564
406
71,022
–
–
–
–
–
–
58
24,266
24,324
45,662
66
564
406
46,698
A 10% weakening of the US dollar or euro against sterling, occurring on 31 December 2012, would have reduced equity and
profit after tax by £15,000 or £46,000 respectively (2011: £5,000 or £41,000 respectively). A 10% strengthening of the US
dollar or euro would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other
exchange rates, remain constant.
138
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
50 Financial instruments continued
(iii) Market risk continued
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 foreign exchange risk). The Company is exposed to price risk
through its holdings of equity investment securities, which are reported at their fair value (note 43).
At 31 December 2012, the fair value of equity securities recognised on the balance sheet was £4,198,000 (2011: £2,953,000).
A 10% fall in global equity markets would, in isolation, result in a pre-tax impact on net assets of £420,000 (2011: £295,000);
there would be no impact on profit after tax. A 10% rise in global markets would have had an equal and opposite effect.
Fair values
The fair values of the Company’s financial assets and liabilities are not materially different from their carrying values, with the
exception of equity investments in subsidiaries which are carried at historical cost (note 41).
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation
technique used to determine the fair value.
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
or indirectly.
•
Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2012
Available for sale equity securities
Derivative financial instruments
Total financial assets
At 31 December 2011
Available for sale equity securities
Total financial assets
Level 1
£’000
3,584
–
3,584
Level 1
£’000
2,384
2,384
Level 2
£’000
–
–
–
Level 2
£’000
–
–
Level 3
£’000
614
784
1,398
Level 3
£’000
569
569
Total
£’000
4,198
784
4,982
Total
£’000
2,953
2,953
There have been no transfers between levels during the year (2011: none).
Details of the methods and assumptions used to determine the fair values of the financial assets in the above table, along with
how reasonably possible changes to the assumptions affect these fair values, are provided in note 30 to the consolidated
financial statements.
Level 3 financial instruments
Changes in the fair values of financial instruments categorised as level 3 within the fair value hierarchy were as follows:
At 1 January
Total gains and losses recognised in other comprehensive
income
Acquired during the year (note 42)
At 31 December
2012
Available for
sale equity
securities
£’000
2012
Derivative
financial
instruments
£’000
569
45
–
614
–
–
784
784
2011
Available for
sale equity
securities
£’000
2011
Derivative
financial
instruments
£’000
2012
Total
£’000
569
45
784
574
(5)
–
1,398
569
2011
Total
£’000
574
(5)
–
569
–
–
–
–
Rathbone Brothers Plc Report and accounts 2012
139
Notes to the Company financial statements continued
51
Capital management
The Company’s objectives when managing capital are to:
•
safeguard the Company’s ability to continue as a going concern so that it can continue to provide returns for shareholders
and benefits for other stakeholders; and
• maintain a strong capital base to support the development of its business.
For monitoring purposes, the Company defines capital as equity shareholders’ funds. The Company monitors the level of
distributable reserves on a monthly basis and compares this to forecast dividends. Capital is distributed to the Company from
operating subsidiaries on a timely basis to ensure sufficient capital is maintained. The Board of directors considers the level of
capital held in relation to forecast performance, dividend payments and wider plans for the business, although formal
quantitative targets are not set. The Company’s total capital at 31 December 2012, together with movements during the year
then ended, is set out in the Company statement of changes in equity.
On 6 November 2012, the Company issued two million ordinary shares by way of a placing for cash consideration which
raised £23,956,000, net of £744,000 transaction costs (note 27).
There were no changes in the Company’s approach to capital management during the year.
52
Contingent liabilities and commitments
(a) Indemnities are provided in the normal course of business to a number of directors and employees who provide tax and trust
advisory services in connection with them acting as trustees/directors of client companies and providing other services.
A claim relating to the management of a Jersey trust has been filed against a former employee (and director) of Rathbone
Trust Company Jersey Limited. Rathbone Trust Company Jersey Limited was a subsidiary of the Company from March
2000 until October 2008. Although the Board believe this claim will be unsuccessful, a possible obligation may exist which
is contingent on whether the claim (or any parts of it) is upheld.
The Group has sought to confirm the position of the Company’s civil liability (professional indemnity) insurers in relation
to the claim. Based on information currently available, the Company’s primary layer insurer has confirmed cover (including
its share of the excess layer) subject to policy terms and conditions and unless the proceedings referred to below rule there
is no liability. The remaining excess insurers have to date refused to confirm cover. On 25 July 2012, the Company issued
proceedings to confirm insurance cover against the excess insurers.
Due to the complexity of the claim, the number of parties involved and the impact of insurance cover available to the
trustees, it is not practicable to estimate reliably the value of any possible obligation for the Company.
The Board considers that it is unlikely that a material liability to Rathbones will arise from this claim, and accordingly no
provision has been made.
(b) The Company leases various offices and other assets under non-cancellable operating lease agreements. The leases have
varying terms and renewal rights. The Company’s agreement to lease space at 1 Curzon Street, London, under which total
payments over the lease term at 31 December 2012 were £34,616,000, provides for an upward only reset to market rents
in 2018.
Payments under non-cancellable operating leases
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2012
£’000
5,488
21,362
28,853
55,703
2011
£’000
2,912
20,871
34,448
58,231
140
Rathbone Brothers Plc Report and accounts 2012
Notes to the Company financial statements continued
53
Related party transactions
(i)
Transactions with key management personnel
The remuneration of the key management personnel of the Company, who are defined as the Company’s directors and other
members of senior management who are responsible for planning, directing and controlling the activities of the Company, is
set out below.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2012
£’000
1,626
114
17
859
2,616
2011
£’000
1,566
85
22
730
2,403
Dividends totalling £418,000 were paid in the year (2011: £399,000) in respect of ordinary shares held by key management
personnel and their close family members.
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.
(ii)
Other related party transactions
During the year, the Company entered into the following transactions with fellow subsidiaries:
Interest
Charges for management services
2012
Receivable
£’000
460
78,332
2012
Payable
£’000
2011
Receivable
£’000
2011
Payable
£’000
–
230
527
73,826
78,792
230
74,353
–
–
–
The Company’s balances with fellow Group companies at 31 December 2012 are set out in notes 41, 44 and 46.
The Company’s transactions with the pension schemes are described in note 48. At 31 December 2012, no amounts were due
from the schemes (2011: £10,000).
All transactions and outstanding balances with fellow Group companies are priced on an arm’s length basis and are to be
settled in cash. None of the balances are secured and no provisions have been made for doubtful debts for any amounts due
from fellow Group companies.
54
Cash and cash equivalents
For the purposes of the Company statement of cash flows, cash and cash equivalents comprise the following balances with less
than three months until maturity from the date of acquisition:
Cash at bank
2012
£’000
886
2011
£’000
1,158
55
Events after the balance sheet date
There have been no material events occurring between the balance sheet date and the date of signing this report.
Rathbone Brothers Plc Report and accounts 2012
141
Further information
Five year record
Corporate information
143
143
144 Our offices
142
Rathbone Brothers Plc Report and accounts 2012
Five year record and corporate information
2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
Operating income
Underlying profit before tax
Profit before tax
Tax
Profit after tax
Equity dividends paid and proposed
Basic earnings per share
Diluted earnings per share
Dividends per ordinary share
Equity shareholders' funds
155,581 144,452 127,184 116,757 131,166
45,020
38,503
42,306
30,083
(13,421)
(8,531)
28,885
21,552
17,984
19,067
46,219
39,152
(10,446)
28,706
20,001
32,446
29,468
(9,271)
20,197
18,159
45,137
38,812
(9,596)
29,216
21,220
67.00p
66.72p
49.76p
46.87p
67.57p
66.41p
65.90p
49.35p
46.85p
67.02p
47.0p
46.0p
44.0p
42.0p
42.0p
229,493 190,653 185,374 182,489 184,631
Total funds under management
£17.98bn £15.85bn £15.63bn £13.10bn £10.46bn
Company Secretary and registered office
Registrars and transfer office
R E Loader FCA
Rathbone Brothers Plc
1 Curzon Street
London
W1J 5FB
Company No. 01000403
www.rathbones.com
richard.loader@rathbones.com
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
Rathbone Brothers Plc Report and accounts 2012
143
Our offices
Head office
1 Curzon Street
London
W1J 5FB
Tel +44 (0)20 7399 0000
Investment Management offices
1 Curzon Street
London
W1J 5FB
Tel +44 (0)20 7399 0000
1 Albert Street
Aberdeen
AB25 1XX
Tel +44 (0)1224 218 180
Temple Point
1 Temple Row
Birmingham
B2 5LG
Tel +44 (0)121 233 2626
10 Queen Square
Bristol
BS1 4NT
Tel +44 (0)117 929 1919
North Wing, City House
126 – 130 Hills Road
Cambridge
CB2 1RE
Tel +44 (0)1223 229 229
1 Northgate
Chichester
West Sussex
PO19 1AT
Tel +44 (0)1243 775 373
28 St Andrew Square
Edinburgh
EH2 1AF
Tel +44 (0)131 550 1350
The Senate
Southernhay Gardens
Exeter
EX1 1UG
Tel +44 (0)1392 201 000
15 Esplanade
St Helier
Jersey
JE1 2RB
Channel Islands
Tel +44 (0)1534 740 500
The Stables
Levens Hall
Kendal
Cumbria
LA8 0PB
Tel +44 (0)1539 561 457
Port of Liverpool Building
Pier Head
Liverpool
L3 1NW
Tel +44 (0)151 236 6666
48 High Street
Lymington
SO41 9ZQ
Tel +44 (0)1590 647 657
Earl Grey House
78 – 85 Grey Street
Newcastle upon Tyne
NE1 6EF
Tel +44 (0)191 255 1440
Fiennes House
32 Southgate Street
Winchester
Hampshire
SO23 9EH
Tel +44 (0)1962 857 000
Unit Trusts office
1 Curzon Street
London
W1J 5FB
Tel +44 (0)20 7399 0000
144
Rathbone Brothers Plc Report and accounts 2012
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Rathbone Brothers Plc
1 Curzon Street
London W1J 5FB
Tel +44 (0)20 7399 0000
www.rathbones.com