Rathbone Brothers Plc
Report and accounts 2015
Rathbone Brothers Plc, through its
subsidiaries, 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 2015, Rathbones
managed £29.2 billion of client funds,
of which £26.1 billion were managed
by Rathbone Investment Management.
It is important to us that
all materials used in the
production of this document
are environmentally sustainable.
The paper is FSC certified
and contains 75% recycled
fibre and 25% virgin fibre
from sustainable sources.
Once you have finished with
this report please recycle it.
Introduction
1
2
4
Highlights of the year
Chairman’s statement
Chief executive’s statement
Strategic report
Our market
8
10 Our business model
11 Our approach
16 Strategy and key performance indicators
20 Risk management
Our performance
28 Group performance
31 Segmental review
40 Financial position
43 Liquidity and cash flow
44 Corporate responsibility report
Governance
58 Directors
61 Directors’ report
63 Corporate governance report
67 Executive committee report
69 Group risk committee report
70 Remuneration committee report
85 Audit committee report
88 Nomination committee report
89 Approval of strategic report
90 Statement of directors’ responsibilities
in respect of the report and accounts
Consolidated financial statements
92
Independent auditor’s report to the members
of Rathbone Brothers Plc
96 Consolidated statement of comprehensive income
97 Consolidated statement of changes in equity
98 Consolidated balance sheet
99 Consolidated statement of cash flows
100 Notes to the consolidated financial statements
Company financial statements
160 Company statement of changes in equity
161 Company balance sheet
162 Company statement of cash flows
163 Notes to the company financial statements
Further information
182 Five year record
183 Corporate information
184 Our offices
Strategic report as defined by chapter 4A of Companies Act 2006
D
Rathbone Brothers Plc Report and accounts 2015
Designed and produced by Linnett Webb Jenkins
Highlights of the year
Financial highlights
Funds under management
+7.4%
2015: £29.2bn
2014: £27.2bn
Underlying1 operating income
+14.1%
2015: £229.2m
2014: £200.8m
Underlying2 profit before tax
+14.3%
Profit before tax
+28.2%
2015: £70.4m
2014*: £61.6m
2015: £58.6m
2014*: £45.7m
Underlying operating margin3
0.0%
2015: 30.7%
2014*: 30.7%
p28
p28
p29
p29
p29
n
o
i
t
c
u
d
o
r
t
n
I
Business highlights
January
Our distribution strategy was launched, restructuring the way
we work with our financial adviser and intermediary partners.
May
We opened a new office in Glasgow, further increasing
our presence in Scotland.
Our investment teams won the ‘Private Client Asset
Manager (Boutique) of the Year’ award at the 2015
Citywealth Magic Circle Awards as well as claiming the
‘Charity Investment Manager of the Year’ award for the
third year running.
June
The roll-out of our new branding across all print and online
communications began.
July
We strengthened our management structure, by adding five
members to our executive committee.
August
Rathbone Investment Management issued £20.0 million of
10-year subordinated notes to support our future growth.
Underlying2 earnings per share
p30
October
+14.3%
2015: 117.0p
2014*: 102.4p
Our charities team rose to fourth (2014: sixth) in the Charity
Finance rankings for UK charity investment managers by
funds under management.
Basic earnings per share
p30
November
+28.2%
2015: 97.4p
2014*: 76.0p
Our new rathbones.com website and online client portal was
launched following an extensive development and upgrade.
Dividends paid and proposed per share
p30
+5.8%
2015: 55.0p
2014: 52.0p
* Restated following the adoption of IFRIC 21, as described in note 1
1 A reconciliation between underlying operating income and operating income is
shown in note 3 to the consolidated financial statements
December
Funds under management in Rathbone Unit Trust
Management passed £3.0 billion.
We completed the purchase of the remaining 80.1% of
Vision Independent Financial Planning Limited and Castle
Investment Solutions Limited on 31 December 2015.
2 A reconciliation between underlying profit before tax and profit before tax is shown in
table 2 of our performance on page 29
3 Underlying profit before tax as a % of underlying operating income
Rathbone Pension & Advisory Services gained regulatory
approval to integrate into Rathbone Investment Management.
We were awarded Investment Week’s Gold Standard Award
for Discretionary Portfolio Management for the second year
in a row.
Rathbone Brothers Plc Report and accounts 2015
1
Chairman’s statement
_U4A8472
Mark Nicholls
Chairman
n
o
i
t
c
u
d
o
r
t
n
I
Overview of 2015
In spite of subdued investment markets, 2015 was
another strong year for Rathbones. Our total funds under
management grew by 7.4% over the year to £29.2 billion
(2014: £27.2 billion). In August we took the opportunity to
raise £20 million of long term subordinated loan notes to
support our future growth. In December, we completed the
acquisition of the remaining 80.1% shareholding of Vision
Independent Financial Planning Limited, an independent
network of financial advisers. Over the year, we also
welcomed a number of experienced investment managers
and their clients to our business.
Profit before tax was £58.6 million in the year ended
31 December 2015, up 28.2% from the previous year as we
saw the full benefit of our 2014 acquisitions (2014:
£45.7 million). This translates into underlying earnings per
share of 117.0p for 2015, up 14.3% on the 102.4p last year.
The board is recommending a final dividend of 34p per
share, which brings the total dividend for the year to 55p
per share, an increase of 5.8% over last year.
Our strategy
Last year we set out our strategic plan and, although all
aspects of this are kept under review, our principal task this
year has been implementation. We have strengthened our
senior management team and made significant internal
and external appointments to the executive committee.
We have continued to invest in our research capabilities
and our investment process. We have combined the
distribution teams in our investment management and unit
trust businesses. We have recently integrated our advisory
business into our investment management business,
thereby improving service delivery to clients. We are
progressing with our plans for a private office.
“We have strengthened our senior
management team and made significant
internal and external appointments to
the executive committee.”
We remain well aware of the demands that the delivery
of these strategic objectives place on our people, together
with the higher costs of implementation. We will therefore
continue to move ahead with care so as not to increase risk
unnecessarily nor undermine our profitability.
Governance, culture and the board
The regulatory obligations on the board continue to
increase with the ‘senior management regime’ about to
be implemented. The board supports the need for the
individual accountability of directors but believes strongly
in the collective responsibility of the board.
Sound corporate governance is dependent on having a
robust culture and we welcome the growing emphasis of
our regulators on culture. The board believes Rathbones
has a good and ethical culture that benefits our clients and
all stakeholders. We are committed to ensuring that the
right values are embedded throughout the organisation
and that these values are upheld, notwithstanding the
pressures of growth and change. We are working hard as
a board to determine how best to monitor and preserve
our culture bearing in mind our growth strategy. Indeed a
particular responsibility of the chairman under the ‘senior
management regime’ is to lead the development of the
firm’s culture by the board. This will be a priority of mine.
“We are working hard as a board to
determine how best to monitor and
preserve our culture bearing in mind
our growth strategy.”
During the year, in addition to regulatory matters, the board
paid particular attention to monitoring our progress on
delivery of our strategic objectives, to making changes to the
management structure, to completing the acquisition of the
remaining shareholding in Vision, to issuing subordinated
loan notes and to planning the proposed move of our
London office. We have also discussed how we operate as a
board in light of the independent assessment carried out at
the end of 2014 and considered what new skills the board
requires and the timetable for succession. Sarah Gentleman
joined the board as a non-executive director on
21 January 2015.
2
Rathbone Brothers Plc Report and accounts 2015
Chairman’s statement
Governance, culture and the board
In January 2016, we announced that Richard Loader will
be stepping down as company secretary on 30 April 2016.
The board would like to thank Richard for his much valued
contribution to the success of the group since 1990 and we
wish him well for the future.
Risk
The report from the chairman of the group risk committee,
Kathryn Matthews, is set out on page 16. We welcomed the
arrival of Sarah Owen-Jones as chief risk officer in March
2015, who, with her team, has made considerable progress
in developing a new risk management framework this
year. Sarah has worked closely with the board to ensure
we have appropriate information on a timely basis and has
also helped streamline the reporting of risk throughout the
organisation. We have decided that, following the creation of
a conduct risk committee, which Sarah chairs, the conflicts
of interest committee is no longer required.
We continue to believe that the most significant risks to our
business are operational risks that arise from the growth
in our business and regulatory risks that may arise from
continual changes to rules and standards in our sector.
An emerging operational risk is cyber risk and we are
monitoring this carefully. The Financial Reporting Council
published new risk guidance in September 2014, which
requires us to report more formally this year on the principal
risks facing the business and to provide clearer information
on the long term viability of the business. These matters are
discussed in more detail on page 20 to 26.
Remuneration
The report from the chairman of the remuneration
committee, David Harrel, is set out on pages 70 to 84. All
executive directors have clear objectives, both corporate
and personal. Management are developing proposals for
remuneration schemes throughout the firm to reflect the
changes to our business and the regulatory environment
with which we must comply.
“Our employees have worked hard in
a year of considerable change. It was
particularly pleasing to see the positive
results from our first company-wide
employee satisfaction survey.”
n
o
i
t
c
u
d
o
r
t
n
I
Employees
The high quality of our employees is a major differentiator
for us and they are the biggest asset of our firm. Our
employees have worked hard in a year of considerable
change. It was particularly pleasing to see the positive
results from our first company-wide employee
satisfaction survey.
Shareholders
We are fortunate to have a number of positively engaged
institutional shareholders with a significant investment in
the company. I thank them for their support and we intend
to maintain a regular and constructive dialogue with them.
Outlook
Whilst we remain beset by geopolitical uncertainties, we
will continue to manage the business positively. We look
forward to completing our recently announced London
office move in early 2017, and continuing to take advantage
of growth opportunities in the sector.
Mark Nicholls
Chairman
23 February 2016
Rathbone Brothers Plc Report and accounts 2015
3
Chief executive’s statement
n
o
i
t
c
u
d
o
r
t
n
I
Philip Howell
Chief Executive
2015 market environment
Investment markets started 2015 in a buoyant mood with
the FTSE reaching an all time high in April, though they
subsequently proved exceptionally challenging for our
investment managers to navigate. Against this backdrop, our
private client business, Investment Management, delivered
a creditable investment performance overall and attracted
net new funds under management of £1.4 billion. Our Unit
Trusts business also proved its resilience by achieving net
inflows of £371 million, taking funds under management
to a new high of £3.1 billion at 31 December 2015.
Strategic update
In spite of market conditions, we stayed focused on delivery
of the medium-term strategy that we set out in 2014. We
remain confident that we are on track to achieve our goals.
We have continued to enhance our investment management
processes, and in particular invest in additional research
and risk management resources to underpin the decisions
made by our investment managers in serving our clients on
an individual basis. This is a three year programme which is
well underway. We have maintained our level of investment
in the technology that supports investment teams, which
we believe is a continued source of competitive advantage
for Rathbones in the market.
“In spite of market conditions, we stayed
focused on delivery of the medium-
term strategy that we set out in 2014.
We remain confident that we are on track
to achieve our goals.”
During the year, we reviewed our pricing structure to
ensure that it remains competitive and introduced a new
‘fee only’ tariff for all new private clients. During the second
half of 2015, we amended some fee schedules for some
existing private clients in order to bring these more in line
with the tariff for new clients. We hope the simplicity and
transparency of our new tariffs will convince all clients of
the benefits of a clean fee approach over time.
Net organic growth in the private client business,
Investment Management, of 3.0% reflected market
conditions and was at the lower end of our planned
range. However, our strategic initiatives to boost business
development remain on track, notably through our new
distribution team collaborating with independent financial
advisers, legal and accountancy firms. Progress in 2015
continued, with 10 strategic alliances and many more new
professional relationships established during the year. Our
plan to increase our involvement in the charities sector has
also made strong progress with funds under management
reaching £3.5 billion. Rathbones is now ranked fourth in the
Charity Finance Fund Management survey, moving up
two places from sixth last year. In parallel, our specialist
ethical investment business, Rathbone Greenbank
Investment, has established itself as a market leader in its
field and now serves over 1,400 clients with £0.76 billion
funds under management.
Our Unit Trusts business continues to demonstrate strong
performance and, in contrast to many of its peers, achieved
24.0% growth to a new high in funds under management of
£3.1 billion whilst also demonstrating its intrinsic operational
leverage. Rathbone Unit Trust Management continues to
play an integral role in our overall investment strategy.
“We continue to be alert to acquisition
opportunities. Acquired growth from
our new joiners in the year was very
much in line with our expectations and
importantly, client retention from our
two major acquisitions in 2014 has been
very strong.”
Alongside these strategic initiatives, we continue to be
alert to acquisition opportunities. Acquired growth from
our new joiners in the year was very much in line with our
expectations and importantly, client retention from our two
major acquisitions in 2014 has been very strong.
4
Rathbone Brothers Plc Report and accounts 2015
Chief executive’s statement
Strategic update
In May, we launched our new office in Glasgow, welcoming
14 new colleagues, and were very pleased to see them
attract over £186 million new funds under management
by 31 December 2015.
In October, we announced our intention to purchase the
remaining 80.1% stake in Vision Independent Financial
Planning Limited and Castle Investment Solutions Limited,
with the transaction formally completing on 31 December
2015. Vision will retain its independent status, but is
anticipated to contribute meaningfully to our net organic
growth objectives. At the year end, Vision had £845 million
funds under advice with the discretionary fund manager
panel, along with 81 independent financial advisers and
seven mortgage advisers operating nationally. It continues
to demonstrate strong growth momentum.
“During 2015, we gradually introduced
our new branding which is intended to
more accurately convey the progressive
attributes of the business, whilst not
losing touch with the heritage and values
that define our deep rooted culture.”
We continue to design and develop our Rathbone Private
Office offering to serve clients with £10 million of investible
assets and above. We are currently finalising arrangements
with the third party platform identified to serve clients in
this segment of the wealth spectrum and in 2016 we
expect to add new private banking professionals to launch
the initiative.
During 2015, we gradually introduced our new branding
which is intended to more accurately convey the
progressive attributes of the business, whilst not losing
touch with the heritage and values that define our deep
rooted culture. The final stage for the new branding was
reached with the launch of our new website in November.
In anticipation of the growing demands upon the leadership
team in delivering our growth strategy, we were pleased
to welcome Sarah Owen-Jones as chief risk officer and
promote four of our most experienced investment directors
to the executive committee: Rupert Baron, Ivo Clifton,
Andrew Morris and Richard Smeeton.
n
o
i
t
c
u
d
o
r
t
n
I
A year after launching our medium-term strategy, we
considered it sensible to conduct a staff satisfaction
survey. The results were very encouraging with an overall
engagement score of 88%, substantially ahead of the
financial services benchmark of 74%. This score collates the
average percentage of responses to questions relating to
pride, longevity, endeavour, advocacy and care. Naturally,
the survey identified aspects on which we can improve and
these have been added to the management agenda for the
coming year. The survey highlighted the strong culture that
has defined our business over decades, and one which we
will continue to nurture as we grow. Importantly, some of
the highest scores reflected our staff’s understanding and
commitment to delivery of the strategy.
Financial performance
This year was a strong one financially as the benefits of our
acquisitions supported results in what were challenging
investment markets. With this backdrop, growth did prove
more difficult, although total funds under management at
31 December 2015 were £29.2 billion, a 7.4% increase over
2014. Underlying profit before tax in 2015 increased
14.3% to £70.4 million from £61.6 million in 2014, in spite
of the average FTSE 100 Index on our billing dates falling
3.6% to 6415.
“This year was a strong one financially
as the benefits of our acquisitions
supported results in what were
challenging investment markets.”
Investment Management attracted £1.4 billion of net
inflows in 2015 (2014: £4.0 billion), of which £0.7 billion
(2014: £3.2 billion) represented acquired growth. The net
organic growth rate for the year was 3.0% (2014: 4.0%).
Charity funds under management increased to £3.5 billion
from £3.3 billion in 2014, while the number of charity
clients increased 5.9% to 1,213.
Our Unit Trusts business managed £3.1 billion of funds
under management at 31 December 2015 (2014: £2.5 billion).
The business attracted some £371 million of net funds in
2015; although a decrease of 33.0% on the £554 million
reported last year, a strong performance when looking
at the industry sectors in which we operate. Unit Trusts
continues to exhibit strong operating leverage, with profit
margin increasing to 32.7% in the year, an absolute increase
of 6.9% over the prior year. Fund performance
remains strong.
Rathbone Brothers Plc Report and accounts 2015
5
“Following an exhaustive search, we are
pleased to have secured a long-term
solution in committing to a lease at
8 Finsbury Circus. This is a brand new
yet elegant building in one of the most
prestigious addresses in the City.”
Outlook
Notwithstanding an uncertain market outlook, we have
decided to continue to progress our strategic initiatives.
Whilst this may impact our operating margin in the near
term, we continue to strive for a margin of 30% in most
market conditions, and will carefully balance our longer
term investment against the near term impact of lower
revenues during market downturns.
We enter 2016 with even more intense geopolitical
tensions and economic risks than last year, and nearer
home, the uncertainty of Britain’s future place in Europe
adds to the mix. This will require us to more frequently
review the timing and priority of projects.
We continue to be alert to accretive acquisition
opportunities that fit with our culture and investment
philosophy. Notwithstanding the prospect of another year
of market volatility, we are cautiously optimistic about
our ability to protect our clients’ interests whilst
maintaining our strategic momentum.
Philip Howell
Chief Executive
23 February 2016
n
o
i
t
c
u
d
o
r
t
n
I
Chief executive’s statement
Financial performance
Net interest income of £10.8 million increased by 17.4%
on the £9.2 million in 2014, reflecting larger than average
levels of liquidity. Our client loan book grew 14.8% to
£111.8 million from £97.4 million at the end of 2014.
The increase in underlying operating expenses to
£158.8 million reflected both the growth in the business and
the costs of planned strategic initiatives. Our underlying
operating margin was stable at 30.7% in line with a year ago.
Underlying earnings per share of 117.0p were up 14.3% on
the 102.4p earned in 2014. Profit before tax of £58.6 million
was up on the £45.7 million reported last year. A full list of
items excluded from underlying results is shown on
page 29.
Our consolidated Common Equity Tier 1 ratio at
31 December 2015 (including verified profits for the year)
stood at 16.4% compared to 17.7% at 31 December 2014.
In August, Rathbone Investment Management completed
an issue of Tier 2 capital in the form of £20 million of
10-year subordinated notes. Our consolidated leverage ratio
(including audited profits for the year) at 31 December 2015
was 7.7% compared with 7.3% at 31 December 2014.
Other notable events
In his Autumn Statement, the Chancellor announced a
supplementary 8% tax surcharge on banking profits to come
into effect from 1 January 2016. We were pleased to see
that measures incorporated in the final version of the 2015
Finance Bill mean that as long as the accepting of deposits
remains ancillary to our asset management activities, we
will be exempt from the tax surcharge.
During the year, it became clear that we are fast reaching full
capacity in the 44,000 sq ft of our London head office. This
has come somewhat earlier than we had anticipated and is
best explained by the fact that since moving into 1 Curzon
Street in 2012, our funds under management in London have
grown by 85% from £8.9 billion to £16.5 billion. Following
an exhaustive search, we are pleased to have secured a
long-term solution in committing to a 17 year lease on
75,000 sq ft at 8 Finsbury Circus. This is a brand new yet
elegant building in one of the most prestigious addresses in
the City, with excellent travel links. From 2018, our annual
cost for this substantially larger space in the City will be
broadly the same as what we would have been paying on
our smaller Mayfair premises. We plan to move in early 2017.
6
Rathbone Brothers Plc Report and accounts 2015
Strategic report
8
10
11
16
20
Our market
Our business model
Our approach
Strategy and key performance indicators
Risk management
Rathbone Brothers Plc Report and accounts 2015
7
Our market
At Rathbones, our main focus is on the
discretionary wealth market with around
92% of our funds under management
falling into that category. We believe that
face-to-face advice is truly valued by
clients, helping to keep our investment
managers in touch with their changing
circumstances. Our aim is to build
relationships for the longer term.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
The UK wealth market
— The UK asset management
— We operate in a highly
industry managed £6.8 trillion
as at the end of 2014, up
9.7% from a year earlier. It is
estimated that funds under
management increased
to £7.1 trillion in the first half
of 20151
fragmented market, with
approximately 180 registered
wealth management firms in the
UK. Firms would need to manage
over £20 billion funds under
management each in order to
hold a top 10 position
in the industry2
1 The City UK Fund Management
2015 report
2 PAM 2015, value of funds under
management as at 31 December 2014
3 Capgemini 2015 World Wealth
Report: a HNW individual is defined as
having >US$1m of investable assets
— The population of high net
worth (HNW) individuals in
the UK, defined as those with
>£650,000 of investable assets
increased by 4.4% to reach
550,000 by the start of
2015, compared to 527,000
a year earlier3
— UK retail investors seek a
wide range of services from
security trade execution, direct
investment in unit or investment
trusts to fully tailored investment
portfolios managed on a
discretionary basis
— Financial advice is increasingly
important as clients manage
their individual circumstances
in a fast-moving taxation and
regulatory environment
— Investing in property remains
an important alternative to a
stocks and shares portfolio when
providing for retirement
— In addition to balancing risk
and reward and the needs of
income generation versus capital
preservation, charities are now
increasingly interested in the
implementation of an ethical
investment policy
Total market
Our market
Total Rathbones funds under management
£6.8
trillion
~£3.0
trillion
£29.2
billion
Source: The City UK Fund Management
2015 report
Private clients £705 billion
Institutional (including
charities) £1,243 billion
Retail £1,063 billion
Private clients (Investment Management) £22.6 billion
Institutional (charities Investment Management) £3.5 billion
Retail (Unit Trusts) £3.1 billion
8
Rathbone Brothers Plc Report and accounts 2015
Strategic report
Our market
Today’s investors face an increasingly
complex set of opportunities and
challenges. Rathbones is well placed to
provide quality investment and advisory
services to a wide range of clients, and to
take advantage of growth opportunities
that fit in with our culture.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Opportunities
Trends
Individual investors
Institutional investors
Acquisitions
Continued change
— A growing advice gap in the UK
— Providing institutional quality
investment services to medium
sized institutions, such as
charities, tailored to their
varying needs including capital
preservation, income generation
and ethical commitments
— Keeping trustees informed
through events and training
on key issues
— An increasing need for individuals
to fund their own retirement
and plan adaptable investment
strategies to meet the financial
needs of them and their family
— Government granted flexibility
on pensions for clients to manage
their retirement savings
— The growing importance placed
on ethical investing
— Service gaps for individuals with
>£10 million to invest
— Meeting the demands of
investors and intermediaries
wishing to hold assets offshore
— More lending opportunities
secured on investment portfolios
— Trend away from defined
benefit schemes has allowed
for growth not only in defined
contribution schemes but
also in personal savings
— The growing importance of
multi asset investment solutions
— Supporting intermediaries and
their clients in investing in a
range of focused unit trusts
and OEICs
— Solutions for investors seeking
some guidance but who are
unwilling to pay for full advice
Due to the highly fragmented
nature of the industry, scale
is increasingly seen as a key
driver of success. This has been
evidenced through the volume
of deal activity in recent years, as
companies continue to struggle
with organic growth.
In light of the increasing burden
imposed by enhanced regulatory
requirements, many smaller
competitors have begun to
review their business models.
Rathbones is well positioned
to take advantage of the
opportunities this may create
provided they meet our
stringent criteria and we remain
cautious when considering
further acquisitions in favour of
preserving our strong culture.
The wealth and asset
management industry continues
to face regulatory and cost
pressures. A low interest rate
environment, concerns
over deflation in the eurozone
and a recession in many
emerging markets comprise
the backdrop for an industry
transforming itself.
We expect the complex
and changing compliance
environment to continue to
profoundly affect the industry.
MiFID II will have a widespread
effect on the regulatory
framework for the European
wealth and asset management
industry, particularly affecting
how they distribute products,
reward their advisers and
communicate with clients.
Regulatory change continues
to impact banking models with
little prospect of slowing down
in the medium term.
Rathbone Brothers Plc Report and accounts 2015
9
Our business model
Our vision is to be the UK’s leading
independently-owned provider of
investment and wealth management
services to private clients, charities,
professional intermediaries and trustees
by building trusted relationships with
our clients and delivering outstanding
client service, value for money and
investment excellence.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
We are building on our successful
business model to provide bespoke
investment solutions delivered by
high-quality professionals to a wider
and more diverse client base. As a bank
we are also able to provide lending
solutions to our clients.
e p e n d ent ownership
d
I n
— Building individual
relationships with clients
— Making informed
investment decisions
— Attracting and retaining
high-quality employees
e
r
u
t
l
u
c
e
t
a
r
o
p
r
o
g c
n
Stro
d
n
a
t
n
e
m
s
e
ic
v
r
e
s
y
r
o
s
t
s
e
i
v
v
n
d
I
a
L
e
ading brand an d r e p u
n
a ti o
t
Growth and value creation
— A track record of net
organic growth
— Successful acquisitions that fit
our culture
— Proactive cost management
— Value-based remuneration for
key staff
— Underlying operating margins
of around 30% throughout the
economic cycle
— Stable dividend growth
Investment and
advisory services
— Focus on discretionary
investment management
— Independent but complementary
unit trust business
— Support from financial planning
and advice, banking and loan
services, UK trust, legal estate
and tax advice and multi
asset funds
Leading brand and reputation
— A well founded brand
— Reliable systems and
infrastructure
— Accredited performance
reporting
Independent ownership
— Listed on the London
Stock Exchange
— Market capitalisation of
approximately £1 billion
at 31 December 2015
— c.15% staff shareholding1
Strong corporate culture
— Low staff turnover
— Commitment to training and
development
— Proactive management of
conduct and investment risks
1 Includes Rathbones staff, former staff
and directors
10
Rathbone Brothers Plc Report and accounts 2015
Our approach
A summary of our services
Rathbones manages £29.2 billion for clients, making us one
of the UK’s leading private client investment managers. We
provide investment solutions to clients with as little as
£1,000 to over £10 million to invest. Through Investment
Management, we provide discretionary investment
management solutions to private clients, charities and
trustees. We also provide other banking, financial advisory,
tax, legal and trust services. Through Unit Trusts, we provide
unit trust and multi asset fund products, sold through
intermediaries, to the retail sector.
Funds under management by segment
We also run the Rathbone Unitised Portfolio Service,
which represents an investment opportunity for clients
with fewer investible assets (£25,000 or more) who are still
looking for a discretionary investment management service
but who require a more model-based approach to portfolio
construction. This solution uses the Rathbone Multi Asset
Portfolios funds (see page 12) as building blocks and offers an
attractive proposition for intermediaries requiring a service
for smaller investors.
Client account type by value of funds under management
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Investment Management
Unit Trusts
%
89.4
10.6
Private clients
ISAs
Trusts
Charities
Pensions
Other
%
39.4
15.3
12.0
13.2
11.5
8.6
Private clients
We aim to provide a high-quality service that is relevant
to clients (and their advisers) looking for a discretionary
investment management service. Our approach is to build
face-to-face client relationships (supported by online
services) and deliver a bespoke approach to investment
management that tailors portfolios to individual needs by
accessing the whole of the market without a bias towards
in-house funds or services.
Our discretionary service is offered to clients with
investible assets of £100,000 upwards, but our average
client portfolio is around £500,000. Over half of the money
we manage is in client relationships of greater than
£1.0 million. During 2015, we received the Gold Standard
Award for Discretionary Portfolio Management from
Investment Week as well as the Magic Circle award for
Private Client Asset Manager of the Year.
Size of client relationship by value of funds under management
<£100,000
£100,000 — £250,000
£250,000 — £500,000
£500,000 — £1m
£1m — £5m
£5m — £10m
>£10m
%
2.0
7.9
14.0
17.5
32.4
8.4
17.8
Rathbone Brothers Plc Report and accounts 2015
11
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Our approach
Charities and specialist services
Rathbones currently services over 1,200 clients totalling
£3.5 billion through our charity business and manages
investments from £10,000 to more than £50 million for
charity organisations. We are proud to have moved to fourth
place in this year’s Charity Finance Fund Management
Survey, up from sixth place in 2014. We also received the
Magic Circle award for Charity Investment Manager of the
Year during the year.
Our core team is diverse in both its experience and
expertise with nine of our team members being charity
trustees in their own right. We provide clients with direct
access to the charity team in order to deliver a suitably
tailored investment portfolio and ensure that we understand
the challenges that our charity clients face.
Rathbone Greenbank Investments
As concerns for ethical and sustainability issues rise,
increasing numbers of people are seeking to reflect
these values in their investments. Since 1992, Rathbone
Greenbank Investments has worked with private individuals,
trusts, charities and their professional advisers. Importantly,
they only manage ethical and socially responsible
investment portfolios, and are supported by a dedicated
research team.
Rathbone Greenbank Investments is a prominent activist
on ethical and sustainability issues, engaging directly with
companies and government to improve business practices.
As one of the pioneers in the field of ethically focused
investments, Rathbone Greenbank works with over 1,400
clients across the UK and manages over £760 million in
assets, an increase of 7.2% year-on-year.
Private office
We began to build the Rathbone Private Office in October
2014 with the aim of combining many of the key business
capabilities we already offer to clients through our trust, tax,
family office support and banking services.
Nearly 18% of the portfolios we manage are worth, by value,
over £10 million and there is a significant opportunity to
expand our reach within the ‘super high net worth’ segment
of the market (£10 million — £100 million), which appears
to have been poorly served by international and UK private
banks, and multi-family offices.
The third party platform arrangements essential to
delivering a quality service have now been established and
during 2016 we expect to hire private bankers to drive the
initiative further forward.
Financial planning
For those clients who do not have advisers of their own,
we offer financial planning which provides ‘whole of market’
advice to clients. From 1 January 2016, Rathbone Pension
& Advisory Services will be integrated into Rathbone
Investment Management. This transition reflects the
increasingly important role that financial planning plays in
the wider business and aims to develop a more streamlined
client experience. Over time we expect that financial
planners will be able to work more closely with Rathbone
Investment Management investment managers to ensure
clients receive the best service possible.
Unit Trusts
Our independent Unit Trusts business is a leading UK fund
manager providing a range of actively managed specialist
and multi asset unit trusts that are designed to meet core
investment needs in the retail client market. These funds are
distributed mainly through independent financial advisers
in the UK and purchased through financial supermarkets
and life assurance companies.
The business has been growing successfully and as at
31 December 2015, it managed £3.1 billion in funds under
management, an increase of 24.0% over 2014. There is
no incentive for private client investment managers to
hold in-house unit trusts. At 31 December 2015, just over
1% of Rathbone Investment Management’s funds under
management were held in our own unit trusts.
During the year, we received a number of awards including
being named by Morningstar as a top 10 group for five year
risk-adjusted returns, receiving the Money Observer fund
award for best fund in the Ethical/SRI Bond category for our
Rathbone Ethical Bond Fund and receiving a five-star rating
award for online services by the FT Adviser Online Service
Awards.
Multi asset funds
Rathbone multi asset funds provide a useful investment
solution for clients with smaller investment portfolios
(from £1,000 to invest) and are the building blocks for the
collective investment management solution for smaller
private clients delivered via the Rathbone Unitised Portfolio
service. There are currently three multi asset strategies:
strategic growth, enhanced growth and total return. These
are all available to external investors and their advisers.
12
Rathbone Brothers Plc Report and accounts 2015
Our approach
Our approach to distribution
The most important source of growth for our discretionary
investment services comes through the networks of our
existing investment managers as well as referrals from
our existing clients. These types of referrals account for
approximately two thirds of new business.
In addition, we also operate a more structured intermediary
approach to larger networks and groups. A combined sales
team approach formally commenced on 1 January 2015
with the amalgamation of our business development and
sales teams into a single unit. This unit promotes both our
discretionary and unit trust services to the UK independent
financial adviser and intermediary market.
Our approach to larger intermediary networks and groups
Organisation
Single business
development team
Segment
Unit Trusts
This targeted independent financial adviser strategy is now
embedded and has attracted 10 new partnerships in the year.
We are focusing on building relationships with important
lawyer and accountant groups and are building a more
targeted management information infrastructure to assist
with this. We also operate a small international distribution
team targeting adviser networks in Europe.
On 31 December 2015, we completed the acquisition of the
remaining stake in Vision Independent Financial Planning
Limited. Vision will continue to operate independently
providing access to distribution for Rathbones.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Products and services
Channels
Unit trusts
UK financial advisers
Investment
Management
Onshore discretionary
investment management
International financial
advisers
Offshore discretionary
investment management
Professional intermediaries
Vision network
Competitive advantages
— Brand
— Local accountability and presence with consistency of outcome
— Consultative sales process
— Solutions that cover the wealth range
— Systems and infrastructure
Rathbone Brothers Plc Report and accounts 2015
13
Our approach
Other services
Banking and loan services
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
As a licensed deposit taker, we are able to offer our clients
loans directly secured against their investment portfolios,
or with a property element, as part of our portfolio
management service. We maintain prudent lending ratios,
offering only short to medium-term loans. We also provide
some payment services.
UK trust, legal, estate and tax advice
In addition to our investment services, we also have an
in-house team skilled at providing trust, and some tax and
legal services to clients. This advice is provided by Rathbone
Trust Company Limited, which is regulated by the Solicitors
Regulatory Authority.
Proprietary operations and IT
Our investment management and financial advisory
businesses are supported by an in-house operations
and IT team predominantly centred in our Liverpool
office. We have a dedicated in-house custody settlement
platform, which means that we benefit from not having
data reconciliation issues between multiple databases. By
retaining the majority of functions in-house, rather than
outsourcing them, we are able to control quality and service
standards. Where we cannot achieve service differentiation
or economies of scale we have outsourced; for example,
in unit trust administration. During 2015, we improved
our collective security settlement process and focused on
streamlining and speeding up our client take-on processes.
How we deliver our investment service
One of the most important virtues that set us apart from
our peers is our individual relationship approach. Our clients
have direct access to their investment managers who are
accountable for everything from portfolio performance
to administration. This means that clients know who is
managing their money, and the investment managers
know them. After meeting with clients to understand their
individual circumstances, requirements and objectives,
investment managers create personal investment plans
that reflect individual circumstances.
Once the investment managers have properly assessed the
needs of their client, they draw upon our investment process
which is an important part of the service we provide.
This process collects guidance from a series of committees
covering strategic asset allocation, stock selection, fixed
income, third party or collective funds and corporate
governance. These committees are supported by our
research team, investment managers and unit trust
managers. Of our 273 investment professionals, around
110 are actively involved in the daily running of our central
investment process with many more contributing on a
more ad hoc basis in terms of the dissemination of ideas
and research.
14
Rathbone Brothers Plc Report and accounts 2015
Our investment process
r
e
g
a
1
n
ortfolioco n str u c ti o
Investm ent m a n
P
Understanding
Invest
m
clie
n
t
n
e
e
d
s
a
n
e
n
t
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
m
d
a
n
a
e
x
g
p
e
e
r
c
t
a
t
i
o
n
s
2
e
e
t
mit
m
co
a s s e t allocation
Strategy
Our
investment
process
4
S
t
o
F
c
i
x
k
e
s
C
d
e
C
o
l
l
l
e
i
n
c
o
e
r
c
c
o
ti
o
I
n
v
e
s
t
p
o
t
i
v
r
a
e
s
t
e
g
o
v
m
n
e
c
o
m
c
o
m
c
o
m
mittee
ernance
mittee
mittee
m
e
n
t
s
ele
ction
3
g i c
e
S t r a t
Our approach
In addition to the strong and flexible framework for our
investment professionals to work within, we have also
established an investment executive committee (IEC)
which is responsible for monitoring the five investment
committees and also the performance of individual
investment managers on a risk-adjusted basis over one,
three and five year periods. This includes the evaluation
of overall performance against benchmarks and an
assessment of portfolio risk. In addition to these, the IEC
is also responsible for ensuring the investment process
is appropriately resourced, and that the process can
evolve to meet changing regulatory requirements and
market conditions.
Our portfolios are usually based on our multi asset
approach to investing, which provides us with the
flexibility to meet individual needs. Our strategic asset
allocation committee meets quarterly and is responsible
for determining the weightings for our investment
strategies. Our asset allocation framework is forward looking
and dynamic. In order to construct portfolios effectively
and manage risk, we divide assets into three building blocks,
which play complementary roles: Liquidity, Equity-type
risk and Diversifiers.
In 2014, Rathbone Investment Management received
the Global Investment Performance Standards (GIPS®)
accreditation for our performance measurement systems
which has added further credibility to the data and
systems that support our investment teams. In 2015, we
were successfully verified for continued compliance
with these standards.
Rathbone Brothers Plc Report and accounts 2015
15
Strategy and key performance indicators
We have three key strategic objectives.
The summary below outlines these
objectives and links them to the
key business risks that arise as we
pursue them.
The following three pages show the
ways in which we go about achieving
our objectives, together with some key
measures that demonstrate how we
have performed.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Strategic objectives
To provide high-quality investment
management, tax, trust and pension
services for private individuals, charities
and trusts.
To provide a growing stream of dividend
income for shareholders, delivered
through steady and consistent growth
in earnings per share.
Principal risks to strategy
Performance and advice
Processing
Regulatory
Reputational
Performance and advice
Processing
Regulatory
To provide an interesting and stimulating
career environment for staff, including a
commitment that all employees share in
the equity and profits of the business.
Regulatory
Reputational
p23
p25
p23
p23
p23
p25
p23
p23
p23
16
Rathbone Brothers Plc Report and accounts 2015
Strategy and key performance indicators
To provide high-quality investment management, tax, trust and pension services
for private individuals, charities and trusts.
Our 2014 strategic objectives:
In 2015 we have:
— Simplify our pricing structures to provide value for money
and greater transparency to clients
— Strengthen our in-house research capability to deepen our
UK and international securities coverage, and ensure that
access to research output is prompt and consistent
— Harness the experience of our business development
functions, now operating as a single sales team, in order to
extend our intermediary relationships
— Develop, over the medium term, an ‘advisory managed’
service for clients seeking greater involvement in portfolio
management decisions
— Introduced a new clean fee only rate for new private
clients from 1 January 2015 and, in July, amended fee
schedules for some existing private clients in order to
bring these more in line with the tariff for new clients
— Begun the implementation of a three year plan to
enhance our research function which is focused on three
core areas: improving research communications with
investment managers, building stronger team resources
in the equity analyst teams across Rathbone Investment
Management and Rathbone Unit Trust Management and
improving our risk capabilities
— Strengthened our engagement with financial
— Gradually realign and develop our existing Super High
Net Worth capabilities for clients with >£10m of investible
assets under the banner of the Rathbone Private Office
intermediaries, operating a combined sales team across
Investment Management and Unit Trusts and acquired
Vision Independent Financial Planning Limited
— Promote more communication with clients and continue
to develop our online service capability to support this
— Enhance our investment performance measurement and
— Gained regulatory approval to integrate Rathbone
Pension & Advisory Services into Rathbone
Investment Management
reporting, building upon our GIPS accreditation
— Begun to build a Rathbone Private Office by adding
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
— Develop our multi asset investment solution for clients
with <£100,000
— Continue to invest in and develop the framework for
controlling investment and conduct risks
key hires including a head of investment solutions and
a project manager, and identifying a quality third
party platform
— Significantly upgraded our website and online experience
for all users
— Streamlined processes to support and promote our multi
asset solution
— Added resources and tools to our performance, quality
assurance and investment risk teams
Key performance indicators
Total funds under
management
Net organic growth rates in
Investment Management funds
under management
Unit Trusts net inflows
Number of Investment
Management clients
29.2
27.2
22.0
18.0
30
20
15.9
10
n
o
i
l
l
i
b
£
6
5
4
3
2
1
%
5.4
5.4
4.0
3.0
3.0
600
500
400
300
200
100
n
o
i
l
l
i
m
£
327
97
66
554
60
50
371
38.4
40
46.0
47.0
39.5 41.0
0
0
0
’
30
20
10
0
2011 2012 2013 2014 2015
0
2011 2012 2013 2014 2015
0
2011 2012 2013 2014 2015
0
2011 2012 2013 2014 2015
Rathbone Brothers Plc Report and accounts 2015
17
Strategy and key performance indicators
To provide a growing stream of dividend income for shareholders, delivered through
steady and consistent growth in earnings per share.
Our 2014 strategic objectives:
In 2015 we have:
— Actively search for suitable bolt-on acquisition
— Announced the purchase of the remaining 80.1% of
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
opportunities and selectively recruit experienced
investment managers to join us
— Target net organic growth of 5% per annum throughout
the economic cycle in our core investment management
business
— Develop our range of unit trust and multi asset funds in
areas that fit our expertise and where we can add value
— Continue to operate a conservative treasury policy
— Invest in business systems to foster a better
understanding of profitability drivers at an individual or
team level
— Build our corporate charitable footprint and enhance our
Vision Independent Financial Planning Limited and Castle
Investment Solutions Limited in October 2015,
with the transaction completing on 31 December 2015
— Recruited 11 investment professionals and their support
teams in the year
— Issued Tier 2 capital in the form of £20 million
10-year subordinated notes to take advantage of suitable
acquisition opportunities
— Maintained a high rate (>95%) of client retention
from acquisitions
— Achieved a net organic growth rate of 3% in our
investment management business
social responsibility credentials
— Continued to expand our national presence by opening
— Continue to communicate regularly and transparently
with the market and shareholders
— Maintain open and effective relationships with regulators
and tax authorities
up an office in Glasgow
— Maintained our treasury policy of holding counterparties
of Fitch single ‘A’ rated and above, holding £583 million
with the Bank of England at 31 December 2015
(2014: £727 million)
— Re-signed to the United Nations Principles for Responsible
Investment, a set of voluntary guidelines that help
companies to address social, ethical, environmental and
corporate governance issues in the investment process
— Maintained market communication standards and invested
in a corporate management information system that will
offer improved support to business decisions at all levels
— Continued to have open dialogue with regulators and tax
authorities respecting the change to a ‘flexible’ model of
supervision set out by the Financial Conduct Authority
Key performance indicators
Dividend per share
Underlying profit before tax
Underlying earnings per share
Underlying operating margin
60
55
P
50
47
46
49
45
40
55
52
n
o
i
l
l
i
m
£
2011 2012 2013 2014 2015
44.8
46.2
70.4
50.5
61.5
80
70
60
50
40
30
20
10
0
2011 2012 2013 2014 2015
P
140
120
100
80
78.8
86.7
77.4
117.0
102.4
%
60
40
20
0
2011 2012 2013 2014 2015
33
32
32.0
30.7
29.4
28.8 28.6
31
30
29
28
27
26
2011 2012 2013 2014 2015
18
Rathbone Brothers Plc Report and accounts 2015
Strategy and key performance indicators
To provide an interesting and stimulating career environment for staff, including a
commitment that all employees share in the equity and profits of the business.
Our 2014 strategic objectives:
In 2015 we have:
— Promote a ‘team’ approach and wide investment process
participation amongst investment managers
— Actively involved over 110 investment managers in
various management and investment committees
— Review remuneration structures to reflect changes in the
— Reviewed all remuneration structures in light of changes
economic, regulatory and competitive environment
to UK bank employee regulations
— Proactively manage any capacity issues in investment
— Benchmarked a wide number of roles across the business
management teams
— Invest in leadership and management skills development
and ensured that reward levels remain relevant and
competitive
across the business
— Restructured a number of investment teams to increase
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
— Drive greater share ownership across the business through
remuneration schemes for investment personnel and key
support managers, and actively encourage ownership for
other staff
growth capacity
— Strengthened the executive committee in July with
the addition of chief risk officer Sarah Owen-Jones along
with four senior investment managers: Rupert Baron,
Ivo Clifton, Andrew Morris and Richard Smeeton
— Continued investment in training, with a particular focus
on leadership programmes and qualification support
— Increased the number of SIP participants to 973 from 871
a year earlier, and the number of outstanding SAYE share
options to 484,364 from 394,700 during the same period
— Conducted our first ever company-wide employee
satisfaction survey resulting in a very strong engagement
score of 88%, substantially ahead of the financial services
benchmark of 74%
— Agreed the move of our London headquarters to a
new 75,000 sq ft property at 8 Finsbury Circus to
facilitate growth and provide a more spacious working
environment for employees
Key performance indicators
Staff turnover
6
4
4
5
%
5
7
6
5
4
3
2
1
0
2011 2012 2013 2014 2015
1,000
750
500
250
0
Number of participants with
SIP partnership shares
Average full time equivalent
employees
767
718
652
675
845
1,500
1,000
746
789
833
981
880
500
Variable staff costs as a percentage
of underlying profit before tax and
variable staff costs
40
30
30
32
36
36
36
%
20
10
2011 2012 2013 2014 2015
0
2011 2012 2013 2014 2015
0
2011 2012 2013 2014 2015
Rathbone Brothers Plc Report and accounts 2015
19
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Risk management
We have continued to enhance the group’s risk
management framework and evolve the main components
of its risk governance, risk processes and risk infrastructure.
During 2015, we appointed a dedicated chief risk officer to
strengthen our operating model and infrastructure for risk
management. We have reviewed, developed and aligned
the group’s risk management framework and risk
committees, to reflect emerging themes which together
support our three lines of defence model. This has ensured
the risk management framework and risk processes
continue to provide a structured and consistent approach
across the group.
Three lines of defence
Rathbones adopts a three lines of defence model to support
its risk management framework. Under the framework,
responsibility and accountability for risk management are
effectively broken down as follows:
First line: Senior management and operational business
units are responsible for managing risks, by developing and
maintaining effective internal controls to mitigate risk.
Second line: The risk function and compliance function
maintain a level of independence from the first line. They are
responsible for providing oversight and challenge of the first
line’s day-to-day management, monitoring and reporting of
risks to both senior management and governing bodies.
Third line: The internal audit function is responsible
for providing an independent assurance to both senior
management and governing bodies as to the effectiveness
of the group’s governance, risk management and
internal controls.
Risk appetite
Rathbones’ risk appetite is defined as both the amount
and type of risk the group is prepared to take or retain
in the pursuit of its strategy. Our appetite is subject to
regular review to ensure it remains aligned to our strategic
goals. Within our risk appetite framework there are some
overarching parameters, alongside specific primary and
secondary measures for each risk category. At least annually
the board and group risk committee will formally review
and approve the risk appetite statement for the group and
assess whether Rathbones has operated in accordance with
its stated risk appetite measures during the year. Overall,
and notwithstanding the business growth and strategic
change programme for 2016, the board remains committed
to having a relatively low overall appetite for risk and to
ensuring Rathbones’ internal controls mitigate risk to within
appropriate levels. The board continues to recognise that the
business is susceptible to fluctuations in investment markets
and will bear losses from financial and operational risks from
time-to-time, either as reductions in income or increases in
operating costs.
Identification and profiling of
principal risks
Rathbones classifies risks using a hierarchical approach. The
highest level (Level 1) identifies risks as financial, conduct
or operational. The next level (Level 2) contains 16 risk
categories which are listed below. Detailed risks (Level 3) are
then identified as a subset of Level 2 risks and are captured
and maintained within a group risk register, which is the
principal tool for monitoring risks. The classification ensures
a structured approach to identifying all known material risks
to the business and those emerging risks which may impact
future performance, and is regularly reviewed.
Rathbones reviews and monitors its risk exposures closely,
considering the potential impact and any management
actions required to mitigate the impact of emerging issues
and future events. To ensure we identify our principal
risks, regular reviews take place with risk owners, senior
management and business units across the group. The risk
function conducts these reviews and risk workshops during
the year. A watch list is maintained to record any current
concerns, emerging issues and future events which will
or could have the potential to impact Rathbones’ risk
profile and may therefore require active management,
process changes or systems development. The group’s
risk profile, risk register and watch list are regularly
reviewed by the executive, senior management, board
and governance committees.
Rathbones assesses risks using a 1 — 4 scoring system, with
each Level 3 risk rated by assessing the likelihood of its
occurrence in a five year period and the associated impact.
A residual risk score and overall risk rating of high, medium
or low is then derived for the five year period by taking into
account an assessment of the internal control environment
or insurance mitigation.
Risk assessment process
As part of the risk management framework, the board
and senior management are actively involved in a
continuous risk assessment process. A regular review
and risk assessment is conducted for the board’s strategic
plan, supported by the annual Internal Capital Adequacy
Assessment Process (ICAAP) and Individual Liquidity
Adequacy Assessment (ILAA) work which assesses the
principal risks facing the group.
20
Rathbone Brothers Plc Report and accounts 2015
Risk management
Risk assessment process
Activities undertaken in relation to ICAAP, ILAA and reverse
stress testing support the risk assessment process, and stress
tests include consideration of the impact of a number of
material severe but plausible events that could impact the
business. The work also takes account of the availability
and likely effectiveness of mitigating actions that could be
taken to avoid or reduce the impact or occurrence of the
underlying risks.
Day-to-day, our risk assessment process considers both the
impact and likelihood of risk events, which could materialise
affecting the delivery of strategic goals and annual business
plans. A top-down and bottom-up approach ensures that
the risk assessment process is challenged and reviewed on
a regular basis. The board and senior management receive
regular reports and information from line management, risk
oversight functions and specific risk committees.
The group executive, group risk committee and other key
risk focused committees consider the risk assessments and
provide challenge, which is reported though the governance
framework and considered by the board.
Profile and mitigation of principal risks
Forty-one Level 3 risks continue to form the basis of the
group’s risk register, each of which is classified under one of
the 16 Level 2 risk categories.
Rathbones’ approach to managing risk is underpinned by an
understanding of our current risk exposures and how risks
change over time.
During the year there have been some changes to the 16
Level 2 risk categories; however, the underlying risk profile
and ratings for the majority of Level 2 risks have remained
consistent during 2015. The following table summarises the
most important changes to the risk ratings.
Ref Risk
in 2015 Description of change
Risk change
A Credit
D Pension
G Regulatory
Allocation of treasury assets to certificates
of deposit has increased by £278 million,
whilst cash held with central banks has
decreased by £144 million.
As the scheme matures and grows, its
valuation becomes more sensitive to
changes in expectations of future interest
rates and inflation.
Volume of regulation remains high
together with continued focus on conduct,
remuneration and taxation across the
financial services industry.
K Data integrity
and security
Continued increase in the threat of cyber
attack within the financial services sector.
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
During the year, the executive committee continued to
recognise a number of emerging risks and threats to the
business model and financial services sector as a whole,
particularly in the areas of cyber risk and geopolitical risk.
These have been taken into account in assessing our risk
profile.
Based upon the risk assessment processes identified above,
the board believes that the principal risks and uncertainties
facing the group have been identified within the information
below, and has recognised the impact of strategic change
in the year. The board continues to believe that the most
significant risks to the business are operational risks that
arise from the growth in our business, and regulatory
risks that may arise from continual changes to rules and
standards in our sector.
Our overall risk profile and ways in which we mitigate risks
are analysed below. The board receives assurance from
senior management and line management responsible as
the first line of defence that the systems of internal control
are operating effectively, and from the activities of the
second line and third line that there are no material control
issues which would affect the board’s view of its principal
risks and uncertainties.
In line with current guidance, we also include in the tables
the potential impacts (I) the firm might face and our
assessment of the likelihood (L) of each principal risk arising
in the event it materialises. These assessments take into
account the controls in place to mitigate the risks. However,
as always the case, should a risk materialise, a range of
outcomes (both in scale and type) might be experienced.
This is particularly relevant for firms such as Rathbones
where the outcome of a risk event can be influenced by
market conditions as well as internal control factors.
We have used ratings of high, medium and low in this risk
assessment. We perceive high risk items as those which
have the potential to impact the delivery of strategic
objectives, with medium and low rated items having
proportionately less impact on the firm. Likelihood is
similarly based on a qualitative assessment.
Rathbone Brothers Plc Report and accounts 2015
21
Risk management
Financial risks
Ref
Level 2 risk
A
Credit
The risk that one or more
counterparties fail to fulfil
contractual obligations,
including stock settlement
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Residual rating
I
L
How the risk arises
Key mitigators
Low Low
This risk can arise from placing funds with
other banks and holding interest-bearing
securities. There is also a limited level of
lending to clients
B
Liquidity
Low Low
The risk of having
insufficient financial
resources to meet
obligations as they fall due,
or that to secure access to
such resources would be at
an excessive cost
C
Market
Low Low
The 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
This risk can arise through day-to-day
operations in so far as a significant
proportion of client funds could be
withdrawn in a short time period and
marketable assets may not be realised in
time and at the value required
This risk can arise through two primary
areas: the exposure to mismatch between
repricing of the firm’s own financial assets
and liabilities and, to a lesser extent,
transactional foreign exchange risk
D
Pension
Med Low
The risk that the cost of our
defined benefit pension
schemes increases, or its
valuation affects dividends,
reserves and capital
This risk can arise through a sustained
deficit between the schemes’ assets and
liabilities. A number of factors impact a
deficit including increased life expectancy,
falling interest rates and falling equity
prices
— Banking committee oversight
— Counterparty limits and credit reviews
— Treasury policy and procedures
— Active monitoring of exposures
— Client loan policy and procedures
— Annual Individual Capital Adequacy
Assessment Process
— Banking committee oversight
— Daily treasury procedures, 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,
maturity mismatch and extent of marketable assets
— Robust application of policy and investment limits
— Board, senior management and trustee oversight
— Monthly valuation estimates
— Triennial independent actuarial valuations
— Investment policy
— Senior management review and defined
management actions
— Annual Individual Capital Adequacy
Assessment Process
Further detailed discussion of the group’s exposures to financial risks is included in note 32 to the consolidated
financial statements.
22
Rathbone Brothers Plc Report and accounts 2015
Risk management
Conduct risks
Ref
Level 2 risk
I
L
How the risk arises
Key mitigators
Residual rating
E
Business model
High Med
The risk that the business
model does not respond
in an optimal manner
to changing market
conditions such that
sustainable growth, market
share or profitability is
adversely affected
This risk can arise from both strategic
decisions which fail to consider the
current operating environment or can
be influenced by external factors such
as material changes in regulation, or
legislation within the financial
services sector
F
Performance and advice
Med Med
The risk that clients receive
inappropriate financial,
trust or investment advice,
inadequate documentation
or unsuitable portfolios
resulting in a failure to
meet clients’ investment
and/or other objectives or
expectations
This risk can arise through a failure to
appropriately understand the wealth
management needs of our clients and
a failure to apply suitable advice or
investment strategies, along with having
inadequate tools and systems in place
to support our client facing financial
professionals
G
Regulatory
High Low
The risk of failure by the
group (and/or a subsidiary)
to fulfil regulatory
requirements and comply
with the introduction of
new or changes to the
existing regulation
This risk can arise from failures by
the business to comply with existing
regulation or failure to identify and
react to regulatory change
H
Reputational
Med
Low
The risk of reputational
damage from financial
and non-financial
events or failing to meet
stakeholders’ expectations
This risk can arise due to a variety of
reasons, primarily within Rathbones.
This could be from the conduct of the
company or its employees, and from the
service or products provided to clients
t
t
t
r
r
r
o
o
o
p
p
p
e
e
e
r
r
r
c
c
c
i
i
i
g
g
g
e
e
e
t
t
t
a
a
a
r
r
r
t
t
t
S
S
S
— Board and executive oversight
— A documented strategy
— Annual business targets, subject to regular review and
challenge
— Regular reviews of pricing structure
— Continued investment in the investment process,
service standards and marketing
— Trade body participation
— Regular competitor benchmarking and analysis
— Investment governance and structured
committee oversight
— Management oversight and segregated quality
assurance and performance teams
— Performance measurement and attribution analysis
— Weekly investment management meetings
— Monthly investment manager peer reviews through
sampling
— Compliance monitoring
— Board and executive oversight
— Active involvement with industry bodies
— Compliance monitoring programme to examine the
control of key regulatory risks
— Separate anti-money laundering role with specific
responsibility
— Oversight of industry and regulatory developments
— Close contact with the regulators
— Documented policy and procedures
— Staff training and development
— Staff training and development
— Board and executive oversight
— Strong corporate values and approach to governance
— Positive culture regarding risk and regulation,
supported by appropriate remuneration practices
— Appropiate emphasis on the control environment
through the three lines of defence
— Proactive and positive communications with key
stakeholders
— Crisis response plan
— Monitoring of company performance relative to
competitors
Rathbone Brothers Plc Report and accounts 2015
23
Risk management
Operational risks
Ref
Level 2 risk
I
L
How the risk arises
Key mitigators
Residual rating
I
Business change
Med
Low
The risk that the planning
or implementation of
change is ineffective or
fails to deliver desired
outcomes, the impact
of which may lead to
unmitigated financial
exposures
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
J
Business continuity
Med
Low
The risk that an internal or
external event results in
either failure or detriment
to core business processes
or services
K
Data integrity and security
Med
Low
The risk of a lack of
integrity of, inappropriate
access to (or disclosure of)
client or company-sensitive
information
L
Fraud
Med
Low
The risk of fraudulent
action either internal
or external being taken
against the group (and/or a
subsidiary)
M
Legal
Med
Low
The risk of legal action
being taken against the
group (and/or a subsidiary)
or failure to comply with
legislative requirements
resulting in financial loss
and reputational damage
This risk can arise if the business is too
aggressive and unstructured with its
change programme to manage project
risks, resource capacity and capabilities
to deliver business benefits. The firm also
recognises the risks associated with its
planned office move in London, which will
lead to the subletting of some premises
This risk can arise from the business failing
to effectively control and administer its
core operating systems, manage current
and future resource requirements and
maintain appropriate security of its
infrastructure
This risk can arise from the firm failing
to maintain and keep secure at all times
sensitive and confidential data through
its operating infrastructure, including the
activities of employees and cyber threats
This risk can arise from failures to
implement appropriate management
controls to detect or mitigate impropriety
either within or external to the business
and services provided
This risk can arise from inappropiate
behaviour of individuals or from the
inadequate drafting of the firm’s
contractual documentation
— Executive and board oversight of material change
programmes
— Group programme board
— Dedicated project office function, use of internal and,
where required, external subject matter experts
— Documented business plans and 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 and encryption
— Penetration testing and multi layer network security
— Training and employee awareness programmes
— Physical security at all locations
— Executive oversight
— Documented policies and procedures
— Segregation of duties between front and back office
— System authority and payment limits
— System access controls
— Training and employee awareness programmes
— Executive oversight
— Retained specialist legal advisers
— Routine control of risks which might lead to litigation
if adverse outcomes are experienced by clients or
other third parties
— Documented policies and procedures
— Training and employee awareness programmes
24
Rathbone Brothers Plc Report and accounts 2015
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Risk management
Operational risks
Ref
Level 2 risk
N
Outsourcing
The 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
Residual rating
I
L
How the risk arises
Key mitigators
Med
Low
This risk can arise due to significant
unknown operational changes at key
outsourced relationships or a material
change to their business model which
affects their ability to provide the required
services for Rathbones
— Executive oversight
— Supplier due diligence and regular financial reviews
— Active relationship management, including regular
service review meetings
— Service level agreements and monitoring of key
This risk can arise across all areas of
the business as a result of resource
management failures or from external
factors such as increased competition or
material changes in regulation
O
People
Med Med
The risk of loss of key staff,
lack of skilled resources
and inappropriate
behaviour or actions.
This could lead to lack
of capacity or capability
threatening the delivery
of business objectives
or behaviour leading to
complaints, regulatory
action or litigation
performance indicators
— Compliance monitoring
— Executive oversight
— Succession and contingency planning
— Transparent, consistent and competitive
remuneration schemes
— Contractual clauses with restrictive covenants
— Continual investment in staff training and
development
— Employee engagement survey
— Appropriate balanced performance
measurement system
P
Processing
Low Med
The 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
This risk can arise from the failure of
management to implement and control
operational processes and systems to
support the volumes of transactions
processed on a daily basis
— Authorisation limits and management oversight
— Dealing limits and supporting system controls
— Active investment in automated processes
— Counter review/four-eyes processes
— Segration of duties
— Document procedures
— Annual controls assessment (ISA 3402 report)
Rathbone Brothers Plc Report and accounts 2015
25
t
r
o
p
e
r
c
i
g
e
t
a
r
t
S
Risk management
Assessment of the company’s prospects
The board prepares or reviews its strategic plan annually,
completing the Internal Capital Adequacy Assessment
Process (ICAAP) and Individual Liquidity Adequacy
Assessment (ILAA) work which forms the basis for capital
planning and regular discussion with the Prudential
Regulatory Authority (PRA).
During the year the board has considered a number of
stress tests and scenarios which focus on material or severe
but plausible events that could impact the business and
company’s financial position. The board also considers the
plans and procedures in place in the event that contingency
funding is required to replenish regulatory capital. On a
monthly basis, critical capital projections and sensitivities
have been refreshed and reviewed taking into account
current or expected market movements and business
developments.
The board’s assessment considers all the principal risks
identified by the group, and assesses the sufficiency of all
Pillar 1 risks (credit, market and operational risks) to required
regulatory standards. In addition, the following risks were
focused on for enhanced stress testing: equity market
risk, interest rate risk, a loss of business/competition risk,
business expansion risk and pension obligation risk.
The group considers the possible impacts of serious
business interruption as part of its operational risk
assessment process and remains mindful of the importance
of maintaining its reputation. Whilst the business is almost
wholly UK situated, it does not suffer from any material
client, geographical or counterparty concentrations.
Whilst this review does not consider all of the risks that the
group may face, the directors consider that this stress testing
based assessment of the group’s prospects is reasonable in
the circumstances of the inherent uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code,
the board has assessed the prospects and viability of the
group over a three year period taking into account the risk
assessments (which are based upon a five year period as
detailed above). The directors have taken into account
the firm’s current position and the potential impact of the
principal risks and uncertainties set out above. As part of
the viability statement the directors confirm that they have
carried out a robust assessment of the principal risks facing
the group including those that would threaten its business
model, future performance, solvency or liquidity.
The directors have determined that a three year period to
31 December 2018 constitutes an appropriate period over
which to provide its viability statement. The board does
consider five year projections as part of its annual regulatory
reporting cycle and its opinion of the likelihood of risks
materialising; however, the uncertainties associated with
predicting the future impact of investment markets on the
business make a three year period more aligned with its
detailed capital planning activity.
Based on this assessment, the directors confirm that they
have a reasonable expectation that the company will be able
to continue in operation and meet its liabilities as they all
fall due over the period to 31 December 2018.
26
Rathbone Brothers Plc Report and accounts 2015
Our performance
28
31
40
43
44
Group performance
Segmental review
Financial position
Liquidity and cash flow
Corporate responsibility report
Rathbone Brothers Plc Report and accounts 2015
Rathbone Brothers Plc Report and accounts 2015
27
27
Group performance
Paul Stockton
Finance Director
Financial performance remained strong in 2015 due to
continuing growth and the full benefit of 2014 acquisitions
impacting results. Total funds under management increased
7.4% to £29.2 billion (2014: £27.2 billion). Overall, the FTSE
100 Index ended the year 4.9% down at 6242 while the FTSE
WMA Balanced Index closed down 0.2% at 3531.
Chart 1. Group funds under management
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Group underlying operating income
Underlying operating income increased 14.1% to
£229.2 million driven largely by the positive impact of
2014 acquisitions and organic growth. A detailed analysis
of each component of income is set out in the segmental
review on pages 31 to 39.
A reconciliation between underlying operating income and
reported operating income is provided on page 111.
Chart 2. Group underlying operating income
Investment Management
Unit Trusts
2015
£m
209.0
20.2
229.2
2014
£m
185.3
15.5
200.8
Group underlying operating expenses
Underlying operating expenses increased 14.1% to
£158.8 million, largely reflecting a combination of fixed and
variable staff costs as the business grows as well as property,
IT, marketing and rebranding expenditure during the year
(see chart 3).
Total fixed staff costs increased by 18.7% to £73.5 million
in 2015, including inflation of 3.6% and growth of 11.5% in
average full time equivalent headcount to 981 (2014: 880).
Total variable staff costs increased by 12.8% to £39.7 million
reflecting growth in profits and funds under management.
Variable staff costs in 2015 represented 17.3% of underlying
operating income (2014: 17.5%) and 36.1% of underlying
profit before tax and variable staff costs (2014: 36.4%).
2016 will reflect the full year impact of hiring activity in 2015
in addition to salary inflation of around 3%.
Underlying operating expenses also included £3.3 million
(2014: £2.8 million) for awards payable to new investment
managers for the introduction of new clients where those
managers have been in situ for more than 12 months (see
note 2.1 to the financial statements).
Investment Management
Unit Trusts
Table 1. Group’s overall performance
Underlying 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
2015
£bn
26.1
3.1
29.2
2014
£bn
24.7
2.5
27.2
2014*
£m
(unless stated) (unless stated)
2015
£m
229.2
(158.8)
70.4
30.7%
58.6
20.8%
(12.2)
46.4
117.0p
97.4p
55.0p
200.8
(139.2)
61.6
30.7%
45.7
21.9%
(10.0)
35.7
102.4p
76.0p
52.0p
* Restated following the adoption of IFRIC 21, as described in note 1
1 A reconciliation between underlying profit before tax and profit before tax is
shown in table 2
2 Underlying profit before tax as a percentage of underlying operating income
3 The total interim and final dividend proposed for the financial year
28
Rathbone Brothers Plc Report and accounts 2015
Group performance
Group underlying operating expenses
In 2016, incremental costs of approximately £5.7 million are
expected to be incurred to support the implementation of
our strategic initiatives.
Capital expenditure
As planned, capital expenditure increased by £1.2 million,
largely as a result of opening a new office in Glasgow and
additional office space in Liverpool.
Group underlying profit before
tax/operating margin
Underlying profit before tax and earnings per share are
considered by the board to be a better reflection of true
business performance than looking at our results on a
statutory basis only. These measures are widely used by
research analysts covering the group. Underlying results
exclude income and expenditure falling in the seven
categories explained below. A full reconciliation between
underlying profit and profit attributable to shareholders is
provided in table 2.
Underlying profit before tax grew 14.3% from £61.6 million
in 2014 to £70.4 million driven largely by the positive impact
from 2014 acquisitions and organic growth. The underlying
operating margin, which is calculated as the ratio of
underlying profit before tax to underlying operating income,
was 30.7% for the year ended 31 December 2015 (2014:
30.7%). Profit before tax increased 28.2% to £58.6 million for
the year, up from £45.7 million in 2014.
Table 2. Reconciliation of underlying profit before tax
to profit before tax
Underlying profit before tax
Charges in relation to client relationships
and goodwill
Head office relocation costs
Acquisition-related costs
Refund of levies for the Financial Services
Compensation Scheme
Gain on disposal of financial securities
Gain on disposal of pension
administration business
Contribution to legal settlement
Profit before tax
2015
£m
70.4
(11.0)
(0.4)
(0.4)
—
—
—
—
58.6
2014*
£m
61.6
(8.3)
—
(1.1)
1.0
6.8
0.7
(15.0)
45.7
* Restated following the adoption of IFRIC 21, as described in note 1
Charges in relation to client relationships and
goodwill (note 22)
As explained in notes 1.15 and 2.1, client relationship
intangible assets are created when we acquire a business
or a team of investment managers. 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 2015 were £11.0 million
(2014: £8.3 million), reflecting historic acquisitions.
Head office relocation costs (note 9)
On 6 January 2016, we exchanged contracts for a 17 year
lease on office space at 8 Finsbury Circus with the intention
of moving the London head office to the new premises in
2017. As a result, we have reviewed our estimates of the
useful life of assets in the current premises and the timing
of dilapidations payments due under the existing leases,
resulting in total accelerated charges of £0.4 million in 2015
(2014: £nil).
In addition to the charge in 2015, the move is also expected
to result in accounting charges of up to £9.5 million in 2016.
These charges reflect the rental costs of 8 Finsbury Circus, as
well as provisions for dilapidations on the new property and
accelerated depreciation charges for 1 Curzon Street.
A non-cash charge will also be incurred when our current
Curzon Street premises are vacated, which is expected to
be in the first quarter of 2017, representing the discounted
cost of the remaining lease obligations in Curzon Street
(which end in 2023) net of expected income from subletting.
Based on current assumptions, this charge could amount to
approximately £8 million.
Acquisition-related costs (notes 8, 21 and 35)
Net costs of £0.4 million were incurred in relation to the
acquisitions of Vision Independent Financial Planning
Limited (‘Vision’) and Castle Investment Solutions Limited
(‘Castle’), which were completed on 31 December 2015. This
includes the impact of fair value adjustments for our 19.9%
holding in the companies prior to the acquisition, the write
off of the related options and associated professional fees.
As described in note 35, deferred payments to vendors
who are remaining in employment of £10.2 million will be
charged to profit or loss over the deferral period. Of this,
£6.0 million is expected to be charged in 2016.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Rathbone Brothers Plc Report and accounts 2015
29
Group performance
Group underlying profit before tax/operating margin
Taxation
e
c
n
a
m
r
o
f
r
e
p
r
u
O
In 2014, professional fees of £1.1 million were incurred in
relation to the purchase of part of Deutsche Asset & Wealth
Management’s London-based private client investment
management business and the acquisition of Jupiter’s
private client and charity investment management business.
Refund of levies for the Financial Services Compensation
Scheme (note 6)
In December 2014, the Financial Services Compensation
Scheme announced that they had made recoveries of
approximately £50 million in relation to the failure of
Keydata and other intermediaries. The share of
recoveries returned to us was £1.0 million. No such
amounts arose in 2015.
Gain on disposal of financial securities (note 6)
During 2014, we disposed of our remaining holdings of
shares in the London Stock Exchange Group Plc and
Euroclear Plc, raising £6.8 million from the disposals. We
acquired the shares as we were a member of the London
Stock Exchange and Crest at the time of their respective
listings. No such income arose in 2015.
Gain on disposal of pension administration business
(note 6)
On 31 December 2014, we disposed of our self-invested
personal pension (SIPP) administration business, which
was no longer considered to be a core component of our
activities. This generated net proceeds of £0.7 million.
Contribution to legal settlement (note 7)
In 2014, we contributed £15.0 million to a settlement of
legal proceedings in Jersey involving a former director and
employee of a former subsidiary and in respect of legal
proceedings against certain of our civil liability (professional
indemnity) insurers. No such costs were incurred in 2015.
Chart 3. Group underlying operating expenses £m
The tax charge for 2015 was £12.2 million (2014: £10.0
million), and represents an effective tax rate of 20.8% (2014:
21.9%). A full reconciliation of the income tax expense is
provided in note 11 to the financial statements.
The Finance Bill 2015, which included provisions for the UK
corporation tax rate to be reduced to 19% in April 2017 and
18% in April 2020, gained royal assent in November 2015.
Deferred tax balances have therefore been calculated based
on these reduced rates where timing differences are forecast
to unwind in future years.
The Finance Bill 2015 also introduced a banking surcharge,
which adds 8% to the effective tax rate for banks exceeding
certain thresholds relating to the scale of banking operations.
However, the measures incorporated in the final version
of the Finance Bill 2015 mean that as long as the accepting
of deposits remains ancillary to our asset management
activities, we will be exempt from the tax surcharge.
Basic earnings per share
Basic earnings per share for the year ended 31 December
2015 were 97.4p, up significantly from the 76.0p reported
in 2014, which incorporated the impact of the placing of
1,343,000 shares during that year. On an underlying basis,
earnings per share increased by 14.3% to 117.0p in 2015 (see
note 13 to the financial statements).
Dividends
In light of the results for the year, the board has proposed
a final dividend for 2015 of 34p. This results in a full year
dividend of 55p, an increase of 3p on 2014 (5.8%). The
proposed dividend is covered 1.8 times by basic earnings
and 2.1 times by underlying earnings.
170.0
160.0
150.0
140.0
130.0
120.0
30
Acquisitions
People
Other
6.6
2.2
3.8
2.7
139.3
1.3
1.2
1.7
158.8
2014 underlying Acquisitions
expenses
Staff cost
inflation
Headcount
growth
Variable staff
costs
Pension
costs
Marketing
Other
2015 underlying
expenses
Rathbone Brothers Plc Report and accounts 2015
Segmental review
The group is managed through two key operating segments,
Investment Management and Unit Trusts. The activities of
the group are described in detail in the strategic report on
pages 11 to 15.
The Investment Management segment comprises those
activities described under the headings: private clients,
charities and specialist services, Greenbank, private office
and other services as well as the group’s treasury operations.
The Investment Management segment also includes Vision
and Castle, which were acquired on 31 December 2015
(see note 35). However, as these businesses were not part
of the group until the very end of the year, they have been
excluded from the analysis below.
The Unit Trusts segment comprises those activities described
under the unit trust funds and multi asset funds headings.
Investment Management
The financial performance of Investment Management 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, commissions
charged for transactions undertaken on behalf of clients
and the interest margin earned on cash in client portfolios
and loans to clients, as described below. Portfolios are
closely managed by investment managers, who maintain
relationships with clients 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 3.
Table 3. Investment Management — key performance indicators
2015
2014
Funds under management at 31 December1
£26.1bn
£24.7bn
Underlying rate of net organic growth in
Investment Management funds under
management1
Underlying rate of total net growth in
Investment Management funds under
management1
5.7%
19.6%
Average net operating basis point return2
76.2bps
77.2bps
Number of Investment Management clients
47,000
46,000
Number of investment managers
260
249
1 See table 4
2 See table 7
During 2015, Investment Management has continued
to attract new clients both organically and through
acquisitions. The total number of clients (or groups of closely
related clients) increased from approximately 46,000 in
2014 to over 47,000 during the year, with the 2014 number
bolstered by the addition of some 2,800 clients joining as
a result of the Deutsche Asset & Wealth Management and
Jupiter Asset Management transactions. During 2015, the
total number of investment managers increased to 260 at
31 December 2015 from 249 at the end of 2014.
Chart 4. Investment Management — number of clients and
investment managers
Number of Investment Management clients ‘000
38.4
39.5
41.0
46.0
47.0
e
c
n
a
m
r
o
f
r
e
p
r
u
O
50
40
30
20
10
0
2011
2012
2013
2014
2015
Number of investment managers
249
260
205
209
184
300
250
200
150
100
50
0
The average net operating basis point return on funds under
management has fallen slightly in 2015; although fee returns
have increased, this was offset by poorer than expected
commission levels in weaker second half markets.
Rathbone Brothers Plc Report and accounts 2015
31
3.0%
4.0%
2011
2012
2013
2014
2015
Segmental review
Investment Management
Funds under management
Investment Management funds under management
increased by 5.7% to £26.1 billion at 31 December 2015
from £24.7 billion at the start of the year. This increase is
analysed in table 4.
Table 4. 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
e
c
n
a
m
r
o
f
r
e
p
r
u
O
2015
£bn
24.7
3.0
2.3
0.7
(1.6)
—
26.1
0.7
3.0%
5.7%
2014
£bn
20.2
5.5
2.3
3.2
(1.5)
0.5
24.7
0.8
4.0%
19.6%
1 Value at the date of transfer in/(out)
2 Value at 31 December
3 Represents the impact of market movements and investment performance
4 Organic inflows less outflows
5 Net organic new business as a percentage of opening funds under management
6 Net organic new business and acquired inflows as a percentage of opening
funds under management
Investment Management net organic growth of 3.0%
(2014: 4.0%) was below the targeted 5.0% organic growth
across the economic cycle, largely reflecting market
conditions during the year.
All areas of Investment Management contributed to growth
in 2015, with referrals from existing clients remaining a key
source of new business. Charity funds under management
continued to grow strongly and reached £3.5 billion at
31 December 2015, up 6.1% from £3.3 billion at the start of
the year. The most recent Charity Finance survey placed the
group as the fourth largest charity investment manager in
the UK by funds under management as at 30 June 2015.
Investment Management retained marketing focus on
intermediaries during the year. Funds under management in
accounts linked to independent financial advisers (IFAs) and
provider panel relationships increased by £0.6 billion during
2015, ending the year at £5.5 billion compared to £4.9 billion
in 2014. Vision and Castle, which the group purchased the
remainder of on 31 December 2015, represented £634 million,
up from £496 million in 2014. Net inflows arising from those
clients introduced to the group by Vision during the year
have been reported within organic growth.
Acquired inflows of £3.2 billion in 2014 included
£2.6 billion from the purchase of part of Deutsche Asset
& Wealth Management’s London-based private client
investment management business and the acquisition
of Jupiter Asset Management’s private client and charity
investment management business in June 2014 and
September 2014 respectively.
In total, net organic and acquired growth added £1.4 billion
to Investment Management funds under management in
2015 (2014: £4.0 billion), representing an underlying rate of
total net growth of 5.7% (2014: 19.6%).
Average investment returns across all Investment
Management clients were positive in 2015, and at 3.5% total
return, were 0.8% above the FTSE WMA Balanced Index.
This was due in large part to sector allocations across UK
equities and in particular to Investment Management’s
underweight position in the oil and mining sectors
throughout the year, where the continued weakness in the
price of oil and commodities hampered these stocks. In
2015, Investment Management maintained a lower overseas
exposure than the FTSE WMA Indices, but stock selection
was good particularly in European collectives.
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;
— commissions, which are levied on transactions
undertaken on behalf of clients who are not on a fee only
tariff; and
— an interest margin earned on the cash held in clients’
portfolios and on loans to clients.
On 1 January 2015, Investment Management launched a
revised tariff for new clients. The new rates are intended
to provide increased transparency to clients on the overall
level of charges, and are in line with the trend away from
commissions within the industry. In July, our existing
private clients who were on our old fee only or fee and
commission rates were moved onto the new rate cards.
32
Rathbone Brothers Plc Report and accounts 2015
Segmental review
Investment Management
Table 5. Investment Management — financial performance
Net investment management fee income1
Net commission income
Net interest income2
Fees from advisory services3 and other income
Underlying operating income
Underlying operating expenses4
Underlying profit before tax
2015
£m
143.8
43.1
10.8
11.3
2014
£m
120.5
43.7
9.2
11.9
209.0
(145.2)
185.3
(127.8)
63.8
57.5
Underlying operating margin5
30.5%
31.0%
1 Net investment management fee income is stated after deducting fees and
commission expenses paid to introducers
2 Presented net of interest expense paid on client accounts; excludes interest on
own reserves and interest payable on Tier 2 loan notes issued
3 Fees from advisory services includes income from trust, tax and pension
advisory services
4 See table 8
5 Underlying profit before tax as a percentage of underlying operating income
Net investment management fee income increased by
19.3% from £120.5 million to £143.8 million in 2015,
benefiting from the fee tariff increase during the third
quarter and a full year’s income from clients subject to the
transactions with Jupiter Asset Management and Deutsche
Asset & Wealth Management. For the majority of clients,
fees are calculated based on a tiered fee scale applied to
the value of funds at Investment Management’s quarterly
charging dates. Average funds under management on these
billing dates in 2015 were £25.7 billion, up 15.8% from 2014.
Table 6. Investment Management — average funds
under management
2015
£bn
Valuation dates for billing:
— 5 April
— 30 June
— 30 September
— 31 December
Average
26.1
25.6
24.8
26.1
25.7
2014
£bn
20.7
21.6
22.0
24.7
22.2
Average FTSE 100 level1
6415
6657
1 Based on the corresponding valuation dates for billing
In 2015, net commission income of £43.1 million was down
1.4% on £43.7 million in 2014. This was primarily due to
market sentiment, particularly in the second half of the year,
as well as the positive impact in 2014 of work to rebalance
the portfolios of new clients who joined us through our
acquisitions in that year. The fee tariff changes in 2015 also
depressed commission income as new clients now pay a
fee only rate.
Net interest income of £10.8 million in 2015 was 17.4%
above the £9.2 million in 2014 as Investment Management
increased the amount invested in fixed income securities
over the course of the year as conditions in inter-bank
markets improved. Cash held at the Bank of England fell
from £727.2 million at 31 December 2014 to £583.2 million
at the end of 2015. The Investment Management loan book
contributed £2.9 million to net interest income in 2015
(2014: £2.7 million). Included in net interest income is
£0.5 million of interest payable on the Tier 2 notes issued
in August 2015.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Chart 5. Investment Management — funds under management five year growth £bn
14.8
16.7
20.2
24.7
26.1
30
25
20
15
10
5
0
2011
2012
2013
2014
2015
FTSE 100 Index*
FTSE WMA Balanced Index*
* Index figures show how funds under management would have changed between 2011 and 2015 if they had tracked each index
Rathbone Brothers Plc Report and accounts 2015
33
Brand
We aspire to hold a reputation amongst our clients and peers
of professionalism, reliability, efficiency and trustworthiness.
We believe that our new brand identity reflects the way we
operate as we continue to move with the times, blending
new ideas and the latest technology with our long-standing
investment management experience and constant values.
Our refreshed brand identity conveys the 3IQ attributes —
Individual, Independent, Informed and Quality, which
are at the heart of our corporate culture and the way we
do business.
We have now deployed our new website, marketing
materials and various internal/external branding materials.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
34
Rathbone Brothers Plc Report and accounts 2015
Segmental review
Investment Management
Overall, we saw a slight decrease in the return earned
on average funds under management to 76.2 bps from
77.2 bps in 2014, as the reduction in commission income
offset growth in fees.
Table 7. Investment Management — revenue margin
Basis point return1 from:
— fee income
— commission
— interest
Basis point return on funds under management
2015
bps
56.0
16.8
3.4
76.2
2014
bps
54.2
19.7
3.3
77.2
1 Underlying operating income (see table 5), excluding interest on own reserves,
interest payable on Tier 2 notes issued, fees from advisory services and other
income, divided by the average funds under management on the quarterly billing
dates (see table 6)
Underlying operating expenses in Investment
Management for 2015 were £145.2 million, compared
to £127.8 million in 2014, an increase of 13.6%. This is
highlighted in table 8.
Table 8. Investment Management — underlying operating expenses
Staff costs1
— fixed
— variable
Total staff costs
Other operating expenses
2015
£m
51.3
29.4
80.7
64.5
2014
£m
43.9
25.8
69.7
58.1
Underlying operating expenses
145.2
127.8
Underlying cost/income ratio2
69.5%
68.9%
1 Represents the costs of investment managers and teams directly involved in
client-facing activities
2 Underlying operating expenses as a percentage of underlying operating income
(see table 5)
Fixed staff costs of £51.3 million increased by 16.9%
year-on-year, principally reflecting a 14.4% increase in
average headcount and growth in pension costs due to low
gilt yields at the beginning of 2015. Variable staff costs are
also higher, reflecting higher underlying profitability and
growth in funds under management.
Other operating expenses of £64.5 million include
property, depreciation, settlement, IT, finance and other
central support services costs. The year-to-year increase of
£6.4 million (11.0%) reflects increased investment in the
business, recruitment and higher variable awards in line
with growth in business profitability.
Unit Trusts
Chart 6: Unit Trusts funds
Rathbone Income Fund
Rathbone Global Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Global Alpha Fund
Rathbone Active Income Fund for Charities
Rathbone Recovery Fund
Rathbone Blue Chip Income and Growth Fund
Rathbone Strategic Bond Fund
Rathbone Multi Asset Portfolios
Other funds
e
c
n
a
m
r
o
f
r
e
p
r
u
O
2015
£m
1,188
674
359
112
105
73
71
56
189
246
3,073
2014
£m
995
504
255
110
52
74
67
65
164
234
2,520
Unit Trusts’ financial performance is principally driven
by the value and growth of funds under management.
Year-on-year changes in the key performance indicators
for Unit Trusts are shown in table 9.
Table 9. Unit Trusts — key performance indicators
2015
2014
Funds under management at 31 December1
£3.1bn
£2.5bn
Underlying rate of net growth in Unit Trusts
funds under management1
Underlying profit before tax2
1 See table 10
2 See table 12
16.0%
33.3%
£6.6m
£4.0m
Rathbone Brothers Plc Report and accounts 2015
35
Property
London
We have grown very successfully in London in recent years.
In the four year period that we have been at Curzon Street,
London funds under management have grown from
£8.9 billion to £16.5 billion as at 31 December 2015. As a
result, the need for a larger property to cater for current and
future staff was required earlier than originally anticipated.
In early 2017, Rathbones’ head office will move from its
44,000 sq ft space at 1 Curzon Street to a 75,000 sq ft space
at new development, 8 Finsbury Circus.
We believe with its quality architecture and strong
transport links, 8 Finsbury Circus will provide a welcoming
environment for our clients. Crucially, it will also allow all
of our London-based staff to work together under one roof
whilst also creating capacity for future growth.
Liverpool
During 2015, we expanded our office space in Liverpool
by approximately 18%, adding a further 12,000 sq ft to our
existing 65,000 sq ft in the Port of Liverpool Building.
Glasgow
In May, we opened a new 5,000 sq ft office in Glasgow,
welcoming 14 new colleagues to the Athenaeum building.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
1
2
1 Our new London head office at 8 Finsbury Circus
2 The Port of Liverpool building*
* Photograph: Chris Howells
36
Rathbone Brothers Plc Report and accounts 2015
Segmental review
Unit Trusts
Funds under management
The recent upward trend in the retail asset management
industry’s sales stuttered in 2015 with net retail sales of
£17.6 billion, down £3.2 billion on 2014, as reported by the
Investment Association (IA). The IA cited a slow start in
the first quarter because of macro economic issues, but
sales growth recovered after that and industry funds under
management rose to £870 billion by the end of the year
(2014: £835 billion). Sales across the industry remained
concentrated in a relatively small number of funds.
Equity remained the best selling asset class, with net sales
of £8.4 billion in 2015, only £0.2 billion down on 2014. UK
Equity Income, where Unit Trusts have particular expertise
and two strong product offerings, was again the best selling
IA sector in 2015 overall with £4.3 billion net retail sales.
Global was the second best region at £2.2 billion net
retail sales.
Against this backdrop, Unit Trusts’ positive momentum
continued through 2015 with gross sales of over £0.9 billion
(2014: £1.0 billion). As a result, Unit Trusts’ funds under
management closed the year up 24.0% at £3.1 billion
(see table 10). Net inflows of £0.4 billion (2014: £0.6 billion)
continued to be spread across the range of funds, with the
Income, Global Opportunities and Ethical Bond funds
seeing particularly strong sales in the year.
Table 10. Unit Trusts — funds under management
As at 1 January
Net inflows
— inflows1
— outflows1
Market adjustments2
As at 31 December
2015
£bn
2.5
0.4
0.9
(0.5)
0.2
3.1
2014
£bn
1.8
0.6
1.0
(0.4)
0.1
2.5
Underlying rate of net growth3
16.0%
33.3%
1 Valued at the date of transfer in/(out)
2
3 Net inflows as a percentage of opening funds under management
Impact of market movements and relative performance
Chart 7: Unit Trusts — annual net flows £m
600
400
200
0
554
327
371
97
66
2011
2012
2013
2014
2015
During 2015, the range of funds maintained their strong
long-term performance track record, which is critical to
sales momentum.
Table 11. Unit Trusts — fund performance
2015/(2014) Quartile ranking1 over:
Rathbone Blue Chip Income and
Growth Fund
Rathbone Ethical Bond Fund
Rathbone Global Opportunities Fund
Rathbone Income Fund
Rathbone Recovery Fund
Rathbone Strategic Bond Fund2
1
year
1 (2)
1 (2)
1 (2)
1 (1)
1 (4)
2 (2)
3
years
5
years
2 (2)
1 (1)
1 (1)
1 (1)
1 (2)
2 (3)
2 (2)
1 (1)
1 (1)
1 (1)
2 (1)
n/a (n/a)
e
c
n
a
m
r
o
f
r
e
p
r
u
O
1 Ranking of institutional share classes at 31 December 2015 and 2014 against
other funds in the same IA sector
2 Performance data for the Rathbone Strategic Bond Fund is not yet available
beyond three years as the fund was launched on 3 October 2011
Investors continued to switch from retail to institutional
units across all of our funds during the year. Institutional
units carry a lower annual management charge (typically
half that of retail units) but do not allow for any form of
trail commission. By 31 December 2015 some 76% of
holdings in Unit Trusts’ retail funds were in institutional
units (31 December 2014: 60%).
Rathbone Brothers Plc Report and accounts 2015
37
Research
Source
We have extensive in-house investment expertise and
resources from Rathbone Investment Management and
Rathbone Unit Trust Management and blend these skills
with outside specialists to ensure clients benefit from the
best investment thinking. We also use economic analysis
from several independent groups. They inform our
process as trusted advisers and we have developed these
relationships over many years.
Committees
Investment managers can access guidance from a series
of committees covering strategic asset allocation, stock
selection, fixed income, third party or collective funds and
corporate governance. These committees are supported
by our research team and benefit from participation from
investment managers and unit trust managers. Of our
273 investment professionals, around 110 are actively
involved in the running of our central investment process
with many more contributing on a more ad hoc basis in
terms of the dissemination of ideas and research.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Output
Output from our investment process is delivered in a variety
of ways to teams across Rathbones. This material is widely
used to support the investment choices made for clients
from across the full breadth of the market.
Future plans
We have begun the implementation of a three year plan to
enhance our research function which is focused on three
core areas: improving research communications with
investment managers, building stronger team resources
in the equity analyst teams across Rathbone Investment
Management and Rathbone Unit Trust Management,
and improving our risk capabilities to help meet the
requirements of our many clients.
Investment Management
Investment committee
Unit Trusts
Research team
Investment managers
Asset allocation
Fund managers
UK equity
Overseas equity
Collectives
Fixed income
Governance
External research
Rathbones recommendations and Rathbones stock lists
Freedom to choose assets and products from whole of market
38
Rathbone Brothers Plc Report and accounts 2015
Segmental review
Unit Trusts
Financial performance
Table 13. Unit Trusts — underlying operating expenses
2015
£m
Unit Trusts’ income is primarily derived from:
— annual management charges, which are calculated on the
daily value of funds under management, net of rebates
and trail commission payable to intermediaries; and
— net dealing profits, which are earned on the bid-offer
spread from intra-day sales and redemptions of units and
market movements on the very small stock of units that
are held on our books overnight.
Table 12. Unit Trusts — financial performance
Net annual management charges
Net dealing profits
Interest and other income
Underlying operating income
Underlying operating expenses1
Underlying profit before tax
2015
£m
17.6
2.2
0.4
20.2
(13.6)
6.6
2014
£m
13.3
1.9
0.3
15.5
(11.5)
4.0
Underlying operating margin2
32.7%
25.8%
1 See table 13
2 Underlying profit before tax divided by underlying operating income
Net annual management charges increased 32.3% to
£17.6 million in 2015, driven principally by the rise in
average funds under management. Net annual management
charges as a percentage of average funds under management
increased to 63 bps (2014: 60 bps) as the total income from
the Rathbone Multi Asset Portfolio Service units are now
recognised within the Unit Trusts segment following the
transfer to Unit Trusts of the fund manager, whereas 25 bps
was previously recognised in Investment Management.
Excluding the impact of this change, the return fell
marginally to 59 bps.
Net dealing profits of £2.2 million increased by 15.8% on
£1.9 million in 2014 due to a higher level of redemptions in
the first half of the year. Underlying operating income as
a percentage of average funds under management grew to
72 bps in 2015 from 70 bps in 2014.
Staff costs:
— fixed
— variable
Total staff costs
Other operating expenses
3.0
3.8
6.8
6.8
2014
£m
3.3
2.8
6.1
5.4
Underlying operating expenses
13.6
11.5
Underlying cost/income ratio1
67.3%
74.2%
1 Underlying operating expenses as a percentage of underlying operating income
(see table 12)
Fixed staff costs of £3.0 million for the year ended
31 December 2015 were 9.1% lower than the £3.3 million
recorded in 2014. Following the combination of the
Investment Management and Unit Trusts sales teams, the
cost of the sales team is now recognised within Investment
Management which recharges the cost to Unit Trusts. The
cost of inter-segment recharges is reported within other
operating expenses.
Variable staff costs of £3.8 million were 35.7% higher
than £2.8 million in 2014 as higher profitability and growth
in gross sales drove increases in profit share and sales
commissions.
Other operating expenses have increased by 25.9% to
£6.8 million, reflecting an increase in third party
administration costs in line with growth in the business,
and higher inter-segment charges as noted above.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Rathbone Brothers Plc Report and accounts 2015
39
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Financial position
Table 14. Group’s financial position
Capital resources:
— Common Equity Tier 1 ratio1
— Total Own Funds ratio2
— Total equity
— Tier 2 subordinated loan notes
— Risk-weighted assets
— Return on assets3
— Leverage ratio4
Other resources:
— Total assets
— Treasury assets5
— Investment management loan book6
— Intangible assets from acquired growth7
— Tangible assets and software8
Liabilities:
— Due to customers9
— Net defined benefit liability
2015
£m
(unless
stated)
2014*
£m
(unless
stated)
16.4%
18.4%
300.2
19.5
794.1
2.6%
7.7%
17.7%
17.7%
271.3
—
632.8
2.5%
7.3%
1,833.6
1,453.2
111.8
164.3
17.0
1,668.1
1,317.1
97.4
153.6
16.3
1,402.9
4.5
1,282.4
13.7
* Restated following the adoption of IFRIC 21, as described in note 1
1 Common Equity Tier 1 capital as a proportion of total risk exposure amount
2 Total own funds (see table 15) as a proportion of total risk exposure amount
3 Profit after tax divided by average total assets
4 Common Equity Tier 1 capital as a percentage of total assets, excluding intangible
assets and investment in associates, plus certain off balance sheet exposures
5 Balances with central banks, loans and advances to banks and investment
securities (excluding available for sale equity investments)
6 See note 16 to the consolidated financial statements
7 Net book value of acquired client relationships and goodwill (note 22)
8 Net book value of property, plant and equipment and computer software
(notes 19 and 22)
9 Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank (note 24)
Regulatory capital
We are classified as a banking group under the Capital
Requirements Directive and are therefore required to
operate within a wide range of restrictions on capital
resources and banking exposures that are prescribed by the
Capital Requirements Regulation, as applied in the UK by the
Prudential Regulation Authority (PRA). At 31 December 2015,
the group had regulatory capital resources of £146.1 million
(2014: £111.8 million) as follows:
Table 15. Regulatory capital resources
Share capital and share premium
Reserves
Less:
— Own shares
— Intangible assets1
Total Common Equity Tier 1 capital resources
Tier 2 capital resources
Total own funds
2015
£m
100.1
206.3
2014*
£m
95.4
181.4
(6.2)
(170.4)
(5.5)
(159.5)
129.8
16.3
146.1
111.8
—
111.8
* Restated following the adoption of IFRIC 21, as described in note 1
1 Net book value of goodwill, client relationship intangibles and software are
deducted directly from capital resources
The group’s Pillar 3 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.
Our consolidated Common Equity Tier 1 (CET1) ratio is
higher than the banking industry norm. This reflects the
low-risk nature of our banking activity. The CET1 ratio has
fallen to 16.4% from 17.7% at the previous year end mainly
due to the increase in intangible assets arising from the
acquisition of Vision and Castle, as well as an increase in the
value of treasury assets invested in the money markets.
The leverage ratio was 7.7% at 31 December 2015, up from
7.3% at 31 December 2014. The leverage ratio represents our
(CET1) capital as a percentage of our total assets, excluding
intangible assets and investment in associates, plus certain
off balance sheet exposures.
In addition to our CET1 resources, on 3 August 2015
Rathbone Investment Management issued £20 million of
10-year Tier 2 subordinated loan notes. The issue of the
notes introduces gearing into our balance sheet as a
way of financing future growth in a cost-effective and
capital-efficient manner. The notes are repayable in August
2025, with a call option for the issuer in August 2020 and
annually thereafter. Interest is payable at a fixed rate of
5.856% until the first call option date and at a fixed margin
of 4.375% over 6-month LIBOR thereafter (note 27).
As required under PRA rules we perform an Internal Capital
Adequacy Assessment Process (ICAAP) and Individual
Liquidity Adequacy Assessment (ILAA) annually, which
includes performing a range of stress tests to determine
the appropriate level of regulatory capital and liquidity that
we need to hold. In addition, we monitor a wide range of
capital and liquidity statistics on a daily, monthly or less
frequent basis as required. Surplus 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.
Table 16. Group Pillar 1 own funds requirement
Credit risk requirement
Market risk requirement
Operational risk requirement
Pillar 1 own funds requirement
Pillar 2A own funds requirement
Total Pillar 1 & 2A own funds requirements
2015
£m
36.5
0.3
26.7
63.5
26.8
90.3
2014
£m
26.7
0.2
23.7
50.6
14.9
65.5
40
Rathbone Brothers Plc Report and accounts 2015
Financial position
Regulatory capital
As at 31 December 2015, the surplus of own funds over
total Pillar 1 and 2A own funds requirements was
£55.8 million, up from £46.3 million at the end of 2014.
In addition to the Pillar 1 and Pillar 2A own funds
requirements, we are also required to hold capital to cover
company-specific Pillar 2B buffers (which provide for
potential risks arising from external market factors over
the cycle) that are agreed confidentially with the PRA
from time-to-time.
We face a number of risks to our regulatory capital surplus
over the foreseeable future, the principals of which are:
— the staged introduction of CRD IV buffers over the next
four years;
— developments in the PRA’s interpretation and
implementation of EU Directives affecting regulatory
capital; and
— future acquisitions which generate intangible assets
and, therefore, reduce CET1 resources.
We keep these issues under constant review to ensure that
any necessary capital raising activities are carried out in a
planned and controlled manner.
Capital resources
The consolidated balance sheet remains healthy with total
equity of £300.2 million at 31 December 2015, up 10.7%
from £271.3 million at the end of 2014, primarily reflecting
the impact of retained earnings over the year and an
improvement in the reported position of our defined benefit
pension schemes.
The business is primarily funded by equity, supported
by £20 million of subordinated loan notes which fall
due in 2025.
Total assets
Total assets at 31 December 2015 were £1,833.6 million
(2014: £1,668.1 million), of which £1,402.9 million
(2014: £1,282.4 million) represents cash in client portfolios
that is held as a banking deposit.
Treasury assets
As a licensed deposit taker, Rathbone Investment
Management holds our surplus liquidity on its balance
sheet together with clients’ cash. Cash in client portfolios
as held on a banking basis represented 5.5% of total
Investment Management funds at 31 December 2015
compared to 5.2% at the end of 2014. Cash held in client
money accounts was £4.5 million (2014: £6.4 million).
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 32
to the financial statements. The treasury department invests
in a range of securities issued by a relatively large number
of counterparties. These counterparties must be single
‘A’ rated or higher by Fitch and are regularly reviewed by
the banking committee. During the year, we decreased the
share of treasury assets held with the Bank of England to
£583.2 million from £727.2 million at 31 December 2014 to
take advantage of more attractive investment opportunities.
Loans to clients
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 our nominee name, requiring two
times cover, and are usually advanced for up to one year
(see note 16 to the financial statements). In addition,
equitable charges may be taken on property held by the
client to meet security cover requirements. All loans (and
any extensions to the initial loan period) are subject to
review by the banking committee. Our ability to provide
such loans is a valuable additional service, for example, to
clients that require bridging finance when moving home.
We have continued to increase the size of the investment
management loan book during 2015, to take advantage of
the higher demand for client loans. Loans advanced totalled
£111.8 million at the end of 2015 (2014: £97.4 million).
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Rathbone Brothers Plc Report and accounts 2015
41
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of
which have been closed to new members for several years.
The increase in corporate bond yields during the latter
stages of 2015 has been the primary factor responsible for
improving the valuation of the schemes in our balance sheet
at 31 December 2015 to a combined deficit of £4.5 million
compared to a combined deficit of £13.7 million at
31 December 2014. Full details of the assumptions
underlying the accounting valuation and associated
sensitivities are included in note 28 to the financial
statements.
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. Funding
valuations of the schemes were last carried out as at
31 December 2013. As a result there have been no changes
to the level of regular contributions made to the schemes.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Financial position
Intangible assets
Intangible assets arise principally from acquired growth in
funds under management and are categorised as goodwill
and client relationships. At 31 December 2015, the total
carrying value of intangible assets arising from acquired
growth was £164.3 million (2014: £153.6 million). During the
year, client relationship intangible assets of £15.8 million
were capitalised (2014: £51.2 million), including £4.5 million
relating to the acquisition of Vision and Castle. Goodwill
totalling £5.9 million was acquired during 2015
(2014: £11.0 million).
Client relationship intangibles are amortised over the
estimated life of the client relationship, generally a period
of 10 to 15 years. When client relationships are lost, any
related intangible asset is derecognised in the year. The
total amortisation charge for client relationships in 2015,
including the impact of any lost relationships, was
£10.7 million (2014: £7.9 million).
Goodwill which arises from business combinations is not
amortised, but is subject to a test for impairment at least
annually. During the year, the goodwill relating to the
trust and tax business was found to be impaired as the
growth forecasts for that business have not kept pace with
cost inflation. An impairment charge of £0.3 million was
recognised in relation to this element of goodwill
(2014: £0.4 million). Further detail is provided in
note 22 to the financial statements.
Capital expenditure
During 2015, we have continued to invest for future growth
with capitalised expenditure on our premises and systems
totalling £5.8 million (2014: £4.6 million). Investment in
new systems continues at a steady pace as we continue to
improve the efficiency of our systems and our back office.
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.
New investment accounted for approximately 76% of capital
expenditure in 2015, with the balance being maintenance
and replacement of existing software and equipment.
This split is broadly consistent with the spending pattern
in the recent past, although there was only very limited
expenditure on property during the year.
During 2016, we expect to incur fit out costs of the new
premises at 8 Finsbury Circus. These costs will be capitalised
and amortised over the period of the 17 year lease.
42
Rathbone Brothers Plc Report and accounts 2015
The most significant non-operating cash flows during the
year were as follows:
— outflows relating to the payment of dividends of
£25.8 million (2014: £23.8 million);
— outflows relating to payments to acquire intangible assets
(other than as part of a business combination) of
£20.3 million (2014: £14.3 million);
— inflow of £19.5 million from the issue of Tier 2 securities
on 3 August 2015 net of legal fees;
— net outflow of £3.5 million for the acquisition of Vision
Independent Financial Planning Limited and Castle
Investment Solutions Limited on 31 December 2015
(net of cash acquired); and
— £2.5 million of capital expenditure on property, plant and
equipment (2014: £1.7 million).
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Liquidity and cash flow
Table 17. Extracts from the consolidated statement of cash flows
2015
£m
Cash and cash equivalents at the end of the year 703.6
Net cash inflows from operating activities
176.5
Net change in cash and cash equivalents
(132.2)
2014
£m
835.8
417.7
516.0
Fee income is largely collected directly from client portfolios
and expenses, by and large, are predictable; consequently
we operate with a modest amount of working capital. Larger
cash flows are principally generated from banking and
treasury operations when investment managers make asset
allocation decisions about the amount of cash to be held in
client portfolios.
As a bank, we are subject to the PRA’s ILAA regime, which
requires us to hold a suitable Liquid Assets 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 £583.2 million at
31 December 2015 (2014: £727.2 million).
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 37 to the financial statements).
Consequently cash flows, as reported in the financial
statements, include the impact of capital flows in treasury
assets. In 2015, the average duration of treasury assets was
increased, which has driven the reported reduction in cash
and cash equivalents.
Net cash flows from operating activities include the effect
of a £120.8 million increase in banking client deposits
(2014: £390.5 million increase) and a £5.6 million increase in
the component of treasury assets placed in term deposits for
more than three months (2014: £11.1 million increase).
In addition, cash flows included a net outflow of
£278.3 million from the purchase of longer dated certificates
of deposit (2014: £152.7 million net inflow from maturities
of longer dated certificates of deposit), which is shown
within investing activities in the consolidated statement
of cash flows.
Rathbone Brothers Plc Report and accounts 2015
43
The Rathbone Brothers Foundation has continued to
support small local charities where its donations can make a
real difference. Our support of young people has continued
in 2015 through our partnerships with English Lacrosse
and Lacrosse Scotland and initiatives such as our financial
awareness programme. We were also proud to sponsor the
University of Liverpool’s innovative ARION1 engineering
team who broke the men’s British land speed record for a
human powered vehicle in 2015.
We remain a constituent company of the FTSE4Good Index
series and a signatory to the UN–backed Principles for
Responsible Investment (PRI).
Philip Howell
Chairman of the SEC
23 February 2016
Corporate responsibility report
Philip Howell
Chief Executive
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Social and environmental committee
chairman’s annual statement
Rathbones’ corporate responsibility strategy aims to ensure
that social, environmental and ethical considerations are
taken into account throughout the business. The social
and environmental committee (SEC), which I chair, 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 three to four times a year
and reports directly to the executive committee of the board.
During the 2014/15 reporting period our carbon footprint
increased by 174 tCO2e (6.0%). An increase was expected
due to the growth of the business as well as an increase in
the number of flights following the launch of our Glasgow
office and of our international distribution strategy. On a
more positive note, paper related emissions fell despite
updating our printed materials as part of our rebrand.
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. The SEC, however, is not only
about highlighting potential risks but also opportunities
for the company to play its part as a good employer and
as a contributor to the communities and environment in
which we work and our clients live. This report provides an
overview of our activities — more information can be found
on our website.
44
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Our strategy
Rathbones’ corporate responsibility strategy can be
summarised as follows:
Investing for clients
— Maintain and develop the relationships we have with our
clients, treat them fairly and continue to meet their needs.
— Consider corporate responsibility and governance
issues in the companies in which we invest on behalf
of our clients.
Developing our employees
— Motivate and reward appropriately, encouraging their
development.
Working with communities
— Engage in the communities in which we operate.
Our environmental impact
— Manage our environmental impact and reduce our carbon
footprint by the efficient use of resources.
Investing for clients
Responsible investment
Rathbones specialises in discretionary private client
investment management. We manage assets for clients
based on their preferences and needs. Central processes
provide equity analysis, strategic asset allocation advice and
other core investment processes, shared by the group, but it
is central to our business model that investment managers
retain their independence to buy and sell securities for
clients. As such, a general, top-down, responsible investment
policy is not considered workable or appropriate for
Rathbones at this time.
Nonetheless, we are long-term investors and ESG
factors form a key part of our equity analysis. The issue
of governance as a risk factor is covered by the work of
the Rathbones group corporate governance committee
recognising that governance issues can be material in the
companies in which we invest on behalf of our clients. As
well as conducting our own in-house analysis, we subscribe
to specialist providers of ESG research as part of our research
budget. Social, environmental and ethical considerations are
also taken into account for specific mandates throughout the
group, particularly those managed by our specialist ethical
investment unit, Rathbone Greenbank Investments, and a
number managed by our charities team.
Through Rathbone Greenbank Investments and Rathbone
Unit Trust Management’s Ethical Bond Fund, the company
is able to provide investment services tailored to clients’
e
c
n
a
m
r
o
f
r
e
p
r
u
O
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.
As at 31 December 2015, Rathbone Greenbank Investments
had £0.76 billion of funds under management, equivalent to
2.91% of Rathbone Investment Management’s assets under
management. The Rathbone Ethical Bond Fund had
£359.4 million of funds under management.
Affiliations
Rathbone Brothers Plc has been both a signatory and
respondent to the CDP (Carbon Disclosure Project) since
2006. We are also a signatory to the CDP sister programmes
on Water Disclosure and Forests. Rathbone Greenbank
Investments became a CDP Investor Member in 2015. The
group has been a signatory to the UN-backed PRI since
September 2009, and continues to play an active role in
the PRI Clearinghouse, a global platform for collaborative
engagement initiatives which aims to encourage sustainable
long-term value. Out of over 1,000 members of this leading
initiative, Rathbones was named as one of the top 20 most
active and influential members of the Clearinghouse in 2014,
a significant achievement given our size relative to other PRI
members. In addition, Rathbone Greenbank Investments is
a long-standing member of influential responsible investor
groups such as the UK Sustainable and Investment Finance
Association (UKSIF) and the Ecumenical Council for
Corporate Responsibility. Rathbone Greenbank Investments
also became a member of the Institutional Investors Group
on Climate Change (IIGCC) in 2015, expanding engagement
work in the realm of climate policy engagement.
Voting
The cornerstone of all responsible investment is an active
and considered approach to proxy voting. Since 2010, the
group’s voting activity has been coordinated by its corporate
governance committee, established in line with Rathbones’
obligations under the PRI, and pays heed to the Financial
Reporting Council UK Stewardship Code. Composed of
investment managers and other representatives from across
the business, and supported by a permanent corporate
governance manager, the committee maintains the group
policy on corporate governance, and oversees its application
in proxy voting in conjunction with advice from an external
corporate governance consultant, Institutional Shareholder
Services (ISS). Advice and research received by the
committee supplements the analysis carried out internally
as part of the investment process.
Rathbone Brothers Plc Report and accounts 2015
45
Corporate responsibility report
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Investing for clients
The committee issues voting recommendations for
consideration by investment managers who retain the
ability to vote independently of this advice if they consider
it appropriate.
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.
Rathbone Unit Trust Management, as an institutional
investor, meets its obligations as a signatory to the
Stewardship Code. It significantly expanded the scope of
proxy voting in 2015 and now employs ISS to vote actively
on all of its holdings.
Votes are entered in line with UK corporate governance best
practice, overseen by the corporate governance manager
and fund investment managers. During 2015, the committee
oversaw active proxy voting on 4,894 resolutions at 443
company meetings. Voting on these resolutions includes
consideration of such issues as executive remuneration,
auditor independence, appointment of directors and non-
financial reporting.
We are committed to transparency in this area and in 2015
began producing bi-annual reports on our proxy voting and
shareholder engagement activities. These reports can be
found on the socially responsible investment section of
our website.
Engagement
Engagement with companies on ESG matters is largely
undertaken by Rathbone Greenbank Investments’ ethical
research team and the corporate governance manager on
behalf of the corporate governance committee. Engagement
may occur as a result of fundamental analysis of companies’
ESG reporting or through collaborative efforts initiated by
interest groups such as CDP, UKSIF or the PRI Clearinghouse.
It covers a wide range of themes spanning the whole of the
ESG spectrum.
Our clients played an important role in supporting
shareholder resolutions at the annual general meetings
(AGMs) of two major European oil and gas companies in
the past year, seeking the additional reporting of climate
change information. The resolutions themselves received
board support and were adopted with large majorities at the
respective AGMs.
FTSE4Good ESG ratings scores
As institutional investors around the world 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 for which ratings
scores were published (June 2015) confirmed Rathbone
Brothers Plc as a constituent of the FTSE4Good Index Series,
awarding the company the following ESG ratings:
Pillars
Environmental
Social
Governance
Score (0 — 5)
3.0
3.2
2.7
Within the Financial Services super sector, Rathbones’
percentile score was 82/100 (2014:82/100) meaning that we
outscored 82% of our peers on our management of
ESG issues.
CDP disclosure and performance score
In 2015, we improved our CDP Disclosure Score from 78
to 90 while our Performance Band moved from D to E.
The Disclosure Score (out of 100) measures the level of
transparency in company responses; the Performance Band
(A—E, but only calculated for companies with disclosure
scores above 50) measures how effectively companies are
addressing climate risk.
46
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Developing our employees
Our approach
Our business success is based on delivering a highly
professional and personal service to our clients and we
believe this can only be achieved by having engaged and
motivated employees with a diverse range of backgrounds,
skills and experiences. Our employee strategy, policies and
investment plans are all designed to achieve these goals.
We are firmly committed to evolving our people policies
and practices and increasing employee engagement in the
coming years in line with our values. Our goal continues to
be the delivery of the highest possible quality of service to
our clients through talented and professional employees.
Employee statistics
Female employees
Employees working part-time
Resignation rate in 2015
Learning
%
50
11
5
We continue to support the development of all our
employees and have maintained our average investment
per person at a significant level of £563 and an average of
two days. These figures are a very conservative estimate
because there is much more employee development that
has no direct cost and is conducted at the desk.
Our aim when delivering high-quality programmes is to
ensure that employees have the best opportunity to put
their learning into practice. We do this by engaging with line
managers and other stakeholders in the business to ensure
that the opportunity and support is in place for employees
to use new skills. We have implemented new initiatives
across the group to ensure that all employees have access
to development for their current and possible future roles.
Leadership and management development
We have developed a comprehensive suite of management
and leadership courses. This is designed to enable the
business to identify high potential employees and progress
them through key stages of learning from being highly
effective team members to ultimately growing into
senior leadership roles. In particular, a new leadership
programme was implemented this year. Senior managers
from various functions and locations came together on a
modular programme focusing on how to lead their teams
to achieve corporate goals. The programme culminated in
a presentation about leadership changes and the value of
the learning. Having established this format with our senior
leaders this programme will cascade to other managers
e
c
n
a
m
r
o
f
r
e
p
r
u
O
during 2016 to improve leadership and management skills
across the group.
We have also aligned some of our management
development to formal qualifications. A number of managers
have successfully achieved a level 5 qualification awarded
by the Chartered Management Institute which included a
module on managing operational risk which was tailored to
the specific issues in Rathbones. We will continue to support
this type of development where the formal recognition of
learning is appropriate.
Continuing professional development (CPD)
Our client-facing employees continue to meet and mostly
exceed the required CPD targets set by our regulators.
Investment managers have the opportunity to further
improve their technical and management skills to ensure
that the highest levels of client service are maintained. As an
example, this year saw some significant changes in pensions
legislation and so all investment managers attended a
session to understand the implications.
We have implemented some enhancements to our core IT
systems and, as in previous years, employees have attended
training to enable them to take advantage of increased
efficiencies in managing investments and
client service.
Talent development
Rathbones is keen to develop a pipeline of high-calibre talent
to ensure appropriate skills and succession planning for the
future. The first apprenticeship programme which started
in 2013 has now finished with four apprentices joining the
organisation in the operations and investment management
teams. In light of the success of this programme a further
group has now been recruited and their training is well
underway.
A graduate development programme has now been
established as we have seen the increase in the employment
of graduate trainees. The programme brings together
employees from London and around the regions and
comprises a combination of experience at the desk,
classroom and online training on the technical skills of
investment management and managing clients. We have
partnered with a very experienced training provider to tailor
the content to the requirements of our organisation.
Career development and performance management
We have further developed our career frameworks to help
employees see their future pathway for progression within
the organisation. There is further work to do in this area and
there is a commitment to help employees and managers
with the skills required for career management.
Rathbone Brothers Plc Report and accounts 2015
47
Corporate responsibility report
Developing our employees
Performance and reward
e
c
n
a
m
r
o
f
r
e
p
r
u
O
The performance management process is reviewed
on an ongoing basis and during 2015 we tailored our
approach further to prompt more meaningful performance
discussions. The emphasis in 2016 will be on more regular
and informal reviews with better quality and timely
feedback.
Diversity and inclusion
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.
Rathbones now has two women non-executive directors and
has thus achieved our commitment to meet Lord Davies’
target of 25% female board representation. For Rathbones
as a whole, we have a broadly 50:50 balance between
males and females. While female representation at a senior
executive management level is low, representation in senior
and middle management roles in support departments, our
investment research team and within the unit trust business
is good and continues to improve.
Historically, women are less well represented in investment
management roles and addressing this imbalance is a key
priority. We are working hard to bring in more women in
graduate trainee positions (our graduate and apprenticeship
programmes currently comprises broadly equal numbers
of men and women) and by encouraging more applications
from women to our work experience and financial career
programmes. Our work-life balance provisions are designed
to be attractive to women who wish to enter our industry as
well as to encourage parents to remain in work with us when
raising a family.
We are also targeting the progression and development
of existing female employees with opportunities for
training such as our early career team worker programme.
During 2014 and 2015, seven women participated in this
programme and two of them have since been promoted into
management roles.
At the next level, a further 23 women attended management
development programmes ranging from leadership skills
and introduction to management courses to the Henley
Business School Leadership Programme.
We offer a comprehensive remuneration package which is
regularly reviewed to ensure that we remain competitive.
This is supported by challenging objective setting and
appraisal processes to align reward to corporate goals and
motivate and encourage high performance.
All employees have the opportunity to participate in a
pension arrangement and are eligible to receive at least a 3%
contribution from the company to a group personal pension
arrangement. In addition, we provide health and well-being
initiatives including private medical cover, annual medical
examinations to all staff and an employee confidential
advice service. Employees are encouraged to identify with
and to become involved in the financial performance of the
group through a Share Incentive Plan (SIP) and a Save As
You Earn (SAYE) scheme.
Employee relations
Engagement with our employees is crucial to the continuing
success of the group. We communicate regularly and openly
with our employees on matters affecting them and on
the issues that have an impact on the performance of the
group and actively seek their feedback on these matters. In
September 2015, we carried out an employee engagement
survey which resulted in an overall engagement score of
88%. We have since shared the results with our employees
and in 2016 we will be following up on the feedback from all
areas of the business to consider what we are doing well and
can build upon and where we can make improvements.
Rathbones recognises the importance of an appropriate
work-life balance, both to the health and welfare of
employees and to the business. Employees are not expected
to work long hours on a consistent or ongoing basis and any
overtime is voluntary. Holiday entitlement begins at 25 days
per annum for all employees, increasing to 30 days after
five years’ service, with the opportunity to buy up to five
additional days of flexible leave each year.
48
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Working with communities
Donations and fundraising
During the year, the group made total charitable donations
of £353,000, representing 0.60% of group pre-tax profits
(2014: £253,000, representing 0.55% of group pre-tax profits).
This included a payment of £140,000 to the Rathbone
Brothers Foundation (2014: £100,000). It also included the
matching of employee donations made through the tax
efficient Give As You Earn (GAYE) payroll giving scheme.
In 2015, Rathbones’ employees made payments totalling
£182,000 (2014: £191,000) 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 2015 donated £152,000
(2014: £134,000) to causes chosen by employees through
this method.
During 2015, the Rathbone Brothers Foundation, the
company’s charitable fund founded in 2012, considered
many requests for assistance and met a number of charities.
Significant donations were made to:
— Basing House — a team of volunteers from Rathbones
spent two days restoring the Lady of the House garden
at Basing House, a major Tudor palace and castle in the
village of Old Basing. While it once rivalled Hampton Court
Palace in its size and opulence, today only its foundations
and earthworks remain. However, it is open to the public
and a favourite place for families to visit. The foundation
made a contribution to the costs of the garden restoration.
— Autism Jersey — a small local charity that enables
people with autism to lead full and inclusive lives and
enjoy a reasonable degree of independence. Rathbones’
Jersey office has agreed to partner with Autism Jersey
over three years.
— Cambridge Central Aid Society — founded in 1880, this
small charity provides relief from poverty for Cambridge
residents, giving grants to provide essential needs and
help families maintain their dignity.
— The Connections Bus Project — this is a youth club open to
children in all villages in the Cambridge area. It provides
internet access, sports equipment and trained staff who
help to supervise and educate the young people involved.
Education and youth development
Our corporate responsibility programme continues
to develop strongly with a committed focus on youth
development. The Rathbones Financial Awareness
Programme is a significant element of our investment in
young people, which involves investment managers
delivering presentations to 16–24 year olds within our
offices and at schools around the UK. The programme aims
to equip those attending with the necessary information
to take ownership of their finances at a young age.
We are also lead sponsors of various other youth
development programmes such as the Chalke Valley
History Festival for Schools, the dot-art art competition, the
Bang Goes the Borders science festival and the University
of Liverpool students’ attempt to break the human-
powered land speed record in Nevada. Rathbones further
acknowledges the importance of sport in the lives of young
people to teach key life skills and has agreed ongoing
partnerships with English Lacrosse and Lacrosse Scotland
up until 2017. Our involvement to date has had a significant
impact on the development of the sport, particularly with
the introduction of additional initiatives to encourage
participation in the sport at community level.
Further information on all of our initiatives for young
people can be found at www.rathbones.com/about-us/
sponsorships-and-partnerships.
Local communities
Rathbones is committed to supporting the communities
in which it is based. Regional offices are encouraged to get
involved in their local communities and support charities
and initiatives that they feel are important to the area.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Rathbone Brothers Plc Report and accounts 2015
49
Corporate responsibility report
Our environmental impact
As a responsible investor, Rathbones lead by example
in our approach to environmental matters. We strive to
understand our environmental impact and act, where
possible, to reduce it.
This is the eighth annual report on our carbon footprint.
This year has seen Rathbones undergo rebranding and
launch an international distribution strategy. These activities
have had an impact on our environmental performance
as explained below.
Scope
Our reporting period covers the 12 months to 30 September
2015 (2014/15). 2012/13 is our baseline year. During 2014/15
we opened a new office in Glasgow which has increased
our reporting boundary.
This year is the first time that we have reported our Scope 2
emissions using the new World Resources Institute’s (WRI)
market-based method. This new method recognises the use
of low carbon electricity tariffs and allows organisations to
realise this benefit in their carbon footprint. Consequently
we are reporting two emissions totals: the traditional total
using location-based conversion factors and a total using
the new market-based conversion factors. This approach
ensures that our reporting is in-line with best practice.
Building energy use
Our building-related emissions make up 67% of our
total carbon footprint. This year our total building energy
consumption increased by 7%, from 4,793,111 kWh to
5,106,221 kWh. However, our emissions decreased by
0.3% to 2,057 tCO2e as shown in the chart below.
The decrease in emissions despite increased energy
consumption is largely due to a 7% decrease in the
conversion factor associated with electricity.
Within the buildings energy use the most significant
change was at our Liverpool office where electricity
consumption decreased by over 23%. This was due to the
transfer of our computing assets to an external data centre
in Manchester.
This move has a dual benefit in terms of reducing our
energy usage and associated emissions; energy consumption
on-site in Liverpool has decreased, whilst we are able to
reap the benefits of a highly energy efficient data centre,
which has driven down energy usage associated with our
IT. The emissions related to these relocated IT assets have
moved from Scope 2 (when on-site in Liverpool) to Scope 3
(where we account for our outsourced IT activities).
There was also a 15% increase in gas consumption, which
may be due to 2014/15 being a slightly colder year with 14%
more heating degree days than in 2013/14.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Change in building-related emissions tCO2e
2,200
2,150
2,100
2,050
2,000
1,950
1,900
- tCO2e
+tCO2e
-tCO2e
50
2,062
-108
+116
+39
+54
-107
2,057
13/14 building
emissions
Electricity
reduction at
Liverpool
Electricity
increase at
Manchester data
centre
Portfolio gas
increase
Net electricity
changes at all
other sites
Reduction due to
conversion
factors
14/15 building
emissions
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Our environmental impact
During the year we opened a new office in Glasgow
and increased our office space at our Liverpool site.
Consequently, the average total internal floor area increased
by 88m2 to 14,518m2. Employee numbers also increased
during the year with an 11% increase in full time equivalent
(FTE) employees from 867 to 965. However, our buildings
carbon footprint per FTE employee, did not match this
growth, falling by 10.4% to 2.13 tCO2e/FTE due to more
efficient usage of space.
Building carbon emissions per FTE employee tCO2e/FTE
2.38
2.4
2.3
2.2
2.1
2.0
However, we will need to monitor our use of the building
and energy consumption carefully to ensure there is no
performance gap between the designed energy efficiency of
the building and its actual performance in use.
Travel
Emissions from business travel increased significantly this
year to 689 tCO2e, an increase of 46% over 2013/14. Business
travel accounts for 22% of our total carbon footprint. Total
business travel emissions per FTE employee have increased
by 31% to 0.7 tCO2e/FTE.
The increase in emissions is mainly due to travel by the
new international distribution team to Europe and North
America, and flights to and from our new Glasgow office. The
total number of flights has increased by 33% from 1,490 in
2013/14 to 1,984 in 2014/15.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
2.13
Emissions from business travel tCO2e
2013/14
2014/15
During 2015, Rathbones submitted notification of Energy
Savings Opportunity Scheme (ESOS) compliance to the
Environmental Agency. ESOS is a mandatory energy
assessment scheme set up by the UK government in
response to the EU’s 2012 Energy Efficiency Directive.
In order to comply with ESOS:
— Rathbones measured 100% of their building energy
consumption and staff business mileage for 2014
— Carbon Smart carried out an energy audit of the
Curzon Street office in London, which accounts for
54% of Rathbones’ total gas and electricity use. This
included the identification of energy efficiency
improvement opportunities.
Seven energy saving opportunities were identified; four
were rejected due to a poor return on investment. The most
significant viable opportunity was related to plant upgrades
at Curzon Street. However, given the imminent move away
from Curzon Street, this opportunity will not be pursued.
In early 2017 Rathbones is moving the London office from
Curzon Street to a BREEAM1 ‘Excellent’ rated building in the
City. This move should result in future reductions in the
2016/17 carbon footprint (assuming the transition period
when two buildings are in operation is minimal).
Flights
Non-company cars
Rail
Taxis
tCO2e
418.8
149.9
111.6
8.7
%
61
22
16
1
1 BREEAM is the BRE’s sustainability assessment for buildings. ‘Excellent’ is the second highest certification rating
Rathbone Brothers Plc Report and accounts 2015
51
Corporate responsibility report
Our environmental impact
Paper
2014/15 saw a small decrease in the emissions relating to our
paper use. Our emissions fell to 308 tCO2e from 311 tCO2e in
2013/14.
Whilst the business has grown with an increase of nearly
3,000 additional managed investment accounts, paper use
per managed investment account fell from 1.8 kg to 1.7 kg.
Mass of paper used per managed investment
account kg
2
1.5
1
0.5
0
e
c
n
a
m
r
o
f
r
e
p
r
u
O
1.8
1.7
2013/14
2014/15
This reduction is pleasing as Rathbones went through a
rebranding exercise in 2014/15. This was carefully managed
to ensure that old stock was run down over time, minimising
wastage. However, much of the rebrand work took place
after the 2014/15 reporting period. Consequently, there may
be an increase in the next reporting period (and an increase
in 2016/17 due to the London office move) although effective
resource management, as demonstrated this year, should
minimise this increase.
A further success was the 17% increase in the recycled
content of the paper that we use, reversing and improving
on last year’s 7% decline.
Percentage of the pulp that went into making our paper and printed
materials that was post-consumer recycled %
80
60
40
20
0
67
50
2013/14
2014/15
Waste
This year the amount of waste generated per FTE
employee rose to 380 kg, an increase of 4% on 2013/14.
We did, however, reduce our waste electrical and electronic
equipment by 377 kg to 2,364 kg. Although we produced
more waste, we actually recycled a greater proportion
of it. This year our recycling rate hit 85% compared with 81%
in 2013/14.
Part of the increase in total waste can be explained by the
maturity of the new waste protocol implemented over the
last year which has improved the granularity of the data
available from our London and Liverpool offices, where most
of our waste is produced. Sending food waste to compost
has contributed to the increase in the recycling rate.
Of the 15% of our waste that is not recycled, approximately
25% is sent to energy from waste facilities and the remainder
is sent to landfill.
Refrigerants
This is the third year we have collated our refrigerant figures.
We are pleased to report that only our external data centre
in London required a refrigerant refill during the reporting
year. This contributed 2 tCO2e to our carbon footprint,
a considerable reduction on the 51 tCO2e attributed to
refrigerants last year.
Carbon footprint
Our total carbon footprint for 2013/14 was reported as 2,926
tCO2e. However, in the course of calculating this year’s
footprint a minor error was found, which means the 2013/14
results need to be restated as 2,907 tCO2e.
For 2014/15 our total carbon footprint is 3,081 tCO2e. This
is a 6% increase on the restated 2013/14 results. Compared
to our baseline year of 2012/13, our carbon footprint has
increased by 7% from 2,882 tCO2e.
The most significant increase has come from the increased
emissions from flights. The move to the Manchester data
centre means that there has been a transfer of emissions
from Scope 2 to Scope 3.
Carbon intensity
Despite the overall increase in our carbon footprint, our
staff carbon intensity has fallen by nearly 5% this year to
3.2 tCO2e per FTE employee. Our emissions in relation to
operating income have also reduced to 13.39 tCO2e/£m
from 13.89 tCO2e/£m in 2013/14. We remain confident
that further efficiencies can be delivered as we execute
our growth strategy.
52
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Our environmental impact
Best practice Scope 2 reporting methodology
In 2015, the WRI introduced updates to the Greenhouse Gas
Protocol (GHG) stating that organisations should provide
two numbers to reflect the emissions from the purchase
of electricity, heat, steam or cooling. The location-based
method reflects average emissions intensity of grids on
which energy consumption occurs. The market-based
method reflects emissions from electricity that companies
have chosen.
Electricity is arranged through the landlord for the majority
of sites including the largest sites in London and Liverpool.
In these instances, it has not been possible to obtain a
specific tariff and consequently a market-based conversion
factor. For the sites where Rathbones have a direct contract
with the electricity supplier (Aberdeen, Chichester, Kendal,
Newcastle and Winchester) it has not been possible to obtain
a market-based conversion factor. Consequently the national
grid average emission factor has been used throughout
and this year the location-based and market-based carbon
footprints are the same. This is not an unexpected outcome
as this is the first year of the protocol and the required
market-based conversion factors are not yet widely
available. With time this situation should improve and
there may be an opportunity for Rathbones to engage
with its landlords and move to tariffs containing a greater
proportion of renewable energy, thus reaping the benefit of a
reduction in the market-based carbon footprint.
Carbon offsetting
We have used the services of ClimateCare to purchase
3,081 tonnes of carbon credits to offset our residual CO2e
emissions. This year’s portfolio again comprises three high-
quality emission reduction projects, which also offer tangible
community benefits:
— a project cutting carbon and providing access to safe
drinking water through the provision of gravity-driven,
point-of-use water filters in Kenya. The use of the filters
reduces demand for wood as a fuel as families no longer
have to boil water for purification
— a project distributing more efficient cook stoves to families
in Ghana. The Gyapa model cook stove requires half of the
fuel of a traditional stove, cutting energy use and reducing
harmful emissions. The Global Burden of Disease Study
2010 estimates that four million premature deaths occur
every year as a result of smoke exposure from
traditional cooking
— a wind energy project in Rajkot district, Gujarat, India.
The development of a 25.2MW wind farm across five
villages provides clean, renewable and more stable
supplies of energy to the local communities, reducing
demand for coal-fired generation in this region.
Carbon footprint tCO2e2
Scope 1
Natural gas
Refrigerant
Scope 2
Purchased electricity
Scope 3
Data centre3
Business travel
Paper
Waste
Electricity transmission
and distribution
2014/15
(location-
based)
2014/15
(market- 2013/14
based) (restated) 2012/13
301
2
301
2
261
51
281
23
1,332
1,332
1,450
1,463
314
689
308
25
314
689
308
25
224
473
311
11
133
311
333
9
110
110
127
136
Total tonnes tCO2e
3,081
3,081
2,907
2,882
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Carbon intensity
Staff (FTE)
Net internal area of offices (m2)
Operating income (£m)
Funds under management (£bn)
2014/15
965
14,518
230.1
29.2
2013/14
(restated)
867
14,430
209.3
27.2
Carbon intensity tCO2e*
2012/13
2014/15
829
14,430
176.4
22.0
3.2
0.21
13.39
106
2013/14
(restated)
3.4
0.20
13.89
107
2012/13
3.5
0.20
16.34
131
*
‘Carbon intensity’ is total (all scopes) tCO2e per: FTE; m2; £m of operating income; £bn funds under management
2 The Greenhouse Gas Protocol defines three scopes of greenhouse gas emissions. Please refer to the glossary for further information
3 Many of our core IT facilities at our London and Liverpool offices have been outsourced to data centres. As per the Greenhouse Gas Protocol, emissions from the data
centre have been moved to Scope 3. However, where we have stated a figure for overall electricity use we have included the data centre, as we felt this is the more
transparent approach
Rathbone Brothers Plc Report and accounts 2015
53
Corporate responsibility report
Our environmental impact
Objectives
Progress against our 2014/15 objectives
1 Increase our efforts to encourage client usage of
Rathbones Online, which will lead to a reduction in
paper printing and postage costs.
Achieved
The number of registered Rathbones Online users
increased from 21,956 to 26,086 in 2015. 46% accessed
their account in 2015 (2014: 37%).
2 Explore the use of video conferencing for client meetings.
Not achieved
There are a number of security issues associated with the
use of video conferencing for client meetings and so this
has not been progressed.
3 Explore options for extending food waste collection to
other offices.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Not achieved
Where offices were large enough to warrant the use of a
private food waste collection service, this option is not
currently available.
4 Seek advice from our suppliers on increasing the recycled
content of the paper they use in publications.
Achieved
Paper stocks with a mix of virgin and recycled sources
have been reintroduced across the range of our printed
marketing materials. We continue to endeavour to select
paper stocks that are Forestry Stewardship Council
(FSC) certified wherever possible.
Our 2015/16 objectives
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 2014 to
30 September 2015. It does not represent an independent
third party assurance of Rathbones’ management approach
to sustainability.
Carbon Smart has been commissioned by Rathbones for
the eighth consecutive year to calculate Rathbones’ carbon
footprint for all offices for its 2015 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 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.
1 To ensure that energy efficiency measures are
Completeness
adopted where possible during the fit-out of the new
London headquarters.
2 To ensure that furniture, fittings and equipment at
the Curzon Street office are recycled or reused
wherever possible.
3 To minimise travel that is not booked through our
agents or which is not in accordance with the group
travel policy introduced in 2015.
4 To encourage our landlords to source energy from
renewable sources.
Rathbones continues to use the operational control
approach to defining their organisational boundaries.
Rathbones calculates 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.
54
Rathbone Brothers Plc Report and accounts 2015
Corporate responsibility report
Carbon Smart opinion statement
Consistency
In order to ensure comparability, we have used the same
calculation methodologies and assumptions as for the
previous year.
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). There has been
no change in the rating for 2014/15; overall data quality has
remained at 4.0. Our observations on data quality include:
— Rathbones relies on benchmarking performance for
gas and electricity at Lymington and the new office at
Glasgow. Benchmark data is also used for Birmingham’s
gas consumption
— Gas consumption at London, Liverpool and Cambridge
(which account for 88% of total gas consumption) is
extrapolated based on proportion of occupancy of the
buildings
— The new waste monitoring protocol improves the rigour
applied to waste analysis by supplying more discrete data.
% of total carbon
footprint 2014/15
Data quality
2014/15
2013/14
2012/13
Overall
Scope 1
Scope 2
Scope 3
10%
43%
47%
4.0
4.3
4.0
4.3
4.0
4.0
4.0
4.5
3.8
4.0
3.0
4.5
Ben Murray
Director
Carbon Smart Limited
23 February 2016
Compliance with regulations
Rathbones complies with the regulations for reporting
greenhouse gas emissions. Following an operational control
approach to defining our organisational boundary, our
2014/15 greenhouse gas emissions from business activities
amounted to:
— 303 tCO2e resulting from the combustion of fuel and
the operation of any facilities (classified as Scope 1 in this
report); and
— 1,332 tCO2e from the purchase of electricity by
the company for its own use (classified as Scope 2 in
this report).
For 2013/14 our greenhouse gas emissions resulting from
business activities amounted to 312 tCO2e for Scope 1
and 1,450 tCO2e for Scope 2. It has not been practical to
gather data on energy use at our Birmingham, Glasgow
and Lymington offices (6% of the total floor area of our
buildings). We have used typical energy consumption
benchmarks to calculate the energy use at these sites based
on floor area (only gas at Birmingham). We have stated
the following carbon intensity metrics for 2014/15: 106
tCO2e per £bn funds under management and 13.39 tCO2e
per £m operational income. For the previous reporting
period, this was 107 tCO2e per £bn and 13.89 tCO2e per
£m respectively.
The methodology used is in accordance with the
requirements of the following standards: the World
Resources Institute Greenhouse Gas Protocol (revised
version) — this includes the new best-practice Scope 2
guidance using the market-based method; ‘Environmental
Reporting Guidelines: Including mandatory greenhouse
gas emissions reporting guidance’ (Defra, October 2013)
and ISO 14064 — part 1. Whilst our financial reporting year
is the calendar year, our reporting period for greenhouse
gas emissions is 1 October to 30 September.
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Rathbone Brothers Plc Report and accounts 2015
55
e
c
n
a
m
r
o
f
r
e
p
r
u
O
Corporate responsibility report
Glossary
Baseline year
This is the year that we measure our performance in
subsequent years against. The 2012/13 data is now our
baseline for performance comparison because of significant
changes to our reporting. Historically 2007/08 was the
baseline year.
Operational control approach
This refers to how our organisational boundaries have
been defined. We use an operational control approach,
which includes direct and indirect emissions from those
buildings which we have operational (as opposed to
financial) control over.
BREEAM
A sustainability assessment method for buildings. The
BREEAM assessment process evaluates the procurement,
design, construction and operation of a development
against targets that are based on performance benchmarks.
Assessments are carried out by independent, licensed
assessors, and developments rated and certified on a scale
of Pass, Good, Very Good, Excellent and Outstanding.
Carbon dioxide equivalent (CO2e)
This is a universal unit of measurement that allows the
global warming potential of different greenhouse gases to be
compared as prescribed by the Kyoto Protocol.
CDP
An independent organisation that works with companies
to measure and disclose (self-report) their environmental
information including data on greenhouse gas emissions and
water use. In 2014, nearly 2,000 businesses reported climate
change data to CDP.
Conversion factors
These are used to convert different activities into tonnes of
carbon dioxide equivalent (tCO2e). For example, consuming
1,000 kWh of UK gas is currently equal to emitting
approximately 0.185 tCO2e. The amount of CO2e generated
per kWh of UK grid electricity changes from year-to-year
following changes to the way we generate our electricity.
Environmental, social and governance (ESG)
ESG is the term for the criteria used in what is known as
socially responsible investing. ESG factors offer portfolio
managers added insight into the quality of a company's
management, sustainability, ethical impact, culture, risk
profile and other characteristics.
Heating degree days
These are a measure of the severity and duration of cold
weather. For every degree the outside temperature drops
below 15°C in a day counts as a degree day. The colder the
weather, the larger the degree day value for that day. For
example, two days at 10°C counts as 10 degree days.
kWh
A kilowatt hour is a unit of energy. One kWh is roughly
equivalent to using a desktop computer for four hours.
Location-based emissions
For Scope 2 emissions, a location-based method reflects
the average emissions intensity of grids on which energy
consumption occurs (using mostly grid average emission
factor data).
Market-based emissions
For Scope 2 emissions, a market-based method reflects
emissions from electricity that companies have purposefully
chosen (or their lack of choice).
Reporting regulations
The Companies Act 2006 (Strategic and Directors’ Reports)
Regulations 2013.
Scope
The Greenhouse Gas Protocol defines three categories or
‘scopes’ of emissions.
— Scope 1 (Direct emissions): emissions directly into the
atmosphere (e.g. from natural gas and refrigerants)
— Scope 2 (Indirect emissions): emissions from the
consumption of purchased electricity
— Scope 3 (Other indirect emissions): emissions from
Rathbones’ use of products and services such as business
travel, water, paper etc.
Transmission and distribution (T&D)
This is the energy loss that occurs when getting the
electricity from a power station to the point of use. To
account for electricity emissions fully, Defra requires
that organisations account for the T&D loss associated
with the electricity they purchase. Defra have historically
included T&D under a single conversion factor for electricity
consumption. Since 2012/13 purchased electricity has
been separated into ‘Electricity generation’ and ‘Losses from
T&D’. This change resulted in a proportion of our carbon
emissions previously being reported against Scope 2 being
moved to Scope 3.
56
Rathbone Brothers Plc Report and accounts 2015
Governance
58 Directors
61 Directors’ report
63 Corporate governance report
67 Executive committee report
69 Group risk committee report
70 Remuneration committee report
85 Audit committee report
88 Nomination committee report
89 Approval of strategic report
90 Statement of directors’ responsibilities
in respect of the report and accounts
Rathbone Brothers Plc Report and accounts 2015
57
Directors
Board committees
Chairman
The principal board committees are the audit, executive, nomination,
remuneration, 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.
A
E
N
Audit committee: Full details of its role are set out in
the audit committee report
Executive committee: Full details of its role are set out
in the executive committee report
Nomination committee: Full details of its role are set out
in the nomination committee report
Re Remuneration committee: Full details of its role are set
out in the remuneration committee report
Ri
Group risk committee: Full details of its role are set out
in the group risk committee report
p85
p67
p88
p70
p69
e
c
n
a
n
r
e
v
o
G
E
•
•
•
Commitee membership
Mark Nicholls
Philip Howell
Paul Stockton
Paul Chavasse
David Harrel
James Dean
Sarah Gentleman
Kathryn Matthews
Committee member
Committee chairman
A
•
•
•
•
Re
•
•
•
•
•
N
•
•
•
•
•
Ri
•
•
•
•
Mark Nicholls
Chairman
Appointment: 01/12/2010
Age: 66
Board committees: Re N
Mark Nicholls is a lawyer and corporate financier. After
studying law at Cambridge he qualified as a solicitor 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
annual general meeting (AGM) in May 2011 and is considered
to be independent.
58
Rathbone Brothers Plc Report and accounts 2015
Directors
Executive directors
Philip Howell
Chief Executive
Appointment: 01/12/2013
Age: 60
Board committees: E
Paul Stockton
Finance Director
Appointment: 24/09/2008
Age: 50
Board committees: E
Following an early military career, Philip spent over
30 years in the investment banking and private banking
sectors, undertaking a range of leadership roles as well as
gaining considerable general management experience. He
was with Barclays for 24 years, which included leadership
assignments in Asia and South Africa, and subsequently as
head of strategy and corporate development focused on the
international and private banking divisions. He continued
his involvement in private wealth management, firstly as
chief executive of Fortis Private Banking and subsequently
of Williams de Broë before joining Rathbones in 2013.
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. Two years after the sale of Gerrard in 2005 he left to
work for Euroclear and, subsequently, as a divisional finance
director of the Phoenix Group. He joined Rathbones in 2008
and is also a non-executive director of the Financial Services
Compensation Scheme.
Paul Chavasse
Head of Investment
Appointment: 26/09/2001
Age: 51
Board committees: E
e
c
n
a
n
r
e
v
o
G
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 was
as head of NatWest Portfolio Management in Bristol before
joining Rathbones as chief operating officer in 2001. He
became head of investment in March 2012. Following a
management restructuring in July 2015, he now oversees
our investment process, research and the development of
our client services.
Rathbone Brothers Plc Report and accounts 2015
59
Directors
Non-executive directors
David Harrel
Senior Independent Director
Appointment: 01/12/2007
Age: 67
Board committees: A Re N Ri
Sarah Gentleman
Non-executive Director
(Independent)
Appointment: 21/01/2015
Age: 45
Board committees: A Re N Ri
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 Fairpoint Group plc, a member
of the board of the English National Opera and a trustee
of the Clore Duffield Foundation. He is chairman of the
remuneration committee.
James Dean
Non-executive Director
(Independent)
Appointment: 01/11/2013
Age: 58
Board committees: A Re N Ri
e
c
n
a
n
r
e
v
o
G
Sarah Gentleman started her career as a consultant at
McKinsey & Company and then worked for several years in
the telecoms and digital sectors, latterly as chief financial
officer of the LCR Telecom Group. In 1999 she joined
the internet bank Egg, the internet banking subsidiary
of Prudential, where she was responsible for business
development and strategy. In 2005, she joined Sanford C.
Bernstein & Co, the institutional research and trading arm
of Alliance Bernstein as a banking analyst covering the
European banking sector. Sarah graduated from Cambridge
University with a degree in Natural Sciences and also has an
MBA from INSEAD.
Kathryn Matthews
Non-executive Director
(Independent)
Appointment: 06/01/2010
Age: 56
Board committees: A Re N Ri
James Dean is a chartered accountant with over 30 years’
experience working in financial services. James worked in
a variety of roles at Ernst & Young over a period of 14 years,
including holding the position of managing partner for the
UK Financial Services Audit Practice for four years. He holds
a number of other non-executive directorships including
Liverpool Victoria Friendly Society and is chairman of The
Stafford Railway Building Society. He is chairman of the
audit committee.
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
Hermes Fund Managers Limited, Aperam S.A. and J P Morgan
Chinese Investment Trust Plc and chairman of Montanaro
UK Smaller Companies Investment Trust Plc. She is on the
board of trustees of the Nuffield Trust and is a non-executive
member of the Council of the Duchy of Lancaster. She is
chairman of the group risk committee.
60
Rathbone Brothers Plc Report and accounts 2015
Directors’ report
Richard Loader
Company Secretary
Group results and company dividends
The Rathbone Brothers Plc group profit after taxation
for the year ended 31 December 2015 was £46,371,000
(2014: £35,637,000). The directors recommend the payment
of a final dividend of 34.0p (2014: 33.0p) on 23 May 2016 to
shareholders on the register on 29 April 2016. An interim
dividend of 21.0p (2014: 19.0p) was paid on 7 October 2015
to shareholders on the register on 11 September 2015.
This results in total dividends of 55.0p (2014: 52.0p) per
ordinary share for the year. These dividends amount to
£26,305,000 (2014: £24,863,000) — see note 12 to the
financial statements on page 116.
The company operates a generally progressive dividend
policy subject to market conditions. The aim is to increase
the dividend in line with the growth of the business over
each economic cycle. This means that there may be periods
where the dividend is maintained but not increased, and
periods where profits are retained rather than distributed to
maintain retained reserves and regulatory capital at prudent
levels through troughs and peaks in the cycle.
Share capital
The company’s share capital comprises one class of ordinary
shares of 5p each. At 31 December 2015, 48,134,286 shares
were in issue (2014: 47,890,269). 50,000 shares were held
in treasury (2014: 50,000). Details of the movements during
the year are set out in note 29 to the financial statements.
The shares carry no rights to fixed income and each share
carries the right to one vote at general meetings. All shares
are fully paid.
There are no specific restrictions on the size of a
shareholding or on the transfer of shares, which are both
covered by the provisions of the Articles of Association
and prevailing legislation.
The board currently has the authority to allot 15,800,000
shares (approximately one third of the issued share capital
at 24 March 2015). The board currently has the authority to
buy back up to 2,300,000 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.
Directors
Directors’ details are set out in the corporate governance
report on pages 63 to 66. Their biographies are on
pages 58 to 60.
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 47 to 48.
Corporate responsibility
Information about greenhouse gas emissions are set out in
the corporate responsibility report on pages 50 to 56.
Financial instruments and
risk management
The risk management objectives and policies of the group
are set out in note 32 to the financial statements.
Indemnification of directors
The company has put in place insurance to cover its
directors and officers against the costs of defending
themselves in civil legal action taken against them in that
capacity and any damages awarded. The company has
granted indemnities, which are uncapped, to its 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
2015 and remain in force at the date of this report.
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
61
Directors' report
Substantial shareholdings
At 23 February 2016, the company had received notifications
in accordance with the Financial Conduct Authority’s
Disclosure and Transparency Rule 5.1.2 of interests of 3% or
more in the voting rights of the company (see table 1).
Share price
The mid-market price of the company’s shares at
31 December 2015 was £22.00 (2014: £20.46) and the range
during the year was £19.99 to £23.13 (2014: £16.11 to £21.66).
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 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 LLP, be reappointed and a resolution
appointing KPMG LLP as auditor and authorising the audit
committee of the board of directors to set their remuneration
will be proposed at the 2016 AGM.
e
c
n
a
n
r
e
v
o
G
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.
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, strategic report and group risk
committee report. In addition, note 1.6 to the financial
statements provides further details.
Group companies are regulated by the Prudential Regulation
Authority (PRA) and Financial Conduct Authority (FCA)
and perform annual capital adequacy assessments, which
include the modelling of certain extreme stress scenarios.
The company publishes Pillar 3 disclosures annually
on its website, which provide detail about its regulatory
capital resources and requirements. In July 2015, Rathbone
Investment Management issued £20 million of 10-year
subordinated loan notes to finance future growth. The group
has no other external borrowings.
In 2015, the group has continued to generate organic growth
in client funds under management 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.
Political donations
No political donations were made during the year (2014: nil).
Post-balance sheet events
Details of post-balance sheet events are set out in note 38 to
the consolidated financial statements.
Annual general meeting
The 2016 AGM will be held on Wednesday 18 May 2016 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.
By Order of the Board
Richard Loader
Company Secretary
23 February 2016
Registered office: 1 Curzon Street, London W1J 5FB
Table 1. Substantial shareholdings at 23 February 2016
Shareholder
Lindsell Train Ltd.
BlackRock Inc.
Massachusetts Financial Services Company
Date of notification
Number of voting rights
% of voting rights
27 Aug 2014
30 Nov 2015
19 May 2011
5,160,356
4,120,331
2,254,063
10.81%
8.57%
5.19%
62
Rathbone Brothers Plc Report and accounts 2015
Corporate governance report
Mark Nicholls
Chairman
Introduction from the chairman
You will find commentaries in this annual report from me
and other committee chairmen on important aspects of our
governance. The board’s primary focus is on ensuring that
the business prospers for the benefit of our shareholders
and other stakeholders.
2015 was a busy year, as always, on the regulatory front. I
welcome many aspects of the new ‘senior management
regime’, which will come into force for our investment
management business in March 2016. This will replace the
current approved person regime (which acts as a gateway
for new senior management) with a more robust process
with defined responsibilities and annual certification
of significant risk takers. However, as I indicate in my
chairman’s statement, I have a concern that the application
of this regime to individual non-executive directors risks
undermining the collective responsibility of the board.
I am pleased that there is an increasing focus on culture and
a plethora of industry statements of principle and codes
of conduct. Our primary benchmarks remain the Financial
Conduct Authority (FCA) Principles for Businesses, the
most important of which are conducting our business with
integrity and paying due regard to the interests of our clients
in all that we do.
As I reported last year, Sarah Gentleman joined the
board in January 2015. Sarah brings analytical and digital
marketing skills to the board which I believe will be of
great benefit. We restructured and strengthened the group
executive committee in July 2015 with the appointment
of Sarah Owen-Jones, our chief risk officer, and four senior
investment managers who now have responsibility for the
day-to-day management of the investment management
business, reporting to Philip Howell. There have been some
important changes to our risk management processes,
including the creation of a conduct risk committee which are
covered in the risk and group risk committee reports.
The nomination committee keeps under review board
succession planning for both short-term emergencies
and longer-term succession. A number of the key issues
were highlighted in a Financial Reporting Council (FRC)
discussion paper on UK Board Succession Planning
published in October 2015.
In between board meetings I maintain frequent contact with
the executive team and, in particular, the chief executive
who keeps me advised of progress and key developments.
Philip and I also discuss how to bring issues to the board
in the most effective way. I maintain regular contact with
our senior independent director and discuss with him my
thinking on significant board issues. I also have frequent
dialogue with my other non-executive colleagues to ensure
that any areas of concern are aired. Before each board
meeting the non-executive directors meet to discuss any
key issues that have emerged from the board papers.
Whilst there must always be a place for the reporting of
important operational matters at board level, I am keen to
cut out clutter from our board papers and to ensure that the
board’s focus is on strategic oversight.
Finally, Rathbones takes the recommendations of the UK
Corporate Governance Code (‘the Code’) seriously and we
have been compliant with it throughout the year. We are
also compliant with Lord Davies’ recommendations that
boards have at least 25% female representation.
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
63
We meet as a full board at least six times a year. Most board
meetings are preceded by a board dinner which allows for
broader discussions on particular topics. They also provide
an opportunity for the board to meet members of the
management team or to receive training. 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.
The company secretary manages board and committee
meetings, ensures that the board and particularly the non-
executive directors are receiving appropriate and balanced
information, facilitates the induction process for new
directors, assists with their professional development and
advises the board on corporate governance matters and on
the rules and regulations that affect a UK listed company.
The appointment or removal of the company secretary is
a matter for the board.
Attendance at board meetings
The meeting attendance record of directors who served
during the year is set out in table 1.
Corporate governance report
Governance of the company
In relation to compliance with the Code, this report together
with the directors’ report states the position at 23 February
2016. The company was in compliance with the Code issued
in September 2014 by the FRC throughout the year.
The board
The biographies of the directors and their details are set
out on pages 58 to 60. The board currently consists of a
non-executive chairman, three executive directors and four
other non-executive directors. The board considers that all
of the non-executive directors are independent. The roles of
the chairman, Mark Nicholls, and the chief executive, Philip
Howell, are separated and are clearly defined in writing
and agreed by the board. The non-executive directors
bring independent judgement to the board table gained
at a senior level in other organisations and constructively
challenge strategy and management performance. 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.
Regarding board changes, Sarah Gentleman was appointed
to the board on 21 January 2015.
e
c
n
a
n
r
e
v
o
G
The board and principal board committee structure
Board
Group executive
committee
Group risk committee
Remuneration
committee
Nomination committee
Audit committee
Banking committee
Conduct risk committee
Risk management
committee
64
Rathbone Brothers Plc Report and accounts 2015
Corporate governance report
Table 1: Attendance at board and committee meetings
P D G Chavasse
J W Dean
S F Gentleman
D T D Harrel
P L Howell
K A Matthews
M P Nicholls
R P Stockton
1 Scheduled bi-monthly meeting
2 Scheduled monthly meeting
Plc board1
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
Executive
committee2
11/12
12/12
12/12
Board effectiveness
There are three key elements to ensuring board
effectiveness; the annual effectiveness review, individual
director appraisal and training.
Audit
committee
Remuneration
committee
Nomination
committee
Group risk
committee
6/6
6/6
6/6
6/6
4/4
4/4
4/4
4/4
4/4
2/2
2/2
1/2
2/2
2/2
2/2
4/4
4/4
4/4
4/4
Board effectiveness review
Each year, the board undertakes an annual review of its
effectiveness. In 2014, an external review was undertaken
by IDDAS Limited. This involved their attendance at audit,
group risk and board meetings, one-to-one interviews with
directors and the company secretary and a review of board
and board committee papers and minutes. The key points
raised in the 2014 review, which are summarised in table 2,
were discussed by the board and taken forward in 2015.
The 2015 internal board review included a discussion at
the October board meeting and follow up discussions at
subsequent board and non-executive director meetings.
e
c
n
a
n
r
e
v
o
G
Table 2: Board effectiveness review
Key issues from the 2014 review
Action taken in 2015
The board agenda
Greater focus on oversight, strategy and key risks,
less on day-to-day management issues
There is now greater board focus on strategic initiatives such as the Rathbone Private
Office and our distribution strategy. However, reporting of day-to-day management
issues provides useful colour and background for the non-executive directors
Information flows
Further refinement of board papers to highlight
key points and remove clutter
Succession planning
For executive and non-executive directors and
below board level
Induction and development
Develop a more structured programme
Code of ethics
Embed a code of business conduct
Whilst progress has been made in some areas, there are challenges in others,
particularly in the reporting of operations, IT and project issues. New corporate
management information software to be introduced in 2016 will enhance detailed
analysis of our core investment management business
Short-term ‘emergency’ and longer-term succession plans were discussed with the
non-executive directors during the year
During 2015, a series of training sessions and employee meetings were arranged
for the board
The board decided that rather than create its own code of ethics, its focus should be
on the FCA Principles for Businesses
Risk
Greater board focus on the key business risks
Risk reporting at board level is now on the key issues register with the group risk
committee discussing risk issues in more detail
Rathbone Brothers Plc Report and accounts 2015
65
Corporate governance report
Director appraisal
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.
Training and induction
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.
e
c
n
a
n
r
e
v
o
G
Board committees
Full details of the work of the principal board committees
are set out in the separate reports for each committee.
Mark Nicholls
Chairman
23 February 2016
66
Rathbone Brothers Plc Report and accounts 2015
Executive committee report
Philip Howell
Chief Executive
Role and responsibilities of
the committee
Executive committee chairman’s
statement
Please see the chief executive’s statement on pages 4 to 6.
Committee members
Our current members and their responsibilities are
as follows:
Board members
— Philip Howell (chief executive)
— Paul Stockton (finance director)
— Paul Chavasse (head of investment)
Investment management general managers
— Rupert Baron (head of investment management
in London)
— Ivo Clifton (head of specialist and charity business)
— Andrew Morris (head of UK investment management
outside London)
— Richard Smeeton (head of investment
management special projects and recruitment)
Other members
— Mike Bolsover (head of strategy and organisation
development)
— Andrew Butcher (chief operating officer)
— Sarah Owen-Jones (chief risk officer)
— Mike Webb (chief executive of the unit trust business and
head of group marketing and distribution)
Mike Bolsover was appointed to the committee on 1 January
2015. Rupert Baron, Ivo Clifton, Andrew Morris, Sarah
Owen-Jones and Richard Smeeton joined the committee
in July 2015.
We formally meet each month. These formal meetings are
minuted and copies of the minutes are sent to committee
members and to the board. Details of attendance by the
directors on the committee are set out on page 65. Ad hoc
and informal meetings are held as required.
The committee has been delegated the full powers of the
board subject to a list of matters which are reserved for
decision by the board. This list is reviewed annually and
approved by the board.
What we have done
Our main focus is on the implementation of the agreed
strategy and on the day-to-day management of the group.
We review and discuss the annual business plan and
budget prior to its submission to the board for approval. We
discuss the management and performance of the operating
businesses (including their results compared to the budget,
risks and regulatory compliance) and growth initiatives such
as possible acquisitions and new products and services.
Items of particular focus in 2015 were the launch of the new
Rathbones’ brand, the issue of £20 million of subordinated
loan notes by Rathbone Investment Management and the
London office move to 8 Finsbury Circus.
Our people are our main asset and so HR matters and
learning and development are important agenda items.
The maintenance of, and investment in, our core IT and
operations infrastructure are key to the continuing success
of the business and so are subject to close scrutiny. The
prioritisation of projects and allocation of resources are
closely monitored.
The chief risk officer reports on the work of the risk and
compliance teams and updates us on risk and internal
control matters and on industry developments. We receive
updates from internal audit on their work schedule and
discuss any significant issues they raise following their work.
The head of internal audit may attend any meeting. We
also have oversight of banking matters, marketing, social
and environmental matters, business continuity and
investor relations.
Non-committee members are regularly invited to attend part
of a meeting to report on a particular aspect of our business
and non-executive directors may also attend meetings.
Philip Howell
Chairman of the executive committee
23 February 2016
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
67
Executive committee report
Biographies
Rupert Baron
Andrew Morris
Mike Bolsover
Sarah Owen-Jones
Rupert Baron is head of investment
management in London. He has
over 31 years' experience within the
private client investment industry.
Andrew Morris is responsible for
the investment management offices
in the UK (excluding London). He
has spent his entire working career
at Rathbones in private client
investment management.
Ivo Clifton
Ivo Clifton is head of specialist and
charity business and continues to
manage charity and private client
portfolios. He joined Rathbones
in 1991 and was appointed as an
investment director in 1999.
Richard Smeeton
Richard Smeeton is responsible for
investment management special
projects including the assessment
of potential acquisitions and
recruitment. Having trained with
County Bank, he joined Laurence
Keen in 1988 prior to its acquisition
by Rathbones in 1995.
e
c
n
a
n
r
e
v
o
G
Mike Bolsover is head of strategy
and organisation development.
He has spent over 30 years in the
commercial and retail banking
sectors, undertaking a range of
roles with a bias towards strategy
and the management of people.
Following a lengthy career with
Midland Bank and HSBC, he moved
into private wealth management,
as director of strategy and human
resources for Gerrard. Before joining
Rathbones, he worked for Euroclear,
the world’s largest post-trade
settlement infrastructure as director
of corporate strategy. He joined
Rathbones in 2014.
Andrew Butcher
Andrew Butcher is chief operating
officer and is based in the Liverpool
office. Following an early military
career, he joined Charles Stanley in
1986 and initially acted as a partner’s
assistant while qualifying as a
private client stockbroker, managing
client portfolios. He subsequently
became involved in branch
acquisitions, project management
and IT, and was appointed as their
chief operating officer in 2008. He
joined Rathbones in 2012.
Sarah Owen-Jones joined Rathbones
in March 2015 as chief risk officer.
She worked for NatWest and
Royal Bank of Scotland group for
over 30 years, including 13 years
at Coutts. Sarah has an MBA with
a dissertation on operational risk
management and she is a member
of the Institute of Risk Management.
Mike Webb
Mike Webb is chief executive
officer of Rathbone Unit Trust
Management. He has over 25
years’ experience, previous roles
including chief executive officer
of Invesco Perpetual, managing
director of the retail division of
GT Global Asset Management and
sales and marketing director of
Prolific Financial Management.
Before joining Rathbones he was
head of business development
at Hermes Fund Managers. He
joined Rathbones in 2010. His other
responsibilities include marketing
and Rathbones’ distribution
strategy.
68
Rathbone Brothers Plc Report and accounts 2015
Group risk committee report
Kathryn Matthews
Non-executive Director
Role and responsibilities of
the committee
Risk committee chairman’s
annual statement
As I mentioned in my report last year, I was delighted that
our risk and compliance team was strengthened in March
2015 with the appointment of Sarah Owen-Jones as chief risk
officer. Sarah has considerable banking and financial services
risk management experience which will be invaluable as
Rathbones continues to grow.
Sarah has already made a number of important changes to
our risk framework. The second line of defence has been
strengthened with the appointment of a dedicated head
of anti-money laundering, separating this role from the
head of compliance function. She has also clarified risk
responsibilities with credit risk overseen by the banking
committee, conduct risk by a new conduct risk committee
(which has formalised our approach to this important
area of regulatory focus) and operational risk by the risk
management committee.
Committee members
Our current members are the independent non-executive
directors Kathryn Matthews (chairman), James Dean, Sarah
Gentleman and David Harrel. Sarah Gentleman joined the
committee on her appointment to the board on 21 January
2015. We met on four occasions in 2015 (2014: four). Details
of attendance by members are set out on page 65.
These are set out in the terms of reference of the committee,
which are reviewed annually and approved by the board.
The key activities of the committee are to:
— review reports from the investment management
performance monitoring team
— review reports from the risk team on risk appetite issues
including any early warning signals and advise the board
accordingly
— review reports from the head of compliance
— review reports from the head of anti-money laundering
— discuss any loss events and near misses, the lessons
learned and management action taken
— discuss external risk-related events
— discuss significant issues raised at the banking, conduct
risk and risk management committee meetings
— review and approve changes to the top ten risk list and the
watch list of emerging risks
— review end-to-end process risk assessments undertaken
and any resulting internal control enhancements
— advise the board on the risk aspects of proposed major
strategic change
— review (prior to board approval) key regulatory
submissions including the group Internal Capital
Adequacy Assessment Process (ICAAP) document
— review (prior to board approval) the annual ISAE 3402
report on the investment management operations and
custody control systems.
Full details of our risk management framework are included
in the strategic report on pages 20 to 26.
Kathryn Matthews
Chairman of the group risk committee
23 February 2016
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
69
Remuneration committee report
David Harrel
Senior Independent Director
e
c
n
a
n
r
e
v
o
G
Remuneration committee chairman’s
annual statement
Last year we obtained shareholder approval for our
remuneration policy and the introduction of the new
Executive Incentive Plan (EIP). The EIP replaced the
previous annual bonus scheme and the Long Term Incentive
Plan (LTIP) with a single annual assessment of performance
using a balanced scorecard of long-term and annual financial
objectives of the business, non-financial strategic objectives
and personal performance.
In its first year of operation, we have set out in this
remuneration committee report the performance metrics
and targets against which performance was judged. The
strong financial performance of the business resulted in
above-target performance in respect of the long-term
financial objectives (earnings per share (EPS) and return
on capital employed (ROCE)) and the annual profit before
tax and operating margin targets. The committee also
noted good progress relative to the non-financial strategic
objectives, which cover critical project performance,
stakeholder measures and client experience. We have set
out in the remuneration committee report, in more detail,
the targets and outcomes of the assessment of performance
across the balanced scorecard.
The annual award under the EIP is split between deferred
shares (60%) and cash (40%). The deferred shares vest
over a five-year period at 20% per annum, cannot be sold
for five years from the date of award and are subject to malus
and clawback.
The strong long-term financial and shareholder return
performance also meant that the legacy 2013—15 LTIP
performance targets (total shareholder return (TSR) and EPS)
were achieved in full.
The committee has set targets for the EIP for 2016 which
will be disclosed in the remuneration committee report
next year.
The committee has also reviewed executive director salaries
for 2016 in light of the prevailing economic conditions and
have decided that no increases will be awarded.
Remuneration remains an area of focus for the regulators.
The committee has spent much of the year absorbing
numerous regulatory changes and guidelines to ensure that
remuneration policies across the business are in line with
best practice. We have aimed to incentivise performance
in furtherance of the firm’s strategy, within the group’s risk
appetite. We will continue to monitor the impact of these
changes closely to ensure that any necessary fine tuning
to the wider remuneration frameworks across the group is
managed effectively.
David Harrel
Chairman of the remuneration committee
23 February 2016
Directors’ remuneration policy
This remuneration policy which was approved by
shareholders at the AGM on 14 May 2015, is designed to be:
— linked to our strategy
— aligned with shareholders’ interests with significant,
long- term equity participation
— simple and transparent
— include both annual and long-term elements
— compliant with financial services rules and regulations
— in line with the market, having regard to the size and
complexity of the group’s operations
— fair for both the director and the company with some
element of discretion
— aligned with the board’s approved risk appetite
— flexible, recognising that the business is evolving and
responsibilities change.
70
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Directors’ remuneration policy
Executive directors
Base salary
Purpose and link
to strategy
The core, fixed
component of the
package designed to
enable the recruitment
and retention of high
calibre individuals
Benefits
Purpose and link
to strategy
Benefits are typically
provided to directors
to complement the
remuneration package
and ensure that it is
sufficiently attractive to
enable recruitment
Operation
Opportunity
Applicable performance measures
Not applicable
Base salaries are
reviewed annually
on 1 January and are
compared to salaries
in other companies
of similar size and
complexity to ensure
that the market
rate is being paid.
Adjustments may be
made at other times
to reflect a change
of responsibility
There is no maximum
base salary, but
percentage increases
will normally be no
higher than the general
level of increase for
the wider employee
population, unless
there are special
circumstances such
as a material change
of responsibilities or
where a salary has
been set significantly
below market median
and is being brought
into line
Base salaries at
1 January 2016 are:
Paul Chavasse
— £293,550
Philip Howell
— £463,500
Paul Stockton
— £294,580
Operation
Opportunity
Applicable performance measures
Not applicable
Benefits make
up a small
percentage of total
remuneration costs
Benefits are set by the
committee and may
include, for example:
— private medical
insurance for
directors and their
dependants
— death in service
cover
— Share Incentive
Plan free and
matching shares
— Save As You
Earn scheme
— annual medicals
— limited legal and
professional advice
on company
related matters
— relocation costs
Recovery
Not applicable
e
c
n
a
n
r
e
v
o
G
Recovery
Not applicable
Rathbone Brothers Plc Report and accounts 2015
71
Remuneration committee report
Directors’ remuneration policy
Executive Incentive Plan
Purpose and link
to strategy
Operation
Opportunity
Applicable performance measures
Recovery
The EIP rewards
both short-term
performance and
the achievement
of corporate and
individual goals and
aligns the interests
of shareholders and
directors in creating
long-term shareholder
value. The performance
measures as described
have been selected to
support the controlled
delivery of our business
strategy as set out in
the strategic report
The threshold EIP
award is 25% of
base salary
The target EIP award is
120% of base salary
The maximum EIP
award is 200% of
base salary
Actual awards for
performance above
or below target
performance are
calculated on a straight
line basis between
threshold
and maximum
EIP awards are paid
in cash (40%) and
deferred Rathbones
shares (60%) which
vest over a five
year period in equal
tranches of 20% per
annum. A full five year
sale Restriction period
will operate from the
date of the award
and will continue to
operate for directors
who have left the
company. Directors will
not be permitted to
sell shares during the
sale restriction period
except for the purpose
of meeting tax liabilities
on vesting
Deferred awards are
increased by notional
adjustments for
dividends paid until
vesting calculated
using shares held at
the record date
e
c
n
a
n
r
e
v
o
G
In the case of a ‘bad’
leaver, all unvested
awards will normally
lapse. A ‘bad’ leaver
is a director who
leaves other than
on retirement,
redundancy, due to ill
health or on the sale of
the business unless the
committee determines
otherwise
The committee may
seek the recovery of
awards at any time
before the vesting
of awards (malus) or
within three years of
vesting (clawback)
if it determines that
the financial results
of the company were
materially misstated,
if the group is subject
to a material adverse
event (for example,
regulatory censure)
or if an historic error
was made in the
calculation of awards.
This recovery may be
made by the reduction
of future awards,
the reduction of past
awards made that have
not vested or by the
repayment of cash
awards or the return
of vested shares
EIP balanced scorecard measures are set by the
committee, to support the company’s strategy.
The 2015 metrics and weightings are shown
below. These may be amended from time-to-
time by the committee, as necessary to maintain
alignment with strategy
Financial (1 year) (25% weighting, equally
split between the measures)
— Profit before tax compared to the budget
— Net organic growth in investment funds under
management compared to the target
— Underlying operating profit margin compared
to target range
Financial (3 year trailing) (40% weighting,
equally split between the measures)
— Compound annual growth in EPS over 3 years
— Average ROCE over 3 years
— The 3 year trailing measure will be phased in
between 2015 and 2017. For 2015, specific
annual targets have been set for EPS and
ROCE to establish the baseline from which
future growth will be measured. These targets
are based on the 2015 budget
The performance metrics and range of
outcomes for each financial measure (1 year and
3 year trailing) are set by the committee and
reviewed annually
Non-financial strategic measures (15%
weighting)
— Assessment of non-financial performance
relating to the delivery of the client
experience, project implementation,
regulatory compliance and risk management
— Objectives and measures are proposed by
the chief executive and approved by the
remuneration committee annually
Personal performance (20% weighting)
— Personal performance against annual
objectives
— These are set by the chief executive and
chairman (for the chief executive) at the start
of each year and are agreed with each director
and approved by the remuneration committee
72
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Directors’ remuneration policy
Executive Incentive Plan — continued
Purpose and link
to strategy
Operation
Pension or cash allowance
Opportunity
Applicable performance measures
Recovery
Additional considerations
The remuneration committee may make an
adjustment when determining the overall award,
including to zero if appropriate, to take account
of any of the following material events:
— underlying financial performance
— risk management or regulatory
compliance issues
— personal performance
Purpose and link
to strategy
To provide the
executive directors
with retirement
benefits
Operation
Opportunity
Applicable performance measures
Not applicable
The maximum
personal pension or
allowance payment is
14% of salary
Payments may be
made to a defined
contribution pension
arrangement such as a
self-invested personal
pension (SIPP) or to
the group defined
contribution scheme.
Alternatively, they
may receive a cash
pension allowance
Executive directors
may be a member
of a group defined
benefit scheme.
These have been
closed to new members
since 2002
Recovery
Not applicable
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
73
Remuneration committee report
Directors’ remuneration policy
Chairman and other non-executive directors
Base fee
Purpose and link
to strategy
To enable the
recruitment of high
calibre non-executive
directors with the
appropriate skills and
experience
Operation
Opportunity
Applicable performance measures
Not applicable
The base fee for the
chairman in 2014 was
£140,000. This was
increased to £160,000
on 1 January 2015. The
base fee for the other
non-executive directors
in 2014 was £42,500
per annum. This was
increased to £50,000
on 1 January 2015
Base fees are reviewed
annually by the board
on 1 January and
are compared to fees
in other companies
of similar size and
complexity to ensure
that the market
rate is being paid.
Adjustments may be
made at other times
to reflect a change of
responsibility. Fees
are paid in cash
Additional responsibility fee
Recovery
Not applicable
Purpose and link
to strategy
To recognise the
additional responsibility
involved in chairing
a committee (audit,
group risk and
remuneration) or
being the senior
independent director
e
c
n
a
n
r
e
v
o
G
Operation
Opportunity
Applicable performance measures
Additional responsibility
fees are reviewed
annually by the board
on 1 January
The additional
responsibility fee
payable is £10,000
per annum
Not applicable
Recovery
Not applicable
74
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Directors’ remuneration policy
Appointment of new directors
Notes to the directors’ remuneration policy table
Performance metrics
The performance metrics chosen for the EIP are key
performance metrics used by the business and shareholders.
The comparison of actual profit before tax (PBT) with budget
links performance to strategy and the business plan. Growth
in funds under management (FUM) is a key measure of
business growth, while maintenance of the underlying
operating profit margin is a key indicator of the health of
the business and its profitable growth and cost control.
EPS growth and ROCE are commonly used measures
designed to ensure alignment of interests between
participants and shareholders.
The use of discretion
The committee may make minor amendments to the
policy set out above (for regulatory, exchange control, tax
or administrative purposes or to take account of a change
in legislation) without obtaining shareholder approval for
that amendment. In relation to the EIP, the committee
retains discretion when selecting participants, determining
the treatment of leavers, agreeing the timing of awards and
reviewing the balanced scorecard of performance measures,
targets and weightings. The committee reserves the right to
retrospectively adjust performance measures and targets
if events (for example, a major acquisition) make them
inappropriate. Adjustments will not be made to make the
conditions materially easier to satisfy.
The committee reserves the right to make any remuneration
payments and payments for loss of office (including
exercising any discretions available to it in connection
with such payments) notwithstanding that they are not in
line with the policy set out above, where the terms of the
payment were agreed (i) before the policy came into effect
or (ii) at a time when the relevant individual was not
a director of the company and, in the opinion of the
committee, the payment was not in consideration for the
individual becoming a director of the company. For these
purposes ‘payments’ include the committee satisfying
awards of variable remuneration and, in relation to an award
over shares, the terms of the payment are ‘agreed’ at the
time the award is granted.
Consultation
The company consulted major shareholders and
their representative bodies but did not consult
employees when drawing up the remuneration policy
set out in this report.
For new directors, the structure of the package offered
will mirror that provided to current directors. The package
quantum will depend on the role and the experience
and background of the new director. Advice from our
remuneration consultants will be taken to ensure that the
package is in line with median market levels for companies
of similar size and complexity. The company may pay
compensation for remuneration the individual has forfeited
in order to take up the role with Rathbones. In setting the
value, timing and any performance conditions for such
compensation, the committee will take account of the
vesting timetable and conditions that may have applied to
the forfeited remuneration.
Payments for loss of office and service contracts
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 below.
Executive director
P D G Chavasse
P L Howell
R P Stockton
Date of
contract
Notice
period
15 Nov 2011 12 months
12 Feb 2013 12 months
6 months
14 Oct 2011
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 predetermined
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, are available for inspection at the
company’s registered office and will be available for
inspection at the annual general meeting (AGM).
Rathbone Brothers Plc Report and accounts 2015
75
e
c
n
a
n
r
e
v
o
G
Remuneration committee report
Directors’ remuneration policy
Non-executive directors have a letter of appointment rather
than a contract of employment. As with all other directors,
they are 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. Any term beyond six years is subject
to particularly rigorous review and takes into account the
need for progressive refreshing of the board. The executive
directors are responsible for determining the fees of the non-
executive directors.
Other directorships
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
being payable to the company. Paul Stockton is a director
of the Financial Services Compensation Scheme with his
remuneration being paid to the company.
Statement of implementation of the remuneration
policy in the current financial year
The charts below show the relative split of fixed and
variable remuneration showing minimum, on-target
and maximum awards.
Legacy arrangements
Authority is given to the committee to honour previous
remuneration awards or arrangements entered into with
current or former directors (such as the payment of a
pension or the unwind of legacy share schemes). Details
of any payments will be set out in the annual report on
remuneration as they arise.
Statement of implementation of the remuneration policy in the current financial year
Philip Howell
Value of package
n
o
i
l
l
i
m
£
1.6
1.2
0.8
0.4
0
e
c
n
a
n
r
e
v
o
G
£1,430,454
£1,059,654
£503,454
Composition of package
%
100
80
60
40
20
0
Minimum
In line with expectations Maximum
Minimum
In line with expectations Maximum
Paul Stockton
Value of package
n
o
i
l
l
i
m
£
1.6
1.2
0.8
0.4
0
£673,469
£909,133
£319,973
Composition of package
%
100
80
60
40
20
0
Minimum
In line with expectations Maximum
Minimum
In line with expectations Maximum
Paul Chavasse
Value of package
Composition of package
n
o
i
l
l
i
m
£
1.6
1.2
0.8
0.4
0
- Salary
EIP
Pension
76
£681,241
%
£916,081
£328,981
100
80
60
40
20
0
Minimum
In line with expectations Maximum
Minimum
In line with expectations Maximum
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Annual report on remuneration
The remuneration of directors in 2015 and 2014 is set out in
the table below. Executive director remuneration for 2015
includes both legacy LTIP awards made in 2013 that vested
in the period and EIP awards for 2015, 60% of which vest
over five years.
Single total figure of remuneration for each director (audited)
Salary
and fees
£'000
Taxable
benefits and
allowances
£'000
2015 EIP
award for
the year
— cash
£'000
2015 EIP
award for
the year
— deferred
shares
£'000
2013-15
LTIP awards
vesting at
the year end
£'000
Pensions
£'000
SIP
£'000
SAYE
£'000
Total
£'000
2015
Executive directors
P D G Chavasse
P L Howell
R P Stockton
Non-executive directors
J W Dean
S F Gentleman
D T D Harrel
K A Matthews
M P Nicholls
294
464
295
1,053
60
47
70
60
160
397
2
2
13
17
—
—
—
—
—
—
169
290
182
641
—
—
—
—
—
—
254
435
273
962
—
—
—
—
—
—
318
373
284
975
—
—
—
—
—
—
85
40
25
150
—
—
—
—
—
—
Total
1,450
17
641
962
975
150
3
3
3
9
—
—
—
—
—
—
9
4
1
—
5
—
—
—
—
—
—
5
1,129
1,608
1,075
3,812
60
47
70
60
160
397
4,209
Salary
and fees
£'000
Taxable
benefits and
allowances
£'000
2014
bonus for
the year
— cash
£'000
2014
bonus for
the year
— deferred
shares
£'000
2012-14
LTIP awards
vesting at
the year end
£'000
Pensions
£'000
SIP
£'000
SAYE
£'000
Total
£'000
2014
Executive directors
P D G Chavasse
P L Howell
A D Pomfret
R P Stockton
Non-executive directors
O R P Corbett
J W Dean
D T D Harrel
K A Matthews
M P Nicholls
285
450
57
286
1,078
22
48
63
53
140
326
2
2
2
13
19
—
—
—
—
—
—
145
251
—
151
547
—
—
—
—
—
—
145
252
—
152
549
—
—
—
—
—
—
300
—
273
267
840
—
—
—
—
—
—
94
39
—
25
158
—
—
—
—
—
—
Total
1,404
19
547
549
840
158
3
3
—
3
9
—
—
—
—
—
—
9
—
2
—
3
5
—
—
—
—
—
—
5
974
999
332
900
3,205
22
48
63
53
140
326
3,531
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
77
Remuneration committee report
Annual report on remuneration
Performance is assessed using a combination of measures:
Notes to the single total figure of remuneration for each
director table
Executive directors’ salaries
As reported last year, executive directors’ salaries were
increased by 3% on 1 January 2015 which was consistent
with the typical increases awarded across the group. Salaries
were not increased on 1 January 2016.
Non-executive directors’ fees
On 1 January 2015, the chairman’s fee was increased from
£140,000 to £160,000 per annum and the basic
non-executive director’s fee was increased from £42,500
to £50,000 per annum. An additional responsibility fee
of £10,000 per annum is paid to the senior independent
director and to the chairmen of the audit, group risk and
remuneration committees. Fees were not increased on
1 January 2016. Any future increases will depend upon a
rigorous assessment of the burden of responsibilities and
market rates.
Taxable benefits
e
c
n
a
n
r
e
v
o
G
Taxable benefits are the provision of private medical
insurance for executive directors and their dependants.
Executive Incentive Plan 2015
The EIP was approved by shareholders at the 2015 annual
general meeting. It replaced both the annual bonus scheme
and the Long Term Incentive Plan, simplifying our incentive
arrangements. It is aligned with our five year strategy and
with the interests of shareholders. The overall cap is 200%
of base salary. 60% of awards are made in deferred shares
which must be held for a minimum period of five years.
One year financial
Three year financial
Non-financial strategic
Personal performance
Total
Weight %
25
40
15
20
100
One year financial — 25%
The one year financial performance measures are three key
performance indicators used by the business which are
closely aligned to our strategy.
Profit before tax compared to budget
Net organic growth in total FUM compared to the target
Underlying operating margin compared to the target
Total
Weight %
8.34
8.33
8.33
25.00
The organic growth in investment funds under management
covers both Investment Management and Unit Trusts.
Three year financial — 40%
The three year financial performance measures are:
Compound annual growth rate (CAGR) of EPS
Average ROCE over the preceding three year period
Total
Weight %
20
20
40
Performance will be tested over one and two years in 2015
and 2016 respectively.
Bonus calculations: one and three year financial performance awards for 2015
Measure
Financial one year
Profit before tax (£m)
Net organic growth in FUM (%)
Operating margin (%)
Financial three year trailing
EPS (p)
ROCE (%)
Maximum
% of total award 25% of base salary 120% of base salary 200% of base salary
Threshold
On target
Weighted payout
(% of salary)
Actual
8.34%
8.33%
8.33%
25.00%
20.00%
20.00%
65.00%
50.9
5.9%
28.5%
56.5
6.5%
30.0%
62.2
7.2%
31.5%
58.6
4.1%
30.7%
84.2
15.0%
93.5
17.0%
102.8
18.0%
97.4
19.1%
12.47%
0.00%
13.11%
25.58%
30.71%
40.00%
96.29%
78
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Annual report on remuneration
Non-financial strategic — 15%
The non-financial strategic measures are designed to drive
strategic goals. They have three components: significant
project performance, stakeholder measures (risk and internal
audit performance) and client experience measures. For
clarity, the measures for 2015 are set out below.
Significant project performance
— Enhancements to the investment process
— Design and implementation of a distribution strategy
— Rathbone Investment Management capital
raising exercise
— Acquisition of the remaining interest in Vision
Independent Financial Planning and Castle
Investment Solutions (‘the Vision businesses’).
— Development of the Rathbones Private Office concept
— Integration of Rathbones’ pension advisory services into
Rathbone Investment Management
— Review of remuneration schemes and related
performance management processes
Stakeholder measures
— Risk and internal audit performance
— Employee engagement
— Shareholder feedback
Client experience measures
— Investment performance
— Client satisfaction
— Business retention
The remuneration committee has carefully reviewed
progress in implementing these initiatives and has also
reviewed the collective performance of the management
team in operational, risk and client matters.
Progress on the strategic projects has generally been as
planned and objectives have been in line with expectations
including the acquisition of the Vision businesses and the
opening of the Glasgow office. Some minor slippage in
implementation dates has been evident in finalising the
remuneration schemes and the service proposition for
financial planning.
Regarding stakeholder measures, risk and internal audit
metrics show good progress. Our first company-wide
engagement survey was conducted and our overall
employee engagement score of 88%, and high scores in
sections reflecting staff-wide commitment to the strategy,
are extremely encouraging.
Regarding client experience measures, investment
performance has been in line with expectations. Client
feedback continues to be positive overall and business
retention metrics are also positive.
The committee has concluded that good progress has been
made on the significant projects and that other elements are
well controlled. An overall score for this section of 12% out of
a maximum of 15% (24% of salary) is merited.
Personal performance — 20%
Personal performance has been assessed using specific
measures appropriate to the director’s role and
responsibilities. Personal performance outcomes are
shown below.
Philip Howell has shown strong leadership of the group
throughout the year. Strategic objectives, which included
the acquisition of the remaining shareholding in the Vision
businesses, were fully achieved despite challenging market
conditions.
Paul Stockton’s personal objectives include measures
relating to cost challenges, capital raising and relationship
building with external stakeholders. In addition he has
contributed effectively to the board, executive committee
and to the leadership of the group.
Paul Chavasse changed roles during the year. His
objectives therefore included organic growth and
investment process measures, the establishment of our
Glasgow office and development of financial planning
and smaller portfolio solutions.
Philip Howell
Paul Stockton
Paul Chavasse
Personal
performance
(maximum 20%)
18
17
12
% of
salary
36
34
24
Long Term Incentive Plan
The LTIP awards reported are the legacy awards for 2013-15
made prior to the approval of the current remuneration
policy at the AGM in May 2015.
Rathbone Brothers Plc Report and accounts 2015
79
e
c
n
a
n
r
e
v
o
G
Remuneration committee report
Annual report on remuneration
Executive directors were awarded rights to acquire ordinary
shares at the start of a three year plan cycle. Awards
were 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 total
shareholder return (TSR) and earnings per share (EPS)
performance targets for that cycle. The extent to which the
targets have been achieved determines the actual number
of shares (if any) attributable to each participant. The
reported awards are those vesting at the end of the 2013–15
three year cycle, including an adjustment for dividends paid
during the three years, valued using the average share price
over the last three months of the year.
TSR over the plan cycle (50%)
Rathbone Brothers Plc Total Return Index (TRI)
relative to the FTSE All Share TRI (TSR element)
Vesting of award
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
0%
25%
the FTSE All Share TRI by 0.1% to 9.9%
Straight line increase
Equal to or greater than the percentage
change in the FTSE All Share TRI plus 10%
100%
Basic EPS increased by 46% from 66.5p in 2012 to 97.4p in
2015, which also resulted in a 100% award for this element
of the plan. The awards will vest on 19 March 2016 and have
been valued using the average share price for the last quarter
of 2015 of £21.87 (2014: £19.17).
Pensions
Paul Chavasse is now a deferred member of the Rathbone
1987 Scheme having ceased the accrual of benefits with
effect from 30 April 2015. The figure disclosed includes the
increase in the value of his pension benefits (excluding CPI
inflation) less his contributions.
Since 1 May 2015, he has been paid a cash allowance of
12.07% of salary per annum. Philip Howell and Paul Stockton
are paid a cash allowance of 8.62% of salary. All participate in
the Rathbone 1987 Scheme for death in service benefits.
Share Incentive Plan (SIP)
This benefit is the value of the SIP matching and free share
awards made in the year. Employees may contribute up to
£150 per month with contributions matched on a one-for-
one basis by the company. Free share awards are linked to
EPS growth.
Save As You Earn (SAYE)
This benefit is the value of the discount on SAYE options
granted during the year.
Scheme interests awarded during the year (audited)
EPS growth over the plan cycle (50%)
Less than 15%
15%
Vesting of award
(EPS element)
0%
25%
Paul Chavasse and Philip Howell were awarded interests in
shares under the all employee SAYE scheme. A SAYE option
grant was made on 28 April 2015 at £16.41, which was 80% of
the closing mid-market share price on 1 April 2015 of £20.51.
Options may be exercised after five years (from 1 June 2020).
e
c
n
a
n
r
e
v
o
G
Over 15% but less than 37.5%
Straight line increase
37.5% or over
100%
For the 2013–15 plan cycle, the Rathbone Brothers Plc TRI
increased by 86% while the FTSE All Share TRI increased by
25%, a differential of 61%, comfortably exceeding the 10%
threshold for a 100% award.
Number of shares
Option price
Exercise price
Paul Chavasse
Philip Howell
914
365
£16.41
£16.41
£14,999
£5,990
Directors’ interests in shares and shareholding
guidelines (audited)
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. At 31 December 2015, directors’ shareholdings
were as set out in table 1.
80
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Annual report on remuneration
Table 1. Directors' shareholdings at 31 December 2015
Beneficially owned shares
Non SIP
SIP1
Total
LTIP
Interests in shares
Bonus scheme
SIP (not
yet beneficially
owned)1
Executive directors
P D G Chavasse
P L Howell
R P Stockton
Chairman
M P Nicholls
Non-executive directors
J W Dean
S F Gentleman
D T D Harrel
K A Matthews
61,241
—
32,092
6,983
191
2,090
68,224
191
34,182
25,699
35,159
24,296
31,283
11,816
29,044
3,000
640
3,640
1,000
—
—
—
—
—
656
1,151
1,000
—
656
1,151
—
—
—
—
—
—
—
—
—
—
433
312
433
109
—
—
109
109
SAYE
Total
1,727
2,299
1,273
59,142
49,586
55,046
—
—
—
—
—
109
—
—
109
109
1 SIP matching and free shares held for less than three years may be forfeited in certain circumstances and so are not considered to be benefically owned
97,333
11,711
109,044
85,154
72,143
1,505
5,299
164,101
Table 2. LTIP
P D G Chavasse
P L Howell
R P Stockton
Market value
Plan cycle
Grant date
of shares Performance
period end
date
at date
of grant
Vesting
date
2012—14 20/03/12
2013—15 19/03/13
2014—16 25/03/14
£12.61 31/12/14 20/03/15
£14.31 31/12/15 19/03/16
£17.37 31/12/16 25/03/17
2012—14 20/03/12
2013—15 19/03/13
2014—16 25/03/14
£12.61 31/12/14 20/03/15
£14.31 31/12/15 19/03/16
£17.37 31/12/16 25/03/17
2012—14 20/03/12
2013—15 19/03/13
2014—16 25/03/14
£12.61 31/12/14 20/03/15
£14.31 31/12/15 19/03/16
£17.37 31/12/16 25/03/17
Number of shares
At 1
Dividend
January adjustment
on vesting
2015
Exercised
in 2015
15,631
—
—
—
—
—
1,421
—
—
—
—
—
1,267
—
—
13,939
—
—
At 31
Lapsed in December
2015
2015
615
—
—
—
—
—
549
—
—
—
13,390
12,309
—
15,723
19,436
—
11,944
12,352
e
c
n
a
n
r
e
v
o
G
14,825
13,390
12,309
—
15,723
19,436
13,221
11,944
12,352
113,200
2,688
29,570
1,164
85,154
Rathbone Brothers Plc Report and accounts 2015
81
Remuneration committee report
Annual report on remuneration
Table 3. Bonus scheme
At 1 January 2015
Shares
Final award for 2014
Shares
Vested in 2015
Shares
Dividend adjustment
in 2015
Shares
At 31 December 2015
Shares
P D G Chavasse
2011
2012
2013
2014
P L Howell
2011
2012
2013
2014
R P Stockton
2011
2012
2013
2014
Total
14,316
12,047
11,826
—
38,189
—
—
—
—
—
13,370
12,244
9,159
—
34,773
72,962
—
—
—
6,648
6,648
—
—
—
11,528
11,528
—
—
—
6,933
6,933
25,109
14,316
—
—
—
14,316
—
—
—
—
—
13,370
—
—
—
13,370
27,686
—
300
295
167
762
—
—
—
288
288
—
306
229
173
708
1,758
e
c
n
a
n
r
e
v
o
G
Table 4. SAYE option exercises
P D G Chavasse
P D G Chavasse
P L Howell
P L Howell
P L Howell
R P Stockton
R P Stockton
Grant
date
28/03/13
28/04/15
28/03/13
01/05/14
28/04/15
28/03/13
01/05/14
At 1
January
2015
813
—
1,356
578
—
406
867
Granted
in 2015
Exercised
in 2015
Lapsed
in 2015
At 31
December
2015
Earliest
exercise
date
Latest
exercise
date
—
914
—
—
365
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
813 01/05/16 01/11/16
914 01/06/20 01/12/20
1,356 01/05/18 01/11/18
578 01/06/19 01/12/19
365 01/06/20 01/12/20
406 01/05/16 01/11/16
867 01/06/17 01/12/17
5,299
4,020
1,279
—
12,347
12,121
6,815
31,283
—
—
—
11,816
11,816
—
12,550
9,388
7,106
29,044
72,143
Exercise
price
(p)
1,106
1,641
1,106
1,556
1,641
1,106
1,556
Market
price on
grant
(p)
1,397
2,051
1,397
1,945
2,051
1,397
1,945
Payments to past directors (audited)
A number of current employees have stepped down from
the board in recent years but remain employees and or
directors of subsidiary companies. They remain eligible to
receive LTIP awards made when they were on the board or
on the executive committee (subject to the achievement
of the performance conditions) but these awards may be
reduced pro-rata to reflect the fact that they were not a
director or executive committee member for the full cycle.
The following LTIP awards will be made in respect of the
2013–15 plan cycle which ended on 31 December 2015. The
conditional share awards were granted on 19 March 2013
using a share price of £14.31. The performance conditions
were achieved and the awards will vest on 19 March 2016.
Adjustments have been made to reflect dividends paid since
the date of grant.
2013–15 LTIP actual award
Number of shares
I M Buckley
A D Pomfret
8,007
6,607
82
Rathbone Brothers Plc Report and accounts 2015
Remuneration committee report
Annual report on remuneration
Performance graph (unaudited)
Chart 1 shows the company’s TSR against the FTSE All
Share Index TSR for the seven years to 31 December 2015.
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. Company’s TSR against the FTSE All Share Index TSR
% change
250
200
150
100
50
0
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2008
2013 2014
2010
2011
2009
2012
2015
Rathbone Brothers Plc — Total Shareholder Return
FTSE All Share Index — Total Shareholder Return
Chief executive officer single figure (unaudited)
During the seven years to 31 December 2015, Andy Pomfret
was chief executive until 28 February 2014 when he was
succeeded by Philip Howell.
Year
CEO
2015 Philip Howell
2014 Philip Howell
2014 Andy Pomfret
2013 Andy Pomfret
2012 Andy Pomfret
2011 Andy Pomfret
2010 Andy Pomfret
2009 Andy Pomfret
CEO single
figure of total
remuneration
£'000
EIP award
or short-term
bonus as % of
maximum
opportunity
Long-term
incentive
awarded as %
of maximum
opportunity
1,608
999
342
1,204
1,046
678
736
508
78%
89%
n/a
59%
38%
46%
52%
25%
100%
n/a%
96%
100%
100%
0%
24%
0%
Percentage change in the remuneration of the chief
executive officer and employees (unaudited)
The table below shows the percentage year-on-year change
in salary, benefits and bonus in 2015 for the chief executive
compared with the average Rathbones employee. The
EIP scheme is a new scheme with short and longer-term
measures. 60% of awards are paid in deferred Rathbone
shares which vest over five years. It replaced the previous
bonus and LTIP schemes and so, in this transitional year,
the annual bonus increase between 2014 and 2015 is not a
like-for-like comparison. The percentage change in the CEO’s
cash bonus was 16%.
Salary
Benefits
Annual bonus
CEO
Average pay based on all
Rathbone employees
3%
4%
0%
0%
44%
14%
Relative importance of spend on pay
Chart 2 shows the relationship between total employee
remuneration, profit after tax and dividend distributions for
2014 and 2015. The reported profit after tax has been selected
by the directors as a useful indicator when assessing the
relative importance of spend on pay.
Chart 2. Relative importance of spend on pay £m
+17%
+30%
Total staff costs
Profit after tax
+9%
Dividends paid
e
c
n
a
n
r
e
v
o
G
e
c
n
a
n
r
e
v
o
G
120
100
80
60
40
20
0
2015
2014
Implementation of the remuneration policy in 2016
In 2016, the remuneration policy will be applied in a similar
way to 2015. Incentive awards under the EIP will continue
to be linked to a scorecard of longer-term financial metrics,
and annual metrics covering financial, non-financial strategic
and personal performance criteria. As for 2015, targets and
outcomes will be published in the remuneration committee
report following the year end. Performance under the
long-term, trailing metrics (EPS growth and ROCE) will be
measured against published underlying results over the
two years 2015 and 2016, in accordance with the policy. This
increases to three years from 2017, as the phasing in of the
three-year trailing metrics is completed.
Rathbone Brothers Plc Report and accounts 2015
83
Approval
The remuneration committee report, incorporating both the
remuneration policy and annual report on remuneration, has
been approved by the board.
Signed on behalf of the board
David Harrel
Chairman of the remuneration committee
23 February 2016
Remuneration committee report
Annual report on remuneration
Remuneration committee members
Current committee members are the independent non-
executive directors David Harrel (chairman), James Dean,
Sarah Gentleman and Kathryn Matthews. Mark Nicholls
was considered to be independent on his appointment as
company chairman and is also a member of the committee.
Sarah Gentleman joined the committee on her appointment
to the board on 21 January 2015. The committee met on
four occasions in 2015 (2014: four). Details of attendance by
members are set out on page 65.
Advisers to the committee and their fees
New Bridge Street has been adviser to the committee
since 1 July 2014. They are members of the Remuneration
Consultants Group and advise the committee on
remuneration package assessments, scheme design and
reporting best practice. They do not provide other services
to the company. Their fees are charged on a time cost basis
and were £84,000 in 2015. The appointment of advisers is
reviewed annually.
The company secretary and head of strategy and
organisation development attend committee meetings.
Statement of voting at the 2015 Annual General Meeting
At the AGM held on 14 May 2015, the resolutions
seeking approval of the directors’ remuneration policy
and remuneration committee report received votes as
shown below.
Remuneration policy
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Annual report on remuneration
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
34,820,978
1,146,663
96.8%
3.2%
35,967,641
100.0%
1,373,106
—
36,304,003
702,754
98.1%
1.9%
37,006,757
100.0%
333,990
—
e
c
n
a
n
r
e
v
o
G
84
Rathbone Brothers Plc Report and accounts 2015
Audit committee report
James Dean
Non-executive Director
What we have done
Governance
Audit committee chairman’s
annual statement
2015 has been another busy year for Rathbones. From an
audit committee perspective, the work of internal audit
has been an area of particular focus this year following an
independent assessment of our internal audit function as
required by the Chartered Institute of Internal Auditors
standards in late 2014.
Committee members
Our current members are the independent non-executive
directors James Dean (chairman), Sarah Gentleman,
David Harrel and Kathryn Matthews. Sarah Gentleman
joined the committee on her appointment to the board
on 21 January 2015.
The board is satisfied that at least one member of the
committee has recent and relevant financial experience. I am
a chartered accountant while the other committee members
have extensive experience of financial matters and of the
financial services industry. We met on six occasions in 2015
(2014: eight). Details of attendance by members are set out
on page 65. The chief executive, finance director, chief risk
officer, head of internal audit and the external audit partner
and manager attend most meetings by invitation.
Role and responsibilities of the
committee
These are set out in the terms of reference of the committee,
which are reviewed annually and approved by the board.
We have clarified the roles of the audit and group risk
committees and their linkage to our three lines of defence
model. The group risk committee is responsible for
reviewing the effectiveness of the group’s second line of
defence, oversight of internal controls and risk management
systems. This now includes oversight of the work of the
compliance team. The audit committee has oversight of the
group’s third line of defence, primarily by the assessment of
the work of the group’s internal audit department.
Financial reporting
During the year, we considered the significant financial
and regulatory reporting issues, the judgements made in
connection with the financial statements, viability and going
concern statements and the appropriateness of accounting
policies. We reviewed the narrative statements in the report
and accounts, interim statement and other market updates
to ensure that they were fair, balanced and understandable
and consistent with the reported results.
Client relationship intangible assets
The group assesses whether payments made to newly
recruited investment managers under contractual
agreements represent payments for the acquisition
of client relationship intangibles or remuneration for
ongoing services provided to the group. Payments made
for the acquisition of client relationship intangibles are
capitalised whereas those that are judged to be in relation
to the provision of ongoing services are expensed in the
period in which they are incurred (note 2.1 to the financial
statements). Typically, any payments made 12 or more
months after the cessation of any non-compete period will
be expensed. The audit committee agree that this approach
continues to be appropriate.
Acquisitions and funding
We considered the impact of future acquisitions and
recruitment activity on capital. We discussed the issue
of £20 million subordinated loan notes by Rathbone
Investment Management in July 2015 (see note 27 to the
financial statements). We considered the key terms of the
loan agreement and the associated financial reporting
requirements, agreeing that it was a cost-effective and
capital efficient way to finance future growth.
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
85
Audit committee report
What we have done
Internal audit
We discussed the accounting considerations relating to the
acquisition of the remaining 80.1% of Vision and Castle.
This was not straightforward as payments were due both
on completion at 31 December 2015 and between 2016 and
2020, these latter payments being linked to growth and
operational targets. We agreed with management that,
whilst the payments on completion should be capitalised,
some post-completion payments were conditional on key
personnel remaining in employment and so should be
recorded as an expense in future.
The carrying value of assets
We reviewed the methodology for valuing assets where
a significant amount of judgement is required, including
intangible assets, particularly goodwill and client
relationships. We discussed the carrying value of the
goodwill allocated to the trust and tax cash generating unit
and an impairment charge of £316,000 was recognised in the
first half of 2015. No further impairment charge was required
in the second half of the year.
The valuation of defined benefit pension obligations
We reviewed the key assumptions made, particularly salary
increases, investment returns, inflation and the discount rate
when valuing the company’s pension schemes liabilities,
which are disclosed in note 28 to the financial statements.
We reviewed the professional advice taken and considered
feedback provided by the auditors on the assumptions used
by us and by other companies. We satisfied ourselves that
the assumptions used were reasonable.
Provisions and contingent liabilities
We discussed provisions totalling £20.1 million summarised
in note 26 to the financial statements. These primarily
include provisions made in respect of future property
dilapidation liabilities and future payments to be made
following the acquisition of businesses or amounts payable
to new investment managers as outlined above.
e
c
n
a
n
r
e
v
o
G
Following a KPMG independent assessment of internal
audit in 2014, we monitored the implementation of the
report’s main recommendations during 2015. Deloitte were
engaged on 1 July 2015 as our internal audit co-source
partner following a tender process. Their role is to assist with
audits which require specialist knowledge and to provide
support to the internal audit planning process. A combined
assurance map has been developed, linking significant risks
to first line controls, second line oversight and internal audit
work. With the development of the second line of defence,
more work is now done by compliance and risk, freeing up
internal audit resource. Enhancements to internal audit
reporting were also agreed.
Towards the end of the year, we approved the 2016 internal
audit plan with a greater focus on higher risk areas and
end-to-end reviews. We discussed the findings of a number
of completed internal audit reviews (all reviews containing
high risk-related recommendations and a sample of
other reviews), the status of scheduled work and the
follow-up of reviews by management to ensure that the
agreed recommendations are acted upon promptly.
External audit
We reviewed the external audit process, including the
performance of the external auditors, by gathering feedback
from committee members and from management. This
process was undertaken by internal audit. We also reviewed
the annual Financial Reporting Council (FRC) Audit Quality
Inspection report prepared on our external auditor and
discussed this report with the audit partner.
The committee is responsible for reviewing external audit
arrangements and for any recommendation to the board
regarding change of audit firm. This 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. We plan to undertake an audit services contract
tender process again before the tenth anniversary of
their appointment.
86
Rathbone Brothers Plc Report and accounts 2015
Audit committee report
What we have done
Whistleblowing policy
We annually review the group’s whistleblowing policy,
approve any changes to the document and receive details
of any reports made.
Other
We also discussed the implication of changes to the
UK Corporate Governance Code and accounting for
the Executive Incentive Plan which was approved by
shareholders at the 2015 annual general meeting. We
discussed updates on any client complaints and attempted
frauds. Client identity theft, cyber crime and the cloning
of the websites of FCA registered firms remain significant
issues affecting the financial services industry with
fraudsters becoming increasingly sophisticated in
their approach.
As well as meetings with management, I have regular
meetings on a one-to-one basis, with the head of internal
audit before audit committee meetings to ensure that any
concerns can be raised in confidence.
We can access independent professional advice if we
consider it necessary.
James Dean
Chairman of the audit committee
23 February 2016
e
c
n
a
n
r
e
v
o
G
We challenged reports from the external auditor outlining
their risk assessments and their audit plans (including
their proposed materiality level for the performance of
the annual audit), the status of their audit work and issues
arising from it. Particular focus was given to their testing of
internal controls, their work on the key judgement areas and
possible audit adjustments. We can confirm that there are no
such material items remaining unadjusted in the financial
statements. We also reviewed a benchmarking of our IT
controls against a peer group of other investment managers.
We discussed the independence of the external auditor, the
nature of non-audit services supplied by them and non-audit
fee levels relative to the audit fee. The committee’s prior
approval is required where the fee for an individual non-
audit service is expected to exceed £25,000. Should fees for
non-audit services paid to the auditor, in aggregate, exceed
50% of the audit fee in any year prior approval is required
from the committee.
Non-audit fees payable to the auditor in 2015 were £166,000.
This represents 29% of the fees for assurance services of
£571,000 which includes the assurance reports required
by our regulators and the review of the interim statement
(2014: £206,000, 37% of £517,000). Other non-audit work
undertaken by the auditor in 2015 was advice on meeting
new regulatory conduct risk requirements. We recognise
that, given their knowledge of the business, there are
often advantages in using the external auditor to provide
certain non-audit services and we are satisfied that their
independence has not been impaired by providing
these services.
We agreed the external auditor’s fees (which are shown
in note 7 to the financial statements) and reviewed the
audit engagement letter. We also had discussions with the
external auditor with no management present to provide an
opportunity for any concerns to be raised and discussed.
Rathbone Brothers Plc Report and accounts 2015
87
Nomination committee report
Mark Nicholls
Chairman
e
c
n
a
n
r
e
v
o
G
Nomination committee chairman’s
annual statement
The nomination committee’s primary focus this year has
been on succession planning.
Committee members
Our current members are Mark Nicholls (chairman), James
Dean, Sarah Gentleman, David Harrel and Kathryn Matthews.
Sarah Gentleman joined the committee on her appointment
to the board on 21 January 2015.
We met formally on two occasions in 2015 (2014: three).
Details of attendance by members are set out on page 65.
There have been a number of other informal discussions
amongst members of the committee.
Role and responsibilities of
the committee
The remit of the committee is to consider and make
recommendations to the board for the appointment of
directors. The board as a whole then decides upon any such
appointment. The committee also considers issues such as
appraisals, training and director development. The terms
of reference of the committee are reviewed annually and
approved by the board.
An external search consultancy is generally used when
recruiting new non-executive directors and may 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.
What we have done
During the year, the committee discussed the composition
of the board, recognising that David Harrel, the senior
independent director and chairman of the remuneration
committee will complete nine years service on 1 December
2016 and will no longer be considered independent from
that date. The committee agreed that, in the first half of
2016, we should seek at least one new non-executive
director and that, as soon as possible, a new chairman of the
remuneration committee should be identified to ensure a
smooth transition.
The committee discussed the short-term emergency cover
arrangements that would be made if an executive director
or executive committee member was unexpectedly unable
to continue working. It also discussed longer-term executive
succession planning, the pipeline of internal candidates and
potential external candidates. Whilst the benefits of a diverse
board and management team are recognised, improving the
gender balance at senior management level is a challenge, as
is the case in many other similar businesses.
Looking forward
We will continue to consider what additional skills are
needed on the board and we will keep under review
a succession timetable for both executives and non-
executives. We will also monitor the development of
management talent below board level, encourage greater
diversity and challenge management to develop the talent
that exists in the firm.
Mark Nicholls
Chairman of the nomination committee
23 February 2016
88
Rathbone Brothers Plc Report and accounts 2015
Approval of strategic report
Philip Howell
Chief Executive
The strategic report for the group comprises the following
sections of the report and accounts:
— Chairman’s statement
— Chief executive’s statement
— Our market
— Our business model
— Our approach
— Strategy and key performance indicators
— Risk management
— Our performance
— Segmental review
— Financial position
— Liquidity and cash flow
— Corporate responsibility report.
The strategic report has been drawn up in accordance with,
and in reliance upon, applicable English company law, in
particular Chapter 4A of the Companies Act 2006, and the
liabilities of the directors in connection with this report shall
be subject to the limitations and restrictions provided by
such law.
The strategic report 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 strategic report should be treated with some
caution due to the inherent uncertainties (including but
not limited to those arising from economic, regulatory
and business risk factors) underlying any such forward-
looking statements. The strategic report has been prepared
by Rathbone Brothers Plc to provide information to its
shareholders and should not be relied upon for any
other purpose.
The strategic report has been prepared for the group as a
whole, and therefore gives greater emphasis to those matters
which are significant to the company and its subsidiaries
when reviewed as a whole.
By Order of the Board
Philip Howell
Chief Executive
23 February 2016
e
c
n
a
n
r
e
v
o
G
Rathbone Brothers Plc Report and accounts 2015
89
Statement of directors’ responsibilities in respect of the report and accounts
Philip Howell
Chief Executive
The directors are responsible for preparing the report and
accounts, comprising the consolidated financial statements
of Rathbone Brothers Plc and its subsidiaries
(‘the group’) and holding company financial statements
(‘the parent company’) in accordance with applicable
law and regulations.
Company law requires the directors to prepare group and
parent company financial statements for each financial
year. Under that law they are required to prepare the group
financial statements in accordance with IFRS as adopted by
the EU and applicable law and have elected to prepare the
parent company financial statements on the same basis.
e
c
n
a
n
r
e
v
o
G
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 group and parent company financial
statements, the directors are required to:
— select suitable accounting policies and then apply
them consistently;
— make judgements and estimates that are reasonable
and prudent;
— state whether they have been prepared in accordance
with IFRS 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 strategic report, directors’
report, remuneration committee report and corporate
governance statement that all comply with that law and
those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
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.
Responsibility statement of the directors
in respect of the annual report
We confirm that to the best of our knowledge:
— the consolidated 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
the undertakings included in the consolidation taken as
a whole
— the strategic report and directors’ report include a fair
review of the development and performance of the
business and the position of the parent company and the
undertakings included in the consolidation taken as a
whole, together with a description of the principal risks
and uncertainties that they face
— the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the
information necessary for shareholders to assess
the group’s position and performance, business model
and strategy.
By Order of the Board
Philip Howell
Chief Executive
23 February 2016
90
Rathbone Brothers Plc Report and accounts 2015
Consolidated financial statements
92
116
1
2
117
118
114
115
110
113
Independent auditor’s report to the members of
Rathbone Brothers Plc only
Consolidated statement of comprehensive income
96
Consolidated statement of changes in equity
97
Consolidated balance sheet
98
99
Consolidated statement of cash flows
100 Notes to the consolidated financial statements
Principal accounting policies
100
Critical accounting judgements and key sources
108
of estimation and uncertainty
Segmental information
Net interest income
Net fee and commission income
Net trading and other operating income
Operating income
Transaction costs
Head office relocation costs
Staff costs
Income tax expense
Dividends
Earnings per share
Cash and balances with central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Prepayments, accrued income and other assets
Property, plant and equipment
Net deferred tax asset
Investment in associates and relative derivatives
Intangible assets
Deposits by banks
Due to customers
Accruals, deferred income, provisions and other liabilities
Other provisions
Subordinated loan notes
Long term employee benefits
Share capital and share premium
Own shares
Share-based payments
Financial risk management
Capital management
Contingent liabilities and commitments
Business combinations
Related party transactions
Consolidated statement of cash flows
Events after the balance sheet date
Country-by-country reporting
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
136
138
152
153
154
156
157
157
158
119
120
121
123
125
127
128
129
135
Rathbone Brothers Plc Report and accounts 2015
Rathbone Brothers Plc Report and accounts 2015
91
91
Independent auditor’s report to the members of Rathbone Brothers Plc only
Opinions and conclusions arising from our audit.
The primary areas of estimation arise in:
1 Our opinion on the financial
statements is unmodified
We have audited the financial statements of Rathbone
Brothers Plc for the year ended 31 December 2015 set out on
pages 96 to 180. 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 2015 and of the group’s profit for the year
then ended;
— the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRS as adopted by the EU);
— the parent company financial statements have been
properly prepared in accordance with IFRS 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 group financial statements,
Article 4 of the IAS Regulation.
2 Our assessment of risks of
material misstatement
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the
greatest effect on our audit were as follows:
Recognition and impairment of client relationship
intangibles: £100,869,000
Refer to page 85 (audit committee report), page 105
(accounting policy) and pages 108 and 125 to 126 (financial
disclosures).
The risk: Individually purchased client relationships are
initially recognised at cost and those acquired as part of
a business combination initially recognised at fair value.
The classification of the individually purchased client
relationships as intangible assets or an expense item
and the impairment of the intangible assets in respect
of customer relationships (both purchased individually and
those acquired as part of a business combination) are two
of the key judgement areas and represent a significant
audit risk.
— The group’s assessment of whether payments made to
newly recruited investment managers under contractual
arrangements represent payments for the acquisition
of client relationship intangibles (which would be
capitalised) or payments in respect of providing ongoing
services to the group (which would be expensed). In
forming this judgement, the group has determined
that the appropriate accounting policy is to capitalise
payments made to investment managers relating to client
relationships acquired in the period up to 12 months
after the cessation of any non-compete arrangements
between an investment manager and their previous
employer. Further judgement is applied in exceptional
circumstances where the group consider that the
investment manager is introducing client relationships
that previously existed beyond the 12 month period.
In such circumstances, where the group believe it is
appropriate to do so, the period during which such
payments are capitalised is extended beyond 12 months.
— The group’s assessment of whether the ongoing benefits
offered by the capitalised client relationship intangibles
are greater than their carrying value and whether there is
an indication of impairment.
— The group’s estimation of the useful economic lives of the
client relationships over which these intangible assets are
subsequently amortised which typically ranges between
10 and 15 years using a straight line method.
Our response: To assess the group’s judgement in applying
the above accounting policy, we used our industry
knowledge and experience and considered the criteria
for the recognition of payments to secure an asset
management contract as an asset. In this area our audit
procedures included:
— We assessed the appropriateness of the capitalised
payments during the year by performing testing of a
risk-based sample of newly recognised client relationship
intangibles. This testing assessed whether such costs
were only capitalised when they fell in the period up
to 12 months of the conclusion of any non-compete
arrangements and that such costs related to relationships
already held by the investment manager. In respect
of those instances where payments were capitalised
beyond the 12 month period, for each significant addition
we confirmed whether these relationships were held
by the investment manager in a previous employment,
challenged management on the nature of the relationship
and obtained documentary evidence.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
92
Rathbone Brothers Plc Report and accounts 2015
Independent auditor’s report to the members of Rathbone Brothers Plc only
2 Our assessment of risks of material misstatement
— In considering the adequacy of the impairment
assessment performed by the group to support the
carrying value of the client relationship intangible
previously capitalised under IAS 18 ‘Revenue’ we assessed
the current value of client accounts and whether they
continue to represent an ongoing benefit. We also
assessed the population of client accounts for any closed
accounts or non-income generating clients for the group
to assess whether any associated intangible assets should
be appropriately derecognised. For client relationship
intangibles that were previously capitalised under
IFRS 3 ‘Business Combinations’, we have challenged the
appropriateness of the group’s impairment triggers by
aligning them to the key factors underpinning the value of
the intangible asset, including funds under management,
client numbers and market movements. At the end of
the year we also assessed whether the triggers indicated
possible impairment.
— Our consideration of the appropriateness of the useful
economic lives of the client relationships and amortisation
periods included performing an analysis of the length of
the client relationships held by the group with reference
to the historic gross outflows of funds under management.
— We have also considered the adequacy of the
— the treatment of contractual payments and whether they
are consideration or remuneration for post-combination
services, and for payments that qualify as consideration,
the value of the deferred and contingent elements.
Our response: With the support of our own valuation
specialists, we challenged the group’s methodology and
the key underlying assumptions to value the pre-existing
19.9% shareholding, including the discount rate and growth
rates. We also considered the group’s key assumptions
and methodology adopted in the valuation of the client
relationship intangible assets recognised at the date
of acquisition and assessed the consistency of the key
inputs with other group valuations, including the discount
rate, growth rate, and expected duration of the client
relationships.
We also challenged the group’s treatment of the various
anticipated contractual payments detailed in the purchase
and sale agreement and whether they were appropriately
recognised and measured at the date of acquisition as
consideration in accordance with IFRS 3. This included an
evaluation of the nature and conditions for which payments
are due under the contractual terms and for elements that
were recognised as consideration, the group’s assumptions
and estimate of the timing and quantum of the expected
payments.
group’s disclosure in respect of the client relationship
intangible assets.
We also considered the adequacy of the group’s disclosure in
respect of the transaction.
Accounting for the acquisition of Vision and Castle
Refer to pages 85 and 86 (audit committee report), page 101
(accounting policy) and pages 109 and 154 to 155 (financial
disclosures).
The risk: On 31 December 2015, the group acquired the
80.1% of Vision Independent Financial Planning Limited and
Castle Investment Solutions Limited it did not already own.
The group previously owned 19.9% of the ordinary share
capital of the two companies with an option to purchase the
remaining shares, which was accounted for as a derivative
contract under IAS 39 ‘Financial Instruments: Recognition
and Measurement’.
The accounting for the transaction is considered to be a
significant risk due to the high degree of judgement involved
in applying IFRS 3 ‘Business Combinations’, specifically:
— the appropriateness of the fair value of the pre-existing
19.9% interest and the fair values of the tangible and
intangible assets acquired; and
Valuation of defined benefit pension obligation:
£4,501,000
Refer to page 86 (audit committee report), page 107
(accounting policy) and pages 108 and 129 to 134
(financial disclosures).
The risk: The parent company has recognised a pension
deficit of £4,501,000 as at 31 December 2015. The valuation
of the defined benefit pension deficit is an important
judgement as this balance is volatile and impacts the parent
company’s distributable reserves. The group obtained advice
from actuarial specialists in order to calculate this deficit and
uncertainty arises as a result of estimates made in respect
of long-term trends and market conditions to determine the
value based on the group’s expectations of the future. As a
result, the actual surplus or deficit realised by the group may
be significantly different to that recognised on the balance
sheet since small changes to the assumptions used in the
calculation materially affect the valuation and may result
in the recognition of a deficit materially different from the
liability recognised at the year end.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
Rathbone Brothers Plc Report and accounts 2015
93
Independent auditor’s report to the members of Rathbone Brothers Plc only
2 Our assessment of risks of material misstatement
Our response: With the support of our own actuarial
specialists, we challenged key assumptions and estimates
used in the calculation of the pension deficit, including
the discount rate, RPI inflation, salary growth and life
expectancy that were applied to the valuation. This included
a comparison of key assumptions against externally derived
data and our benchmark ranges for similar schemes. We
also considered the group’s judgement in selecting its
assumptions and whether there were any indicators of bias.
We have also considered the adequacy of the
group’s disclosures in respect of the deficit and
the assumptions used.
3 Our application of materiality
and an overview of the scope
of our audit
The materiality for the group financial statements as a whole
was set at £2.8 million, determined with reference to a
benchmark of group profit before tax, of which it represents
4.8%. We report to the audit committee any corrected or
uncorrected identified misstatements exceeding £140,000,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
All six of the group’s reporting components were subjected
to audits for group reporting purposes. These audits covered
100% of group revenue, 100% of group profit before tax and
100% of group total assets.
The group audit team performed the audits of the six
reporting components in accordance with the materiality
levels used for local audits, which ranged from £0.08 million
to £2.4 million.
4 Our opinion on other matters
prescribed by the Companies Act
2006 is unmodified
In our opinion:
— the part of the directors’ remuneration report to be
audited has been properly prepared in accordance with
the Companies Act 2006;
— the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
— information given in the corporate governance report set
out on pages 63 to 66 with respect to internal control and
risk management systems in relation to financial reporting
processes and about share capital structures is consistent
with the financial statements.
5 We have nothing to report on the
disclosures of principal risks
Based on the knowledge we acquired during our audit,
we have nothing material to add or draw attention to in
relation to:
— the directors’ statement of longer-term viability on
page 26, concerning the principal risks, their management,
and, based on that, the directors’ assessment and
expectations of the group’s continuing in operation over
the three years to 2018; or
— the disclosures in note 1.6 of the consolidated financial
statements concerning the use of the going concern basis
of accounting.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
94
Rathbone Brothers Plc Report and accounts 2015
Independent auditor’s report to the members of Rathbone Brothers Plc only
6 We have nothing to report in
Scope and responsibilities
As explained more fully in the directors’ responsibilities
statement set out on page 90, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
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.
This report is made solely to the company’s members,
as a body and is subject to important explanations and
disclaimers regarding our responsibilities, published on our
website at www.kpmg.com/uk/auditscopeukco2014a, which
are incorporated into this report as if set out in full and
should be read to provide an understanding of the purpose
of this report, the work we have undertaken and the basis of
our opinions.
Nicholas Edmonds (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
London
23 February 2016
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
respect of the matters on which we
are required to report by exception
Under ISAs (UK and Ireland) we are required to report to
you if, based on the knowledge we acquired during our
audit, we have identified other information in the annual
report that contains a material inconsistency with either
that knowledge or the financial statements, a material
misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
— we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the group’s position and
performance, business model and strategy; or
— the audit committee report does not appropriately address
matters communicated by us to the audit committee.
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; or
— we have not received all the information and explanations
we require for our audit; or
— a corporate governance statement has not been prepared
by the company.
Under the Listing Rules we are required to review:
— the directors’ statements, set out on pages 26 and 62, in
relation to going concern and longer-term viability; and
— the part of the corporate governance report on
page 64 relating to the company’s compliance with the
11 provisions of the 2014 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above
responsibilities.
Rathbone Brothers Plc Report and accounts 2015
95
Consolidated statement of comprehensive income
for the year ended 31 December 2015
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
Net trading income
Other operating income
Share of profit of associates
Gain on remeasurement of non-controlling interest
Refund of levies for the Financial Services Compensation Scheme
Gain on disposal of financial securities
Gain on disposal of pension administration business
Operating income
Charges in relation to client relationships and goodwill
Contribution to legal settlement
Transaction costs
Loss on derivative financial instruments
Head office relocation costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Profit for the year attributable to equity holders of the company
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability
Deferred tax relating to net remeasurement of defined benefit liability
Items that may be reclassified to profit or loss
Revaluation of available for sale investment securities:
— net gain from changes in fair value
— net profit on disposal transferred to profit or loss during the year
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 year attributable to equity holders of the company:
— basic
— diluted
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
Note
2015
£’000
2014
£’000
(restated — note 1.3)
4
5
6
6
21
21
6
6
6
7
7
8
21
9
7
11
28
20
17
20
12
13
12,663
(1,822)
10,841
222,638
(8,049)
10,024
(865)
9,159
196,637
(9,126)
214,589
187,511
2,230
1,361
157
885
—
—
—
1,878
2,086
169
—
982
6,833
683
230,063
209,301
(11,014)
—
(162)
(1,030)
(412)
(158,813)
(8,287)
(15,000)
(1,057)
—
—
(139,247)
(171,431)
(163,591)
58,632
(12,261)
46,371
46,371
45,710
(10,032)
35,678
35,678
6,524
(1,509)
(17,466)
3,493
53
—
53
(10)
959
(6,820)
(5,861)
1,172
5,058
(18,662)
51,429
17,016
55.0p
26,305
52.0p
24,863
97.4p
96.6p
76.0p
75.4p
The accompanying notes form an integral part of the consolidated financial statements.
96
Rathbone Brothers Plc Report and accounts 2015
Consolidated statement of changes in equity
for the year ended 31 December 2015
At 1 January 2014
Restatement (see note 1.3)
At 1 January 2014 (restated)
Profit for the year
Net remeasurement of defined
benefit liability
Revaluation of available for sale
investment securities:
— net gain from changes in fair value
— net profit on disposal transferred to
profit or loss during the year
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 2015
Profit for the year
Net remeasurement of defined
benefit liability
Revaluation of available for sale
investment securities:
— net gain from changes in fair value
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 31 December 2015
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Note
Available
for sale
reserve
£’000
Own
shares
£’000
(restated — note 1.3)
Retained
earnings
£’000
Total
equity
£’000
2,315 65,484 31,835
4,717
2,315 65,484 31,835
4,717
(5,722) 152,371 251,000
498
498
(5,722) 152,869 251,498
35,678 35,678
28
17
20
12
29
30
30
20
28
17
20
12
29
30
30
20
(17,466) (17,466)
959
(6,820)
3,493
4,665
959
(6,820)
1,172
—
—
—
(4,689)
— (13,973) (18,662)
80 27,503
2,395 92,987 31,835
28
(23,793) (23,793)
27,583
(1,655)
1,846
374
(1,846)
248
374
(1,655)
—
248
(5,531) 149,557 271,271
46,371 46,371
6,524
6,524
—
—
—
12
4,656
53
(10)
43
53
(1,509)
(1,519)
—
5,015
5,058
(25,836) (25,836)
4,668
(2,413)
1,767
1,022
(1,767)
51
1,022
(2,413)
—
51
2,407 97,643 31,835
71
(6,177) 174,413 300,192
The accompanying notes form an integral part of the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2015
97
Consolidated financial statements
Consolidated balance sheet
as at 31 December 2015
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
Subordinated loan notes
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
2015
£’000
2014
£’000
(restated — note 1.3)
14
15
16
17
17
18
19
20
21
22
23
24
25
27
28
29
29
30
583,156
17,948
108,877
117,269
53,386
707,745
59,344
9,999
4,579
—
171,326
x727,178
15,890
144,399
101,640
15,514
429,974
55,272
10,242
6,895
1,434
159,654
1,833,629
1,668,092
299
21,481
1,402,890
78,698
6,076
19,492
4,501
—
22,584
1,282,426
73,888
4,213
—
13,710
1,533,437
1,396,821
2,407
97,643
31,835
71
(6,177)
174,413
2,395
92,987
31,835
28
(5,531)
149,557
300,192
271,271
1,833,629
1,668,092
The financial statements were approved by the board of directors and authorised for issue on 23 February 2016 and were signed
on its behalf by:
P L Howell
Chief Executive
R P Stockton
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
98
Rathbone Brothers Plc Report and accounts 2015
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
Consolidated statement of cash flows
for the year ended 31 December 2015
Cash flows from operating activities
Profit before tax
Share of profit of associates
Net profit on disposal of available for sale investment securities
Net interest income
Net impairment charges/(recoveries) on impaired loans and advances
Net charge for provisions
(Profit)/loss on disposal of property, plant and equipment
Loss on fair value of derivative financial instrument
Gain on remeasurement of non-controlling interest
Depreciation, amortisation and impairment
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 (increase)/decrease in settlement balance debtors
— net increase in prepayments, accrued income and other assets
— net increase in amounts due to customers and deposits by banks
— net decrease in settlement balance creditors
— net increase in accruals, deferred income, provisions and other liabilities
Cash generated from operations
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Dividends received from associates
Acquisition of subsidiaries, net of cash acquired
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 (used in)/generated from investing activities
Cash flows from financing activities
Issue of ordinary shares
Net proceeds from the issue of subordinated loan notes
Dividends paid
Net cash (used in)/generated from 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
The accompanying notes form an integral part of the consolidated financial statements.
Note
2015
£’000
2014
£’000
(restated — note 1.3)
21
16
26
21
28
28
10
21
17
17
37
27
12
58,632
(157)
—
(10,841)
19
1,045
(4)
1,030
(885)
16,115
4,217
(6,902)
4,629
(1,282)
11,349
76,965
(5,606)
(2,058)
(2,396)
120,763
(1,103)
329
186,894
(10,414)
45,710
(169)
(6,820)
(9,159)
(589)
380
517
—
—
13,367
3,332
(5,474)
5,477
(852)
10,284
56,004
(11,074)
3,721
(8,982)
390,529
(5,042)
2,790
427,946
(10,215)
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
176,480
417,731
107
(3,528)
(22,879)
33
(988,127)
709,853
31
(40,129)
(15,953)
(517)
(641,858)
794,548
(304,541)
96,122
2,255
19,454
(25,836)
(4,127)
(132,188)
835,816
25,928
—
(23,793)
2,135
515,988
319,828
37
703,628
835,816
Rathbone Brothers Plc Report and accounts 2015
99
Notes to the consolidated financial statements
Principal accounting policies
1
Rathbone Brothers Plc (‘the company’) is a public company incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1
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 160 to 180.
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 in this note and, unless
otherwise stated, have been applied consistently to all periods presented in the consolidated financial statements.
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.
The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. Subsidiaries and special purpose entities are fully
consolidated from the date on which control is obtained, and no longer consolidated 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, but not control or joint control, over the financial and
operating policies of the associate (note 1.5).
For associates with non-coterminous year ends, financial statements are drawn up to 31 December for the purposes of
equity accounting.
1.3 Developments in reporting standards and interpretations
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
Standards and interpretations affecting the reported results or the financial position
In the current year, the group has adopted IFRIC 21 ‘Levies’. IFRIC 21 ‘Levies’ changes the point at which the group recognises
a liability in respect of Financial Services Compensation Scheme (FSCS) levies. From 1 January 2015, the group has recognised
a liability in respect of FSCS levies from the date at which the triggering event specified in the legislation occurs. The triggering
event for recognition of FSCS levies has changed from 31 December of the preceding financial year to 1 April of the current
financial year, resulting in levies recognised in the previous financial year being derecognised and recognised in the current
financial year.
Comparatives have been restated for the impact of the change. As at 1 January 2014, retained earnings brought forward have
been increased by £498,000. For the year ended 31 December 2014, profit after tax has been increased by £41,000, total assets
have been reduced by £147,000 and total liabilities have been reduced by £686,000.
No other standards or interpretations, new or revised, have been adopted in the current year.
Future new standards and interpretations
A number of new standards and amendments to standards and interpretations will be effective for future annual periods
beginning after 1 January 2015 and, therefore, have not been applied in preparing these consolidated financial statements.
IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’ are expected to have the
most significant effect on the consolidated financial statements of the group.
IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ are not expected to become mandatory
for periods commencing before 1 January 2018. IFRS 16 ‘ Leases’ is not expected to become mandatory for periods commencing
before 1 January 2019. These standards have not yet been adopted by the EU and the group does not plan to adopt these
standards early.
100
Rathbone Brothers Plc Report and accounts 2015
1
Principal accounting policies 1.3 Developments in reporting standards and interpretations
IFRS 9 ‘Financial Instruments’ could change the classification and measurement of financial assets and the timing and extent
of credit provisioning. IFRS 15 ‘Revenue from Contracts with Customers’ could change how and when revenue is recognised
from contracts with customers. The extent of their impact has not yet been fully determined.
IFRS 16 ‘Leases’ eliminates the classification of leases as either operating leases or finance leases. The group will be required
to recognise all leases with a term of more than 12 months as a lease asset on its balance sheet; the group will also recognise
a financial liability representing its obligation to make future lease payments. The extent of its impact has not yet been
fully determined.
1.4
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 may arise as a result of
additional information obtained after this date about facts and circumstances that existed at the acquisition date. Provided
they arise within 12 months of the acquisition date, these changes are measurement period adjustments and are reflected
against the cost of acquisition. Changes in the fair value of contingent consideration resulting from events occurring after the
acquisition date are charged to profit or loss or other comprehensive income, except for obligations that are classified as equity,
which are not remeasured. Such changes are irrespective of the 12 month period from acquisition.
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 assets or liabilities related to employee benefit arrangements, which are
measured in accordance with applicable accounting policies described elsewhere in this note.
1.5
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.
1.6 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. In forming this view, the directors have considered the
company’s and the group’s prospects for a period exceeding 12 months. Thus they continue to adopt the going concern basis of
accounting in preparing the financial statements.
1.7
Foreign currencies
The functional and presentational currency of the company and its subsidiaries 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 year.
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.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
Rathbone Brothers Plc Report and accounts 2015
101
Notes to the consolidated financial statements
1
Principal accounting policies 1.8 Income
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 the impact of future credit losses.
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.
102
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
1
Principal accounting policies 1.11 Taxation
Deferred tax
Deferred tax is accounted for under 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 in 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 2015
103
Notes to the consolidated financial statementsConsolidated financial statements
1
Principal accounting policies 1.13 Financial assets
— 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 include 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.
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the
change has occurred.
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 the impact of 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.
104
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
1
Principal accounting policies
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 improvements:
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.
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
Client relationships acquired as part of a business combination are initially recognised at fair value (note 1.4). Determining
whether a transaction that involves the purchase of client relationships is treated as a business combination or a separate
purchase of intangible assets requires judgement. The factors that the group takes into consideration in making this judgement
are set out in note 2.1.
Individually purchased client relationships are initially recognised at cost. Where a transaction to acquire client relationship
intangibles includes an element of variable deferred consideration, an estimate is made of the value of consideration that will
ultimately be paid. The client relationship intangible recognised on the balance sheet is adjusted for any subsequent change
in the value of deferred consideration. Note 2.1 sets out the approach taken by the group where judgement is required to
determine whether payments made for the introduction of client relationships should be capitalised as intangible assets or
charged to profit or loss.
Client relationships are subsequently carried at the amount initially recognised 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).
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).
Rathbone Brothers Plc Report and accounts 2015
105
Notes to the consolidated financial statementsConsolidated financial statements
1
Principal accounting policies
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 by comparing the fair value of funds under management for each
acquired client relationship (or, for client relationships acquired with a business combination, each acquired portfolio of clients)
with their associated amortised value. An example of evidence of impairment would be lost client relationships. 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. When client relationships are lost, the full amount of unamortised cost is recognised
immediately in profit or loss and the intangible asset is derecognised.
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.
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 derecognises financial liabilities when its contractual obligations are
discharged or cancelled, or expire.
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, except deposits on demand, 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. Deposits on demand continue to be held at face value.
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.
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.
106
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
1
Principal accounting policies
1.19 Retirement benefit obligations on retirement benefit schemes
The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is
discounted to determine its present value, and the fair value of any plan assets (at bid price) are deducted. Any asset resulting
from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan.
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. Net remeasurements of the defined benefit liability are recognised in
full in the period in which they occur in other comprehensive income.
Past service cost is recognised immediately in the period of a plan amendment.
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.
The company determines the net interest on the net defined benefit liability for the year by applying the discount rate used to
measure the defined benefit obligation at the beginning of the year to the net defined benefit liability.
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 approach’ on pages 11 to 15.
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 Conduct Authority,
the Jersey Financial Services Commission and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, 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.
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.
Rathbone Brothers Plc Report and accounts 2015
107
Notes to the consolidated financial statementsConsolidated financial statements
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
Client relationship intangibles (note 22)
Client relationship intangibles purchased through corporate transactions
When the group purchases client relationships through transactions with other corporate entities, a judgement is made as
to whether the transaction should be accounted for as a business combination or as a separate purchase of intangible assets.
In making this judgement, the group assesses the assets, liabilities, operations and processes that were the subject of the
transaction against the definition of a business in IFRS 3. In particular, consideration is given to the scale of the operations
subject to the transaction, whether ownership of a corporate entity has been acquired and to whom any amounts payable
under the transaction are payable, among other factors.
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited investment managers under contractual agreements represent
payments for the acquisition of client relationship intangibles or remuneration for ongoing services provided to the group.
Payments made for the acquisition of client relationship intangibles are capitalised whereas those that are judged to be in
relation to the provision of ongoing services are expensed in the period in which they are incurred.
The group determines a suitable period during which awards accruing to new investment managers are capitalised. Typically,
this will be for the period ending up to 12 months after the cessation of any non-compete period. After the defined period has
elapsed, any payments made are charged to profit or loss.
During the year the group capitalised £11,308,000 of payments made to investment managers and expensed £3,254,000
(2014: £22,073,000 capitalised and £2,824,000 expensed). A reduction in the capitalisation period by one month would
decrease client relationship intangibles by £256,000 and decrease profit before tax by £256,000 (2014: £257,000 and £257,000
respectively).
Amortisation of client relationship intangibles
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 £11,094,000 (2014: £8,287,000) was charged during the year. A reduction in the average amortisation period
of one year would increase the amortisation charge by approximately £1,000,000 (2014: £700,000). At 31 December 2015,
the carrying value of client relationship intangibles was £100,869,000 (2014: £95,720,000).
2.2
Retirement benefit obligations (note 28)
The group makes estimates about a range of long term trends and market conditions to determine the value of the surplus
or 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 £4,501,000 (2014: £13,710,000) and information on the sensitivity
of the retirement benefit obligations to changes in underlying estimates are set out in note 28.
108
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
2
Critical accounting judgements and key sources of estimation and uncertainty
2.3
Business combinations (note 35)
During the year, the group entered into a transaction to acquire the remaining 80.1% of Vision Independent Financial Planning
Limited and Castle Investment Solutions Limited (‘the Vision businesses’), having already acquired 19.9% in 2012. The group
has accounted for the transaction as a business combination, as set out in note 35.
Treatment and fair value of consideration transferred
The purchase price payable in respect of the acquisition is split into a number of different components. The payment of certain
elements has been deferred; the timing and value of these are contingent on certain employment conditions and/or operational
targets being met.
The proportion of the deferred payments that are contingent on selling shareholders remaining employed by the group for
a specific period are accounted for as remuneration for ongoing services in employment. The group’s estimate of the amounts
ultimately payable will be expensed over the deferral period.
Those deferred payments accounted for as additional consideration were assessed against the operational targets to which they
are subject. Based on performance against the operational targets to date, there is no evidence to suggest that these payments
would be delayed or reduced. Therefore, a provision for contingent consideration has been made for the maximum amount
expected to be paid, with amounts payable after one year discounted to their present value.
Remeasurement to fair value of non-controlling interest
The stepped nature of the acquisition requires the group to remeasure its pre-existing equity interest in the two entities at
its acquisition date fair value and recognise the resulting gain or loss in profit or loss. The fair value was determined using
a probability-weighted discounted cash flow model. The fair value of the pre-existing 19.9% holding was calculated as
£2,369,000, and a gain arising on remeasurement of £885,000 was recognised.
The assumptions underlying the discounted cash flow model are the growth in the number of IFAs associated with the Vision
businesses, the assets under advisement generated by those IFAs and the discount rate used. A reduction in the discount rate
of 2.5 percentage points would increase the fair value of the pre-existing holding by £338,000.
Identification of assets acquired and liabilities assumed
As at 31 December 2015, the date of acquisition, the Vision businesses’ identifiable assets, liabilities and contingent liabilities
have been recognised at their fair value.
In accordance with the process described in note 2.1, the group has recognised a client relationship intangible of £4,539,000,
arising from the Vision businesses’ relationship with clients whose assets are managed via the panel of discretionary
fund managers.
Goodwill of £5,911,000 has been recognised in accordance with note 1.15.
Rathbone Brothers Plc Report and accounts 2015
109
Notes to the consolidated financial statementsConsolidated financial statements
Segmental information
3
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 note 1.20.
All services other than unit trust funds and multi asset funds 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 allocation of these costs is shown in a separate column in
the table below, alongside the information presented for internal reporting to the executive committee.
31 December 2015
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
Charges in relation to client relationships and goodwill (note 22)
Transaction costs (note 8)
Loss on derivative financial instruments (note 21)
Gain on remeasurement of non-controlling interest (note 21)
Segment profit before tax
Head office relocation costs (note 9)
Profit before tax attributable to equity holders of the company
Taxation (note 11)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
143,777
43,136
10,841
11,241
208,995
(51,277)
(29,460)
(80,737)
(19,186)
(45,306)
Unit Trusts
£’000
17,632
—
—
2,551
20,183
(2,966)
(3,794)
(6,760)
(4,370)
(2,454)
(145,229)
(13,584)
63,766
(11,014)
(162)
(1,030)
885
52,445
6,599
—
—
—
—
6,599
Indirect
expenses
£’000
—
—
—
—
—
(19,296)
(6,493)
(25,789)
(21,971)
47,760
—
—
—
—
—
—
—
Investment
Management
£’000
1,793,257
Unit Trusts
£’000
37,806
Total
£’000
161,409
43,136
10,841
13,792
229,178
(73,539)
(39,747)
(113,286)
(45,527)
—
(158,813)
70,365
(11,014)
(162)
(1,030)
885
59,044
(412)
58,632
(12,261)
46,371
Total
£’000
1,831,063
2,566
1,833,629
110
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
3
Segmental information
31 December 2014 (restated — note 1.3)
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
Refund of levies for the Financial Services Compensation
Scheme (note 6)
Gain on disposal of pension administration business (note 6)
Charges in relation to client relationships and goodwill (note 22)
Transaction costs (note 8)
Segment profit before tax
Gain on disposal of financial securities (note 6)
Contribution to legal settlement (note 7)
Profit before tax attributable to equity holders of the company
Taxation (note 11)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
120,561
43,723
9,159
11,908
185,351
(43,885)
(25,790)
(69,675)
(17,013)
(41,085)
Unit Trusts
£’000
13,281
—
—
2,171
15,452
(3,304)
(2,751)
(6,055)
(2,788)
(2,631)
(127,773)
(11,474)
57,578
3,978
907
683
(8,287)
(1,057)
75
—
—
—
49,824
4,053
Indirect
expenses
£’000
—
—
—
—
—
(14,760)
(6,664)
(21,424)
(22,292)
43,716
—
—
—
—
—
—
—
Investment
Management
£’000
1,630,464
Unit Trusts
£’000
32,878
Total
£’000
133,842
43,723
9,159
14,079
200,803
(61,949)
(35,205)
(97,154)
(42,093)
—
(139,247)
61,556
982
683
(8,287)
(1,057)
53,877
6,833
(15,000)
45,710
(10,032)
35,678
Total
£’000
1,663,342
4,750
1,668,092
The following table reconciles underlying operating income to operating income:
Underlying operating income
Gain on remeasurement of non-controlling interest (note 21)
Refund of levies for the Financial Services Compensation Scheme (note 6)
Gain on disposal of financial securities (note 6)
Gain on disposal of pension administration business (note 6)
Operating income
2015
£’000
229,178
885
—
—
—
2014
£’000
200,803
—
982
6,833
683
230,063
209,301
Rathbone Brothers Plc Report and accounts 2015
111
Notes to the consolidated financial statementsConsolidated financial statements
3
Segmental information
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 22)
Transaction costs (note 8)
Loss on derivative financial instruments (note 21)
Head office relocation costs (note 9)
Contribution to legal settlement (note 7)
Operating expenses
2015
£’000
2014
£’000
(restated — note 1.3)
158,813
11,014
162
1,030
412
—
139,247
8,287
1,057
—
—
15,000
171,431
163,591
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 and composition of funds under management and the segment’s total revenue.
Geographic analysis
The following table presents operating income analysed by the geographical location of the group entity providing the service:
United Kingdom
Jersey
Operating income
2015
£’000
221,957
8,106
2014
£’000
202,634
6,667
230,063
209,301
The following is an analysis of the carrying amount of non-current assets analysed by the geographical location of the assets:
United Kingdom
Jersey
Non-current assets
Major clients
The group is not reliant on any one client or group of connected clients for generation of revenues.
2015
£’000
175,170
6,155
2014
£’000
162,901
6,995
181,325
169,896
112
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
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
Subordinated loan notes
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
2015
£’000
3,503
5,270
48
961
2,881
2014
£’000
2,991
3,233
109
973
2,718
12,663
10,024
(1,296)
(526)
(1,822)
10,841
(865)
—
(865)
9,159
2015
£’000
2014
£’000
198,244
24,394
174,945
21,692
222,638
196,637
(2,529)
(5,520)
(8,049)
(2,527)
(6,599)
(9,126)
214,589
187,511
6 Net trading and other operating income
Net trading income
Net trading income of £2,230,000 (2014: £1,878,000) comprises unit trust net dealing profits.
Other operating income
Other operating income of £1,361,000 (2014: £2,086,000) comprises dividend income from available for sale equity securities
of £1,000 (2014: £74,000), rental income from sub-leases on certain properties leased by group companies and sundry income.
In 2014, it also included a gain of £565,000 on the sale of loan notes.
In 2014, the following items were included in operating income. No corresponding income arose in 2015.
Refund of levies for the Financial Services Compensation Scheme
In December 2014, the group received partial refunds of its 2010/11 Financial Services Compensation Scheme levies,
totalling £982,000.
Rathbone Brothers Plc Report and accounts 2015
113
Notes to the consolidated financial statementsConsolidated financial statements
6
Net trading and other operating income
Gain on disposal of financial securities
During 2014, the group disposed of its holding of 300,000 shares in London Stock Exchange Group Plc for cash consideration
of £5,932,000, recognising a gain on disposal of £5,932,000. The group also disposed of its holding of 1,809 shares in
Euroclear Plc for cash consideration of £931,000, recognising a gain on disposal of £901,000 and a total gain for the year ended
31 December 2014 of £6,833,000.
Gain on disposal of pension administration business
On 31 December 2014, the group disposed of its self-invested personal pension (SIPP) administration business for cash
consideration of £800,000, recognising a gain on disposal for the year then ended of £683,000, after deducting related costs.
7 Operating expenses
Staff costs (note 10)
Depreciation of property, plant and equipment (note 19)
Amortisation of internally generated intangible assets included in operating expenses (note 22)
Amortisation of purchased software (note 22)
Auditor’s remuneration (see below)
Net impairment charges/(recoveries) on impaired loans and advances (note 16)
Operating lease rentals
Other
Other operating expenses
Charges in relation to client relationships and goodwill (note 22)
Contribution to legal settlement (see below)
Transaction costs (note 8)
Loss on derivative financial instruments (note 21)
Head office relocation costs (note 9)
2015
£’000
2014
£’000
(restated — note 1.3)
113,288
2,815
396
1,890
737
19
6,272
33,396
158,813
11,014
—
162
1,030
412
97,155
2,946
351
1,783
723
(589)
6,060
30,818
139,247
8,287
15,000
1,057
—
—
Total operating expenses
171,431
163,591
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
— other services
2015
£’000
128
249
194
21
145
737
2014
£’000
91
245
181
81
125
723
Of the above, audit-related services for the year totalled £571,000 (2014: £517,000).
Fees payable for the audit of the company’s annual financial statements include £35,000 relating to prior year audit work.
Fees for audit-related assurance services include £94,000 for the provision of assurance reports to our regulators and review
of the interim statement (2014: £83,000). Fees for other services include advice in relation to Internal Capital Adequacy
Assessment Process (ICAAP), review of integrating conduct risk and pensions work.
In 2014, the following items were included in operating expenses. No corresponding expenses arose in 2015.
114
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
7
Operating expenses
Contribution to legal settlement
On 23 July 2014, the company entered into a conditional agreement to contribute to a settlement of legal proceedings in Jersey
involving a former director and employee of Rathbone Trust Company Jersey Limited and in respect of legal proceedings
against certain of Rathbones’ civil liability (professional indemnity) insurers.
The settlement became unconditional on 18 August 2014 and the company contributed £15,000,000 as its share of
the settlement.
8 Transaction costs
Transaction costs incurred in the year consist of £162,000 of legal and advisory fees in relation to the acquisition of Vision
Independent Financial Planning Limited and Castle Investment Solutions Limited (note 35).
During 2014, the group incurred £1,031,000 of legal and advisory fees in relation to corporate transactions entered into during
the year and £26,000 of listing authority fees in relation to the placing of ordinary shares in April 2014, resulting in transaction
costs of £1,057,000 for the year ended 31 December 2014.
9 Head office relocation costs
On 6 January 2016, the group exchanged contracts for a 17 year lease of 75,000 sq ft of office space at 8 Finsbury Circus, London.
It is expected that the move from the current head office premises in Curzon Street, London will be completed in early 2017.
Contract negotiations for the new property were at an advanced stage at the year end. The group has reviewed its estimate
of the timing of dilapidation costs arising from the current head office lease. As a result, the provision for dilapidations of the
Curzon Street property was increased by £412,000 (2014: £nil) as at 31 December 2015.
10 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Cash-settled share-based payments
Pension costs: (note 28)
— 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:
— investment management services
— advisory services
Unit Trusts
Shared services
2015
£’000
89,120
11,131
3,246
1,383
4,217
4,191
8,408
2014
£’000
75,205
9,828
2,537
2,940
3,332
3,313
6,645
113,288
97,155
2015
2014
628
77
27
249
981
543
73
32
232
880
Rathbone Brothers Plc Report and accounts 2015
115
Notes to the consolidated financial statementsConsolidated financial statements
11
Income tax expense
Current tax:
— charge for the year
— adjustments in respect of prior years
Deferred tax: (note 20)
— charge for the year
— adjustments in respect of prior years
2015
£’000
2014
£’000
(restated — note 1.3)
12,266
17
10,587
(136)
(27)
5
(510)
91
12,261
10,032
The tax charge is calculated based on our best estimate of the amount payable as at the balance sheet date. Any subsequent
difference between these estimates and the actual amount paid are recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2014: higher) than the standard rate of corporation tax in the UK of 20.2%
(2014: 21.5%). The differences are explained below.
Tax on profit from ordinary activities at the standard rate of 20.2% (2014: 21.5%)
Effects of:
— disallowable expenses
— share-based payments
— tax on overseas earnings
— under/(over) provision for tax in previous years
— other
Effect of change in corporation tax rate on deferred tax
12 Dividends
Amounts recognised as distributions to equity holders in the year:
— final dividend for the year ended 31 December 2014 of 33.0p (2013: 31.0p) per share
— interim dividend for the year ended 31 December 2015 of 21.0p (2014: 19.0p) per share
Dividends paid in the year of 54.0p (2014: 50.0p) per share
Proposed final dividend for the year ended 31 December 2015 of 34.0p (2014: 33.0p) per share
2015
£’000
2014
£’000
(restated — note 1.3)
11,871
9,824
584
(179)
(75)
22
(37)
75
587
(339)
(143)
(45)
112
36
12,261
10,032
2015
£’000
2014
£’000
15,766
10,070
25,836
16,235
14,734
9,059
23,793
15,804
An interim dividend of 21.0p per share was paid on 7 October 2015 to shareholders on the register at the close of business
on 11 September 2015 (2014: 19.0p).
A final dividend declared of 34.0p per share (2014: 33.0p) is payable on 23 May 2016 to shareholders on the register at the
close of business on 29 April 2016. The final dividend is subject to approval by shareholders at the Annual General Meeting
on 18 May 2016 and has not been included as a liability in these financial statements.
116
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
13 Earnings per share
Earnings used to calculate earnings per share on the bases reported in these financial statements were:
Underlying profit attributable to shareholders
Gain on remeasurement of non-controlling
interest (note 21)
Refund of levies for the Financial Services
Compensation Scheme (note 6)
Gain on disposal of financial securities (note 6)
Gain on disposal of pension administration
business (note 6)
Charges in relation to client relationships and
goodwill (note 22)
Contribution to legal settlement (note 7)
Transaction costs (note 8)
Loss on derivative financial instruments (note 21)
Head office relocation costs (note 9)
Pre-tax
£’000
2015
Taxation
£’000
2014 (restated — note 1.3)
Post-tax
£’000
Pre-tax
£’000
Taxation
£’000
Post-tax
£’000
70,365
(14,637)
55,728
61,556
(13,437)
48,119
885
(179)
706
—
—
—
—
—
—
—
—
—
—
—
—
982
6,833
(211)
(1,469)
771
5,364
683
(147)
536
(11,014)
—
(162)
(1,030)
(412)
2,230
—
33
209
83
(8,784)
—
(129)
(821)
(329)
(8,287)
(15,000)
(1,057)
—
—
1,781
3,224
227
—
—
(6,506)
(11,776)
(830)
—
—
Profit attributable to shareholders
58,632
(12,261)
46,371
45,710
(10,032)
35,678
Basic earnings per share has been calculated by dividing profit attributable to shareholders by the weighted average number
of shares in issue throughout the year, excluding own shares, of 47,612,026 (2014: 46,971,196).
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, all weighted for the relevant period:
Weighted average number of ordinary shares in issue during the year — 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
2015
2014
47,612,026
174,219
26,636
204,110
46,971,196
21,684
63,866
247,202
48,016,991
47,303,948
2015
2014
(restated — note 1.3)
117.0p
116.1p
102.4p
101.7p
Rathbone Brothers Plc Report and accounts 2015
117
Notes to the consolidated financial statementsConsolidated financial statements
14 Cash and balances with central banks
Cash in hand
Balances with central banks
2015
£’000
2014
£’000
2
583,154
3
727,175
583,156
727,178
The fair value of balances with central banks is not materially different from their carrying amount. The impact of credit risk is
not material.
Repayable:
— on demand
— 1 year or less but over 3 months
Amounts include balances with:
— variable interest rates
— non-interest-bearing
15 Loans and advances to banks
Repayable:
— on demand
— 3 months or less excluding on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
Amounts include loans and advances with:
— variable interest rates
— fixed interest rates
— non-interest-bearing
2015
£’000
2014
£’000
583,002
154
727,003
175
583,156
727,178
583,000
156
727,000
178
583,156
727,178
2015
£’000
2014
£’000
68,156
20,000
20,491
230
93,638
40,055
10,424
282
108,877
144,399
68,783
40,000
94
94,225
50,055
119
108,877
144,399
The fair value of loans and advances is not materially different to their carrying amount. Fair value has been calculated as the
discounted amount of estimated future cash flows expected to be received using current market rates. The impact of credit risk
is not material.
Loans and advances to banks included in cash and cash equivalents at 31 December 2015 were £68,156,000 (note 37)
(2014: £93,638,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 32.
118
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
16 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and pension debtors
Other debtors
2015
£’000
4,468
111,810
978
13
2014
£’000
3,331
97,392
909
8
117,269
101,640
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
— 3 months or less excluding on demand
— 1 year or less but over 3 months
— 5 years or less but over 1 year
— greater than 5 years
Less: allowance for losses on loans and advances (see below)
Amounts include loans and advances with:
— variable interest rates
— non-interest-bearing
2015
£’000
2014
£’000
4,609
18,437
58,979
34,908
419
(83)
3,530
27,544
68,807
1,831
—
(72)
117,269
101,640
116,258
1,011
100,712
928
117,269
101,640
No overdrafts or investment management loan book balances were impaired as at 31 December 2015 (2014: none impaired).
Allowance for losses on loans and advances to customers
At 1 January
Amounts written off
Charge/(credit) to profit or loss
At 31 December
2015
Trust and
pension
debtors
£’000
72
(8)
19
83
Total
£’000
72
(8)
19
83
Trust and
pension
debtors
£’000
97
(1)
(24)
72
2014
Other
debtors
£’000
1,016
(451)
(565)
—
Total
£’000
1,113
(452)
(589)
72
The group’s exposure to credit risk arising from loans and advances to customers is described in note 32.
Rathbone Brothers Plc Report and accounts 2015
119
Notes to the consolidated financial statementsConsolidated financial statements
17
Investment securities
Available for sale securities
Equity securities — at fair value:
— listed
Money market funds — at fair value:
— unlisted
Held to maturity securities
Debt securities — at amortised cost:
— unlisted
2015
£’000
1,070
52,316
53,386
2014
£’000
514
15,000
15,514
2015
£’000
2014
£’000
707,745
429,974
707,745
429,974
All held to maturity debt securities are due to mature within one year (2014: all).
Available for sale securities include money market funds and direct holdings in equity securities. Equity securities comprises
units in Rathbone Unit Trust Management managed funds. Equity securities do not bear interest. Money market funds, which
declare daily dividends that are in the nature of interest at a variable rate and which are realisable on demand, have been
included within cash equivalents (note 37).
The change in the group’s holdings of investment securities in the year is summarised below.
At 1 January 2014
Additions
Disposals (sales and redemptions)
Gain from changes in fair value
At 1 January 2015
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 31 December 2015
Available for sale
£’000
Held to maturity
£’000
Total
£’000
53,985
15,037
(54,515)
1,007
15,514
36,345
—
1,474
53
53,386
575,838
641,821
(787,685)
—
429,974
987,624
(709,853)
—
—
629,823
656,858
(842,200)
1,007
445,488
1,023,969
(709,853)
1,474
53
707,745
761,131
Included within available for sale securities are additions of £503,000 (2014: £37,000) and disposals of £nil (2014: £6,863,000) of
financial instruments that are not classified as cash and cash equivalents.
120
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
18 Prepayments, accrued income and other assets
Work in progress
Derivative financial instruments (note 21)
Prepayments and other assets
Accrued income
2015
£’000
1,404
—
11,900
46,040
59,344
2014
£’000
1,182
1,030
14,832
38,228
55,272
Included within prepayments and other assets in 2014 was an investment property carried at fair value of £580,000.
The investment property was disposed of in 2015 and a loss of £21,000 was recognised in other operating expenses.
19 Property, plant and equipment
Cost
At 1 January 2014
Additions
Disposals
At 1 January 2015
Additions
Acquisitions through business combinations
Disposals
At 31 December 2015
Depreciation
At 1 January 2014
Charge for the year
Disposals
At 1 January 2015
Charge for the year
Acquisitions through business combinations
Disposals
At 31 December 2015
Carrying amount at 31 December 2015
Carrying amount at 31 December 2014
Carrying amount at 1 January 2014
Short term
leasehold
improvements
£’000
Plant and
equipment
£’000
12,005
177
—
12,182
848
22
(30)
13,022
3,846
1,079
—
4,925
1,069
7
(8)
5,993
7,029
7,257
8,159
12,764
1,489
(517)
13,736
1,699
122
(419)
15,138
9,401
1,867
(517)
10,751
1,746
83
(412)
12,168
2,970
2,985
3,363
Total
£’000
24,769
1,666
(517)
25,918
2,547
144
(449)
28,160
13,247
2,946
(517)
15,676
2,815
90
(420)
18,161
9,999
10,242
11,522
Rathbone Brothers Plc Report and accounts 2015
121
Notes to the consolidated financial statementsConsolidated financial statements
20 Net deferred tax asset
Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 19.0%
(2014: 20.0%).
The Finance Bill 2015, which included provisions for the UK corporation tax rate to be reduced to 19.0% in April 2017 and
18.0% in April 2020, received royal assent in November 2015, and the reductions are therefore deemed to be substantively
enacted. Deferred tax balances have therefore been calculated based on these reduced rates as future timing differences are
forecast to unwind.
The movement on the deferred tax account is as follows:
Deferred capital
allowances
£’000
As at 1 January 2015 (restated — note 1.3)
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
Acquisitions
— business combinations
As at 31 December 2015
Deferred tax assets
Deferred tax liabilities
As at 31 December 2015
Share-based
payments
£’000
Staff-related
costs
£’000
Available for
sale securities
£’000
Intangible
assets
£’000
Total
£’000
2,054
1,310
(6)
(121)
6,895
Pensions
£’000
2,740
(544)
—
166
(378)
(1,321)
—
(188)
(1,509)
—
—
—
—
—
918
38
(34)
(47)
(43)
—
—
—
—
—
—
—
—
(8)
867
(343)
—
(72)
(415)
942
29
(127)
844
—
—
—
—
70
(4)
(15)
51
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(11)
—
1
(10)
—
—
—
—
—
853
1,690
2,154
(16)
Deferred capital
allowances
£’000
Pensions
£’000
Share-based
payments
£’000
Staff-related
costs
£’000
Available for
sale securities
£’000
Intangible
assets
£’000
867
—
867
853
—
853
1,690
—
1,690
2,154
—
2,154
—
(16)
(16)
—
(969)
(969)
9
—
5
14
—
—
—
—
—
—
—
—
(862)
(969)
102
(5)
(75)
22
(1,332)
—
(187)
(1,519)
70
(4)
(15)
51
(870)
4,579
Total
£’000
5,564
(985)
4,579
122
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
20 Net deferred tax asset
(restated — note 1.3)
As at 1 January 2014
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
Available for
sale securities
£’000
Intangible
assets
£’000
Total
£’000
780
(325)
1,731
652
(1,178)
(97)
1,563
135
12
(9)
138
—
—
—
—
—
—
—
—
(460)
—
32
(428)
3,754
—
(261)
3,493
—
—
—
—
65
—
(2)
63
—
—
—
—
260
—
—
260
831
(103)
(58)
670
—
—
—
—
(13)
—
1
(12)
—
—
—
—
(26)
—
2
(24)
1,260
—
(88)
1,172
—
—
—
—
—
—
—
—
—
—
—
—
545
(91)
(35)
419
5,014
—
(349)
4,665
247
—
1
248
As at 31 December 2014
918
2,740
2,054
1,310
(6)
(121)
6,895
(restated — note 1.3)
Deferred tax assets
Deferred tax liabilities
As at 31 December 2014
Deferred capital
allowances
£’000
918
—
918
Pensions
£’000
2,740
—
2,740
Share-based
payments
£’000
Staff-related
costs
£’000
Available for
sale securities
£’000
Intangible
assets
£’000
2,054
—
2,054
1,310
—
1,310
—
(6)
(6)
—
(121)
(121)
Total
£’000
7,022
(127)
6,895
Rathbone Brothers Plc Report and accounts 2015
123
Notes to the consolidated financial statementsConsolidated financial statements
21
Investment in associates and related derivatives
Investment in associates
On 5 October 2012, the group purchased 19.9% of the ordinary share capital of Vision Independent Financial Planning Limited
(‘Vision’) and Castle Investment Solutions Limited (‘Castle’). The group was deemed to exercise significant influence over the
associates by virtue of its contractual right to appoint one director to the board of directors of both companies. However, the
group was not judged to have control by virtue of having no rights which would allow it to be exercised.
On 31 December 2015, the group increased its shareholding in Vision and Castle to 100% (see note 35), and the companies
became subsidiaries as of that date.
The movements in the group’s investment in associates up to 31 December 2015 were as follows:
At 1 January
Share of profit
Dividends received
Gain on remeasurement to fair value (see note 35)
Business combination (see note 35)
At 31 December
2015
£’000
1,434
157
(107)
885
(2,369)
—
2014
£’000
1,296
169
(31)
—
—
1,434
Prior to the acquisition of the remaining 80.1% of the two companies, the group remeasured its existing 19.9% holdings to fair
value immediately prior to acquisition, recognising a gain of £885,000.
The following table summarises the financial performance of the associates during the year:
Revenue
Total comprehensive income
Group’s share of total comprehensive income
2015
2014
Vision
£’000
1,651
281
55
Castle
£’000
Vision
£’000
977
518
102
1,317
313
62
At 31 December 2015, the group’s associates had the following assets and liabilities:
Assets
Liabilities
Net assets
Derivative financial instruments
2015
Vision
£’000
2014
Castle
£’000
Vision
£’000
—
—
—
—
—
—
1,205
(423)
782
Castle
£’000
918
534
107
Castle
£’000
791
(16)
775
As part of the transaction to acquire the original 19.9% holdings, the group was party to certain option contracts over the equity
instruments of the associates. Under these contracts, the group had the right to acquire the remaining 80.1% of the share capital
of both companies for a variable exercise price in the third quarter of 2015.
On 30 September 2015, the group signed an agreement to acquire the remaining 80.1% of the share capital of Vision and Castle.
The agreement materially amended the terms of the transaction and superseded the option contracts; the carrying value of
which was written down to £nil, realising a loss of £1,030,000.
124
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
22 Intangible assets
Goodwill
Other intangible assets
Goodwill
2015
£’000
63,479
107,847
2014
£’000
57,884
101,770
171,326
159,654
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:
Cost
At 1 January 2014
Acquired through business combinations
At 1 January 2015
Acquired through business combinations (note 35)
At 31 December 2015
Impairment
At 1 January 2014
Charge in the year
At 1 January 2015
Charge in the year
At 31 December 2015
Carrying amount at 31 December 2015
Carrying amount at 31 December 2014
Carrying amount at 1 January 2014
Investment
management
£’000
45,287
10,766
56,053
5,911
61,964
—
—
—
—
—
61,964
56,053
45,287
Trust
and tax
£’000
1,954
—
1,954
—
1,954
—
350
350
316
666
1,288
1,604
1,954
Rooper &
Whately
£’000
—
227
227
—
227
—
—
—
—
—
227
227
—
Total
£’000
47,241
10,993
58,234
5,911
64,145
—
350
350
316
666
63,479
57,884
47,241
Goodwill acquired through business combinations in 2015 comprises goodwill arising on the acquisitions of Vision and Castle.
The goodwill has been allocated to the investment management CGU (see note 35).
The recoverable amounts of the CGUs to which goodwill is allocated are assessed using value-in-use calculations. The group
prepares cash flow forecasts derived from the most recent financial budgets approved by the board, covering the forthcoming
and future years. The key assumptions underlying the budgets are that, absent evidence to the contrary, organic growth
rates, revenue margins and profit margins will be in line with recent historical rates and equity markets will not change in the
forthcoming year. Budgets are extrapolated for up to 10 years based on annual revenue growth for each CGU (see table below),
as well as the group’s expectation of future industry growth rates. A 10 year extrapolation period is chosen based on the group’s
assessment of the likely associated 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 pre-tax rate used to discount the forecast cash flows for each CGU is shown in the table below; these are 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 and Rooper & Whately CGUs.
At 31 December
Discount rate
Annual revenue growth rate
Investment management
2015
9.0%
8.0%
2014
11.0%
7.0%
Trust and tax
2015
11.0%
0.0%
2014
13.0%
1.5%
Rooper & Whately
2015
9.0%
0.0%
2014
13.0%
5.0%
Rathbone Brothers Plc Report and accounts 2015
125
Notes to the consolidated financial statementsConsolidated financial statements
22
Intangible assets
At 30 June 2015, the group recognised an impairment charge of £316,000 in relation to goodwill allocated to the trust and tax
CGU. An impairment was recognised as the recoverable amount of the CGU at 30 June 2015 was £1,288,000, which was lower
than the carrying value of £1,604,000 at 31 December 2014. The recoverable amount at 30 June 2015 was calculated based on
forecast earnings for 2015, extrapolated over 10 years based on an annual revenue growth rate of 1.0%. The pre-tax rate used
to discount the forecast cash flows was 13%. The impairment was recognised in the Investment Management segment in the
segmental analysis. No further impairment was recognised at 31 December 2015.
Based on the assumptions in the table above, the calculated recoverable amount of the trust and tax CGU at 31 December
2015 was £1,592,000; this was higher than its carrying value of £1,288,000. Reducing the assumed growth rate for income in
the trust and tax CGU by two percentage points would reduce the calculated recoverable amount of the CGU to £798,000.
No reasonably foreseeable changes to the assumptions used in the value-in-use calculation for the investment management
CGU would result in an impairment of the goodwill allocated to it.
Other intangible assets
Cost
At 1 January 2014
Internally developed in the year
Acquired through business combinations
Purchased in the year
Disposals
At 1 January 2015
Internally developed in the year
Acquired through business combinations (note 35)
Purchased in the year
Disposals
At 31 December 2015
Amortisation
At 1 January 2014
Charge for the year
Disposals
At 1 January 2015
Charge for the year
Disposals
At 31 December 2015
Carrying amount at 31 December 2015
Carrying amount at 31 December 2014
Carrying amount at 1 January 2014
Client
relationships
£’000
Software
development costs
£’000
Purchased
software
£’000
74,974
—
29,097
22,073
(1,465)
124,679
—
4,539
11,308
(1,867)
138,659
22,487
7,937
(1,465)
28,959
10,698
(1,867)
37,790
100,869
95,720
52,487
3,535
499
—
—
—
4,034
480
—
—
—
4,514
2,869
351
—
3,220
396
—
3,616
898
814
666
16,668
—
—
2,444
(8)
19,104
—
—
2,734
—
21,838
12,093
1,783
(8)
13,868
1,890
—
15,758
6,080
5,236
4,575
Total
£’000
95,177
499
29,097
24,517
(1,473)
147,817
480
4,539
14,042
(1,867)
165,011
37,449
10,071
(1,473)
46,047
12,984
(1,867)
57,164
107,847
101,770
57,728
Client relationships acquired through business combinations in 2015 relate to the acquisition of Vision and Castle (note 35).
Purchases of client relationships in the year relate to payments made to investment managers and third parties for the
introduction of client relationships.
The total amount charged to profit or loss in the year, in relation to goodwill and client relationships, was £11,014,000
(2014: £8,287,000). A further £3,254,000 (2014: £2,824,000) was expensed as staff costs during the year, representing amounts
due for client relationships introduced more than 12 months after the cessation of any non-compete period (note 2.1).
Purchased software with a cost of £12,310,000 (2014: £10,660,000) has been fully amortised but is still in use.
126
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
23 Deposits by banks
On 31 December 2015, deposits by banks included overnight cash book overdraft balances of £299,000 (2014: £nil).
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.
24 Due to customers
Repayable:
— on demand
— 3 months or less excluding on demand
— 1 year or less but over 3 months
Amounts include balances with:
— variable interest rates
— fixed interest rates
— non-interest-bearing
2015
£’000
2014
£’000
1,321,575
79,966
1,349
1,198,643
83,783
—
1,402,890
1,282,426
1,316,670
71,243
14,977
1,197,733
72,046
12,647
1,402,890
1,282,426
The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value
of deposits with no stated maturity, which include non-interest-bearing deposits, is the amount at which deposits could be
transferred to a third party at the measurement date. 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.
25 Accruals, deferred income, provisions and other liabilities
Creditors
Accruals and deferred income
Other provisions (note 26)
2015
£’000
2014
£’000
(restated — note 1.3)
16,634
42,011
20,053
78,698
17,858
35,086
20,944
73,888
Rathbone Brothers Plc Report and accounts 2015
127
Notes to the consolidated financial statementsConsolidated financial statements
26 Other provisions
At 1 January 2014
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Business combinations
Other movements
Utilised/paid during the year
At 1 January 2015
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Business combinations (note 35)
Other movements
Utilised/paid during the year
At 31 December 2015
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
8,450
—
—
—
—
21,073
(10,344)
19,179
—
—
—
—
11,308
(17,095)
13,392
4,436
8,956
13,392
Deferred and
contingent
consideration
in business
combinations
£’000
—
—
—
—
32,030
—
(32,000)
30
—
(7)
(7)
4,145
—
(23)
4,145
3,091
1,054
4,145
Legal and
compensation
£’000
Property-
related
£’000
483
524
(253)
271
—
—
(101)
653
434
(95)
339
—
—
(271)
721
721
—
721
Total
£’000
9,906
633
(253)
380
32,030
21,073
(42,445)
973
109
—
109
—
—
—
1,082
20,944
713
—
713
—
—
—
1,147
(102)
1,045
4,145
11,308
(17,389)
1,795
20,053
12
1,783
1,795
8,260
11,793
20,053
Deferred, variable costs to acquire client relationship intangibles
Deferred, variable costs to acquire client relationship intangibles of £11,305,000 arose during the year, in relation to deferred
payments to investment managers and third parties linked to the value of client funds introduced (2014: £8,230,000). These
amounts have been capitalised (see note 22).
At 31 December 2015, deferred, variable costs to acquire client relationship intangibles includes £4,389,000 in relation to the
purchase of part of Deutsche Asset & Wealth Management’s London-based private client investment management business on
5 June 2014 (2014: £11,132,000). This is the final amount payable and is based on the value of funds under management retained
by the group at 31 December 2015.
The remainder of the balance is payable to a number of investment management teams, who have joined over the past two years.
Deferred and contingent consideration in business combinations
Deferred and contingent consideration of £4,145,000 (2014: £nil) is payable in instalments up to the end of 2019 following
the acquisition of Vision and Castle. The payments are contingent on certain operational and financial targets being met
(see note 35).
The group has estimated the size and timing of the amounts payable by taking into account the expected outcome of the
conditions attached to the payments. The group has discounted the amounts payable after one year.
In 2014, business combinations included a provision of £32,000,000, being the minimum consideration payable for the
acquisition of Jupiter Asset Management Limited’s private client and charity investment business. This provision was utilised
following the completion of this acquisition on 26 September 2014.
128
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
26 Other provisions
Legal and compensation
During the ordinary course of business the group may, from time-to-time, 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
Property-related provisions consist of £1,795,000 in relation to dilapidation provisions expected to arise on leasehold premises
held by the group (2014: £1,082,000). Dilapidation provisions are calculated using a discounted cash flow model. During the
year, provisions have increased by £713,000 (2014: £109,000) due to the change in estimated cost of dilapidations, and timing
thereof, at our existing London office and the impact of discounting.
Ageing of provisions
Provisions payable after one year are expected to be settled within four years of the balance sheet date (2014: two years), except
for property-related provisions of £1,783,000 (2014: £1,071,000), which are expected to be settled within 21 years of the balance
sheet date (2014: 22 years), which corresponds to the longest lease for which a dilapidations provision is being held.
27 Subordinated loan notes
Subordinated loan notes
2015
Face value
£’000
20,000
Carrying value
£’000
19,492
2014
Face value
£’000
Carrying value
£’000
—
—
On 3 August 2015, Rathbone Investment Management issued £20,000,000 of 10-year Tier 2 notes (‘Notes’). The Notes are
repayable in August 2025, with a call option in August 2020 and annually thereafter. Interest is payable at a fixed rate of 5.856%
until the first call option date and at a fixed margin of 4.375% over six month LIBOR thereafter. Fees of £546,000 were incurred
in issuing the notes, which have been accounted for in the carrying value of amortised cost.
28 Long term employee benefits
The group operates a defined contribution group personal pension scheme and contributes to various other personal pension
arrangements for certain directors and employees. The total of contributions made to these schemes during the year was
£4,160,000 (2014: £3,299,000). The group also operates a defined contribution scheme for overseas employees, for which the
total contributions were £31,000 (2014: £14,000).
The group operates two defined benefit pension schemes: the Rathbone 1987 Scheme and the Laurence Keen Retirement
Benefit 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.
Rathbone Brothers Plc Report and accounts 2015
129
Notes to the consolidated financial statementsConsolidated financial statements
28 Long term employee benefits
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 £1,028,000 of related insurance premiums were expensed to profit or loss in
the year (2014: £880,000). 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 2013
31 December 2013
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:
Rate of increase of salaries
Rate of increase of pensions in payment
Rate of increase of deferred pensions
Discount rate
Inflation*
* Inflation assumptions are based on the Retail Prices Index
2015
Laurence Keen
Scheme %
2014
Laurence Keen
Scheme %
2015
Rathbone 1987
Scheme %
2014
Rathbone 1987
Scheme %
4.20
3.50
3.20
4.00
3.20
4.10
3.40
3.10
3.80
3.10
4.20
3.10
3.20
4.00
3.20
4.10
3.10
3.10
3.80
3.10
Over the prior year the financial assumptions have been amended to reflect changes in market conditions. Specifically:
(i)
the discount rate has been increased by 0.2% to reflect an increase in the yields available on AA-rated corporate bonds at
a term consistent with the average duration of the liabilities;
(ii)
the assumed rate of future inflation has been increased by 0.1% to reflect an increase in expectations of long-term inflation
as implied by changes in the fixed interest and index-linked gilts market; and
(iii) the assumed rates of salary growth and future increases to pensions in payment have been increased for consistency with
the change in the assumed rate of future inflation.
The assumed duration of the liabilities for the Laurence Keen Scheme is 19 years (2014: 19 years) and the assumed duration for
the Rathbone 1987 Scheme is 23 years (2014: 23 years).
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 from that date. The assumed life expectancy for
the membership of both schemes is based on the S2NA actuarial tables (2014: S2NA tables). The assumed life expectations on
retirement were:
Retiring today:
— aged 60
— aged 65
Retiring in 20 years: — aged 60
— aged 65
2015
2014
Males
Years
29.2
24.2
31.6
26.5
Females
Years
31.4
26.4
33.8
28.6
Males
Years
29.1
24.2
31.5
26.4
Females
Years
31.3
26.3
33.7
28.5
There were no changes to the demographic assumptions over the year.
130
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
28 Long term employee benefits
The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows:
2015
Laurence Keen
Scheme
£’000
Rathbone 1987
Scheme
£’000
Total
£’000
Laurence Keen
Scheme
£’000
2014
Rathbone 1987
Scheme
£’000
Total
£’000
Present value of defined
benefit obligations
Fair value of scheme assets
(14,002)
13,991
(161,965)
157,475
(175,967)
171,466
(16,770)
16,337
(163,859)
150,582
(180,629)
166,919
Net defined benefit liability
(11)
(4,490)
(4,501)
(433)
(13,277)
(13,710)
The amounts recognised in profit or loss, within operating expenses, are as follows:
Current service cost
Interest income/(expense)
2015
Laurence Keen
Scheme
£’000
Rathbone 1987
Scheme
£’000
—
17
17
3,880
320
4,200
Total
£’000
3,880
337
4,217
Laurence Keen
Scheme
£’000
2014
Rathbone 1987
Scheme
£’000
—
(74)
(74)
3,576
(170)
3,406
Total
£’000
3,576
(244)
3,332
Remeasurements of the net defined benefit asset have been reported in other comprehensive income. The actual return on
scheme assets was a rise in value of £531,000 (2014: £1,359,000 rise) for the Laurence Keen Scheme and a rise in value of
£5,431,000 (2014: £16,506,000 rise) for the Rathbone 1987 Scheme.
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 experience losses
Actuarial loss/(gain) arising from:
— demographic assumptions
— financial assumptions
Benefits paid
2015
Laurence Keen
Scheme
£’000
Rathbone 1987
Scheme
£’000
16,770
—
583
—
—
—
(474)
(2,877)
163,859
3,880
6,123
1,227
—
—
(6,457)
(6,667)
Total
£’000
180,629
3,880
6,706
1,227
—
—
(6,931)
(9,544)
Laurence Keen
Scheme
£’000
2014
Rathbone 1987
Scheme
£’000
14,603
—
640
—
838
100
1,954
(1,365)
129,765
3,576
5,945
1,281
7,058
614
17,938
(2,318)
Total
£’000
144,368
3,576
6,585
1,281
7,896
714
19,892
(3,683)
At 31 December
14,002
161,965
175,967
16,770
163,859
180,629
Rathbone Brothers Plc Report and accounts 2015
131
Notes to the consolidated financial statementsConsolidated financial statements
28 Long term employee benefits
Movements in the fair value of scheme assets were as follows:
At 1 January
Remeasurement of defined
benefit asset:
— interest income
— return on scheme assets
(excluding amounts included in
interest income)
Contributions from the
sponsoring company
Contributions from
scheme members
Benefits paid
At 31 December
2015
Laurence Keen
Scheme
£’000
Rathbone 1987
Scheme
£’000
Total
£’000
Laurence Keen
Scheme
£’000
2014
Rathbone 1987
Scheme
£’000
Total
£’000
16,337
150,582
166,919
16,033
129,949
145,982
566
5,803
6,369
714
6,115
6,829
(35)
—
(372)
(407)
6,902
6,902
645
310
10,391
11,036
5,164
5,474
—
(2,877)
1,227
(6,667)
1,227
(9,544)
—
(1,365)
1,281
(2,318)
1,281
(3,683)
13,991
157,475
171,466
16,337
150,582
166,919
The statements of investment principles set by the trustees of both schemes were revised in 2015. They require that the assets
of the schemes are invested in a diversified portfolio of assets, split between return seeking assets (primarily equities) and safer
assets (gilts, index-linked gilts, corporate bonds and other fixed income investments) with a switch to a greater percentage of
safer assets over time as the schemes mature.
In the Rathbone 1987 Scheme, the target date for the 100% allocation to safer assets is 31 December 2048. The scheme
is also seeking to hedge around 50% of its interest rate and inflation risk by 31 December 2016 using liability driven
investment strategies.
In the Laurence Keen Scheme the target date for the 100% allocation to safer assets is 31 December 2040.
The target asset allocations at 31 December 2015 as set out in the statements of investment principles are as follows:
Benchmark
Return seeking assets
Growth assets
Range
Return seeking assets
Growth assets
Laurence Keen
Scheme
Rathbone 1987
Scheme
50%
50%
38%
62%
44% —56% 32% —44%
44% —56% 56% —68%
132
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
28 Long term employee benefits
The analysis of the scheme assets, measured at bid prices, at the balance sheet date was as follows:
Laurence Keen Scheme
Equity instruments:
— United Kingdom
— Eurozone
— North America
— Other
Debt instruments:
— United Kingdom government bonds
— Overseas government bonds
— United Kingdom corporate bonds
Cash
Other
At 31 December
Rathbone 1987 Scheme
Equity instruments:
— United Kingdom
— Eurozone
— North America
— Other
Debt instruments:
— United Kingdom government bonds
— Overseas government bonds
— United Kingdom corporate bonds
— Overseas corporate bonds
Derivatives:
— Interest rate swap funds
Cash
Other
At 31 December
2015
Fair value
£’000
2014
Fair value
£’000
2015
Current allocation
%
2014
Current allocation
%
4,672
470
702
763
6,607
4,594
—
2,044
6,638
314
432
5,501
543
911
863
7,818
5,360
523
2,193
8,076
52
391
13,991
16,337
47
48
48
2
3
100
50
—
2
100
2015
Fair value
£’000
56,262
10,171
13,436
11,046
90,915
30,616
3,033
16,992
992
51,633
7,936
7,936
4,504
2,487
2014
Fair value
£’000
2015
Current allocation
%
2014
Current allocation
%
47,805
11,626
14,133
9,540
83,104
30,676
2,003
14,838
990
48,507
10,015
10,015
6,240
2,716
58
55
32
32
5
3
2
7
4
2
157,475
150,582
100
100
During 2015, the Rathbone 1987 Scheme disposed of shares in an interest rate swap fund, which had a nominal value of
£10,015,000 at the end of 2014, and purchased shares in real time inflation-linked interest rate swap funds, which had a nominal
value of £7,936,000 at the year end. The funds are selected so that their average duration is intended to broadly align with the
duration of the scheme’s liabilities.
Rathbone Brothers Plc Report and accounts 2015
133
Notes to the consolidated financial statementsConsolidated financial statements
28 Long term employee benefits
All equity and debt instruments have quoted prices in active markets. The majority of government bonds are issued by
governments of the United Kingdom, the United States of America, Canada, Sweden and Japan all of which are rated AAA,
AA+ or A, based on credit ratings awarded by Fitch or Moody’s as at the balance sheet date. ‘Other’ scheme assets comprise
commodities and property funds, both of which also have quoted prices in active markets.
The four key assumptions affecting the results of the valuation are the discount rate, future inflation, future salary growth and
mortality. In order to demonstrate the sensitivity of the results to these assumptions, the actuary has recalculated the defined
benefit obligations for each scheme by varying each of these assumptions in isolation whilst leaving the other assumptions
unchanged. A summary of the sensitivities in respect of the total of the two schemes’ defined benefit obligations are
set out below.
0.5% increase in:
— discount rate
— rate of inflation
— rate of salary growth
1 year increase to longevity at 60
Combined impact on schemes’ liabilities
(Decrease)/increase
(Decrease)/increase
%
£’000
(18,297)
13,875
4,583
5,784
(10.4)
7.9
2.6
3.3
The total regular contributions made by the group to the Rathbone 1987 Scheme during the year were £3,176,000
(2014: £2,369,000) based on 20.3% of pensionable salaries (2014: 14.8%). Additional lump sum contributions of £3,792,000
were paid in 2015 (2014: £2,795,000). Following the recent triennial valuations, from 1 January 2015, the group has made regular
contributions of 20.3% of pensionable salaries and the group has committed to make additional contributions to the scheme of
£2,750,000 in 2016 and £500,000 in 2017, if the scheme remains in deficit at the time of the payment.
Active members of the Rathbone 1987 Scheme are required to make annual contributions to the scheme. Currently, these
contributions represent an average of 7.8% of pensionable salaries (2014: 7.8%). 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 £nil (2014: £265,000). No
additional lump sum contributions were paid in 2015 (2014: £45,000). Regular contributions to the Laurence Keen Scheme
stopped with effect from 1 January 2015.
134
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
29 Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2014
Shares issued:
— on placing
— to Share Incentive Plan
— to Save As You Earn scheme
— on exercise of options
At 1 January 2015
Shares issued:
— to Share Incentive Plan
— to Save As You Earn scheme
— on exercise of options
Number of shares
46,287,664
1,343,000
180,507
28,622
50,476
47,890,269
1,814.0
1,634.0 —1,946.0
934.0 —1,106.0
743.5 —1,172.0
205,883
35,074
3,060
1,934.0 —2,264.0
934.0 —1,641.0
852.0 —1,172.0
Exercise/issue price
pence
Share capital
£’000
Share premium
£’000
Total
£’000
2,315
65,484
67,799
67
9
1
3
2,395
10
2
—
23,511
3,295
267
430
92,987
4,275
353
28
23,578
3,304
268
433
95,382
4,285
355
28
At 31 December 2015
48,134,286
2,407
97,643
100,050
The total number of issued and fully paid up ordinary shares at 31 December 2015 was 48,134,286 (2014: 47,890,269) 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.
30 Own shares
The following movements in own shares occurred during the year:
At 1 January 2014
Acquired in the year
Released on vesting
At 1 January 2015
Acquired in the year
Released on vesting
At 31 December 2015
Number of shares
493,848
90,248
(172,901)
411,195
115,782
(142,682)
384,295
£’000
5,722
1,655
(1,846)
5,531
2,413
(1,767)
6,177
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 31). The number of own shares held as treasury shares by the company at 31 December 2015 was 50,000 (2014: 50,000).
In addition, 61,131 shares were held in an employee benefit trust at 31 December 2015 (2014: 76,082) and a further 273,164
(2014: 285,113) shares were held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees.
Rathbone Brothers Plc Report and accounts 2015
135
Notes to the consolidated financial statementsConsolidated financial statements
31 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 £150
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 earnings per share up to a maximum of £3,000 per annum.
For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends
are paid in cash.
As at 31 December 2015, the trustees of the SIP held 1,260,007 (2014: 1,274,938) ordinary shares of 5p each in Rathbone Brothers
Plc with a total market value of £27,720,000 (2014: £26,085,000). Of the total number of shares held by the trustees, 268,512
(2014: 281,957) have been conditionally gifted to employees and 4,652 (2014: 3,156) remain unallocated. Dividends on the
unallocated shares have been waived by the trustees.
Executive Incentive Plan
In 2015, the group introduced a new scheme for rewarding executive management. It replaces the Long Term Incentive
Plan (LTIP) and the executive bonus scheme for 2015 onwards. Details of the general terms of this plan are set out in the
remuneration committee report on pages 72 and 73.
Under the remuneration policy, 40% of the total award will be given in cash with the remaining 60% of the award granted in
shares. The group treats the cash element of the award as an employee benefit under IAS 19 and the share element of the award
as an equity-settled share-based payment under IFRS 2.
Long Term Incentive Plan
Details of the general terms of this plan are set out in the remuneration committee report on pages 79 and 80. 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 £2,543,000
(2014: £3,259,000) has been recognised for the estimated fair value of future awards.
At 31 December 2015, the trustees held 61,131 (2014: 76,082) ordinary shares of 5p each in Rathbone Brothers Plc with a total
market value of £1,345,000 (2014: £1,557,000). Dividends on these shares have been waived by the trustees.
Executive bonus scheme
Shares for plan awards will be provided by market purchase or treasury shares.
Savings-related share option or Save As You Earn (SAYE) plan
Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three or five year
savings period.
Options with an aggregate estimated fair value of £785,000, determined using a binomial valuation model including expected
dividends, were granted on 28 April 2015 to directors and staff under the SAYE plan. The inputs into the binomial model for
options granted during 2015, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2015
2,147
1,641
22%
1.1%
2.4%
2014
1,953
1,556
23%
1.6%
2.5%
136
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
31 Share-based payments
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 dates on which they may be exercised are given below.
Year of grant
2011
2012
2013
2014
2015
At 31 December
Share option scheme
Exercise price
pence
934.0
984.0
1,106.0
1,556.0
1,641.0
Exercise period
2016
2015 and 2017
2016 and 2018
2017 and 2019
2018 and 2020
2015
Number of
share options
19,706
16,966
167,815
142,396
137,481
2014
Number of
share options
19,970
47,641
176,931
150,158
—
484,364
394,700
Under the share option scheme approved by shareholders in 2000, certain employees held options to subscribe for shares in the
company. All such options have now either been exercised or have lapsed.
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 could be exercised, dependent on certain earnings per share targets being met,
are given below.
Year of grant
2005
2006
At 31 December
Exercise price
pence
Exercise period
852.0 2008—2015
1,172.0 2009—2016
2015
Number of
share options
2014
Number of
share options
—
—
—
2,500
560
3,060
Movements in the number of share options outstanding for both the SAYE plan and the share option scheme were as follows:
2015
2014
At 1 January
Granted in the year
Forfeited in the year
Exercised in the year
At 31 December
397,760
143,821
(19,083)
(38,134)
484,364
Number of
share options
Weighted average
exercise price
pence
1,251.0
1,641.0
1,442.0
1,003.0
Number of
share options
333,289
151,475
(7,906)
(79,098)
1,379.0
397,760
Weighted average
exercise price
pence
1,024.0
1,556.0
1,164.0
886.0
1,251.0
The weighted average share price at the dates of exercise for share options exercised during the year was £21.63 (2014: £18.89).
The options outstanding at 31 December 2015 had a weighted average contractual life of 2.6 years (2014: 2.9 years) and
a weighted average exercise price of £13.79 (2014: £12.51).
The group recognised total expenses of £4,629,000 in relation to share-based payment transactions in 2015 (2014: £5,477,000)
(see note 10).
Rathbone Brothers Plc Report and accounts 2015
137
Notes to the consolidated financial statementsConsolidated financial statements
32 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 page 69.
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 28.
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.
(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 client
loan book and guarantees given on clients’ behalf.
It is the group’s policy to place funds generated internally and from deposits by clients with a range of high-quality financial
institutions and the Bank of England. Investments with financial institutions 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 Limited (‘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:
Balances with central banks (note 14)
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.
138
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
The Investment Management and Unit Trusts segments 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.
Loans and advances to banks (note 15) and debt and other securities (note 17)
The group has exposures to a wide range of financial institutions through its treasury portfolio, which includes bank deposits,
certificates of deposit, money market funds and, in 2015, treasury bills. 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 single 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 (note 16)
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 overdrafts on clients’ investment management accounts, trade debtors arising from
the trust, tax and pensions advisory businesses (‘trust and pension debtors’) and other 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, and some loans may be partially secured by property. 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 2015, the total lending exposure limit for the investment management loan book was £150,000,000
(2014: £150,000,000), of which £111,682,000 had been advanced (2014: £97,201,000) and a further £20,417,000 had been
committed (2014: £14,634,000).
(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 relate to management fees receivable.
Derivative financial instruments (note 21)
At 31 December 2014, the group held derivative financial instruments in the form of the option contracts in relation to the
shares in the group’s associates. These options exposed the group to credit risk from the potential for non-delivery of the
£2,000,000 payable by the associate companies’ founders to repurchase the group’s current stake in the associates.
During the year, the remaining 80.1% holdings in the associates to which the option contracts related were acquired under
terms which superseded the option contracts. Therefore, no derivative financial instruments were held as at 31 December 2015.
Rathbone Brothers Plc Report and accounts 2015
139
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
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, are set out in note 16.
Maximum exposure to credit risk
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
— investment management loan book
— trust and pension debtors
— 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
2015
£’000
2014
£’000
583,154
17,948
108,877
4,468
111,810
1,061
13
760,061
—
50,639
20,417
—
727,175
15,890
144,399
3,331
97,392
981
8
444,974
1,030
45,614
14,634
578
1,658,448
1,496,006
The above table represents the group’s gross credit risk exposure at 31 December 2015 and 2014, without taking account of any
associated collateral held or other credit enhancements. For on-balance sheet assets, the exposures set out above are based on
gross carrying amounts.
13.6% of the total maximum exposure is derived from loans and advances to banks and customers (2014: 16.5%) and 45.8%
represents investments in debt securities (2014: 29.7%).
The credit risk relating to off-balance sheet exposures for financial guarantees reflects the group’s gross potential exposure of
guarantees held on balance sheet (see note 1.22).
Balances with central banks
All 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.
AA+ to AA-
Carrying value
2015
£’000
2014
£’000
583,154
727,175
583,154
727,175
140
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
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
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 16)
Net carrying value
2015
£’000
17,117
823
8
17,948
2014
£’000
14,549
1,341
—
15,890
2015
2014
Loans and
advances
to banks
£’000
108,877
—
—
108,877
—
Loans and
advances
to customers
£’000
116,860
401
91
117,352
(83)
Loans and
advances
to banks
£’000
144,399
—
—
144,399
—
Loans and
advances
to customers
£’000
101,199
440
73
101,712
(72)
108,877
117,269
144,399
101,640
No loans and advances have been renegotiated (2014: 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 2015 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*
2015
£’000
21,838
86,522
517
2014
£’000
63,638
80,761
—
108,877
144,399
* Cash held within the employee benefit trust.
The credit quality of loans and advances to customers that were neither past due nor impaired at 31 December 2015,
which are all externally unrated, is analysed between those loans that are subject to standard lending criteria, which
are described on page 139, and, where applicable, those loans for which there are no standard lending criteria. At
31 December 2015, all loans are subject to standard lending criteria (2014: 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.
Rathbone Brothers Plc Report and accounts 2015
141
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
(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 2015 and 2014, 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:
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
2015
£’000
110
74
73
97
47
401
2014
£’000
149
129
71
29
62
440
Impaired
(c)
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 2015
Amounts written off
Credit to profit or loss
At 31 December 2015
Gross carrying value of impaired loans and advances to customers
At 31 December 2015
At 31 December 2014
Total loans and
advances to
customers
£’000
72
(8)
19
83
91
73
All loans and advances to customers impaired relate to trust and pension debtors (2014: all). There were no other impaired
credit exposures at 31 December 2015 (2014: £nil).
Debt securities
The table below presents an analysis of debt securities by rating agency designation, as at 31 December 2015, based on Fitch or
Moody’s long term rating designation.
142
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
AAA
AA+ to AA-
A+ to A-
2015
2014
Government
securities
£’000
Money market
funds
£’000
Certificates
of deposit
£’000
Total
£’000
Government
securities
£’000
Money market
funds
£’000
Certificates
of deposit
£’000
Total
£’000
—
22,745
—
52,316
—
— 115,000
— 570,000
52,316
137,745
570,000
—
29,967
—
15,000
—
— 110,007
— 290,000
15,000
139,974
290,000
22,745
52,316
685,000
760,061
29,967
15,000
400,007
444,974
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 2015
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
— overdrafts
— investment management loan book
— trust and pension debtors
— other debtors
Debt securities:
— unlisted debt securities and money market funds
Other financial assets
At 31 December 2014
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
— overdrafts
— investment management loan book
— trust and pension debtors
— other debtors
Debt securities:
— unlisted debt securities and money market funds
Derivative financial instruments
Other financial assets
United Kingdom
£’000
Eurozone
£’000
Rest of the world
£’000
583,154
16,616
108,877
3,926
107,197
978
13
—
199
—
68
1,384
—
—
—
1,133
—
474
3,229
—
—
Total
£’000
583,154
17,948
108,877
4,468
111,810
978
13
307,745
48,602
252,316
812
200,000
1,208
760,061
50,622
1,177,108
254,779
206,044
1,637,931
United Kingdom
£’000
Eurozone
£’000
Rest of the world
£’000
727,175
15,434
144,399
3,142
92,430
909
8
224,974
1,030
44,281
—
6
—
25
1,179
—
—
160,000
—
522
—
450
—
164
3,783
—
—
60,000
—
781
Total
£’000
727,175
15,890
144,399
3,331
97,392
909
8
444,974
1,030
45,584
1,253,782
161,732
65,178
1,480,692
At 31 December 2015, materially all eurozone exposures were to counterparties based in the Netherlands, France and
Germany (2014: Netherlands, France and Germany) and materially all ‘rest of the world’ exposures were to counterparties
Rathbone Brothers Plc Report and accounts 2015
143
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (i) Credit risk
based in Switzerland (2014: Switzerland). At 31 December 2015, the group had exposure to £22,745,000 of sovereign debt
through its holding of UK treasury bills (2014: £29,967,000).
(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 2015
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
— overdrafts
— investment management loan book
— trust and pension debtors
— other debtors
Debt securities:
— unlisted debt securities and money market funds
Other financial assets
At 31 December 2014
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
— overdrafts
— investment management loan book
— trust and pension debtors
— other debtors
Debt securities:
— unlisted debt securities and money market funds
Derivative financial instruments
Other financial assets
Public sector
£’000
583,154
—
—
Financial
institutions
£’000
Clients and
other corporates
£’000
—
17,942
108,877
—
6
—
—
—
—
—
—
—
—
—
4,468
111,810
978
13
Total
£’000
583,154
17,948
108,877
4,468
111,810
978
13
22,745
192
737,316
3,322
—
47,108
760,061
50,622
606,091
867,457
164,383
1,637,931
Financial
institutions
£’000
Clients and
other corporates
£’000
Public sector
£’000
727,175
—
—
—
—
—
—
—
15,890
144,399
—
—
—
—
29,967
—
277
415,007
—
2,680
—
—
—
3,331
97,392
909
8
—
1,030
42,627
Total
£’000
727,175
15,890
144,399
3,331
97,392
909
8
444,974
1,030
45,584
757,419
577,976
145,297
1,480,692
(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 Prudential Regulation Authority (PRA). 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).
144
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (ii) Liquidity risk
Retail funding risks are monitored by daily cash mismatch analyses and regulatory 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 which 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 conjunction with an amount prescribed by the PRA.
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 2015
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
583,002
—
68,156
4,609
62,397
155
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
172
17,948
20,101
18,504
246,781
46,544
154
—
20,751
60,115
456,209
336
—
—
230
37,736
—
286
After 5 years
£’000
Total
£’000
— 583,328
17,948
—
— 109,238
121,469
— 765,387
47,321
—
505
Cash flows arising from financial assets
718,319
350,050
537,565
38,252
505 1,644,691
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
299
—
1,321,575
—
1,174
—
21,481
79,995
586
35,578
—
—
1,354
586
6,542
—
—
—
24,685
23,856
299
—
—
21,481
— 1,402,924
25,857
—
68,518
1,368
Cash flows arising from financial liabilities
1,323,048
137,640
8,482
48,541
1,368 1,519,079
Net liquidity gap
(604,729) 212,410
529,083
(10,289)
(863) 125,612
Cumulative net liquidity gap
(604,729) (392,319) 136,764
126,475
125,612
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
Total
£’000
At 31 December 2014
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
727,003
—
93,638
3,530
15,004
155
269
15,890
40,237
27,604
125,550
42,857
175
—
10,547
70,160
307,500
347
Cash flows arising from financial assets
839,330
252,407
388,729
—
—
282
1,962
—
254
2,498
—
—
—
—
—
6
727,447
15,890
144,704
103,256
448,054
43,619
6 1,482,970
Deposits by banks
Settlement balances
Due to customers
Other financial liabilities
—
—
1,198,643
384
—
22,584
83,803
30,885
—
—
—
7,007
—
—
—
27,402
—
—
—
22,584
— 1,282,446
67,764
2,086
Cash flows arising from financial liabilities
1,199,027
137,272
7,007
27,402
2,086 1,372,794
Net liquidity gap
(359,697) 115,135
381,722
(24,904)
(2,080) 110,176
Cumulative net liquidity gap
(359,697)
(244,562) 137,160
112,256
110,176
Rathbone Brothers Plc Report and accounts 2015
145
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (ii) Liquidity risk
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 £1,070,000 of equity investments (2014: £514,000) 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.
Off-balance sheet items
Cash flows arising from the group’s off-balance sheet financial liabilities (note 34) 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 2015
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2014
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2015
Not more than
3 months
£’000
After 3 months
but not more
than 1 year
£’000
After 1 year but
not more than
5 years
£’000
—
—
4,441
—
—
—
22,782
—
After 5 years
£’000
—
—
15,643
—
Total
£’000
20,417
—
44,325
534
4,441
22,782
15,643
65,276
20,417
—
1,459
534
22,410
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
14,634
—
1,428
122
—
—
4,354
—
—
578
22,283
—
After 5 years
£’000
—
—
19,951
—
Total
£’000
14,634
578
48,016
122
16,184
4,354
22,861
19,951
63,350
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
Total
£’000
Cash flows arising from financial liabilities
Total off-balance sheet items
1,323,048
—
137,640
22,410
8,482
4,441
48,541
22,782
1,368 1,519,079
65,276
15,643
Total liquidity requirement
1,323,048
160,050
12,923
71,323
17,011 1,584,355
At 31 December 2014
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
Total
£’000
Cash flows arising from financial liabilities
Total off-balance sheet items
1,199,027
—
137,272
16,184
7,007
4,354
27,402
22,861
2,086 1,372,794
63,350
19,951
Total liquidity requirement
1,199,027
153,456
11,361
50,263
22,037 1,436,144
146
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management
(iii) Market risk
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of
changes in market interest rates.
The group’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial
assets and liabilities. In particular, customer accounts and loan balances are repriced very shortly after changes in base
rates, whereas the yield on the group’s interest-bearing assets is correlated to the future expectation of base rates and varies
depending on the maturity profile of the group’s treasury portfolio. The average maturity mismatch is controlled by the
banking committee, which generally lengthens the mismatch when the yield curve is rising and shortens it when the yield
curve is falling.
The 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 2015
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
— equity securities
— unlisted debt securities and money market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Not more than
3 months
£’000
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
Non-interest-
bearing
£’000
Total
£’000
583,000
—
88,783
116,258
—
—
—
—
—
—
20,000
—
—
307,288
—
—
267,773
—
—
185,000
—
1,095,329
267,773
205,000
—
—
—
—
—
—
—
—
156
17,948
94
1,011
583,156
17,948
108,877
117,269
1,070
1,070
— 760,061
50,622
50,622
70,901 1,639,003
299
—
1,386,564
—
—
1,386,863
—
—
1,349
—
—
1,349
—
—
—
—
—
—
—
—
—
19,492
—
299
—
21,481
21,481
14,977 1,402,890
19,492
59,004
—
59,004
19,492
95,462 1,503,166
Interest rate repricing gap
(291,534) 266,424
205,000
(19,492)
(24,561) 135,837
Rathbone Brothers Plc Report and accounts 2015
147
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (iii) Market risk
At 31 December 2014
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
— equity securities
— unlisted 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
Not more than
3 months
£’000
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
Non-interest-
bearing
£’000
Total
£’000
727,000
—
134,280
100,712
—
—
10,000
—
—
—
—
—
—
139,967
—
—
—
140,007
—
—
—
165,000
—
—
1,101,959
150,007
165,000
—
—
1,269,779
—
1,269,779
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
178
15,890
119
928
727,178
15,890
144,399
101,640
514
514
— 444,974
1,030
45,584
1,030
45,584
64,243 1,481,209
—
—
22,584
22,584
12,647 1,282,426
56,340
56,340
91,571 1,361,350
(27,328) 119,859
Interest rate repricing gap
(167,820) 150,007
165,000
The banking committee has set an overall pre-tax interest rate exposure limit of £6,000,000 (2014: £6,000,000) 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 2015, an immediate 2% increase in interest rates (across the yield curve) would increase annual interest income
by £2,365,000 (2014: £2,909,000). The group held no forward rate agreements at 31 December 2015 (2014: 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.
148
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (iii) Market risk
The group does not have any material exposure to transactional foreign exchange risk. The table below summarises the group’s
exposure to foreign currency translation risk at 31 December 2015. Included in the table are the group’s financial assets and
liabilities, at carrying amounts, categorised by currency.
Sterling
£’000
US dollar
£’000
Euro
£’000
At 31 December 2015
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
— equity securities
— unlisted debt securities and money market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Net on-balance sheet position
Loan commitments
At 31 December 2014
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
— equity securities
— unlisted 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
583,156
17,184
73,069
115,793
1,070
722,745
50,328
1,563,345
299
20,555
1,330,242
19,492
58,988
1,429,576
133,769
20,417
Sterling
£’000
727,178
15,017
79,835
100,489
514
444,974
1,030
45,403
—
592
15,066
1,167
—
37,316
213
54,354
—
715
52,352
—
16
53,083
1,271
—
US dollar
£’000
—
797
49,753
990
—
—
—
181
Other
£’000
—
51
4,355
2
—
—
81
Total
£’000
583,156
17,948
108,877
117,269
1,070
760,061
50,622
—
121
16,387
307
—
—
—
16,815
4,489
1,639,003
—
211
16,292
—
—
16,503
312
—
Euro
£’000
—
46
11,561
161
—
—
—
—
—
—
4,004
—
—
299
21,481
1,402,890
19,492
59,004
4,004
1,503,166
485
135,837
—
Other
£’000
—
30
3,250
—
—
—
—
—
20,417
Total
£’000
727,178
15,890
144,399
101,640
514
444,974
1,030
45,584
1,414,440
51,721
11,768
3,280
1,481,209
—
19,954
1,219,645
56,241
1,295,840
118,600
14,634
—
2,497
48,131
15
50,643
1,078
—
—
27
11,588
—
11,615
153
—
—
106
3,062
84
—
22,584
1,282,426
56,340
3,252
1,361,350
28
—
119,859
14,634
Rathbone Brothers Plc Report and accounts 2015
149
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (iii) Market risk
A 10% weakening of the US dollar against sterling, occurring on 31 December 2015, would have reduced equity and profit after
tax by £101,000 (2014: reduced by £85,000). A 10% weakening of the euro against sterling, occurring on 31 December 2015,
would have reduced equity and profit after tax by £25,000 (2014: reduced by £12,000). 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.
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 17).
At 31 December 2015, the fair value of equity securities recognised on the balance sheet was £1,070,000 (2014: £514,000). A 10%
fall in global equity markets would, in isolation, result in a pre-tax decrease to net assets of £60,000 (2014: £31,000); 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 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 2015
Assets
Available for sale securities:
— equity securities
— money market funds
At 31 December 2014
Assets
Available for sale securities:
— equity securities
— money market funds
Derivative financial instruments
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
1,070
—
Level 1
£’000
514
—
—
514
—
52,316
Level 2
£’000
—
15,000
—
15,000
—
—
Level 3
£’000
—
—
1,030
1,030
1,070
52,316
Total
£’000
514
15,000
1,030
16,544
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the
change has occurred. There have been no transfers between levels during the year (2014: none).
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.
150
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
32 Financial risk management (iii) Market risk
Changes in the fair values of financial instruments categorised as level 3 within the fair value hierarchy were as follows:
At 1 January
Total unrealised gains and losses recognised in:
— profit or loss (note 21)
— other comprehensive income
Disposals
At 31 December
Available for
sale equity
securities
£’000
2015
Derivative
financial
instruments
£’000
Available for
sale equity
securities
£’000
Total
£’000
2014
Derivative
financial
instruments
£’000
Total
£’000
—
—
—
—
—
1,030
1,030
691
1,030
1,721
(1,030)
—
—
(1,030)
—
—
—
245
(936)
—
—
—
—
245
(936)
—
—
—
1,030
1,030
Losses relating to the derivative financial instruments are included within ‘loss on derivative financial instruments’ and gains
relating to the available for sale equity securities are included within ‘revaluation of available for sale investment securities’ in
other comprehensive income.
There were no other gains or losses arising from changes in the fair value of financial instruments categorised as level 3 within
the fair value hierarchy.
The fair values of the group’s other financial assets and liabilities are not materially different from their carrying values, with
the exception of the following:
— Held to maturity investment debt securities (note 17) comprise bank and building society certificates of deposit, which
have fixed coupons and, in 2015, treasury bills. The fair value of debt securities at 31 December 2015 was £710,718,000
(2014: £431,496,000) and the carrying value was £707,745,000 (2014: £429,974,000). Fair value for held to maturity assets is
based on market bid prices, and hence would be categorised as level 1 within the fair value hierarchy.
— Subordinated loan notes (note 27) comprise Tier 2 loan notes issued during the year. The fair value of the loan notes at
31 December 2015 was £20,099,000 and the carrying value was £19,492,000. Fair value of the loan notes is based on
discounted future cash flows using current market rates for debts with similar remaining maturity, and hence would be
categorised as level 2 in the fair value hierarchy.
Rathbone Brothers Plc Report and accounts 2015
151
Notes to the consolidated financial statementsConsolidated financial statements
33 Capital management
Rathbone Brothers Plc’s capital is defined for accounting purposes as total equity. As at 31 December 2015 this totalled
£300,192,000 (2014: £270,732,000). On 3 August 2015, Rathbone Investment Management issued £20,000,000 of subordinated
Tier 2 loan notes, following changes to the capital adequacy rules which increased the extent to which the group could
effectively use debt to support its regulatory capital balances (note 27). At 31 December 2015, the carrying value of the notes was
£19,492,000 (2014: £nil). From time-to-time, the group runs small overnight overdraft balances as part of working capital.
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 in a cost-efficient manner 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 for capital purposes as a banking group and performs an Internal Capital Adequacy Assessment Process
(ICAAP), which is presented to the PRA on an annual basis. Regulatory capital resources for ICAAP purposes are calculated
in accordance with published 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 PRA’s Pillar 1 and Pillar 2 methodology. The group has adopted the standardised approach to
calculating its Pillar 1 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 2015 the group’s regulatory capital resources, including retained earnings for 2015, were £144,468,000
(2014: £111,738,000). The increase in reserves during 2015 primarily from retained earnings, with the additional resources raised
from the issue of Tier 2 subordinated loan notes, was partially offset by the increase in intangible assets during the year.
In addition to a variety of stress tests performed as part of the ICAAP and daily reporting in respect of treasury activity, capital
levels are monitored and forecast on a monthly basis to ensure that dividends and investment requirements are appropriately
managed and appropriate buffers are kept against adverse business conditions.
No breaches were reported to the PRA during the financial years ended 31 December 2014 and 2015.
152
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
34 Contingent liabilities and commitments
(a)
Capital expenditure authorised and contracted for at 31 December 2015 but not provided in the financial statements
amounted to £534,000 (2014: £122,000).
(b)
The contractual amounts of the group’s commitments to extend credit to its clients at 31 December 2015 were as follows:
Guarantees
Undrawn commitments to lend of 1 year or less
2015
£’000
—
20,417
20,417
2014
£’000
578
14,634
15,212
The fair value of the guarantees is £nil (2014: £nil).
(c)
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 2015 were £24,733,000, provides for an upward only rent review 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
2015
£’000
5,900
22,782
15,643
44,325
2014
£’000
5,782
22,283
19,951
48,016
On 6 January 2016, the group exchanged contracts for a 17 year lease at 8 Finsbury Circus, London, under which
total payments over the lease term from the date of exchange are £75,342,000. The lease provides for rent reviews
every five years.
(d)
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 is largely out of the group’s control as they result from other
industry failures.
There is 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.
As detailed in note 1.3, the group has adopted IFRIC 21 ‘Levies’ in the current year. Comparative figures have been restated
for the impact of this. Levies of £630,000 have been included within administrative expenses in 2015 (2014 restated:
£1,439,000). It is only possible for the group to estimate its share of these losses until invoices are received. In addition
to the FSCS levies accrued in the year further levy charges may be incurred in future years, although the ultimate cost
remains uncertain.
Rathbone Brothers Plc Report and accounts 2015
153
Notes to the consolidated financial statementsConsolidated financial statements
35 Business combinations
Vision Independent Financial Planning and Castle Investment Solutions
On 31 December 2015, the group acquired the remaining 80.1% of the ordinary share capital of Vision Independent Financial
Planning Limited (‘Vision’) and Castle Investment Solutions Limited (‘Castle’) (together, the ‘Vision group’). The group originally
purchased a 19.9% stake in the Vision group for £2,000,000 in October 2012.
Vision is an independent specialist financial advice network, while Castle, its sister company, provides it with administrative
services. The acquisition of the Vision group is part of the group’s strategy of broadening its distribution reach and accessing a
greater share of new business intermediated by financial advisers.
Consideration transferred
The following table summarises the acquisition date fair value of each class of consideration transferred:
Cash consideration
Deferred and contingent consideration (see below)
Total consideration
Cash consideration comprises an initial payment of £5,000,000, paid on 31 December 2015.
Deferred and contingent consideration
Deferred and contingent consideration is split into a number of different components:
Deferred net asset value payment
Contingent consideration payments
Deferred and contingent consideration
£’000
5,000
4,145
9,145
£’000
1,926
2,219
4,145
The deferred net asset value payment of £1,926,000 is payable in the first quarter of 2016, subject to agreement of the net asset
value (as at the acquisition date) of the acquired businesses.
Contingent consideration of up to £2,219,000 is payable between the balance sheet date and the end of 2019. Further deferred
payments to vendors who are remaining in employment with the acquired companies of up to £10,203,000 is payable over the
same period and will be charged to profit or loss over the deferral period. Both sets of payments are subject to performance
against certain growth and operational targets.
Contingent consideration represents the maximum amount payable under the targets to which it is subject. The group has
discounted any amounts payable after one year. The undiscounted value of the deferred and contingent consideration
is £4,596,000.
All contingent consideration and deferred payments to vendors who are remaining in employment will be made 80% in cash
and 20% in shares.
Acquisition-related costs
Acquisition-related costs totalling £162,000 for legal and advisory fees have been recognised in transaction costs (note 8) in the
year in relation to this transaction.
154
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
35 Business combinations
Identifiable assets acquired and liabilities assumed
The acquired businesses’ identifiable net assets at the acquisition date were as follows:
Property, plant and equipment
Trade and other receivables
Intangible assets (note 22)
Loans and advances to banks
Trade and other payables
Accruals, deferred income and other liabilities
Deferred tax liabilities
Total net assets acquired
Carrying amounts
£’000
Fair value
adjustments
£’000
Recognised values
£’000
53
1,399
—
1,472
(806)
(192)
—
1,926
—
—
4,539
—
—
—
(862)
3,677
53
1,399
4,539
1,472
(806)
(192)
(862)
5,603
The carrying amounts of the net assets acquired are provisional and subject to agreement of the acquired businesses’
completion accounts.
The fair value of acquired trade and other receivables and loans and advances to banks is equal to the contractual amounts
receivable, all of which are expected to be collected.
The fair value of Vision’s client relationship intangible assets has been measured using a discounted cash flow model (note 22).
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total consideration (see above)
Fair value of pre-existing interest in Vision group
Fair value of identifiable net assets acquired (see above)
£’000
9,145
2,369
(5,603)
5,911
The remeasurement to fair value of the group’s existing 19.9% stake in the Vision group immediately prior to acquisition
resulted in a gain of £885,000 (note 21). This amount has been included in operating income.
Goodwill of £5,911,000 arises as a result of the acquired workforce and future growth synergies as a result of this acquisition.
Any impairment of goodwill in future periods is not expected to be deductible for tax purposes.
No operating income or profit before tax relating to the acquired businesses are included within the consolidated statement of
comprehensive income for the year ended 31 December 2015.
If the group had made the acquisition on 1 January 2015, the group operating income and profit before tax would have been
£232,691,000 and £59,431,000 respectively.
Rathbone Brothers Plc Report and accounts 2015
155
Notes to the consolidated financial statementsConsolidated financial statements
Notes to the consolidated financial statements
36 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 annual report on
remuneration on page 77 to 84.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2015
£’000
10,659
791
1,706
2,878
16,034
2014
£’000
8,089
132
948
1,582
10,751
Dividends totalling £108,000 were paid in the year (2014: £93,000) in respect of ordinary shares held by key management
personnel and their close family members.
As at 31 December 2015, the group had outstanding interest-free season ticket loans of £6,000 (2014: none) issued to key
management personnel.
At 31 December 2015, key management personnel and their close family members had gross outstanding deposits of £862,000
(2014: £838,000) and gross outstanding banking loans of £5,805,000 (2014: £3,859,000), all of which (2014: 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.
The group’s transactions with the pension funds are described in note 28. At 31 December 2015, £nil was payable to the
Laurence Keen Scheme (2014: £55,000) and £nil was due from the Rathbone 1987 Scheme (2014: £55,000).
The group managed 22 unit trusts and OEICs during 2015 (2014: 21 unit trusts and OEICs). Total management charges of
£25,371,000 (2014: £23,061,000) were earned during the year, calculated on the bases published in the individual fund
prospectuses, which also state the terms and conditions of the management contract with the group. Management fees owed
to the group as at 31 December 2015 totalled £2,181,000 (2014: £2,076,000).
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.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
fi
d
e
t
a
d
i
l
o
s
n
o
C
156
Rathbone Brothers Plc Report and accounts 2015
37 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 14)
Loans and advances to banks (note 15)
Available for sale investment securities (note 17)
At 31 December
2015
£’000
583,156
68,156
52,316
2014
£’000
727,178
93,638
15,000
703,628
835,816
Available for sale investment securities are amounts invested in money market funds, which are realisable on demand.
Cash flows arising from issuing ordinary shares comprise:
Share capital issued (note 29)
Share premium on shares issued (note 29)
Shares issued in relation to share-based schemes for which no cash consideration was received
2015
£’000
12
4,656
(2,413)
2,255
2014
£’000
80
27,503
(1,655)
25,928
38 Events after the balance sheet date
On 6 January 2016, the group exchanged contracts for a 17 year lease on 75,000 sq ft of office space at 8 Finsbury Circus, London
(see note 34). It is expected that the business will move from its current premises at 1 Curzon Street in the first quarter of 2017.
This has led to the group reviewing its estimate of the provision for dilapidations at 1 Curzon Street (see note 9).
Rathbone Brothers Plc Report and accounts 2015
157
Notes to the consolidated financial statementsConsolidated financial statements
Turnover
Profit before
taxation
Tax paid
Public subsidies
received
Number of
employees
Subsidiaries
Country
United Kingdom1
Jersey
39 Country-by-country reporting
Introduction
HM Treasury has transposed the requirements set out under Capital Requirements Directive IV and issued the Capital
Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires the company
to publish certain additional information, on a consolidated basis, for the year ended 31 December 2015.
Basis of preparation
Country
In most cases, we have determined the country by reference to the country of tax residence. Where an
entity is not subject to tax (e.g. a partnership) we have considered the location of management or the
jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a different
country to the one in which profits are reported.
Nature of activities The nature of activities within the United Kingdom are described within ‘our approach’ on pages 11 to 15.
Investment management is the sole activity which occurs in Jersey.
Turnover is defined as operating income. As the consolidated results are split by country, there is
an element of double counting when inter-jurisdictional transactions (for example, the payment of
dividends) occur. The entries to eliminate this double counting are included at the bottom of the table to
enable the disclosed figures to agree to the consolidated financial statements.
These are accounting profits. As with turnover some double counting may arise and again this has
been eliminated at the bottom of the table. The majority of the total relates to the elimination of
inter-jurisdictional dividends which are reflected as profits in the United Kingdom.
This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any given
year relates directly to the profits earned in the same period.
The group received no public subsidies in the year.
The number of employees reported is the average number of full time employees who were permanently
employed by the group during the year. Contractors are excluded.
A list of the company’s subsidiaries, including their main activity and country of incorporation, is shown
within note 44.
Turnover
£’000
225,424
8,050
233,474
(3,411)
230,063
Profit
before taxation
£’000
55,858
754
56,612
2,020
58,632
Tax paid
£’000
10,300
106
10,406
—
10,406
Number of
employees
967
14
981
—
981
Sub total
Intra-group eliminations and other entries arising on consolidation
Total
1 Tax paid in United Kingdom is net of a rebate, in 2015, of £203,000 relating to an overpayment of Swiss withholding tax arising on the disposal of the
group’s holding of Euroclear Plc shares during 2014
158
Rathbone Brothers Plc Report and accounts 2015
Notes to the consolidated financial statementsConsolidated financial statements
Company financial statements
Company statement of changes in equity
160
161 Company balance sheet
162
Company statement of cash flows
163 Notes to the company financial statements
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
Significant accounting policies
Critical accounting judgement and key source
of estimation and uncertanity
Profit of the year
Dividends
Investments in subsidiaries
Investment in associates and related derivatives
Other investments
Trade and other receivables
Deferred tax
Trade and other payables
Provisions for liabilities and charges
Employee benefits
Share capital, own shares and share-based payments
Financial instruments
Capital management
Contingent liabilities and commitments
Related party transactions
Cash and cash equivalents
Events after the balance sheet date
164
165
166
167
168
169
170
179
180
Rathbone Brothers Plc Report and accounts 2015
Rathbone Brothers Plc Report and accounts 2015
159
159
Notes to the consolidated financial statements
Company statement of changes in equity
for the year ended 31 December 2015
Note
Share
capital
£’000
Share
premium
£’000
Available for
sale reserve
£’000
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
At 1 January 2014
Profit for the year
Net remeasurement of defined
benefit liability
Revaluation of available for sale
investment securities:
— net gain from changes in fair value
— net profit on disposal transferred
to profit or loss during the year
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 2015
Profit for the year
Net remeasurement of defined
benefit liability
Revaluation of available for sale
investment securities:
— net gain from changes in fair value
— net profit on disposal transferred
to profit or loss during the year
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 31 December 2015
51
17
48
43
52
52
52
48
51
17
48
43
52
52
52
48
2,315
65,484
4,717
(5,722)
959
(6,820)
1,172
42,807
38,826
109,601
38,826
(17,466)
(17,466)
959
(6,820)
3,493
4,665
—
—
(4,689)
—
(13,973)
(18,662)
80
27,503
(1,655)
1,846
2,395
92,987
28
(5,531)
(23,793)
(23,793)
27,583
374
(1,846)
248
374
(1,655)
—
248
42,643
42,853
132,522
42,853
6,524
6,524
53
—
(1,509)
(1,519)
—
5,015
5,058
(25,836)
(25,836)
4,668
(2,413)
1,767
1,022
(1,767)
51
1,022
(2,413)
—
51
53
—
(10)
43
—
—
12
4,656
2,407
97,643
71
(6,177)
63,981
157,925
The accompanying notes form an integral part of the company financial statements.
160
Rathbone Brothers Plc Report and accounts 2015
Company financial statements
Company balance sheet
as at 31 December 2015
Non-current assets
Investment in subsidiaries
Investment in associates
Other investments
Deferred tax
Current assets
Trade and other receivables
Current tax assets
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
2015
£’000
2014
£’000
44
45
46
48
47
130,844
—
11,070
2,564
120,483
1,216
10,514
4,818
144,478
137,031
77,890
250
5,972
84,112
58,145
1,196
5,732
65,073
228,590
202,104
49
50
(51,277)
(14,887)
(46,878)
(8,994)
(66,164)
(55,872)
17,948
9,201
51
(4,501)
(13,710)
(70,665)
(69,582)
157,925
132,522
52
52
52
2,407
97,643
71
(6,177)
63,981
2,395
92,987
28
(5,531)
42,643
157,925
132,522
The financial statements were approved by the board of directors and authorised for issue on 23 February 2016 and were signed
on its behalf by:
P L Howell
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 2015
161
Company financial statements
Company statement of cash flows
for the year ended 31 December 2015
Cash flows from operating activities
Profit before tax
Net profit on disposal of available for sale investment securities
Interest and dividends received
Net impairment charges/(recoveries) on impaired loan notes
Net charge for provisions
Loss on derivative financial instruments
Defined benefit pension scheme charges
Defined benefit pension scheme contributions paid
Share-based payment charges
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 operations
Tax received
Net cash used in operating activities
Cash flows from investing activities
Interest received
Inter-company dividends received
Other dividends received
Liquidation of subsidiary, net of cash transferred
Investment in subsidiaries
Purchase of other investments
Proceeds from sale of investments
Net cash generated from investing activities
Cash flows from financing activities
Issue of ordinary shares
Dividends paid
Net cash (used in)/generated from financing activities
Net increase/(decrease) 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
The accompanying notes form an integral part of the company financial statements.
Note
2015
£’000
2014
£’000
43,178
—
(44,245)
—
707
1,030
4,217
(6,902)
4,629
2,614
—
(20,792)
1,832
(16,346)
1,403
37,618
(6,820)
(44,165)
(565)
102
—
3,332
(5,474)
5,477
(10,495)
3,400
(33,150)
4,471
(35,774)
470
(14,943)
(35,304)
138
44,000
107
—
(5,000)
(503)
—
38,742
2,255
(25,836)
(23,581)
218
5,026
5,244
171
43,899
104
250
(43,125)
(10,037)
41,863
33,125
25,928
(23,793)
2,135
(44)
5,070
5,026
47
50
51
51
52
44
44
52
43
57
162
Rathbone Brothers Plc Report and accounts 2015
Company financial statements
Notes to the company financial statements
40 Significant accounting policies
Statement of compliance
The separate 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, as adopted by the European Union, and
IAS 27 ‘Separate Financial Statements’.
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.
Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in note 1.3 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, 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.
41 Critical accounting judgement and key source of estimation and uncertainty
The critical accounting judgement and key source of estimation and uncertainty arise from the company’s defined benefit
pension schemes. This is described in note 2.2 to the consolidated financial statements.
42 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 2015 of £42,853,000 (2014: £38,826,000).
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:
— investment management services
— advisory services
Unit Trusts
Shared services
2015
2014
614
77
27
249
967
531
73
32
232
868
43 Dividends
Details of the company’s dividends paid and proposed for approval at the AGM are set out in note 12 to the consolidated
financial statements.
Rathbone Brothers Plc Report and accounts 2015
163
Company financial statements
44 Investment in subsidiaries
At 1 January 2014
Additions
Disposals
At 1 January 2015
Additions
At 31 December 2015
Equities
Equities
£’000
75,858
43,125
(250)
118,733
10,361
129,094
Subordinated
loans to group
undertakings
£’000
1,750
—
—
1,750
—
1,750
Total
£’000
77,608
43,125
(250)
120,483
10,361
130,844
On 31 December 2015, the company acquired the remaining 80.1% of the ordinary share capital of Vision Independent Financial
Planning Limited (‘Vision’) and Castle Investment Solutions Limited (‘Castle’). Vision is an independent specialist financial
advice network and Castle provides administrative services to Vision.
The cost of the acquisition comprised the following:
Cash consideration (note 35)
Deferred and contingent consideration (note 35)
Transfer from associate (note 45)
Further details of the acquisition are provided in note 35 to the consolidated financial statements.
At 31 December 2015 the company’s subsidiary undertakings were as follows:
Subsidiary undertaking
Country of incorporation
Activity and operation
£’000
5,000
4,145
1,216
10,361
Investment management and banking services
Investment management
Trust and tax services
England & Wales
Rathbone Investment Management Limited
Rathbone Investment Management International Limited* Jersey
Rathbone Trust Company Limited
Rathbone Unit Trust Management Limited*
Rathbone Pension & Advisory Services Limited
Arcticstar Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Laurence Keen Holdings Limited
Rathbone Directors Limited*
Rathbone Secretaries Limited*
Laurence Keen Nominees Limited*
Neilson Cobbold Client Nominees Limited*
Rathbone Nominees Limited*
Citywall Nominees Limited*
Penchart Nominees Limited*
Rathbone Stockbrokers Limited*
Parthian Limited*
Crennaco Limited*
Riverbury Limited*
Dean River Asset Management Limited*
R.M. Walkden & Co. Limited*
Pension advisory services
Introducer of private clients
Financial planning services
Investment support services
Intermediate holding company
Corporate director services
Corporate secretarial services
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
England & Wales
England & Wales Unit trust management
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales Non-trading
England & Wales Non-trading
England & Wales Non-trading
England & Wales Non-trading
England & Wales Non-trading
England & Wales Non-trading
* Held by subsidiary undertaking
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiaries.
164
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
44
Investment in subsidiaries
Subordinated loans to group undertakings
The amounts subject to subordinated loan agreements are shown below.
Counterparty
Repayment date
Rathbone Pension & Advisory Services Limited
Not less than 2 years’ written notice or
Rathbone Investment Management
International Limited
subject to regulatory approval
Not less than 2 years’ written notice
but subject to approval by the Jersey
Financial Services Commission
2015
£’000
250
2014
£’000
250
1,500
1,750
1,500
1,750
The fair value of the subordinated loans is not materially different from 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 company has not had any defaults of principal, interest or other breaches with respect to its subordinated loans
during the year.
Rathbone Pension & Advisory Services has deferred the decision to repay the subordinated loan. This is now planned for
the first half of 2016, on satisfactory transfer of the continuing Rathbone Pension & Advisory Services business to a fellow
group company.
45 Investment in associates and related derivatives
On 31 December 2015, the company increased its shareholding in Vision Independent Financial Planning Limited (‘Vision’)
and Castle Investment Solutions Limited (‘Castle’) to 100% (see note 35) and the companies became subsidiaries as of that date.
The company previously owned 19.9% of the ordinary share capital of the two companies.
The movements in the company’s investment in associates up to 31 December 2015 are as follows:
At 1 January
Transfer to subsidiary (note 44)
At 31 December
2015
£’000
1,216
(1,216)
—
2014
£’000
1,216
—
1,216
As part of the transaction to acquire the remaining 80.1% of Vision and Castle, the option contracts to which the company
was previously party were extinguished (note 21). As such, the fair value of the option contracts was written down to £nil as of
30 September 2015, realising a loss of £1,030,000.
Rathbone Brothers Plc Report and accounts 2015
165
Notes to the company financial statementsCompany financial statements
46 Other investments
Available for sale securities
Equity securities — at fair value:
— listed
Money market funds — at fair value:
— unlisted
47 Trade and other receivables
Derivative financial instruments (note 45)
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
Allowance for losses on loan notes
At 1 January
Amounts written off
Credit to profit or loss
At 31 December
2015
£’000
1,070
10,000
11,070
2015
£’000
—
3,856
74,034
77,890
77,890
—
77,890
2015
£’000
—
—
—
—
2014
£’000
514
10,000
10,514
2014
£’000
1,030
3,715
53,400
58,145
58,145
—
58,145
2014
£’000
1,016
(451)
(565)
—
166
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
48 Deferred tax
Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 19.0%
(2014: 20.0%).
The Finance Bill 2015, which included provisions for the UK corporation tax rate to be reduced to 19.0% in April 2017 and
18.0% in April 2020, received royal assent in November 2015, and the reductions are therefore deemed to be substantively
enacted. Deferred tax balances have therefore been calculated based on these reduced rates as future timing differences are
forecast to unwind.
As at 1 January 2015
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
2,740
(544)
—
166
(378)
(1,321)
—
(188)
(1,509)
—
—
—
—
Share-based
payments
£’000
2,054
(343)
—
(72)
(415)
—
—
—
—
70
(4)
(15)
51
Staff-related
costs
£’000
Available for sale
securities
£’000
30
(42)
53
(4)
7
—
—
—
—
—
—
—
—
(6)
—
—
—
—
(11)
—
1
(10)
—
—
—
—
Total
£’000
4,818
(929)
53
90
(786)
(1,332)
—
(187)
(1,519)
70
(4)
(15)
51
As at 31 December 2015
853
1,690
37
(16)
2,564
Deferred tax assets
Deferred tax liabilities
As at 31 December 2015
Pensions
£’000
853
—
853
Share-based
payments
£’000
Staff-related
costs
£’000
Available for sale
securities
£’000
1,690
—
1,690
37
—
37
—
(16)
(16)
Total
£’000
2,580
(16)
2,564
Rathbone Brothers Plc Report and accounts 2015
167
Notes to the company financial statementsCompany financial statements
48 Deferred tax
As at 1 January 2014
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
(325)
(460)
—
32
(428)
3,754
—
(261)
3,493
—
—
—
—
Share-based
payments
£’000
1,731
65
—
(2)
63
—
—
—
—
260
—
—
260
As at 31 December 2014
2,740
2,054
Staff-related
costs
£’000
Available for sale
securities
£’000
(1,178)
—
—
—
—
1,260
—
(88)
1,172
—
—
—
—
85
(50)
4
3
(43)
—
—
—
—
(13)
—
1
(12)
30
Total
£’000
313
(445)
4
33
(408)
5,014
—
(349)
4,665
247
—
1
248
(6)
4,818
Deferred tax assets
Deferred tax liabilities
As at 31 December 2014
49 Trade and other payables
Accruals, deferred income and other creditors
Other taxes and social security costs
Pensions
£’000
2,740
—
2,740
Share-based
payments
£’000
Staff-related
costs
£’000
Available for sale
securities
£’000
2,054
—
2,054
30
—
30
—
(6)
(6)
Total
£’000
4,824
(6)
4,818
2015
£’000
45,443
5,834
51,277
2014
£’000
41,662
5,216
46,878
The fair value of trade and other payables is not materially different from their carrying amount.
168
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
50 Provisions for liabilities and charges
As at 1 January 2014
Charged to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2014
Charged to profit or loss
Business combinations
Other movements
Utilised/paid during the year
As at 31 December 2015
Payable within 1 year
Payable after 1 year
Deferred, variable
costs to acquire
client relationship
intangibles
£’000
Deferred and
contingent
consideration in
business
combinations
£’000
4,422
—
8,230
(4,692)
7,960
—
—
11,305
(10,264)
9,001
47
8,954
9,001
—
—
—
—
—
—
4,145
—
—
4,145
3,091
1,054
4,145
Property-
related
£’000
932
102
—
—
1,034
707
—
—
—
1,741
12
1,729
1,741
Total
£’000
5,354
102
8,230
(4,692)
8,994
707
4,145
11,305
(10,264)
14,887
3,150
11,737
14,887
Deferred, variable costs to acquire client relationship intangibles of £11,305,000 arose during the year, in relation to deferred
payments to investment managers and third parties linked to the value of client funds introduced (2014: £8,230,000).
Deferred and contingent consideration in business combinations of £4,145,000 (2014: £nil) is payable in instalments up to the
end of 2019 following the acquisition of Vision and Castle (see note 44). The payments are contingent on certain operational and
financial targets being met.
Property-related provisions consist of £1,741,000 in relation to dilapidation provisions expected to arise on leasehold premises
held by the company (2014: £1,034,000). Dilapidation provisions are calculated using a discounted cash flow model; during the
year, provisions have increased by £707,000 (2014: £102,000) due to the change in estimated timing of dilapidation costs for our
existing London office (see note 9) and the impact of discounting.
Provisions payable after one year are expected to be settled within four years of the balance sheet date (2014: two years), except
for the property-related provisions of £1,729,000 (2014: £1,023,000). These are expected to be settled within 21 years of the
balance sheet date (2014: 22 years), which corresponds to the longest lease for which a dilapidations provision is being held.
51 Employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 28 to the consolidated
financial statements.
52 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 29 and 30 to the consolidated financial statements. Details of options on the company’s shares and
share-based payments are set out in note 31 to the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2015
169
Notes to the company financial statementsCompany financial statements
53 Financial instruments
The company’s risk management policies and procedures are integrated with the wider Rathbones group’s risk management
process. The Rathbones 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 28 to the consolidated financial statements.
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’s financial assets are categorised as follows:
Trade and other receivables
Trade and other receivables relate to amounts placed with subsidiaries, loans provided to subsidiaries and derivative
financial instruments.
Derivative financial instruments relate to option contracts over shares in the company’s associates (note 45). These options
expose the company to credit risk from the potential for non-delivery by the associate companies’ founders, who are
private individuals.
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.
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 Limited (‘Fitch’) or Moody’s Corporation (‘Moody’s’).
Cash and cash equivalents (balances at banks)
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
170
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
53 Financial instruments (i) Credit risk
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.
No impairment losses arose during the year or in 2014.
Maximum exposure to credit risk
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— derivative financial instruments
— other financial assets
Balances at banks
2015
£’000
2014
£’000
10,000
10,000
75,784
—
1,013
5,972
92,769
55,150
1,030
1,001
5,732
72,913
The above table represents the gross credit risk exposure of the company at 31 December 2015 and 2014, without taking account
of any collateral held or other credit enhancements attached.
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 (2014: all within normal terms and conditions of lending).
Amounts owed by 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 47)
Net carrying value
2015
£’000
75,784
—
75,784
—
75,784
2014
£’000
57,181
—
57,181
—
57,181
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
2015
£’000
5,468
504
5,972
2014
£’000
5,732
—
5,732
Rathbone Brothers Plc Report and accounts 2015
171
Notes to the company financial statementsCompany financial statements
53 Financial instruments (i) Credit risk
Debt securities
The table below presents an analysis of debt securities by rating agency designation, as at 31 December 2015, based on Fitch or
Moody’s long term rating designation.
AAA
2015
2014
Money market funds
£’000
Total
£’000
Money market funds
£’000
Total
£’000
10,000
10,000
10,000
10,000
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 2015
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2014
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— derivative financial instruments
— other financial assets
Balances at banks
United Kingdom
£’000
Rest of the world
£’000
Total
£’000
10,000
75,674
611
5,972
92,257
—
10,000
110
385
—
495
75,784
996
5,972
92,752
Total
£’000
United Kingdom
£’000
Rest of the world
£’000
10,000
55,111
1,030
611
5,732
72,484
—
10,000
39
—
358
—
397
55,150
1,030
969
5,732
72,881
At 31 December 2015, all ‘rest of the world’ exposures were to counterparties based in Jersey and the United States of
America (2014: Jersey and the United States of America). At 31 December 2015, the company had no exposure to sovereign
debt (2014: none).
172
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
53 Financial instruments (i) Credit risk
(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 2015
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2014
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— derivative financial instruments
— other financial assets
Balances at banks
Financial
institutions
£’000
Clients and other
corporates
£’000
Total
£’000
—
10,000
10,000
54,741
4
5,972
70,717
21,043
992
—
22,035
Financial
institutions
£’000
Clients and other
corporates
£’000
75,784
996
5,972
92,752
Total
£’000
10,000
31,283
—
2
5,732
47,017
—
10,000
23,867
1,030
967
—
25,864
55,150
1,030
969
5,732
72,881
(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 (2014: £nil) and does not rely on external
funding for its activities.
Rathbone Brothers Plc Report and accounts 2015
173
Notes to the company financial statementsCompany financial statements
53 Financial instruments (ii) Liquidity risk
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.
At 31 December 2015
Cash flows arising from financial assets
Other investments:
— money market funds
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:
— other financial liabilities
Cash flows arising from financial liabilities
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
Total
£’000
10,004
74,034
5
5,251
89,294
—
261
386
—
647
—
34
336
491
861
—
1,545
286
230
2,061
—
—
—
—
—
10,004
75,874
1,013
5,972
92,863
217
217
25,927
25,927
6,499
6,499
23,819
23,819
1,164
1,164
57,626
57,626
Net liquidity gap
89,077
(25,280)
(5,638)
(21,758)
(1,164)
35,237
Cumulative net liquidity gap
89,077
63,797
58,159
36,401
35,237
At 31 December 2014
Cash flows arising from financial assets
Other investments:
— money market funds
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:
— other financial liabilities
Cash flows arising from financial liabilities
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
Total
£’000
10,002
53,398
5
5,026
68,431
—
13
397
—
410
—
40
341
424
805
—
1,803
251
282
2,336
—
—
6
—
6
10,002
55,254
1,000
5,732
71,988
202
202
21,792
21,792
4,212
4,212
22,853
22,853
2,070
2,070
51,129
51,129
Net liquidity gap
68,229
(21,382)
(3,407)
(20,517)
(2,064)
20,859
Cumulative net liquidity gap
68,229
46,847
43,440
22,923
20,859
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 £1,070,000 of equity investments (2014: £514,000) 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.
174
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
53 Financial instruments (ii) Liquidity risk
Off-balance sheet items
Cash flows arising from the company’s off-balance sheet financial liabilities arise solely from operating leases (note 55) 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 2015
At 31 December 2014
Total liquidity requirement
At 31 December 2015
Cash flows arising from
financial liabilities
Total off-balance sheet items
Total liquidity requirement
At 31 December 2014
Cash flows arising from
financial liabilities
Total off-balance sheet items
Total liquidity requirement
(iii) Market risk
Not more than
3 months
£’000
1,404
1,382
After 3 months
but not more
than 1 year
£’000
4,276
4,216
After 1 year
but not more
than 5 years
£’000
21,935
21,581
After 5 years
£’000
14,969
19,141
Total
£’000
42,584
46,320
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
Total
£’000
217
—
217
25,927
1,404
27,331
6,499
4,276
10,775
23,819
21,935
45,754
1,164
14,969
16,133
57,626
42,584
100,210
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
Total
£’000
202
—
202
21,792
1,382
23,174
4,212
4,216
8,428
22,853
21,581
44,434
2,070
19,141
21,211
51,129
46,320
97,449
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.
Rathbone Brothers Plc Report and accounts 2015
175
Notes to the company financial statementsCompany financial statements
53 Financial instruments (iii) Market risk
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 2015
Assets
Other investments:
— equity securities
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
— other financial liabilities
Total financial liabilities
Interest rate repricing gap
At 31 December 2014
Assets
Other investments:
— equity securities
— money market funds
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:
— other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more than
3 months
£’000
Non-interest-
bearing
£’000
Total
£’000
—
10,000
1,750
—
5,966
17,716
—
—
17,716
Not more than
3 months
£’000
—
10,000
1,750
—
—
5,727
17,477
—
—
17,477
1,070
—
74,034
996
6
76,106
49,426
49,426
26,680
Non-interest-
bearing
£’000
514
—
53,400
1,030
969
5
55,918
39,705
39,705
16,213
1,070
10,000
75,784
996
5,972
93,822
49,426
49,426
44,396
Total
£’000
514
10,000
55,150
1,030
969
5,732
73,395
39,705
39,705
33,690
A 1% parallel increase/decrease in the sterling yield curve would result in an increase/decrease in profit after tax and equity of
£36,000 (2014: £36,000).
176
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
53 Financial instruments (iii) Market risk
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 translation risk at 31 December 2015. Included in the table are the company’s financial
assets and liabilities, at carrying amounts, categorised by currency.
At 31 December 2015
Assets
Other investments:
— equity securities
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
— other financial liabilities
Total financial liabilities
Net on-balance sheet position
At 31 December 2014
Assets
Other investments:
— equity securities
— money market funds
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:
— other financial liabilities
Total financial liabilities
Net on-balance sheet position
Sterling
£’000
US dollar
£’000
Total
£’000
1,070
10,000
75,784
788
5,972
93,614
49,426
49,426
44,188
Sterling
£’000
514
10,000
55,150
1,030
788
5,732
73,214
39,694
39,694
33,520
—
—
—
208
—
208
—
—
208
US dollar
£’000
—
—
—
—
181
—
181
11
11
170
1,070
10,000
75,784
996
5,972
93,822
49,426
49,426
44,396
Total
£’000
514
10,000
55,150
1,030
969
5,732
73,395
39,705
39,705
33,690
A 10% weakening of the US dollar against sterling, occurring on 31 December 2015, would have reduced equity and profit
after tax by £17,000 (2014: £13,000). A 10% strengthening of the US dollar would have had an equal and opposite effect.
This analysis assumes that all other variables, in particular other exchange rates, remain constant.
Price risk
The group’s exposure to price risk, all of which is through the company’s holdings of equity investment securities,
is described in note 32.
Rathbone Brothers Plc Report and accounts 2015
177
Notes to the company financial statementsCompany financial statements
53 Financial instruments (iii) Market risk
Fair values
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 2015
Assets
Available for sale securities:
— equity securities
— money market funds
At 31 December 2014
Assets
Available for sale securities:
— equity securities
— money market funds
Derivative financial instruments
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
1,070
—
1,070
Level 1
£’000
514
—
—
514
—
10,000
10,000
Level 2
£’000
—
10,000
—
10,000
—
—
—
Level 3
£’000
—
—
1,030
1,030
1,070
10,000
11,070
Total
£’000
514
10,000
1,030
11,544
The company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which
the change has occurred. There have been no transfers between levels during the year (2014: 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 32 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 unrealised gains and losses recognised in:
— profit or loss
— other comprehensive income
Disposals
At 31 December
Available for
sale equity
securities
£’000
—
—
—
—
—
2015
Derivative
financial
instruments
£’000
1,030
(1,030)
—
—
Available for
sale equity
securities
£’000
691
—
245
(936)
2014
Derivative
financial
instruments
£’000
1,030
—
—
—
Total
£’000
1,030
(1,030)
—
—
Total
£’000
1,721
—
245
(936)
—
—
—
1,030
1,030
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 44).
178
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
54 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 2015, together with movements during the year then
ended, is set out in the company statement of changes in equity.
There were no changes in the company’s approach to capital management during the year.
55 Contingent liabilities and commitments
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 2015 were £24,733,000, provides for an upward only rent review 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
2015
£’000
5,680
21,935
14,969
42,584
2014
£’000
5,598
21,581
19,141
46,320
On 7 January 2016, the group exchanged contracts for a 17 year lease at 8 Finsbury Circus, under which total payments over the
lease term from the date of exchange are £75,342,000. The lease provides for rent reviews every five years.
56 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
2015
£’000
1,981
43
67
1,098
3,189
2014
£’000
1,642
17
15
372
2,046
Dividends totalling £108,000 were paid in the year (2014: £93,000) 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.
Rathbone Brothers Plc Report and accounts 2015
179
Notes to the company financial statementsCompany financial statements
56 Related party transactions
(ii)
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Interest
Charges for management services
Dividends received
2015
Receivable
£’000
53
125,453
44,000
169,506
Payable
£’000
—
—
—
—
2014
Receivable
£’000
53
111,157
43,899
155,109
Payable
£’000
—
103
—
103
The company’s balances with fellow group companies at 31 December 2015 are set out in notes 44, 47 and 49.
The company’s transactions with the pension funds are described in note 51. At 31 December 2015, no amounts were due
from the pension schemes (2014: £nil).
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.
57 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
2015
£’000
5,244
2014
£’000
5,026
58 Events after the balance sheet date
On 7 January 2016, the group exchanged contracts for a 17 year lease on 75,000 sq ft of office space at 8 Finsbury Circus
(see note 34). It is expected that the business will move from its current premises at 1 Curzon Street in the first quarter of 2017.
This has led to the company reviewing its estimate of the provision for dilapidations at 1 Curzon Street (see note 9).
180
Rathbone Brothers Plc Report and accounts 2015
Notes to the company financial statementsCompany financial statements
Further information
Five year record
Corporate information
182
183
184 Our offices
Rathbone Brothers Plc Report and accounts 2015
Rathbone Brothers Plc Report and accounts 2015
181
181
Five year record
Underlying operating income
Underlying profit before tax
Profit before tax
Profit after tax
Equity dividends paid and proposed
Basic earnings per share
Diluted earnings per share
Dividends per ordinary share
Equity shareholders’ funds
2014
£’000
(restated — note 1.3)
2015
£’000
229,178
70,365
58,632
46,371
26,305
97.4p
96.6p
55.0p
300,192
200,803
61,556
45,710
35,678
24,863
76.0p
75.4p
52.0p
271,271
2013
£’000
176,409
50,510
44,204
34,751
22,645
76.1p
75.6p
49.0p
251,000
2012
£’000
155,581
44,829
38,504
28,983
21,220
66.5p
65.9p
47.0p
229,493
2011
£’000
144,452
46,219
39,152
28,706
20,001
66.7p
65.9p
46.0p
190,653
Total funds under management
£29.2bn
£27.2bn
£22.0bn
£18.0bn
£15.9bn
182
Rathbone Brothers Plc Report and accounts 2015
Further information
Corporate information
Investment Management
Unit Trusts
Principal trading names
Rathbone Investment Management
Rathbone Investment Management International
Rathbone Greenbank Investments
Rathbone Pension & Advisory Services
Rathbone Trust Company
Vision Independent Financial Planning
Castle Investment Solutions
Rathbone Unit Trust Management
27
1
www.rathbones.com
www.rutm.com
Direct employees
Offices
Websites
705
16
www.rathbones.com
www.rathboneimi.com
www.rathbonegreenbank.com
Company secretary and registered office
R E Loader FCA
Rathbone Brothers Plc
1 Curzon Street
London
W1J 5FB
Company No. 01000403
www.rathbones.com
richard.loader@rathbones.com
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
Rathbone Brothers Plc Report and accounts 2015
183
Further information
Our offices
Head office
Investment Management
1 Curzon Street
London
W1J 5FB
+44 (0)20 7399 0000
1 Curzon Street
London
W1J 5FB
+44 (0)20 7399 0000
1 Albert Street
Aberdeen
AB25 1XX
+44 (0)1224 218 180
Temple Point
1 Temple Row
Birmingham
B2 5LG
+44 (0)121 233 2626
10 Queen Square
Bristol
BS1 4NT
+44 (0)117 929 1919
North Wing, City House
126—130 Hills Road
Cambridge
CB2 1RE
+44 (0)1223 229 229
1 Northgate
Chichester
West Sussex
PO19 1AT
+44 (0)1243 775 373
28 St Andrew Square
Edinburgh
EH2 1AF
+44 (0)131 550 1350
The Senate
Southernhay Gardens
Exeter
EX1 1UG
+44 (0)1392 201 000
Vision House
Unit 6A
Falmouth Business Park
Bickland Water Road
Falmouth
Cornwall
TR11 4SZ
+44 (0)1326 210904
The Athenaeum
8 Nelson Mandela Place
Glasgow
G2 1BT
+44 (0)141 397 9900
Unit Trusts
1 Curzon Street
London
W1J 5FB
+44 (0)20 7399 0000
26 Esplanade
St Helier
Jersey
JE1 2RB
Channel Islands
+44 (0)1534 740 500
The Stables
Levens Hall
Kendal
Cumbria
LA8 0PB
+44 (0)1539 561 457
Port of Liverpool Building
Pier Head
Liverpool
L3 1NW
+44 (0)151 236 6666
48 High Street
Lymington
SO41 9AG
+44 (0)1590 647 657
Earl Grey House
75—85 Grey Street
Newcastle upon Tyne
NE1 6EF
+44 (0)191 255 1440
Fiennes House
32 Southgate Street
Winchester
SO23 9EH
+44 (0)1962 857 000
184
Rathbone Brothers Plc Report and accounts 2015
Further information
Rathbone Brothers Plc, through its
subsidiaries, 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 2015, Rathbones
managed £29.2 billion of client funds,
of which £26.1 billion were managed
by Rathbone Investment Management.
It is important to us that
all materials used in the
production of this document
are environmentally sustainable.
The paper is FSC certified
and contains 75% recycled
fibre and 25% virgin fibre
from sustainable sources.
Once you have finished with
this report please recycle it.
Introduction
1
2
4
Highlights of the year
Chairman’s statement
Chief executive’s statement
Strategic report
Our market
8
10 Our business model
11 Our approach
16 Strategy and key performance indicators
20 Risk management
Our performance
28 Group performance
31 Segmental review
40 Financial position
43 Liquidity and cash flow
44 Corporate responsibility report
Governance
58 Directors
61 Directors’ report
63 Corporate governance report
67 Executive committee report
69 Group risk committee report
70 Remuneration committee report
85 Audit committee report
88 Nomination committee report
89 Approval of strategic report
90 Statement of directors’ responsibilities
in respect of the report and accounts
Consolidated financial statements
92
Independent auditor’s report to the members
of Rathbone Brothers Plc
96 Consolidated statement of comprehensive income
97 Consolidated statement of changes in equity
98 Consolidated balance sheet
99 Consolidated statement of cash flows
100 Notes to the consolidated financial statements
Company financial statements
160 Company statement of changes in equity
161 Company balance sheet
162 Company statement of cash flows
163 Notes to the company financial statements
Further information
182 Five year record
183 Corporate information
184 Our offices
Strategic report as defined by chapter 4A of Companies Act 2006
D
Rathbone Brothers Plc Report and accounts 2015
Designed and produced by Linnett Webb Jenkins
Rathbone Brothers Plc
Report and accounts 2015
R
a
t
h
b
o
n
e
B
r
o
t
h
e
r
s
P
l
c
R
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
1
5
Rathbone Brothers Plc
1 Curzon Street, London W1J 5FB
+44 (0)20 7399 0000
rathbones.com
C
Rathbone Brothers Plc Report and accounts 2015