Rathbone Brothers Plc
Report and accounts 2016
Building for the future
Contents
Strategic report
1
2
4
6
8
11
12
13
18
26
27
31
37
41
42
Highlights of the year
Our business at a glance
Our business model
Chairman’s statement
Chief executive’s review
Our market and opportunity
Our strategy
Strategy and key performance indicators
Risk management
Our performance
Group performance
Segmental review
Financial position
Liquidity and cash flow
Corporate responsibility report
Corporate governance report
Governance at a glance
Board summary
Directors
Remuneration committee report
Governance
53
54
55
58
60
80 Group risk committee report
Audit committee report
82
86 Nomination committee report
88
90 Directors’ report
94
Executive committee report
Statement of directors’ responsibilities in
respect of the report and accounts
Financial statements
96
Independent auditor’s report to the members
of Rathbone Brothers Plc
100 Consolidated financial statements
Notes to the consolidated financial
104
statements
157 Company financial statements
160 Notes to the company financial statements
Further information
176 Five year record
176 Corporate information
177 Our offices
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. Our services include
discretionary investment
management, unit trusts, banking
and loan services, financial planning,
unitised portfolio services and UK
trust, legal, estate and tax advice.
As at 31 December 2016, Rathbone
Brothers Plc managed £34.2 billion
of client funds, of which £30.2 billion
were managed by our Investment
Management segment.
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.
Pages 1 to 51 constitute the strategic report, which was
approved by the board and signed on its behalf by:
Philip Howell
Chief Executive
22 February 2017
Paul Stockton
Finance Director
Highlights of the year
Financial highlights
Funds under management (£bn)
£34.2bn
34.2
27.2
29.2
22.0
18.0
12
13
14
15
16
Profit before tax (£m)
£50.1m
Underlying1 profit before tax (£m)
£74.9m
5
8
.
6
5
0
.
1
4
4
.
2
4
5
.
7
3
8
.
5
7
4
.
9
7
0
.
4
6
1
.
6
5
0
.
5
4
4
.
8
12
13
14
15
16
12
13
14
15
16
Basic earnings per share (p)
78.9p
Underlying1 earnings per share (p)
122.1p
9
7
.
4
7
8
.
9
7
6
.
1
7
6
.
0
6
6
.
5
1
2
2
.
1
1
1
7
.
0
1
0
2
.
4
8
6
.
7
7
7
.
4
12
13
14
15
16
12
13
14
15
16
Underlying operating
margin2
29.8%
Dividends paid and proposed
per share
57.0p
2016
29.8%
2015
30.7%
2016
57.0p
2015
55.0p
Operational highlights
— Announced the intention to
move our London head office from
1 Curzon Street to 8 Finsbury
Circus, which was completed in
February 2017
— Advanced development of the
Rathbone Private Office through an
external asset manager agreement
with Credit Suisse to offer a range
of specialist private banking
products and services to clients
— Raised £36.9 million net of
placement costs via a share placing
with institutional investors to fund
the expected near-term higher
capital requirement associated with
our planned closure of the defined
benefit pension schemes and to
provide a measure of additional
financial flexibility
— Funds under management in
Rathbone Unit Trust Management
passed £4.0 billion
— Awarded Institutional Private Client
Asset Manager of the Year by
Citywealth and Investment Week’s
Gold Standard Award for
Discretionary Portfolio
Management in addition to
receiving both the Citywealth and
Charity Times awards for Charity
Investment Manager of the Year
1. Profit before tax and earnings per share include the impact of additional costs relating to the acquisition of the Vision businesses in 2015 and the planned London
head office move to 8 Finsbury Circus and charges in relation to client relationships and goodwill; underlying results exclude these items. A full reconciliation between
the underlying results and the statutory presentation is given on page 28
2. Underlying profit before tax as a percentage of underlying operating income
1
Rathbone Brothers Plc Report and accounts 2016 Strategic report Our business at a glance
Rathbones today
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. Our
services include discretionary investment management, unit trusts, banking and loan services,
financial planning, unitised portfolio services and UK trust, legal, estate and tax advice.
We employ over 1,100 staff including 287 investment
professionals in 16 locations across the UK and Jersey
Total funds under
management increased
by 17.1% to £34.2 billion
during 2016
Group underlying
operating income
increased by 9.6% to
£251.3m during 2016
Investment Management
Unit Trusts
£30.2bn
£4.0bn
Investment Management
Unit Trusts
£226.3m
£25.0m
Total
funds under
management
£34.2 bn
Group
underlying
operating
income
£251.3m
We are a FTSE 250 company listed on
the London Stock Exchange
2
Rathbone Brothers Plc Report and accounts 2016 Our services
Investment Management
Complementary services
Through Rathbone Investment Management, we provide
personal discretionary investment management solutions
to private clients with investible assets of £100,000 upwards.
We also manage £4.1 billion for charities and Rathbone
Greenbank Investments manages £863 million in ethical and
socially responsible investment portfolios. We have also recently
established the Rathbone Private Office, which will provide a
range of independent investment and financing solutions to
super high net worth clients. Our offshore discretionary
investment services are provided by Rathbone Investment
Management International.
Investment Management funds
under management have
increased by 104.6% to £30.2bn
over the past five years
48,000 clients in our Investment
Management business
Client account type by value
Rathbone Investment Management also provides:
Banking and loan services
As a licensed deposit taker, we are able to offer our clients loans
directly secured against their investment portfolios.
Financial planning
We offer in-house financial planning, which provides ‘whole of
market’ advice to clients.
Unitised Portfolio Service
Using the Rathbone Multi Asset Portfolios funds, we offer clients
with fewer investible assets (£25,000 or more) model-based
discretionary investment management services.
We also operate the following additional entities:
Rathbone Trust Company
Rathbone Trust Company provides UK trust and some legal,
estate and tax advice to clients.
Vision Independent Financial Planning
An independent IFA network providing financial advisory
solutions to UK private clients.
Private clients
ISAs
Charities
Trusts
Pensions
Other
Size of client relationship by value
<£250,000
£250,000–£500,000
£500,000–£750,000
£750,000–£1.5m
£1.5m–£5m
£5m–£10m
>£10m
38.1%
15.7%
13.3%
11.8%
11.7%
9.4%
8.2%
12.6%
9.8%
17.7%
23.2%
9.3%
19.2%
Unit Trusts
Rathbone Unit Trust Management 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.
Multi asset funds provide an 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.
Unit Trusts funds under
management have increased
by 267.0% to £4.0bn over the
past five years
3
Rathbone Brothers Plc Report and accounts 2016 Strategic report Our business model
The Rathbones difference
Through a personalised approach to investment management, we offer investors a compelling and
attractive way to build value.
What we do
What makes us different
Our vision is to be the UK’s leading independently-owned
provider of investment and wealth management services to
private clients, charities and trustees.
We have two main areas of operation as well as several
complementary services:
— Rathbone Investment Management, which offers personal
discretionary investment management solutions
— Rathbone Unit Trust Management, which provides unit trust
and multi asset fund products
— Complementary services including:
— banking and loan services
— in-house financial planning advice
— a unitised portfolio service
— UK trust, legal, estate and tax advice
— Vision Independent Financial Planning
Scale and
expertise
— 287 trained investment professionals
— £34.2 billion funds under management
— A broad range of investment solutions
Brand and
reputation
— Established brand
— Local presence and consistent delivery
— Reliable systems and infrastructure
— Accredited performance reporting
Independent
ownership
— Listed on the London Stock Exchange
with a market capitalisation of approximately
£1 billion at 31 December 2016
— High standards of corporate governance
4
Rathbone Brothers Plc Report and accounts 2016 How we do it
Value creation for the long term
Individual relationships with clients
— Our service is delivered directly through investment
managers leading to long and trusted relationships
For investors
— A track record of consistent net organic growth
— Successful acquisition capability for people and firms
— Clients have the ability to join Rathbones either directly
that fit our culture
or through their own financial intermediary
— An underlying operating margin of around 30%
— We can access investments across the whole market,
over each economic cycle
with no bias towards in-house funds
— Investment in targeted growth initiatives that broaden
— Our online capabilities complement our service
our distribution
An informed investment process
— We have a bespoke approach to portfolio construction
supported by an influential central research team
— Our firm-wide processes allow us to pool intellectual capital
and provide strategic asset allocation methodologies
— Our internal quality assurance and performance
measurement capabilities provide a control framework
Diverse distribution
— Direct client referrals remain the most important source of
organic growth
— Our specialist investment teams provide services to charities
and ethical investors
— We have a dedicated sales team for discretionary and unit
trust services to UK financial intermediaries
— Our Vision business operates independently, but retains a
relationship with Rathbone Investment Management
High-quality operations
— We have dedicated in-house custody and settlement
— Our operations team is highly experienced
— We form reliable outsourced relationships,
where cost-effective
— Stable dividend growth
Underlying operating margin between
28.6% and 30.7% over the past five years
For clients
— Balanced management of portfolios through
changing market conditions
— A valued and quality service that builds trust
Funds under management increased 115.8%
over the past five years
For employees
— Accountability for investment decisions
— Value-based remuneration
— Investment in training and development
— 14.7% staff shareholding
— Graduate development programme
Staff turnover between 4.0% and 6.0%
over the past five years
5
Rathbone Brothers Plc Report and accounts 2016 Strategic report Chairman’s statement
Overview of 2016
After a nervous start to 2016, the FTSE 100 performed
increasingly strongly as the year progressed, largely reflecting
the impact of a sharp fall in sterling after the EU referendum
vote. This vote, and the Trump victory in the US, are perhaps
examples of “events” that Harold Macmillan was alleged to have
been fearful of. Nevertheless, the recovery in the second half had
a favourable impact on our financial performance, helping our
total funds under management to grow by 17.1% to £34.2 billion.
For investors though, the full ramifications of these events, and
the possibility of further political change to come, have still to
play out.
In February 2017, we moved our London office from Curzon
Street to Finsbury Circus. This move will not only manage our
property expenditure going forward, but will also enable our
growing headcount in London to remain under one roof.
Profit before tax for 2016 reflects the full impact of acquisition
and head office relocation costs of £13.0 million, so at
£50.1 million represents a fall of 14.5% on the £58.6 million
earned in 2015. Accordingly, earnings per share of 78.9p fell
19.0%, also reflecting the impact of the placing in the last quarter
of the year.
Underlying profit before tax was £74.9 million for the year
ended 31 December 2016, up 6.4% from the previous year
and representing a profit margin of 29.8% (2015: 30.7%).
This translates into underlying earnings per share of 122.1p
for 2016, up 4.4% on the 117.0p last year.
The board is recommending a final dividend of 36p per share,
which brings the total dividend for the year to 57p per share,
an increase of 3.6% over last year.
In October 2016, the board concluded that we could not
continue to tolerate the risks of the open-ended pension fund
obligations of our legacy defined benefit pension schemes.
6
We therefore decided to initiate a member consultation to close
the schemes to future accrual. Since closure generates a short
term increase in our regulatory capital requirements, we
undertook a share placing raising £36.9 million, net of placement
costs. These funds are retained on our balance sheet.
Our strategy
In 2014, the board approved an ambitious medium term
strategic plan, which did not change or dilute our core
discretionary investment management model, but sought
to add strategic growth initiatives. One such initiative was the
establishment of the Rathbone Private Office serving clients at
the higher end of the wealth spectrum. A second was the
enhancement of our distribution capability to position ourselves
more favourably with the professional intermediary market,
whilst a third, more recent, initiative has been to expand our
financial planning service. The aim of all of these initiatives is to
meet the demands of both existing and prospective clients for a
more comprehensive range of services complementary to pure
investment management.
The board remains well aware that delivery of these initiatives
imposes demands on our people and impacts upon our
profitability and financial resources. These pressures are kept
under continuous review to ensure that we do not undermine
our profitability or increase risk unnecessarily.
Culture, governance and the board
One of my priorities this year has been to ensure board oversight
of the firm’s culture and its development. As a first stage, the
board worked with the executive committee to establish a
balanced assessment of our current culture. This assessment
was then debated with the executive committee at our strategy
day. The culture of the firm is healthy in most respects,
particularly in terms of our professionalism, putting clients first
and integrity. It was also recognised that even though the right
tone must be set at the top, there is a need to continue to
cascade this throughout the organisation through a
combination of strong leadership, inspiring role models
and effective supervision.
The board has formed initial views on what our target culture
should be and the nature of the management information we
need to monitor our cultural development. Metrics and other
information will be collated and reviewed by the conduct risk
committee in the first instance and a report will be presented to
the board quarterly. This will provide useful background, but will
be supplemented by the direct personal experiences of directors
(both executive and non-executive) as they engage with the
business. Particularly in times of change, I believe that it is very
important that all directors are close enough to the pulse of a
business to ensure the best aspects of a culture are promoted.
Rathbone Brothers Plc Report and accounts 2016 Remuneration
The report from the chairman of the remuneration committee,
David Harrel, is set out on page 60. All executive directors have
clear objectives, both corporate and personal. At the beginning
of 2017, a new remuneration scheme was introduced for
investment managers throughout the firm. The scheme
contains a larger performance element to encourage initiative-
taking and organic growth, balanced by a more direct link to
performance against risk and compliance standards.
Employees
The high quality of our employees is a major differentiator for us
and they are the most valuable asset of our firm. They are always
a pleasure to work with at all levels and I take great pride in the
unsolicited, positive feedback I receive from clients about their
dealings with the firm.
Shareholders
We are fortunate to have a number of positively engaged
institutional shareholders with a significant investment in
the company. Both my executive colleagues and I welcome
opportunities to talk to shareholders and we will continue to
maintain a regular and constructive dialogue with them.
Outlook
In spite of continuing political and economic uncertainties, we
will pursue our planned strategic growth initiatives and continue
to take advantage of growth opportunities in the sector.
Mark Nicholls
Chairman
22 February 2017
During the year, in addition to regulatory matters, the board
paid particular attention to the progress of our strategic growth
initiatives referred to above, the bedding-in of management
structures put in place last year, the volatility associated with our
defined benefit pension schemes and the financial implications
of our London office move. The last of these included the
adverse impact of the Brexit vote on the availability of
prospective tenants for our existing space in Curzon Street.
We have also discussed how we operate as a board and the
interaction between executive and non-executive directors as
well as considering both management and non-executive
succession plans, which remain a work in progress.
In November, we announced that Paul Chavasse was stepping
down as an executive director. The responsibilities of Paul’s role
as head of investment have been split among the executive
team. The board would like to thank Paul for his very significant
contribution to Rathbones over the 15 years he has been with
the firm. As the former chief operating officer and head of
investment, Paul has played a very important part in helping to
steer the company through a period of growth and success and
we wish him well for the future.
David Harrel, senior independent director and chairman of our
remuneration committee, is standing down at this year’s AGM
having served nine years. The board has benefited hugely from
David’s wisdom and sense of humour. I am particularly grateful
for his advice when reshaping the board appropriately for the
challenges of a changing industry.
We also had a helpful and positive board effectiveness review
carried out this year. Details of this can be found in the corporate
governance report set out on page 57.
Risks
The report from the chairman of the group risk committee,
Kathryn Matthews, is set out on page 80. We continue to
enhance our risk management framework. Particular attention is
being given to identifying and monitoring emerging risks such
as cyber crime, money laundering and data theft. We remain
vigilant to risks associated with our defined benefit pension
schemes and subletting our existing space in Curzon Street.
Beyond this, we believe that other significant risks to our
business are operational risks that arise from growth and
regulatory risks that may arise from continual changes to rules
and standards in our sector. Maintaining our regulatory
standards has always been a high priority for our senior
management and is highlighted in the personal objectives of the
executive directors.
7
Rathbone Brothers Plc Report and accounts 2016 Strategic report Chief executive’s review
“ In an eventful year,
we maintained our
growth momentum
with total funds
under management
growing to
£34.2 billion at
31 December 2016,
up 17.1% from
£29.2 billion at
the end of 2015.”
8
Growth in an unpredictable market
Brexit and the US presidential election were key events in 2016, both producing
considerable market trepidation in the run-up and some surprise at the outcomes.
In spite of this, the markets shrugged off the longer term economic and trade uncertainties
with the FTSE 100 Index rising 14.4% over the year. Back in February, with the FTSE 100
Index having fallen to 5537 on pre-Brexit fears, few would have anticipated it would end
the year at 7143.
During that uncertain climate, private investors were inevitably cautious in switching
investment manager or in committing new funds; a good indicator of this being the cash
element within client portfolios rising to cyclical highs of near 7.0% compared to a more
normal 5.0%.
In such an eventful year, we maintained our growth momentum with total funds under
management growing to £34.2 billion at 31 December 2016, up 17.1% from £29.2 billion at
the end of 2015.
Financial performance
Our 2016 financial performance was strong, benefiting in particular from a favourable
second half. Total funds under management in our Investment Management business at
31 December 2016 were £30.2 billion, up 15.7% from £26.1 billion in 2015, whilst our Unit
Trusts business also reached a new high of £4.0 billion, up 29.0% in the year.
Fee income of £184.8 million increased 14.5% year-on-year (2015: £161.4 million), reflecting
both the rising markets and our continued growth. Fee and advisory income improved to
79.9% of underlying operating income, up from 76.5% a year ago as more clients adopt our
fee only tariff. Whilst trading volumes were lacklustre in the first half of the year,
commission income recovered in the second half, ending the year at £38.9 million
(2015: £43.1 million). Net interest income of £11.6 million increased by 7.4% as deposit
balances increased over the course of the year.
Our underlying operating expenses increased to £176.4 million reflecting both the growth
in the business and the £6.0 million costs of planned strategic initiatives. Fixed staff costs
of £79.8 million increased 8.6% reflecting both inflation and an 8.7% growth in average
headcount to 1,066 (2015: 981), partially offset by a £0.7 million reduction in pension costs.
Headcount now includes all 27 full time equivalent employees of Vision following the
acquisition on 31 December 2015. Variable staff costs of £45.0 million increased 13.4% in
line with continued growth and increased profitability and represented 37.5% of
underlying profit before tax and variable staff costs (2015: 36.1%).
Underlying profit before tax for the year increased to £74.9 million, up 6.4% from
£70.4 million in 2015, having absorbed £6.0 million of strategic expenditure we planned for
and announced at the start of 2016. Managing the balance between investment in the
future and ongoing profitability is a key management discipline, evidenced this year by an
underlying operating margin of 29.8% (2015: 30.7%), well within the parameters we set at
the beginning of the year.
Profit before tax decreased 14.5% to £50.1 million (2015: £58.6 million) reflecting the full
impact of the acquisition and head office relocation costs detailed in notes 8 and 9 to the
financial statements.
Our balance sheet remains strong with a consolidated Common Equity Tier 1 ratio at
31 December 2016 (including audited profits for the year) at 17.7% compared with 15.4% at
31 December 2015. Our consolidated leverage ratio (including audited profits for the year)
at 31 December 2016 was 6.6% compared with 7.7% at 31 December 2015.
Rathbone Brothers Plc Report and accounts 2016 Pension schemes and share placing
During the first nine months of 2016, we witnessed a fall in the
yield on long term corporate bonds to historic lows. These yields
are a key metric in determining the discount rate applied in
valuing the future pension fund obligations of our two legacy
defined benefit schemes covering approximately 200 current
employees. As with many other companies, this had a material
impact on the value of retirement benefit obligations, causing
the pension deficit to reach £58.3 million by 30 September 2016,
a substantial increase on the previously manageable level at
31 December 2015 of £4.5 million.
In the face of such unprecedented market conditions,
and the prospect of unaffordable rises in future service cost,
we concluded we should consult with members to cap
pensionable salaries and close the schemes to future accrual.
Following a constructive dialogue with trustees and employees,
we now expect to implement these measures with effect from
1 July 2017.
In October 2016, we estimated that these measures would
generate an increase of up to £20 million in our regulatory
capital requirement. We therefore undertook a 4.6% share
placing, raising £36.9 million net of placement costs to enable
us to pursue the proposed measures. Current estimates
continue to support this rationale.
It is important to note that these funds continue to be retained
on our balance sheet and could be available for more accretive
corporate initiatives should the financial position of the pension
schemes normalise for a sustained period. At 31 December 2016,
the pension deficit reduced to £39.5 million.
Building for the future
In 2014, we embarked on a comprehensive five year strategic
plan. From a starting point at 1 January 2014 of £22.0 billion of
funds under management, our projections demonstrated that
the strategy, inclusive of acquisitions and moderate market
growth, could achieve £40.0 billion by 31 December 2018 and
included an ambition to achieve a sustained net organic growth
rate of 5.0% per annum derived from:
— improved organisation and management discipline
driving organic growth
— development of the core investment process and
research capability
— investment in core IT infrastructure and
operational efficiency
— new strategic growth initiatives.
In spite of some notable events and periods of considerable
market volatility in the three years of this strategic plan, we have
only seen moderate market movements. Overall therefore, we
have made reasonable progress so far with growth evident from
a number of sources.
In the context of a year of continuing political and economic
uncertainty, the annualised net organic growth rate for our core
Investment Management segment of 2.9% (2015: 3.0%) was
satisfactory, albeit short of our strategic objective of 5.0%. We
continue to resource investment teams as they seek to grow
and reduce administration. We have also refreshed our incentive
schemes as part of a package of measures aimed at stimulating
organic growth through the remaining two years of the plan
period. This effort will be enhanced by the insights now available
from our new management information system. We have also
continued to invest in developing our in-house financial
planning capability to support our existing clients and,
importantly, to further strengthen our appeal to prospective
clients. We anticipate run rate costs will increase by
approximately £2 million as we widen financial planning
coverage across the firm and add support costs.
We challenged our charities business to double its funds under
management from a starting point of £2.7 billion during the plan
period. It was therefore pleasing to see continued momentum as
the business reached £4.1 billion (2015: £3.5 billion), in addition to
being awarded Charity Investment Manager of the Year for the
fourth year running by Citywealth. In tandem, our ethical
investment business Rathbone Greenbank continues to make
good progress, now managing £863 million (2015: £760 million).
Our distribution strategy, focused on promoting our
discretionary investment management services to professional
intermediaries, principally national and regional IFA networks,
also continues to make good progress. We now have 12 strategic
relationships with networks and national advisory firms across
the UK. Our distribution team is spending considerable time
and effort in promoting our differentiated service to these
partnerships and we expect to see meaningful flows of around
£200 million over 2017 through this channel. To augment our
full discretionary service for intermediaries, we will be launching
a new Managed Portfolio Service for lower value clients of
intermediary partnerships, which will be an execution only
service based on our Rathbone Multi Asset Portfolio funds.
Our strategic partnership with Vision forms an integral
part of our distribution strategy. After a deliberate period of
consolidation in the first half of the year, the business resumed
its high growth rate in the second half, ending the year with 99
appointed representatives (2015: 81) and funds under advice up
21.2% to £1.03 billion at 31 December 2016 (2015: £0.85 billion).
During 2016, we made progress in establishing the Rathbone
Private Office, intending to provide an advisory service to clients
with over £10 million of investable assets. The nucleus team is
now in place and the infrastructure fully operational. This
includes our strategic partnership with Credit Suisse, which
provides us with a full international private banking capability.
9
Rathbone Brothers Plc Report and accounts 2016 Strategic report Chief executive’s review continued
Whilst run rate costs are expected to increase by approximately
£1 million in 2017, we anticipate proving the concept with our
first clients joining us by mid-2017, targeting around £200 million
of funds under advice by the end of the year.
Reinforcing the quality of our discretionary investment
management service is crucial to the success of all these growth
initiatives. During the year, we continued to invest in our
in-house research capability by hiring additional analysts who
are supported by continuing input from our investment
managers and unit trust fund managers. We have also continued
to improve our investment risk management framework and
frontline technology, including a new research hub facilitating
the dissemination of research output to an expanding
community of investment managers and sharing of investment
ideas. We were grateful to receive recognition of our efforts in
being awarded Investment Week’s Gold Standard Award for
Discretionary Portfolio Management for the third year in a row.
In contrast to the trend of net redemptions experienced across
the industry, our Unit Trusts business continues to demonstrate
strong growth with total net inflows of £554 million
(2015: £371 million). The business continues to exhibit strong
operating leverage, with profit margin increasing to 34.8% in the
year (2015: 32.7%). Fund performance remains strong and the
business continues to play an integral role in our overall
investment strategy.
Alongside these strategic initiatives, we continue to be alert to
bolt-on acquisition opportunities and selective team hires.
Inorganic growth from new joiners has been higher than we
originally anticipated in our strategic plan with acquired funds in
2016 of £437 million (2015: £675 million). We were particularly
pleased to end the year with our newest offices showing
excellent growth, with Newcastle growing 26.6% to £361 million
and Glasgow 59.1% to £296 million, well ahead of plan.
Developing our infrastructure
In August 2016, we made the senior appointment of a chief
information officer charged with ensuring that planned
investment in our technology architecture and skills base is
synchronised with business growth and meets our digital
strategy aspirations. This medium term programme will focus
on further improving our client experience, including installation
of a new client relationship management system during 2017,
and striving for greater operational efficiency in our support
functions. We expect IT-related capital expenditure to increase
by around £1 million in 2017 as a result, as well as an increase in
operating expenditure of approximately £2 million in 2017
through an upgrade of our IT skills and infrastructure.
We have recently relocated our London head office to
8 Finsbury Circus, a brand new yet elegant building in the City
with excellent travel links. This provides us with 75,000 sq ft,
securing sufficient space to accommodate our long term
growth trajectory compared to our previous 44,000 sq ft in
1 Curzon Street. Subletting of 11,000 sq ft in Finsbury Circus has
progressed as planned, leaving us a sensible level of remaining
room for expansion. We very much look forward to welcoming
our clients and professional partners to our new London home.
Outlook
Despite the prospect of some volatile market conditions
in 2017, we intend to maintain the momentum in our
strategic growth initiatives.
We continue to work to a target operating margin of
approximately 30%. However, this may be impacted in 2017 by
the £5 million of additional expenditure outlined above, which
will be reviewed if we encounter a prolonged market downturn
during the year.
We continue to look for accretive acquisition opportunities that
fit with our culture and investment philosophy and look forward
with cautious optimism.
Philip Howell
Chief Executive
22 February 2017
10
Rathbone Brothers Plc Report and accounts 2016 Our market and opportunity
Market opportunities
— A fragmented industry with
increasing barriers to entry
— A growing UK population and
expatriate community familiar with
the UK industry
— An increasing need for individuals to
save, particularly in a low-return
environment
— Lower state support for individual
pension provisions and greater
pension freedoms
— Lifecycle complexities that fuel
demand for a flexible investment
service and the provision of selected
tax and trust advice
Threats
— An ever changing financial services
regulatory environment
— An increasing demand for expensive
technology to drive operational
efficiency
— Competition from alternative asset
classes such as retail property
— Continuing fee margin pressures
driven by ongoing competition and
wholesale pricing
A fragmented industry with only
20% of firms having over £5bn of funds
under management1
161
firms
More than £5bn FUM2
(33 firms, £452.3bn assets)
£1 billion to £5bn FUM
(48 firms, £121.4bn assets)
Less than £1bn FUM
(61 firms, £25bn assets)
Execution only stockbrokers
(19 firms, £135.2bn assets)
20%
30%
38%
12%
The number of consultation papers
with the FCA has increased significantly
since 20103
4
9
4
2
4
1
3
5
3
1
3
0
3
1
10
11
12
13
14
15
16
Development plans
— Upgrade service levels to build on
existing relationships and improve
the digital experience
— Support the growth of investment
teams by managing capacity and
ensuring they contain the right
mix of skills
— Build fruitful relationships with
professional intermediaries and
optimise our alliance with Vision
— Support growth in charities and
specialist services and promote our
ethical service, Rathbone Greenbank
Investments
— Establish the Rathbone Private
Office aimed at clients with
£10 million-£100 million
of investable assets
— Maintain momentum in Unit
Trusts whilst incubating new
products selectively
— Continue to hire high-quality
investment managers and make
bolt-on acquisitions that fit our culture
1. Compeer UK Wealth Management Industry Report 2016. Includes wealth managers, investment managers, private banks and execution only stockbrokers
2. Funds under management
3. Source: Financial Conduct Authority (FCA)
11
Rathbone Brothers Plc Report and accounts 2016 Strategic report Strategic report
Our strategy
12
Rathbone Brothers Plc Report and accounts 2016 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.
Strategic objectives
Principal risks to strategy
1 Quality service
Provide high-quality, personalised investment and wealth
management services for private clients,
charities and trustees.
Performance and advice
Processing
Regulatory
Reputational
See page 14
2 Earnings growth
Provide a growing stream of dividend income
for shareholders over each economic cycle.
Performance and advice
Processing
Regulatory
See page 15
3 Employee value
Provide an interesting and stimulating career
environment for staff, including a commitment
that all employees share in the equity and profits
of the business.
See page 16
Regulatory
Reputational
p22
p24
p22
p22
p22
p24
p22
p22
p22
13
Rathbone Brothers Plc Report and accounts 2016 Strategic report Strategy and key performance indicators continued
Quality service
Provide high-quality, personalised investment and wealth management services for
private clients, charities and trustees.
2016 highlights
— Awarded Institutional Private Client Asset Manager of the
Year by Citywealth in May for the third successive year and
Investment Week’s Gold Standard Award for Discretionary
Portfolio Management in November
— Received both the Citywealth and Charity Times
awards for Charity Investment Manager of the Year
in May and September
— Improved quality of client communications during key
2016 market events, including a three-part client event
series in conjunction with The Spectator with a total
audience in excess of 3,000 guests
— Enhanced our research function by hiring additional
resources, created a research hub that improves
communications with investment managers and
improved our asset allocation management tool
— Strengthened our engagement with financial advisers,
professional intermediaries, international segments and Vision
— Expanded our unit trust offering with the launch of
four international Luxembourg feeder funds
— Developed Rathbone Private Office from concept to
operational readiness with systems and people in place
Our 2017 objectives
— Strive to continue to deliver recognised high standards
in client service
— Improve client take-on processes to streamline
documentation and associated work flows
— Upgrade our approach to assessing and understanding
client risk appetite and capacity for loss
— Ensure that investment research output quality remains
high and relevant to support investment teams
— Launch the Rathbone Managed Portfolio Service, a new
lower value execution only unitised service aimed at clients
of intermediaries
— Maintain the momentum behind our Unit Trusts business
and continue to grow our Luxembourg feeder funds
— Expand and deepen the penetration of our DFM services to the
UK financial adviser market and selected international partners
— Selectively recruit more in-house financial planners to
support regional investment teams
— Attract new clients to the Rathbone Private Office
— Strengthen IT resources and systems to ensure our
organisation and architecture is well positioned to deliver
client service improvements
2016 progress
Total funds under
management (£bn)
£34.2bn
Investment Management
net organic growth rates (%)
2.9%
Unit Trusts net inflows
(£m)
£554m
Number of Investment
Management clients (’000)
48,000
3
4
2
.
2
9
2
.
2
7
2
.
5
.
4
4
.
0
3
.
0
3
.
0
2
.
9
.
2
2
01
8
.
0
5
5
4
5
5
4
3
7
1
3
2
7
4
7
.
0
4
8
.
0
4
6
.
0
4
1
.
0
3
9
.
5
12
13
14
15
16
12
13
14
15
16
6
6
12
13
14
15
16
12
13
14
15
16
14
Rathbone Brothers Plc Report and accounts 2016
Earnings growth
Provide a growing stream of dividend income for shareholders over each economic cycle.
2016 highlights
— Invested £6 million in growth initiatives such as distribution,
Our 2017 objectives
— Carefully manage returns from recent investments to
the private office, financial planning and research
support improved net organic growth rates
— Increased underlying earnings per share by 4.4% to 122.1p
from 117.0p in 2015 and dividend per share for the full year
to 57p from 55p in 2015
— Utilise newly upgraded management information systems
to provide greater support to investment teams in improving
profitability and service and manage constraints to growth
— Funds under management increased 17.1% to £34.2 billion
— Improve organic growth rates, in particular from
reflecting a net organic growth rate of 2.9% in our Investment
Management segment and £554 million of net inflows into
our Unit Trusts segment
— Strengthened the leadership team by adding experience in
departments such as investment management, research,
human resources and IT
— Completed a 4.6% share placing, raising £36.9 million in a
two times covered issue that supported a consultation on the
closure of defined benefit pension schemes and secured
greater financial flexibility
professional intermediaries and continue to expand
the Vision adviser network
— Actively search for suitable bolt-on acquisition opportunities
that fit our culture and selectively recruit experienced
investment mangers to join us
— Selectively strengthen IT resources and infrastructure to
support ongoing business change and respond to regulatory
change such as MiFID II
— Ensure that any capital impact from the defined benefit
pension consultation and legacy London property risks
are managed optimally
— Continue to seek procurement savings from supplier
relationships to secure value for money
2016 progress
Dividend per share
(p)
57.0p
5
7
.
0
5
5
.
0
5
2
.
0
4
9
.
0
4
7
.
0
Underlying profit before tax
(£m)
£74.9m
Underlying earnings
per share (p)
122.1p
7
4
.
9
7
0
.
4
6
1
.
5
5
0
.
5
4
4
.
8
1
2
2
.
1
1
1
7
.
0
1
0
2
.
4
8
6
.
7
7
7
.
4
Underlying operating margin
(%)
29.8%
2
8
.
8
2
8
.
6
2
9
.
4
3
0
.
7
2
9
.
8
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
15
Rathbone Brothers Plc Report and accounts 2016 Strategic report Strategy and key performance indicators continued
Employee value
Provide an interesting and stimulating career environment for staff, including a
commitment that all employees share in the equity and profits of the business.
2016 highlights
— Average full time equivalent headcount for 2016 grew to 1,066
from 981 in 2015 and continues to reflect a consistent balance
between client-facing and administrative support roles
Our 2017 objectives
— Maintain a consistent balance between client-facing
employees and supporting administrative roles
— Continue the board focus on measuring and monitoring
— Average investment per employee in training and
the culture of the business
professional development increased 12.6% over last year
and focused on sales training, corporate professional
development modules, further development of the
graduate programme and a strategic spend in relation to
an investment management conference held at the
beginning of the year
— Employees’ participation in SIP and SAYE schemes
continued to rise. SIP participants increased to 1,010 from 973
a year earlier and the number of outstanding SAYE share
options rose to 507, 714 from 484,364 during the same period
— A review of investment manager remuneration schemes was
completed in December. New arrangements simplify team
cost allocation, reward larger and growing teams and
continue to meet regulatory requirements
— Began consultation with members of the defined benefit
pension schemes to close them to future accrual
— Communicate and implement performance-based
enhancements to investment manager remuneration
schemes to support growth
— Build on leadership and management development tools,
maintain investment in graduate and apprentice
programmes and continue to develop future talent
with robust succession planning
— Seek to capitalise on process improvement initiatives
to increase productivity and free up more time for
value-adding client interaction
— Complete the move to our new London head office in
February 2017 with minimum business interruption
— Complete the consultation process in respect of our
defined benefit pension schemes and implement the
resulting changes
2016 progress
Staff turnover (%)
5%
6
5 5
4
4
Number of participants
with SIP partnership
shares
844
8
4
5
8
4
4
7
6
7
7
1
8
6
7
5
Average full time
equivalent employees
1,066
8
8
0
8
3
3
7
8
9
1
,
0
6
6
9
8
1
Variable staff costs as a % of
underlying profit before tax
and variable staff costs
37.5%
3
6
.
4
3
6
.
1
3
7
.
5
3
5
.
63
2
.
0
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
16
Rathbone Brothers Plc Report and accounts 2016
Keeping our clients
informed
We recognise the importance of demonstrating the intellectual
power of the firm and continue to expand our communications to help
showcase our capabilities.
Every year, we publish various thought papers, both online through the
‘Knowledge and insight’ section of our website and in print. These are always
well-received by clients and intermediaries and are used as a tool to generate
healthy debate on a variety of current market topics.
In addition to keeping clients and advisers informed through a variety of
regular updates, we also host numerous events throughout the year. A
particular highlight this year was our partnership with The Spectator to host
a three-part series focusing on whether Britain should leave the European
Union, the future of party politics and the 2016 US presidential election. The
total audience for these events was in excess of 3,000 guests and showcased
our ability to be at the forefront of key market events.
17
Rathbone Brothers Plc Report and accounts 2016 Strategic report Risk management
During 2016, we have continued to enhance the group’s risk
management framework through evolving our risk governance,
risk processes and risk infrastructure. We have reviewed and
continued to strengthen our operating model, infrastructure and
resources for risk management to further support our three lines
of defence model. We will continue to mature and evolve our
framework during 2017 to ensure it reflects emerging challenges
and our approach continues to focus on managing risk in a
consistent and appropriate manner across the group to protect
our stakeholders.
Risk culture
We believe that embedding an appropriate risk culture
enhances the effectiveness of risk management across the
group. The board is responsible for setting the right tone and
encouraging characteristics and behaviours which support a
strong risk culture. As a result, the consideration of risk is
accepted as being part of everyone’s day-to-day responsibilities
and activities. Risk management is linked to performance and
development, along with the group’s remuneration and reward
schemes. The aim of this is to create an open and transparent
working environment, encouraging employees to engage
positively in risk management and support the effective
achievement of our strategic objectives.
Three lines of defence
We adopt a three lines of defence model to support our risk
management framework. Under the framework, responsibility
and accountability for risk management are 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, compliance and anti-money laundering
functions 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
We define risk appetite as both the amount and type of risk the
group is prepared to accept or retain in pursuit of our 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, group executive committee and group risk
committee will formally review and approve the risk appetite
statement for the group and assess whether the firm has
operated in accordance with the stated risk appetite measures
during the year. Overall, and notwithstanding the expectations
for business growth and a strategic change programme for 2017,
the board remains committed to having a relatively low overall
appetite for risk and to ensuring our 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
Our risks are classified 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 is
regularly reviewed and ensures a structured approach to
identifying all known material risks to the business and those
emerging risks which may impact future performance.
We review and monitor our 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 and manage 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 issues, threats, business
development and regulatory or legislative change, which will
or could have the potential to impact the firm’s current or
future risk profile and therefore may require active risk
management, through 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.
18
Rathbone Brothers Plc Report and accounts 2016 We assess 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, low or very 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 five year 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.
Activities undertaken in relation to ICAAP, ILAA and reverse
stress testing support the risk assessment process. Stress tests
include consideration of the impact of a number of 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 through the governance
framework and ultimately considered by the board.
Profile and mitigation of principal risks
There are 44 Level 3 risks which form the basis of the group’s
risk register, each of which is classified under one of the 16 Level
2 risk categories.
Our 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
2016. The following table summarises the most important
changes to the risk ratings.
Ref
D
Risk
Pension
Description of change
The schemes’ valuation and funding deficit increased materially due to corporate bond yield
volatility in the period. Actions were taken in October 2016 towards mitigating this exposure.
G
K
Regulatory
Volume of regulation remains high together with continued focus on conduct, remuneration
and taxation across the financial services industry.
Data integrity and security
Continued increase in the threat of cyber attack within the financial services sector.
Risk change
in 2016
19
Rathbone Brothers Plc Report and accounts 2016 Strategic report Risk management continued
Based upon the risk assessment processes identified above, the
board believes that the principal risks and uncertainties facing
the group have been identified and include the impact of
strategic change in the year. The board remains vigilant to the
risks associated with the pension schemes deficit and the
subletting of vacant office space in London. Otherwise, the
board continues to believe that the other key risks to the
business are operational risks that arise from growth and
regulatory risks that may arise from continual changes to rules
and standards in our sector.
Our overall risk profile and control environment are described
below. The board receives assurance from first line senior
management 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 is 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.
Emerging risks and threats
Emerging risks, including regulatory change, have the potential
to impact the group and its strategy. These risk factors are
monitored through our watch list. During the year, the executive
committee continued to recognise a number of emerging risks
and threats to the financial services sector as a whole and our
business. In addition to the group’s view that we can reasonably
expect volatile market conditions throughout 2017, emerging
risks include, for example, cyber threats, regulatory change and
scenarios potentially arising from geopolitical developments,
including Brexit.
G
D
A
M
I
F
E
N
J
H
L
K
O
P
C
B
1
2
3
4
Unlikely
Almost certain
Likelihood
Financial risks
Credit
A
Liquidity
B
Market
C
Pension
D
Conduct risks
Business model
Performance and advice
Regulatory
Reputational
E
F
G
H
Operational risks
Business change
I
Business continuity
J
Data integrity and security
K
Fraud
L
M Legal
N
O
P
Outsourcing
People
Processing
e
r
e
v
e
S
t
c
a
p
m
I
4
3
2
w 1
o
l
y
r
e
V
20
Rathbone Brothers Plc Report and accounts 2016
Financial risks
Residual rating
Ref
A
B
C
D
Level 2 risk
I
L
How the risk arises
Control environment
Credit
The risk that one or more
counterparties fail to fulfil contractual
obligations, including stock settlement
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
Low
Low
Liquidity
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
Market
The risk that regulatory own funds will
be adversely affected by changes in
the level or volatility of interest rates,
foreign currency exchange rates or
market prices
Pension
The risk that funding our defined
benefit pension schemes increases,
or its valuation affects dividends,
reserves and capital
Low
Low
High
High
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
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 Internal 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 Internal Capital Adequacy
Assessment Process
— Actions taken in October 2016
towards mitigating this exposure
(see page 9)
Further detailed discussion of the group’s exposures to financial risks is included in note 31 to the financial statements.
21
Rathbone Brothers Plc Report and accounts 2016 Strategic report Risk management continued
Conduct risks
Level 2 risk
I
L
How the risk arises
Control environment
Residual rating
Med Med
Business model
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
— 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
Performance and advice
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
Med Med
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
Regulatory
The risk of failure by the group or a
subsidiary to fulfil regulatory
requirements and comply with the
introduction of new, or changes to
the existing, regulation
High
Low
This risk can arise from failures
by the business to comply
with existing regulation or
failure to identify and react
to regulatory change
Reputational
The risk of reputational damage
from financial and non-financial
events or failing to meet
stakeholders’ expectations
Med
Low
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
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
— Investment manager reviews
through supervisor 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
— 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
— Appropriate 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
Ref
E
F
G
H
22
Rathbone Brothers Plc Report and accounts 2016 Operational risks
Residual rating
Ref
I
J
K
L
M
Level 2 risk
I
L
How the risk arises
Control environment
Med
Low
Business change
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
Business continuity
The risk that an internal or external
event results in either failure of, or
detriment to, core business processes
or services
Med
Low
Data integrity and security
The risk of a lack of integrity of,
inappropriate access to or disclosure
of client or company-sensitive
information
Med
Low
Fraud
The risk of fraudulent action, either
internal or external, being taken against
the group or a subsidiary
Med
Low
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 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
Legal
The risk of legal action being taken
against the group or a subsidiary or
failure to comply with legislative
requirements resulting in financial loss
and reputational damage
Med
Low
This risk can arise from
inappropriate 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
— Active marketing of vacant space
— 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
23
Rathbone Brothers Plc Report and accounts 2016 Strategic report Risk management continued
Operational risks continued
Level 2 risk
I
L
How the risk arises
Control environment
Residual rating
Med
Low
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
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
People
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
Processing
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
Med Med
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
Low Med
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
— Executive oversight
— Supplier due diligence and regular
financial reviews
— Active relationship management,
including regular service review
meetings
— Service level agreements and
monitoring of key performance
indicators
— Compliance monitoring
— Executive oversight
— Succession and contingency planning
— Transparent, consistent and
competitive remuneration schemes
— Contractual clauses with
restrictive covenants
— Continual investment in staff training
and development
— Employee engagement survey
— Appropriate balanced performance
measurement system
— Authorisation limits and
management oversight
— Dealing limits and supporting
system controls
— Active investment in
automated processes
— Counter review/four-eyes processes
— Segregation of duties
— Document procedures
— Annual controls assessment
(ISAE3402 report)
Ref
N
O
P
24
Rathbone Brothers Plc Report and accounts 2016 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 2019 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
better 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 2019.
Assessment of the company’s prospects
The board prepares or reviews its strategic plan annually,
completing the ICAAP and ILAA work which forms the basis
for capital planning and regular discussion with the Prudential
Regulation 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.
25
Rathbone Brothers Plc Report and accounts 2016 Strategic report Strategic report
Our performance
26
Rathbone Brothers Plc Report and accounts 2016 Group performance
Image of Paul Stockton to be inserted
Paul Stockton
Finance Director
Financial performance remained strong in 2016, benefiting
from continuing growth and more favourable market conditions,
particularly in the second half of the year. Total funds under
management increased 17.1% to £34.2 billion (2015: £29.2 billion).
Profit before tax of £50.1 million was down 14.5% on 2015,
reflecting the costs relating to the relocation of the London
head office and the acquisition of Vision Independent
Financial Planning in 2015. On an underlying basis,
profit before tax increased by 6.4%. A full reconciliation
between underlying profit and profit attributable to
shareholders is provided in table 2.
Our underlying operating margin remained steady around the
30% mark, despite additional planned expenditure. Underlying
earnings per share grew 4.4% to 122.1p and dividend per share
grew 3.6% to 57p for the full year.
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
2016
£m
(unless stated)
2015
£m
(unless stated)
251.3
(176.4)
74.9
29.8%
50.1
23.8%
(11.9)
38.2
122.1p
78.9p
57p
229.2
(158.8)
70.4
30.7%
58.6
20.8%
(12.2)
46.4
117.0p
97.4p
55p
1.
A reconciliation between underlying profit before tax and profit
before tax is shown in table 2
2. Underlying profit before tax as a % of underlying operating income
3. The total interim and final dividend proposed for the financial year
Group underlying operating income
Underlying operating income grew 9.6% in 2016, as higher
investment markets and continued organic and acquired
growth led to higher levels of fee income in all business areas.
Fee income continues to represent a greater proportion
of our total income as more fee only tariffs are applied to
client accounts. Commission in the first half was abnormally
low as market uncertainty ahead of the referendum on EU
membership led to a reduction in trading activity generally.
A detailed analysis of each component of income is set out
in the segmental review on pages 31 to 36.
A full reconciliation between underlying operating income
and reported operating income is provided on page 114.
Group underlying operating expenses
Growth in underlying operating expenses of 11.1% reflects
continuing investment in strategic initiatives as well as
underlying growth in the business.
Total fixed staff costs increased by 8.6% to £79.8 million in 2016,
reflecting growth in average full time equivalent headcount of
8.7% to 1,066 (2015: 981) and salary inflation. Salary growth was
partially offset, however, by a £0.7 million reduction in pension
costs, principally reflecting the impact of employees who chose
to transfer out of the defined benefit schemes.
Total variable staff costs increased by 13.4% to £45.0 million,
principally driven by growth in profits and funds under
management. Variable staff costs in 2016 represented 17.9% of
underlying operating income (2015: 17.3%) and 37.5% of
underlying profit before variable staff costs and tax (2015: 36.1%).
Underlying operating expenses also included £4.0 million
(2015: £3.3 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).
27
Rathbone Brothers Plc Report and accounts 2016 Strategic report Group performance continued
Outlook for expenditure
Staff costs in 2017 will reflect the full year impact of hiring
activity in 2016 in addition to salary inflation of around 3%.
Following the completion of a review of remuneration schemes
for investment management staff in 2016, we are implementing
changes in 2017 which will provide additional performance-
based incentives for investment managers.
In 2017, we also expect to continue to grow the Rathbone
Private Office, strengthen our financial planning and research
capabilities and upgrade our IT skills and infrastructure.
The above investments are expected to add around £5 million
to underlying operating expenses in 2017; absent a prolonged
market downturn, which would cause us to review
such expenditure.
In addition, run rate costs for our London office are expected to
rise by approximately £1 million in 2017, although in 2018 the
annual cost will be broadly the same as we would have been
paying for our former premises. Other anticipated costs
associated with the relocation of the London head office are
described in the sections below.
Capital expenditure
As planned, capital expenditure increased by £9.2 million to
£15.1 million in 2016. Capital expenditure of £9.9 million arose
from the fit out of the new London head office at 8 Finsbury
Circus. Further capital expenditure of £4.3 million is expected
to be incurred in 2017 to complete the fit out of the new
London premises.
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 into the three categories explained below.
Underlying profit before tax grew by 6.4% to £74.9 million in
2016. The underlying operating margin, which is calculated as
the ratio of underlying profit before tax to underlying operating
income, was 29.8% for the year; in line with our target of 30%
over the cycle (2015: 30.7%). Profit before tax decreased by 14.5%
to £50.1 million for the year, down from £58.6 million in 2015.
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
Profit before tax
2016
£m
74.9
(11.8)
(7.0)
(6.0)
50.1
2015
£m
70.4
(11.0)
(0.4)
(0.4)
58.6
Charges in relation to client relationships and
goodwill (note 21)
As explained in notes 1.14 and 2.1, client relationship intangible
assets are created when we acquire a business or a team of
investment managers. The charges associated with these assets
represent a significant non-cash item and they have, therefore,
been excluded from underlying profit, which represents largely
cash-based earnings more directly relating to the reporting
period. Charges for amortisation of client relationship intangibles
in the year ended 31 December 2016 were £11.8 million
(2015: £11.0 million), reflecting historic acquisitions.
28
Rathbone Brothers Plc Report and accounts 2016 Head office relocation costs (note 9)
On 13 May 2016, we entered into a series of five 17 year leases on
office space at 8 Finsbury Circus and moved our London head
office to the new premises during February 2017. Charges
incurred in relation to the double running of both London
premises and the relocation amounted to £7.0 million in 2016
(2015: £0.4 million). This amount largely represents the
accounting charge for rent on the new premises during the fit
out period and additional depreciation charges writing off the
value of fixtures and fittings in the 1 Curzon Street office, which
are now at the end of their useful life. This charge is £2.5 million
below the £9.5 million announced in February 2016 following a
favourable assessment of business rates and a later than
expected handover of the new premises.
As described in note 37, a non-cash charge of £10.0 million
was recognised on 13 February 2017, when the Curzon Street
premises were vacated. Prior to the vacation of these premises,
2017 accounting charges for double running costs and
accelerated depreciation totalled £1.5 million.
Acquisition-related costs (note 8)
Costs of £6.0 million were incurred in relation to the acquisitions
of Vision Independent Financial Planning (‘Vision’) and Castle
Investment Solutions (‘Castle’), which were completed on
31 December 2015. These include the cost of payments to
vendors of the business who remain in employment with the
group, as required by accounting standards. The corresponding
charge of £0.4 million in 2015 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.
Other deferred payments to vendors who remain in
employment of £5.5 million are being charged to profit or loss
on a straight line basis over the deferral period, ending in 2019.
Taxation
The corporation tax charge for 2016 was £11.9 million
(2015: £12.2 million) and represents an effective tax rate of 23.8%
(2015: 20.8%). A full reconciliation of the income tax expense is
provided in note 11 to the financial statements.
The Finance Bill 2015 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
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. We have confirmed with HMRC
that we remain below the relevant thresholds for 2016.
The Finance Bill 2016, which included provisions for the UK
corporation tax rate to be reduced to 17% in April 2020, from 19%
in April 2017, gained royal assent on 15 September 2016. Deferred
tax balances have therefore been calculated based on these
reduced rates where timing differences are forecast to unwind
in future years.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2016
were 78.9p compared to 97.4p in 2015. This reflects the full
impact of planned non-underlying charges and the placing of
2.2 million shares during 2016. On an underlying basis, earnings
per share increased by 4.4% to 122.1p in 2016 (see note 13 to
the financial statements).
Dividends
Our dividend policy is set out in the directors’ report on page 90.
In light of the results for the year, the board has proposed
a final dividend for 2016 of 36p. This results in a full year
dividend of 57p, an increase of 2p on 2015 (3.6%). The proposed
dividend is covered 1.4 times by basic earnings and 2.1 times by
underlying earnings.
29
Rathbone Brothers Plc Report and accounts 2016 Strategic report Keeping in touch
with future generations
The need to save earlier in life has never been more pressing. Youth
today face student loans, increasing house prices, less generous company
pensions and a rising retirement age as life expectancy increases.
Although our client base is predominantly over 55 years old, we have seen a
steady increase of clients under the age of 18, particularly with the popularity
of Junior ISAs increasing. We recognise the importance of engaging with the
next generation of clients early on to help them prepare for the financial
decisions they will have to make for the longer term.
Through the Rathbones Financial Awareness programme, investment
managers have been delivering free presentations to 16–25 year olds within
our offices and at schools around the UK for over six years. The programme
aims to equip those attending with the necessary information to take
ownership of their finances at a young age and includes sections on student
finance, mortgages, investment markets, inflation and more. During 2016,
we ran 30 presentations to a total of over 2,000 students.
Alongside the programmes, we have developed the ‘Your money, your future’
booklet, which can be used in conjunction with the programme or as a
standalone document. The booklet outlines the basics of personal
finance and includes sections on budgeting, credit and debt, risk and
how it influences investment decisions, stocks and shares and the
importance of planning for the future.
For more information, please visit rathbones.com/financialawareness
30
Rathbone Brothers Plc Report and accounts 2016 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 on pages 2 to 5.
The Investment Management segment comprises those activities described under
the headings ‘Investment Management’ and ‘complementary services’ on page 5.
Investment Management
The financial performance of Investment Management is
largely driven by revenue margins earned from 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
client loans.
Year-on-year changes in the key performance indicators for
Investment Management are shown in table 3.
Table 3. Investment Management – key performance indicators
Funds under management
at 31 December1
Underlying rate of net organic growth
in Investment Management funds
under management1
Underlying rate of total net growth
in Investment Management funds
under management1
Average net operating basis
point return2
Number of Investment
Management clients
Number of investment managers
1. See table 4
2. See table 7
2016
2015
£30.2bn
£26.1bn
2.9%
3.0%
4.5%
5.7%
74.2 bps
76.2 bps
48,000
273
47,000
260
During 2016, 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 47,000 in 2015 to approximately 48,000 during the year.
During 2016, the total number of investment managers
increased to 273 at 31 December 2016 from 260 at the
end of 2015.
Chart 1. Investment Management – number of clients and
investment managers
Number of Investment Management clients (’000)
48,000
4
6
.
0
4
7
.
0
4
8
.
0
3
9
.
5
4
1
.
0
12
13
14
15
16
Number of investment managers
273
2
4
9
2
6
0
2
7
3
2
0
5
2
0
9
12
13
14
15
16
31
Rathbone Brothers Plc Report and accounts 2016 Strategic report Segmental review continued
Investment Management continued
Funds under management
Investment Management funds under management increased
by 15.7% to £30.2 billion at 31 December 2016 from £26.1 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
2016
£bn
26.1
2.7
2.3
0.4
(1.5)
2.9
30.2
0.8
2.9%
4.5%
2015
£bn
24.7
3.0
2.3
0.7
(1.6)
–
26.1
0.7
3.0%
5.7%
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 % of opening funds under management
6. Net organic new business and acquired inflows as a % of opening funds
under management
In the context of a year of continuing political and economic
uncertainty, our annualised net organic growth rate for our
core Investment Management segment of 2.9% (2015: 3.0%)
was a sound performance, albeit short of our strategic objective
of 5.0%.
Charity funds under management continued to grow strongly
and reached £4.1 billion at 31 December 2016, up 17.1% from
£3.5 billion at the start of the year. The most recent Charity
Finance survey ranked the group within the top five largest
charity investment managers in the UK by funds under
management as at 30 June 2016.
Chart 2. Investment Management – funds under management
five year growth
Funds under management (£bn)
£30.2bn
30.2
24.7
26.1
20.2
16.7
12
13
14
15
16
FTSE 100 Index*
FTSE WMA Balanced Index*
*
Index figures show how funds under management would have changed between
2012 and 2016 if they had tracked each index
We retained our focus on intermediaries during the year. Funds
under management in accounts linked to independent financial
advisers and provider panel relationships increased by
£1.2 billion during 2016, ending the year at £6.7 billion.
In total, net organic and acquired growth added £1.2 billion to
Investment Management funds under management in 2016
(2015: £1.4 billion), representing an underlying rate of total net
growth of 4.5% (2015: 5.7%).
At 31 December 2016, Vision advised on client assets of
£1.03 billion, up 21.2% from 2015.
Average investment returns across all Investment Management
clients were positive, albeit some 2% lower than the FTSE WMA
Balanced Index. This was due in large part to the impact of Brexit
on gilt rates where the WMA weighting is typically higher than
ours. Currency effects in the second half of the year also
impacted our generally underweight holding in overseas
equities, particularly in the US. Overall performance against
other competitor indices, such as the Private Client Indices
published by ARC, was robust.
32
Rathbone Brothers Plc Report and accounts 2016
In 2016, net commission income of £38.9 million was down
9.7% on £43.1 million in 2015. This was primarily due to market
sentiment, particularly in the first half of the year as uncertainty
ahead of the referendum on membership of the EU reduced
investment activity more generally. The fee tariff changes in
2015 also reduced commission income as new clients pay a
clean fee only.
Net interest income of £11.6 million in 2016 was 7.4% above the
£10.8 million in 2015 as the balance of cash in client portfolios
increased over the course of the year. Cash held at the Bank of
England grew from £583.2 million at 31 December 2015 to
£1.08 billion at the end of 2016. The Investment Management
loan book contributed £3.0 million to net interest income in 2016
(2015: £2.9 million). Included in net interest income is £1.3 million
(2015: £0.5 million) of interest payable on the Tier 2 notes issued
in August 2015.
The average net operating basis point return on funds under
management has fallen by 2 bps to 74.2 bps in 2016, reflecting
both lower commission levels in the first half and lower
interest margins.
Table 7. Investment Management – revenue margin
Basis point return1 from:
– fee income
– commission
– interest
Basis point return on funds
under management
2016
bps
57.9
13.8
2.5
74.2
2015
bps
56.0
16.8
3.4
76.2
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)
Financial performance
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
Underlying operating margin5
2016
£m
163.3
38.9
11.6
12.5
226.3
(160.1)
66.2
29.3%
2015
£m
143.8
43.1
10.8
11.3
209.0
(145.2)
63.8
30.5%
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 financial
planning services
4. See table 8
5. Underlying profit before tax as a percentage of underlying operating income
Investment Management income is derived from:
— a tiered scale of investment management or advisory fees,
which are applied on our charging dates 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
— an interest margin earned on the cash held in clients’
portfolios and on loans to clients.
Net investment management fee income increased by 13.6% to
£163.3 million in 2016, benefiting from a full year of fees from clients
on the new fee only tariff and growth in funds under management.
Fees are applied to the value of funds on quarterly charging dates.
Average funds under management on these billing dates in 2016
were £28.2 billion, up 9.7% from 2015 (see table 6).
Table 6. Investment Management – average funds under management
Valuation dates for billing:
– 5 April
– 30 June
– 30 September
– 31 December
Average
Average FTSE 100 level1
2016
£bn
2015
£bn
26.1
27.3
29.3
30.2
28.2
6659
26.1
25.6
24.8
26.1
25.7
6415
1. Based on the corresponding valuation dates for billing
33
Rathbone Brothers Plc Report and accounts 2016 Strategic report Segmental review continued
Investment Management continued
Underlying operating expenses in Investment Management for
2016 were £160.1 million, compared to £145.2 million in 2015, an
increase of 10.3%. This is highlighted in table 8.
Table 8. Investment Management – underlying operating expenses
Unit Trusts
Chart 3. Unit Trusts funds
Staff costs1
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio2
2016
£m
2015
£m
57.6
32.4
90.0
70.1
160.1
70.7%
51.3
29.4
80.7
64.5
145.2
69.5%
1. Represents the costs of investment managers and teams directly involved
in client-facing activities
2. Underlying operating expenses as a % of underlying operating income
(see table 5)
Fixed staff costs of £57.6 million increased by 12.3% year-on-year,
principally reflecting a 10.6% increase in average headcount;
partially offset by a reduction in the accounting charge for
pension costs as a number of high earners transferred out of the
scheme following the changes to personal taxation of pensions
in 2015. Variable staff costs are also higher, reflecting higher
underlying profitability and growth in funds under management.
Other operating expenses of £70.1 million include property,
depreciation, settlement, IT, finance and other central support
services costs. The year-to-year increase of £5.6 million (8.7%)
reflects increased investment in the business, recruitment and
higher variable awards in line with business performance.
£4,054m
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
2016
£m
1,366
924
579
120
116
78
71
62
447
291
4,054
2015
£m
1,188
674
359
112
105
73
71
56
189
246
3,073
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
Funds under management at
31 December1
Underlying rate of net growth in Unit
Trusts funds under management1
Underlying profit before tax2
1. See table 10
2. See table 12
2016
2015
£4.0bn
£3.1bn
18.0%
£8.7m
14.7%
£6.6m
34
Rathbone Brothers Plc Report and accounts 2016 Funds under management
Net retail sales in the asset management industry of £4.7 billion
were down £12.1 billion (72%) on 2015, as reported by the
Investment Association (IA). The IA cited the impact of
extraordinary geopolitical challenges on investor confidence
during the year as the principal reason for the fall; although sales
growth recovered towards the end of 2016. The post-referendum
rally also helped industry funds under management to end the
year at £1,045 billion, up 12.6% on the end of 2015.
In contrast to the general industry picture, positive momentum
in sales of our funds continued through 2016, particularly in the
second half of the year. Gross sales in 2016 totalled over
£1.3 billion (2015: £0.9 billion), although sales slowed slightly
into the year end and this has continued into early 2017.
Redemptions also remained elevated in 2016 at £0.7 billion
(2015: £0.5 billion), reflecting the increased levels of
disinvestment seen across the industry.
Net inflows of £0.6 billion (2015: £0.4 billion) continued to be
spread across the range of funds, with the Income, Global
Opportunities and Ethical Bond funds seeing particularly
strong net flows in the year. As a result, Unit Trusts funds
under management closed the year up 29.0% at £4.0 billion
(see table 10).
In May 2016, we launched a range of Luxembourg-based
feeder funds for our Multi Asset, Income and Ethical Bond
funds. These funds also contributed strongly to growth,
particularly in the Strategic Growth and Total Return multi
asset portfolios and the Ethical Bond fund. At 31 December 2016,
we had £219 million under management in the feeder funds.
Table 10. Unit Trusts – funds under management
As at 1 January
Net inflows
– inflows1
– outflows1
Market adjustments2
As at 31 December
Underlying rate of net growth3
2016
£bn
3.1
0.6
1.3
(0.7)
0.3
4.0
18.0%
2015
£bn
2.5
0.4
0.9
(0.5)
0.2
3.1
14.7%
1. Valued at the date of transfer in/(out)
Impact of market movements and relative performance
2.
3. Net inflows as a % of opening funds under management
Chart 4. Unit Trusts – annual net flows (£m)
£554m
5
5
4
5
5
4
3
2
7
3
7
1
6
6
12
13
14
15
16
The short term performance of the funds during 2016 was
impacted by volatile markets. All funds were relatively
defensively positioned during the year, taking a more
pessimistic view of market prospects post-Brexit and the US
elections, which reflects the funds’ longer term investment
horizon. Consequently, the funds underperformed their peer
group during the reflation rally following the US election, which
saw banks and cyclical stocks drive the market higher, both
areas in which our funds are underweight due to concerns
about the global outlook for 2017. Despite this, the range of
funds maintained their strong long term performance track
record, which is critical to sales momentum.
Table 11. Unit Trusts – fund performance
2016/(2015) Quartile ranking1 over:
1 year
3 years
5 years
Rathbone Blue Chip Income and
Growth Fund
Rathbone Ethical Bond Fund
Rathbone Global Opportunities Fund
Rathbone Income Fund
Rathbone Recovery Fund
Rathbone Strategic Bond Fund2
3 (1)
4 (1)
4 (1)
3 (1)
3 (1)
2 (2)
2 (2)
2 (1)
2 (1)
1 (1)
3 (1)
2 (2)
2 (2)
1 (1)
1 (1)
2 (1)
2 (2)
3 (n/a)
1. Ranking of institutional share classes at 31 December 2016 and 2015 against
other funds in the same IA sector
2. The Rathbone Strategic Bond Fund was launched on 3 October 2011
35
Rathbone Brothers Plc Report and accounts 2016 Strategic report Table 13. Unit Trusts – underlying operating expenses
Staff costs:
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio1
2016
£m
2015
£m
3.0
5.3
8.3
8.0
16.3
65.2%
3.0
3.8
6.8
6.8
13.6
67.3%
1. Underlying operating expenses as a % of underlying operating income
(see table 12)
Fixed staff costs of £3.0 million for the year ended
31 December 2016 were unchanged from the £3.0 million
recorded in 2015.
Variable staff costs of £5.3 million were 39.5% higher than
£3.8 million in 2015 as higher profitability and growth in gross
sales drove increases in profit share and sales commissions.
Other operating expenses have increased by 17.6% to
£8.0 million, reflecting an increase in third party administration
costs in line with growth in the business and higher inter-
segment charges as noted above.
Segmental review continued
Unit Trusts continued
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 2016 some 85% of holdings in Unit Trusts’ retail
funds were in institutional units (31 December 2015: 76%).
During 2016, the total number of investment professionals in
Unit Trusts increased to 14 at 31 December 2016 from 13 at the
end of 2015.
Financial performance
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
— 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
Underlying operating margin2
2016
£m
21.5
3.1
0.4
25.0
(16.3)
8.7
34.8%
2015
£m
17.6
2.2
0.4
20.2
(13.6)
6.6
32.7%
1. See table 13
2. Underlying profit before tax divided by underlying operating income
Net annual management charges increased 22.2% to
£21.5 million in 2016, driven principally by the rise in average
funds under management. Net annual management charges as
a percentage of average funds under management fell
marginally to 62 bps (2015: 63 bps).
Net dealing profits of £3.1 million increased by 40.9% on
£2.2 million in 2015 due to a higher level of both gross sales and
redemptions throughout the year. Underlying operating income
as a percentage of average funds under management remained
steady at 72 bps in 2016.
36
Rathbone Brothers Plc Report and accounts 2016 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
2016
£m
(unless stated)
2015*
£m
(unless stated)
17.7%
19.5%
324.8
19.6
892.7
1.8%
6.6%
15.4%
17.2%
300.2
19.5
840.8
2.6%
7.7%
2,404.0
1,995.2
1,833.9
1,453.2
106.3
111.8
160.7
23.1
164.5
17.0
1,888.9
39.5
1,402.9
4.5
*
Restated for measurement period adjustment in respect of business
combinations (note 1.4)
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 % of total assets, excluding intangible
assets, plus certain off balance sheet exposures
Balances with central banks, loans and advances to banks and
investment securities
5.
6. See note 16 to the financial statements
7. Net book value of acquired client relationships and goodwill (note 21)
8.
Net book value of property, plant and equipment and computer software
(notes 19 and 21)
Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank (note 23)
9.
Regulatory own funds
Rathbones is classified as a banking group for regulatory capital
purposes and is therefore required to operate within the
restrictions on capital resources and banking exposures
prescribed by the Capital Requirements Regulation, as applied
in the UK by the Prudential Regulation Authority (PRA).
At 31 December 2016, the group’s regulatory capital resources
(including verified profits for the year) were £174.2 million
(2015: £144.3 million).
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
2016
£m
142.5
188.5
(6.2)
(166.4)
158.4
15.8
174.2
2015*
£m
100.1
206.3
(6.2)
(170.5)
129.7
14.6
144.3
*
Restated for measurement period adjustment in respect of business
combinations (note 1.4)
1. Net book value of goodwill, client relationship intangibles and software are
deducted directly from capital resources
Common Equity Tier 1 capital (CET1) resources increased by
£28.7 million during 2016, largely due to the issue of 2.2 million
shares on 20 October 2016, which raised net proceeds of
£36.9 million. Verified profits for the 2016 financial year, net of
dividend, were more than offset by post-tax actuarial losses of
£31.4 million arising from the remeasurement of defined benefit
pension schemes, reflecting historically low long term corporate
bond yields.
Our consolidated CET1 ratio is higher than the banking industry
norm. This reflects the low risk nature of our banking activity.
The CET1 ratio has grown to 17.7% from 15.4% at the previous
year end mainly due to the impact of the share placing, partially
offset by the growth in the pension deficit.
37
Rathbone Brothers Plc Report and accounts 2016 Strategic report Financial position continued
Regulatory own funds continued
The leverage ratio was 6.6% at 31 December 2016, down from
7.7% at 31 December 2015. The leverage ratio represents our CET1
capital as a percentage of our total assets, excluding intangible
assets, plus certain off balance sheet exposures.
The business is primarily funded by equity, supported by
£20 million of 10 year Tier 2 subordinated loan notes. The notes
introduce some gearing into our balance sheet as a way of
financing future growth in a cost-effective and capital-efficient
manner. They 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 six-month LIBOR
thereafter (note 26).
The consolidated balance sheet remains healthy with total
equity of £324.8 million at 31 December 2016, up 8.2% from
£300.2 million at the end of 2015, primarily reflecting the impact
of the share issue, offset by a deterioration in the reported
position of our defined benefit pension schemes.
Own funds requirement
As required under PRA rules, we perform an Internal Capital
Adequacy Assessment Process (ICAAP) and Individual Liquidity
Adequacy Assessment (ILAA) annually, which include
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.
We are required to hold capital to cover a range of own funds
requirements, classified as Pillar 1 and Pillar 2.
Pillar 1 – minimum requirement for capital
Pillar 1 focuses on the determination of risk-weighted assets and
expected losses in respect of the group’s exposure to credit,
counterparty credit, market and operational risks and sets a
minimum requirement for capital.
At 31 December 2016, the group’s risk weighted assets were
£892,650,000 (2015 (restated – note 1.4): £840,800,000).
Pillar 2 – supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with a
firm-specific Individual Capital Guidance (Pillar 2A) and a
framework of regulatory capital buffers (Pillar 2B).
The Pillar 2A own funds requirement is set by the PRA to reflect
those risks, specific to the firm, which are not fully captured
under the Pillar 1 own funds requirement.
38
Pension obligation risk
The potential for additional unplanned costs that the group
would incur in the event of a significant deterioration in the
funding position of the group’s defined benefit pension schemes.
The full impact on Pillar 2 capital of the member consultation
process currently underway and the triennial review of the
funding position of the scheme will be assessed in 2017. When
plans to begin a member consultation to close the scheme were
announced in October 2016, it was expected that this could add
around £20 million to our capital requirement at that time.
Interest rate risk in the banking book
The potential losses in the non-trading book resulting from
interest rate changes or widening of the spread between
Bank of England base rates and LIBOR rates.
Concentration risk
Greater loss volatility arising from a higher level
of loan default correlation than is assumed by the
Pillar 1 assessment.
The group is also required to maintain a number of Pillar 2B
regulatory capital buffers, all of which must be met with
CET1 capital.
Capital conservation buffer (CCB)
The CCB is a general buffer of 2.5% of risk-weighted assets
designed to provide for losses in the event of a stress and is
being phased in from 1 January 2016 to 1 January 2019.
As at 31 December 2016, the buffer rate was 0.625% of risk-
weighted assets. On 1 January 2017, it increased
to 1.25% of risk-weighted assets.
Countercyclical capital buffer (CCyB)
The CCyB is time-varying and is designed to act as an incentive
for banks to constrain credit growth in times of heightened
systemic risk. The amount of the buffer is determined by
reference to rates set by the FPC for individual countries where
the group has credit risk exposures.
The buffer rate is currently set at zero for the UK. However,
non-zero rates for Norway, Sweden and Hong Kong, where the
group has small relevant credit risk exposures, result in an
overall rate of 0.04% of risk-weighted assets for the group as at
31 December 2016. The FPC has announced that it expects to
maintain a rate of 0% for the UK until at least June 2017.
PRA buffer
The PRA also determines whether any incremental firm-specific
buffer is required, in addition to the CCB and the CCyB. The PRA
requires any such buffer to remain confidential between the
group and the PRA.
Rathbone Brothers Plc Report and accounts 2016 The group’s own funds requirements were as follows.
Table 16. Group’s own funds requirements
Credit risk requirement
Market risk requirement
Operational risk requirement
Pillar 1 own funds requirement
Pillar 2A own funds requirement
Total Pillar 1 and 2A own funds
requirements
2016
£m
36.9
0.4
34.2
71.5
27.9
99.4
2015*
£m
36.5
0.3
30.4
67.2
26.8
94.0
* Restated for measurement period adjustment in respect of business
combinations (note 1.4)
As at 31 December 2016, the surplus of own funds over total
Pillar 1 and 2A own funds requirements was £74.8 million,
up from £50.3 million at the end of 2015.
In managing the group’s regulatory capital position over the
next few years, we will continue to be mindful of:
— future volatility in pension scheme valuations which affect
both the level of CET1 own funds and the value of the Pillar
2A buffer for pension risk
— the staged introduction of incremental CRD IV buffers over
the next three years
— regulatory developments
— the demands of future acquisitions which generate intangible
assets and, therefore, directly 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.
The group’s Pillar 3 disclosures are published annually
on our website (rathbones.com/investor-relations/results-and-
presentations) and provide further details about regulatory
capital resources and requirements.
Total assets
Total assets at 31 December 2016 were £2,404.0 million
(2015: £1,833.9 million), of which £1,888.9 million
(2015: £1,402.9 million) represents the cash element
of 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
of £1,888.9 million (2015: £1,402.9 million) represented 6.3% of
total investment management funds at 31 December 2016
compared to 5.5% at the end of 2015. Cash held in client money
accounts was £4.5 million (2015: £4.5 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 31 to the financial statements. It 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 increased the share of treasury
assets held with the Bank of England to £1,075.7 million from
£583.2 million at 31 December 2015, reflecting the marked increase
in the level of cash held in client portfolios over the period.
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, 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 who require bridging finance when moving home.
Loans advanced totalled £106.3 million at the end of 2016
(2015: £111.8 million).
39
Rathbone Brothers Plc Report and accounts 2016 Strategic report Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which
have been closed to new members for several years.
The accounting valuation is largely driven by the discount rate
used to value the schemes’ liabilities, which is derived from the
yield on highly rated sterling corporate bonds. Following the
referendum on EU independence in June, sterling bond yields
fell rapidly, which resulted in a material increase in the
accounting deficit on the pension schemes and, at
30 September 2016, the combined deficit stood at £58.3 million,
up from £4.5 million at 31 December 2015.
As a result of the increased volatility in the schemes following
the referendum, we commenced a consultation with members
of the defined benefit pension schemes with a view to closing
the schemes. The consultation period ended on 31 January 2017
and the decision was taken to close the schemes to future
accrual and break the link to final salary with effect from
1 July 2017.
Since 30 September 2016, corporate bond yields have increased
and the combined deficit in the schemes at 31 December 2016
had fallen to £39.5 million. Full details of the assumptions
underlying the accounting valuation and associated sensitivities
are included in note 27 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.
Funding valuations as at 31 December 2016 will be carried
out during 2017.
Financial position continued
Intangible assets
Intangible assets arise principally from acquired growth in funds
under management and are categorised as goodwill and client
relationships. At 31 December 2016, the total carrying value of
intangible assets arising from acquired growth was £160.7 million
(2015: £164.5 million). During the year, client relationship
intangible assets of £7.9 million were capitalised
(2015: £15.8 million, including £4.5 million relating to the
acquisition of Vision and Castle). No goodwill was acquired
during 2016 (2015: £5.9 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 2016, including the impact of any lost
relationships, was £11.7 million (2015: £10.7 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 £0.1 million was recognised in relation
to this element of goodwill (2015: £0.3 million). Further detail is
provided in note 21 to the financial statements.
Capital expenditure
During 2016, we have continued to invest for future growth with
capitalised expenditure on our premises and systems totalling
£15.1 million (2015: £5.9 million). As noted above, capital
expenditure in 2016 included £9.9 million for the fit out of the
new London head office and further costs will be incurred
into 2017.
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. In 2017, we plan to
install a new client relationship management system.
Excluding the London office fit out costs, new investment
accounted for approximately 67% of capital expenditure in 2016,
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.
40
Rathbone Brothers Plc Report and accounts 2016 The most significant non-operating cash flows during the
year were as follows.
— inflow of £40.2 million from the issue of ordinary shares,
including the placing of 2.2 million shares on 20 October 2016
generating £36.9 million net of placement costs and the
remainder from the issue of shares to satisfy awards under
share-based incentive plans for employees
— outflows relating to the payment of dividends of £26.5 million
(2015: £25.8 million)
— outflows relating to payments to acquire intangible
assets (other than as part of a business combination)
of £14.0 million (2015: £20.3 million)
— net outflow of £2.5 million for deferred consideration
payments made following the acquisition of
Vision Independent Financial Planning and
Castle Investment Solutions
— £12.2 million of capital expenditure on property,
plant and equipment (2015: £2.5 million).
Liquidity and cash flow
Table 17. Extracts from the consolidated statement of cash flows
Cash and cash equivalents at
the end of the year
Net cash inflows from
operating activities
Net change in cash
and cash equivalents
2016
£m
2015
£m
1,263.1
703.6
567.3
176.5
559.5
(132.2)
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 £1,075.7 million at
31 December 2016 (2015: £583.2 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 36 to the financial statements). Consequently, cash
flows, as reported in the financial statements, include the
impact of capital flows in treasury assets.
Net cash flows from operating activities include the effect
of a £486.0 million increase in banking client deposits
(2015: £120.8 million increase) and a £16.8 million decrease
in the component of treasury assets placed in term deposits
for more than three months (2015: £5.6 million increase).
In addition, cash flows included a net inflow of £7.0 million
from the maturity of longer dated certificates of deposit
(2015: £278.3 million net outflow from purchase of longer
dated certificates of deposit), which is shown within investing
activities in the consolidated statement of cash flows.
41
Rathbone Brothers Plc Report and accounts 2016 Strategic report Corporate responsibility report
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 times a year and reports directly to the group
executive committee.
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 focuses not only on potential risks, but also
on 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.
Responsible investing
The concept of stewardship and responsible investment means
focusing on the client and ensuring an active approach to the
ownership of securities. Implementing effective stewardship is
integral to our investment process as a means of protecting and
enhancing value for clients, often through encouraging high
standards of corporate governance. During 2016, we reviewed
and updated our policies in this area and are pleased to report
on our progress below.
42
Our employees
Our business success is dependent upon 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. Members of staff
have access to management and leadership courses, CPD
programmes to achieve continuous learning and agreed career
development programmes to enable progression within the firm.
Charities and communities
The Rathbone Foundation has continued to support small
local charities where its donations can make a real difference.
During the year, each office across the firm created a foundation in
order to be able to donate and support local charities. The overall
charitable objective of the firm is to support small, locally-based
charities that help to improve the lives of young people. Further
information on our various initiatives can be found below.
Our support of young people has continued in 2016 through our
partnerships with English Lacrosse and Lacrosse Scotland and
initiatives such as our financial awareness programme. We were
also proud to continue our sponsorship of the University of
Liverpool’s innovative ARION engineering team who broke
the men’s and women’s British land speed record for a
human-powered vehicle in 2016.
Environmental reporting
During the 2015/16 reporting period, our overall carbon footprint
decreased by 9% from last year and 3% over the last three years
despite continuous growth in the business. Our carbon footprint
and carbon intensity measures have fallen during this time
mainly due to efficient use of electricity across our offices and a
reduction in emissions from business travel. Total electricity
consumption reduced by 14% since last year, primarily due to
improvements in data quality and a reduction in the UK
electricity conversion factor. Business travel emission reduced by
6% following a significant reduction in flights emissions. You can
find further details of our carbon footprint further in the report.
Finally, we remain a constituent company of the FTSE4Good
Index series and a signatory to the UN–backed Principles for
Responsible Investment.
Philip Howell
Chief Executive and Chairman of the SEC
22 February 2017
Rathbone Brothers Plc Report and accounts 2016 Through Rathbone Greenbank Investments and Rathbone
Unit Trust Management’s Ethical Bond Fund, the company is
able to provide investment services tailored to clients’ interests
in the area of socially responsible or sustainable investment.
Where appropriate, the company is also able to participate in
new share issues offered by companies that provide
environmentally or socially beneficial products or services.
As at 31 December 2016, Rathbone Greenbank Investments had
£0.86 billion of funds under management, equivalent to 3.0% of
Rathbone Investment Management funds assets under
management and the Rathbone Ethical Bond Fund had
£579 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 Principles for Responsible
Investment (PRI) since September 2009 and we continue to
play an active role in the PRI Collaboration Platform (formerly
the Clearinghouse) a global platform for collaborative
engagement initiatives, which aims to encourage sustainable
long term value. Out of over 1,600 members of this leading
initiative, Rathbones was named as one of the top 20 most
active and influential members of the Clearinghouse in 2015 and
2016, 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 Investment and Finance Association
(UKSIF) and the Ecumenical Council for Corporate
Responsibility. Rathbone Greenbank Investments is also a
leading member of the Institutional Investors Group on
Climate Change (IIGCC).
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.
Being aware of our environment
— 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 goals.
Central processes provide guidance on equity analysis and
strategic asset allocation advice, which are 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.
Therefore, a top-down responsible investment policy is not
considered workable or appropriate for us 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 our stewardship committee
(formerly the 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.
43
Rathbone Brothers Plc Report and accounts 2016 Strategic report Engagement
Engagement with companies on ESG matters is largely
undertaken by Rathbone Greenbank Investments’ ethical
research team and the stewardship director on behalf of the
stewardship 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 Collaboration Platform. It covers a wide range
of themes spanning the whole of the environmental, social and
governance spectrum.
Our clients played an important role in supporting shareholder
resolutions at the 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.
CDP disclosure and performance score
The CDP has recently revised and updated its methodology.
Whereas in previous years we reported an excellent disclosure
score and a lower ranking for operational management, the new
methodology combines both aspects. We received a ‘C’ ranking
on the CDP methodology for 2016, in line with our sector peers.
Corporate responsibility report continued
Investing for clients continued
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 a dedicated committee,
established in line with our obligations under the PRI, and pays
heed to the Financial Reporting Council (FRC) UK Stewardship
Code. Composed of investment managers and other
representatives from across the business, and supported by
a permanent stewardship director, the committee maintains
general group policy on corporate governance and oversees its
consideration 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. The committee issues voting
recommendations based on best practice, which establishes
a baseline for consideration by the major holders of the
companies in question. Our investment managers retain the
ability to vote independently of this advice if appropriate.
Rathbone Investment Management exercises the voting rights
attached to approximately 90% of the listed 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
and was classified as a Tier 2 signatory by the FRC in 2016.
In addition to expanding the scope of proxy voting in 2015
and now employing ISS to vote actively on all of its holdings,
Rathbone Unit Trust Management has recently clarified its
policy on stewardship and company engagement in line
with the demand of regulators.
Votes are entered in line with UK corporate governance best
practice, overseen by the stewardship director and fund
investment managers. During 2016, the committee oversaw
active proxy voting on 5,326 resolutions at 446 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 regularly
report on our activities via our website. A more detailed
assessment of our votes against management can
be found in our review of stewardship and proxy voting.
44
Rathbone Brothers Plc Report and accounts 2016 Employees
Our approach
We are firmly committed to evolving our people policies and
practices and having continued high levels of employee
engagement in line with our corporate 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
% of female employees:
% of employees working part-time:
% resignation rate:
49.2%
10.7%
4.6%
Learning
We continue to support the development of all our employees
and have maintained our average annual investment per person
at a significant level of £634 and an average of two days. These
figures are a 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 regularly implement 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. The leadership
programme continued successfully throughout the year and the
programme again involved senior managers focusing on how to
lead their teams to achieve corporate goals. The programme
culminates in a presentation about leadership changes and the
value of the learning. This format will continue to cascade through
the firm during 2017 to build leadership and management skills
across the group.
We have aligned some of our management development to formal
qualifications. A number of managers have successfully achieved a
level five qualification awarded by the Chartered Management
Institute, which included a module on managing operational risk
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.
Talent development
Rathbones is keen to develop a pipeline of high-calibre talent to
ensure appropriate skills and succession planning for the future.
Our second apprenticeship programme is well underway with
six participants and, in light of the success of this programme,
a further group will be recruited in 2017. Our continued
commitment to developing younger talent means that the
existing graduate development programme will be completed
in early 2017 and a new programme started. The new programme
will see the trainees participate in a variety of placements around
the firm to gain a broad range of experience.
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.
The performance management process is reviewed on an
ongoing basis and during 2016, we tailored our approach
further to prompt more meaningful performance discussions,
in particular to include self review and a focus on career
aspirations. In 2017, the emphasis 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 has two female non-executive directors out
of five and has thus achieved our commitment to meet Lord
Davies’ target of 25% female board representation. We are
working towards achieving the adjusted target of 33%
of female board representation for FTSE 350 companies by
2020 and are developing a policy and targets aligned to the
recommendations published in the Hampton Alexander
review in November 2016.
Historically, women are less well represented in the investment
management industry 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 comprise broadly equal numbers of men and women)
and by encouraging more applications from women to our work
experience and financial career programmes.
45
Rathbone Brothers Plc Report and accounts 2016 Strategic report 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, actively
seeking 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 shared the
results with our employees and in 2016 we held focus groups
with employees from all areas of the business. We are building
upon the results of these focus groups to further enhance our
employee proposition.
We recognise 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.
Corporate responsibility report continued
Employees continued
We continue to target the progression and development of
existing female employees with opportunities for leadership and
management programmes. During 2016, we engaged with some
of our recently returned maternity leavers to discuss their
experiences, their views of our maternity provisions and their
recommendations. We aim to take these views into account
when reviewing our maternity policies.
Performance and reward
We offer a comprehensive remuneration package, which is
regularly reviewed to ensure that our employees are fairly
rewarded. 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,
rising to 10% with additional employee contributions. In 2016,
we started a consultation with members of the company
defined benefit pension schemes. This consultation has
resulted in a decision to close the schemes and we will provide
members with access to pension benefits comparable to those
provided to all our other employees.
We provide a wide range of core benefits such as private
medical cover, income protection insurance and life assurance.
All employees are eligible for an annual medical examination
funded by the company.
Employees are encouraged to identify with and benefit
from the financial performance of the group through our
share-matching incentive plan (SIP), free shares and Save
As You Earn (SAYE) schemes.
We have a continued focus on employee wellbeing. Employees
have access to an Employee Assistance Programme offering
confidential advice and support to employees and their families.
Our people can also take advantage of the vast range of
voluntary benefits available such as the cycle to work scheme,
childcare vouchers, flexible holidays, voluntary leave and
discounts on products and services through our ‘Reward Board’
benefits platform.
46
Rathbone Brothers Plc Report and accounts 2016 Investing in brighter futures
The Rathbones Financial Awareness Programme involves
investment managers delivering presentations to 16–25 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.
In 2016, the programme was delivered to over 2,000 young
people. A booklet was created to provide financial education for
those who may not be able to attend one of our courses.
We were 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,
alongside our continued partnerships with English Lacrosse and
Lacrosse Scotland, we look forward to welcoming the best in the
world at the FIL Rathbones Women’s Lacrosse World Cup in
summer 2017.
Further information on all of our initiatives for young
people can be found at rathbones.com/about-us/sponsorships-
and-partnerships.
Local communities
We are committed to supporting the communities in which we
are 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.
Communities
Donations and fundraising
During the year, the group made total charitable donations
of £353,000, representing 0.7% of group pre-tax profits
(2015: £353,000, representing 0.6% of group pre-tax profits).
It also included the matching of employee donations made
through the tax efficient Give As You Earn (GAYE) payroll
giving scheme. In 2016, our employees made payments totalling
£196,000 (2015: £182,000) 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 2016 donated £164,000 (2015: £152,000) to causes
chosen by employees through this method.
During 2016, the Rathbone Brothers foundations across the
country considered many requests for assistance and met a
number of charities. Significant donations were made to the
following organisations:
— Beatson Cancer Charity is a charity that provides the best
cancer treatment in Europe. Our members of staff have
volunteered at the centre as well as holding charitable events.
— The Teapot Trust provides professional art psychotherapy
and support for children with life-limiting chronic illnesses,
particularly those suffering complex rheumatological
conditions such as juvenile arthritis and lupus.
— ClearVision is a lending library that adds Braille to children’s
books, before loaning them to visually impaired children.
The charity’s library is well established and serves over 1,000
families, schools, vision support services and public libraries,
making over 10,000 loans in the last year alone.
— Andover Child Contact Centre enables children of separated
families to spend time with their parent or parents in a
neutral, supervised and child-friendly environment.
— The Anthony Walker Foundation aims to prevent
youth involvement in hate crimes, promote racial harmony,
encourage the celebration of diversity and personal integrity
and realise the potential of all young people through
education, sport and the arts.
47
Rathbone Brothers Plc Report and accounts 2016 Strategic report Corporate responsibility report continued
Environmental impact
Our reporting period covers the 12 months to 30 September 2016
(2015/16) and our baseline year is 2012/13.
Carbon footprint
As a responsible investor, Rathbones leads by example in our
approach to environmental matters. We strive to understand the
environmental impacts of our business activities and, where
possible, act to reduce them. This is the ninth annual report on
our carbon footprint and we are pleased to report a 9% reduction
in our total emissions to 2,814 tCO2e, down from 3,081 tCO2e
in 2014/15.
This reduction has been primarily driven by a 15% reduction in
buildings emissions and a 6% reduction in business travel
emissions, which together account for 85% of our total footprint.
The business has also grown this year with increases in
headcount, office space, operating income and funds under
management. This growth, combined with the reduction in
total emissions, has significantly reduced the carbon intensity
of our business.
A summary of our carbon footprint and intensity is
detailed below:
Emissions (tCO2e) since baseline year
Refrigerant
Waste
Transmission and distribution
Data centre
Natural gas
Paper
Business travel
Purchased electricity
Carbon intensity (tCO2e)*
Staff (FTE)
Net internal area of offices (m2)
Operating income (£m)
Funds under management (£bn)
2,882
2,907
3,081
2,814
2012/13
3.5
0.20
16.34
131
2013/14
3.4
0.20
13.39
107
2014/15
3.2
0.21
13.39
106
2015/16
2.7
0.18
11.54
85
Change vs.
2014/15
16%
14%
14%
20%
* Carbon intensity is total (all Scopes) tCO2e per: FTE; m2 ; £m of operating income; £bn of funds under management
48
Rathbone Brothers Plc Report and accounts 2016 Compliance with regulations
Rathbones complies with the regulations for reporting
greenhouse gas emissions. Whilst our financial reporting
year is the calendar year, our reporting period for greenhouse
gas emissions is 1 October to 30 September. Following an
operational control approach to defining our organisational
boundary, our 2015/16 greenhouse gas emissions from business
activities amounted to:
— 357 tCO2e resulting from the combustion of fuel and the
operation of any facilities (classified as Scope 1 in this report)
— 1,009 tCO2e from the purchase of electricity by the company
for its own use (classified as Scope 2 in this report).
During 2015/16 we aquired a small office in Falmouth, which
increased our reporting boundary. It has not been practical to
gather data on energy use at our Lymington office and we have
used typical energy consumption benchmarks to calculate the
energy use at this site based on floor area.
The methodology used is in accordance with the requirements
of the following standard: 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.
Objectives
Our 2015/16 objectives
1. To ensure that energy efficiency measures are adopted
where possible during the fit out of the new
London headquarters.
Achieved. The fit out of the new London headquarters
commenced in September 2016 and the process completed
on 13 February 2017.
2. To ensure that furniture, fittings and equipment at the
Curzon Street office are recycled or reused wherever possible.
In progress. As part of the move to the new London office
we will closely monitor this to ensure maximum reuse
and recycling.
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.
Achieved. We continue to monitor group travel to ensure it is
booked through our agents and is in accordance with our
policy. We are pleased to report a 6% reduction in business
travel emissions this year.
4. To encourage our landlords to source energy from
renewable sources.
Partially achieved. For sites where we have a direct contract
with the supplier, our tariffs are less emissions intensive than
the national average and in December 2016 we switched to a
100% renewable tariff at our Winchester site. We will
continue to encourage our landlords to switch to
renewable sources.
Looking ahead to 2016/17
Next year will be the 10th year in which we report on our carbon
footprint and we will be taking an in-depth look at our business
to understand how we can align our environmental and
sustainability objectives with the broader commercial
objectives of our business. Over the course of the next year,
we will continue to monitor and, wherever possible, reduce our
environmental impacts. We will also develop a strategic
approach to addressing these impacts over the longer term,
to be disclosed in the 2016/17 report.
49
Rathbone Brothers Plc Report and accounts 2016 Strategic report
Corporate responsibility report continued
Environmental impact continued
Carbon intensity
Staff (FTE)
Net internal area of
offices (m2)
Operating income (£m)
Funds under
management (£bn)
2015/16
1,045
Operational indicators
2014/15
2013/14
2012/13
2015/16
Carbon intensity (tCO2e*)
2014/15
2013/14
965
867
829
2.7
3.2
3.4
15,369
243.8
14,518
230.1
14,430
209.3
14,430
176.4
0.18
11.54
0.21
13.39
0.20
13.89
2012/13
3.5
0.20
16.34
33.2
29.2
27.2
22.0
85
106
107
131
* Carbon intensity is the total (all Scopes) tCO2e per: FTE; m2; £m of operating income; £bn of funds under management
Carbon footprint by scope (tCO2e)
Scope 1
Natural gas
Refrigerant
Purchased electricity
Data centre1
Business travel
Paper
Waste
Electricity
transmission and
distribution
Scope 2
Scope 3
Total
2015/16
2014/15
2013/14
2012/13
Location
357
—
1,009
294
649
388
27
91
2,814
Market
357
—
1,262
356
649
388
27
91
3,130
Location
301
2
1,332
314
689
308
25
110
3,081
Market
301
2
1,332
314
689
308
25
110
3,081
261
51
1,450
224
473
311
11
127
2,907
(Baseline)
281
23
1,463
133
504
333
9
136
2,882
1. 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
centres are reported as Scope 3. However, where we state figures for overall buildings electricity use we have included the data centres, as we felt this is the more
transparent approach
50
Rathbone Brothers Plc Report and accounts 2016 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 2015 to 30 September 2016. It does not
represent an independent third party assurance of Rathbones’
management approach to sustainability.
Carbon Smart has been commissioned by Rathbones for the
ninth consecutive year to calculate Rathbones’ carbon footprint
for all offices for its 2016 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.
Completeness
Rathbones continues to use the operational control approach to
defining its 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.
Consistency
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.
51
Rathbone Brothers Plc Report and accounts 2016 Strategic report Governance
52
Rathbone Brothers Plc Report and accounts 2016 Corporate governance report
You will find commentaries in this annual report from me
and other committee chairmen on important aspects of the
firm’s governance.
The board’s primary focus is on ensuring that the business
prospers for the benefit of our shareholders and other
stakeholders. The best way to achieve this goal is through
good governance and good risk management across the firm.
In addition, our long-established, client-focused service ensures
that client interests and needs are central to the firm’s culture.
The board had six board meetings during the year and met
informally on a number of occasions. Prior to each board meeting,
the board received written reports on the progress of the business
and key performance indicators, together with detailed updates on
the progress, and implementation, of agreed strategic initiatives.
Immediately before each board meeting I met separately with the
non-executive directors to discuss any significant matters arising
from these reports and the focus of any challenges. Each board
meeting is attended for relevant items by one or more members of
the executive committee so that they can address their areas of
responsibility in more depth. In addition, in October the board
arranged a strategy day, attended by all members of the executive
committee, to discuss and review the firm’s culture and the
progress of certain strategic initiatives.
As a board, we fully support the increasing focus on culture by our
regulators. In March 2016, the Senior Managers and Certification
Regime came into force. This, inter alia, sets out the responsibility
of the board, and in particular of the chairman and chief executive,
for leading the development of the firm’s culture and embedding it
throughout the business. The chief executive and I decided that
the appropriate first step was to initiate a review of our culture. The
findings were presented and discussed at length with both the full
board and the executive committee. It was agreed that a number
of metrics illustrating our cultural development would be
developed and monitored by the conduct risk committee who
would report quarterly to the board. It was also recognised that an
overview of the development of our culture would be maintained
by the non-executive directors through formal and informal
engagement with employees throughout the business.
In relation to the board, David Harrel, our senior independent
director and chairman of the remuneration committee, reached
the ninth anniversary of his appointment in December 2016 and,
as a result, will not be seeking re-election at the 2017 AGM. I would
like to thank David for his significant contribution and counsel to
the board and me over the last nine years. The board was strongly
of the view that it was appropriate and in the best interests of the
company that David Harrel should remain as chairman of the
remuneration committee until the AGM in May 2017 when the
remuneration report is voted upon by shareholders. Subject to
regulatory consent, Sarah Gentleman will become chairman of
the remuneration committee following the AGM.
I am pleased to also announce the appointment of Jim Pettigrew
as a non-executive director, subject to regulatory approval. Jim has
considerable experience as both an executive and a non-executive
director in the financial services sector. This experience will be of
great benefit to the board and I look forward to working with him.
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 David Harrel, 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.
During the year, we undertook an annual board effectiveness
review, which we focused in particular on areas where we all agree
we need to improve. This embraced the way we work together,
the focus of the board agenda, including the quality of the board
papers and succession planning.
Finally, Rathbones takes the recommendations of the UK
Corporate Governance Code seriously and we have been
compliant with it throughout the year. In relation to Lord Davies’
recommendation on board diversity, we currently have two
female directors on our board, which represents 29% of our total
board membership. We are aware of the importance of having
gender diversity on the board and consideration will be given to it
during the recruitment process in order to achieve the 33% female
representation target. The success of internal executive succession
planning is highly reliant on the management of talent within the
organisation, something the board also takes very seriously. In
addition, the company is taking steps to ensure that there are no
barriers to women succeeding at the highest levels.
Mark Nicholls
Chairman
22 February 2017
Rathbone Brothers Plc Report and accounts 2016
53
53
GovernanceRathbone Brothers Plc Report and accounts 2016
Corporate governance report continued
Governance at a glance
Governance framework
The board
Chaired by Mark Nicholls – meets six times a year
Accountable to shareholders for the long term sustainable success of the group. This is achieved through setting out the strategy,
monitoring of these objectives and providing oversight of the implementation of these objectives by the management team.
Group risk
committee
Chaired by Kathryn
Matthews
Meets four times
a year
The group risk
committee is
responsible for
reviewing reports
from the business,
discussing risk
appetite, discussing
loss events and near
misses and reviewing
end-to-end process
risk assessments
Audit
committee
Chaired by
James Dean
Meets six times
a year
The audit committee
has responsibility
for overseeing and
monitoring the group’s
financial statements,
accounting processes
and audit (internal and
external) controls
Nomination
committee
Chaired by
Mark Nicholls
Meets twice
a year
The nomination
committee regularly
reviews the structure,
size and composition
of the board and its
committees. It
identifies and
nominates suitable
candidates to be
appointed to the board
(subject to board
approval) and
considers talent and
succession generally
Executive
committee
Chaired by
Philip Howell
Meets 12 times
a year
The executive
committee is
focused on the
implementation of
the agreed strategy
and the day-to-day
management of the
group, including
reviewing and
discussing the annual
business plan and
budget prior to
submission to the
board for approval
Remuneration
committee
Chaired by
David Harrel
Meets four times
a year
The remuneration
committee reviews
and recommends
to the board the
framework and policy
for the remuneration
of the chairman, the
executive directors
and the non-executive
directors. The
committee takes into
account the business
strategy of the group
and how the
remuneration policy
reflects and supports
that strategy
See page 60
See page 80
See page 82
See page 86
See page 88
54
54
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Board summary
Board composition
Board tenure
Board diversity
Independent
non-executive
Executive
Chairman
57%
29%
14%
0-2 years
3-6 years
Over 6 years
20%
60%
20%
Male
Female
5
2
G
o
v
e
r
n
a
n
c
e
Board attendance
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
Plc board1
5/5*
6/6
6/6
6/6
6/6
6/6
6/6
6/6
Executive
committee2
11/12
12/12
12/12
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
2/2
2/2
2/2
4/4
4/4
4/4
4/4
* Mr. Chavasse stepped down from the board on 3 November 2016 and was only eligible to attend meetings up to this date
1. Scheduled bi-monthly meeting
2. Scheduled monthly meeting
UK Corporate Governance Code
Compliance statement
The company complied in full with the provisions of the UK
Corporate Governance Code published in September 2014, which
applied throughout the financial year ended 31 December 2016.
Board effectiveness
The main elements to board effectiveness are as follows:
i) External board evaluation conducted every three years,
which has focused on the following areas:
– management information flows to the board
– succession planning to develop executive and
non-executive directors
– induction and development for board members
– risk management.
ii) Annual director appraisals conducted by the chairman
consisting of the completion of a questionnaire and follow
up face-to-face meetings with the chairman.
iii) Training and development – annual completion of director
CPD programmes.
Rathbone Brothers Plc Report and accounts 2016
55
55
Rathbone Brothers Plc Report and accounts 2016 Corporate governance report continued
The role of the board
The board provides the leadership and oversight to ensure
long term success for the company. The board currently consists
of a non-executive chairman, two 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, the chief executive, the senior independent director
and the non-executive directors have been clearly defined and
agreed by the board to ensure a separation of power and authority.
In addition to their directors’ duties, these roles have the following
specific responsibilities.
Chairman
– Leading the board and ensuring effective engagement and
contribution from all the directors
– Managing board meetings with accurate, clear and timely
information in order to ensure effective decision-making
– Promoting effective and constructive relationships
between non-executive directors, executive directors
and the executive team
– Chairing the nomination committee and considering the
composition and succession plans for the board
– Evaluating the performance of the board, its committees
and individual directors on an annual basis
Chief executive
– Providing executive leadership and management to
the business
– Responsible for the effectiveness of the executive committee
– Delivery of the strategic objectives set by the board in line
with the group’s risk appetite
– Oversight of the financial position of the group
– Maintain strong relationships with the chairman, the board
and key shareholders
Senior independent director
– Act as a sounding board for the chairman and serve as an
intermediary for the other directors if required
– Meet with the non-executive directors (without the
chairman present) at least annually and lead the board in
the ongoing monitoring and annual performance evaluation
of the chairman
– Be available to meet with a range of major shareholders to
develop a balanced understanding of their issues and concerns
and report the outcome of such meetings to the board
The non-executive directors bring independent judgment to the
board table gained at a senior level in other organisations and
constructively challenge strategy and management performance.
The biographies of the directors and their details are set out on
pages 58 to 59.
We meet formally 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, the chairman and the chief executive is generally held.
The non-executive directors also have informal meetings without
the chairman or chief executive present.
The chairman and the company secretary manage board and
committee meetings and ensure that the board (and particularly
the non-executive directors) are receiving appropriate and
balanced information. The company secretary 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.
56
56
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016 Governance of the company
In relation to compliance with the UK Corporate Governance
Code (‘the Code’), this report together with the directors’ report
states the position at 22 February 2017. The 2014 Code applied to
the company’s 2016 financial year. The directors have considered
the contents and recommendations of the Code and confirm that
throughout the year the company has applied the main principles
and complied with the provisions of the Code.
Board effectiveness
There are three key elements to ensuring board effectiveness:
the annual board effectiveness review, individual director
appraisal and training.
Board effectiveness review
Each year, the board undertakes an annual review of its
effectiveness. In 2014, an external review was undertaken by
an independent third party, 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 and associated actions by the
board in 2015 were disclosed in our 2015 report and accounts.
A subsequent external board evaluation will be held during 2017.
The 2016 board effectiveness review was devised internally, as
permitted by the Code. The board was keen for the evaluation to
highlight learnings from the past and build on these for the future.
The review consisted of a focused questionnaire on key topics
such as:
– board skills and dynamics
– quality of the board’s strategic and operational oversight
– quality of our risk assessment on major decisions
– oversight of culture and our succession planning
– the effectiveness of the committees.
The responses of all board members were collated and reported
back to the board by an independent third party, Lintstock, who
also commented on common themes arising therefrom. Follow
up one-to-one sessions were held between the chairman and
each director.
Overall the board effectiveness review and the one-to-one
sessions were extremely positive and constructive. In particular,
there are common views between the executive directors and
non-executive directors about what we do well and where there
could be improvement. Particular areas for improvement include
better information on our performance against our strategic
milestones, board papers should be more focused on strategy and
strategic context and our executive and non-executive succession
plans need further development.
Director appraisal
In addition to the board evaluation process, the senior
independent director led a separate performance review in
respect of the chairman which involved a review with the
non-executive directors, excluding the chairman, and separate
consultation with the chief executive. The senior independent
director subsequently provided feedback to the chairman on
his appraisal which confirmed his effectiveness.
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.
Board committees
Details of the work of the principal board committees are set out in
the separate reports for each committee, which follow this report.
Rathbone Brothers Plc Report and accounts 2016
57
57
GovernanceRathbone Brothers Plc Report and accounts 2016
Directors
Chairman
Executive directors
Mark Nicholls
Chairman
Philip Howell
Chief Executive
Paul Stockton
Finance Director
Appointment: 01/12/2010
Age: 67
Board committees: Re N
Appointment: 1/12/2013
Age: 61
Board committees: E
Appointment: 24/09/2008
Age: 51
Board committees: E
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 AGM
in May 2011 and is considered
to be independent.
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 initially
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.
Board committees
Executive committee
A Audit committee
E
N Nomination committee
Re Remuneration committee
Ri Group risk committee
Bold in biographies indicates
committee chairman
58
58
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Non-executive directors
David Harrel
Senior Independent Director
James Dean
Non-executive Director
(Independent)
Sarah Gentleman
Non-executive Director
(Independent)
Kathryn Matthews
Non-executive Director
(Independent)
Appointment: 1/12/2007
Age: 68
Board committees: A Re N Ri
Appointment: 1/11/2013
Age: 59
Board committees: A Re N Ri
Appointment: 21/01/2015
Age: 46
Board committees: A Re N Ri
Appointment: 6/01/2010
Age: 57
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. David has a
variety of other appointments.
He is non-executive chairman
of Fairpoint Group plc and a
trustee of the Clore Duffield
Foundation. David will be
retiring from the board
following the 2017 AGM
and will be stepping
down as chairman of
the remuneration
committee and as senior
independent director.
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.
Sarah Gentleman started
her career as a consultant at
McKinsey and 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
with a degree in Natural
Sciences and also has an MBA
from INSEAD. Sarah will be
appointed chairman of the
remuneration committee
following the 2017 AGM.
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
Aperam S.A., J P Morgan
Chinese Investment Trust Plc,
Montanaro UK Smaller
Companies Investment Trust
Plc and BT Investments
Limited. 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
retired as a non-executive
director of Hermes Fund
Managers Limited in January
2017. She is chairman of the
group risk committee.
Rathbone Brothers Plc Report and accounts 2016
59
59
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report
Remuneration committee chairman’s
annual statement
I am pleased to present the remuneration committee report for
the year ended 31 December 2016.
2016 was the second year of operation of both the directors’
remuneration policy and the Executive Incentive Plan (EIP), which
were approved by shareholders in 2015. We have set out in this
report details of the performance metrics and targets against
which 2016 performance was judged.
Salary
The committee has considered non-executive and executive
director salaries for 2017 in light of the prevailing economic
conditions and has decided that no increases will be awarded.
The budget for salary increases across the company is set at 3%.
The committee will continue to use a number of reference points
to determine future pay structure, quantum and peer group
positioning for executive directors.
EIP outcomes
The strong performance of the FTSE in 2016 helped Rathbones
to outperform our profitability targets although, in general,
business conditions remained challenging. As reported in the
financial performance measures on page 71, the company
achieved above target performance in respect of return on capital
employed (ROCE) annual profit before tax and operating margin
targets, but did not meet threshold performance in respect of the
earnings per share (EPS) and organic growth metrics. The
committee also noted good progress in the non-financial strategic
objectives, which cover critical project performance, stakeholder
measures and client experience. In setting the award for non-
financial objectives, the committee also considered shareholder
feedback and the overall client experience. We have set out in
more detail later in the remuneration committee report the 2016
targets and outcomes for the balanced scorecard, which drive the
overall EIP award.
The committee has set targets for the EIP for 2017 which will be
disclosed in the remuneration committee report next year.
Legacy LTIP scheme
The long term financial and shareholder return performance also
meant that the legacy 2014–16 Long Term Incentive Plan (LTIP)
has achieved vesting at 67% of maximum. This plan is now closed.
There are no outstanding awards under the LTIP and no further
awards will be made.
Other remuneration committee work
Over a number of meetings during the year, the remuneration
committee considered and approved enhancements to
investment managers’ remuneration after a comprehensive
review of legacy arrangements.
Plans for 2017
During 2017, we will continue to operate executive remuneration
arrangements in line with the approved remuneration policy. No
changes are proposed to the design of the EIP for the year ahead.
The committee will however be reviewing the level of
shareholding that is required to be held by executive directors
after conducting a market review of peer companies and following
feedback received on last year’s remuneration report. Currently,
executive directors are encouraged to build and maintain
shareholding equal to one times the value of their base salary.
Executive director changes
As announced on 3 November 2016, Paul Chavasse stepped down
from the board and will leave the company on 31 March 2017.
Information relating to remuneration that will be paid to Mr.
Chavasse following his departure from the company can be found
on page 70 of this report.
Conclusion
Overall, Rathbones has performed well in 2016 and this is reflected
in the EIP awards. The broad range of performance measures in
the EIP has allowed the board the scope to recognise appropriately
the range of performance outcomes for 2016. The remuneration
landscape continues to be the subject of political and regulatory
policy changes and, as these evolve, the committee will
ensure that our remuneration policy and practice change to
ensure compliance and that we remain performance-driven
and competitive.
The committee will continue to strive to support the business
strategy and the delivery of our performance ambitions.
David Harrel
Chairman of the remuneration committee
22 February 2017
60
60
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Remuneration at a glance
Our remuneration philosophy
Our remuneration policy 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
What executive directors were paid
for 2016
2016
total: £1.398m
P L Howell
R P Stockton
P D G Chavasse
2016
total: £0.512m
Salary and fees
Taxable benefits and allowances
2016 EIP award for the year
Vested LTIP awards for 2014–16 performance period
Pensions
SIP
SAYE
– 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.
To read about our remuneration policy please turn to page 62.
Final vesting of legacy LTIP
This year is the last year of our transition from the Long Term
Incentive Plan (LTIP) to the new Executive Incentive Plan (EIP).
This year directors will receive a final vesting from the LTIP as
the grants from 2014 vest. The EIP brings the following benefits:
– Balance: performance is assessed using a balanced scorecard
of long term and annual financial objectives of the business,
non-financial strategic objectives and personal performance
– Alignment: the deferral into shares over five years for 60% of
the EIP award, together with a five year holding period on the
shares from award date, aligns remuneration with both our
five-year strategy and the interests of our shareholders
– Prudence: The EIP maintains a cap on total variable pay of
200% of base salary.
Read more about the LTIP and EIP on pages 71 to 73 and 76.
2016
total: £0.902m
– Simplicity: performance is measured using a single annual
assessment
Why they were paid that
Our overall scorecard
The EIP is based on our overall balanced scorecard. This includes
the following metrics:
Performance highlights
– Above target performance in ROCE, annual profit before tax
and underlying operating profit margin
– financial one year (maximum 50% of base salary)
– Good performance in non-financial strategic objectives
– financial three year (maximum 80% of base salary)
– Good performance against personal objectives
– non-financial (maximum 30% of base salary)
– Below threshold performance on earnings per share growth
– personal performance (maximum 40% of base salary).
Read more about our overall balanced scorecard on
pages 63 to 64.
rate and net organic growth.
Read more about our performance on pages 71 to 73.
Rathbone Brothers Plc Report and accounts 2016
61
61
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Directors’ remuneration policy
The executive and non-executive directors remuneration policy, which was approved by shareholders at the AGM on 14 May 2015, is
presented below.
Applicable performance measures Recovery
Not applicable.
Not applicable.
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.
Operation
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.
Opportunity
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 2017
remain unchanged:
Philip Howell £463,500
Paul Stockton £294,580
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
Benefits are set by the
committee and may include,
for example:
Opportunity
Benefits make up a small
percentage of total
remuneration costs.
Applicable performance measures Recovery
Not applicable.
Not applicable.
– 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.
62
62
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Opportunity
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.
Executive Incentive Plan
Purpose and link to strategy
The EIP rewards short
term performance, 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.
Operation
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.
Applicable performance measures
EIP balanced scorecard measures
are set by the committee to support
the company’s strategy. The 2016
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 (one year) (25%
weighting, equally split between
the measures)
– underlying profit before tax
compared to the budget
– net organic growth in funds
under management compared
to the target
– underlying operating profit margin
compared to target range.
Financial (three year trailing)
(40% weighting, equally split
between the measures)
– compound annual growth in
EPS over three years
– average ROCE over three years
– the three year trailing measure
are being phased in between 2015
and 2017. For 2016, specific two
year targets have been set for
EPS and ROCE. These targets
are based on the 2016 budget.
The performance metrics and range
of outcomes for each financial
measure (one year and three year
trailing) are set by the committee
and reviewed annually.
Recovery
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.
Rathbone Brothers Plc Report and accounts 2016
63
63
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Directors’ remuneration policy continued
Executive Incentive Plan continued
Operation
Purpose and link to strategy
Opportunity
Recovery
Applicable performance measures
Non-financial strategic measures
(15% weighting)
– assessment of non-financial
performance relating to the
delivery of 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.
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.
64
64
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Pension or cash allowance
Purpose and link to strategy
To provide the executive
directors with retirement
benefits.
Operation
Payments may be made
to a defined contribution
(DC) pension arrangement
such as a SIPP or to the
group defined contribution
scheme. Alternatively,
they may receive a cash
allowance in lieu of pension.
Chairman and other non-executive directors
Opportunity
The maximum personal
pension or allowance
payment is 14% of salary.
Applicable performance measures Recovery
Not applicable.
Not applicable.
Applicable performance measures Recovery
Not applicable.
Not applicable.
Base fee
Purpose and link to strategy
To enable the recruitment
of high-calibre non-
executive directors with
the appropriate skills
and experience.
Operation
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.
Opportunity
The base fee for the
chairman in 2016 was
£160,000. This was
retained at £160,000
on 1 January 2017. The
base fee for the other non-
executive directors in 2016
was £50,000. This was
retained at £50,000 on
January 2017.
Additional responsibility fee
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.
Operation
Additional responsibility
fees are reviewed annually
by the board on 1 January.
Opportunity
The additional responsibility
fee remained unchanged
and payable at £10,000
per annum.
Applicable performance measures Recovery
Not applicable.
Not applicable.
Rathbone Brothers Plc Report and accounts 2016
65
65
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Directors’ remuneration policy continued
Notes to the directors’ remuneration
policy table
Remuneration policy changes
No changes have been made to the remuneration policy since
its agreement by shareholders in 2015.
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 with budget links performance to
strategy and the business plan. Growth in funds under
management 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 over a three year term.
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 with major shareholders and their
representative bodies but did not consult with employees when
drawing up the remuneration policy set out in this report.
Appointment of new directors
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.
66
66
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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.
Payments for loss of office and service contracts
It is company policy that service 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
15 Nov 2011
12 Feb 2013
14 Oct 2011
Notice
period
12 months
12 months
6 months
There are no provisions within the contracts to provide automatic
payments in excess of payment in lieu of notice upon termination
by the company and no 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 AGM.
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.
Rathbone Brothers Plc Report and accounts 2016
67
67
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Directors’ remuneration policy continued
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.
Philip Howell
Value of package (£m)
Minimum
£503,454
In line with
expectations
Maximum
Salary
EIP
Pension
Paul Stockton
Value of package (£m)
Minimum
£319,973
In line with
expectations
Maximum
Salary
EIP
Pension
Philip Howell
Composition of package (%)
£1,059,654
Minimum
In line with
expectations
£1,430,454
Maximum
Salary
EIP
Pension
Paul Stockton
Composition of package (%)
Minimum
In line with
expectations
£673,469
£909,133
Maximum
Salary
EIP
Pension
100
100
100
100
100
100
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.
Difference between directors’ remuneration policy
and other employees
All employees, including executive directors, benefit from fixed
and variable pay, pension and non-cash benefits. The company
operates a number of variable remuneration schemes within the
group, some fully discretionary, others with mechanistic elements
in addition to a discretionary element. Membership of such
schemes is defined by status and job type. Only executive
directors and executive committee members benefit from
membership of the Executive Incentive Plan.
68
68
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Annual report on remuneration
The remuneration of directors in 2016 and 2015 is set out in the
table below. Executive director remuneration for 2016 includes
vesting of legacy LTIP awards made in 2014 where the
performance period ended in the year and EIP awards for 2016
performance, 60% of which vests over five years.
The report has been prepared on behalf of the board by the
remuneration committee, in accordance with the relevant
provisions of the Companies Act 2006, as set out by The Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended).
Single total figure of remuneration for each director (audited)
Salary
and fees
£’000
Taxable
benefits and
allowances
£’000
2016 EIP
award for
the year –
cash
£’000
2016 EIP
award for
the year –
unvested
deferred
shares
£’000
Vested LTIP
awards for
2014–16
performance
period
£’000
Pensions
£’000
SIP
£’000
SAYE
£’000
Total
£’000
2016
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
Total
294
464
295
1,053
60
50
70
60
160
400
1,453
2
2
13
17
–
–
–
–
–
–
17
–
244
155
399
–
–
–
–
–
–
399
–
365
232
597
–
–
–
–
–
–
597
177
279
177
633
–
–
–
–
–
–
633
35
40
25
100
–
–
–
–
–
–
100
4
4
4
12
–
–
–
–
–
–
12
–
–
1
1
–
–
–
–
–
–
1
512
1,398
902
2,812
60
50
70
60
160
400
3,212
Salary
and fees
£'000
Taxable
benefits and
allowances
£'000
2015 EIP
award for
the year –
cash
£'000
2015 EIP
award for
the year –
unvested
deferred
shares
£'000
Vested LTIP
awards for
2013–15
performance
period
£'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
Total
294
464
295
1,053
60
47
70
60
160
397
1,450
2
2
13
17
–
–
–
–
–
–
17
169
290
182
641
–
–
–
–
–
–
641
254
435
273
962
–
–
–
–
–
–
962
318
373
284
975
–
–
–
–
–
–
975
85
40
25
150
–
–
–
–
–
–
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
Rathbone Brothers Plc Report and accounts 2016
69
69
GovernanceRathbone Brothers Plc Report and accounts 2016
As part of his termination arrangements, Mr. Chavasse has agreed
that any other awards that will vest or have vested in accordance
with their terms whilst he remains an employee, but, following
his stepping down from the board, will be subject to the same
recovery provisions as apply to the EIP.
As the termination of his employment is due to redundancy,
Mr. Chavasse is classified as an ‘automatic good leaver’, under
which he will be paid in line with the rules of the SAYE scheme
and the SIP. Following cessation of his employment, Mr. Chavasse
is entitled to exercise his SAYE options to the extent of the savings
in the related SAYE savings contract for a period of six months and
to receive his SIP shares.
The amounts paid to Mr. Chavasse as part of his termination
arrangements are set out in the table below.
Payment reason
Pay in lieu of notice
Statutory redundancy payment
Share plans
2015 Executive Incentive Plan (deferred shares)*
2016 Executive Incentive Plan (40% cash,
60% deferred shares)*
2014 deferred profit share*
Outplacement
Legal costs
Total
* Subject to malus and clawback
£
214,370
9,819
254,100
340,000
139,008
10,000
9,500
976,797
Remuneration committee report continued
Annual report on remuneration continued
Notes to the single total figure of remuneration for
each director table
Executive directors’ salaries
As reported last year, salaries were not increased in 2016 and no
salary increase will be awarded for the 2017 financial year. The
salary disclosed for Paul Chavasse is for the whole financial year,
although as noted below, he stepped down from the board on
3 November 2016 whilst continuing to perform his duties on
the same salary until 31 December 2016. His employment will
terminate on 31 March 2017.
Non-executive directors’ fees
Fees paid to the non-executive directors were not increased
in 2016 with no increase for the 2017 financial year. Any future
increases will depend upon a rigorous assessment of the burden
of responsibilities and market rates.
Taxable benefits
Taxable benefits are the provision of private medical insurance
for executive directors and their dependants and travel expenses
for the executive directors.
Payments for loss of office (audited)
Paul Chavasse stepped down from the board effective
3 November 2016 and will leave the company on 31 March 2017
by reason of redundancy.
On cessation of his employment he will be paid in lieu of notice
for the balance of his notice period (being seven months). In
accordance with the directors’ remuneration policy, the payment
in lieu of notice will be confined to basic salary, pension allowance
and benefits.
The rules of the EIP required the remuneration committee
to determine Mr. Chavasse's leaver status and, as termination
of his employment is due to redundancy, the committee deemed
him to be a good leaver for the purposes of the EIP. This meant
that he was granted a 2016 EIP award and that he will retain
his 2015 and 2016 EIP awards following termination of his
employment. For the avoidance of doubt, Mr. Chavasse will not
be eligible for an award under the 2017 EIP. All share awards under
the EIP will remain subject to their original vesting and retention
schedules as well as the recovery provisions set out in the
remuneration policy table.
70
70
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Executive Incentive Plan (EIP)
The EIP was approved by shareholders at the 2015 AGM.
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.
Executive Incentive Plan award 2016
Performance is assessed using a combination of measures that are
detailed below:
One year financial
Three year financial
Non-financial strategic
Personal performance
Total
1) One year financial
The one year financial performance measures are three key
performance indicators used by the business, which are closely
aligned to our strategy. The one year financial measures and
achievement levels are provided below:
Weight %
25
40
15
20
100
% of base salary
50
80
30
40
200
Financial 1 year
Annual profit before tax (£m)
Total net organic growth in FUM (%)
Underlying operating margin (%)
% of base salary
Threshold
25% of base salary
On target
120% of base
salary
Maximum
200% of base
salary
16.68%
16.66%
16.66%
50.00%
35.8
4.6
26.0
39.8
5.1
27.6
43.8
5.6
29.1
Actual
50.1
4.5
29.8
Weighted payout
(% of base salary)
16.68%
0.00%
16.66%
33.34%
The organic growth in funds under management covers both our
Investment Management and Unit Trusts businesses.
2) Three year financial
The three year financial performance measures and achievement
levels are provided below:
EPS growth (% CAGR)
ROCE average (%)
Threshold
25% of base salary
4.0
15.6
On target
120% of base
salary
7.0
17.0
Maximum
200% of base
salary
10.0
18.6
% of base salary
40.00%
40.00%
80.00%
130.00%
Actual
(6.5)
19.2
Weighted payout
(% of base salary)
0.00%
40.00%
40.00%
73.34%
Rathbone Brothers Plc Report and accounts 2016
71
71
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Annual report on remuneration continued
3) Non-financial strategic
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 2016 are set out below.
Strategic initiatives
– Complete operational readiness of the Rathbone Private Office
– Complete enhancements to the investment process
– Integration of the financial planning unit
Funds growth initiatives
– Achieve gross inflow targets for Rathbone Unit Trust
Management and charities division
– Enhancement to remuneration schemes for investment
managers
– Achieve distribution strategy targets
The remuneration committee has carefully reviewed progress
in implementing each of these initiatives and the collective
performance of the management team.
Progress on the strategic projects has generally been as planned
and objectives have been in line with expectations. Some slippage
in implementation for the Rathbone Private Office and Rathbone
Financial Planning was evidenced during the year largely due to
delays in hiring and contract negotiations. The property market for
high-quality office space in Mayfair remains subdued, which has
impacted the sub letting of the Curzon Street offices.
Investment performance has been in line with expectations. Client
feedback continues to be positive overall and business retention
metrics are also positive. Risk and internal audit metrics show
good progress.
Non-financial strategic target achievement (%)
Infrastructure initiatives
– Complete integration of the acquisition of Vision Independent
Financial Planning and achieve growth targets
50.0
90.0
73.3
63.3
76.6
– Complete IT infrastructure review
– Secure the sub letting of offices in Curzon Street
Stakeholder measures
– Risk and internal audit performance
– Employee engagement
– Shareholder feedback
Client experience measures
– Investment performance measures
– Conduct risk
– Maintain reduction in client losses and complaints
Stratecgic
initiatives
Funds growth
initiatives
Infrastructure
initiatives
Stakeholder
measures
Client experience
measures
The committee concluded that an overall score for this element
of 22% out of a maximum of 30% of base salary is merited.
72
72
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
4) Personal performance
Personal performance has been assessed using specific measures
appropriate to the directors’ roles and responsibilities. Personal
performance outcomes are shown below.
Philip Howell’s personal objectives included delivery on the
strategic plan, incorporating the specific growth initiatives, and
the related change agenda. There were also objectives relating to
developing the management team and succession, the Vision
acquisition and relationships with stakeholders. Philip scored
highly on each objective, albeit the development of the Rathbone
Private Office and the Rathbone Financial Planning service are
behind timetable.
Paul Stockton’s personal objectives included measures relating
to cost challenges, capital raising and relationship building
with external stakeholders. In addition, he has overseen the
development and launch of a comprehensive financial
management information system and contributed effectively to
the board, executive committee and to the leadership of the group.
Executive director
P L Howell
R P Stockton
Personal
performance
(% of base
salary)
36%
36%
Long Term Incentive Plan (LTIP)
The LTIP awards reported are the legacy awards for 2014–16 made
prior to the approval of the current remuneration policy at the
AGM in May 2015.
Executive directors were awarded rights to acquire ordinary
shares at the start of a three year plan cycle. Awards were limited
to 100% of salary. 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 2014–16 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)
Below the percentage change in the
FTSE All Share TRI
Equal to the percentage change in the
FTSE All Share TRI
Greater to the percentage change in the
FTSE All Share TRI by 0.1% to 9.9%
Greater to the percentage change in the
FTSE All Share TRI by 10%
Performance achieved
TSR award vesting
Vesting of Award %
0
25
Straight line increase
100
9%
93%
EPS growth over the plan cycle (50%)
Rathbone Brothers Plc Total Return Index (TRI) relative to
the FTSE All Share TRI (TSR element)
Less than 15%
15%
Over 15% but less than 37.5%
37.5% and over
Vesting of Award %
0
25
Straight line increase
100
Performance achieved
EPS award vesting
Total LTIP vesting award 2016
20%*
41%
67%
* adjusted to exclude costs relating to the acquisition of Vision and Castle, which
were expensed as required by accounting standards
For the 2014–16 plan cycle, the Rathbone Brothers Plc TRI
increased by 28% while the FTSE All Share TRI increased by 19%,
a differential of 9%, resulting in a 93% award for this element of
the plan.
EPS increased by 20% from 76.1p in 2013 to 91.1p in 2016 (adjusted
to exclude costs relating to the acquisition of Vision and Castle,
which were expensed as required by accounting standards),
resulting in a 41% award for this element of the plan.
Overall, this resulted in 67% of the LTIP award vesting in 2016.
Pensions
Philip Howell and Paul Stockton are paid a cash allowance of
8.62% of salary.
During 2016, Paul Chavasse was 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.
All executive directors participate in the Rathbone 1987 Scheme
for death in service benefits.
Rathbone Brothers Plc Report and accounts 2016
73
73
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Annual report on remuneration continued
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 to buy partnership shares 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)
Paul Stockton was awarded interests in shares under the
all-employee SAYE scheme. A SAYE option grant was made on
29 April 2016 at £16.48, which was 80% of the closing mid-market
share price on 5 April 2016 of £20.59. Options may be exercised
after three years.
R P Stockton
Number of
shares
273
Option
price
£16.48
Exercise
price
£4,499
Directors’ interests in shares and shareholding
guidelines (audited)
In order to align the interests of executive directors and
shareholders, the executive directors are required to acquire and
retain a holding in shares or rights to shares equivalent to the
value of one year’s basic salary within five years of the date of
appointment. Shares that count towards these guidelines include
shares that are owned outright, vested and not exercised EIP and
SIP awards and net of tax LTIP awards that have vested. Currently,
Paul Stockton has achieved this target and Philip Howell, who was
appointed chief executive in March 2014, is expected to achieve
this target by the end of 2017.
74
74
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Directors’ share interests as at 31 December 2016
The tables below set out details of the directors’ shareholdings
and outstanding share awards, which are subject to holding and
vesting periods.
Beneficially owned shares
SIP1
Total
LTIP
EIP
Interests in shares
Deferred
profit share
scheme
SIP (not yet
beneficially
owned)1
SAYE
Total
6,836
278
2,186
75,433
9,321
48,205
12,309
19,436
12,352
11,397
19,491
12,229
19,477
12,151
16,962
1,017
465
634
914
2,299
1,140
45,110
53,842
43,318
Private
shares
68,597
9,043
46,019
3,000
749
3,749
–
–
–
–
–
–
1,000
–
–
–
127,659
–
–
765
1,260
12,074
1,000
–
765
1,260
139,733
–
–
–
–
44,097
–
–
–
–
43,117
–
–
–
–
48,586
–
–
–
–
2,116
–
–
–
–
4,353
–
–
–
–
142,270
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
Total
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 beneficially owned
Rathbone Brothers Plc Report and accounts 2016
75
75
GovernanceRathbone Brothers Plc Report and accounts 2016
Remuneration committee report continued
Annual report on remuneration continued
Executive Incentive Plan awards
Normal
exercise
date
(end of sales
restriction
period)2
Executive
P D G Chavasse 22/03/16 £254,153 22/03/21
22/03/16 £434,649 22/03/21
P L Howell
22/03/16 £272,707 22/03/21
R P Stockton
Face value of
award at
grant1
Grant date
Vested but
unexercised
options
(subject to
sales
restriction
period)
Options
granted3
– 11,397
– 19,491
– 12,229
43,117
Dividend
equivalents
added to
exercised
shares
Unvested
options
– 11,397
– 19,491
– 12,229
– 43,117
Vested but
unexercised
options
(subject to
sales
retention)
–
–
–
–
Options
vested
–
–
–
–
Options
exercised
–
–
–
–
Unvested
options
–
–
–
1. Exercise price is nil
2. Awards vest in five equal tranches (1, 2, 3, 4 and 5 years from grant). All shares must be held until the fifth anniversary of the grant (the normal exercise date). There are no
further performance conditions on these shares
3. The number of shares awarded is calculated based on the 20 day average share price on the day prior to grant. Share price on award was £22.30
LTIP outstanding awards
Executive
P D G Chavasse
P L Howell
R P Stockton
Total
Plan
cycle
2013–15
2014–16
2013–15
2014–16
2013–15
2014–16
Grant date
19/03/13
25/03/14
19/03/13
25/03/14
19/03/13
25/03/14
Market
value of
shares at
date of
grant
£14.31
£17.37
£14.31
£17.37
£14.31
£17.37
Number of nil paid options
Performance
period end
date
31/12/15
31/12/16
31/12/15
31/12/16
31/12/15
31/12/16
Vesting date
19/03/16
25/03/17
19/03/16
25/03/17
19/03/16
25/03/17
At 1
January
2016
13,390
12,309
15,723
19,436
11,944
12,352
85,154
Dividend
adjustment
on vesting
1,140
–
1,341
–
1,019
–
3,500
Exercised in
2016
14,530
–
17,064
–
12,963
–
44,557
Lapsed in
2016
–
–
–
–
–
–
–
At 31
December
2016
–
12,309
–
19,436
–
12,352
44,097
76
76
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Deferred profit share scheme
Executive
P D G Chavasse
2012
2013
2014
P L Howell
2012
2013
2014
R P Stockton
2012
2013
2014
Total
SAYE outstanding options
P L Howell
Grant date
Executive
P D G Chavasse 28/03/13
28/04/15
28/03/13
01/05/14
28/04/15
28/03/13
01/05/14
28/04/16
R P Stockton
Total
Number of shares
At 1 January
2016
Vested in
2016
Dividend
adjustment in
2016
At
31 December
2016
12,347
12,121
6,815
31,283
–
–
11,816
11,816
12,550
9,388
7,106
29,044
72,143
12,347
–
–
12,347
–
–
–
–
12,550
–
–
12,550
24,897
–
343
194
537
–
–
335
335
–
266
202
468
1,340
Number of shares
Granted
in 2016
–
–
–
–
–
–
–
273
273
Exercised in
2016
813
–
–
–
–
406
–
–
1,219
Lapsed in
2016
–
–
–
–
–
–
–
–
–
At
1 January
2016
813
914
1,356
578
365
406
867
–
5,299
Earliest
exercise
date
01/05/16
01/06/20
01/05/18
01/06/19
01/06/20
01/05/16
01/06/17
01/06/19
Latest
exercise
date
01/11/16
01/12/20
01/11/18
01/12/19
01/12/20
01/11/16
01/12/17
01/12/19
At 31
December
2016
–
914
1,356
578
365
–
867
273
4,353
Market
price on
grant
(p)
1,397
2,051
1,397
1,945
2,051
1,397
1,945
2,059
–
12,464
7,009
19,473
–
–
12,151
12,151
–
9,654
7,308
16,962
48,586
Exercise
price
(p)
1,106
1,641
1,106
1,556
1,641
1,106
1,556
1,648
Rathbone Brothers Plc Report and accounts 2016
77
77
GovernanceRathbone Brothers Plc Report and accounts 2016
Chief executive officer single figure (unaudited)
During the seven years to 31 December 2016, Andy Pomfret was
chief executive until 28 February 2014 when he was succeeded by
Philip Howell.
Year
2016
2015
2014
2014
2013
2012
2011
2010
CEO
Philip Howell
Philip Howell
Philip Howell
Andy Pomfret
Andy Pomfret
Andy Pomfret
Andy Pomfret
Andy Pomfret
CEO single
figure of total
remuneration
£’000
1,398
1,608
999
342
1,204
1,046
678
736
EIP award
or short term
bonus as % of
maximum
opportunity
66
78
89
n/a
59
38
46
52
Long term
incentive
awarded as %
of maximum
opportunity
67
100
n/a
96
100
100
–
24
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 2016 for the chief executive
compared with the average Rathbones employee.
CEO
Average pay based on all
Rathbones employees
Salary
–
2%
Benefits
–
Annual bonus
(16%)
14%
13%
Remuneration committee report continued
Annual report on remuneration continued
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 group executive
committee member for the full cycle.
The following LTIP award will be paid out in respect of the 2014–16
plan cycle which ended on 31 December 2016. The conditional
share awards were granted on 25 March 2014 using a share price
of £17.36. The performance conditions were achieved at 67% of
maximum and the awards will vest on 25 March 2017.
Adjustments have been made to reflect dividends paid since the
date of grant.
2014–16 LTIP actual award
I M Buckley
Number of shares
2,344
Performance graph (unaudited)
The chart below shows the company’s TSR against the FTSE All
Share Index for the eight years to 31 December 2016. TSR is
calculated assuming that dividends are reinvested on receipt. The
FTSE All Share Index has been selected as a comparator as it is a
suitably broad market index and has been used as a performance
comparator for LTIP plan cycles since 2005–07.
Rathbone Brothers Plc TSR against the FTSE All Share
Index TSR (% change)
215.86
132.80
0
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
Rathbone Brothers Plc – Total Shareholder Return
FTSE All Share – Total Shareholder Return
78
78
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Relative importance of spend on pay
The chart below shows the relationship between total employee
remuneration, profit after tax and dividend distributions for 2015
and 2016. The reported profit after tax has been selected by the
directors as a useful indicator when assessing the relative
importance of spend on pay.
Relative importance of spend on pay (£m)
+10%
124.7
113.3
-18%
46.4
38.2
+2%
25.8
26.5
Total staff costs
Profit after tax
Dividends paid
2015
2016
% Change
Implementation of the remuneration
policy in 2017
In 2017, the remuneration policy will be applied in a similar way
to 2016. 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. Targets and outcomes will be published in
the remuneration committee report following the 2017 year end.
Performance under the long term trailing metrics (EPS growth and
ROCE) will be measured against published underlying results over
the three years from 2015.
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. The committee met on six
occasions in 2016 (2015: four). Details of attendance by members
are set out on page 55.
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 £37,381 in 2016. The appointment of advisers
is reviewed annually.
The chief executive, head of strategy and organisation
development and company secretary attend committee meetings.
Statement of shareholder voting
The directors’ remuneration policy and the annual report on
remuneration received the following votes from shareholders:
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Annual report
on remuneration
(2016 AGM)
96.4%
3.6%
100.0%
210,393
Remuneration
policy
(2015 AGM)
96.8%
3.2%
100.0%
1,373,106
Approval
The remuneration committee report, incorporating both the
directors’ 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
22 February 2017
Rathbone Brothers Plc Report and accounts 2016
79
79
GovernanceRathbone Brothers Plc Report and accounts 2016
Group risk committee report
Group risk committee chairman’s
annual statement
The economic challenges and heavy regulatory agenda coupled
with firm-specific risks have kept the group risk committee
occupied throughout 2016. Significant enhancements to our risk
management and risk appetite frameworks have been made
throughout the year and we are satisfied that we have the skills
and talent across the group to meet the challenges and
opportunities that lie ahead.
As in previous years, the committee apportions its time between
the planned periodic review of key risks and the close scrutiny of
topical business risks as they develop. This approach allows us to
ensure that emerging risks can be identified and debated and that
management’s plans for risk mitigation are well understood and
appropriately resourced. During the year, the committee saw
further improvement in the quality of the management
information that it receives.
Committee members
Our current members are the independent non-executive
directors: myself as chairman, James Dean, Sarah Gentleman
and David Harrel. We met on four occasions in 2016 (2015: four).
Details of attendance by members are set out on page 55.
In addition to the members of the committee, standing invitations
are extended to the chairman, the executive directors, the chief
risk officer and the head of internal audit. All attend committee
meetings as a matter of course and inform the committee’s
discussions. Other executives, risk team members and external
advisers are invited to attend the committee from time-to-time
as required to present and advise on reports commissioned.
In addition, I regularly meet with the chief risk officer and her risk
team in a combination of formal and informal sessions and with
senior management across all divisions of the group to discuss the
business environment and to gather their views of emerging risks.
Role and responsibilities of the committee
These are set out in the terms of reference of the committee,
which are available on the company website. The terms of
reference 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 10 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 ISAE3402 report
on the investment management operations and custody
control systems.
80
80
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Actions in 2016
Further enhancements were made to the group’s risk
management framework in 2016, including the continued
evolution of the three lines of defence model to ensure that it
remains aligned to industry and regulatory standards, particularly
as Rathbones became subject to the Senior Managers and
Certification Regime. Emerging risk assessment has been an
increasing focus of the risk management team and a standing
agenda item for the committee’s discussion.
Looking ahead to 2017
We are committed to the continuing development of our
approach to risk management across the lines of defence.
In the first line, we expect to see delivery of a number of projects
currently in flight that should strengthen further the sustainability
of good client outcomes. We have recently agreed additional
resources, which will be used to strengthen the second line teams
in anticipation of the likely demands arising from the current
change agenda.
A number of areas of operational risk were stressed as part of
the annual ICAAP process. Following robust debate and challenge,
the committee and board were satisfied that the group’s business
model and allocated risk appetite remained appropriate. This is an
important outcome given the number of change management
programmes underway across the group and in our regular
meetings there is specific focus on the progress of key projects
and initiatives.
We also see further convergence between culture, risk and
compensation as the risk culture approach in the firm is
developed and revised compensation schemes are implemented.
The group risk committee and remuneration committee will
continue to work in cooperation to ensure that risk behaviours
and the management of risk issues over the course of the financial
year are appropriately reflected in decisions taken about
performance and reward.
Ensuring that we remain fully compliant with the numerous
new banking rules is increasingly challenging and we continue
to evolve our risk framework so that it remains appropriate and
relevant for all our businesses.
Full details of our risk management framework are included in the
strategic report on pages 18 to 25.
Kathryn Matthews
Chairman of the group risk committee
22 February 2017
Rathbone Brothers Plc Report and accounts 2016
81
81
GovernanceRathbone Brothers Plc Report and accounts 2016
Audit committee report
Audit committee chairman’s
annual statement
During 2016, the external environment and market conditions
impacted Rathbones, which led to another busy year for the audit
committee. The committee has considered a wide range of topics
with a focus on the following areas:
– analysis of the firm’s financial reporting with particular
consideration on accounting judgments taken during the
preparation of the financial statements
– oversight of the effectiveness of the firm’s internal and
external auditors
– monitoring of the firm’s capital position in line with
regulatory requirements.
In addition, the Financial Reporting Council (FRC) informed the
company during the year that it had reviewed the annual report
for the year ended 31 December 2015 and there were no proposed
major financial reporting changes.
Committee members
Our current members are the independent non-executive
directors: James Dean (chairman), Sarah Gentleman, David Harrel
and Kathryn Matthews.
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 2016 (2015: six). Details
of attendance by members are set out on page 55. The chief
executive, finance director, chief risk officer, head of internal audit
and the external audit partner and manager attend almost all
meetings by invitation.
Role and responsibilities of the committee
These are set out in the terms of reference of the committee,
which are available on the company’s website. The terms of
reference are reviewed annually and approved by the board.
What we have done
Financial reporting
During the year, we considered the significant financial and
regulatory reporting issues, the judgments 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 2016 report and
accounts, 2016 interim statement and other market updates
to ensure that they were fair, balanced, understandable and
consistent with the reported results. The committee has been
aware of the latest developments in financial reporting and
FRC guidance.
82
82
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Placing
We considered the potentially significant impact the defined
benefit pension schemes deficit could have on the firm’s
regulatory capital and distributable reserves. We discussed and
supported the board’s decision to undertake a share placing to
raise approximately £36.9 million to fund the near term capital
requirements and provide a degree of financial flexibility for
the firm. The committee assessed the associated financial and
reporting implications.
The carrying value of assets
We reviewed the methodology for valuing assets where a
significant amount of judgment is required, including intangible
assets, particularly goodwill and client relationships.
The valuation of defined benefit pension obligations
We reviewed the key assumptions supporting the valuation of
defined benefit pension obligations, particularly salary increases,
investment returns, inflation and the discount rate, which are
disclosed in note 27 to the financial statements. We reviewed
the professional advice taken by the company and discussed
the assumptions used by us and by other companies with the
auditors. We satisfied ourselves that the assumptions used
were reasonable.
Provisions and contingent liabilities
We discussed provisions totalling £14.7 million summarised
in note 25 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.
Internal audit
The internal audit function is an independent, objective assurance
activity designed to add value and improve the organisation’s
operations by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management,
control and governance processes. The internal audit function is
the third line of defence within the controls framework, providing
independent assurance to both senior management and the audit
committee, reporting to the chairman of the audit committee.
Deloitte LLP were engaged on 1 July 2015, as a co-source partner,
supplementing the in-house team. With Deloitte’s significant
resource and knowledge base, they are able to provide specialist
assistance supporting the annual internal audit planning process,
as well as technical input into individual audit reviews. A
combined assurance map has been developed, linking significant
risks to first line controls, second line monitoring and oversight
and internal audit work.
The 2016 internal audit plan was approved by the committee
ahead of the start of the year with a greater focus on thematic
work. The internal audit plan is subject to an annual risk-based
appraisal. In setting audit scope, the internal audit function will
take into account business strategy and form an independent
view of whether the key risks to the organisation have been
identified, including emerging and systematic risks and assess
how effectively these risks are being managed. The status of
scheduled work, and the follow up of agreed actions arising from
reviews, to ensure that agreed recommendations are acted upon
promptly and regularly reported to the committee.
Rathbone Brothers Plc Report and accounts 2016
83
83
GovernanceRathbone Brothers Plc Report and accounts 2016
Audit committee report continued
What we have done continued
External audit
We place great importance on the quality, effectiveness and
independence of the external audit process. In order to review the
external audit process, including the performance of the external
auditors, feedback is gathered from both committee members and
from management. This process was undertaken by internal audit.
We also reviewed the annual FRC Audit Quality Inspection report
prepared on our external auditor and discussed this report with
the audit partner. The assessment of the auditor’s effectiveness
forms part of our annual consideration of whether the auditor
should be recommended to the board for reappointment. We
continue to believe that KPMG LLP are performing effectively
and their reappointment will be recommended to shareholders
at the 2017 AGM. There are no contractual or similar obligations
restricting the firm’s choice of external auditors.
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 10th
anniversary of their appointment and planning will commence
during 2017. The committee is satisfied that the company has
complied, during the financial year under review and up to the
date of this report, with the provisions of the Statutory Audit
Services for Large Companies Market Investigation (Mandatory
Use of Competitor Tender Processes and Audit Committee
Responsibilities) Order 2014.
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
judgment areas and possible audit adjustments. We can confirm
that there are no such material items remaining unadjusted in the
financial statements.
Non-audit fees payable to the auditor in 2016 were £161,000.
This represents 27% of the fees for assurance services of £597,000,
which includes the assurance reports required by our regulators
and the review of the interim statement (2015: £166,000, 29% of
£570,000). Other non-audit work undertaken by the auditor in
2016 was largely in relation to pensions advisory work and the
annual ISAE3402 attestation.
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. As a result of the EU Audit Directive
and Audit Regulations, a review of the non-audit services policy
was conducted and a new policy was approved effective as of
1 January 2017. The revised policy includes prohibited services and
sets a new fee guide that aims to achieve a target cap of 70% of the
statutory audit fee in any year. The committee’s prior approval is
only required where the fee for an individual non-audit service is
expected to exceed £50,000.
Prior to undertaking any non-audit service, KPMG LLP also
completes its own independence confirmation processes,
which are approved by the engagement partner. To provide the
committee with oversight in this area, it receives six-monthly
reports on the non-audit services provided by KPMG LLP.
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.
84
84
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Whistleblowing policy
We annually review the group’s whistleblowing policy, approve
any changes to the document and receive details of any
reports made.
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.
Overview of priorities for 2017
As well as considering the standing items of business, the
committee will also focus on the following areas during 2017:
– implementation plans for upcoming reporting standards,
namely IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from
Contracts with Customers’ and IFRS 16 ‘Leases’
– accounting for recently implemented remuneration
arrangements
– capital planning and forecasting.
In light of its work, the committee was content with the
effectiveness of the group’s processes governing financial and
regulatory reporting and controls, its ethical standards and its
relationships with regulators.
Approval
This report in its entirety has been approved by the committee
and the board of directors and signed on its behalf by:
James Dean
Chairman of the audit committee
22 February 2017
Rathbone Brothers Plc Report and accounts 2016
85
85
GovernanceRathbone Brothers Plc Report and accounts 2016
Nomination committee report
Nomination committee chairman’s
annual statement
The nomination committee’s primary focus this year has again
been on succession planning for the board.
Committee members
Our current members are Mark Nicholls (chairman), James Dean,
Sarah Gentleman, David Harrel and Kathryn Matthews.
We met formally on two occasions in 2016 (2015: two). Details of
attendance by members are set out on page 55. In addition, there
have been a number of other informal discussions amongst
members of the committee during the year.
Role and responsibilities of the committee
The responsibilities of the committee include reviewing the
composition of the board and making recommendations to the
board for the appointment of directors. The board as a whole then
decides upon any such appointment.
The committee has responsibilities for succession planning for
top management and for executive and non-executive directors.
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.
The current terms of reference for the nomination committee
are available on the company's website.
An external search consultancy is 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
Board appointment
The main focus of the committee has been on non-executive
succession and, in particular, the appointment of a new non-
executive director as David Harrel, senior independent director
and chair of the remuneration committee, completed his nine
years’ service on 1 December 2016 and will not be seeking re-
election at the AGM in 2017.
Considerable discussion took place between the directors during
the year, both formally and informally, regarding the skills and
experience we were seeking in a new non-executive director.
It was agreed that it was important to appoint an experienced
non-executive director with extensive knowledge of the financial
services industry and who had significant listed company board
experience. A job description was prepared and used as a basis for
interviewing four independent search consultants. Spencer Stuart
was chosen to undertake the search (this firm has no relationship
with the company). After reviewing a long list, five candidates
were shortlisted for interview. One candidate, Jim Pettigrew, was
interviewed by the nomination committee and recommended for
appointment by the board, subject to approval by the regulators.
The nomination committee recommended to the board that it
was appropriate and in the best interests of the company that
David Harrel should remain as chairman of the remuneration
committee until the AGM in May 2017 when the remuneration
committee report is voted upon by shareholders.
The nomination committee also recommended to the board
that, subject to regulatory consent, Sarah Gentleman be appointed
chairman of the remuneration committee following the AGM.
In relation to the role of senior independent director, the
nomination committee will be going through the process of
appointment in due course.
86
86
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Looking forward
We will continue to keep under review a succession timetable
for both executives and non-executives. We will also monitor the
development of management talent below board level in light
of the Hampton Alexander review and encourage greater
diversity and challenge management to develop the talent that
exists in the firm.
Mark Nicholls
Chairman of the nomination committee
22 February 2017
Independence and re-election to the board
During 2016, we considered the independence of David Harrel
and Kathryn Matthews as non-executive directors as their board
tenure had reached nine and six years respectively. Consideration
was given not only to their excellent contribution to the board, but
also to whether there was any evidence that their independence
had been impaired by their length of service on the board.
The conclusion was that there was no evidence to indicate their
independence had been impaired. All other non-executive
directors, with the exception of David Harrel, will be standing
for re-election at the 2017.
Board diversity
The board recognises the importance of diversity and that it is a
wider issue than gender. We believe that members of the board
should collectively possess a diverse range of skills, expertise,
industry knowledge, business and other experience necessary for
the effective oversight of the group. The nomination committee
considers diversity as one of many factors when recommending
new appointments to the board. For further information on our
approach to diversity, please refer to the corporate responsibility
report on pages 45 to 46.
Succession planning
We continued to develop and monitor succession plans at
both board and executive levels. During 2016, the management
presented information on the firm’s short and long term
succession planning and development programmes for senior
management. Potential successors have been identified for senior
management positions and non-executive directors have met key
individuals as part of normal board interactions and their visits to
various teams in London and across the country. Following the
departure of Paul Chavasse, the committee reviewed the plan
to redistribute his responsibilities and requested an updated
succession plan.
While the benefits of a diverse board and management team
are recognised, improving the gender balance at senior
management level continues to be a challenge, as is the case
in many similar businesses.
Rathbone Brothers Plc Report and accounts 2016
87
87
GovernanceRathbone Brothers Plc Report and accounts 2016
Our people are our main asset and so HR matters and learning and
development are important agenda items. The maintenance of
and improvement in our core IT and operations infrastructure are
key to the continuing success of the business and are subject to
close scrutiny.
The chief risk officer reports on the work of the risk and
compliance teams and updates us on risk and internal control
matters as well as on industry developments. Our response to
MiFID II is a material piece of work for Rathbones. 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 business units, 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
22 February 2017
Executive committee report
Executive committee chairman’s
annual statement
Please see the chief executive’s review on pages 8 to 10.
Biographies for the executive committee members are available
on our website.
Role and responsibilities of the committee
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 2016 were implementation of the
strategic initiatives relating to Rathbone Financial Planning and
the Rathbone Private Office, the move to new London premises,
implementation of an IT transformational programme, managing
pension risks and raising £36.9 million in the October Rathbone
Brothers Plc share placement. The committee also oversaw the
launch of master feeder funds in Luxembourg, which facilitate
international distribution and has been keen to develop suitability
processes and systems in investment management teams in
the year.
88
88
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Executive committee members
Our current members and their responsibilities are below.
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 55. Ad hoc and informal
meetings are held as required.
Philip Howell
Chief Executive
Paul Stockton
Finance Director
Rupert Baron
Head of Investment
Management in London
Mike Bolsover
Head of Strategy and
Organisation Development
Andrew Butcher
Chief Operating Officer
Ivo Clifton
Head of Specialist and Charity
Business
Andrew Morris
Head of Investment
Management outside London
Sarah Owen-Jones
Chief Risk Officer
Richard Smeeton
Head of Investment
Management
Special Projects
and Recruitment
Mike Webb
Chief Executive Unit Trusts
and Head of Group Marketing
and Distribution
Rathbone Brothers Plc Report and accounts 2016
89
89
GovernanceRathbone Brothers Plc Report and accounts 2016
Directors’ report
Group results and company dividends
The Rathbone Brothers Plc group profit after taxation for the year
ended 31 December 2016 was £38,157,000 (2015: £46,371,000).
The directors recommend the payment of a final dividend of 36.0p
(2015: 34.0p) on 16 May 2017 to shareholders on the register on 21
April 2017. An interim dividend of 21.0p (2015: 21.0p) was paid on 5
October 2016 to shareholders on the register on 9 September 2016.
This results in total dividends of 57.0p (2015: 55.0p) per ordinary
share for the year. These dividends amount to £28,267,000
(2015: £26,305,000) – see note 12 to the financial statements.
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 2016, 50,682,679 shares were
in issue (2015: 48,134,286). 8,979 shares were held in treasury
(2015: 50,000). Details of the movements during the year are set
out in note 28 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.
New issues of share capital
Under section 551 of the Companies Act 2006, the board currently
has the authority to allot 16,000,000 shares (approximately one
third of the issued share capital at 31 March 2016). The existing
authorities given to the company at the last AGM to allot shares
will expire at the conclusion of the forthcoming AGM. Details of
the resolutions renewing these authorities are included in the
Notice of AGM.
Awards under the company’s employee share plans are met from
a combination of shares held either in treasury or in the employee
share trust as well as by newly issued shares. During the year,
the company transferred 41,021 shares out of treasury for a total
consideration of £780,000 and issued 286,285 shares to satisfy
share awards.
In addition, the company has, over the last three year period,
issued a total of 7.5% of its issued share capital of ordinary shares.
On 20 October 2016, the share placing was concluded and the
directors authorised the allotment of 2,224,210 ordinary shares
for a net consideration of £36.9 million, at a share price of £17.10.
Purchase of own shares
Following the last AGM resolution to purchase own shares, the
board currently has the authority to buy back up to 2,400,000
shares under certain stringent conditions. During the year, the
company did not utilise this authority but the board considers it
would be appropriate to renew it. We intend to seek shareholder
approval for the continued authority to purchase own shares at
the forthcoming AGM in line with current investor sentiment.
Details of the resolution renewing the authority are included in
the Notice of AGM.
90
90
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Appointment and removal of directors
Regarding the appointment and replacement of directors, the
company is governed by the company’s Articles of Association,
the UK Corporate Governance Code, the Companies Act 2006
and related legislation.
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 45 to 46.
Amendments to the constitution of the
company
Amendment of the Articles of Association requires a special
resolution of shareholders.
Employee Share Trust
Salamanca Trustees Limited is the trustee of the Rathbone
Employee Share Trust, an independent trust, which holds shares
for the benefit of employees and former employees of the group.
The trustee has agreed to satisfy awards under the Long Term
Incentive Plan. As part of these arrangements, the company
issued shares to the trust to enable the trustee to satisfy these
awards. Further details are set out in note 29 to the financial
statements. During the year, the Employee Share Trust issued
29,328 ordinary shares.
In addition, under the rules of the Rathbone Share Incentive Plan,
shares are held in trust for participants by Equiniti Share Plan
Trustees Limited (‘the Trustee’). Voting rights are exercised by
the Trustee on receipt of the participant’s instructions. If no such
instruction is received by the Trustee then no vote is registered.
No person has any special rights of control over the company’s
share capital and all issued shares are either fully or nil paid.
Directors
All those who served as directors at any time during the year
are listed on pages 58 to 59, with the exception of Paul Chavasse
who stepped down from the board on 3 November 2016.
The directors’ interests in the share capital of the company
at 31 December 2016 are set out on pages 74 to 75 of the
remuneration committee report..
Corporate responsibility
Information about greenhouse gas emissions are set out in the
corporate responsibility report on pages 48 to 51.
Financial instruments and risk
management
The risk management objectives and policies of the group are set
out in note 31 to the financial statements.
Insurance and 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 2016 and remain in force at the date of this report.
Substantial shareholdings
As at 31 December 2016, the company had received notifications in
accordance with the Financial Conduct Authority’s Disclosure and
Transparency Rule 5, of the following interests.
Table 1. Substantial shareholdings
Holding at
22 Feb 2017
Shareholder
7,064,822
Lindsell Train Ltd.
4,509,649
MFS Investment
2,853,094
Mawer Investment Management Ltd
2,186,536
Franklin Templeton Investments
2,063,094
Aviva Investors
Troy Asset Management
1,846,725
Heronbridge Investment Management 1,540,395
% held at
22 Feb 2017
13.94%
8.9%
5.63%
4.31%
4.07%
3.64%
3.04%
Rathbone Brothers Plc Report and accounts 2016
91
91
GovernanceRathbone Brothers Plc Report and accounts 2016
Directors’ report continued
Share price
The mid-market price of the company’s shares at 31 December
2016 was £19.83 (2015: £22.00) and the range during the year was
£15.90 to £23.59 (2015: £19.99 to £23.13).
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
directors to set their remuneration will be proposed at the
2017 AGM.
The directors in office at the date of signing of this report confirm
that, so far as they are aware, there is no relevant audit information
of which the auditor is unaware and that each director has taken
all steps that he or she ought to have taken 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 review, strategic
report and group risk committee report. In addition, note 1.5 to the
financial statements provides further details.
Group companies are regulated by the PRA and 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 2016, 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.
92
92
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Political donations
No political donations were made during the year
(2015: nil).
Post-balance sheet events
Details of post-balance sheet events are set out in note 37 to the
financial statements.
FCA’s Disclosure Guidance and
Transparency Rules
For the purposes of DTR 4.1.5R(2) and DTR 4.1.8, this directors’
report and the strategic report on pages 1 to 51 comprise the
management report.
Annual General Meeting
The 2017 AGM will be held on Thursday 11 May 2017 at 12.00 noon
at 8 Finsbury Circus, London EC2M 7AZ. Full details of all
resolutions and explanatory notes are set out in the separate
Notice of AGM.
By order of the board
Ali Johnson
Company Secretary
22 February 2017
Registered office: 8 Finsbury Circus, London EC2M 7AZ
Rathbone Brothers Plc Report and accounts 2016
93
93
GovernanceRathbone Brothers Plc Report and accounts 2016
Statement of directors’ responsibilities in respect of the report and accounts
Disclosure of information to the auditor
The directors who held office at the date of approval of the
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 himself 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 issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face
– 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
22 February 2017
The directors are responsible for preparing the report and
accounts 2016, 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.
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 judgments and estimates that are reasonable and prudent
– state whether they have been prepared in accordance with
IFRS as adopted by the EU
– 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 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.
94
94
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Financial
statements
95
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016 Independent auditor’s report to the members of Rathbone Brothers Plc only
Opinions and conclusions arising from
our audit
1
Our opinion on the financial statements is
unmodified
introducing previously held client relationships beyond that
period; although there were no such cases during the year.
There is a risk that payments are inappropriately capitalised
outside of the 12 month period or that they do not relate to
client relationships previously held by the investment manager.
We have audited the financial statements of Rathbone Brothers
Plc for the year ended 31 December 2016 set out on pages 100 to
174. In our opinion:
Judgment areas impacting individually purchased client relationships and
client relationship intangibles acquired historically in business combinations
– For client relationship intangibles acquired historically in
business combinations, the group assesses whether there is an
indication of impairment considering a range of impairment
triggers. Where such an indication exists, the group considers
whether the ongoing benefits offered by the capitalised client
relationship intangibles are greater than their carrying value
and, if not, an impairment provision is recorded. However,
in the current year the group assessed that there was no
indication of impairment. There is a risk that a client relationship
intangible was impaired, but the group did not record an
impairment provision, because the impairment trigger
remained undetected.
– The group assesses whether the ongoing benefits offered by
the individually purchased client relationships are greater than
their carrying value.
– The group estimates the useful economic lives of the
client relationships over which these intangible assets are
subsequently amortised to be typically between 10 and 15 years.
The judgments made by the group in respect of the useful
economic life could result in material differences in the
financial statements.
Our response: To assess the appropriateness of the recognition
and carrying value of client relationship intangibles 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 accordance with IAS 18 ‘Revenue’.
In this area our audit procedures included:
Judgment areas impacting individually purchased client relationships
– We considered whether the payments capitalised fell within
the relevant 12 month period by comparing the dates of client
transfers with the employment contract of the investment
manager. We performed a recalculation of new client
relationship intangibles recognised in the year and assessed
whether the amounts capitalised were in line with the
contractual agreements with the investment manager. On a
sample basis we tested that such costs related to relationships
already held by the investment manager by obtaining
relevant documentary evidence.
– 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 2016 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 (IFRSs as adopted by the EU);
– the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies
Act 2006; and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the 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, in decreasing order of audit significance, were as follows.
Recognition and carrying amount of client relationship intangibles
£97,201,000 (2015: £100,869,000) Risk vs 2015: ►
Refer to page 83 (audit committee report), pages 109 to 110
(accounting policy) and pages 126 to 127 (financial disclosures).
The risk: The group has capitalised significant amounts as
client relationship intangibles, including both those purchased
individually (initially recognised at cost) and those acquired as
part of a business combination (initially recognised at fair value).
The key judgment areas our audit concentrated on were:
Judgment areas impacting individually purchased client relationships
– The group makes contractual payments to its investment
managers for introducing new client relationships. For newly
recruited managers, the group capitalises payments that are
deemed to represent the transfer of existing client relationships
already held by the investment manager. The group has
determined the appropriate accounting policy is to capitalise
payments made to investment managers in respect of
previously held client relationships transferred to the group
during the 12 month period after the conclusion of any ‘non-
compete’ arrangements between an investment manager and
their previous employer. The capitalisation period is extended
beyond 12 months in exceptional circumstances, where
management consider that the investment manager is
Our response: Our procedures included using our own actuarial
specialists to challenge key assumptions and estimates used in
the calculation of the pension deficit. The key assumptions and
estimates we tested included the discount rate, RPI inflation, salary
growth, allowance made for future transfers 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 management’s judgment in selecting its
assumptions and whether there were any indicators of
management bias.
We obtained a breakdown of assets held in both defined benefit
pension schemes. We independently verified the value of a
sample of the assets held within both schemes.
We have also considered the adequacy of the group’s
disclosure in respect of the defined benefit pension deficit
and the assumptions used which is set out in note 27 to the
Accounting for the acquisition of Vison Independent Financial Planning
The accounting for the acquisition of Vision and Castle was
identified as a significant audit risk in the prior year. Given this is
a one-off risk in the year of acquisition in relation to the judgment
involved in applying IFRS 3 ‘Business Combinations’, we have not
assessed this as one of the risks that had the greatest effect on our
audit and, therefore, it is not separately identified in our report
this year.
– We have also considered the adequacy of the group’s disclosure
financial statements.
in respect of intangible assets.
Valuation of defined benefit pension deficit £39,455,000
(‘Vision’) and Castle Investment Solutions (‘Castle’)
Judgment areas impacting individually purchased client relationships and
client relationship intangibles acquired historically in business combinations
– For the element of the client relationship intangibles previously
capitalised under IFRS 3 ‘Business Combinations’ we have
critically assessed the group’s own review of the client
relationship intangibles against a range of impairment triggers.
– In considering the adequacy of the impairment assessment
performed by the group to support the carrying value of client
relationship intangibles previously capitalised under IAS 18
‘Revenue’, we assessed the population for closed client accounts
or non-income generating clients to assess whether they were
appropriately derecognised.
– Our consideration of the appropriateness of the useful
economic lives of the client relationships 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.
(2015: £4,501,000) Risks vs 2015: ▲
Refer to page 83 (audit committee report), page 111
(accounting policy) and pages 130 to 134 (financial disclosures).
The risk: The parent company has recognised a pension deficit
of £39.5 million as at 31 December 2016. The valuation of the
defined benefit pension deficit depends on a number of
judgmental assumptions and estimates, including the discount
rate used to calculate the current value of the future payments the
group expects to pay pensioners, the rate of inflation that must be
incorporated in the estimate of the future pension payments and
the life expectancy of pension scheme members. The valuation is
an important judgment 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 obligation
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 than the liability recognised at the year end.
As a result of legislative changes which provide pension scheme
members greater flexibility over the use of their pension, increased
judgment is required to estimate the future number of members
who will transfer out of the pension fund. This has increased the
risk of material misstatement compared to the prior year.
96
96
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
97
Rathbone Brothers Plc Report and accounts 2016
Our response: Our procedures included using our own actuarial
specialists to challenge key assumptions and estimates used in
the calculation of the pension deficit. The key assumptions and
estimates we tested included the discount rate, RPI inflation, salary
growth, allowance made for future transfers 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 management’s judgment in selecting its
assumptions and whether there were any indicators of
management bias.
We obtained a breakdown of assets held in both defined benefit
pension schemes. We independently verified the value of a
sample of the assets held within both schemes.
We have also considered the adequacy of the group’s
disclosure in respect of the defined benefit pension deficit
and the assumptions used which is set out in note 27 to the
financial statements.
Accounting for the acquisition of Vison Independent Financial Planning
(‘Vision’) and Castle Investment Solutions (‘Castle’)
The accounting for the acquisition of Vision and Castle was
identified as a significant audit risk in the prior year. Given this is
a one-off risk in the year of acquisition in relation to the judgment
involved in applying IFRS 3 ‘Business Combinations’, we have not
assessed this as one of the risks that had the greatest effect on our
audit and, therefore, it is not separately identified in our report
this year.
Judgment areas impacting individually purchased client relationships and
client relationship intangibles acquired historically in business combinations
– For the element of the client relationship intangibles previously
capitalised under IFRS 3 ‘Business Combinations’ we have
critically assessed the group’s own review of the client
relationship intangibles against a range of impairment triggers.
– In considering the adequacy of the impairment assessment
performed by the group to support the carrying value of client
relationship intangibles previously capitalised under IAS 18
‘Revenue’, we assessed the population for closed client accounts
or non-income generating clients to assess whether they were
appropriately derecognised.
– Our consideration of the appropriateness of the useful
economic lives of the client relationships 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 group’s disclosure
in respect of intangible assets.
Valuation of defined benefit pension deficit £39,455,000
(2015: £4,501,000) Risks vs 2015: ▲
Refer to page 83 (audit committee report), page 111
(accounting policy) and pages 130 to 134 (financial disclosures).
The risk: The parent company has recognised a pension deficit
of £39.5 million as at 31 December 2016. The valuation of the
defined benefit pension deficit depends on a number of
judgmental assumptions and estimates, including the discount
rate used to calculate the current value of the future payments the
group expects to pay pensioners, the rate of inflation that must be
incorporated in the estimate of the future pension payments and
the life expectancy of pension scheme members. The valuation is
an important judgment 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 obligation
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 than the liability recognised at the year end.
As a result of legislative changes which provide pension scheme
members greater flexibility over the use of their pension, increased
judgment is required to estimate the future number of members
who will transfer out of the pension fund. This has increased the
risk of material misstatement compared to the prior year.
Rathbone Brothers Plc Report and accounts 2016
97
97
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Independent auditor’s report to the members of Rathbone Brothers Plc only continued
Opinions and conclusions arising from our audit continued
3 Our application of materiality and an overview
of the scope of our audit
Materiality for the group financial statements as a whole was set
at £2.8 million (2015: £2.8 million), determined with reference to
a benchmark of group profit before tax, normalised to exclude
payments of £4.4 million in relation to the acquisition of Vison and
Castle which are one off expenses and not considered to be part of
the continuing operations, of which it represents 5% (2015: 5%).
We reported to the audit committee any corrected or uncorrected
identified misstatements exceeding £140,000 (2015: £140,000),
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Audits for group reporting purposes were performed at all eight
(2015: six) of the group’s reporting components.
Audits of six (2015: six) of the eight (2015: six) reporting
components were performed by the group audit team. This audit
work was performed by the group auditor to materiality levels set
individually for each component which ranged from ranged from
£0.2 million to £2.24 million (2015: £0.08 million to £2.40 million).
For the remaining two (2015: nil) reporting components the group
audit team instructed a component auditor as to the significant
areas to be covered, including the relevant risks and the
information to be reported back. The group audit team approved
the component materialities, which ranged from £0.02 million to
£0.1 million, having regard to the mix of size and risk profile of the
group across the components. The group audit team held
conference calls with the component auditors to assess the audit
approach to key risks and to discuss the findings reported to the
group audit team in more detail.
The components scoped in for group reporting purposes
accounted for 100% of total group revenue, group profit before
tax and total group assets.
Normalised group
profit before tax £54.5m
(2015: £58.60m)
Materiality £2.80m
(2015: £2.80m)
£2.80m
Whole financial
statements materiality
(2015: £2.80m)
£2.24m
Range of materiality
at eight components
(£0.2m to £2.24m)
(2015: £0.08m to £2.40m)
£0.14m
Misstatements reported
to the audit committee
(2015: £0.14m)
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
– the information given in the corporate governance report
set out on pages 53 to 57 with respect to internal control and
risk management systems in relation to financial reporting
processes and about share capital structures (‘the specified
Corporate Governance information’) is consistent with the
financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from reading
the strategic report, the directors’ report and the corporate
governance report:
– we have not identified material misstatements in the strategic
report, the directors’ report, or the specified Corporate
Governance information;
– in our opinion, the strategic report and the directors’ report have
been prepared in accordance with the Companies Act 2006;
and
– in our opinion, the corporate governance report has been
prepared in accordance with rules 7.2.2, 7.2.3, 7.2.5, 7.2.6 and 7.2.7
of the Disclosure Rules and Transparency Rules of the Financial
Conduct Authority.
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 25,
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 2019; or
– the disclosures in note 1 of the financial statements concerning
the use of the going concern basis of accounting.
6 We have nothing to report in respect of the
matters on which we are required to report
by exception
Scope and responsibilities
As explained more fully in the directors’ responsibilities
statement set out on page 94, the directors are responsible for the
Under ISAs (UK and Ireland) we are required to report to you if,
preparation of the financial statements and for being satisfied that
based on the knowledge we acquired during our audit, we have
they give a true and fair view. A description of the scope of an audit
identified other information in the annual report that contains
of financial statements is provided on the Financial Reporting
a material inconsistency with either that knowledge or the
Council’s website at www.frc.org.uk/auditscopeukprivate.
financial statements, a material misstatement of fact, or that is
This report is made solely to the company’s members as a
otherwise misleading.
In particular, we are required to report to you if:
body and is subject to important explanations and disclaimers
regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a, which are
– we have identified material inconsistencies between the
incorporated into this report as if set out in full and should be
knowledge we acquired during our audit and the directors’
read to provide an understanding of the purpose of this report,
statement that they consider that the annual report and
the work we have undertaken and the basis of our opinions.
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,
Nicholas Edmonds (Senior Statutory Auditor)
business model and strategy; or
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
22 February 2017
– 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 report has not been prepared by
the company.
Under the Listing Rules we are required to review:
– the directors’ statements, set out on page 92 and page 25,
in relation to going concern and longer term viability; and
– the part of the corporate governance report on page 57 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.
98
98
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
99
Rathbone Brothers Plc Report and accounts 2016
Scope and responsibilities
As explained more fully in the directors’ responsibilities
statement set out on page 94, 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
15 Canada Square
London
E14 5GL
22 February 2017
6 We have nothing to report in 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 report has not been prepared by
the company.
Under the Listing Rules we are required to review:
– the directors’ statements, set out on page 92 and page 25,
in relation to going concern and longer term viability; and
– the part of the corporate governance report on page 57 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 2016
99
99
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016 Consolidated statement of comprehensive income
for the year ended 31 December 2016
Consolidated statement of changes in equity
for the year ended 31 December 2016
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
Operating income
Charges in relation to client relationships and goodwill
Acquisition-related 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
Net gain on revaluation of available for sale investment securities
Deferred tax relating to revaluation of available for sale investment securities
Other comprehensive income net of tax
Total comprehensive income for the year net of tax attributable to equity
holders of the company
Dividends paid and proposed for the year per ordinary share
Dividends paid and proposed for the year
Earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
The accompanying notes form an integral part of the consolidated financial statements.
Note
4
5
6
6
8
7
8
9
7
11
27
20
17
20
12
13
2016
£’000
13,890
(2,319)
11,571
253,192
(17,936)
235,256
3,103
1,353
–
–
251,283
(11,735)
(5,985)
–
(7,031)
(176,403)
(201,154)
50,129
(11,972)
38,157
38,157
2015
£’000
12,663
(1,822)
10,841
222,638
(8,049)
214,589
2,230
1,361
157
885
230,063
(11,014)
(162)
(1,030)
(412)
(158,813)
(171,431)
58,632
(12,261)
46,371
46,371
(37,318)
5,936
6,524
(1,509)
93
(14)
(31,303)
53
(10)
5,058
6,854
51,429
57.0p
28,267
55.0p
26,305
78.9p
78.2p
97.4p
96.6p
At 1 January 2015
Profit for the year
Net remeasurement of defined
benefit liability
Net gain on revaluation of available
for sale investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of
tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 1 January 2016
Profit for the year
Net remeasurement of defined
benefit liability
Net gain on revaluation of available
for sale investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of
tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– own shares sold
– tax on share-based payments
At 31 December 2016
27
17
20
12
28
29
29
20
27
17
20
12
28
29
29
29
20
Note
Share
capital
£’000
2,395
Share
premium
£’000
92,987
Merger
reserve
£’000
31,835
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
(5,531) 149,557 271,271
46,371
46,371
–
–
–
43
–
5,015
5,058
12
4,656
2,407
97,643
31,835
71
(6,177) 174,413 300,192
Available
for sale
reserve
£’000
28
53
(10)
93
(14)
6,524
6,524
53
(1,509)
(1,519)
(25,836)
1,022
(1,767)
51
(25,836)
4,668
1,022
(2,413)
–
51
38,157
38,157
(37,318)
(37,318)
93
5,936
5,922
(2,413)
1,767
(26,479)
(26,479)
3,035
(1,585)
435
1,084
(1,084)
(115)
42,131
3,035
(1,585)
–
780
(115)
–
–
–
79
–
(31,382)
(31,303)
128
42,003
345
The accompanying notes form an integral part of the consolidated financial statements.
2,535
139,991
31,835
150
(6,243) 156,545 324,813
100
100
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
101
Rathbone Brothers Plc Report and accounts 2016
Consolidated statement of changes in equity
for the year ended 31 December 2016
Note
Share
capital
£’000
2,395
Share
premium
£’000
92,987
Merger
reserve
£’000
31,835
At 1 January 2015
Profit for the year
Net remeasurement of defined
benefit liability
Net gain on revaluation of available
for sale investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of
tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 1 January 2016
Profit for the year
Net remeasurement of defined
benefit liability
Net gain on revaluation of available
for sale investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of
tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– own shares sold
– tax on share-based payments
At 31 December 2016
27
17
20
12
28
29
29
20
27
17
20
12
28
29
29
29
20
Available
for sale
reserve
£’000
28
53
(10)
Own
shares
£’000
Total
Retained
equity
earnings
£’000
£’000
(5,531) 149,557 271,271
46,371
46,371
6,524
6,524
53
(1,509)
(1,519)
–
–
–
43
–
5,015
5,058
12
4,656
(25,836)
(25,836)
4,668
2,407
97,643
31,835
71
1,022
(2,413)
1,767
1,022
(2,413)
–
51
(6,177) 174,413 300,192
38,157
38,157
(1,767)
51
93
(14)
(37,318)
(37,318)
93
5,936
5,922
–
–
–
79
–
(31,382)
(31,303)
128
42,003
345
2,535
139,991
31,835
150
(26,479)
(26,479)
42,131
3,035
(1,585)
1,084
435
3,035
(1,585)
–
780
(115)
(6,243) 156,545 324,813
(1,084)
(115)
The accompanying notes form an integral part of the consolidated financial statements.
Rathbone Brothers Plc Report and accounts 2016
101
101
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Consolidated balance sheet
as at 31 December 2016
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
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
2016
£’000
14
15
16
17
17
18
19
20
21
22
23
24
26
27
28
28
29
1,075,673
37,787
114,088
110,951
105,421
700,000
65,710
16,590
10,601
167,192
2,404,013
294
39,289
1,888,895
85,154
6,523
19,590
39,455
2,079,200
2,535
139,991
31,835
150
(6,243)
156,545
324,813
2,404,013
2015
£’000
(restated –
note 1.4)
583,156
17,948
108,877
117,269
53,386
707,745
59,513
10,006
4,577
171,453
1,833,930
299
21,481
1,402,890
78,716
6,359
19,492
4,501
1,533,738
2,407
97,643
31,835
71
(6,177)
174,413
300,192
1,833,930
The financial statements were approved by the board of directors and authorised for issue on 22 February 2017 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.
Consolidated statement of cash flows
for the year ended 31 December 2016
Cash flows from operating activities
Profit before tax
Share of profit of associates
Net interest income
Net impairment charges on impaired loans and advances
Net charge for provisions
Profit 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 decrease/(increase) in loans and advances to banks and customers
– net increase 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 increase/(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 investing activities
Cash flows from financing activities
Issue of ordinary shares
Net proceeds from the issue of subordinated loan notes
Dividends paid
Net cash generated from/(used in) 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
Note
2016
£’000
2015
£’000
16
25
8
27
27
10
17
17
36
26
12
50,129
(11,571)
–
9
–
–
1,355
(16)
20,716
3,058
(5,422)
5,201
(2,308)
14,085
75,236
16,785
(19,839)
(6,392)
486,000
17,808
9,762
579,360
(12,025)
567,335
–
(2,532)
(26,137)
16
(905,701)
912,745
(21,609)
40,199
–
(26,479)
13,720
559,446
703,628
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)
176,480
107
(3,528)
(22,879)
33
(988,127)
709,853
(304,541)
2,255
19,454
(25,836)
(4,127)
(132,188)
835,816
703,628
The accompanying notes form an integral part of the consolidated financial statements.
36
1,263,074
102
102
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
103
Rathbone Brothers Plc Report and accounts 2016
Consolidated statement of cash flows
for the year ended 31 December 2016
Cash flows from operating activities
Profit before tax
Share of profit of associates
Net interest income
Net impairment charges on impaired loans and advances
Net charge for provisions
Profit 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 decrease/(increase) in loans and advances to banks and customers
– net increase 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 increase/(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 investing activities
Cash flows from financing activities
Issue of ordinary shares
Net proceeds from the issue of subordinated loan notes
Dividends paid
Net cash generated from/(used in) 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 consolidated financial statements.
Note
2016
£’000
2015
£’000
50,129
–
(11,571)
9
1,355
(16)
–
–
20,716
3,058
(5,422)
5,201
(2,308)
14,085
75,236
16,785
(19,839)
(6,392)
486,000
17,808
9,762
579,360
(12,025)
567,335
–
(2,532)
(26,137)
16
(905,701)
912,745
(21,609)
40,199
–
(26,479)
13,720
559,446
703,628
1,263,074
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)
176,480
107
(3,528)
(22,879)
33
(988,127)
709,853
(304,541)
2,255
19,454
(25,836)
(4,127)
(132,188)
835,816
703,628
16
25
8
27
27
10
17
17
36
26
12
36
Rathbone Brothers Plc Report and accounts 2016
103
103
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements
1 Principal accounting policies
Rathbone Brothers Plc (‘the company’) is a public company
incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1 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 157 to 174.
The financial statements have been prepared on the historical cost
basis, except for certain financial instruments that are measured
at fair value (notes 1.12 and 1.16). 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), 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 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.
1.3 Developments in reporting standards and
interpretations
Standards and interpretations affecting the reported results
or the financial position
In the current year, no standards or interpretations, new or revised,
have been adopted that have had a significant impact on the
amounts reported in the financial statements.
Standards not affecting the reported results or the
financial position
The following new and revised standards and interpretations
have been adopted in the current year. Their adoption has not had
any significant impact on the amounts reported in these financial
statements, but may impact the accounting for future transactions
and arrangements:
– Equity Method in Separate Financial Statements
(Amendments to IAS 27)
– Disclosure Initiative (Amendments to IAS 1)
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 2016 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'
IFRS 9 is effective for periods commencing on or after 1 January
2018. The standard was endorsed by the EU during 2016. The
group has not adopted this standard early.
IFRS 9 changes the classification and measurement of financial
assets and the timing and extent of credit provisioning. Although
the group has not quantified the impact of adopting the standard,
it has conducted a preliminary assessment of the potential impact,
based on the profile of its financial instruments as at the balance
sheet date.
Classification of financial assets
The basis of classification for financial assets under IFRS 9 is
different from that under IAS 39. Financial assets will be classified
into one of three categories: amortised cost, fair value through
profit or loss (FVTPL) or fair value through other comprehensive
income (FVOCI). The held to maturity, loans and receivables and
available for sale categories available under IAS 39 have been
removed. In addition, the classification criteria for allocating
financial assets between categories are different under IFRS 9.
The group does not expect the new classification bases to have
a material impact on its financial assets. Those currently carried
at amortised cost (including cash with central banks, loans and
advances to banks and customers, and debt securities) will
continue to be classified as such. Money market funds currently
classified as available for sale will most likely be classified as
FVOCI, given that the intention is to hold them both to collect
contractual cash flows and for sale, should the need or
opportunity arise.
Impairment of financial assets
Under IFRS 9, an expected credit loss model replaces the incurred
loss model, meaning there no longer needs to be a triggering
event in order to recognise impairment losses. A provision must
be made for the amount of any loss expected to arise over the life
of the group’s financial assets. Under IAS 39, credit losses are
recognised when they are incurred.
104
104
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Under the expected credit loss model, a dual measurement
approach applies whereby a financial asset will attract a loss
allowance equal to either 12 month expected credit losses or
lifetime expected credit losses. The latter applies if there has
been a significant deterioration in the credit quality of the asset.
This requires an assessment of the likelihood of default and any
potential loss that may arise in the event of default. Consequently,
a small impairment charge will be required to be recognised in the
financial statements.
However, due to the high credit quality of the financial assets
currently held (the group has not experienced any historical
credit losses in its treasury or loan portfolios), the group does not
expect material impairment losses to be recognised under the
new standard.
Classification of financial liabilities
The basis of classification for financial liabilities under IFRS 9
remains unchanged from that under IAS 39. The two categories
are amortised cost or fair value through profit or loss (either
designated as such or held for trading).
The group does not currently designate any liabilities as fair value
through profit or loss and does not anticipate doing so. Therefore,
under IFRS 9, the group expects to classify all financial liabilities
as amortised cost, with no material impact on measurement.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 is effective for periods commencing on or after 1 January
2018. The standard was endorsed by the EU during 2016. The
group has not adopted this standard early.
IFRS 15 changes how and when revenue is recognised from
contracts with customers. Although the group has not quantified
the impact of adopting the standard, it has conducted a
preliminary assessment of the potential impact, based on its
existing revenue streams.
Net fee and commission income
A number of subsidiaries in the group charge initial fees in
relation to certain business activities. Under IFRS 15, the group
will be required to make an assessment as to whether the work
performed to earn such fees constitutes the transfer of services
and, therefore, fulfils any performance obligation(s). If so, then
these fees can be recognised when charged; if not, then the fees
can only be recognised in the period the services are provided.
The group does not expect this change to result in a material
impact on the consolidated financial statements.
Client relationship intangibles
Where payments are made to new investment managers
to secure investment management contracts, such costs are
capitalised and amortised, where they are separable, reliably
measurable and expected to be recovered, under IAS 18.
IFRS 15 reinforces this view, stating that incremental costs of
obtaining any contract with a customer shall be capitalised
if the entity expects to recover those costs.
Therefore, the group does not believe the adoption of
IFRS 15 will materially change the way it accounts for
client relationship intangibles.
Transition
The group plans to adopt IFRS 15 in its consolidated financial
statements for the year ending 31 December 2018, using the
retrospective approach.
IFRS 16 'Leases'
IFRS 16 is effective for periods commencing on or after 1 January
2019. The standard has not yet been endorsed by the EU and the
group does not plan to adopt this standard early.
IFRS 16 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 right-of-use lease
asset on its balance sheet; the group will also recognise a financial
liability representing its obligation to make future lease payments.
Although the group has not quantified the impact of adopting the
standard, it has conducted an initial assessment of the potential
impact, based on its existing lease contracts, as well as the new
leases signed for its new London head office at 8 Finsbury Circus,
all of which are classified as operating leases.
Transition
Definition of a lease
On transition to IFRS 16, the group can choose whether to:
– apply the new definition of a lease to all its contracts; or
– apply a practical expedient and retain previous assessments
of which contracts contain a lease.
The group intends to apply the practical expedient.
Rathbone Brothers Plc Report and accounts 2016
105
105
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
1 Principal accounting policies 1.3 Developments in reporting standards and
interpretations continued
Retrospective approach
As a lessee, the group can either apply the standard using a:
– retrospective approach; or
– modified retrospective approach with optional practical
expedients.
The group is assessing the impact of both approaches in relation to
its existing lease contracts.
Potential impact
The group’s total assets and total liabilities will be increased by
the recognition of lease assets and liabilities. The lease assets will
be depreciated over the shorter of the expected life of the asset
and the lease term. The lease liability will be reduced by lease
payments, offset by the unwinding of the liability over the
lease term.
On the group’s statement of comprehensive income, the profile of
lease costs will be front-loaded, at least individually, as the interest
charge is higher in the early years of a lease term as the discount
rate unwinds. The total cost of the lease over the lease term is
expected to be unchanged.
In addition to the above impacts, recognition of lease assets
will increase the group’s regulatory capital requirement. At the
present time, the extent of this impact has not been clarified by
the group’s regulators.
Lessor accounting
Where the group acts as an intermediate lessor in a sub-lease
arrangement it will need to make adjustments for such leases.
However, the impact is expected to be immaterial.
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.
Measurement period adjustment
In the current year, the group recognised a measurement period
adjustment to provisional amounts in respect of a business
combination completed on 31 December 2015. This has arisen
due to payments made to the previous owners of the acquired
companies during the current year, in respect of the net assets
of the companies at the acquisition date.
Comparatives have been restated for the impact of the
adjustment. As at 31 December 2015, the group’s total assets
have been increased by £301,000, and total liabilities have been
increased by the same amount. There has been no impact on
operating income, profit or shareholders' equity in the current or
prior periods. Further details on the restated comparatives can be
found in note 8.
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 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.
1.6 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.
106
106
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
1.9 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.
1.7
Income
Net interest income
Interest income or expense from interest-bearing financial
instruments, except those classified as held for trading, is
calculated using the effective interest method and recognised
within net interest income. Dividends received from money
market funds are included in net interest income when received.
The effective interest method is the method of calculating the
amortised cost of a financial asset or liability (or group of assets
and liabilities) and of allocating the interest income or interest
expense over the relevant period. The effective interest rate is the
rate that exactly discounts the expected future cash payments or
receipts through the expected life of the financial instrument, or
when appropriate, a shorter period, to the net carrying amount of
the instrument. The application of the method has the effect of
recognising income (or expense) receivable (or payable) on the
instrument evenly in proportion to the amount outstanding over
the period to maturity or repayment. In calculating effective
interest, the group estimates cash flows considering all contractual
terms of the financial instrument, but excluding the impact of
future credit losses.
Net fee and commission income
Portfolio or investment management fees, 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.
1.8 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.
Rathbone Brothers Plc Report and accounts 2016
107
107
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
1 Principal accounting policies continued
1.10 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.
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 or
– 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.
1.11 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.
1.12 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 1.7), 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 1.7), less any impairment.
– Available for sale
Available for sale financial assets are non-derivative financial
assets that are either designated in this category or not classified
in any of the other categories. Available for sale investments are
those intended to be held for an indefinite period of time and
which may be sold in response to needs for liquidity or changes
in interest rates, exchange rates or equity prices.
Available for sale financial assets are subsequently carried at
fair value. Gains and losses arising from changes in the fair value
of available for sale financial assets are recognised in other
comprehensive income and presented in the available for sale
reserve in equity. When the financial asset is sold, derecognised
or impaired, the cumulative gain or loss previously recognised
in equity is recycled to profit or loss.
Trade date accounting
Financial assets, excluding loans and receivables, are recognised
on trade date, being the date on which the group commits to
purchase the asset. Loans and receivables are recognised when
cash is advanced to the borrowers.
108
108
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements
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.
1.13 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.
1.14 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 judgment. The factors that the
group takes into consideration in making this judgment are
set out in note 2.1.
109
Rathbone Brothers Plc Report and accounts 2016
109
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
1 Principal accounting policies 1.14 Intangible assets continued
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 judgment 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 relationship intangibles are tested for impairment by
comparing the fair value of funds under management for each
individually 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.
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).
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.
Computer software and software development costs
Costs incurred to acquire and bring to use computer software
licences are capitalised and amortised through profit or loss over
their expected useful lives (three to four years).
Costs that are directly associated with the production of
identifiable and unique software products controlled by the group
are recognised as intangible assets when the group is expected to
benefit from future use of the software and the costs are reliably
measurable. Other costs of producing software are charged to
profit or loss as incurred. Computer software development costs
recognised as assets are amortised using the straight line method
over their useful lives (not exceeding four years).
1.15 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.
Any impairment loss is recognised immediately in profit or loss.
1.16 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 when they 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.
1.17 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.
1.18 Retirement benefit obligations on retirement
1.20 Fiduciary activities
benefit schemes
The group commonly acts as trustee and in other fiduciary
The group’s net liability in respect of defined benefit pension plans
capacities that result in the holding or placing of assets on behalf of
is calculated separately for each plan by estimating the amount
individuals, trusts, retirement benefit plans and other institutions.
of future benefit that employees have earned in return for their
Such assets and income arising thereon are excluded from these
service in the current and prior years. That benefit is discounted to
financial statements, as they are not assets of the group. Largely as
determine its present value and the fair value of any plan assets (at
a result of cash and settlement processing, the group holds money
bid price) is deducted. Any asset resulting from this calculation is
on behalf of some clients in accordance with the Client Money
limited to the present value of available refunds and reductions in
Rules of the Financial Conduct Authority, the Jersey Financial
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.
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.
1.21 Financial guarantees
Past service cost is recognised immediately in the period of a
which are backed by assets in clients’ portfolios. Financial
The group provides a limited number of financial guarantees,
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.
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.
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.
Contributions to defined contribution retirement benefit schemes
are charged to profit or loss as an expense as they fall due.
1.19 Segmental reporting
The group determines and presents operating segments based on
the information that is provided internally to the group 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 note 3. 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.
110
110
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
111
Rathbone Brothers Plc Report and accounts 2016
1.20 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.
1.21 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.
1.18 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) is 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.
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.
Contributions to defined contribution retirement benefit schemes
are charged to profit or loss as an expense as they fall due.
1.19 Segmental reporting
The group determines and presents operating segments based on
the information that is provided internally to the group 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 note 3. 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.
Rathbone Brothers Plc Report and accounts 2016
111
111
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
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 10-15 year
period. Amortisation of £11,594,000 (2015: £10,698,000) was
charged during the year. A reduction in the average amortisation
period of one year would increase the amortisation charge by
approximately £1,100,000 (2015: £1,000,000). At 31 December 2016,
the carrying value of client relationship intangibles was
£97,201,000 (2015: £100,869,000).
2.2 Retirement benefit obligations (note 27)
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 judgmental 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
£39,455,000 (2015: £4,501,000 deficit) and information on the
sensitivity of the retirement benefit obligations to changes in
underlying estimates are set out in note 27.
Notes to the consolidated financial statements continued
2 Critical accounting judgments
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 judgments 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 21)
Client relationship intangibles purchased through
corporate transactions
When the group purchases client relationships through
transactions with other corporate entities, a judgment 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 judgment, 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. Upfront payments
made to investment managers upon joining are expensed
as they are not judged to be incremental costs for acquiring
the client relationships.
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 £7,926,000 of payments
made to investment managers and expensed £4,005,000
(2015: £11,308,000 capitalised and £3,254,000 expensed).
A reduction in the capitalisation period by one month would
decrease client relationship intangibles by £617,000 and
decrease profit before tax by £617,000 (2015: £256,000 and
£256,000 respectively).
3
Segmental information
For management purposes the group is currently organised into two operating segments: Investment Management and Unit Trusts.
The products and services from which each reportable segment derives its revenues are described in our services on page 3. All services
other than Unit Trusts 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 2016
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
Acquisition-related costs (note 8)
Segment profit before tax
Head office relocation costs (note 9)
Charges in relation to client relationships and goodwill (note 21)
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
163,268
38,904
11,571
12,578
226,321
(57,613)
(32,437)
(90,050)
(22,882)
(47,184)
(160,116)
66,205
(11,735)
(5,985)
48,485
Unit Trusts
£’000
21,532
–
–
3,430
24,962
(3,020)
(5,333)
(8,353)
(5,355)
(2,579)
(16,287)
8,675
–
–
8,675
Indirect
expenses
£’000
–
–
–
–
–
–
–
–
–
–
(19,123)
(7,210)
(26,333)
(23,430)
49,763
Investment
Management
£’000
2,340,973
Unit Trusts
£’000
54,912
Total
£’000
184,800
38,904
11,571
16,008
251,283
(79,756)
(44,980)
(124,736)
(51,667)
–
(176,403)
74,880
(11,735)
(5,985)
57,160
(7,031)
50,129
(11,972)
38,157
Total
£’000
2,395,885
8,128
2,404,013
112
112
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
113
Rathbone Brothers Plc Report and accounts 2016
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 our services on page 3. All services
other than Unit Trusts 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 2016
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 21)
Acquisition-related costs (note 8)
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
163,268
38,904
11,571
12,578
226,321
(57,613)
(32,437)
(90,050)
(22,882)
(47,184)
(160,116)
66,205
(11,735)
(5,985)
48,485
Unit Trusts
£’000
21,532
–
–
3,430
24,962
(3,020)
(5,333)
(8,353)
(5,355)
(2,579)
(16,287)
8,675
–
–
8,675
Indirect
expenses
£’000
–
–
–
–
–
(19,123)
(7,210)
(26,333)
(23,430)
49,763
–
–
–
–
–
Investment
Management
£’000
2,340,973
Unit Trusts
£’000
54,912
Total
£’000
184,800
38,904
11,571
16,008
251,283
(79,756)
(44,980)
(124,736)
(51,667)
–
(176,403)
74,880
(11,735)
(5,985)
57,160
(7,031)
50,129
(11,972)
38,157
Total
£’000
2,395,885
8,128
2,404,013
Rathbone Brothers Plc Report and accounts 2016
113
113
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
3 Segmental information continued
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 21)
Acquisition-related costs (note 8)
Loss on derivative financial instruments
Gain on remeasurement of non-controlling interest (note 8)
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)
(145,229)
63,766
(11,014)
(162)
(1,030)
885
52,445
Unit Trusts
£’000
17,632
–
–
2,551
20,183
(2,966)
(3,794)
(6,760)
(4,370)
(2,454)
(13,584)
6,599
–
–
–
–
6,599
Indirect
expenses
£’000
–
–
–
–
–
(19,296)
(6,493)
(25,789)
(21,971)
47,760
–
–
–
–
–
–
–
Investment
Management
£’000
1,793,558
Unit Trusts
£’000
37,806
The following table reconciles underlying operating income to operating income:
Underlying operating income
Gain on remeasurement of non-controlling interest (note 8)
Operating income
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 21)
Acquisition-related costs (note 8)
Loss on derivative financial instruments
Head office relocation costs (note 9)
Operating expenses
2016
£’000
251,283
–
251,283
2016
£’000
176,403
11,735
5,985
–
7,031
201,154
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
1,831,364
2,566
1,833,930
2015
£’000
229,178
885
230,063
2015
£’000
158,813
11,014
162
1,030
412
171,431
114
114
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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
2016
£’000
241,882
9,401
251,283
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.
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 (note 26)
Net interest income
2016
£’000
178,172
5,610
183,782
2016
£’000
3,293
6,014
368
1,202
3,013
13,890
(1,050)
(1,269)
(2,319)
11,571
2015
£’000
221,957
8,106
230,063
2015
£’000
(restated –
note 1.4)
175,304
6,155
181,459
2015
£’000
3,503
5,270
48
961
2,881
12,663
(1,296)
(526)
(1,822)
10,841
Rathbone Brothers Plc Report and accounts 2016
115
115
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
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
2016
£’000
2015
£’000
225,937
27,255
253,192
198,244
24,394
222,638
(13,558)
(4,378)
(17,936)
235,256
(2,529)
(5,520)
(8,049)
214,589
6 Net trading and other operating income
Net trading income
Net trading income of £3,103,000 (2015: £2,230,000) comprises unit trust net dealing profits.
Other operating income
Other operating income of £1,353,000 (2015: £1,361,000) comprises dividend income from available for sale equity securities, rental income
from sub-leases on certain properties leased by group companies and sundry income.
7 Operating expenses
Staff costs (note 10)
Depreciation of property, plant and equipment (note 19)
Amortisation of internally generated intangible assets (note 21)
Amortisation of purchased software (note 21)
Auditor's remuneration (see below)
Net impairment charges on impaired loans and advances (note 16)
Operating lease rentals
Other
Other operating expenses
Charges in relation to client relationships and goodwill (note 21)
Acquisition-related costs (note 8)
Loss on derivative financial instruments
Head office relocation costs (note 9)
Total operating expenses
2016
£’000
124,735
2,846
421
2,969
758
9
6,580
38,085
176,403
11,735
5,985
–
7,031
201,154
2015
£’000
113,288
2,815
396
1,890
737
19
6,272
33,396
158,813
11,014
162
1,030
412
171,431
116
116
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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
2016
£’000
165
233
199
55
106
758
2015
£’000
128
249
194
21
145
737
Of the above, audit-related services for the year totalled £597,000 (2015: £571,000).
Fees payable for the audit of the company's annual financial statements include £62,000 (2015: £35,000) relating to prior year audit work.
Fees for audit-related assurance services include £111,000 for the provision of assurance reports to our regulators and review of the interim
statement (2015: £94,000). Fees for other services include advice in relation to the pension schemes and a qualified intermediary
compliance review.
8 Business combinations
On 31 December 2015, the group acquired the remaining 80.1% of the ordinary share capital of Vision Independent Financial Planning
and Castle Investment Solutions.
Deferred and contingent consideration
A payment of £1,563,000 was made in March 2016, following the agreement of the net asset value (as at the acquisition date) of the
acquired businesses. The payment was lower than was provided for at 31 December 2015, and as such the comparative figures have
been restated accordingly (see note 1.4).
Further payments of £3,232,000 and £2,400,000 were made in June 2016 and December 2016 respectively, following the achievement
of certain operational targets. Of these, £1,212,000 related to contingent consideration. The remaining £4,420,000 related to deferred
payments to previous owners who remain in employment with the acquired companies and was charged to profit or loss in the year
to 31 December 2016. These payments were made 80% in cash and 20% in shares and are not deductible for corporation tax purposes
(see note 11).
Contingent consideration of up to £1,506,000 is payable at the end of 2019 (see note 25). Further deferred payments to previous owners
who remain employed of up to £5,494,000 is payable at the same time and is being charged to profit or loss over the deferral period.
Of this, £1,118,000 has been charged to profit or loss in the year to 31 December 2016. These payments will be made 80% in cash and
20% in shares.
Identifiable assets acquired and liabilities assumed
As a result of the settlement of the net asset value payment (see above), the identifiable net assets of the acquired businesses at the
acquisition date have been restated. This has resulted in a reduction in net asset value of the companies as at 31 December 2015.
Rathbone Brothers Plc Report and accounts 2016
117
117
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
8 Business combinations continued
Acquisition-related costs
The group has incurred the following costs in relation to this acquisition, summarised by their classification within the income statement:
Staff costs
Interest expense
Legal and advisory fees
Acquisition-related costs
2016
£’000
5,418
120
447
5,985
2015
£’000
–
–
162
162
Amounts reported in staff costs relate to deferred payments to previous owners who are remaining in employment (described above).
Remeasurement of non-controlling interest
Prior to the acquisition of the remaining 80.1% of the two companies, the group remeasured its pre-existing 19.9% holdings to fair value,
recognising a gain of £885,000 during the year ended 31 December 2015.
9 Head office relocation
On 6 January 2016, the group exchanged contracts for five 17 year leases for a total of 75,000 sq ft of office space at 8 Finsbury Circus.
The group began recognising costs relating to rent and dilapidations on the new premises from the date the leases began, 13 May 2016.
During the year ended 31 December 2016, incremental costs of £7,031,000 (2015: £412,000) were incurred as a result of the decision to
move the head office to 8 Finsbury Circus. These incremental costs were as follows.
Rental costs for 8 Finsbury Circus
Service charge costs at 8 Finsbury Circus
Accelerated depreciation charge for 1 Curzon Street
Provision for dilapidations
Professional costs
2016
£’000
2,848
480
2,745
739
219
7,031
2015
£’000
–
–
–
412
–
412
The move to the 8 Finsbury Circus office concluded on 13 February 2017, which triggered recognition of a provision for the net cost of the
surplus property at 1 Curzon Street until the end of the existing lease (see note 37).
118
118
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
10 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Cash-settled share-based payments
Pension costs (note 27):
– 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
11
Income tax expense
Current tax:
– charge for the year
– adjustments in respect of prior years
Deferred tax (note 20):
– credit for the year
– adjustments in respect of prior years
2016
£’000
99,543
12,298
4,352
849
3,058
4,635
7,693
124,735
2016
698
82
27
259
1,066
2016
£’000
12,366
(177)
(233)
16
11,972
2015
£’000
89,120
11,131
3,246
1,383
4,217
4,191
8,408
113,288
2015
628
77
27
249
981
2015
£’000
12,266
17
(27)
5
12,261
The tax charge is calculated based on our best estimate of the amount payable as at the balance sheet date. Any subsequent differences
between these estimates and the actual amounts paid are recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2015: higher) than the standard rate of corporation tax in the UK of 20.0% (2015: 20.2%).
The differences are explained below.
Tax on profit from ordinary activities at the standard rate of 20.0% (2015: 20.2%)
Effects of:
– disallowable expenses
– share-based payments
– tax on overseas earnings
– (over)/underprovision for tax in previous years
– deferred payments to previous owners of acquired companies (note 8)
– other
Effect of change in corporation tax rate on deferred tax
2016
£’000
10,026
958
(72)
(183)
(161)
1,237
63
104
11,972
2015
£’000
11,871
584
(179)
(75)
22
–
(37)
75
12,261
Rathbone Brothers Plc Report and accounts 2016
119
119
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
12 Dividends
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2015 of 34.0p (2014: 33.0p) per share
– interim dividend for the year ended 31 December 2016 of 21.0p (2015: 21.0p) per share
Dividends paid in the year of 55.0p (2015: 54.0p) per share
Proposed final dividend for the year ended 31 December 2016 of 36.0p (2015: 34.0p) per share
2016
£’000
16,336
10,143
26,479
18,124
2015
£’000
15,766
10,070
25,836
16,235
An interim dividend of 21.0p per share was paid on 5 October 2016 to shareholders on the register at the close of business on
9 September 2016 (2015: 21.0p).
A final dividend declared of 36.0p per share (2015: 34.0p) is payable on 16 May 2017 to shareholders on the register at the close of business
on 21 April 2017. The final dividend is subject to approval by shareholders at the AGM on 11 May 2017 and has not been included as a
liability in these 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 8)
Charges in relation to client relationships and
goodwill (note 21)
Acquisition-related costs (note 8)
Loss on derivative financial instruments
Head office relocation costs (note 9)
Profit attributable to shareholders
Pre-tax
£’000
74,880
2016
Taxation
£’000
(15,816)
2015
Post-tax
£’000
59,064
Pre-tax
£’000
70,365
Taxation
£’000
(14,637)
Post-tax
£’000
55,728
–
–
–
885
(179)
706
(11,735)
(5,985)
–
(7,031)
50,129
2,347
91
–
1,406
(11,972)
(9,388)
(5,894)
–
(5,625)
38,157
(11,014)
(162)
(1,030)
(412)
58,632
2,230
33
209
83
(12,261)
(8,784)
(129)
(821)
(329)
46,371
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 48,357,728 (2015: 47,612,026).
Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Long Term
Incentive Plan and Executive 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 shares under the Long Term Incentive Plan and Executive Incentive Plan
Diluted ordinary shares
Underlying earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
2016
48,357,728
114,415
37,186
260,655
48,769,984
2015
47,612,026
174,219
26,636
204,110
48,016,991
2016
2015
122.1p
121.1p
117.0p
116.1p
The fair value of balances with central banks is not materially different from their carrying amount. The impact of credit risk is not material.
14 Cash and balances with central banks
Cash in hand
Balances with central banks
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
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 2016 were £83,844,000 (note 36) (2015: £68,156,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 31.
16 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
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
financial planning businesses are non-interest-bearing.
2016
£’000
3
2015
£’000
2
1,075,670
1,075,673
583,154
583,156
2016
£’000
2015
£’000
1,075,003
583,002
670
154
1,075,673
583,156
1,075,000
583,000
673
156
1,075,673
583,156
2016
£’000
73,844
10,000
30,226
18
73,766
40,000
322
2015
£’000
68,156
20,000
20,491
230
68,783
40,000
94
114,088
108,877
114,088
108,877
2016
£’000
3,740
855
21
2015
£’000
4,468
978
13
106,335
111,810
110,951
117,269
120
120
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
121
Rathbone Brothers Plc Report and accounts 2016
14 Cash and balances with central banks
Cash in hand
Balances with central banks
2016
£’000
3
1,075,670
1,075,673
2015
£’000
2
583,154
583,156
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
2016
£’000
2015
£’000
1,075,003
670
1,075,673
1,075,000
673
1,075,673
583,002
154
583,156
583,000
156
583,156
2016
£’000
2015
£’000
73,844
10,000
30,226
18
114,088
73,766
40,000
322
114,088
68,156
20,000
20,491
230
108,877
68,783
40,000
94
108,877
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 2016 were £83,844,000 (note 36) (2015: £68,156,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 31.
16 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
2016
£’000
3,740
106,335
855
21
110,951
2015
£’000
4,468
111,810
978
13
117,269
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
financial planning businesses are non-interest-bearing.
Rathbone Brothers Plc Report and accounts 2016
121
121
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
16 Loans and advances to customers continued
The change in the group's holdings of investment securities in the year is summarised below.
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
2016
£’000
2015
£’000
3,821
21,214
43,884
41,753
370
(91)
110,951
110,051
900
110,951
4,609
18,437
58,979
34,908
419
(83)
117,269
116,258
1,011
117,269
No overdrafts or investment management loan book balances were impaired as at 31 December 2016 (2015: none impaired).
Included within available for sale securities are additions of £701,000 (2015: £503,000) of financial instruments that are not classified as
Allowance for losses
At 1 January
Amounts written off
Charge to profit or loss
At 31 December
2016
2015
Trust and
financial
planning
debtors
£’000
83
(1)
9
91
Trust and
financial
planning
debtors
£’000
72
(8)
19
83
Total
£’000
83
(1)
9
91
Total
£’000
72
(8)
19
83
The group’s exposure to credit risk arising from loans and advances to customers is described in note 31.
19 Property, plant and equipment
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
2016
£’000
2015
£’000
1,864
1,070
103,557
105,421
52,316
53,386
2016
£’000
2015
£’000
700,000
700,000
707,745
707,745
All held to maturity debt securities are due to mature within one year (2015: 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 36).
At 1 January 2015
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 1 January 2016
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 31 December 2016
cash and cash equivalents.
Work in progress
Prepayments and other assets
Accrued income
18 Prepayments, accrued income and other assets
Acquisitions through business combinations (restated – note 1.4)
At 1 January 2016 (restated – note 1.4)
Cost
At 1 January 2015
Additions
Disposals
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2015
Charge for the year
Charge for the year
Disposals
At 31 December 2016
Acquisitions through business combinations (restated – note 1.4)
Disposals
At 1 January 2016 (restated – note 1.4)
Carrying amount at 31 December 2016
Carrying amount at 31 December 2015 (restated – note 1.4)
Carrying amount at 1 January 2015
Available
for sale
£’000
15,514
36,345
–
1,474
53
53,386
97,658
8,143
93
Held to
maturity
£’000
429,974
987,624
(709,853)
–
–
–
–
Total
£’000
445,488
1,023,969
(709,853)
1,474
53
8,143
93
707,745
761,131
905,000
1,002,658
(53,859)
(912,745)
(966,604)
105,421
700,000
805,421
Short term
leasehold
improvements
£’000
Plant and
equipment
£’000
2016
£’000
1,530
12,020
52,160
65,710
13,736
1,699
115
(419)
15,131
2,446
(216)
17,361
10,751
1,746
85
(412)
12,170
1,721
(216)
13,675
3,686
2,961
2,985
2015
£’000
(restated –
note 1.4)
1,404
11,965
46,144
59,513
Total
£’000
25,918
2,547
151
(449)
28,167
12,175
(216)
40,126
15,676
2,815
90
(420)
18,161
5,591
(216)
23,536
16,590
10,006
10,242
12,182
848
36
(30)
13,036
9,729
–
22,765
4,925
1,069
5
(8)
5,991
3,870
–
9,861
12,904
7,045
7,257
122
122
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
123
Rathbone Brothers Plc Report and accounts 2016
The change in the group's holdings of investment securities in the year is summarised below.
At 1 January 2015
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 1 January 2016
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 31 December 2016
Available
for sale
£’000
15,514
36,345
–
1,474
53
53,386
97,658
(53,859)
8,143
93
105,421
Held to
maturity
£’000
429,974
987,624
(709,853)
–
–
707,745
905,000
(912,745)
–
–
700,000
Total
£’000
445,488
1,023,969
(709,853)
1,474
53
761,131
1,002,658
(966,604)
8,143
93
805,421
Included within available for sale securities are additions of £701,000 (2015: £503,000) of financial instruments that are not classified as
cash and cash equivalents.
18 Prepayments, accrued income and other assets
Work in progress
Prepayments and other assets
Accrued income
19 Property, plant and equipment
Cost
At 1 January 2015
Additions
Acquisitions through business combinations (restated – note 1.4)
Disposals
At 1 January 2016 (restated – note 1.4)
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2015
Charge for the year
Acquisitions through business combinations (restated – note 1.4)
Disposals
At 1 January 2016 (restated – note 1.4)
Charge for the year
Disposals
At 31 December 2016
Carrying amount at 31 December 2016
Carrying amount at 31 December 2015 (restated – note 1.4)
Carrying amount at 1 January 2015
2016
£’000
1,530
12,020
52,160
65,710
Short term
leasehold
improvements
£’000
Plant and
equipment
£’000
12,182
848
36
(30)
13,036
9,729
–
22,765
4,925
1,069
5
(8)
5,991
3,870
–
9,861
12,904
7,045
7,257
13,736
1,699
115
(419)
15,131
2,446
(216)
17,361
10,751
1,746
85
(412)
12,170
1,721
(216)
13,675
3,686
2,961
2,985
2015
£’000
(restated –
note 1.4)
1,404
11,965
46,144
59,513
Total
£’000
25,918
2,547
151
(449)
28,167
12,175
(216)
40,126
15,676
2,815
90
(420)
18,161
5,591
(216)
23,536
16,590
10,006
10,242
Rathbone Brothers Plc Report and accounts 2016
123
123
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
20 Net deferred tax asset
The Finance Bill 2016, which included a provision for the UK corporation tax rate to be reduced to 17.0% in April 2020, received royal
assent in September 2016 and the reduction is therefore deemed to be substantively enacted. Deferred tax balances have been calculated
using the rate expected to apply when the relevant timing differences are forecast to unwind.
The movement on the deferred tax account is as follows.
As at 1 January 2016
(restated – note 1.4)
Recognised in profit or loss
in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other
comprehensive income
in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in
respect of:
– current year
– prior year
– change in rate
Total
As at 31 December
2016
Deferred tax assets
Deferred tax liabilities
As at 31 December
2016
Deferred
capital
allowances
£’000
Pensions
£’000
Share-based
payments
£’000
Staff-
related
costs
£’000
Available
for sale
securities
£’000
Intangible
assets
£’000
Total
£’000
865
853
1,690
2,154
(16)
(969)
4,577
348
57
(148)
257
(473)
–
389
(84)
(182)
–
(129)
(311)
542
(73)
(303)
166
–
–
–
–
–
–
–
–
7,464
–
(1,528)
5,936
–
–
–
–
–
–
–
–
(99)
–
(16)
(115)
–
–
–
–
–
–
–
–
–
–
–
–
(18)
–
4
(14)
–
–
–
–
103
–
86
189
338
(16)
(105)
217
–
–
–
–
–
–
–
–
7,446
–
(1,524)
5,922
(99)
–
(16)
(115)
1,122
6,705
1,264
2,320
(30)
(780)
10,601
Deferred
capital
allowances
£’000
1,122
–
Pensions
£’000
6,705
–
Share-based
payments
£’000
1,264
–
Staff-
related
costs
£’000
2,320
–
Available
for sale
securities
£’000
–
(30)
Intangible
assets
£’000
–
(780)
Total
£’000
11,411
(810)
1,122
6,705
1,264
2,320
(30)
(780)
10,601
Recognised in equity in respect of:
As at 1 January 2015
Recognised in profit or loss in
Recognised in other
comprehensive income
respect of:
– current year
– prior year
– change in rate
Total
in respect of:
– current year
– prior year
– change in rate
Total
– current year
– prior year
– change in rate
Total
Acquisitions:
– business combinations
(restated – note 1.4)
As at 31 December 2015
(restated – note 1.4)
Deferred tax assets
Deferred tax liabilities
As at 31 December 2015
Deferred
capital
allowances
£’000
918
Pensions
£’000
2,740
Share-based
payments
£’000
2,054
Available
for sale
securities
£’000
Intangible
assets
£’000
(6)
(121)
Staff-
related
costs
£’000
1,310
942
29
(127)
844
–
–
–
–
–
–
–
–
–
Total
£’000
6,895
102
(5)
(75)
22
(1,332)
–
(187)
(1,519)
70
(4)
(15)
51
9
–
5
14
–
–
–
–
–
–
–
–
–
–
–
–
(11)
–
1
(10)
–
–
–
–
–
(862)
(872)
38
(34)
(47)
(43)
(544)
–
166
(378)
(343)
–
(72)
(415)
–
–
–
–
–
–
–
–
(10)
(1,321)
---
(188)
(1,509)
–
–
–
–
–
–
–
–
–
–
70
(4)
(15)
51
865
853
1,690
2,154
(16)
(969)
4,577
Deferred
capital
allowances
£’000
865
–
865
Pensions
£’000
853
–
853
Share-based
payments
£’000
1,690
–
1,690
Staff-
related
costs
£’000
2,154
–
2,154
Available
for sale
securities
£’000
–
(16)
(16)
Intangible
assets
£’000
–
(969)
(969)
Total
£’000
5,562
(985)
4,577
124
124
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
125
Rathbone Brothers Plc Report and accounts 2016
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
Acquisitions:
– business combinations
(restated – note 1.4)
As at 31 December 2015
(restated – note 1.4)
Deferred
capital
allowances
£’000
918
Pensions
£’000
2,740
Share-based
payments
£’000
2,054
38
(34)
(47)
(43)
(544)
–
166
(378)
(343)
–
(72)
(415)
Staff-
related
costs
£’000
1,310
942
29
(127)
844
–
–
–
–
–
–
–
–
(10)
(1,321)
---
(188)
(1,509)
–
–
–
–
–
–
–
–
–
70
(4)
(15)
51
–
–
–
–
–
–
–
–
–
–
Available
for sale
securities
£’000
(6)
Intangible
assets
£’000
(121)
–
–
–
–
(11)
–
1
(10)
–
–
–
–
9
–
5
14
–
–
–
–
–
–
–
–
Total
£’000
6,895
102
(5)
(75)
22
(1,332)
–
(187)
(1,519)
70
(4)
(15)
51
–
(862)
(872)
865
853
1,690
2,154
(16)
(969)
4,577
Deferred tax assets
Deferred tax liabilities
As at 31 December 2015
Deferred
capital
allowances
£’000
865
–
865
Pensions
£’000
853
–
853
Share-based
payments
£’000
1,690
–
1,690
Staff-
related
costs
£’000
2,154
–
2,154
Available
for sale
securities
£’000
–
(16)
(16)
Intangible
assets
£’000
–
(969)
(969)
Total
£’000
5,562
(985)
4,577
Rathbone Brothers Plc Report and accounts 2016
125
125
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
21
Intangible assets
Goodwill
Other intangible assets
2016
£’000
63,465
103,727
167,192
2015
£’000
(restated –
note 1.4)
63,606
107,847
171,453
Goodwill
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 2015
Acquired through business combinations (restated - note 1.4)
At 1 January 2016 (restated – note 1.4) and 31 December 2016
Impairment
At 1 January 2015
Charge in the year
At 1 January 2016
Charge in the year
At 31 December 2016
Carrying amount at 31 December 2016
Carrying amount at 31 December 2015 (restated - note 1.4)
Carrying amount at 1 January 2015
Investment
management
£’000
56,053
6,038
62,091
–
–
–
–
–
62,091
62,091
56,053
Trust and
tax
£’000
1,954
–
1,954
350
316
666
141
807
1,147
1,288
1,604
Rooper &
Whately
£’000
227
–
227
–
–
–
–
–
227
227
227
Total
£’000
58,234
6,038
64,272
350
316
666
141
807
63,465
63,606
57,884
Goodwill acquired through business combinations in the prior year comprised goodwill arising on the acquisitions of Vision Independent
Financial Planning and Castle Investment Solutions. The goodwill was allocated to the investment management CGU.
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 significantly 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 CGU.
At 31 December
Discount rate
Annual revenue growth rate
Investment management
2016
9.3%
4.0%
2015
9.3%
8.0%
Trust and tax
2016
11.3%
(1.0)%
2015
11.3%
0.0%
Rooper & Whately
2016
9.3%
0.0%
2015
9.3%
0.0%
126
126
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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.
Notes to the consolidated financial statements continued
21
Intangible assets
Goodwill
Other intangible assets
Goodwill
Cost
At 1 January 2015
Impairment
At 1 January 2015
Charge in the year
At 1 January 2016
Charge in the year
At 31 December 2016
Acquired through business combinations (restated - note 1.4)
At 1 January 2016 (restated – note 1.4) and 31 December 2016
2016
£’000
63,465
103,727
167,192
2015
£’000
(restated –
note 1.4)
63,606
107,847
171,453
Rooper &
Whately
£’000
227
–
227
–
–
–
–
–
227
227
227
Total
£’000
58,234
6,038
64,272
350
316
666
141
807
63,465
63,606
57,884
Investment
management
£’000
56,053
6,038
62,091
–
–
–
–
–
62,091
62,091
56,053
Trust and
tax
£’000
1,954
–
1,954
350
316
666
141
807
1,147
1,288
1,604
Carrying amount at 31 December 2016
Carrying amount at 31 December 2015 (restated - note 1.4)
Carrying amount at 1 January 2015
Goodwill acquired through business combinations in the prior year comprised goodwill arising on the acquisitions of Vision Independent
Financial Planning and Castle Investment Solutions. The goodwill was allocated to the investment management CGU.
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 significantly 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 CGU.
At 31 December
Discount rate
Annual revenue growth rate
Investment management
Trust and tax
Rooper & Whately
2016
9.3%
4.0%
2015
9.3%
8.0%
2016
11.3%
(1.0)%
2015
11.3%
0.0%
2016
9.3%
0.0%
2015
9.3%
0.0%
At 30 June 2016, the group recognised an impairment charge of £141,000 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 2016 was £1,147,000, which was lower than the carrying
value of £1,288,000 at 31 December 2015. The recoverable amount was calculated based on forecast earnings for 2016, extrapolated
over 10 years based on a decrease in revenues of 1.0% per annum. The pre-tax rate used to discount the forecast cash flows was 9.3%.
The impairment was recognised in the Investment Management segment in the segmental analysis. No further impairment was
recognised at 31 December 2016.
Based on the assumptions in the table above, the calculated recoverable amount of the trust and tax CGU at 31 December 2016 was
£1,392,000; this was higher than its carrying value of £1,147,000. Reducing the assumed growth rate for income in the trust and tax
CGU by one percentage point would reduce the calculated recoverable amount of the CGU to £987,000. 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 2015
Internally developed in the year
Acquired through business combinations
Purchased in the year
Disposals
At 1 January 2016
Internally developed in the year
Purchased in the year
Disposals
At 31 December 2016
Amortisation
At 1 January 2015
Charge for the year
Disposals
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Carrying amount at 31 December 2016
Carrying amount at 31 December 2015
Carrying amount at 1 January 2015
Client
relationships
£’000
Software
development
costs
£’000
124,679
–
4,539
11,308
(1,867)
138,659
–
7,926
(1,933)
144,652
28,959
10,698
(1,867)
37,790
11,594
(1,933)
47,451
97,201
100,869
95,720
4,034
480
–
–
–
4,514
422
–
–
4,936
3,220
396
–
3,616
421
–
4,037
899
898
814
Purchased
software
£’000
19,104
–
–
2,734
–
21,838
–
2,516
–
24,354
13,868
1,890
–
15,758
2,969
–
18,727
5,627
6,080
5,236
Total
£’000
147,817
480
4,539
14,042
(1,867)
165,011
422
10,442
(1,933)
173,942
46,047
12,984
(1,867)
57,164
14,984
(1,933)
70,215
103,727
107,847
101,770
Client relationships acquired through business combinations in the prior year related to the acquisition of Vision and Castle.
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 £11,735,000 (2015: £11,014,000).
A further £4,005,000 (2015: £3,254,000) was expensed as staff costs during the year, representing amounts due for client relationships
introduced more than 12 months after the cessation of non-compete periods (note 2.1).
Purchased software with a cost of £14,117,000 (2015: £12,310,000) has been fully amortised but is still in use.
22 Deposits by banks
On 31 December 2016, deposits by banks included overnight cash book overdraft balances of £294,000 (2015: £299,000).
The fair value of deposits by banks was not materially different to their carrying value. Fair value has been calculated as the discounted
amount of estimated future cash flows expected to be paid using current market rates.
126
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
127
127
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
23 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
2016
£’000
2015
£’000
1,768,215
119,438
1,242
1,888,895
1,751,483
115,148
22,264
1,888,895
1,321,575
79,966
1,349
1,402,890
1,316,670
71,243
14,977
1,402,890
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.
24 Accruals, deferred income, provisions and other liabilities
Creditors
Accruals and deferred income
Other provisions (note 25)
25 Other provisions
At 1 January 2015
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Business combinations (restated - note 1.4)
Other movements
Utilised/paid during the year
At 1 January 2016 (restated - note 1.4)
Charged to profit or loss
Unused amount credited to profit or loss
Net charge to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2016
Payable within 1 year
Payable after 1 year
2016
£’000
17,790
52,620
14,744
85,154
2015
£’000
(restated ---
note 1.4)
16,556
42,344
19,816
78,716
Property-
related
£’000
1,082
713
–
713
–
–
–
1,795
1,003
–
1,003
–
–
2,798
1,292
1,506
2,798
Total
£’000
20,944
1,147
(102)
1,045
3,908
11,308
(17,389)
19,816
1,920
(565)
1,355
8,008
(14,435)
14,744
3,724
11,020
14,744
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
19,179
–
–
–
–
11,308
(17,095)
13,392
–
–
–
7,926
(11,106)
10,212
1,834
8,378
10,212
Deferred and
contingent
consideration
in business
combinations
£’000
30
–
(7)
(7)
3,908
–
(23)
3,908
–
(79)
(79)
82
(2,775)
1,136
–
1,136
1,136
Legal and
compensation
£’000
653
434
(95)
339
–
–
(271)
721
917
(486)
431
–
(554)
598
598
–
598
128
128
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Deferred, variable costs to acquire client relationship intangibles
Deferred, variable costs to acquire client relationship intangibles of £7,820,000 arose during the year, in relation to deferred payments
to investment managers and third parties linked to the value of client funds introduced (2015: £11,305,000). These amounts have been
capitalised (see note 21).
At 31 December 2015, deferred, variable costs to acquire client relationship intangibles included £4,389,000 in relation to the purchase
of part of Deutsche Asset & Wealth Management's London-based private client investment management business. The final payment
of £4,495,000 was made during the year, based on the value of transferred funds under management retained by the group at
31 December 2015.
Deferred and contingent consideration in business combinations
Deferred and contingent consideration of £1,136,000 (2015 (restated – note 1.4): £3,908,000) is the present value of amounts payable
at end of 2019 in respect of the acquisition of Vision and Castle (see note 8).
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.
Following the agreement of the net asset value of the acquired businesses, a net asset value payment of £1,563,000 was made in March
2016. As a result, deferred and contingent consideration in business combinations as at 1 January 2016 has been restated to reflect this
measurement period adjustment (see note 1.4).
Further payments of £695,000 and £517,000 were made in June 2016 and December 2016 respectively, following the achievement of
operational and financial targets.
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 £2,798,000 in relation to dilapidation provisions expected to arise on leasehold premises held by
the group (2015: £1,795,000). Dilapidation provisions are calculated using a discounted cash flow model. During the year, provisions have
increased by £1,003,000 due to the creation of a provision for the new London office at 8 Finsbury Circus (note 9).
Ageing of provisions
Provisions payable after one year are expected to be settled within three years of the balance sheet date (2015: four years), except for
property-related provisions of £1,506,000, which are expected to be settled within 20 years of the balance sheet date (2015: 21 years).
26 Subordinated loan notes
Subordinated loan notes
2016
Face
value
£'000
20,000
Carrying
value
£'000
19,590
2015
Face
value
£'000
20,000
Carrying
value
£'000
19,492
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. An interest expense of £1,269,000 (2015: £526,000) was recognised
in the year (see note 4).
Rathbone Brothers Plc Report and accounts 2016
129
129
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
27 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 £4,595,000
(2015: £4,160,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions
were £40,000 (2015: £31,000).
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.
On 20 October 2016, the group commenced a consultation with members of the schemes with a view to ceasing future accrual and
breaking the link to final salary in both schemes. The consultation period ended on 31 January 2017. As the consultation period was
ongoing at the year end, the potential outcomes of the consultation were not reflected in the assumptions to measure the liabilities
at 31 December 2016 (see note 37).
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 £1,134,000 of related insurance premiums were expensed to profit or loss in the year (2015: £1,028,000).
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 next triennial valuation of both schemes will be carried out during 2017, based on 31 December 2016 data, and may result in changes to
the funding commitments described below.
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
Laurence Keen Scheme
Rathbone 1987 Scheme
2016
%
4.50
3.60
3.50
2.80
3.50
2015
%
4.20
3.50
3.20
4.00
3.20
2016
%
4.50
3.40
3.50
2.80
3.50
2015
%
4.20
3.10
3.20
4.00
3.20
130
130
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically:
i.
ii.
iii.
the discount rate has been decreased by 1.2% to reflect a decrease in the yields available on AA-rated corporate bonds at a term
consistent with the average duration of the liabilities
the assumed rate of future inflation has been increased by 0.3% to reflect an increase in expectations of long term inflation as
implied by changes in the fixed-interest and index-linked gilts market
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.
During the year, the group introduced an allowance for 3% of members, with an average age of 52.5 at the time of transferring out, to
transfer their benefits out of the scheme each year over the average remaining lifetime of the members. This reflects an increase in the
level of members seen to be transferring out, following changes to tax rules for pension benefits in 2015. There were no other changes to
the demographic assumptions.
The assumed duration of the liabilities for the Laurence Keen Scheme is 20 years (2015: 19 years) and the assumed duration for the
Rathbone 1987 Scheme is 24 years (2015: 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 (CARE) from that date. The assumed life expectancy for the membership of both
schemes is based on the S2NA actuarial tables (2015: S2NA tables). The assumed life expectations on retirement were:
Retiring today:
Retiring in 20 years:
– aged 60
– aged 65
– aged 60
– aged 65
2016
2015
Males
29.3
24.3
31.8
26.6
Females
31.5
26.5
33.9
28.8
Males
29.2
24.2
31.6
26.5
The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows.
Present value of defined
benefit obligations
Fair value of scheme assets
Net defined benefit liability
Laurence Keen
Scheme
£’000
(16,203)
14,099
(2,104)
2016
Rathbone
1987 Scheme
£’000
(216,238)
178,887
(37,351)
Total
£’000
Laurence Keen
Scheme
£’000
2015
Rathbone
1987 Scheme
£’000
(232,441)
192,986
(39,455)
(14,002)
13,991
(11)
(161,965)
157,475
(4,490)
(175,967)
171,466
(4,501)
The amounts recognised in profit or loss, within operating expenses, are as follows.
Current service cost
Interest income
Laurence Keen
Scheme
£’000
–
1
1
2016
Rathbone
1987 Scheme
£’000
3,022
35
3,057
Total
£’000
3,022
36
3,058
Laurence Keen
Scheme
£’000
–
17
17
2015
Rathbone
1987 Scheme
£’000
3,880
320
4,200
Total
£’000
3,880
337
4,217
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 £2,018,000 (2015: £531,000 rise) for the Laurence Keen Scheme and a rise in value of £31,353,000 (2015: £5,431,000
rise) for the Rathbone 1987 Scheme.
Rathbone Brothers Plc Report and accounts 2016
131
131
Females
31.4
26.4
33.8
28.6
Total
£’000
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
27 Long term employee benefits continued
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 gains
Actuarial gain/(loss) arising from:
– demographic assumptions
– financial assumptions
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
14,002
–
522
–
(135)
(519)
4,262
(1,929)
16,203
2016
Rathbone
1987 Scheme
£’000
161,965
3,022
6,172
981
(1,783)
(4,379)
66,585
(16,325)
216,238
Total
£’000
175,967
3,022
6,694
981
(1,918)
(4,898)
70,847
(18,254)
232,441
Laurence Keen
Scheme
£’000
16,770
–
583
–
–
–
(474)
(2,877)
14,002
Movements in the fair value of scheme assets were as follows.
Laurence Keen
Scheme
£’000
13,991
2016
Rathbone
1987 Scheme
£’000
157,475
Total
£’000
171,466
Laurence Keen
Scheme
£’000
16,337
2015
Rathbone
1987 Scheme
£’000
163,859
3,880
6,123
1,227
–
–
(6,457)
(6,667)
161,965
2015
Rathbone
1987 Scheme
£’000
150,582
Total
£’000
180,629
3,880
6,706
1,227
–
–
(6,931)
(9,544)
175,967
Total
£’000
166,919
At 1 January
Remeasurement of defined
benefit liability:
– 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
521
6,137
6,658
1,497
25,216
26,713
19
–
(1,929)
14,099
5,403
981
(16,325)
178,887
5,422
981
(18,254)
192,986
566
(35)
–
–
(2,877)
13,991
5,803
6,369
(372)
(407)
6,902
1,227
(6,667)
157,475
6,902
1,227
(9,544)
171,466
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 was also
seeking to hedge around 50% of its interest rate and inflation risk by 31 December 2016 using Liability Driven Investment (LDI)
strategies. The extent to which this was achieved in 2016 will not be known until the triennial valuation is completed during 2017.
In the Laurence Keen Scheme the target date for the 100% allocation to safer assets is 31 December 2040.
The expected asset allocations at 31 December 2016 as set out in the statements of investment principles are as follows.
Target asset allocation at 31 December 2016
Benchmark
Return seeking assets
Growth assets
Range
Return seeking assets
Growth assets
Laurence Keen
Scheme
Rathbone
1987 Scheme
50%
50%
38%
62%
` 44% – 56%
44% – 56%
32% – 44%
56% – 68%
132
132
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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
– 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
2016
Fair
value
£’000
4,178
358
921
710
6,167
5,413
1,918
7,331
10
591
14,099
2016
Fair
value
£’000
57,134
8,807
14,486
12,384
92,811
35,836
3,670
17,505
1,010
58,021
2015
Fair
value
£’000
4,672
470
702
763
6,607
4,594
2,044
6,638
314
432
13,991
2015
Fair
value
£’000
56,262
10,171
13,436
11,046
90,915
30,616
3,033
16,992
992
51,633
17,365
17,365
9,885
805
178,887
7,936
7,936
4,504
2,487
157,475
2016
Current
allocation
%
2015
Current
allocation
%
44
47
52
–
4
100
2016
Current
allocation
%
48
2
3
100
2015
Current
allocation
%
52
58
32
32
10
6
–
100
5
3
2
100
During 2016, the Rathbone 1987 Scheme held shares in real time inflation-linked interest rate swap funds, which had a fair value of
£17,365,000 at the year end (2015: £7,936,000). The value of these investments is expected to increase when the value of the scheme's
liabilities increases (and vice versa). They therefore act to reduce the group's exposure to changes in net defined benefit pension
obligations arising from changes in interest rates and inflation. The funds are selected so that their average duration is intended to broadly
align with the duration of the scheme's liabilities.
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 and Germany, all of which are rated AAA, AA+ or AA, 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.
Rathbone Brothers Plc Report and accounts 2016
133
133
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
27 Long term employee benefits continued
The key assumptions affecting the results of the valuation are the discount rate, future inflation, future salary growth, mortality, the rate
of members transferring out and the average age at the time of transferring out. 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. For example, in order to demonstrate the sensitivity of the results to the
discount rate, the actuary has recalculated the defined benefit obligations for each scheme using a discount rate that is 0.5% higher than
used for calculating the disclosed figures. A similar approach has been taken to demonstrate the sensitivity of the results to the other key
assumptions. A summary of the sensitivities in respect of the total of the two schemes’ defined benefit obligations is set out below.
0.5% increase in:
– discount rate
– rate of inflation
– rate of salary growth
1% increase in the rate of members transferring out each year
1 year increase to:
– longevity at 60
– average age of members at the time of transferring out
Combined impact on schemes' liabilities
(Decrease)/increase
£'000
(Decrease)/increase
%
(28,225)
7,929
6,213
(1,256)
8,598
1,537
(12.1)
3.4
2.7
(0.5)
3.7
0.7
The total regular contributions made by the group to the Rathbone 1987 Scheme during the year were £2,558,000 (2015: £3,176,000)
based on 20.3% of pensionable salaries (2015: 20.3%). Additional lump sum contributions of £2,917,000 were paid in 2016 (2015: £3,792,000).
Following the most 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 an additional contribution to the scheme of £500,000 in 2017, if the scheme remains in
deficit at the time of the payment. The group is not committed to making any further deficit reduction contributions as at the year end.
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 (2015: 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 £19,000 (2015: £nil). No additional lump
sum contributions were paid in 2016 (2015: £nil), and the group has no commitment to make further contributions. Regular contributions
to the Laurence Keen Scheme stopped with effect from 1 January 2015.
28 Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2015
Shares issued:
– to Share Incentive Plan
– to Save As You Earn scheme
– on exercise of options
At 1 January 2016
Shares issued:
– in relation to business combinations (note 8)
– to Share Incentive Plan
– to Save As You Earn scheme
– on placing
Own shares sold
At 31 December 2016
Number of
shares
47,890,269
205,883
35,074
3,060
48,134,286
37,898
170,177
116,108
2,224,210
–
50,682,679
Exercise/
issue price
pence
1,934.0 – 2,264.0
934.0 – 1,641.0
852.0 – 1,172.0
1,705.0
1,820.0 – 2,039.0
934.0 – 1,648.0
1,710.0
1,754.0 – 1,949.0
Share
capital
£’000
2,395
10
2
–
2,407
2
9
6
111
–
2,535
Share
premium
£’000
92,987
4,275
353
28
97,643
644
3,259
1,270
36,830
345
139,991
Total
£’000
95,382
4,285
355
28
100,050
646
3,268
1,276
36,941
345
142,526
134
134
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
The total number of issued and fully paid up ordinary shares at 31 December 2016 was 50,682,679 (2015: 48,134,286) with a par value of
5p per share.
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time, and are entitled to one vote
per share at meetings of the company. The ordinary shareholders are entitled to any residual assets on the winding up of the company.
On 20 October 2016, the company issued 2,224,210 shares by way of a placing for cash consideration at £17.10 per share, which raised
£36,941,000, net of £1,093,000 placing costs, offset against share premium arising on the issue.
29 Own shares
The following movements in own shares occurred during the year:
At 1 January 2015
Acquired in the year
Released on vesting
At 1 January 2016
Acquired in the year
Released on vesting
Sold in the year
At 31 December 2016
Number of
shares
411,195
115,782
(142,682)
384,295
81,992
(88,279)
(41,021)
336,987
£’000
5,531
2,413
(1,767)
6,177
1,585
(1,084)
(435)
6,243
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 30). The
number of own shares held as treasury shares by the company at 31 December 2016 was 8,979 (2015: 50,000). In addition, 31,803 shares
were held in the Employee Benefit Trust at 31 December 2016 (2015: 61,131) and a further 296,205 (2015: 273,164) shares were held by the
trustees of the Share Incentive Plan but were not unconditionally gifted to employees.
30 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 2016, the trustees of the SIP held 1,243,979 (2015: 1,260,007) ordinary shares of 5p each in Rathbone Brothers Plc with
a total market value of £24,668,000 (2015: £27,720,000). Of the total number of shares held by the trustees, 294,680 (2015: 268,512) have
been conditionally gifted to employees and 1,525 (2015: 4,652) 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 63 to 64.
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.
Rathbone Brothers Plc Report and accounts 2016
135
135
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
30 Share-based payments continued
Long Term Incentive Plan
This year is the last year of the group's transition from the LTIP to the Executive Incentive Plan (EIP) (above). The LTIP scheme will be
discontinued and the variable aspect of executive management remuneration will be awarded under the EIP. 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 £1,414,000 (2015: £2,543,000) has been
recognised for the estimated fair value of future awards.
At 31 December 2016, the trustees held 31,803 (2015: 61,131) ordinary shares of 5p each in Rathbone Brothers Plc with a total market value
of £631,000 (2015: £1,345,000). 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 plan
Under the Save As You Earn (SAYE) plan, employees can contribute up to £500 per month to acquire shares at the end of a three or five
year savings period. Further information on the scheme is given in the remuneration committee report on page 74.
Options with an aggregate estimated fair value of £672,000, determined using a binomial valuation model including expected dividends,
were granted on 29 April 2016 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2016, as at the date of issue, were as follows.
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2016
2,033
1,648
21%
0.7%
2.7%
2015
2,147
1,641
22%
1.1%
2.4%
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
2016
At 31 December
Exercise price
pence
934.0
984.0
1,106.0
1,556.0
1,641.0
1,648.0
Exercise
period
2016
2015 and 2017
2016 and 2018
2017 and 2019
2018 and 2020
2019 and 2021
2016
Number
of share
options
–
16,966
76,495
134,265
128,418
151,570
507,714
2015
Number
of share
options
19,706
16,966
167,815
142,396
137,481
–
484,364
136
136
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
30 Share-based payments continued
Long Term Incentive Plan
This year is the last year of the group's transition from the LTIP to the Executive Incentive Plan (EIP) (above). The LTIP scheme will be
discontinued and the variable aspect of executive management remuneration will be awarded under the EIP. 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 £1,414,000 (2015: £2,543,000) has been
recognised for the estimated fair value of future awards.
At 31 December 2016, the trustees held 31,803 (2015: 61,131) ordinary shares of 5p each in Rathbone Brothers Plc with a total market value
of £631,000 (2015: £1,345,000). 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 plan
Under the Save As You Earn (SAYE) plan, employees can contribute up to £500 per month to acquire shares at the end of a three or five
year savings period. Further information on the scheme is given in the remuneration committee report on page 74.
Options with an aggregate estimated fair value of £672,000, determined using a binomial valuation model including expected dividends,
were granted on 29 April 2016 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2016, as at the date of issue, were as follows.
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.
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
Year of grant
2011
2012
2013
2014
2015
2016
At 31 December
2016
2,033
1,648
21%
0.7%
2.7%
2016
Number
of share
options
–
16,966
76,495
134,265
128,418
151,570
507,714
2015
2,147
1,641
22%
1.1%
2.4%
2015
Number
of share
options
19,706
16,966
167,815
142,396
137,481
–
484,364
Exercise price
pence
934.0
984.0
1,106.0
1,556.0
1,641.0
1,648.0
Exercise
period
2016
2015 and 2017
2016 and 2018
2017 and 2019
2018 and 2020
2019 and 2021
Movements in the number of share options outstanding for the SAYE plan were as follows.
At 1 January
Granted in the year
Forfeited in the year
Exercised in the year
At 31 December
2016
2015
Number
of share
options
484,364
155,334
(15,876)
(116,108)
507,714
Weighted
average
exercise price
pence
1,379.0
1,648.0
1,612.0
1,098.0
1,518.0
Number
of share
options
397,760
143,821
(19,083)
(38,134)
484,364
Weighted
average
exercise price
pence
1,251.0
1,641.0
1,442.0
1,003.0
1,379.0
The weighted average share price at the dates of exercise for share options exercised during the year was £20.06 (2015: £21.63). The options
outstanding at 31 December 2016 had a weighted average contractual life of 2.5 years (2015: 2.6 years) and a weighted average exercise
price of £15.18 (2015: £13.79).
The group recognised total expenses of £5,201,000 in relation to share-based payment transactions in 2016 (2015: £4,629,000) (see note 10).
31 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies and procedures
to manage these items in accordance with its risk appetite, as described in the group risk committee report on pages 80 to 81.
The group categorises its financial risks into the following primary areas:
liquidity risk;
credit risk (which includes counterparty default risk);
i.
ii.
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 27.
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.
Credit risk
i.
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 financial planning 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.
136
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
137
137
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management i. Credit risk continued
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.
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
financial planning businesses ('trust and financial planning debtors') and other debtors.
(a)
(b)
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.
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.
At 31 December 2016, the total lending exposure limit for the investment management loan book was £150,000,000 (2015:
£150,000,000), of which £106,276,000 had been advanced (2015: £111,682,000) and a further £31,642,000 had been committed
(2015: £20,417,000).
(c)
Trust and financial planning debtors
Trust and financial planning debtors relate to fees which have been invoiced but not yet settled by clients. The collection and ageing
of trust and financial planning debtors are reviewed on a monthly basis by the management committees of the group’s trust and
financial planning businesses. 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.
138
138
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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 security and/or 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 financial planning 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 financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
Other financial assets
Credit risk relating to off-balance sheet exposures:
Loan commitments
Financial guarantees
2016
£’000
1,075,670
37,787
114,088
3,740
106,335
946
21
803,557
56,986
2015
£’000
(restated –
note 1.4)
583,154
17,948
108,877
4,468
111,810
1,061
13
760,061
50,743
31,642
117
2,230,889
20,417
–
1,658,552
The above table represents the group's gross credit risk exposure at 31 December 2016 and 2015, 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.
10.1% of the total maximum exposure is derived from loans and advances to banks and customers (2015: 13.6%) and 36.0% represents
investment securities (2015: 45.8%).
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 1.21).
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
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
2016
£'000
1,075,670
1,075,670
2015
£'000
583,154
583,154
2016
£’000
36,964
823
–
37,787
2015
£’000
17,117
823
8
17,948
Rathbone Brothers Plc Report and accounts 2016
139
139
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management i. Credit risk continued
Loans and advances
Loans and advances are summarised as follows.
Neither past due nor impaired
Past due but not impaired
Impaired (see (c) below)
Gross carrying value
Less: allowance for impairment (note 16)
Net carrying value
2016
2015
Loans and
advances
to banks
£’000
114,088
–
–
114,088
–
114,088
Loans and
advances
to customers
£’000
110,461
487
94
111,042
(91)
110,951
Loans and
advances
to banks
£’000
108,877
–
–
108,877
–
108,877
Loans and
advances
to customers
£’000
116,860
401
91
117,352
(83)
117,269
No loans and advances have been renegotiated (2015: 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 2016 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*
2016
£’000
23,321
90,737
30
114,088
2015
£’000
21,838
86,522
517
108,877
* 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 2016, which are all
externally unrated, is analysed between those loans that are subject to standard lending criteria, which are described on page 138,
and, where applicable, those loans for which there are no standard lending criteria. At 31 December 2016, all loans are subject to
standard lending criteria (2015: 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 financial planning debtors, where a normal settlement
period of up to 30 days is expected.
(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 financial planning 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 2016 and 2015, no overdrafts, loans and other debtors were
past due but not impaired. The gross amounts of trust and financial planning 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
2016
£’000
149
148
55
46
89
487
2015
£’000
110
74
73
97
47
401
140
140
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
(c)
Impaired
Allowance has been made for individually impaired loans and advances to customers, as set out below.
Movement in impairment provision during the year
At 1 January 2016
Amounts written off
Credit to profit or loss
At 31 December 2016
Gross carrying value of impaired loans and advances to customers
At 31 December 2016
At 31 December 2015
Trust and
financial planning
debtors
£’000
83
(1)
9
91
94
91
All loans and advances to customers impaired relate to trust and financial planning debtors (2015: all). There were no other impaired
credit exposures at 31 December 2016 (2015: £nil).
Investment securities
The table below presents an analysis of investment securities by rating agency designation, as at 31 December, based on Fitch or
Moody’s long term rating designation.
Government
securities
£’000
–
–
–
–
2016
Money
market
funds
£’000
103,557
–
–
103,557
Certificates
of deposit
£’000
–
325,000
375,000
700,000
Total
£’000
103,557
325,000
375,000
803,557
Government
securities
£’000
–
22,745
–
22,745
2015
Money
market
funds
£’000
52,316
–
–
52,316
Certificates
of deposit
£’000
–
115,000
570,000
685,000
Total
£’000
52,316
137,745
570,000
760,061
AAA
AA+ to AA-
A+ to A-
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 2016
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 financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
Other financial assets
United
Kingdom
£’000
1,075,670
34,005
114,088
3,171
99,392
855
21
Eurozone
£’000
–
622
–
201
258
–
–
Rest of
the World
£’000
–
3,160
–
368
6,685
–
–
Total
£’000
1,075,670
37,787
114,088
3,740
106,335
855
21
195,000
53,642
1,575,844
223,557
791
225,429
385,000
2,542
397,755
803,557
56,975
2,199,028
Rathbone Brothers Plc Report and accounts 2016
141
141
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management i. Credit risk continued
At 31 December 2015 (restated – note 1.4)
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 financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
Other financial assets
United
Kingdom
£’000
583,154
16,616
108,877
3,926
107,197
978
13
Eurozone
£’000
–
199
–
68
1,384
–
–
Rest of
the World
£’000
–
1,133
–
474
3,229
–
–
Total
£’000
583,154
17,948
108,877
4,468
111,810
978
13
307,745
48,706
1,177,212
252,316
812
254,779
200,000
1,208
206,044
760,061
50,726
1,638,035
At 31 December 2016, materially all eurozone exposures were to counterparties based in the Netherlands and France (2015:
Netherlands, France and Germany) and all Rest of the World exposures were to counterparties based in Switzerland, Sweden,
Canada and Australia (2015: Switzerland). At 31 December 2016, the group had no exposure to sovereign debt (2015: £22,745,000
of UK treasury bills).
(a)
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 2016
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 financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
Other financial assets
Public
sector
£’000
1,075,670
–
–
Financial
institutions
£’000
–
37,787
114,088
Clients
and other
corporates
£’000
–
–
–
Total
£’000
1,075,670
37,787
114,088
–
–
–
–
–
–
–
–
3,740
106,335
855
21
3,740
106,335
855
21
–
125
1,075,795
803,557
3,276
958,708
–
53,574
164,525
803,557
56,975
2,199,028
142
142
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management i. Credit risk continued
At 31 December 2015 (restated – note 1.4)
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 financial planning debtors
– other debtors
Investment securities:
Other financial assets
– unlisted debt securities and money market funds
United
Kingdom
£’000
583,154
16,616
108,877
3,926
107,197
978
13
Eurozone
£’000
199
68
1,384
–
–
–
–
Rest of
the World
£’000
1,133
–
–
474
3,229
–
–
Total
£’000
583,154
17,948
108,877
4,468
111,810
978
13
307,745
48,706
1,177,212
252,316
812
254,779
200,000
1,208
206,044
760,061
50,726
1,638,035
At 31 December 2016, materially all eurozone exposures were to counterparties based in the Netherlands and France (2015:
Netherlands, France and Germany) and all Rest of the World exposures were to counterparties based in Switzerland, Sweden,
Canada and Australia (2015: Switzerland). At 31 December 2016, the group had no exposure to sovereign debt (2015: £22,745,000
of UK treasury bills).
(a)
Industry sectors
operate, were:
The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
At 31 December 2016
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 financial planning debtors
– other debtors
Investment securities:
Other financial assets
– unlisted debt securities and money market funds
Financial
institutions
£’000
37,787
114,088
–
–
–
–
–
Clients
and other
corporates
£’000
Total
£’000
–
–
–
1,075,670
37,787
114,088
3,740
3,740
106,335
106,335
855
21
855
21
Public
sector
£’000
1,075,670
–
–
–
–
–
–
–
125
1,075,795
803,557
3,276
958,708
–
53,574
803,557
56,975
164,525
2,199,028
At 31 December 2015 (restated – note 1.4)
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 financial planning debtors
– other debtors
Investment securities:
– unlisted debt securities and money market funds
Other financial assets
Public
sector
£’000
583,154
–
–
Financial
institutions
£’000
–
17,942
108,877
Clients
and other
corporates
£’000
–
6
–
–
–
–
–
–
–
–
–
4,468
111,810
978
13
Total
£’000
583,154
17,948
108,877
4,468
111,810
978
13
22,745
192
606,091
737,316
3,322
867,457
–
47,212
164,487
760,061
50,726
1,638,035
Liquidity risk
ii.
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) (our Individual Liquidity Adequacy Assessment). The Bank
faces two principal risks, namely that a significant proportion of client funds are withdrawn over a short period of time (retail funding risk)
and that marketable assets may not be capable of being realised in the time and at the value required (marketable assets risk).
Retail funding risks are monitored by daily cash mismatch analyses and Basel Committee ratios using expected cash and asset maturity
profiles and regular forecasting work. This is supported by stress tests which cover firm-specific idiosyncratic scenarios and/or the
effects of unforeseen market-wide stresses. Marketable assets risk is primarily managed by holding cash and marketable instruments
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.
142
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
143
143
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management ii. Liquidity risk continued
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and
liabilities analysed by the remaining contractual maturities at the balance sheet date.
At 31 December 2016
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
Cash flows arising from
financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
1,075,003
–
73,844
3,822
103,599
155
1,256,423
294
–
1,768,215
–
1,532
Not more
than
3 months
£’000
125
37,787
10,215
21,271
251,698
52,939
374,035
–
39,289
119,460
98
38,177
After 3
months
but not
more than
1 year
£’000
670
–
30,505
44,678
453,116
335
529,304
–
–
1,246
586
3,963
After 1
year but
not more
than
5 years
£’000
–
–
18
45,233
–
343
45,594
–
–
–
23,514
27,128
After 5
years
£’000
–
–
–
430
–
–
430
–
–
–
–
3,386
1,770,041
(513,618)
(513,618)
197,024
177,011
(336,607)
5,795
523,509
186,902
50,642
(5,048)
181,854
3,386
(2,956)
178,898
No fixed
maturity
date
£’000
Total
£’000
– 1,075,798
37,787
–
114,582
–
115,434
–
808,413
–
53,772
–
– 2,205,786
–
294
–
39,289
– 1,888,921
24,198
–
74,186
–
– 2,026,888
178,898
–
178,898
144
144
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management ii. Liquidity risk continued
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and
liabilities analysed by the remaining contractual maturities at the balance sheet date.
At 31 December 2016
Cash and balances with central banks
1,075,003
Settlement balances
Loans and advances to banks
Loans and advances to customers
On
demand
£’000
–
73,844
3,822
Not more
than
3 months
£’000
125
37,787
10,215
21,271
After 1
year but
not more
than
5 years
£’000
After 3
months
but not
more than
1 year
£’000
670
–
30,505
44,678
18
45,233
430
After 5
years
£’000
No fixed
maturity
date
£’000
Debt securities and money market funds
103,599
251,698
453,116
155
52,939
335
343
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,075,798
Total
£’000
37,787
114,582
115,434
808,413
53,772
– 1,888,921
294
39,289
24,198
74,186
–
–
–
–
–
–
–
–
–
1,256,423
374,035
529,304
45,594
430
– 2,205,786
294
–
–
39,289
1,768,215
119,460
–
98
1,532
38,177
–
–
1,246
586
3,963
23,514
27,128
3,386
Other financial assets
Cash flows arising from
financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
(513,618)
(336,607)
186,902
181,854
178,898
178,898
1,770,041
197,024
5,795
(513,618)
177,011
523,509
50,642
(5,048)
3,386
(2,956)
– 2,026,888
–
178,898
At 31 December 2015 (restated – note 1.4)
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
Cash flows arising from
financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
583,002
–
68,156
4,609
62,397
155
718,319
299
–
1,321,575
–
1,174
Not more
than
3 months
£’000
172
17,948
20,101
18,504
246,781
46,648
350,154
–
21,481
79,995
586
35,911
After 3
months
but not
more than
1 year
£’000
154
–
20,751
60,115
456,209
336
537,565
–
–
1,354
586
6,542
After
1 year but
not more
than
5 years
£’000
–
–
230
37,736
–
286
38,252
–
–
–
24,685
23,856
After 5
years
£’000
–
–
–
505
–
–
505
–
–
–
–
1,368
1,323,048
(604,729)
(604,729)
137,973
212,181
(392,548)
8,482
529,083
136,535
48,541
(10,289)
126,246
1,368
(863)
125,383
No fixed
maturity
date
£’000
–
–
–
–
–
–
Total
£’000
583,328
17,948
109,238
121,469
765,387
47,425
– 1,644,795
299
–
–
21,481
– 1,402,924
25,857
–
68,851
–
– 1,519,412
125,383
–
125,383
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 £1,864,000 of equity investments (2015: £1,070,000) 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.
144
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
145
145
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management ii. Liquidity risk continued
Off-balance sheet items
Cash flows arising from the group’s off-balance sheet financial liabilities (note 33) are summarised in the table below.
The contractual value of the group’s commitments to extend credit to clients and maximum potential value of financial guarantees are
analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are reported by
their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment.
At 31 December 2016
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2015
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2016
Cash flows arising from financial
liabilities
Total off-balance sheet items
Total liquidity requirement
Not more
than
3 months
£’000
31,642
–
1,481
4,430
37,553
Not more
than
3 months
£’000
20,417
–
1,459
534
22,410
On
demand
£’000
Not more
than
3 months
£’000
1,770,041
–
1,770,041
197,024
37,553
234,577
At 31 December 2015 (restated – note 1.4)
Cash flows arising from financial liabilities
Total off-balance sheet items
Total liquidity requirement
On
demand
£’000
1,323,048
–
1,323,048
Not more
than
3 months
£’000
137,973
22,410
160,383
After
3 months
but not
more than
1 year
£’000
–
–
4,530
–
4,530
After
3 months
but not
more than
1 year
£’000
–
–
4,441
–
4,441
After
3 months
but not
more than
1 year
£’000
5,795
4,530
10,325
After
3 months
but not
more than
1 year
£’000
8,482
4,441
12,923
After
1 year but
not more
than
5 years
£’000
–
117
39,336
–
39,453
After
1 year but
not more
than
5 years
£’000
–
–
22,782
–
22,782
After
1 year but
not more
than
5 years
£’000
50,642
39,453
90,095
After
1 year but
not more
than
5 years
£’000
48,541
22,782
71,323
After
5 years
£’000
–
–
69,148
–
69,148
After
5 years
£’000
–
–
15,643
–
15,643
Total
£’000
31,642
117
114,495
4,430
150,684
Total
£’000
20,417
–
44,325
534
65,276
After
5 years
£’000
Total
£’000
3,386
69,148
72,534
2,026,888
150,684
2,177,572
After
5 years
£’000
1,368
15,643
17,011
Total
£’000
1,519,412
65,276
1,584,688
146
146
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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 2016
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
Interest rate repricing gap
Not more
than
3 months
£’000
1,075,000
–
83,766
110,051
–
353,557
–
1,622,374
294
–
1,865,389
–
–
1,865,683
(243,309)
After 3
months
but not
more than
6 months
£’000
–
–
–
–
–
155,000
–
155,000
–
–
1,242
–
–
1,242
153,758
After
6 months
but not
more than
1 year
£’000
–
–
30,000
–
–
295,000
–
325,000
–
–
–
–
–
–
325,000
After 1
year but
not more
than
5 years
£’000
–
–
–
–
–
–
–
–
Non-
interest-
bearing
£’000
Total
£’000
673 1,075,673
37,787
114,088
110,951
37,787
322
900
1,864
1,864
803,557
–
56,975
56,975
98,521 2,200,895
–
–
–
19,590
–
19,590
(19,590)
294
–
39,289
39,289
22,264 1,888,895
19,590
64,586
126,139 2,012,654
188,241
(27,618)
–
64,586
Rathbone Brothers Plc Report and accounts 2016
147
147
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management iii. Market risk continued
At 31 December 2015 (restated – note 1.4)
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
Interest rate repricing gap
Not more
than
3 months
£’000
583,000
–
88,783
116,258
–
307,288
–
1,095,329
299
–
1,386,564
–
–
1,386,863
(291,534)
After 3
months
but not
more than
6 months
£’000
–
–
–
–
–
267,773
–
267,773
–
–
1,349
–
–
1,349
266,424
After
6 months
but not
more than
1 year
£’000
–
–
20,000
–
–
185,000
–
205,000
–
–
–
–
–
–
205,000
After 1
year but
not more
than
5 years
£’000
–
–
–
–
–
–
–
–
Non-
interest-
bearing
£’000
Total
£’000
156
17,948
94
1,011
583,156
17,948
108,877
117,269
1,070
1,070
760,061
–
50,726
50,726
71,005 1,639,107
–
–
–
19,492
–
19,492
(19,492)
299
–
21,481
21,481
14,977 1,402,890
19,492
–
59,337
59,337
95,795 1,503,499
135,608
(24,790)
The banking committee has set an overall pre-tax interest rate exposure limit of £6,000,000 (2015: £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 2016, the Bank had a net present value sensitivity of £3,696,000 (2015: £2,365,000) for an upward 2% shift in rates. The
group held no forward rate agreements at 31 December 2016 (2015: none).
148
148
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
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.
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 2016. Included in the table are the group’s financial assets and liabilities, at carrying
amounts, categorised by currency.
At 31 December 2016
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
Sterling
£’000
1,075,673
36,911
74,503
103,110
1,864
755,000
56,613
2,103,674
294
37,343
1,796,166
19,590
64,467
1,917,860
185,814
31,642
US dollar
£’000
–
809
21,205
4,974
–
48,557
303
75,848
–
1,830
72,439
–
31
74,300
1,548
–
Euro
£’000
–
10
12,217
2,867
–
–
10
15,104
–
116
14,567
–
44
14,727
377
–
Other
£’000
–
57
6,163
–
–
–
49
6,269
–
–
5,723
–
44
5,767
502
–
Total
£’000
1,075,673
37,787
114,088
110,951
1,864
803,557
56,975
2,200,895
294
39,289
1,888,895
19,590
64,586
2,012,654
188,241
31,642
Rathbone Brothers Plc Report and accounts 2016
149
149
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
31 Financial risk management iii. Market risk continued
At 31 December 2015 (restated – note 1.4)
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
Sterling
£’000
583,156
17,184
73,069
115,793
1,070
722,745
50,432
1,563,449
299
20,555
1,330,242
19,492
59,321
1,429,909
133,540
20,417
US dollar
£’000
–
592
15,066
1,167
–
37,316
213
54,354
–
715
52,352
–
16
53,083
1,271
–
Euro
£’000
Other
£’000
Total
£’000
–
121
16,387
307
–
–
–
16,815
–
211
16,292
–
–
16,503
312
–
–
51
4,355
2
–
–
81
4,489
–
–
4,004
–
–
4,004
485
–
583,156
17,948
108,877
117,269
1,070
760,061
50,726
1,639,107
299
21,481
1,402,890
19,492
59,337
1,503,499
135,608
20,417
A 10% weakening of the US dollar against sterling, occurring on 31 December 2016, would have reduced equity and profit after tax by
£124,000 (2015: reduced by £101,000). A 10% weakening of the euro against sterling, occurring on 31 December 2016, would have reduced
equity and profit after tax by £30,000 (2015: reduced by £25,000). 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 2016, the fair value of equity securities recognised on the balance sheet was £1,864,000 (2015: £1,070,000). A 10% fall in
global equity markets would, in isolation, result in a pre-tax decrease to net assets of £110,000 (2015: £60,000); 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.
150
150
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
At 31 December 2016
Assets
Available for sale securities:
– equity securities
– money market funds
At 31 December 2015
Assets
Available for sale securities:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
1,864
–
1,864
–
103,557
103,557
–
–
–
1,864
103,557
105,421
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
1,070
–
1,070
–
52,316
52,316
–
–
–
1,070
52,316
53,386
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 (2015: 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.
In the current year, there were no gains or losses arising from changes in the fair value of financial instruments categorised as Level 3
within the fair value hierarchy. In 2015, a loss of £1,030,000 was recognised in profit or loss in relation to derivative financial instruments.
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 2016 was £704,815,000 (2015: £710,718,000) and the
carrying value was £700,000,000 (2015: £707,745,000). 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 26) comprise Tier 2 loan notes issued in 2015. The fair value of the loan notes at 31 December 2016 was
£19,578,000 (2015: £20,099,000) and the carrying value was £19,590,000 (2015: £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 2016
151
151
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
32 Capital management
Rathbone Brothers Plc's capital is defined for accounting purposes as total equity. As at 31 December 2016 this totalled £324,813,000
(2015: £300,192,000). The increase during the year was attributable to the company issuing shares by way of a placing (note 28), offset
by the loss recognised on remeasurement of the defined benefit pension liability (note 27).
In the prior year, Rathbone Investment Management issued subordinated Tier 2 loan notes (note 26). At 31 December 2016, the carrying
value of the notes was £19,590,000 (2015: £19,492,000). From time-to-time, the group also 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 2016 the group’s regulatory capital resources, including retained earnings for 2016, were £174,192,000 (2015: £144,468,000).
The increase in reserves during 2016 is due to the impact of the share placing, partially offset by a decrease in the group's retained earnings
due to the loss on remeasurement of the defined benefit liabilities.
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury activity, capital
levels are monitored and 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 2015 and 2016.
152
152
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
32 Capital management
Rathbone Brothers Plc's capital is defined for accounting purposes as total equity. As at 31 December 2016 this totalled £324,813,000
(2015: £300,192,000). The increase during the year was attributable to the company issuing shares by way of a placing (note 28), offset
by the loss recognised on remeasurement of the defined benefit pension liability (note 27).
In the prior year, Rathbone Investment Management issued subordinated Tier 2 loan notes (note 26). At 31 December 2016, the carrying
value of the notes was £19,590,000 (2015: £19,492,000). From time-to-time, the group also 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 2016 the group’s regulatory capital resources, including retained earnings for 2016, were £174,192,000 (2015: £144,468,000).
The increase in reserves during 2016 is due to the impact of the share placing, partially offset by a decrease in the group's retained earnings
due to the loss on remeasurement of the defined benefit liabilities.
In addition to a variety of stress tests performed as part of the ICAAP process, and daily reporting in respect of treasury activity, capital
levels are monitored and 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 2015 and 2016.
33 Contingent liabilities and commitments
(a)
Capital expenditure authorised and contracted for at 31 December 2016 but not provided in the financial statements amounted to
£4,430,000 (2015: £534,000).
(b)
The contractual amounts of the group’s commitments to extend credit to its clients are as follows.
Guarantees
Undrawn commitments to lend of 1 year or less
Undrawn commitments to lend of more than 1 year
The fair value of the guarantees is £nil (2015: £nil).
2016
£’000
117
25,661
5,981
31,759
2015
£’000
–
20,417
–
20,417
(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 2016 were £21,424,000, provides for an upward only rent review in 2018.
On 13 May 2016, the group entered into five 17 year leases at 8 Finsbury Circus, under which total payments over the lease term at
31 December 2016 were £75,946,000. The leases provide for rent reviews every five years.
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
2016
£’000
6,011
39,336
69,148
114,495
2015
£’000
5,900
22,782
15,643
44,325
(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 class and
accrues levy costs for future levy years when the obligation arises.
34 Related party transactions
Transactions with key management personnel
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 remuneration committee report on
page 69.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2016
£’000
10,750
330
1,581
2,775
15,436
2015
£’000
10,659
791
1,706
2,878
16,034
Dividends totalling £302,000 were paid in the year (2015: £108,000) in respect of ordinary shares held by key management personnel
and their close family members.
As at 31 December 2016, the group had outstanding interest-free season ticket loans of £6,000 (2015: £6,000) issued to key
management personnel.
152
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
153
153
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
34 Related party transactions Transactions with key management personnel continued
At 31 December 2016, key management personnel and their close family members had gross outstanding deposits of £5,464,000 (2015:
£862,000) and gross outstanding banking loans of £959,000 (2015: £5,805,000), all of which (2015: 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.
Other related party transactions
The group’s transactions with the pension funds are described in note 27. At 31 December 2016, no amounts were outstanding with either
the Laurence Keen Scheme or the Rathbone 1987 Scheme (2015: £nil).
One group subsidiary, Rathbone Unit Trust Management, has authority to manage the investments within a number of unit trusts.
Another group company, Rathbone Investment Management International, acted as investment manager for a protected cell company
offering unitised private client portfolio services. During 2016, the group managed 27 unit trusts, Sociétés d'investissement à Capital
Variable (SICAVs) and open-ended investment companies (OEICs) (together, 'collectives') (2015: 22 unit trusts and OEICs).
The group charges each fund an annual management fee for these services, but does not earn any performance fees on the unit trusts.
The management charges are calculated on the bases published in the individual fund prospectuses, which also state the terms and
conditions of the management contract with the group.
The following transactions and balances relate to the group’s interest in the collectives:
Year ended 31 December
Total management fees
As at 31 December
Management fees owed to the group
Holdings in unit trusts (note 17)
2016
£’000
27,783
2015
£’000
23,061
2016
£’000
2,557
1,864
4,421
2015
£’000
2,181
1,070
3,251
Total management fees are included within 'fee and commission income' in the consolidated statement of comprehensive income.
Management fees owed to the group are included within 'accrued income' and holdings in unit trusts are classified as 'available for sale
equity securities' in the consolidated balance sheet. The maximum exposure to loss is limited to the carrying amount on the balance sheet
as disclosed above.
All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
35
Interest in unconsolidated structured entities
As described in note 34, at 31 December 2016, the group owned units in collectives managed by Rathbone Unit Trust Management with a
value of £1,864,000 (2015: £1,070,000), representing 0.05% (2015: 0.03%) of the total value of the collectives managed by the group. These
assets are held to hedge the group's exposure to deferred remuneration schemes for employees of Unit Trusts.
The group's primary risk associated with its interest in the unit trusts is from changes in fair value of its holdings in the funds.
The group is not judged to control, and therefore does not consolidate, the collectives. Although the fund trustees have limited rights to
remove Rathbone Unit Trust Management as manager, the group is exposed to very low variability of returns from its management and
share of ownership of the funds and is therefore judged to act as an agent rather than having control under IFRS 10.
154
154
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
36 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)
2016
£’000
1,075,673
83,844
103,557
1,263,074
2015
£’000
583,156
68,156
52,316
703,628
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 28)
Share premium on shares issued (note 28)
Shares issued in relation to share-based schemes for which no cash consideration was received
Shares issued in relation to business combinations (note 28)
37 Events after the balance sheet date
2016
£’000
128
42,348
(1,631)
(646)
40,199
2015
£’000
12
4,656
(2,413)
–
2,255
Member consultation on closing the pension scheme
On 20 October 2016, the group commenced a consultation with members of the schemes with a view to ceasing future accrual and
breaking the link to final salary in both schemes. The consultation period ended on 31 January 2017. Following the consultation period, the
group has confirmed to members its intention to close the Rathbone 1987 Scheme to future accrual and to break the link to final salary for
both schemes, with effect from 1 July 2017. The impact of these changes, if they had been confirmed on 31 December 2016, would have
been to reduce the reported defined benefit obligation by an estimated £6,100,000.
Relocation of the London head office
The move to the 8 Finsbury Circus office concluded on 13 February 2017, which triggered recognition of a provision for the net cost of the
surplus property at 1 Curzon Street until the end of the existing lease (see note 9). The ultimate amount of the provision is dependent on
the timing of any subletting agreement and the associated terms agreed with relevant third parties. Based on management's expectations
of future costs for the premises and potential rental income, and timings thereof, a net charge to profit or loss of £10,000,000 was
recognised on 13 February 2017.
Rathbone Brothers Plc Report and accounts 2016
155
155
Consolidated financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the consolidated financial statements continued
38 Country-by-country reporting
Introduction
HM Treasury has transposed the requirements set out under Capital Requirements Directive IV (CRD IV) and issued the Capital
Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Rathbone Brothers Plc
(together with its subsidiaries, ‘the group’) to publish certain additional information, on a consolidated basis, for the year ended
31 December 2016.
Basis of preparation
Country
Nature of activities
Turnover
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.
The nature of activities within the United Kingdom are described within our services on pages 2 to 5.
Discretionary 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 published consolidated accounts of the group.
Profit/(loss) before taxation
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.
Tax paid
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.
Public subsidies received
The group received no public subsidies in the year.
Number of employees
The number of employees reported is the average number of full time employees who were
permanently employed by the group, or one of its subsidiaries, during the year. Contractors are excluded.
Subsidiaries
A list of the subsidiaries of the group, including their main activity and country of incorporation, is shown
within note 43.
Country
United Kingdom
Jersey
Sub-total
Intergroup eliminations and other entries arising on consolidation
Total
Turnover
£'000
245,355
9,406
254,761
(3,478)
251,283
Profit/(loss)
before
taxation
£'000
48,720
1,834
50,554
(425)
50,129
Tax paid
£'000
11,884
141
12,025
–
12,025
Number of
employees
1,051
15
1,066
–
1,066
156
156
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Company statement of changes in equity
for the year ended 31 December 2016
At 1 January 2015
Profit for the year
Net remeasurement of defined benefit
liability
Net gain on revaluation of available for
sale investment securities
Deferred tax relating to components
of other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– tax on share-based payments
At 1 January 2016
Profit for the year
Net remeasurement of defined benefit
liability
Net gain on revaluation of available
for sale investment securities
Deferred tax relating to components of
other comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
– value of employee services
– cost of own shares acquired
– cost of own shares vesting
– own shares sold
– tax on share-based payments
At 31 December 2016
49
17
46
42
50
50
50
46
49
17
46
42
50
50
50
50
46
Note
Share
capital
£’000
2,395
Share
premium
£’000
92,987
Available
for sale
reserve
£’000
28
Own
shares
£’000
(5,531)
Retained
earnings
£’000
42,643
42,853
Total
equity
£’000
132,522
42,853
6,524
6,524
53
(10)
43
–
(1,509)
5,015
(25,836)
–
12
–
4,656
(2,413)
1,767
2,407
97,643
71
(6,177)
1,022
(1,767)
51
63,981
40,950
53
(1,519)
5,058
(25,836)
4,668
1,022
(2,413)
–
51
157,925
40,950
(37,318)
(37,318)
93
(14)
79
–
5,936
(31,382)
(26,479)
–
–
128
42,003
345
(1,585)
1,084
435
2,535
139,991
150
(6,243)
3,035
(1,084)
(115)
48,906
93
5,922
(31,303)
(26,479)
42,131
3,035
(1,585)
–
780
(115)
185,339
The accompanying notes form an integral part of the company financial statements.
Rathbone Brothers Plc Report and accounts 2016
157
157
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Company balance sheet
as at 31 December 2016
Non-current assets
Investment in subsidiaries
Other investments
Deferred tax
Current assets
Trade and other receivables
Current tax asset
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions for liabilities and charges
Net current assets
Non-current liabilities
Employee benefits
Total liabilities
Net assets
Equity
Share capital
Share premium
Available for sale reserve
Own shares
Retained earnings
Equity shareholders' funds
Note
2016
£’000
43
44
46
45
140,503
11,864
8,128
160,495
131,310
92
6,212
137,614
2015
£’000
(restated –
note 39)
130,607
11,070
2,564
144,241
77,890
250
5,972
84,112
298,109
228,353
47
48
(59,264)
(14,051)
(73,315)
(51,277)
(14,650)
(65,927)
64,299
18,185
49
(39,455)
(112,770)
(4,501)
(70,428)
185,339
157,925
50
50
50
2,535
139,991
150
(6,243)
48,906
185,339
2,407
97,643
71
(6,177)
63,981
157,925
The financial statements were approved by the board of directors and authorised for issue on 22 February 2017 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.
158
158
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Company statement of cash flows
for the year ended 31 December 2016
Cash flows from operating activities
Profit before tax
Net interest and dividends receivable
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
Interest paid
Intercompany dividends received
Other dividends received
Acquisition of subsidiaries
Investment in subsidiaries
Repayment of subordinated loans by group undertakings
Purchase of other investments
Net cash generated from investing activities
Cash flows from financing activities
Issue of ordinary shares
Dividends paid
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the company financial statements.
Note
2016
£’000
2015
£’000
40,955
(48,772)
964
–
3,058
(5,422)
5,201
(4,016)
–
(52,946)
7,959
(49,003)
397
(48,606)
94
(81)
48,800
–
(2,532)
(11,725)
1,750
(701)
35,605
40,199
(26,479)
13,720
719
5,244
5,963
43,178
(44,245)
707
1,030
4,217
(6,902)
4,629
2,614
–
(20,792)
1,832
(16,346)
1,403
(14,943)
138
–
44,000
107
(5,000)
–
–
(503)
38,742
2,255
(25,836)
(23,581)
218
5,026
5,244
48
49
49
50
43
43
50
42
55
Rathbone Brothers Plc Report and accounts 2016
159
159
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements
39 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 (IFRS), 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.
Opening balance adjustment
In the current year, the company made payments to the previous owners of subsidiary undertakings acquired in the prior year, in respect
of the net assets of the companies at the acquisition date (see note 8).
The payment was lower than was provided for at 31 December 2015 and, as such, the comparatives have been restated accordingly
(note 1.4). As at 31 December 2015, the company’s total assets have been increased by £237,000, and total liabilities have been increased
by the same amount. There has been no impact on operating income, profit or equity shareholders' funds in the current or prior periods.
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
Investments in subsidiaries 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.
40 Critical accounting judgments and key sources of estimation and uncertainty
The critical accounting judgment and key sources of estimation and uncertainty arise from the company's defined benefit pension
schemes. This is described in note 2 to the consolidated financial statements.
41 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 2016 of £40,950,000
(2015: £42,853,000).
Auditor's remuneration for audit and other services to the company are set out in note 7 to the 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
2016
681
82
27
259
1,049
2015
614
77
27
249
967
160
156
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
42 Dividends
Details of the company’s dividends paid and proposed for approval at the AGM are set out in note 12 to the financial statements.
The company's dividend policy is described in the directors' report on page 90.
Reserves available for distribution as at 31 December were comprised as follows.
Net assets
Less:
– share capital
– share premium
Distributable reserves
Movements in reserves available for distribution were as follows.
As at 1 January
Profit for the year
Net remeasurement of defined benefit liability
Net gain on revaluation of available for sale investment securities
Dividends paid
Other movements
As at 31 December
43 Investment in subsidiaries
At 1 January 2015
Additions (restated – note 39)
At 1 January 2016 (restated – note 39)
Additions
Disposals
At 31 December 2016
2016
£'000
185,339
(2,535)
(139,991)
42,813
2016
£'000
57,875
40,950
(31,382)
79
(26,479)
1,770
42,813
Equities
£’000
118,733
10,124
128,857
11,725
Subordinated
loans to group
undertakings
£’000
1,750
–
1,750
–
(79)
(1,750)
140,503
–
2015
£'000
157,925
(2,407)
(97,643)
57,875
2015
£'000
37,140
42,853
5,015
43
(25,836)
(1,340)
57,875
Total
£’000
120,483
10,124
130,607
11,725
(1,829)
140,503
Equities
On 11 March 2016, 135,000 ordinary shares of £1 each in Rathbone Investment Management were issued to the company at a price of
£75 per share for cash consideration.
On 31 October 2016, 4,000 ordinary shares of 5p each in Vision Independent Financial Planning were issued to the company at a price of
£400 per share for cash consideration.
Rathbone Brothers Plc Report and accounts 2016
161
157
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
43 Investment in subsidiaries Equities continued
At 31 December 2016 the company's subsidiary undertakings were as follows.
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited*
Rathbone Trust Company Limited
Rathbone Unit Trust Management 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 Pension & Advisory Services Limited
Rathbone Trust Legal Services Limited*
Rathbone Stockbrokers Limited*
Dean River Asset Management Limited*
R.M. Walkden & Co. Limited*
* Held by subsidiary undertaking
Activity and operation
Investment management and banking services
Investment management
Trust and tax services
Unit trust management
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
Non-trading
Non-trading
Non-trading
Non-trading
Non-trading
The registered office for all subsidiary undertakings is 8 Finsbury Circus, London, EC2M 7AZ except for the following:
Subsidiary undertaking
Rathbone Investment Management Limited
Rathbone Investment Management International Limited
Vision Independent Financial Planning Limited
Castle Investment Solutions Limited
Registered office
Port of Liverpool Building, Pier Head, Liverpool L3 1NW
26 Esplanade, St Helier, Jersey JE1 2RB
Vision House, Unit 6A Falmouth Business Park, Bickland Water Road,
Falmouth, Cornwall TR11 4SZ
Vision House, Unit 6A Falmouth Business Park, Bickland Water Road,
Falmouth, Cornwall TR11 4SZ
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
Subordinated loans to group undertakings
The amounts subject to subordinated loan agreements are shown below.
Counterparty
Rathbone Pension & Advisory Services Limited
Rathbone Investment Management International Limited
2016
£'000
–
–
–
2015
£'000
250
1,500
1,750
All subordinated loans accrued 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 repaid the subordinated loan during the year, following the satisfactory transfer of its continuing
business to a fellow group company.
Rathbone Investment Management International repaid the subordinated loan during the year, having obtained permission from the
Jersey Financial Services Commission to do so.
162
158
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
44 Other investments
Available for sale securities
Equity securities – at fair value:
– listed
Money market funds – at fair value:
– unlisted
45 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
2016
£’000
2015
£’000
1,864
1,070
10,000
11,864
10,000
11,070
2016
£’000
3,836
127,474
131,310
131,310
–
131,310
2015
£’000
3,856
74,034
77,890
77,890
–
77,890
46 Deferred tax
The Finance Bill 2016, which included a provision for the UK corporation tax rate to be reduced to 17.0% in April 2020, received royal
assent in September 2016, and the reduction is therefore judged to be substantively enacted. Deferred tax balances have been calculated
using the rate expected to apply when the relevant timing differences are forecast to unwind.
As at 1 January 2016
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total recognised in profit or loss
Recognised in other comprehensive income in respect of:
– current year
– prior year
– change in rate
Total recognised in other comprehensive income
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total recognised in equity
Pensions
£’000
853
(473)
–
389
(84)
7,464
–
(1,528)
5,936
–
–
–
–
Share-based
payments
£’000
1,690
(182)
–
(129)
(311)
Staff-related
costs
£’000
37
137
44
(29)
152
–
–
–
–
(99)
–
(16)
(115)
–
–
–
–
–
–
–
–
Available
for sale
securities
£’000
(16)
–
–
–
–
(18)
–
4
(14)
–
–
–
–
Total
£’000
2,564
(518)
44
231
(243)
7,446
–
(1,524)
5,922
(99)
–
(16)
(115)
As at 31 December 2016
6,705
1,264
189
(30)
8,128
Rathbone Brothers Plc Report and accounts 2016
163
159
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
46 Deferred tax continued
Deferred tax assets
Deferred tax liabilities
As at 31 December 2016
As at 1 January 2015
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total recognised in profit or loss
Recognised in other comprehensive income in respect of:
– current year
– prior year
– change in rate
Total recognised in other comprehensive income
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total recognised in equity
Pensions
£’000
6,705
–
6,705
Pensions
£’000
2,740
(544)
–
166
(378)
(1,321)
–
(188)
(1,509)
–
–
–
–
Share-based
payments
£’000
1,264
–
1,264
Staff-related
costs
£’000
189
–
189
Share-based
payments
£’000
2,054
Staff-related
costs
£’000
30
(343)
–
(72)
(415)
–
–
–
–
70
(4)
(15)
51
(42)
53
(4)
7
–
–
–
–
–
–
–
–
Available
for sale
securities
£’000
–
(30)
(30)
Available
for sale
securities
£’000
(6)
–
–
–
–
(11)
–
1
(10)
–
–
–
–
Total
£’000
8,158
(30)
8,128
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 2016
47 Trade and other payables
Accruals, deferred income and other creditors
Other taxes and social security costs
Pensions
£’000
853
–
853
Share-based
payments
£’000
1,690
–
1,690
Staff-related
costs
£’000
37
–
37
Available
for sale
securities
£’000
–
(16)
(16)
2016
£’000
53,909
5,355
59,264
Total
£’000
2,580
(16)
2,564
2015
£’000
45,443
5,834
51,277
The fair value of trade and other payables is not materially different from their carrying amount.
164
160
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
48 Provisions for liabilities and charges
As at 1 January 2015
Charged to profit or loss
Business combinations (restated – note 39)
Other movements
Utilised/paid during the year
As at 31 December 2015 (restated – note 39)
Charged to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2016
Payable within 1 year
Payable after 1 year
Deferred, variable
costs to acquire
client
relationship
intangibles
£’000
7,960
–
–
11,305
(10,264)
9,001
–
7,820
(6,611)
10,210
1,833
8,377
10,210
Deferred and
contingent
consideration in
business
combinations
£’000
–
–
3,908
–
–
3,908
–
3
(2,775)
1,136
–
1,136
1,136
Property-
related
£’000
1,034
707
–
–
–
1,741
964
–
–
2,705
1,292
1,413
2,705
Total
£’000
8,994
707
3,908
11,305
(10,264)
14,650
964
7,823
(9,386)
14,051
3,125
10,926
14,051
Deferred, variable costs to acquire client relationship intangibles of £7,820,000 arose during the year, in relation to deferred payments to
investment managers and third parties linked to the value of client funds introduced (2015: £11,305,000).
Deferred and contingent consideration of £1,136,000 (2015 (restated – note 39): £3,908,000) is the present value of amounts payable at the
end of 2019 in respect of the acquisition of Vision and Castle (see note 8).
Following the agreement of the net asset value of the acquired businesses, a net asset value payment of £1,563,000 was made in March
2016. Further payments of £695,000 and £517,000 were made in June 2016 and December 2016 respectively, following the achievement of
operational and financial targets.
Property-related provisions consist of £2,705,000 in relation to dilapidation provisions expected to arise on leasehold premises held by the
company (2015: £1,741,000). Dilapidation provisions are calculated using a discounted cash flow model. During the year, provisions have
increased by £964,000 due to the creation of a provision for our new London office at 8 Finsbury Circus (see note 9).
Provisions payable after one year are expected to be settled within three years of the balance sheet date (2015: four years), except for the
property-related provisions of £1,413,000 (2015: £1,729,000). These are expected to be settled within 20 years of the balance sheet date
(2015: 21 years).
49 Employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 27 to the financial statements.
50 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
28 and 29 to the financial statements. Details of options on the company’s shares and share-based payments are set out in note 30 to the
financial statements.
Rathbone Brothers Plc Report and accounts 2016
165
161
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
51 Financial instruments
The company’s risk management policies and procedures are integrated with the 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:
credit risk
liquidity risk
i.
ii.
iii. market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) and
iv.
The company’s exposures to pension risk are set out in note 27 to the financial statements.
pension risk.
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
has embedded risk management within the business through the executive committee and senior management.
Credit risk
i.
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.
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).
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 2015.
166
162
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
51 Financial instruments
The company’s risk management policies and procedures are integrated with the 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.
ii.
credit risk
liquidity risk
iv.
pension risk.
iii. market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) and
The company’s exposures to pension risk are set out in note 27 to the 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
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.
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).
Impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date,
Impairment and provisioning policies
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 2015.
Maximum exposure to credit risk
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
2016
£’000
2015
£’000
10,000
10,000
127,474
1,112
6,212
144,798
75,784
1,013
5,972
92,769
The above table represents the gross credit risk exposure of the company at 31 December 2016 and 2015, without taking account of any
collateral held or other credit enhancements attached.
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
Net carrying value
2016
£’000
127,474
–
127,474
–
127,474
2015
£’000
75,784
–
75,784
–
75,784
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
Other*
* Cash held within the Employee Benefit Trust
2016
£’000
6,194
18
6,212
2015
£’000
5,468
504
5,972
Debt securities
The table below presents an analysis of debt securities by rating agency designation, as at 31 December 2016, based on Fitch or Moody’s
long term rating designation.
AAA
2016
Money
market
funds
£’000
10,000
Total
£’000
10,000
2015
Money
market
funds
£’000
10,000
Total
£’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 includes the placement of funds with a range of high-
quality financial institutions.
162
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
167
163
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
51 Financial instruments i. Credit risk continued
(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 2016
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2015
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
United
Kingdom
£’000
Rest of
the World
£’000
Total
£’000
10,000
–
10,000
127,236
658
6,212
144,106
238
443
–
681
127,474
1,101
6,212
144,787
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
At 31 December 2016, all Rest of the World exposures were to counterparties based in Jersey and the United States of America
(2015: Jersey and the United States of America). At 31 December 2016, the company had no exposure to sovereign debt (2015: none).
(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 2016
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2015
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Financial
institutions
£’000
Clients and other
corporates
£’000
Total
£’000
10,000
–
10,000
103,126
2
6,212
119,340
24,348
1,099
–
25,447
127,474
1,101
6,212
144,787
Financial
institutions
£’000
Clients and other
corporates
£’000
Total
£’000
10,000
54,741
4
5,972
70,717
–
10,000
21,043
992
–
22,035
75,784
996
5,972
92,752
168
164
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Liquidity risk
ii.
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 (2015: £nil) and does not rely on external funding for its activities.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the company on its non-derivative financial assets and
liabilities by remaining contractual maturities at the balance sheet date.
At 31 December 2016
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
Trade and other payables:
– other financial liabilities
Cash flows arising from financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
10,002
127,474
5
5,971
143,452
226
226
143,226
143,226
At 31 December 2015
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
Trade and other payables:
– other financial liabilities
Cash flows arising from financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
10,004
74,034
5
5,251
89,294
217
217
89,077
89,077
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
–
–
335
226
561
–
–
343
18
361
Not more
than
3 months
£’000
–
–
429
–
429
After
5 years
£’000
No fixed
maturity
date
£’000
Total
£’000
–
–
–
–
–
–
10,002
– 127,474
1,112
–
–
6,215
– 144,803
29,794
29,794
(29,365)
3,722
3,722
(3,161)
110,700
113,861
26,718
26,718
(26,357)
84,343
3,364
3,364
(3,364)
80,979
–
–
–
80,979
63,824
63,824
80,979
After 3
months
but not
more than
1 year
£’000
–
34
336
491
861
After 1
year but
not more
than
5 years
£’000
–
1,545
286
230
2,061
Not more
than
3 months
£’000
–
261
386
–
647
After
5 years
£’000
No fixed
maturity
date
£’000
Total
£’000
–
–
–
–
–
–
10,004
–
–
–
–
75,874
1,013
5,972
92,863
57,626
57,626
35,237
25,927
25,927
(25,280)
63,797
6,499
6,499
(5,638)
58,159
23,819
23,819
(21,758)
36,401
1,164
1,164
(1,164)
35,237
–
–
–
35,237
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 £1,864,000 of equity investments (2015: £1,070,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as available for sale securities and have no fixed maturity date; cash flows arise from receipt of dividends or
through sale of the assets.
Rathbone Brothers Plc Report and accounts 2016
169
165
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
51 Financial instruments ii. Liquidity risk continued
Off-balance sheet items
Cash flows arising from the company’s off-balance sheet financial liabilities arise solely from operating leases (note 53) 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 2016
At 31 December 2015
Total liquidity requirement
At 31 December 2016
Cash flows arising from financial liabilities
Total off-balance sheet items
Total liquidity requirement
At 31 December 2015
Cash flows arising from financial liabilities
Total off-balance sheet items
Total liquidity requirement
On
demand
£'000
226
–
226
On
demand
£'000
217
–
217
Not
more
than
3 months
£'000
1,426
1,404
Not
more
than
3 months
£'000
29,794
1,426
31,220
After 3
months
but not
more than
1 year
£'000
4,362
4,276
After 3
months
but not
more than
1 year
£'000
3,722
4,362
8,084
After 1
year but
not more
than
5 years
£'000
After
5 years
£'000
Total
£'000
38,487 68,681 112,956
42,584
14,969
21,935
After 1
year but
not more
than
Total
5 years
£'000
£'000
26,718
63,824
38,487 68,681 112,956
65,205 72,045 176,780
After
5 years
£'000
3,364
Not
more
than
3 months
£'000
25,927
1,404
27,331
After 3
months
but not
more than
1 year
£'000
6,499
4,276
10,775
After 1
year but
not more
than
5 years
£'000
23,819
21,935
45,754
After
Total
5 years
£'000
£'000
57,626
1,164
14,969
42,584
16,133 100,210
170
166
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
iii. Market risk
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
interest rates.
The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets
and liabilities.
The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts, categorised by
the earlier of contractual repricing or maturity dates.
At 31 December 2016
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 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
Not
more
than
3 months
£’000
–
10,000
–
–
6,206
16,206
–
–
16,206
Not
more
than
3 months
£’000
–
10,000
1,750
–
5,966
17,716
–
–
17,716
After 3
months
but not
more than
6 months
£’000
After
6 months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£'000
Total
£'000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,864
–
1,864
10,000
– 127,474 127,474
1,101
1,101
–
–
6,212
6
– 130,445 146,651
– 54,224
– 54,224
– 76,221
54,224
54,224
92,427
After 3
months
but not
more than
6 months
£’000
After
6 months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£'000
Total
£'000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,070
–
1,070
10,000
74,034
996
6
76,106
75,784
996
5,972
93,822
49,426
49,426
26,680
49,426
49,426
44,396
A 1% parallel increase/decrease in the sterling yield curve would have no impact on profit after tax or equity (2015: £36,000
increase/decrease) .
Rathbone Brothers Plc Report and accounts 2016
171
167
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
51 Financial instruments iii. Market risk continued
Foreign exchange risk
The company does not have any material exposure to transactional foreign exchange risk. The table below summarises the company’s
exposure to foreign currency translation risk at 31 December 2016. Included in the table are the company’s financial assets and liabilities, at
carrying amounts, categorised by currency.
At 31 December 2016
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 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
Sterling
£'000
US dollar
£'000
Total
£'000
1,864
10,000
127,474
841
6,212
146,391
54,224
54,224
92,167
Sterling
£'000
1,070
10,000
75,784
788
5,972
93,614
49,426
49,426
44,188
–
–
1,864
10,000
–
260
–
260
–
–
260
US dollar
£'000
–
–
–
208
–
208
–
–
208
127,474
1,101
6,212
146,651
54,224
54,224
92,427
Total
£'000
1,070
10,000
75,784
996
5,972
93,822
49,426
49,426
44,396
A 10% weakening of the US dollar against sterling, occurring on 31 December 2016, would have reduced equity and profit after tax by
£21,000 (2015: £17,000). 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 31.
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.
172
168
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
At 31 December 2016
Assets
Available for sale securities:
– equity securities
– money market funds
At 31 December 2015
Assets
Available for sale securities:
– equity securities
– money market funds
Level 1
£'000
Level 2
£'000
Level 3
£'000
Total
£'000
1,864
–
1,864
Level 1
£'000
–
10,000
10,000
–
–
–
1,864
10,000
11,864
Level 2
£'000
Level 3
£'000
Total
£'000
1,070
–
1,070
–
10,000
10,000
–
–
–
1,070
10,000
11,070
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 (2015: 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 31 to the consolidated financial statements.
In the current year, there were no gains or losses arising from changes in the fair value of financial instruments categorised as Level 3
within the fair value hierarchy. In 2015, a loss of £1,030,000 was recognised in profit or loss in relation to derivative financial instruments.
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 43).
52 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 distributable reserves (see note 42). 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.
There were no changes in the company’s approach to capital management during the year.
53 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 2016 were £21,424,000, provides for an upward only rent review in 2018.
On 13 May 2016, the group entered into five 17 year leases at 8 Finsbury Circus, under which total payments over the lease term at 31
December 2016 were £75,946,000. The leases provide for rent reviews every five years.
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
2016
£’000
5,788
38,487
68,681
112,956
2015
£’000
5,680
21,935
14,969
42,584
Rathbone Brothers Plc Report and accounts 2016
173
169
Company financial statementsRathbone Brothers Plc Report and accounts 2016
Notes to the company financial statements continued
54 Related party transactions
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
2016
£’000
1,727
12
–
847
2,586
2015
£’000
1,981
43
67
1,098
3,189
Dividends totalling £302,000 were paid in the year (2015: £108,000) 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.
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries.
Interest
Charges for management services
Dividends received
2016
2015
Receivable
£'000
34
139,954
48,800
188,788
Payable
£'000
–
–
–
–
Receivable
£'000
53
125,453
44,000
169,506
Payable
£'000
–
–
–
–
The company's balances with fellow group companies at 31 December 2016 are set out in notes 43, 45 and 47.
The company’s transactions with the pension funds are described in note 49. At 31 December 2016, no amounts were due to or from the
pension schemes (2015: £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.
55 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 (excluding amounts held at employee benefit trust)
2016
£'000
5,963
2015
£'000
5,244
56 Events after the balance sheet date
Details of events occurring after the balance sheet date of the company are provided in note 37 to the consolidated financial statements.
174
170
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Further
information
Notes to the company financial statements continued
54 Related party transactions
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.
2016
£’000
1,727
12
–
847
2,586
2015
£’000
1,981
43
67
1,098
3,189
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
their close family members.
Interest
Charges for management services
Dividends received
Dividends totalling £302,000 were paid in the year (2015: £108,000) in respect of ordinary shares held by key management personnel and
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.
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries.
2016
2015
Receivable
£'000
34
139,954
48,800
188,788
Payable
£'000
–
–
–
–
Receivable
£'000
53
125,453
44,000
169,506
Payable
£'000
–
–
–
–
The company's balances with fellow group companies at 31 December 2016 are set out in notes 43, 45 and 47.
The company’s transactions with the pension funds are described in note 49. At 31 December 2016, no amounts were due to or from the
pension schemes (2015: £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
For the purposes of the company statement of cash flows, cash and cash equivalents comprise the following balances with less than three
companies.
55 Cash and cash equivalents
months until maturity from the date of acquisition.
Cash at bank (excluding amounts held at employee benefit trust)
56 Events after the balance sheet date
2016
£'000
5,963
2015
£'000
5,244
Details of events occurring after the balance sheet date of the company are provided in note 37 to the consolidated financial statements.
170
Rathbone Brothers Plc Report and accounts 2016
175
Further informationRathbone Brothers Plc Report and accounts 2016
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
Underlying earnings per share
Dividends per ordinary share
Equity shareholders' funds
Total funds under management
Corporate information
Principal trading names
Direct employees
Offices
Websites
2016
£'000
(unless stated)
251,283
74,880
50,129
38,157
27,764
78.9p
78.2p
122.1p
57.0p
324,813
£34.2bn
2015
£'000
(unless stated)
229,178
70,365
58,632
46,371
26,305
97.4p
96.6p
117.0p
55.0p
300,192
£29.2bn
2014
£'000
(unless stated)
2013
£'000
(unless stated)
200,803
61,556
45,710
35,678
24,863
76.0p
75.4p
102.4p
52.0p
271,271
£27.2bn
176,409
50,510
44,204
34,751
22,645
76.1p
75.6p
86.7p
49.0p
251,000
£22.0bn
2012
£'000
(unless stated)
155,581
44,829
38,504
28,983
21,220
66.5p
65.9p
77.4p
47.0p
229,493
£18.0bn
Investment Management
Unit Trusts
Rathbone Investment Management
Rathbone Investment Management International
Rathbone Greenbank Investments
Rathbone Trust Company
Vision Independent Financial Planning
Castle Investment Solutions
780
16
www.rathbones.com
www.rathboneimi.com
www.rathbonegreenbank.com
Rathbone Unit Trust Management
27
1
www.rathbones.com
www.rutm.com
Company secretary and registered office
A Johnson
Rathbone Brothers Plc
8 Finsbury Circus
London
EC2M 7AZ
Company No. 01000403
www.rathbones.com
ali.johnson@rathbones.com
Registrars and transfer office
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
176
176
Rathbone Brothers Plc Report and accounts 2016
Rathbone Brothers Plc Report and accounts 2016
Our offices
Head office
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
Investment
Management
8 Finsbury Circus
London
EC2M 7AZ
+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
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
26 Esplanade
St Helier
Jersey
JE1 2RB
Channel Islands
+44 (0)1534 740500
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
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.
Rathbone Brothers Plc Report and accounts 2016
177
Rathbone Brothers Plc
8 Finsbury Circus, London, EC2M 7AZ
+44 (0)20 7399 0000
rathbones.com