Rathbone Brothers Plc
Report and accounts 2017
Progress and
delivery
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Contents
Strategic report
1
2
8
10
12
Our investment case
Our business at a glance
Our business model
Chairman’s statement
Chief executive’s review
Our strategy
16 Market review
17
Continuing our strategy
18 Our strategic objectives
Risk management
21
Our performance
30
33
38
42
43
Financial performance
Segmental review
Financial position
Liquidity and cash flow
Corporate responsibility report
Governance
Corporate governance report
58
68 Group risk committee report
70 Audit committee report
76 Nomination committee report
78 Group executive committee report
80 Remuneration committee report
104 Directors’ report
106
Statement of directors’ responsibilities in
respect of the report and accounts
Financial statements
108
Independent auditor’s report to the members
of Rathbone Brothers Plc
114 Consolidated financial statements
118 Notes to the consolidated financial statements
169 Company financial statements
172 Notes to the company financial statements
Further information
188 Five year record
188 Corporate information
189 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. This includes
discretionary investment management, unit trusts,
tax planning, trust and company management,
pension advice and banking services.
As at 31 December 2017, Rathbone Brothers Plc
managed £39.1 billion of client funds, of which
£33.8 billion were managed by our Investment
Management segment.
2017 financial highlights
Profit
before tax
£58.9m
(2016: £50.1m)
Basic earnings
per share
92.7p
(2016: 78.9p)
Underlying1
profit before tax
£87.5m
(2016: £74.9m)
Underlying1
earnings per share
138.8p
(2016: 122.1p)
Dividends paid and
proposed per share
Return on capital
employed (ROCE)2
61.0p
(2016: 57.0p)
19.5%
(2016: 19.3%)
For a full five year record, please see page 188
1. A reconciliation between underlying profit before tax and profit before tax
is shown on page 31
2. Underlying profit before tax as a percentage of average equity of each
quarter end
Rathbone Brothers Plc Report and accounts 2017
Our investment case
Delivering through our strengths
A relationship-based approach
— A direct relationship-based approach which supports clients and advisers by
providing the flexibility to meet their investment needs across different
economic and lifestyle conditions
— Longevity of client and adviser relationships
— High service levels and reliable administrative resources
Unique investment culture
— Significant participation by investment managers in a non-prescriptive
investment process which uses a whole of market approach and accesses both
direct and collective investments
— An active investment approach that allows teams to respond to market
conditions and manage tax considerations
— An expanding in-house research team
Leading margins
— An ongoing cost discipline that preserves underlying operating margins
— A balanced investment in technology to improve communication and manage
investment team capacity
— Selective investment in initiatives that support organic and acquired growth
Positive shareholder returns
— A progressive dividend policy
— The ability to identify accretive acquisitions that fit our culture
— A consistent return on capital employed
50,000
clients
15
UK offices1 and Jersey
Total funds under management (£bn)
£39.1bn
27.2
29.2
22.0
39.1
34.2
2013
2014
2015
2016
2017
30.6%
underlying operating margin
Dividends paid and proposed per share (p)
61.0p
49.0
52.0
55.0
57.0
61.0
2013
2014
2015
2016
2017
1. Includes Vision Independent Financial Planning
rathbones.com
rathbones.com
1
Strategic report Our business at a glance
Delivering our services
We employ over
1,100
people
We operate from
15
UK locations1
and Jersey
We manage over
£39.1bn
for our clients
We are a
FTSE 250
company listed on the
London Stock Exchange
1. Includes Vision Independent Financial Planning
Investment Management
Through Rathbone Investment Management, we provide
personal discretionary investment management solutions
to private clients with investible assets of £100,000 upwards.
Clients of this service can expect:
— Direct access to their investment manager
— An investment manager that understands their requirements
and agrees a strategy that meets their objectives
— An investment process that aims to provide risk-adjusted
returns to meet clients’ needs today and in the future
Within Investment Management, we have several specialist
capabilities including:
Charities
Our charities business manages £4.7 billion of funds and is
the second largest investment management provider to the
top 5,000 charities in the UK. The team is diverse, in both its
expertise and experience, and aims to deliver a suitably tailored
investment portfolio to meet the complex needs of charity
clients and trustees.
Rathbone Greenbank Investments
As one of the pioneers in the field of ethically-focused
investments, Rathbone Greenbank Investments manages
over £1.1 billion in ethical and socially-responsible investment
portfolios for private clients, charities and trusts. The team
is highly proactive on ethical and sustainability issues,
engaging directly with companies and government to
improve business practices.
Rathbone Investment Management International
Our offshore discretionary investment services are
headquartered in Jersey and are provided by Rathbone
Investment Management International.
Rathbone Private Office
We have also recently established the Rathbone Private Office
to help larger clients with more complex needs to protect,
enhance and organise their wealth across multiple managers,
asset classes and investment markets.
2
Rathbone Brothers Plc Report and accounts 2017
Managed Portfolio Service
A simple and straightforward execution-only investment service
which gives clients with £15,000 or more the ability to access
high-quality investments. The service is delivered at a price that
reflects the competitive nature of our sector, but to a standard
that clients have come to expect from Rathbones.
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
Vision Independent Financial Planning is an independent
IFA network providing financial advisory solutions to UK
private clients.
Unit Trusts
Rathbone Unit Trust Management is a leading UK fund manager
with £5.3 billion of funds under management, 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 primarily through financial
advisers in the UK.
Funds can also be accessed by international clients through a
Rathbone Luxembourg Funds SICAV (Société d’Investisement à
Capital Variable) which allows access to a similar range of actively
managed master funds, through a master-feeder structure.
Unit Trusts funds under management have
increased by 307.7% to £5.3bn over the past
five years
£5,367m
£1,168m
£1,100m
Rathbone Income Fund £1,433m
Rathbone Global
Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Active
Income Fund for Charities £173m
Rathbone Global Alpha Fund £127m
Rathbone Strategic Bond Fund
£108m
Rathbone Blue Chip Income
and Growth Fund
£78m
Rathbone UK Opportunities Fund £61m
Rathbone Multi Asset Portfolio Funds £736m
£383m
Other funds
Investment Management funds under
management have increased by 102.4 %
to £33.8bn over the past five years
Private clients
ISAs
Charities
Pensions
Trusts
Other
£0-£250k
£250k-£500k
£500k-£750k
£750k-£1.5m
£1.5m-£5.0m
£5.0m-£10.0m
£10m+
Client account
type by value
Size of
relationship
by value
36.8%
16.5%
13.4%
12.5%
11.4%
9.4%
7.3%
11.9%
9.7%
17.8%
24.3%
9.4%
19.6%
Complementary services
Banking and loan services
We offer loans to our existing clients secured against their
investment portfolios and, in some cases, other assets. As a
licensed deposit taker, we are also able to offer our clients a range
of banking services including currency and payment services,
and fixed interest term deposits. These additional services are
valued by our clients and are an important point of
differentiation from many of our peers.
Financial planning
We offer in-house financial planning, which provides whole of
market advice to clients. Our in-house financial planners are
experts at thinking ahead and have long-standing experience of
advising individuals, couples and families, companies and trusts.
Unitised Portfolio Service
Using Rathbone Multi Asset Portfolio Funds, we offer clients
with investible assets of £25,000 or more our model-based
discretionary investment management services. This is
designed for clients who do not require a fully bespoke
investment solution, but still want access to an investment
manager who will undertake suitability to ensure investment
needs are selected and monitored to suit their individual
circumstance, as well as ensuring that their investments are
managed in a tax-efficient manner.
rathbones.com
3
Strategic report
Progress with
relationships
We place individuality at the centre of our
approach and are committed to continuing to
offer our clients a personal service. During the
year we have:
— upgraded our client management systems
— improved our communication programmes
— implemented a new way of capturing and evaluating
our clients’ attitude to investment risk.
Read more on our business model on page 8
4
Progress with
knowledge
We use our intellectual capital to set us apart
and continue to invest in new skills and
capabilities. During the year we have:
— improved firm-wide access to research team outputs
— developed our portfolio monitoring processes and
increased the use of asset allocation tools
— completed an extensive range of training and
development courses.
Read more on our business model on page 8
rathbones.com
5
Strategic report Progress with
advisers
We work with a wide range of financial and
other professional advisers, helping them
navigate changing markets and new regulations.
During the year we have:
— established a stronger presence in the intermediary
market
— continued growth in Vision Independent Financial
Planning
— invested in infrastructure to support our own internal
financial planning teams.
Read more on our business model on page 8
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Rathbone Brothers Plc Report and accounts 2017
We maintain high standards of service delivery
by adapting and evolving our processes. During
the year we have:
— established the infrastructure necessary to support
more efficient deployment of IT across the firm
— implemented the changes necessary to meet the
requirements of MiFID II (Markets in Financial
Instruments Directive)
— continued to improve our data management
capabilities.
Read more on our business model on page 8
Progress with
advisers
Progress with
quality
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Strategic report Our business model
Our business model
Building value
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
How we do it
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
A sound investment case
— A relationship-based approach
— A unique investment culture
— Leading margins
Scale and expertise
— 290 trained investment professionals
— £39.1 billion of funds under management
— A broad range of investment solutions
Brand and reputation
— An established brand with local presence
— Reliable systems and infrastructure
— Accredited performance reporting
Independent ownership
— Listed on the London Stock Exchange
and a constituent of the FTSE 250
— High standards of corporate governance
Individual
relationships
with clients
and advisers
An informed
investment
process
Working flexibly
with advisers
Supported
by in-house
operations
8
— Our service is delivered directly through investment managers who make
portfolio decisions
— Our aim is to build lasting and trusted relationships
— We access investments across the whole market, with no bias towards
in-house funds
— Our online presence complements our service
— We have a bespoke approach to portfolio construction supported by a central
For clients
research team
— Our firm-wide processes allow us to pool intellectual capital and provide
strategic asset allocation methodologies
— We operate a range of specialist mandates including specialist investment
teams who provide services to charities and ethical investors
— Our internal quality assurance and performance measurement capabilities
provide a sound control framework
— Clients have the ability to join Rathbones either directly or through their own
— Investment in training and development
How we create long term value
For investors
— A track record of strong operating margins
— Successful acquisition capability for people
and firms that fit our culture
— Stable dividend growth
— Consistent return on capital employed
— Active management of portfolios through
changing market conditions
— A valued and quality service that builds trust
For employees
— Responsibility for investment decisions
— Value-based remuneration
— Graduate and apprenticeship programmes
financial intermediary
— Our dedicated intermediary sales team provide our discretionary and unit
trust services to national adviser networks and strategic partners
— Direct client and adviser referrals remain the most important source of
organic growth
— Our Vision Independent Financial Planning business operates independently
but maintains a close relationship with Rathbone Investment Management
— We have dedicated in-house custody and settlement services
— Our operations team is highly experienced
— We outsource selected services, where cost-effective, to reliable and carefully
— We invest incrementally in IT to ensure that our infrastructure keeps pace
chosen partners
with change
Rathbone Brothers Plc Report and accounts 2017 What we do
What makes us different
How we do it
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
— Vision Independent Financial
advice
Planning
A sound investment case
— A relationship-based approach
— A unique investment culture
— Leading margins
Scale and expertise
— 290 trained investment professionals
— £39.1 billion of funds under management
— A broad range of investment solutions
Brand and reputation
— An established brand with local presence
— Reliable systems and infrastructure
— Accredited performance reporting
Independent ownership
— Listed on the London Stock Exchange
and a constituent of the FTSE 250
— High standards of corporate governance
— Our service is delivered directly through investment managers who make
portfolio decisions
— Our aim is to build lasting and trusted relationships
— We access investments across the whole market, with no bias towards
in-house funds
— Our online presence complements our service
— We have a bespoke approach to portfolio construction supported by a central
research team
— Our firm-wide processes allow us to pool intellectual capital and provide
strategic asset allocation methodologies
— We operate a range of specialist mandates including specialist investment
teams who provide services to charities and ethical investors
— Our internal quality assurance and performance measurement capabilities
provide a sound control framework
How we create long term value
For investors
— A track record of strong operating margins
— Successful acquisition capability for people
and firms that fit our culture
— Stable dividend growth
— Consistent return on capital employed
For clients
— Active management of portfolios through
changing market conditions
— A valued and quality service that builds trust
For employees
— Responsibility for investment decisions
— Value-based remuneration
— Clients have the ability to join Rathbones either directly or through their own
— Investment in training and development
— Graduate and apprenticeship programmes
financial intermediary
— Our dedicated intermediary sales team provide our discretionary and unit
trust services to national adviser networks and strategic partners
— Direct client and adviser referrals remain the most important source of
organic growth
— Our Vision Independent Financial Planning business operates independently
but maintains a close relationship with Rathbone Investment Management
— We have dedicated in-house custody and settlement services
— Our operations team is highly experienced
— We outsource selected services, where cost-effective, to reliable and carefully
chosen partners
— We invest incrementally in IT to ensure that our infrastructure keeps pace
with change
rathbones.com
9
Strategic report Chairman’s statement
A strong 2017
2017 was a good year for Rathbones and we produced some
robust financial results. The executive team responded well to
developments in a rapidly changing wealth management market,
and our investment managers achieved good risk-adjusted
returns for our clients in a time of great uncertainty and
persistently low interest rates.
UK and global investment markets performed well in 2017, with
some indices reaching record levels towards the end of the year.
This outcome has been positive for both Rathbones and our
clients, with the WMA Balanced Index up 7.2% in the year and
our funds under management reaching £39.1 billion, up 14.3% in
the year.
Profit before tax for 2017 increased 17.6% to £58.9 million after
incurring the costs associated with the relocation of our London
office and in pursuing strategic opportunities. These costs were
partially offset by a plan amendment gain arising from the closure
of our defined benefit pension schemes. Accordingly, basic
earnings per share of 92.7p increased 17.5% from the 78.9p
reported last year. A full analysis of all non-underlying items
impacting profit before tax can be found on page 127.
Underlying profit before tax was £87.5 million for the year ended
31 December 2017, up 16.8% from the previous year, and we have
continued to balance our need to continue strategic expenditure
with maintaining good profitability, reporting an underlying profit
margin of 30.6% (2016: 29.8%) for the year. Underlying earnings per
share of 138.8p for 2017, increased 13.7% from 122.1p last year.
In line with our progressive dividend policy, the board is
recommending a final dividend of 39.0p per share. This brings the
total dividend for the year to 61.0p per share, an increase of 7.0%
over last year.
We continually monitor opportunities to grow the business
through smaller acquisitions, but during the year we discussed
with an industry peer, Smith & Williamson, the benefits of
combining our businesses. The benefits to both parties and our
respective clients could have been considerable, but, following
extensive discussions, we were unable to conclude a transaction
that was in the best interests of both parties. Nevertheless,
I believe that our measured approach to this opportunity served
us well. We will continue to apply this discipline when we pursue
other opportunities.
Continued momentum
In 2014, we set out a five-year strategy which had the ambition to
reach £40 billion of funds under management by the end of 2018.
Accepting that investment markets have been favourable, we are
now well within sight of that goal with many of our strategic
initiatives continuing to gain momentum.
Accordingly, over the next few months, the board and executive
team will work to refresh our strategy to ensure our core business
remains robust and that we can benefit from the changing
landscape of our industry. I look forward to sharing the outcome
of these discussions with our stakeholders at the appropriate time.
We remain committed to ensuring that Rathbones remain
well positioned for the future.
Governance, culture and the board
Last year, I wrote that one of my priorities was to ensure board
oversight of the firm’s culture and its development. This is
now one of my specific responsibilities. Rathbones’ culture
(professionalism, putting clients first, a collegiate approach
and integrity) has long been a competitive advantage.
Despite growth, regulation and the pace of change in our
industry, we have endeavoured to protect our culture and this
remains a board priority.
As part of this initiative, both I and my non-executive director
colleagues actively seek opportunities for direct engagement with
employees, both formal and informal, across the firm. From our
engagement this year, we have witnessed the challenging effects
that an increased workload, driven by internal and external
change, has placed on our teams. On the other hand, we have
been reassured that our strong culture remains at the heart of
the business. Preserving this culture is clearly fundamental
to achieving the best results for clients and shareholders over
the long term.
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10
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
As part of our normal succession planning, the board continues to
monitor our existing capabilities and assess what new skills are
necessary to develop both the board and the wider business over
time, taking into account the existing balance of knowledge,
experience and diversity. After a rigorous recruitment process,
we were delighted to welcome Jim Pettigrew to the board in
March 2017. Jim has extensive experience in financial services
and was appointed senior independent director in August 2017
following the retirement of David Harrel.
In late 2017, we completed an externally-facilitated board
effectiveness review, which has confirmed that the board
continues to operate well. There are always areas to improve
however, and, in particular, we will ensure that good
communication and interaction between the board and the
business remains a priority.
Responding to risks and regulation
The report from the chairman of the group risk committee,
Kathryn Matthews, is set out on page 68. We continue to enhance
our risk management processes, and, this year, have paid
particular attention to identifying and monitoring emerging risks
such as cybercrime, money laundering and data theft. We remain
vigilant to the financial risks associated with sub-letting our
existing space in Curzon Street and these risks are also reviewed
at every board meeting. We also took action to reduce the risks
associated with our defined benefit pension schemes. We believe
that the other significant risks to our business are operational risks,
which are increased by growth, and regulatory risks, which are
increased by continual changes to regulations in our sector.
The past year has been a very demanding one from a regulatory
perspective as we prepared for the changes brought about by
MiFID II (Markets in Financial Instruments Directive), the General
Data Protection Regulation, the FCA’s Asset Management Market
Report and PRIIPs (Packaged Retail and Insurance-based
Investment Products). Maintaining our regulatory standards has
always been a high priority for our senior management and we
will continue to monitor the regulatory risks that arise from the
changes to guidelines and standards in our sector.
Engaging with shareholders
During the year, we have had the opportunity to engage with
shareholders through various channels including conferences,
company-hosted events, group meetings and one-on-one
discussions. We are fortunate to have a number of longstanding,
committed institutional shareholders and will continue to
maintain a regular and constructive dialogue with them to gather
feedback on our progress.
In early 2018, we consulted with them on changes to our
remuneration policy. As it has been three years since our last
policy was approved, a revised remuneration policy will be
laid before shareholders for approval at the annual general
meeting in May 2018. Working with the company’s advisers,
the remuneration committee has reassessed our policy in the
context of a changing external environment and the firm’s own
future aspirations. Although we have maintained the principal
features of our existing policy, some changes have been proposed
to align the interests of executives and investors more closely.
These changes follow a number of consultation meetings with
shareholders and governing bodies.
Listening to our employees
As a service business, our people are our greatest asset and we are
committed to retaining the many high-calibre individuals we
employ across the firm and creating a stimulating and supportive
environment for them. I listen carefully to the views of my
colleagues and I recognise that this year has been a challenging
one for employees, given the pace and nature of change. I am very
grateful for their continued perseverance and dedication.
Outlook
The UK wealth management industry continues to evolve, driven
by client needs, regulation, demographics, technological
innovation and a changing competitive landscape. Rathbones, as a
leading UK discretionary wealth manager, remains well placed to
respond to and capitalise on these evolving trends.
We remain committed to growing the business both organically,
via disciplined investment, and inorganically, via acquisitions that
not only fit our strategic and financial criteria, but also share our
culture and values.
Notwithstanding some caution, which naturally emerges at a time
of high investment markets and political uncertainty, we enter
2018 well positioned to provide long-term value for shareholders.
Mark Nicholls
Chairman
21 February 2018
rathbones.com
rathbones.com
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11
Strategic report
Chief executive’s review
The wealth management sector
remains robust
The wealth management industry continues to be an exciting
and rapidly changing place to do business. In 2017, the industry
has not only had to navigate a particularly uncertain political
climate, but has also had to respond to a considerable amount
of new regulation.
Importantly, many positive drivers for long-term private wealth
accumulation are still in place. The challenge the current climate
brings is to secure the scale economies and operational efficiencies
necessary to respond positively to demographic changes and
technological advances, whilst reacting to a climate of increasing
price pressure.
In this respect, Rathbones continues to be well positioned in
the industry with our own funds under management reaching
£39.1 billion at 31 December 2017, up 14.3% from £34.2 billion at the
end of 2016. Total funds under management in our Investment
Management business at 31 December 2017 were £33.8 billion, up
11.9% from £30.2 billion in 2016, whilst our Unit Trusts business
reached a milestone of £5.3 billion, up 32.5% from last year.
Strong financial performance underpinned
by a 30% operating margin
Despite investing in a number of areas across the business during
the year, we maintained a leading operating margin of 30.6%
(2016: 29.8%) through a combination of relatively supportive
investment markets and continued net funds growth and cost
discipline. Underlying profit before tax totalled £87.5 million
(2016: £74.9 million), generating an underlying earnings per share
of 138.8p, an increase of 13.7% from 122.1p in 2016.
In 2017, the group added £4.8 billion gross funds under
management organically, split between £3.1 billion in our
Investment Management business and £1.7 billion in our Unit
Trusts business (2016: £2.3 billion and £1.3 billion respectively).
Outflows from intergenerational wealth transfer, property
purchases and other uses of funds to support lifestyle continue
unabated in this low interest rate environment. Net organic
growth in this business was 3.0% (2016: 2.9%), which represents a
satisfactory result in an investment climate that was largely
directionless until the end of the year. Net flows into our Unit
Trusts business were very strong however, totalling £883 million
in the year (2016: £554 million) and helping its total funds under
management to reach a record £5.3 billion (2016: £4.0 billion)
at 31 December 2017.
Profit before tax for the year of £58.9 million was 17.6% higher than
the £50.1 million in 2016 and reflects the impact of a number of
non-underlying items. A full analysis of these items can be found
on page 31.
As reported on page 116, our balance sheet remains stable with a
consolidated Common Equity Tier 1 ratio at 31 December 2017 of
20.7% compared with 17.7% at 31 December 2016. Our consolidated
leverage ratio at 31 December 2017 was 7.8% compared with 6.6%
at 31 December 2016. We remain a capital-efficient business,
generating an underlying return on capital employed of 19.5% for
the year compared to 19.3% a year ago. A detailed analysis of our
regulatory capital position at 31 December 2017 can be found on
page 38.
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12
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
The journey to £40 billion has significantly
improved our capabilities as a firm
Four years ago, I shared an ambition for the firm to reach
£40 billion of funds under management by the end of 2018,
and I am encouraged that this goal is within our reach. Since 2014,
we have delivered a significantly improved investment platform
to support our investment teams, built new distribution channels
addressing both IFA networks and professional intermediaries,
acquired Vision Independent Financial Planning, expanded our
research and specialist investment capabilities, simplified our
pricing structures and materially grown our Unit Trusts business.
We have also delivered learning and development programmes to
employees, strengthened our brand profile, improved our website
and broadened our marketing capability.
Alongside this demanding programme, we have taken advantage
of a number of opportunities to deliver inorganic growth through
team hiring and bolt-on acquisitions. Our culture of ‘professional
autonomy with accountability’ on which our investment
managers thrive, remains very much at the heart of our business,
but does place more demands on our ability to manage risk. Hand
in hand with this considerable level of activity, we have ensured
that we continue to operate a risk and control framework that
allows us to adhere to our core philosophies of delivering an
investment-led, highly personal, whole of market investment
service to our clients.
Investing in the future
There are, of course, areas of the business that we must continue
to develop to adapt to the changing needs of our clients. This year,
we have been reviewing the processes we use to maintain and
manage information about our clients, and have made a number
of enhancements. In 2017, we embedded a new way of capturing
and evaluating our clients’ attitude to investment risk and
significantly increased the usage of asset allocation tools across
the firm, with over 97% of discretionary funds now linked to
these tools.
In 2018, we will continue to keep abreast of evolving client
suitability standards. We will also be looking to improve our
account opening processes, making use of a material upgrade to
our client relationship management systems and providing more
administrative support to ensure that investment teams can
continue to focus on serving our clients well.
The output from our research team has increased considerably
over the last two years, as has access to this output, through the
introduction of a research hub, which disseminates information to
our growing community of investment managers. In 2018, we will
continue to ensure that we attract the right level of investment
skills to support and develop our investment process, but, just as
importantly, ensure that the amount of external research we
procure is right for us. MiFID II (Markets in Financial Instruments
Directive) has made some significant changes to the way in
which external research is priced, delivered and administered,
and we will work hard to keep abreast of developments to secure
value for money.
Building our presence in the intermediary market has remained a
key priority, so a May 2017 report by Defaqto, which confirmed
that the use of Rathbones as a discretionary fund management
provider to advisers had more than doubled in the last year,
was a good outcome. Vision Independent Financial Planning
made strong progress during the year, growing funds under
management to £1.4 billion (2016: £1.0 billion) and continuing to
attract quality advisers. In addition, our specialist intermediary
team continues to focus on a number of important strategic
partnerships, and is now well established. We expect flows to
improve from the £265 million introduced in 2017 to around
£350 million as the proposition continues to gain momentum.
This year, we deliberately invested in establishing the right
infrastructure to support our internal financial planning teams and
further develop the proposition. We are now able to expand its
footprint across more of our regional offices over the next year
and expect to increase the number of professional staff in 2018.
In total, we expect net costs to increase by up to £1.5 million as a
result. The Rathbone Private Office became fully operational
during 2017, with a marketing programme positioning the firm
as a credible alternative for larger and more complex clients, and
raising its profile within the intermediary community.
We remain mindful that current employee ownership in the
business is culturally important and over recent years there has
been a decline, primarily as a result of retirement. From 2018,
we will seek to correct this by creating opportunities for more
employees to build a larger element of equity ownership.
Finally, investment markets inevitably present an element
of cyclicality to earnings and stock performance and we will
continue to monitor this as we review and update our goals for
the next five years.
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Strategic report
Chief executive’s review continued
Regulation and infrastructure
continue to evolve
In 2017, we and the industry have had the task of implementing
the significant regulatory changes that arise from the introduction
of MiFID II and the General Data Protection Regulation (GDPR) in
particular. Whilst MiFID II has been successfully delivered on time
and work on GDPR is advanced, these new regimes will continue
to require some significant changes to our core processes and
systems, with costs continuing at similar levels into 2018.
MiFID II, in particular, will have an impact on our Unit Trusts
business, which will bear the full cost of external research in 2018.
Research costs borne by the funds in 2017 were £0.8 million.
This is in addition to the expected ban on ‘risk-free’ box dealing
profits (2017: £3.1 million) following the FCA’s Asset Management
Market Study. We will look to offset these impacts in profit terms
by continuing to grow the business and build on the momentum
the team has achieved.
Technology continues to be a significant entrant in our sector and
I believe it will continue to play a disruptive role in the future if not
wholly embraced. Whilst we are committed to our highly personal
approach to providing investment and advisory services, we will
continue to invest to capture the opportunities that these new
technologies can offer to improve our services and operational
efficiency while increasing the capacity of our investment teams.
In 2017, we reorganised and upgraded the skills of our IT team,
which over the medium term will improve our data management
capabilities, enhance our client communications and introduce
additional security measures to combat the ever-growing
cyber threat. We expect that this expansion of our IT capability,
together with more general cost inflation, will add approximately
£2.5 million to our running costs.
Outlook
This year has presented many challenges and opportunities and
I fully expect 2018 to do so in equal measure. Brexit continues to
be a regular discussion topic within the investment community,
but, as a predominantly UK-based firm, our own view is largely
focused on the wider economic environment and any impact it
may have on the investments we make for our clients.
I would like to take this opportunity to praise the efforts of our
employees in this eventful last year. Notwithstanding the
demands of our own change programme and a complicated
market environment, they have kept the needs of our clients at
the forefront of what we do and concentrated on providing an
exemplary service.
We enter 2018 in a good position, with industry-leading operating
margins and a strong balance sheet. We will continue to look for
accretive acquisition opportunities and to invest in our future
with discipline.
Philip Howell
Chief Executive
21 February 2018
14
14
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Chief executive’s review continued
Regulation and infrastructure
continue to evolve
Outlook
In 2017, we and the industry have had the task of implementing
the significant regulatory changes that arise from the introduction
of MiFID II and the General Data Protection Regulation (GDPR) in
particular. Whilst MiFID II has been successfully delivered on time
and work on GDPR is advanced, these new regimes will continue
to require some significant changes to our core processes and
systems, with costs continuing at similar levels into 2018.
MiFID II, in particular, will have an impact on our Unit Trusts
business, which will bear the full cost of external research in 2018.
Research costs borne by the funds in 2017 were £0.8 million.
This is in addition to the expected ban on ‘risk-free’ box dealing
profits (2017: £3.1 million) following the FCA’s Asset Management
Market Study. We will look to offset these impacts in profit terms
by continuing to grow the business and build on the momentum
the team has achieved.
Technology continues to be a significant entrant in our sector and
I believe it will continue to play a disruptive role in the future if not
wholly embraced. Whilst we are committed to our highly personal
approach to providing investment and advisory services, we will
continue to invest to capture the opportunities that these new
technologies can offer to improve our services and operational
efficiency while increasing the capacity of our investment teams.
In 2017, we reorganised and upgraded the skills of our IT team,
which over the medium term will improve our data management
capabilities, enhance our client communications and introduce
additional security measures to combat the ever-growing
cyber threat. We expect that this expansion of our IT capability,
together with more general cost inflation, will add approximately
£2.5 million to our running costs.
This year has presented many challenges and opportunities and
I fully expect 2018 to do so in equal measure. Brexit continues to
be a regular discussion topic within the investment community,
but, as a predominantly UK-based firm, our own view is largely
focused on the wider economic environment and any impact it
may have on the investments we make for our clients.
I would like to take this opportunity to praise the efforts of our
employees in this eventful last year. Notwithstanding the
demands of our own change programme and a complicated
market environment, they have kept the needs of our clients at
the forefront of what we do and concentrated on providing an
exemplary service.
We enter 2018 in a good position, with industry-leading operating
margins and a strong balance sheet. We will continue to look for
accretive acquisition opportunities and to invest in our future
with discipline.
Philip Howell
Chief Executive
21 February 2018
Our strategy
14
Rathbone Brothers Plc Report and accounts 2017
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Strategic report
Market review
Stability in a changing market
Increased regulatory pressures, greater IT demands and the prospect of lower new wealth generation in the UK all mean firms
will need to be at the forefront of innovation to capture market share. Alongside these pressures, the UK population is ageing
while state and corporate sectors shift the burden of retirement on to individuals and families. Favourable savings trends
overall though, twinned with ever-increasing tax complexities, will continue to drive further demand for wealth management
services over the longer term, placing Rathbones in a strong position to proactively respond to developments in the market
and provide a quality service for clients.
Macro-economic conditions
Regulatory change
Wider political and economic uncertainty remains as the
UK economy begins the process of adjusting to a new
relationship with the European Union. Demographics
are also shifting and firms must respond to the evolving
needs of clients in order to remain competitive.
Increased regulatory pressures mean firms will need to
invest to keep up with the pace of change and capture
market share.
The opportunities
— The need for advice is increasing given the
complexities surrounding the UK economy, tax
requirements and regulatory changes
— The persistence of a lower interest rate environment
continues to accentuate the need for investment
— An ageing population with increased life expectancy
increases the need to save for retirement and finance
lifestyles over a longer period of time
— Increasing demands on clients’ time encourages
them towards a full service investment solution
The challenges
— The trends for intergenerational wealth transfer,
property purchases and other uses of funds to
support lifestyle continue unabated
— Demographic shifts will continue as millennials
overtake baby boomers as the largest generation
and bring evolving needs and requirements
— Wealth management firms are well positioned to benefit
from greater pension freedoms as declining levels of
government and company pension support will
encourage individuals to save
— The weight of regulation is likely to create higher barriers
to entry and lead to further industry consolidation
— More expenditure will be required to keep up with the
pace of regulatory change
— Regulatory changes could place pressure on the time
investment teams can devote to delivering key services
16
Rathbone Brothers Plc Report and accounts 2017 Continuing
our strategy
Our strategy can be broken down into the three key
objectives outlined below.
Industry developments
Regulatory change
The industry continues to change with varying
business models looking for technological
advantages. Keeping pace with this change is
fundamental to sustaining a quality service.
We aim to provide our clients with the highest
quality of service to maintain our brand
reputation and competitive positioning.
Quality service
Page 18
Principal risks:
Performance and advice (see page 25)
Processing (see page 26)
Regulatory (see page 25)
Reputational (see page 25)
— Defining a sustainable service model and
proposition that captures the market
opportunity is critical
— Harnessing elements of technology to improve
client communications and automate processes
is essential to using investment manager
time efficiently
Our aim is to build high-quality revenues
that support ongoing investment and provide
a growing stream of dividend income for
shareholders over each economic cycle.
Earnings growth
Page 19
Principal risks:
Performance and advice (see page 25)
Processing (see page 26)
Regulatory (see page 25)
— The industry will continue to face pricing
pressures
— Increased IT expenditure will be required to
adopt new technologies and remain competitive
Employee value
Page 20
Our ability to achieve growth and deliver a
quality service is dependent on the ability of
our people. We are committed to rewarding
our staff in line with business objectives and
providing them with an interesting and
stimulating career environment.
Principal risks:
Regulatory (see page 25)
Reputational (see page 25)
Each objective is considered carefully when setting executive
remuneration targets and criteria. For more information on how these
strategic objectives feed into our executive incentive plan, see page 87.
rathbones.com
17
Strategic report
Our strategic objectives
Quality service
Quality service
We aim to provide our clients with the highest quality of service to maintain our brand reputation and
competitive positioning.
Key initiatives
— Ongoing development of our investment process to support
investment team decisions and drive positive portfolio outcomes
— Improved infrastructure to support our internal financial
planning teams and the Rathbone Private Office became
fully operational
— Investment in technology to better evaluate client attitudes to
risk, improve communication and manage investment team
capacity and efficiency
— Selectively add complementary service offerings that support
the core investment service
Progress in 2017
— Embedded a new way of capturing and evaluating our clients’
attitude to investment risk
— Improved access to and availability of research team outputs
— Established a communication programme to engage
clients, potential clients and advisers, comprising regular
investment reports, market commentaries and digital and
social media content
— Began a technology upgrade programme, which will improve
data management capabilities and client communications and
introduce additional security measures to combat the growing
cyber threat over the medium term
— Awarded Private Client Asset Manager of the Year by
Citywealth in May and Investment Week’s Gold Standard
Award for Discretionary Portfolio Management in November
and received both the Citywealth and Charity Times awards
for Charity Investment Manager of the Year in May and
September respectively
Priorities for 2018
— Develop a client relationship management system and
improve account opening processes to ensure that investment
teams can continue to focus on serving clients well while
meeting regulatory demands
— Invest in client support resources to capture opportunities to
improve service and enhance the operational efficiency of
investment teams
— Continue to attract high-quality investment professionals to
support and develop the investment process and proactively
monitor the value of the external research we procure
Total funds under
management (£bn)
Investment Management
net organic growth rates
(%)
Capital expenditure
excluding property
(£m)
£39.1bn
3.0%
£8.5m
Number of Investment
Management clients
('000)
50,000
39.1
5.4
34.2
29.2
27.2
22.0
4.0
3.0
2.9
3.0
4.4
3.9
4.9
3.3
8.5
46
47
48
50
41
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
18
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Earnings growth
Earnings growth
Our aim is to build high-quality revenues that support our ongoing investment and provide a growing
stream of dividend income for shareholders over each economic cycle.
Key initiatives
— Increasing fee-based revenues to improve earnings quality
— Successfully closed defined benefit pension schemes
— Evaluated a number of acquisition opportunities
— Promoting ongoing cost discipline to preserve underlying
operating margins and manage pension and property risks
— Increased fee income to 76.0% of total underlying operating
income, up from 73.5% a year earlier
— Selectively investing in initiatives that support organic and
acquired growth
Progress in 2017
— Enhanced management information tools and realigned
remuneration structures to improve support for commercial
decision-making at investment team level in our private
client business
— Generated net inflows of £261 million during 2017 from our now
well-established specialist intermediary team, with increased
recognition in the sector confirmed in a May 2017 Defaqto report
— The Vision Independent Financial Planning adviser network
expanded to 115 advisers from 99 a year earlier, while funds
under advice increased to £1.4 billion from £1.0 billion in 2016
— Continued momentum in our Unit Trusts business, which grew
funds to a record £5.3 billion at 31 December 2017
Priorities for 2018
— Continue to invest in growth with discipline, mindful of
investment markets
— Support investment teams on a selective basis to ensure that
they have the resources needed to grow
— Refresh medium-term strategy such that the business can
continue to benefit from the changing landscape of the industry
— Continue to strengthen engagement with financial advisers,
UK and international intermediaries and Vision Independent
Financial Planning
— Sub-let 1 Curzon Street premises
Underlying operating
margin (%)
Dividend per share (p)
Underlying earnings
per share (p)
Return on capital
employed (%)
30.6%
29.4 30.7 29.8 30.6
28.6
61.0p
52
49
55
57
61
138.8p
19.5%
138.8
117.0 122.1
17.8
16.1
19.1 19.3 19.5
102.4
86.7
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
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Strategic report
Our strategic objectives continued
Employee value
Employee value
Our ability to achieve growth and deliver a quality service is dependent on the ability of our people.
We are committed to rewarding our staff in line with business objectives and providing them with an
interesting and stimulating career environment.
Key initiatives
— Continue to monitor succession and development plans for
critical roles and functions
— Promote a collaborative working environment that supports
personal and professional development of staff
— Ensure remuneration alignment with business objectives
Progress in 2017
— Reviewed senior management succession plans
— Implemented performance-based enhancements to
investment manager remuneration schemes
— Completed a board review on culture and developed a culture
risk dashboard, with metrics for ongoing monitoring by the
conduct risk committee
— Actively promoted both the graduate and apprenticeship
schemes
— Increased average annual training investment per person to
£783 (2016: £634) with particular focus on regulatory training
and business development sessions
— Launched an online performance management tool to help
better support both line managers and employees and
improved the annual employee appraisal process to place
more focus on feedback, performance, career development
and succession planning
— Conducted a comprehensive review of family leave policies
leading to significant improvements in maternity and paternity
policies as well as additional support to employees in the form
of group coaching for working parents
— Continued to increase employee participation in SIP and SAYE
schemes, with SIP participants increasing to 1,089 employees
from 1,010 employees, the number of outstanding SAYE share
options increasing to 525,891 from 507,714 a year earlier and the
number of employees with SIP partnership shares increasing
from 844 to 946
Priorities for 2018
— Closely monitor investment team capacity and provide
support as required to manage necessary regulatory change
— Roll out a training programme covering diversity, inclusion and
unconscious bias to all managers across the firm, following
completion by the executive committee in 2017
— Create opportunities for more employees to build a larger
element of equity ownership
Staff turnover (%)
Number of participants
with SIP partnership
shares
Average full time
equivalent employees
6%
6
4
6
5
5
946
767
718
946
845 844
1,147
981
880
833
Variable staff costs as a %
of underlying profit before
tax and variable staff costs
37.9%
1,147
1,066
35.6
36.4 36.1 37.5 37.9
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Risk management
During 2017, we have continued to evolve our risk management approach in support of our ‘three
lines of defence’ model. Our risk governance, risk processes and risk infrastructure have continued to
mature to ensure our management of risk considers existing and emerging challenges. In 2018, we will
maintain our approach and ensure that appropriate risk management is applied across the group to
protect our stakeholders.
Risk culture
We believe that an appropriate risk culture enhances the
effectiveness of risk management. The board is responsible for
setting the right tone and, through our senior management team,
encouraging characteristics and behaviours which support a
strong risk culture. The consideration of risk is therefore accepted
as being part of everyone’s day-to-day responsibilities and
activities. Risk management is linked to performance and
development, as well as to the group’s remuneration and reward
schemes. The purpose 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 continue to apply a ‘three lines of defence’ model to support
our risk management framework, with responsibility and
accountability for risk management 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
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. Our risk appetite framework contains
some overarching parameters, alongside specific primary and
secondary measures for each principal risk. At least annually, the
board, executive committee and group risk committee will
formally review and approve the group's risk appetite statement
and assess whether the firm has operated in accordance with the
stated risk appetite measures during the year. Notwithstanding
the continued expectations for business growth, along with a
strategic and regulatory change programme for 2018, the board
remains committed to having a relatively low overall appetite for
risk, ensuring that our internal controls mitigate risk to appropriate
levels. The board recognises that the business is susceptible to
fluctuations in investment markets and has the potential to 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) comprises financial, conduct and operational risks.
The next level (Level 2) contains 16 risk categories, each allocated to
a Level 1 risk. Detailed risks (Level 3) are then identified as sub-sets
of Level 2 risks. Level 3 risks are captured and maintained within
our group risk register, which is the principal tool for monitoring
risks. We recognise that some Level 2 and Level 3 risks have
features which need to be considered under more than one Level 1
risk, and this is facilitated in our framework through a system of
primary and secondary considerations. Our risk classification is
regularly reviewed and takes a structured approach to the
identification of all known material risks to the business and those
emerging risks which may impact future performance.
Our risk exposures and overall risk profile are reviewed and
monitored regularly, considering the potential impact, existing
internal controls and management actions required to mitigate the
impact of emerging issues and likelihood of future events. To
ensure we identify and manage our principal risks, reviews take
place with risk owners, senior management and business units
across the group. The risk function conducts these reviews and
risk workshops regularly during the year.
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Rathbone Brothers Plc Report and accounts 2017
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Strategic report
Risk management continued
A watch list is maintained to record any current, emerging or
future issues, threats, business developments 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, usually through process changes or
systems development. The group’s risk profile, risk register and
watch list are regularly reviewed by the executive committee,
senior management, board and group risk committee.
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 our assessment of key risks
is challenged and reviewed on a regular basis. The board and
executive committee receive regular reports and information from
senior management, operational business units, risk oversight
functions and specific risk committees.
We assess risks using a 1—4 scoring system. Each Level 3 risk is
rated by assessing the inherent 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. The assessment of our control environment,
carried out by senior management within the firm, includes
contributions from first, second and third line data, monitoring
and/or assurance activity.
Risk assessment process
The board and senior management are actively involved in a
continuous risk assessment process as part of our risk
management framework, supported by the annual Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity
Adequacy Assessment Process (ILAAP) work, which assesses the
principal risks facing the group.
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.
The executive committee, 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
As explained above, our risks are classified hierarchically in a
three-level model. There are three Level 1 risks, 16 Level 2 risks and
at Level 3 there are 44 risks, all of which form the basis of the
group’s risk register.
Our approach to managing risk continues to be underpinned by
an understanding of our current risk exposures and consideration
of how risks change over time.
The underlying risk profile and ratings for the majority of Level 2
risks have remained consistent during 2017. However, there have
been some changes to risk ratings and the following table
summarises the most important of these.
Based upon the risk assessment processes identified above, the
board believes that the principal risks and uncertainties facing
the group have been identified. These reflect the impact of
strategic and regulatory change in the year including, for example,
MiFID II (Markets in Financial Instruments Directive) and the
General Data Protection Regulation (GDPR). The board remains
vigilant to the risks associated with the pension schemes’ deficit
and the sub-letting 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.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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 crystallising 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 as high-risk items 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 legislative and 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 to our business. We also recognise that the risk profile
associated with outsourced activities can change over time and
this will be an area of continued focus in 2018.
In addition to the group’s view that we can reasonably expect
current market conditions and uncertainties to remain throughout
2018, other developing risks include, for example, cyber threats,
regulatory change and scenarios potentially arising from
geopolitical developments, including Brexit.
We are monitoring the potential consequences of Brexit very
closely. Our current assessment is that the direct impacts of Brexit
are manageable given our largely UK based business model.
However, we are conscious that the position might change and
could raise unexpected challenges and also that second order
effects might have broader impacts on the UK economy as a whole.
Risk change
in 2017
Ref
D
Risk
Pension
Description of change
The schemes’ valuation and funding deficit decreased materially due to the closure of the
schemes during the year with a significant number of members transferring benefits out of
the schemes. However, this still remains an important risk for the firm to manage.
F
G
K
O
Performance and
advice
Regulatory
Our forward-looking risk assessment increased during the year, largely reflecting regulatory
drivers. In addition to changes delivered in 2017, we plan to improve our processes further in
2018, including how we take on clients and our approach to assessing suitability.
Our risk assessment recognises the extent of regulatory change implemented in 2017, which
continues into 2018, including, for example, MiFID II optimisation and GDPR.
Data Integrity and
security
We have increased our risk rating in this area based on our assessment of the increasing
external threat profile, despite continuing investment in technology improvements.
People
Although still regarded as a medium risk, our forward-looking risk assessment increased
during the year, reflecting industry-wide trends. We also recognise the importance of
addressing the drivers behind our gender pay gap over the coming years.
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Rathbone Brothers Plc Report and accounts 2017
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Strategic report
Risk management continued
Financial risks
Ref
A
B
C
D
Level 2 risk
I
L
How the risk arises
Control environment
Residual rating
Credit
The risk that one or more
counterparties
fail to fulfil contractual
obligations, including stock
settlement
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 the cost of
funding our defined benefit
pension schemes increases,
or their valuation affects
dividends, reserves and
capital
Low
Low
Low
Low
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
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
— Banking committee oversight
— Counterparty limits and credit reviews
— Treasury policy and procedures
— Active monitoring of exposures
— Client loan policy and procedures
— Annual ICAAP
— Banking committee oversight
— Daily treasury procedures, reconciliations and
reporting to senior management
— Cash flow forecasting
— Contingency funding plan
— Annual ILAAP (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
High High
This risk can arise through a
— Board, senior management and trustee
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
oversight
— Monthly valuation estimates
— Triennial independent actuarial valuations
— Investment policy
— Senior management review and defined
management actions
— Annual ICAAP
Further detailed discussion of the group’s exposures to financial risks is included in note 31 to the financial statements.
24
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Conduct risks
Residual rating
Level 2 risk
I
L
How the risk arises
Control environment
Med Med
This risk can arise from
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
and analysis
Med Med
This risk can arise through a
— Investment governance and structured
Ref
E
F
G
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
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
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 existing,
regulation
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
High Med
This risk can arise from failures
by the business to comply
with existing regulation or
failure to identify and react
to regulatory change
H
Reputational
Med
Low
The risk of reputational
damage from financial and
non-financial events or from
failing to meet stakeholders’
expectations
This risk can arise due to a
variety of reasons, primarily
within Rathbones. These could
include the conduct of the
company or its employees, or
the service or products
provided to clients
committee oversight
— Management oversight and segregated quality
assurance and performance teams
— Performance measurement and attribution
analysis
— Know your client (KYC) suitability processes
— 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 policies 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
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Rathbone Brothers Plc Report and accounts 2017
25
25
Strategic report
Risk management continued
Operational risks
Ref
I
J
K
L
M
Level 2 risk
I
L
How the risk arises
Control environment
Residual rating
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
Data integrity and security
The risk of a lack of integrity
of, inappropriate access to or
disclosure of client or
company-sensitive
information
Fraud
The risk of fraudulent action,
either internal or external,
being taken against the
group or a subsidiary
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 if the
— Executive and board oversight of material
business is too aggressive and
unstructured in 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 sub-
letting of some premises
Med
Low
This risk can arise from the
Med Med
business failing to effectively
control and administer its core
operating systems, manage
current and future resource
requirements or 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
Med
Low
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
Med
Low
This risk can arise from
inappropriate behaviour of
individuals or from the
inadequate drafting of the
firm’s contractual
documentation
change programmes
— Group project 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
— 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
26
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Ref
N
O
P
Level 2 risk
I
L
How the risk arises
Control environment
Residual rating
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
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
Low
Med Med
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
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 over regulated
activities
— 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
— Documented procedures
— Annual controls assessment
(ISAE3402 report)
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Rathbone Brothers Plc Report and accounts 2017
27
27
Strategic report
Risk management continued
Assessment of the company’s prospects
The board prepares or reviews its strategic plan annually,
completing the ICAAP and ILAAP work which form 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 our response to all
Pillar 1 risks (credit, market and operational risks) to the 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.
Although the business is almost wholly UK-situated, it does not
suffer from any material client, geographical or counterparty
concentrations.
Whilst this review does not consider all of the risks that the group
may face, the directors consider that this stress testing-based
assessment of the group’s prospects is reasonable in the
circumstances of the inherent uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code, the board
has assessed the prospects and viability of the group over a three-
year period taking into account the risk assessments (which are
based upon a five-year period as detailed above). The directors
have taken into account the firm’s current position and the
potential impact of the principal risks and uncertainties set out
above. As part of the viability statement, the directors confirm that
they have carried out a robust assessment of both the principal
risks facing the group, and stress tests and scenarios that would
threaten the sustainability of its business model, future
performance, solvency or liquidity.
The board considers five-year projections as part of its annual
regulatory reporting cycle, which includes strategic and
investment plans and its opinion of the likelihood of risks
materialising. However, given the uncertainties associated with
predicting the future impact of investment markets on the
business over this longer period, the directors have determined
that a three-year period to 31 December 2020 continues to
constitute an appropriate period over which to provide its viability
statement. This is more closely aligned to its detailed capital
planning activity.
Stress testing analysis shows that under scenarios such as a 45%
fall in FTSE 100 levels or a 0% interest rate environment, the group
would remain profitable and is able to withstand the impact of
such scenarios. An example of a mitigating action in such
scenarios would be a reduction in dividend.
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 fall due over the period
to 31 December 2020.
28
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
28
Our performance
rathbones.com
29
Strategic report Financial performance
Paul Stockton
Finance Director
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
Return on capital employed4
2017
£m
(unless stated)
286.0
(198.5)
87.5
30.6%
58.9
20.5%
(12.1)
46.8
138.8p
92.7p
61.0p
19.5%
2016
£m
(unless stated)
251.3
(176.4)
74.9
29.8%
50.1
23.8%
(11.9)
38.2
122.1p
78.9p
57.0p
19.3%
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
4. Underlying profit after tax (note 13) as a % of average equity at each quarter end
Underlying operating income
Underlying operating income grew 13.8% in 2017, driven by higher
investment markets and continued organic and acquired growth
in all business areas.
Fee income of £217.5 million in 2017 increased 17.7% compared to
£184.8 million in 2016, reflecting positive markets and growth in
organic and acquired new business over the period. Fee income
represented 76.0% of total underlying operating income in the
year ended 31 December 2017 (2016: 73.5%), as our fee only tariff
becomes more widely adopted, helping to support our move to
higher quality fee-based income.
Net commission income of £38.7 million was broadly consistent
with 2016, as the impact of higher trading volumes was offset by
the greater number of accounts now operating on a fee only tariff.
Net interest income was unchanged at £11.6 million, as higher
liquidity offset the impact of a lower interest rate environment for
much of 2017.
A full reconciliation between underlying operating income and
reported operating income is provided on page 128.
Underlying operating expenses
Underlying operating expenses increased by 12.5%, largely due to
continuing investment in strategic initiatives and underlying
growth in the business.
In line with our strategy, planned additions to headcount
increased fixed staff costs by 10.0% to £87.8 million, with average
headcount up 7.6% to 1,147.
Total variable staff costs increased by 18.4% to £53.3 million,
principally driven by growth in profits and funds under
management as well as the introduction of additional
performance-based incentives for investment managers during
the year. Variable staff costs in 2017 represented 18.6%
of underlying operating income (2016: 17.9%) and 37.9% of
underlying profit before variable staff costs and tax (2016: 37.5%).
Underlying operating expenses also included £5.1 million
(2016: £4.0 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).
The adoption of IFRS 15 in 2018 requires us to change the
accounting policy for these awards, which will result in more of
these costs being capitalised and amortised over the life of the
client relationship. The adoption of IFRS 9 is not expected to have
a material impact on our financial performance. Further details can
be found in note 1.3.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Outlook
Profitability
Staff costs in 2018, will reflect the full year impact of hiring activity
in 2017 in addition to salary inflation of around 3.5%.
During 2018, we plan to continue the IT change programme
started in 2017. This is expected to add approximately £2.5 million
to our cost base in 2018. We also plan to expand the footprint of
our financial planning service across more regional offices, which
is expected to add up to £1.5 million to the cost base of this
business, net of growth in associated revenues.
In addition, from 2018, the Unit Trusts business will no longer
charge research costs to the funds and it is expected that
managers’ box dealing profits will no longer be retained. In 2017,
research costs of £0.8 million were incurred by the funds and
managers’ box dealing profits totalled £3.1 million.
Capital expenditure
Overall, capital expenditure of £11.3 million in 2017 was down
£3.8 million compared to 2016, a fall of 25.2%. As planned,
expenditure on software increased by £4.2 million as we upgraded
our client relationship management systems and embarked on an
IT change programme. These activities are expected to continue
into 2018 with a similar level of capital expenditure.
Premises related capital expenditure fell by £7.8 million, primarily
due to the fit out of our new London Head Office, which was
largely completed in 2016.
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 four categories explained below.
Underlying profit before tax grew by 16.8% to £87.5 million in 2017.
The underlying operating margin, which is calculated as the ratio
of underlying profit before tax to underlying operating income,
was 30.6% for the year, in line with our target of 30% over the cycle
(2016: 29.8%). Profit before tax increased by 17.6% to £58.9 million
for the year.
Table 2. Reconciliation of underlying profit before tax to profit before tax
Underlying profit before tax
Gain on plan amendment of defined benefit
pension schemes
Charges in relation to client relationships
and goodwill
Acquisition-related costs
Head office relocation costs
Profit before tax
2017
£m
87.5
5.5
(11.7)
(6.2)
(16.2)
58.9
2016
£m
74.9
–
(11.8)
(6.0)
(7.0)
50.1
Gain on plan amendment of defined benefit pension
schemes (note 27)
With effect from 30 June 2017, we closed the defined benefit
pension schemes, ceasing all future accrual and breaking the link
to salaries. These changes resulted in a plan amendment gain of
£5.5 million, which was recognised in operating income. This gain
is a significant one-off item which does not relate to the trading
performance of the business and it has therefore been excluded
from underlying results.
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 2017 were £11.7 million (2016: £11.8
million), reflecting historic acquisitions.
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31
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Strategic report
Financial performance continued
Acquisition-related costs (note 8)
Acquisition-related costs are significant costs which arise from
strategic investments to grow the business. They primarily relate
to corporate actions rather than trading performance and are
therefore excluded from underlying results.
As announced on 31 August 2017, we incurred professional
services costs of £4.9 million in relation to the merger discussions
with Smith & Williamson.
Costs of £1.3 million (2016: £6.0 million) were incurred in relation
to the acquisitions of Vision Independent Financial Planning
and Castle Investment Solutions, which were completed on
31 December 2015. These amounts include the cost of payments
to vendors of the business who remain in employment with the
group, as required by accounting standards. Further costs totalling
£3.6 million will be charged to the income statement on a straight
line basis over the deferral period ending in 2019.
Head office relocation costs (note 9)
During February 2017, we moved our London head office to the
new premises following a nine-month fit-out period. Charges
incurred in relation to the double running of both London
premises and the relocation amounted to £16.2 million in 2017
(2016: £7.0 million).
As described in note 25, following the vacation of 1 Curzon Street, a
provision has been recognised for the discounted value of the cost
of the surplus property until the end of the existing lease, net of
any expected rental income from sub-letting the space. As a result,
net charges totalling £14.1 million were recognised in the income
statement during 2017 in relation to the onerous lease provision.
Charges of £2.1 million were also incurred during the year for
professional fees, accelerated depreciation and double running
costs (2016: £7.0 million). These costs represent an investment to
expand our operating capacity in a key location and are not
expected to recur in the short to medium term; they have
therefore been excluded from underlying results.
Taxation
The corporation tax charge for 2017 was £12.1 million (2016: £11.9
million) and represents an effective tax rate of 20.5% (2016: 23.8%).
A full reconciliation of the income tax expense is provided in note
11 to the financial statements.
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 in 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 2017
were 92.7p compared to 78.9p in 2016. This reflects the full impact
of non-underlying income and charges and the issue of 0.6 million
shares to satisfy share-based remuneration scheme awards. On an
underlying basis, earnings per share increased by 13.7% to 138.8p in
2017 (see note 13 to the financial statements).
Dividends
We operate a generally progressive dividend policy, as set out in
the directors’ report on page 104.
In determining the level of any proposed dividend, the board has
regard to current and forecast financial performance. Any proposal
to pay a dividend is subject to compliance with the Companies
Act, which requires that the company must have sufficient
distributable reserves from which to pay the dividend. The
company’s distributable reserves are primarily dependent on:
— compliance with regulatory capital requirements for the
minimum level of own funds
— the level of profits earned by the company, including distributions
received from trading subsidiaries (some of which are subject
to minimum regulatory capital requirements themselves)
— actuarial changes in the value of the pension schemes that are
recognised in the company’s other comprehensive income,
net of deferred tax.
At 31 December 2017, the company’s distributable reserves were
£63.9 million (2016: £42.8 million).
In light of the results for the year, the board has proposed a final
dividend for 2017 of 39.0p. This results in a full year dividend of
61.0p, an increase of 4.0p on 2016 (7.0%). The proposed full year
dividend is covered 1.5 times by basic earnings and 2.3 times by
underlying earnings.
Return on capital employed
The board monitors the return on capital employed (ROCE) as a
key performance measure, which forms part of the assessment of
management’s performance for remuneration purposes as
described in the remuneration report on page 80. For monitoring
purposes, ROCE is defined as underlying profit after tax expressed
as a percentage of quarterly average total equity across the year.
Consideration of the return on capital is a key consideration in all
investment decisions, particularly in relation to acquired growth.
In 2017, ROCE was 19.5% (2016: 19.3%).
32
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Segmental review
The group is managed through two key operating segments, Investment Management and Unit Trusts.
Chart 1. Investment Management – number of clients and
investment managers
Investment Management
clients (’000)
50,000
Investment managers
277
(‘000)
50
40
30
20
10
0
46
249
47
260
48
273
50
277
41
209
2013
2014
2015
2016
2017
Investment Management clients
Investment managers
300
250
200
150
100
50
0
Investment Management
The activities of the group are described in detail on pages 2 to 9.
The Investment Management segment comprises those activities
described under the headings ‘Investment Management’ and
‘Complementary services’ on pages 2 to 3.
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
2017
2016
£33.8bn
£30.2bn
3.0%
2.9%
3.9%
72.7 bps
50,000
277
4.5%
74.2 bps
48,000
273
During 2017, 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 48,000 in 2016 to approximately 50,000 during the year.
During 2017, the total number of investment managers increased
to 277 at 31 December 2017 from 273 at the end of 2016.
rathbones.com
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33
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Strategic report
Segmental review continued
Funds under management
Investment Management funds under management increased by
11.9% to £33.8 billion at 31 December 2017 from £30.2 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
2017
£bn
30.2
3.4
3.1
0.3
(2.2)
2.4
33.8
0.9
3.0%
3.9%
2016
£bn
26.1
2.7
2.3
0.4
(1.5)
2.9
30.2
0.8
2.9%
4.5%
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
Net organic growth in our Investment Management business was
3.0% (2016: 2.9%). This was below the 5% target we have set for
ourselves, in large part due to an investment climate that was
largely directionless until the end of the year. We saw outflows of
approximately 7% of funds under management, as clients
continued to transfer wealth to younger generations, purchase
property and use capital to support income during the year.
Charity funds under management continued to grow strongly and
reached £4.7 billion at 31 December 2017, up 14.6% from £4.1 billion
at the start of the year.
We also retained our strategic focus on intermediaries during the
year. Funds under management in accounts linked to
independent financial advisers and provider panel relationships
increased by £1.0 billion during 2017, ending the year at £7.7 billion.
Chart 2. Investment Management – funds under management
five year growth
Funds under management (£bn)
£33.8bn
40
30
20
10
0
33.8
30.2
24.7
26.1
20.2
2013
2014
2015
2016
2017
FTSE 100 Index*
MSCI WMA Balanced Index*
* Index figures show how funds under management would have changed
between 2013 and 2017 if they had tracked each index
In total, net organic and acquired growth added £1.2 billion to
Investment Management funds under management in 2017
(2016: £1.2 billion), representing an underlying rate of total net
growth of 3.9% (2016: 4.5%).
As at 31 December 2017, Vision Independent Financial Planning
advised on client assets of £1.4 billion, up 35.9% from 2016.
Average investment returns across all Investment Management
clients were positive and outperformed the MSCI WMA Balanced
Index by 1.8%. This outperformance was generated across
both UK and overseas equities as the global markets rallied on
US President Trump’s potential fiscal stimulus, stronger European
economic data and the dollar trending lower throughout the year.
Our overweight position in UK equities generated the greatest
outperformance for 2017. Overall performance against other
competitor indices, such as the Private Client Indices published
by ARC, was robust.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
£m
189.5
38.7
11.6
14.8
254.6
(177.8)
76.8
30.2%
2016
£m
163.3
38.9
11.6
12.5
226.3
(160.1)
66.2
29.3%
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 (including Vision)
4. See table 8
5. Underlying profit before tax as a percentage of underlying operating income
Net Investment Management fee income increased by 16.0% to
£189.5 million in 2017, benefiting from positive markets as well as
organic and acquired 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 2017
were £32.4 billion, up 14.9% from 2016 (see table 6).
Table 6. Investment Management – average funds under management
As shown in table 7, the average net operating basis point return
on funds under management has fallen by 1.5 bps to 72.7 bps in
2017. This largely reflects the changes in business mix and the fee
tiering impact of higher market levels.
Table 7. Investment Management – revenue margin
Basis point return1 from:
— fee income
— commission
— interest
Basis point return on funds under management
2017
bps
58.4
11.9
2.4
72.7
2016
bps
57.9
13.8
2.5
74.2
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)
Fees from advisory services and other income increased 18.4%
to £14.8 million. This largely reflects a higher level of advisory fees
earned by Vision, following a slower period of activity last year
as the business completed a comprehensive file review exercise,
and growth in in-house financial planning revenues.
Underlying operating expenses in Investment Management for
2017 were £177.8 million, compared to £160.1 million in 2016, an
increase of 11.1%. This is highlighted in table 8.
Table 8. Investment Management – underlying operating expenses
Valuation dates for billing
— 5 April
— 30 June
— 30 September
— 31 December
Average
Average FTSE 100 level1
2017
£bn
31.5
32.0
32.5
33.8
32.4
7426
2016
£bn
26.1
27.3
29.3
30.2
28.2
6659
Staff costs1
— fixed
— variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio2
2017
£m
2016
£m
59.5
40.2
99.7
78.1
177.8
69.8%
57.6
32.4
90.0
70.1
160.1
70.7%
1. Based on the corresponding valuation dates for billing
In 2017, net commission income of £38.7 million was broadly
consistent with 2016. Higher trading volumes offset the impact of
the greater number of accounts operating on a fee only tariff.
Net interest income of £11.6 million in the year was unchanged
from 2016. The impact of lower base rates during much of 2017
was offset by a higher balance of cash in client portfolios over the
course of the year. Cash held at the Bank of England grew from
£1.1 billion at 31 December 2016 to £1.4 billion at the end of 2017.
The Investment Management loan book grew to £120.5 million by
the end of the year and contributed £3.1 million to net interest
income in 2017 (2016: £3.0 million). Also included in net interest
income is £1.3 million (2016: £1.3 million) of interest payable on the
Tier 2 notes which are callable in August 2020.
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 £59.5 million increased by 3.3% year-on-year,
principally reflecting a 5.9% increase in average headcount and
salary inflation.
As results improved, variable staff costs, also increased by 24.1%
reflecting both the higher profitability in the period and an
improved investment performance element for growth awards.
Other operating expenses of £78.1 million include property,
depreciation, settlement, IT, finance and other central support
services costs. The year-to-year increase of £8.0 million (11.4%)
reflects increased investment in the business, recruitment and
higher variable awards in support departments in line with overall
business performance.
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Segmental review continued
Unit Trusts
Rathbone Income Fund
Rathbone Global Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Active Income Fund for Charities
Rathbone Global Alpha Fund
Rathbone Strategic Bond Fund
Rathbone Blue Chip Income and Growth
Fund
Rathbone UK Opportunities Fund
Rathbone Multi Asset Portfolios
Other funds
2017
£m
1,433
1,168
1,100
173
127
108
78
61
736
383
5,367
2016
£m
1,366
924
579
116
120
62
71
78
447
291
4,054
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
2017
2016
£5.3bn
£4.0bn
21.8%
£10.7m
18.0%
£8.7m
Funds under management
Net retail sales in the asset management industry of
approximately £47 billion were up around £40 billion on 2016,
as reported by the Investment Association (IA). The IA pointed
specifically to substantial growth of inflows into ethical funds,
with sustainable investment becoming an “increasing priority for
today’s investors”. The industry funds under management total
reached a record £1.2 trillion by the end of the year, up around 15%
on the total at the end of 2016.
In total, the IA sectors in which we manage funds saw net inflows
of £11.9 billion, compared to net outflows of £6.1 billion in 2016.
Gross sales in those sectors were up 31.7% at £99.8 billion in 2017.
In line with these trends, positive momentum in sales of our funds
continued through 2017, with gross sales up 30.8% in the year to
£1.7 billion. Redemptions also remained elevated in 2017 at
£0.9 billion (2016: £0.7 billion), reflecting the increased levels
of disinvestment seen across the industry. This level of net sales
put us in the top 20 fund managers for 2017, according to the
Pridham Report.
Net inflows of £0.9 billion (2016: £0.6 billion) continued to be
spread across the range of funds, although the Ethical Bond Fund
saw particularly strong net flows in the year, nearly doubling in
size to £1.1 billion by the end of the year. As a result, Unit Trusts
funds under management closed the year up 32.5% at £5.3 billion
(see table 10).
At 31 December 2017, we managed £428 million via the
Luxembourg-based feeder funds, up 95.4% from £219 million
at the end of 2016.
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
2017
£bn
4.0
0.9
1.7
(0.8)
0.4
5.3
21.8%
2016
£bn
3.1
0.6
1.3
(0.7)
0.3
4.0
18.0%
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a % of opening funds under management
Chart 3. Unit Trusts – annual net flows
Annual net flows (£m)
£883m
1,000
800
600
400
200
0
883
554
554
327
371
2013
2014
2015
2016
2017
During the year, the retail and multi asset funds delivered strong
positive returns and a solid performance against their relevant
benchmarks. The Global Opportunities Fund benefited from a
high exposure to US equities and a substantial weighting to
technology stocks. Both fixed income funds delivered excellent
returns and effectively managed volatility, with the Ethical Bond
Fund recording the best return of any fund in its sector. The UK
Opportunities Fund’s exposure to mid- and small-cap names
contributed to a top quartile performance.
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Rathbone Brothers Plc Report and accounts 2017
Whilst the Income and Blue Chip Funds generated positive
returns over the year, both under-performed compared to other
funds in the UK equity income sector due to the more defensive
positioning of the portfolios and a small number of stock-specific
issues. The multi asset range of funds outperformed their risk
adjusted benchmarks and added value through their increased
exposure to direct equities.
Table 11. Unit Trusts – performance1, 2
2017/(2016) Quartile ranking3 over
Rathbone Blue Chip Income and
Growth Fund
Rathbone Ethical Bond Fund
Rathbone Global Opportunities Fund
Rathbone Income Fund
Rathbone UK Opportunities Fund
Rathbone Strategic Bond Fund
1 year
3 years
5 years
4 (3)
1 (4)
1 (4)
4 (3)
1 (3)
2 (2)
4 (2)
1 (2)
1 (2)
3 (1)
1 (3)
2 (2)
4 (2)
1 (1)
1 (1)
3 (2)
2 (2)
2 (3)
1. Quartile ranking data is sourced from FE Trustnet
2. Excludes multi asset funds, for which quartile rankings are prohibited by the IA,
non-publicly marketed funds and segregated mandates. Funds included in
the above table account for 74% of the total funds under management of the
Unit Trusts business
3. Ranking of institutional share classes at 31 December 2017 and 2016 against other
funds in the same IA sector, based on total return performance, net of fees
(consistent with investment performance information reported in the funds’
monthly factsheets)
As at 31 December 2017, 88% of holdings in Unit Trusts retail funds
were in institutional units (31 December 2016: 85%).
During 2017, the total number of investment professionals in
Unit Trusts decreased to 13 at 31 December 2017 from 14 at the
end of 2016.
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 sales and redemptions of units and market movements
on the stock of units that are held on our books overnight.
Net annual management charges increased 30.2% to £28.0 million
in 2017, driven principally by the rise in average funds under
management. Net annual management charges as a percentage
of average funds under management fell to 60 bps (2016: 62 bps),
reflecting the strong growth in the Ethical Bond Fund, which levies
a lower rate of annual management charges.
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
2017
£m
28.0
3.1
0.3
31.4
(20.7)
10.7
34.1%
2016
£m
21.5
3.1
0.4
25.0
(16.3)
8.7
34.8%
1. See table 13
2. Underlying profit before tax divided by underlying operating income
Net dealing profits of £3.1 million were unchanged compared with
the previous year. We continue to expect that these revenues will
be lost when the FCA publishes its final guidance following the
Asset Management Market Study.
Underlying operating income as a percentage of average funds
under management fell to 67 bps in 2017 from 72 bps in 2016.
Table 13. Unit Trusts – underlying operating expenses
Staff costs:
— fixed
— variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio1
2017
£m
2016
£m
3.0
7.2
10.2
10.5
20.7
65.9%
3.0
5.3
8.3
8.0
16.3
65.2%
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
2017 were unchanged from the £3.0 million recorded in 2016.
In 2017, the cost of Unit Trusts compliance team was absorbed
into the central compliance function and recharged as an
inter-segment charge.
Variable staff costs of £7.2 million were 35.8% higher than the
£5.3 million in 2016 as higher profitability and growth in gross
sales drove increases in profit share and sales commissions.
Other operating expenses have increased by 31.3% to £10.5 million,
reflecting an increase in third party administration costs in line
with growth in the business and higher inter-segment charges for
the central compliance and distribution teams.
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Financial position
Table 14. Group’s financial position
Table 15. Regulatory capital resources
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 pension liability
2017
£m
(unless stated)
2016
£m
(unless stated)
20.7%
22.2%
363.3
19.7
977.2
1.8%
7.8%
2,738.9
2,303.9
120.5
151.7
26.7
17.7%
19.5%
324.8
19.6
892.7
1.8%
6.6%
2,404.0
1,995.2
106.3
160.7
23.1
2,170.5
15.6
1,888.9
39.5
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
5. Balances with central banks, loans and advances to banks and
investment securities
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)
9. Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank (note 23)
Capital resources
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 2017, the group’s regulatory capital resources
(including verified profits for the year) were £216.8 million (2016:
£174.2 million).
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
2017
£m
145.7
222.5
(4.9)
(161.3)
202.0
14.8
216.8
2016
£m
142.5
188.5
(6.2)
(166.4)
158.4
15.8
174.2
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
£43.6 million during 2017, largely due to the inclusion of verified
profits for the 2017 financial year, net of dividends paid in the year,
and post-tax actuarial gains of £14.4 million arising from the
remeasurement of defined benefit pension schemes.
The CET1 ratio has grown to 20.7% from 17.7% at the previous year
end in line with the growth in CET1 resources. Our consolidated
CET1 ratio is higher than the banking industry norm, reflecting the
low risk nature of our banking activity.
The leverage ratio was 7.8% at 31 December 2017, up from 6.6% at
31 December 2016. 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, but also supported by
£20 million of 10-year Tier 2 subordinated loan notes. The notes
introduce a small amount of 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
London Interbank Offered Rate (LIBOR) thereafter (note 26).
The consolidated balance sheet remains healthy with total equity
of £363.3 million at 31 December 2017, up 11.9% from £324.8 million
at the end of 2016, primarily reflecting retained profits for the year
and an improvement in the reported position of our defined
benefit pension schemes.
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Rathbone Brothers Plc Report and accounts 2017
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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, 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 2017, the buffer rate was 1.25%
of risk-weighted assets. On 1 January 2018, it increased to 1.875%
of risk-weighted assets and it will finally increase to 2.5% of
risk-weighted assets from 1 January 2019.
Countercyclical capital buffer (CCyB)
The CCyB 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 Bank of
England Financial Policy Committee (FPC) from time-to-time,
depending on prevailing market conditions, 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
0.01% of risk-weighted assets for the group as at 31 December 2017.
The FPC has announced the rate for UK exposures will increase to
0.5% with effect from June 2018 and to 1.0% with effect from
November 2018.
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.
Own funds and liquidity requirements
As required under PRA rules, we perform an Internal Capital
Adequacy Assessment Process (ICAAP) and Internal Liquidity
Adequacy Assessment Process (ILAAP) 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 2017, the group’s risk-weighted assets were
£977.2 million (2016: £892.7 million).
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 (which is set by the PRA)
reflects those risks, specific to the firm, which are not fully
captured under the Pillar 1 own funds requirement.
Our Pillar 2A own funds requirement was reviewed by the PRA
during 2017 and we have agreed a revised requirement. This
includes the incorporation of a higher Pillar 2A requirement in
respect of pension risk.
Pension obligation risk
The potential for additional unplanned capital strain or 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.
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.
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Financial position continued
The group’s own funds requirements were as follows:
Table 16. Group’s own funds requirements1
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
CRD IV buffers:
— capital conservation buffer (CCB)
— countercyclical buffer (CCyB)
Total Pillar 1 and 2A own funds
requirements and CRD IV buffers
2017
£m
39.5
0.4
38.4
78.3
46.1
124.4
18.3
0.1
2016
£m
36.9
0.4
34.2
71.5
27.9
99.4
11.2
0.3
142.8
110.9
1. Own funds requirements stated above include the impact of trading results and
changes to requirements and buffers that were known as at 31 December and
which became effective prior to the publication of the preliminary results
The surplus of own funds (including verified profits for the full
year) over total Pillar 1 and 2A own funds requirements and CRD
IV buffers was £74.0 million, up from £63.3 million at the end
of 2016.
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
requirement for pension risk
— the staged introduction of incremental CRD IV buffers over the
next two 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 2017 were £2.7 billion (2016: £2.4
billion), of which £2.2 billion (2016: £1.9 billion) 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
£2.2 billion (2016: £1.9 billion) represented 6.4% of total investment
management funds at 31 December 2017, compared to 6.3% at the
end of 2016. Cash held in client money accounts was £4.5 million
(2016: £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 £1.4 billion from £1.1 billion
at 31 December 2016, reflecting the increase in the level of cash
held in client portfolios over the period and a consistent appetite
for credit risk.
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 £120.5 million at the end of 2017
(2016: £106.3 million).
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Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which
have been closed to new members for several years. With effect
from 30 June 2017, we closed both schemes, ceasing all future
benefit accrual and breaking the link to salary. The closure of the
schemes resulted in a £5.5 million improvement in the reported
position of the schemes.
The member consultation to close the scheme coincided with a
period of historically exceptionally low yields on the government
bonds that are used to derive cash equivalent transfer values
(CETVs) for members wishing to exit the scheme, increasing the
value of these CETVs markedly. This resulted in a significant
increase in the number of members seeking to transfer their
benefits out of the scheme by taking a cash lump sum and over
the course of 2017, members transferred benefits with cumulative
CETVs of £60.6 million out of the scheme. This reduced the
accounting value of the liabilities of the Laurence Keen Scheme by
17% and the Rathbone 1987 Scheme by 29% compared to the
position at 31 December 2016 and helped support an
improvement in the schemes’ deficit and funding levels.
As a result of the large value of transfers out, the accounting
valuation of the schemes’ liabilities has also fallen. At 31 December
2017 the combined schemes’ liabilities, measured on an
accounting basis, had fallen to £164.1 million, down 29.4% from
£232.4 million at the end of 2016. Reflecting the performance of the
schemes’ assets over the course of the year, the reported position
of the schemes at 31 December 2017 was a deficit of £15.6 million
(2016: deficit of £39.5 million).
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. During 2017,
funding valuations of the schemes as at 31 December 2016 were
being carried out. We have agreed with the trustees of the
Rathbone 1987 Scheme to put in place a funding deficit reduction
plan, which requires annual contributions of £2.75 million, so long
as that scheme remains in deficit. The funding valuation for the
Laurence Keen Scheme has not yet been finalised but we do not
expect that it will result in a material funding deficit reduction plan.
Intangible assets
Intangible assets arise principally from acquired growth in funds
under management and are categorised as goodwill and client
relationships. At 31 December 2017, the total carrying value of
intangible assets arising from acquired growth was £151.7 million
(2016: £160.7 million). During the year, client relationship intangible
assets of £2.7 million were capitalised (2016: £7.9 million). No goodwill
was acquired during 2017 (2016: £nil).
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 2017, including the impact of any lost relationships,
was £11.4 million (2016: £11.7 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
£0.3 million was recognised in relation to this element of goodwill
(2016: £0.1 million). Further detail is provided in note 21 to the
financial statements.
As described in note 1.3 to the financial statements, the adoption of
IFRS 15 in 2018 requires us to change the accounting policy for
these awards. Currently, the cost of awards for funds introduced
by investment managers who have been in situ for more than
12 months are charged to profit or loss (2017: £5.1 million).
Under the new accounting standard, these amounts will also be
capitalised and amortised over the life of the client relationship.
Capital expenditure
During 2017, we have continued to invest for future growth with
capitalised expenditure on our premises and systems totalling
£11.3 million (2016: £15.1 million). As noted above, capital
expenditure in 2016 included £9.9 million for the fit out of the new
London head office. Further costs of £2.8 million were incurred to
complete this in 2017.
Investment in new systems accelerated in 2017 with the
development of a new client relationship management (CRM)
system. Total costs of £7.1 million for the purchase and
development of software were incurred in 2017 (2016: £2.9 million).
Excluding the London office fit-out costs, new investment
accounted for approximately 79% of capital expenditure in 2017
(2016: 67%), with the balance being maintenance and replacement
of existing software and equipment. This is more weighted to new
investment than in prior years due to the development of the
CRM system and improvements relating to the introduction of
MiFID II (Markets in Financial Instruments Directive) and the
General Data Protection Regulation (GDPR).
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The most significant non-operating cash flows during the year
were as follows.
— outflows relating to the payment of dividends of £29.4 million
(2016: £26.5 million)
— outflows relating to payments to acquire intangible assets
(other than as part of a business combination) of £11.9 million
(2016: £14.0 million)
— £4.2 million of capital expenditure on property, plant and
equipment (2016: £12.2 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
2017
£m
2016
£m
1,567.8
351.5
304.7
1,263.1
567.3
559.5
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 ILAAP 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 £1.4 billion at 31 December
2017 (2016: £1.1 billion).
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
£282.6 million increase in banking client deposits (2016: £486.0
million increase) and a £16.6 million increase in the component of
treasury assets placed in term deposits for more than three
months (2016: £16.8 million decrease).
Offsetting this, cash flows included a net outflow of £4.0 million
from the purchase of longer-dated certificates of deposit (2016:
£7.0 million net inflow from the maturity of longer-dated
certificates of deposit), which is shown within investing activities
in the consolidated statement of cash flows.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Corporate responsibility report
Chief executive’s annual statement on
corporate responsibility
Rathbones’ corporate responsibility strategy aims to ensure that
social, environmental and ethical considerations are taken into
account throughout the business. With regard to environmental,
social and governance (ESG) matters as they affect our business,
the board believes that the social and environmental committee
(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 environment and communities in
which we work and our clients live. This report provides an
overview of our activities – more information can be found on
our website.
As reported in last year’s report, 2017 marked the firm’s ten-year
anniversary for reporting on carbon footprint and a review
was conducted to align our environmental and sustainability
objectives with the broader commercial goals of the business.
The objective of this review was to set the framework for the firm’s
corporate social responsibility (CSR) strategy for the long term
and develop key initiatives to ensure the sustainability of the firm.
You will find further details below.
Responsible investing
The concept of stewardship and responsible investment (SRI)
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 2017, we reviewed and
updated our policies in this area and are pleased to report on our
progress below. Also, we remain a constituent company of the
FTSE4Good Index series and a signatory to the UN–backed
Principles for Responsible Investment (PRI).
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 skills and experience.
Our employee strategy, policies and investment plans are all
designed to achieve these goals. Members of staff have access to
management and leadership courses, continuous professional
development (CPD) programmes to achieve continuous learning
and agreed career development programmes to enable
progression within the firm.
Charities and communities
The Rathbone Brothers Foundations have 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 to 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.
In 2017, Rathbones was lead sponsor of the FIL Rathbones
Women’s Lacrosse World Cup, the largest international women’s
sporting event in the UK that year. As well as supporting and
highlighting the importance of women’s sport, we used the
opportunity to encourage young women in particular to get
involved in sport through the tournament’s legacy programme
and our ongoing partnerships with English Lacrosse and Lacrosse
Scotland. Through our sponsorship of the Rathbones Folio Prize,
we were also involved in the establishment of a mentoring
programme for young writers.
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Strategic report
Corporate responsibility report continued
Environmental reporting
Despite the continued growth in our business, total carbon
emissions were reduced to 2,553 tCO2e (‘tonnes carbon dioxide
equivalent’), 9% lower than reported in 2016 and 10% lower than
our baseline. Emissions from buildings energy consumption fell
by 14% due to reduced energy use and the continued
decarbonisation of the UK grid. Following a 17% increase in
headcount, our business travel emissions increased slightly by 2%,
despite a 7% reduction in emissions from flights. For further details
of our carbon footprint, please read the environmental impact
section of this report.
This year also marks the 10-year anniversary of Rathbones
reporting on its environmental impacts. In recognition of this
milestone, we completed several initiatives in 2017 to improve
our performance and further enhance our knowledge and
management of environmental issues. We conducted an in-
depth review of our wider sustainability strategy, improved our
environmental management and reporting processes and
completed our move to an award-winning, energy-efficient head
office building at Finsbury Circus.
Philip Howell
Chief Executive and Chairman of the SEC
21 February 2018
Our approach
Rathbones’ corporate responsibility approach can be summarised
as follows:
— Investing for clients
— Considering corporate responsibility and governance issues in
the companies in which we invest on behalf of our clients
— Developing our employees
— Motivating and rewarding our employees appropriately,
encouraging their development
— Working with communities
— Engaging in the communities in which we operate
— Being aware of our environment
— Managing our environmental impact and reducing our carbon
footprint by the efficient use of resources
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 and 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 framework is provided whilst
maintaining investment flexibility for investment managers.
Nonetheless, we are long-term investors and ESG factors form a
key part of our equity analysis. To this end, in 2016, we formalised
our approach to the long-term stewardship of our clients’ assets
with the approval of a group stewardship policy, which was
approved by the board in 2017. The concept of our stewardship
policy means taking a client first, 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. The core principles that we follow are:
1 Materiality
We recognise that governance and stewardship risks can be
material to the performance and valuation of companies.
2 Active voting
We actively consider proxy votes for client holdings.
3 Engagement
Active engagement with companies on governance issues is
an important adjunct to voting activities.
4 Transparency
We report annually on our stewardship activities.
In addition, the issue of governance as a risk factor is covered by the
work of our stewardship committee, recognising that governance
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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. Governance risk scoring is now integrated into the
work of various investment committees. Social, environmental and
ethical considerations are also taken into account for specific
mandates throughout the group, particularly those managed by our
specialist ethical investment unit, Rathbone Greenbank Investments,
and a number managed by our charities team.
Through Rathbone Greenbank Investments and Rathbone Unit
Trust Management’s Ethical Bond Fund, the company is able to
provide investment services tailored to clients’ 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 2017,
Rathbone Greenbank Investments had £1.1 billion of funds under
management, equivalent to 2.52% of Rathbone Investment
Management’s funds under management. The Rathbone Ethical
Bond Fund had £1.1 billion of funds under management.
Affiliations
The firm has the following affiliations and accreditations:
— CDP (Carbon Disclosure Project) as well as being a signatory to
the CDP sister programmes on water disclosure and forests
— UN-backed PRI. We also play an active role in the PRI
Collaboration Platform. Out of over 1,800 members of this leading
initiative, Rathbones was named as one of the top 20 most active
and influential members of the PRI Collaboration Platform in 2015
and 2016, a significant achievement given our size relative to other
PRI members. In 2017, we launched our stewardship policy and
moved into the ‘A’ band in the Strategy & Governance module of
the UN PRI’s annual reporting framework
— UK Sustainable and Investment 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)
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 Rathbones’ obligations under the PRI, and
pays heed to the Financial Reporting Council’s (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. 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 its largest holdings, covering the most widely-held
stocks across the business. 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 managers
and investment managers. During 2017, the committee oversaw
active proxy voting on 5,046 resolutions at 398 company
meetings. Voting on these resolutions includes consideration of
such issues as executive remuneration, auditor independence,
appointment of directors and non-financial reporting.
Case study – Smith & Nephew
Our major issues with variable pay come when the experience
of management and shareholders becomes misaligned. It is
vital that remuneration policies be designed in such a way that
investors can have confidence that exceptional variable pay
will only come under certain prescribed circumstances,
meeting performance conditions which are unambiguous and
easily understood. However, most companies equip their
remuneration committees with discretion to make awards
even where performance conditions have not been met. In
the year in question, the remuneration committee at the
company exercised discretion to provide for elements of a
Long Term Incentive Plan to vest despite targets on Total
Shareholder Return not being met.
We wrote to the company expressing our concern over the
use of discretion and the lack of convincing rationale for doing
so. The performance targets were set by the remuneration
committee, with full knowledge of the market conditions, and
we consider it a matter of sound precedent that the company
should be prepared to accept the outcome of the structure and
incentives that it has chosen. Given the company’s relative
size and standing, we viewed the use of discretion in such a
manner to fall short of best practice.
We are committed to transparency in this area and
regularly report on our activities via our corporate website.
A more detailed assessment of our votes against
management can be found in our review of Stewardship
and Proxy Voting which can be found on our website.
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Strategic report
Employees
680
1,068
1,227
0
300
600
900
1,200
1,500
Number of employees in SAYE
Headcount at 31 Dec 2017
Number of employees in SIP
Number of employees by length of service
0–15
16–30
31–45
969
226
32
Number of employees by age range
16–20
21–35
36–50
51–65
66+
19
469
437
290
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Corporate responsibility report continued
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.
In 2017, we joined the steering committee for the PRI-coordinated
engagement on cyber security.
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. Rathbones
has over 1,100 staff in 16 locations in the UK and Jersey. We
promote a culture where we recruit and retain individuals whose
values match those of the business. To promote engagement with
our values, we actively encourage employees to become involved
in the financial performance of the group through our all
employee SIPs (UK Share Incentive Plan and International Share
Incentive Plan) and SAYE (Save As You Earn share option plan).
We also encourage our employees to become financially aware
and offer discounted independent financial advice. We have
offered share ownership plans to our employees since 1996 and
now have 55% in our SAYE and 87% in our SIP plans.
Employee statistics
% of female employees
% of employees working part-time
% resignation rate
48.7%
10.6%
4.7%
Learning
We continue to support the development of all our employees
and have maintained our average investment per person at a
significant level of £783 (2016:£634) and an average of two days’
training per year. These figures are a very conservative estimate
because there is much more employee development that has no
direct cost and is conducted at the desk.
Our aim when delivering high-quality programmes is to ensure
that employees have the best opportunity to put their learning
into practice. We do this by engaging with line managers and other
stakeholders in the business to ensure that the opportunity and
support is in place for employees to use new skills. We regularly
implement new initiatives across the group to ensure that all
employees have access to the development they need for their
current and possible future roles.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Leadership and management development
We have developed a comprehensive suite of management and
leadership courses. These are 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 5 qualification awarded by the Chartered
Management Institute. This included a module on managing
operational risk which was tailored to the specific issues in
Rathbones. We will continue to support this type of development
where the formal recognition of learning is appropriate.
Continuing professional development (CPD)
Our client-facing employees continue to meet and mostly exceed
the required CPD targets set by our regulators. Investment
managers have the opportunity to further improve their technical
and management skills to ensure that the highest levels of client
service are maintained.
Talent development
Rathbones is keen to develop a pipeline of high-calibre talent to
ensure appropriate skills and succession planning for the future.
Our third apprenticeship programme is well underway with 11
participants and, in light of the ongoing success of this programme,
a further group will be recruited in 2018. Our continued
commitment to developing younger talent means that the
existing graduate development programme will be completed in
March 2018 and a new programme started in September. The
programme sees 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. A leadership framework has
been developed that we intend to incorporate into our
management training and promotion processes in 2018.
The performance management process is reviewed on an ongoing
basis and, in 2017, we have launched an online performance
management tool to help us better support both line managers
and employees.
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 race, sex, marital/civil partnership
status, age, disability, religious belief, pregnancy, maternity, gender
reassignment or sexual orientation.
We have two female directors out of seven and have 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 aligned to the
recommendations published in the Hampton-Alexander review in
November 2017.
Historically, women have been 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.
We continue to target the progression and development of
existing female employees with opportunities for leadership and
management programmes. After engaging with our recently
returned maternity leavers in 2016, we undertook a
comprehensive review of our family leave policies. In 2017, we
implemented significant improvements to our maternity,
adoption and paternity policies. We also introduced group
coaching and online support for working parents.
We have started a training programme covering diversity,
inclusion and unconscious bias. Our executive committee were
amongst the first to participate and are actively supporting the roll-
out to all managers across the firm.
Rathbones prides itself on being a ‘real Living Wage’ employer and
pays Living Wage Foundation rates of pay to sub-contractor staff
and internal employees.
Modern slavery
Rathbones is committed to maintaining and improving our
practices to tackle slavery and human trafficking violations with
respect to our own operations, our supply chain and our services.
We welcomed the introduction of the Modern Slavery Act in 2015
and used this as an opportunity to build on our existing policies
and develop a focused approach to addressing the risk of modern
slavery. Rathbones already has a range of relevant policies in place
such as our policy on stewardship, being a living wage employer,
equal opportunities and whistle blowing. To further develop our
approach, we set ourselves a set of objectives over the next three
years. These include: carrying out a third-party risk assessment,
developing prioritised actions based on the results, introducing
a modern slavery screening process, training our staff and
communicating what we are doing.
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Corporate responsibility report continued
This year we engaged a third-party sustainability consultancy,
Carbon Smart, to carry out a modern slavery risk assessment of
our operations and supply chain. This was important to us
because, although we are a professional services business in a
highly regulated market and therefore low risk, we do know that
no supply chain is risk free. Carbon Smart mapped our annual
supplier spend based on sector and location to identify areas of
elevated risk in our supply chain. The majority of our spend is in
the UK with a small proportion in the US and Canada and the
majority is with professional services, which is low risk. However,
the risk assessment did show that there was an elevated risk,
although still below the UK average and well below the global
average in the following sectors:
— Construction – refurbishment of our buildings
— Paper – the stationery that we buy
— Chemicals – cleaning chemicals that we purchase
With an understanding of our level of risk and the relevant sectors,
we were able to develop a risk-based approach which allows us to
focus our attention and resources where it matters the most. In the
event our staff wish to procure products or services from the
above sectors, additional checks must be performed. All new
suppliers in the above categories must share with us their modern
slavery statements. In addition to this, we have engaged with all
our current suppliers to understand the due diligence they have in
place to mitigate the risk of modern slavery in their supply chains.
This year our focus is on embedding the due diligence checks.
Our key staff will receive modern slavery training to ensure that
they understand how modern slavery may manifest itself and
what they can do to mitigate the risk when engaging with
suppliers. To raise awareness, we will also communicate to
wider staff what we are doing in this space. At the end of the
year, we also plan to review the due diligence checks we have
carried out to understand the effectiveness of our approach and
update accordingly.
Anti-bribery policy
As a firm we value our reputation for ethical behaviour and
upholding the utmost integrity and we comply with the Prudential
Regulation Authority (PRA) and the Financial Conduct Authority
(FCA) clients’ best interests rule. We understand that in addition to
the criminality of bribery and corruption, any such crime would
also have an adverse effect on our reputation and integrity.
Rathbones has a zero tolerance approach to bribery and
corruption and we ensure all our employees and suppliers are
adequately trained as to limit our exposure to bribery by:
— setting out clear anti-bribery and corruption policies
— providing mandatory training to all employees
— encouraging our employees to be vigilant and report
any suspected cases of bribery in accordance with the
specified procedures
— escalating and investigating instances of suspected bribery
and assisting the police or other appropriate authorities in
their investigations.
Gender pay reporting
The firm will be preparing and submitting its data on gender pay
to the government and will ensure it’s available on the website
ahead of the deadline of 4 April 2018.
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 2017, we
concluded a consultation with members of the company defined
benefit pension scheme and this resulted in closure of the
Rathbones 1987 defined benefit pension scheme to future accrual
in June 2017. Going forward, we have provided members of this
scheme with access to the same pension benefits provided to all of
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.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Employees are encouraged to identify with and benefit from the
financial performance of the group through share-matching
within the SIP, free shares and SAYE schemes.
We have a continued focus on employee wellbeing. Employees
have access to an employee assistance programme (EAP) offering
confidential advice and support to them and their families. We
have rolled out a number of training and drop-in sessions on
wellbeing-related topics.
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.
Employee relations
Engagement with our employees is crucial to the continuing
success of the group. We communicate regularly and openly with
them on matters affecting them and on the issues that have an
impact on the performance of the group and actively seek their
feedback on these matters. After the success of the engagement
survey run in 2016, we will be running a second employee survey
in 2018 in order to assess employee engagement.
Rathbones recognises the importance of an appropriate work-life
balance, both to the health and welfare of employees and to the
business. 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.
Communities
Donations and fundraising
During the year, the group made total charitable donations of
£378,000, representing 0.70% of group pre-tax profits
(2016: £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 2017, Rathbones’ employees made payments totalling £225,000
(2016: £196,000) 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 2017, donated £161,000 (2016: £164,000) to causes chosen by
employees through this method.
During 2017, the Rathbone Brothers Foundations across the
country considered many requests for assistance and met a
number of charities. Significant donations were made to and
volunteering activities organised for the following organisations:
— The Rathbones Winchester office staff chose to do their annual
volunteering week at Shepherd’s Down school. The team
helped improve the outdoor environment of the school that
provides care and education to children with special needs
— Enabling Enterprise is an award-winning not-for-profit social
enterprise, set up by a team of teachers in 2009. Their mission
is to equip young people with the skills, experiences and
aspirations they need to succeed in life. The Liverpool team
hosted children from Blessed Sacrament Primary School.
Guided by Rathbones employees, the children took part in a
fun activity where they played the role of stock market traders
who had to evaluate potential investments and make
decisions on behalf of their clients. The London office hosted
children from years four and six of Holly Park Primary School
and St Francis de Sales. The same challenge applied and gave
the kids a great opportunity to use their imaginations, work in
teams and give a presentation at the end of the day
— 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.
The London Rathbone Brothers Foundation has donated
money for the past three years
— The Teapot Trust is a children’s charity which uses art therapy
as a way of helping young people cope with long-term medical
conditions. The Edinburgh office supported the charity
through its annual in-house art exhibition. Over 200 Rathbones
guests attended the exhibition, which was held across two
evenings in November, showcasing local artists
— The Cambridge office supports two local charities: the
Cambridge Central Aid Society, which offers rapid financial
help to individuals and families in Cambridge who are in need;
and the Connections Bus Project, a charity providing youth
work services across Cambridgeshire, delivering youth clubs,
training courses and consultations and support for smaller
community youth projects.
Investing in brighter futures
The FIL Rathbones Women’s Lacrosse World Cup was the largest
women’s international sporting event in the UK in 2017. As lead
sponsor of the tournament, Rathbones put on and supported
many activities throughout the year to highlight the importance,
and encourage the advancement, of women’s sport.
Rathbones has been a strong supporter of lacrosse in the UK since
2011 through our partnerships with English Lacrosse and Lacrosse
Scotland. Our focus for these programmes has been on
encouraging girls to play sport, as we acknowledge the value of
sport in the lives of young people in teaching key life skills.
The Rathbones Financial Awareness programme is another
significant element of our investment in young people.
Investment managers deliver 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 2017, the
programme was delivered to nearly 2,000 young people.
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Rathbones also supports the arts through the Rathbones Folio
programme. The pinnacle of the programme is the Rathbones
Folio Prize, a prize awarded to the best English language book
across all genres. However, just as important are the other parts of
the programme, which include the Rathbones Folio Mentorship
for aspiring young writers and the Rathbones Folio Sessions,
which encourage thought and stimulate debate at literary festivals
throughout the country.
Environmental impact
This year marks the tenth year in which Rathbones has reported
its carbon footprint. As a responsible investor, Rathbones leads by
example in our approach to environmental matters, striving to
understand the environmental impacts of our business activities
and, wherever possible, act to reduce them. In 2017, we enhanced
our environmental monitoring and reporting process, thereby
improving our performance management capabilities. Key
benefits of the revised approach include the alignment of our
carbon footprint reporting with Rathbones’ financial year1 and an
improved ability to assess and influence environmental
performance throughout the year.
Our 2017 carbon footprint
We are pleased to report a 9% reduction in our overall emissions
to 2,553 tCO2e, down from 2,798 tCO2e in 2016. Furthermore,
our emissions intensity has also reduced by over 20% following
continued growth in both headcount and funds under management.
These reductions are primarily attributable to reduced energy
consumption across our offices, reduced emissions from flights,
paper and waste, and the continued decarbonisation of the UK’s
electricity supply. Notably, our new head office building in
Finsbury Circus has proved significantly less energy intensive
than our previous Curzon Street location.
Building energy emissions arising from energy consumption at
our offices and data centres were 1,484 tCO2e in 2017, down 14%
from 1,730 tCO2e in 2016.
Business travel emissions increased to 716 tCO2e, up 2% from 699
tCO2e last year, despite a reported 7% reduction in emissions from
flights. Our travel emissions rose largely due to a 17% increase in
headcount and increased use of employee-owned cars for
business purposes.
Emissions from other resources, namely paper, waste and
refrigerants, were 353 tCO2e, down 4% from 369 tCO2e in 2016,
following reductions in paper and waste emissions.
Emissions (tCO2e) since baseline year
Total emissions (tCO2e) since baseline year
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Total
Baseline
Energy
Travel
Other resources
Operational indicators
Staff (FTE)
Net internal area of offices / m2
Operating income / £m
Funds under management / £bn
Carbon intensity / tCO2e1
Staff (FTE)
Net internal area of offices / m2
Operating income / £m
Funds under management / £bn
2,843
2,985
3,052
2,798
2,553
2013
829
14,430
176.4
22
3.4
0.2
16.1
129.2
2014
867
14,430
209.3
27.2
3.4
0.21
14.3
109.8
2015
965
14,518
230.1
29.2
3.2
0.21
13.3
104.5
2016
1,045
15,369
243.8
33.2
2.7
0.18
11.5
84.3
2017
1,227
22,924
291.6
39.1
2.1
0.11
8.8
65.3
1. Aligning our carbon reporting with the financial year required a rebaselining of emissions back to 2013 and resulted in some minor variations to previously reported annual
emissions. Further information on rebaselining is provided below
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Key achievements in 2017
Rathbones completed several important initiatives in 2017 to mark the tenth anniversary of our reporting on environmental impacts.
Our new head office
In February 2017, we completed our move to 8 Finsbury Circus, a building which has achieved a Building Research Establishment
Environmental Assessment Method (BREEAM) ‘Excellent’ rating in recognition of its performance and facilities across a range of
environmental criteria. Although our new head office provides over 50% more floor area, it used 20% less energy in 2017 than Curzon
Street in the previous year. Furthermore, it enables Rathbones to reduce environmental impacts through the provision of 160 cycle spaces,
photovoltaics, and a green roof grey water recycling system.
Improved performance management and reporting
Having reported Rathbones’ environmental impacts on an annual basis over the last 10 years, in 2017 we increased the focus and
frequency of this process to provide quarterly performance updates, analysis and trending information throughout the year.
This has delivered the following key benefits to management:
— More timely provision of environment data, enabling the alignment of carbon footprint reporting with Rathbones’ financial year
— Improved data quality and accuracy, reducing the number of estimations required due to unavailable or incomplete data
— Intra-year visibility of environmental performance, thereby creating capacity for the management team to identify actions during the
year that will influence year-end performance.
Compliance with regulations
Rathbones complies with the regulations for reporting greenhouse gas emissions. Following an operational control approach to defining
our organisational boundary, our 2017 greenhouse gas emissions from business activities amounted to:
— 321 tCO2e resulting from the combustion of fuel and the operation of any facilities (classified as Scope 1 in this report)
— 851 tCO2e from the purchase of electricity by the company for its own use (classified as Scope 2 in this report).
In February 2017, we moved to our new head office location in Finsbury Circus, which increased our reporting boundary. It was not
possible to obtain consumption data during the fit-out period in 2016 and so these emissions were excluded from last year’s report. This
data has now been obtained and included within our rebaselining of 2016 data. 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 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.
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Rebaselining
Rathbones’ reporting period for greenhouse gas emissions is now 1 January to 31 December, aligned to our financial year. The reporting
period was previously offset by three months to allow additional time for data collation. To ensure comparability of 2017 performance
against previous years, we have rebaselined emissions back to 2013. Variations in seasonal consumption and emissions factors produced
several minor variations as detailed below.
Scope 1
Scope 2
Scope 3
Total
Variance
Rebaseline
20161
404
947
1,447
2,798
-0.6%
Original
15/16
357
1,009
1,449
2,814
Rebaseline
2015
317
1,282
1,453
3,052
-0.9%
Original
14/15
303
1,332
1,446
3,081
Rebaseline
2014
310
1,443
1,232
2,985
+2.7%
Original
13/14
311
1,450
1,145
2,907
Rebaseline
2013
306
1,424
1,113
2,843
-1.4%
Original
12/13
304
1,463
1,114
2,882
1. Last year’s report of 2015/16 emissions excluded 28 tCO2e of Scope 1 and 2 emissions linked to the fit out of our new Finsbury Circus head office due to unavailable data. These
emissions have been included in the above rebaseline
Carbon footprint by scope (tCO2e)
Location-based emissions1
Scope 1
Natural gas
Refrigerant
Company cars
Scope 2
Purchased electricity
Scope 3
Data centres2
Business travel
Paper
Waste
Electricity T&D3
Total location-based
Market-based emissions
Purchased electricity
Data centres
2014
310
272
39
0.01
1,443
1,443
1,232
252
528
310
15
126
2,985
2013
(baseline)
306
276
30
1,424
1,424
1,113
150
496
328
9
130
2,843
2017
321
296
25
–
851
851
1,383
257
716
319
9
82
2,553
2017
909
285
2016
404
404
–
–
947
947
1,447
294
699
342
27
86
2,798
2016
1,061
317
2015
317
315
2
0.02
1,282
1,282
1,453
317
677
328
26
106
3,052
2015
1,282
317
1. In accordance with best practice introduced in 2015, we report two numbers to reflect emissions from electricity. Location-based emissions based on average emissions
intensity of the UK grid and market-based emissions to reflect emissions from our specific suppliers and tariffs
2. Data centre emissions are reported as Scope 3, as per the Greenhouse Gas Protocol. However, where figures are stated in this report for overall buildings electricity
consumption, we have included data centres to ensure transparency of electricity use
3. Emissions from line losses associated with electricity transmission and distribution
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Carbon intensity
The table below shows the emissions intensity of Rathbones in relation to the number of staff, office space, operating income and funds
under management.
Operational indicators
Carbon intensity (tCO2e)1
Staff (FTE)
Net internal area of offices (m2)
Operating income (£m)
Funds under management (£bn)
2015
965
2016
1,045
2017
1,227
2013
829
22,924 15,369 14,518 14,430 14,430
176.4
230.1
22.0
29.2
291.6
39.1
209.3
27.2
243.8
33.2
2014
867
2017
2.1
0.11
8.8
64.4
2016
2.7
0.18
11.54
84.3
2015
3.2
0.21
13.39
104.5
2014
3.4
0.20
13.89
109.8
2013
3.4
0.20
16.34
129.2
1. Carbon intensity is the total all scopes tCO2e per: FTE; m2; £m of operating income; £bn of funds under management
Carbon Smart opinion statement
This 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 January 2017 to 31 December 2017. It does not represent an independent third-party assurance of
Rathbones’ management approach to sustainability.
Carbon Smart has been commissioned by Rathbones for the tenth consecutive year to calculate Rathbones’ carbon footprint for all offices
for its 2017 annual 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 the 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 define its organisational boundary. 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. In 2017, previous
years’ emissions have been rebaselined to align with Rathbones’ financial year.
Transparency
Where relevant, we have included appropriate references to the accounting and calculation methodologies, assumptions and
recalculations performed.
Accuracy
To our knowledge, data is considered accurate within the limits of the quality and completeness of the data provided.
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10 years of corporate social responsibility at Rathbones
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
— CDP respondent since 2006
— Over £2.3 million in charitable donations since 2007
— UN PRI Signatory since 2009
Corporate responsibility report continued
— PwC Building Public Trust Award 2011: Best People Reporting in a FTSE 250
Corporate responsibility report continued
— 2013 FTSE4Good ranking: 98th percentile
Corporate responsibility report continued
— 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
10 years of corporate social responsibility at Rathbones
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
— CDP investor member since 2015
– CDP Respondent since 2006
10 years of corporate social responsibility at Rathbones
— One of the top 20 most active and influential members of the UN PRI Collaboration Platform (2015 and 2016)
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
10 years of corporate social responsibility at Rathbones
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
– Over £2.3 million in charitable donations since 2007
Corporate responsibility report continued
— Over 5,000 16- to 24-year-olds engaged in Rathbones Financial Awareness Programme
– Over £2.3 million in charitable donations since 2007
– United Nations PRI Signatory since 2009
Corporate responsibility report continued
– CDP Respondent since 2006
– CDP Respondent since 2006
Corporate responsibility report continued
10 years of corporate social responsibility at Rathbones
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
Corporate responsibility report continued
Corporate responsibility report continued
10 years of corporate social responsibility at Rathbones
10 years of corporate social responsibility at Rathbones
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
– 2013 FTSE4Good Ranking: 98th Percentile
– Over £2.3 million in charitable donations since 2007
– Over £2.3 million in charitable donations since 2007
– CDP Respondent since 2006
– CDP Respondent since 2006
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– 2013 FTSE4Good Ranking: 98th Percentile
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– United Nations PRI Signatory since 2009
— Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
10 years of corporate social responsibility at Rathbones
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
– United Nations PRI Signatory since 2009
10 years of corporate social responsibility at Rathbones
– Over £2.3 million in charitable donations since 2007
Rathbones has a long-standing commitment to action on CSR matters. Here is a selection of our achievements over the last 10 years.
– Over £2.3 million in charitable donations since 2007
– United Nations PRI Signatory since 2009
– CDP Respondent since 2006
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– CDP Investor member since 2015
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– 2013 FTSE4Good Ranking: 98th Percentile
– CDP Respondent since 2006
– CDP Respondent since 2006
– Over £2.3 million in charitable donations since 2007
– Over £2.3 million in charitable donations since 2007
– United Nations PRI Signatory since 2009
– United Nations PRI Signatory since 2009
– United Nations PRI Signatory since 2009
– 2013 FTSE4Good Ranking: 98th Percentile
– CDP Investor member since 2015
– 2013 FTSE4Good Ranking: 98th Percentile
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– 2013 FTSE4Good Ranking: 98th Percentile
– CDP Investor member since 2015
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– CDP Investor member since 2015
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– 49% Female employees in 2016
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– United Nations PRI Signatory since 2009
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– CDP Investor member since 2015
– PwC Building Public Trust Award 2011: Best People Reporting in a FTSE250
– 49% Female employees in 2016
– CDP Investor member since 2015
– 49% Female employees in 2016
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– 2013 FTSE4Good Ranking: 98th Percentile
– 2013 FTSE4Good Ranking: 98th Percentile
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– 49% Female employees in 2016
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– 2014 ICSA Excellence in Governance Award: Best sustainability and stakeholder disclosure in a FTSE 250
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– 49% Female employees in 2016
– 49% Female employees in 2016
– CDP Investor member since 2015
– CDP Investor member since 2015
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– Top 20 most active and influential members UN PRI Clearinghouse (2015 & 2016)
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– 49% Female employees in 2016
– 49% Female employees in 2016
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Over 5,000 16 to 24 year olds engaged in Rathbones Financial Awareness Programme
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
– Moved head office to award-winning BREEAM ‘Excellent’ rated building in 2017
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Rathbone Brothers Plc Report and accounts 2017
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Rathbone Brothers Plc Report and accounts 2017
CSR strategy review
During 2017, Rathbones undertook an in-depth review of CSR with the aim of developing a framework for promoting sustainability across
the business and ensuring good corporate citizenship. Through consultation with key stakeholders, we considered material sustainability
issues alongside key drivers for our business. This review was an important first step towards the definition of a longer-term roadmap to
sustainability and identified the following four ‘pillars’ as most relevant to our business.
Employees
Rathbones began life as a family business. Many of our employees are also shareholders and the success of our business is intrinsically
linked to our people. We recognise that every person around the world deserves to be treated with dignity and equality and our
responsibility to respect the human rights of our direct employees and those within our supply chain.
Governance and stewardship
At Rathbones, we believe in the importance of adopting best practice corporate governance standards and managing companies and
investments in the long-term interests of shareholders. As with good governance and responsible stewardship, sustainability, at its heart,
is about promoting long-term success.
Environment
For the last 10 years, Rathbones has reported its environmental impacts and acted to reduce them. Now more than ever, we recognise the
importance of tackling environmental issues and that every business, regardless of sector, must act to reduce its ecological footprint.
Social and community
Rathbones is part of an increasingly interconnected global community. We recognise the importance of acting to promote wellbeing and
maximise the positive impacts of our business in the societies and communities within which we operate. By promoting the success of
those around us, we can help to generate the conditions for sustainable growth in our business.
Four pillars of sustainability
High level sustainability drivers, themes and stakeholders
Key drivers
Themes
Stakeholders
Responsible
investment
trends
Employees
— Diversity, transparency, gender
pay in financial services
— Employee engagement
— Supply chain workers –
action on modern slavery
Governance and
stewardship
— Responsible investment
— Anti-corruption practices
— Remuneration
— Management structure
Social and community
Environment
— Respect for human rights
— Volunteering, charitable giving
— Support for community
initiatives
— Climate change, low
carbon investment
— Air pollution
— Waste
— Paper use/deforestation
— Water
Clients
Employees
Communities
Suppliers
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Increasing regulations and transparencyMillennials as employees and clientsStrategic report
Corporate responsibility report continued
Looking forward
Rathbones’ continued action on CSR is driven by the following considerations. Firstly, it is our longstanding and collective desire to be a
good corporate citizen. We recognise that acting on sustainability issues is the right thing to do. Over the next 10 years, we fully expect the
importance of acting sustainably to increase for our business and its stakeholders – the clients we serve, our employees, the local and
global communities within which we operate and our suppliers and delivery partners.
Secondly, we recognise this increasing focus on sustainability issues as one of several leading trends that will impact and define businesses
in every sector the over the coming years. Already we see a growth in related regulation and the need for transparency on social and
environmental issues. The advent of millennials as employees and customers of our business will serve to accelerate interest both in
acting responsibly as a business and in responsible investment opportunities.
For these reasons, Rathbones will continue to increase its focus on sustainability issues. In 2018, we will further develop our programme of
action across the four pillars identified above and, by 2020, we will produce a dedicated, standalone report on our CSR performance.
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 56 constitute the strategic report, which was
approved by the board and signed on its behalf by:
Philip Howell
Chief Executive
21 February 2018
Paul Stockton
Finance Director
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Governance
Governance
Corporate governance report
Introduction from the chairman
58
58
60 Governance at a glance
Our leadership
62
The role of the board
64
Board and board committee evaluation
66
Risk management
67
67
Relations with shareholders
68 Group risk committee report
70
Audit committee report
76 Nomination committee report
78
Group executive committee report
80 Remuneration committee report
80
Remuneration committee chairman’s
annual statement
Remuneration outcomes for 2017
84
86 Our new remuneration policy
88 Directors’ remuneration policy
91
94
Key changes to the remuneration policy
Annual report on remuneration
104 Directors’ report
106 Statement of directors’ responsibilities in
respect of the report and accounts
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Governance
The biggest challenges to our culture include the increase in the
size of our business and the plethora of new regulation. This brings
with it the need for greater formalities in processes and for more
detailed data on clients and their changing circumstances.
Board and executive succession
After a rigorous recruitment process, we were delighted to welcome
Jim Pettigrew to the board in March 2017. A comprehensive and
tailored induction programme was arranged for Jim to introduce
him to the business and provide industry context. Additional
detail of the induction programme is provided later in the report.
Jim was appointed senior independent director in May 2017
following the retirement of David Harrel.
The board recognises the importance of planning for the future
and ensuring that succession plans are in place and embedded
throughout the firm. Kathryn Matthews is due to stand down by
the end of 2018, having served nine years as a director. We have
engaged independent search consultants to find someone with
the experience and skills to replace Kathryn as chairman of the
group risk committee. Following a skills audit, which was initiated
by the nomination committee and presented to the board,
consideration is being given to recruiting an additional non-
executive director with the aim of bringing new skills to the board,
taking account of the existing balance of knowledge, experience
and diversity.
In addition, the board has discussed and approved the
recommendations from the nomination committee to strengthen
and formalise executive succession planning and talent
management processes throughout the firm.
Corporate governance report
I am pleased to introduce the corporate governance report for
2017, which includes commentaries from me and the other
committee chairmen. The report explains how we applied the
principles of good governance including the provisions of the 2016
edition of the Financial Reporting Council’s (FRC) UK Corporate
Governance Code (‘the Code’)1.
The board recognises and champions the benefits of good
governance across the firm. We understand that a good
governance framework creates a solid foundation which
enables us to act in the best interests of our clients, shareholders
and other stakeholders.
Culture
The board places great importance on the firm’s culture which has
developed over many years and represents a key competitive
advantage. The firm’s client focus and integrity is fundamental to
achieving the best results for clients and shareholders over the
long term.
In order to assess the firm’s culture, a fundamental review was
conducted in 2016 and the findings were discussed at length by
the board and executive committee. A number of metrics were
agreed, with ongoing monitoring by the conduct risk committee
and quarterly board updates. In addition, a culture dashboard
relating to clients, colleagues and other stakeholders has been
developed which enables the group risk committee and the board
to review and monitor key metrics. To provide helpful colour to
this data, an additional paper is prepared giving illustrative
examples of good and poor conduct in the firm. My non-executive
director colleagues and I have also continued during the year to
assess the firm’s culture through direct engagement, both formal
and informal, with investment managers and other employees
throughout the business.
1. The Code can be found at: www.frc.org.uk
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Looking forward
The nomination committee continues to take into consideration
the recommendations of the Davies report and the McGregor-
Smith initial review on board diversity. Currently, our two female
directors represent 29% of the total board membership. As a board,
we acknowledge the importance of board diversity and, looking
forward, regard will be given to female representation targets
during the recruitment process. The firm will ensure that there are
no barriers to women succeeding at the highest levels.
Mark Nicholls
Chairman
21 February 2018
Board meetings
During the year, the board held seven scheduled meetings and
met formally and informally on many occasions. Prior to each
scheduled board meeting, I meet with the non-executive directors
to discuss any significant matters arising from the board papers
and the focus of any challenges. We receive written reports on the
development of the business and key performance indicators,
together with detailed updates on the progress of agreed strategic
initiatives. Each board meeting is attended for relevant items by
members of the executive committee so that we can discuss their
respective areas of responsibility in depth.
In between board meetings, I maintain frequent contact with the
executive team and, in particular, the chief executive who keeps
me apprised of progress and key developments. Philip and I also
discuss how to bring issues to the board in the most effective
way. Our senior independent director, Jim Pettigrew, and I are in
frequent contact and I often discuss with him my thinking on
significant board issues. Jim and I are also in regular dialogue with
our other non-executive colleagues to ensure that any areas of
concern are aired.
Board effectiveness
As it had been three years since our last external board evaluation,
Independent Audit were appointed during 2017 to conduct a
review of the board. Their report provided a helpful analysis of the
board’s strengths and weaknesses and overall was both positive
and constructive. Further details can be found later in the report.
Remuneration policy
We are due to present our remuneration policy for approval at the
2018 annual general meeting (AGM), as it has been three years
since our policy was last approved in 2015. The remuneration
committee has assessed our policy in the context of a changing
external environment and the firm’s own requirements. While
maintaining the principal features of our existing policy, a number
of small changes have been proposed to align the interests of
executives and investors more closely. The chairman of the
remuneration committee, Sarah Gentleman, carried out an
extensive consultation exercise with our largest shareholders
before finalising the new policy. Further details about the changes
to our policy can be found in the remuneration report on page 80.
rathbones.com
Rathbone Brothers Plc Report and accounts 2017
59
59
Governance
Corporate governance report continued
Governance at a glance
Our governance framework
An overview of the firm’s governance structure and respective roles are provided below.
Chairman
— Leads the board and sets the agenda for board discussions
— Ensures the board is effective
— Encourages the presentation of accurate, clear and timely information
— Promotes effective and constructive dialogue between non-executive
directors, executive directors and the executive team
— Chairs the nomination committee which considers the
composition of the board and succession plans
— Evaluates the performance of the board, its committees
and individual directors on an annual basis
Non-executive Directors
— Provide constructive challenge to management
performance and strategy
— Contribute to the firm’s strategy
— Provide independent judgement to the board
Board of directors
Chaired by Mark Nicholls
Accountable to shareholders for the long-term,
Board
sustainable success of the group. This is achieved
through setting out the strategy, monitoring
strategic objectives and providing oversight
of the implementation of these objectives
by the management team.
Company Secretary
— Develops board and committee
agendas and distributes board
packs
— Ensures board procedures are
observed
— Advises on corporate governance
matters
— Available to all directors
Chief Executive Officer
— Provides executive leadership and management to
the business
— Responsible for the effectiveness of the executive
committee
— Delivers on strategic objectives set by the board in line
with the group’s risk appetite
— Oversees the financial position of the group
— Maintains strong relationships with the chairman,
the board and key shareholders
Senior Independent Director
— Acts as a sounding board for the chairman and serves as an intermediary
for the other directors if required
— Holds meeting with the non-executive directors (without the chairman
present) at least annually
— Leads the board in the ongoing monitoring and annual performance
evaluation of the chairman
— Is 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
60
Board committees
Remuneration committee
Chaired by Sarah Gentleman
— Determines and sets the firm’s
remuneration philosophy, ensuring
it is aligned with the business plan
and risk appetite
— Approves the remuneration policy for
executive directors for final approval by
shareholders and makes remuneration
decisions within the policy
— Approves total annual remuneration
for executive directors based on
achievements against objectives set
by the committee
— Reviews total annual remuneration
for executive committee members
and material risk takers
Rathbone Brothers Plc Report and accounts 2017 Board activities in 2017
Strategy
— Held strategy day with group
executive to review and
discuss progress
— Reviewed and analysed
strategic acquisition
opportunities
— Focused on delivery of
organic growth initiatives
Performance review
— Oversight of the financial
performance of the group
— Reviewed and approved
capital requirements of
the firm
— Approved 2018 budget
Risk management
— Monitored the firm’s principal
Governance
— Conducted an external board
risks and compliance
programme
evaluation
— Appointed senior
— Received detailed report on
independent director
significant regulatory risks
— Reviewed the implications of
Brexit on the organisation
— Approved the firm’s Modern
Slavery Act statement
— Assessed and oversaw
the firm’s culture
Independent non-executive
Executive
Chairman
57%
29%
14%
0-2 years
3-6 years
Over 6 years
Male
Female
20%
40%
40%
5
2
Board
compositon
Board
tenure
Board
diversity
Group risk committee
Chaired by Kathryn Matthews
Audit committee
Chaired by James Dean
Nomination committee
Chaired by Mark Nicholls
Executive committee
Chaired by Philip Howell
— Reviews the effectiveness of
the risk management
framework
— Reviews the integrity of the firm’s
financial reporting and financial
statements
— Reviews the firm’s risk
— Assesses the performance and
appetite
independence of the external auditor
— Assesses the firm’s
— Approves the annual internal audit
— Reviews the structure, size
and composition of the
board and committees
— Assesses and nominates
suitable candidates to be
appointed to the board
— Implements the agreed strategy
and the day-to-day
management of the firm
— Reviews and discusses
the annual business plan
and budget
compliance and anti-money
laundering policies
— Reviews key regulatory
submissions
plan
— Considers talent and
— Implements investment
— Reviews the effectiveness of the
internal audit function and
management’s response to their
findings
succession planning for
directors and senior
management
process and client proposition
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61
Governance
Corporate governance report continued
Our leadership
Chairman
Mark Nicholls
Chairman
Executive directors
Philip Howell
Chief Executive
Paul Stockton
Finance Director
Appointment: 01/12/2010
Age: 68
Board committees: Re, N
Appointment: 01/12/2013
Age: 62
Board committees: E
Appointment: 24/09/2008
Age: 52
Board committees: E
Background and career
Mark is a lawyer and
corporate financier and was
appointed as chairman at our
2011 AGM. After studying law
at Cambridge, he qualified as
a solicitor at Linklaters before
joining S G Warburg in 1976.
He became a director of
Warburgs 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.
Current external non-executive
director roles
Northern Investors
Company PLC
West Bromwich
Building Society
Background and career
Philip was appointed in 2013.
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.
Current external non-executive
director roles
None
Background and career
Paul was appointed
group finance director in
2008. He qualified as a
chartered accountant with
PriceWaterhouse 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 was formerly a director
of the Financial Services
Compensation Scheme.
Current external non-executive
director roles
None
Board committees
A Audit committee
E Executive committee
N Nomination committee
Re Remuneration committee
Ri Group risk committee
Bold in biographies indicates
committee chairman
62
Rathbone Brothers Plc Report and accounts 2017 Non-executive directors
Jim Pettigrew
Non-executive Director and
Senior Independent Director
James Dean
Non-executive Director
(Independent)
Sarah Gentleman
Non-executive Director
(Independent)
Kathryn Matthews
Non-executive Director
(Independent)
Appointment: 06/03/2017
Age: 59
Board committees: A, Re, N, Ri
Appointment: 01/11/2013
Age: 60
Board committees: A, Re, N, Ri
Appointment: 21/01/2015
Age: 47
Board committees: A, Re, N, Ri
Appointment: 06/01/2010
Age: 58
Board committees: A, Re, N, Ri
Background and career
James was appointed as a
non-executive director in
2013 and is chairman of our
audit committee. He is a
chartered accountant with
over 30 years’ experience
working in financial services.
He has 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.
Current external non-executive
director roles
Liverpool Victoria
Friendly Society
The Stafford Railway
Building Society
Background and career
Jim was appointed as a
non-executive director at our
2017 AGM and was appointed
as senior independent
director in May 2017. He is a
chartered accountant and
was formerly president of
ICAS and Chief Executive
Officer of CMC Markets plc,
Chief Operating Officer of
Ashmore Group plc and
Group Finance Director of
ICAP plc. He was previously
non-executive director of
Aberdeen Asset Management
plc, AON UK Ltd, Hermes
Fund Managers Ltd, Crest
Nicholson Plc and Edinburgh
Investment Trust Plc.
Current external non-executive
director roles
CYBG Plc
RBC Europe Limited
Miton Group Plc
Scottish Financial Enterprise
Background and career
Sarah was appointed as a
non-executive director in
2015 and is chairman of our
remuneration committee.
She 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.
Current external non-executive
director roles
None
Background and career
Kathryn was appointed as a
non-executive director in
2010 and is chairman of the
risk committee. She has
spent her entire career in
investment management,
including her time 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.
Current external non-executive
director roles
Aperam S.A.
J P Morgan Chinese
Investment Trust Plc
BT Investment Management
Limited
Barclays Bank UK Plc
rathbones.com
63
Governance Corporate governance report continued
The role of the board
The board provides the leadership and oversight to ensure
long-term success for the company and its stakeholders.
To achieve this goal, the board requires a diverse and talented
membership with a range of skills and experience and the ability
to challenge and support the executive management. The board
has a strong non-executive team which currently comprises
former executives with financial, risk management and
operational experience drawn from a variety of financial
institutions. In addition, the broad experience of the non-executive
directors allows them to understand the challenges and
opportunities that face the firm and enables them to contribute
to discussions and decisions.
Board meetings
Most scheduled board meetings are preceded by a board dinner,
which allows for broader discussions on particular topics. The
board dinners 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 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.
At every board meeting, the chief executive updates the board on
the implementation of strategy and recent developments. The
finance director reviews the financial performance and forecasts
against plan and market expectations. The chief risk officer
updates the board on key risk areas and any emerging regulatory
issues which impact the business. The board is updated on
shareholder sentiment and significant changes in the share
register. In addition, members of the executive committee attend
meetings as required to present and discuss progress in their
individual businesses and functions.
Specific areas of focus and major decisions taken by the board
during the year in line with its ‘matters reserved’ mandate are
listed below.
— Reviewed and assessed strategic initiatives
— Scrutinised the benefits of, and monitored progress on,
the proposed merger with Smith & Williamson
— Approved the firm’s risk framework and appetite
— Reviewed the firm’s risk management and internal
controls systems
— Oversaw financial performance against plan and market
expectations
— Focused on management’s delivery of organic growth
initiatives
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64
— Assessed and approved the firm’s capital adequacy annual
budget
— Monitored and assessed the firm’s culture
— Approved interim and full year financial statements, interim
dividend and recommended final dividend
— Approved the firm’s viability statement and going concern
disclosure for the year ended 31 December 2016
— Approved the 2016 report and accounts to shareholders
against the fair, balanced and understandable criteria.
Operations of the board
The board has a rolling agenda which ensures that key matters are
addressed. The board held seven scheduled meetings during the
year, a strategy day and had a number of additional formal and
informal meetings. The board also appointed a committee to
ensure close non-executive director involvement in the
discussions with Smith & Williamson. The chairman and the
company secretary manage board and committee meetings and
ensure that the board (and particularly the non-executive
directors) receive appropriate and balanced information. The
company secretary manages the timely circulation of information
to the board. All board papers are prepared by executives and
clearly indicate the action required. As part of the annual board
evaluation process, board members provided input into the level
and quality of the information that is provided. In addition, the
company secretary ensures board procedures are complied with
and applicable rules are followed.
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.
Board attendance
Director
M P Nicholls (chairman)
J W Dean
S F Gentleman
J N Pettigrew1
P L Howell
K A Matthews
R P Stockton
Former directors
D T D Harrel2
1. Jim Pettigrew joined the board on 6 March 2017
2. David Harrel stepped down as a director on 10 May 2017
Meetings attended
(eligible to attend)
7(7)
7(7)
7(7)
6(6)
7(7)
7(7)
7(7)
2(3)
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Independence
The board, on the recommendation of the nomination committee,
considers that all of the non-executive directors are independent.
All board members are required to disclose any external positions
or interests which may conflict with their directorship of
Rathbones prior to their appointment so that any potential conflict
can be properly assessed. The board has regard to the fact the
experienced non-executive directors in financial firms are a
valuable resource and may sit on several boards. Conflicts of
interest can generally be managed by due process and common
sense. In this regard, the board carefully analysed the regulatory
and governance risks attached to the appointment of Jim
Pettigrew since he is chairman of Miton Group. After consulting
with Jim, and assessing his time commitments, the board
approved the appointment, but put in place procedures and
requirements, which need to be observed by Jim. The board
also considered carefully the risks attached to the proposed
appointment of Kathryn Matthews to the board of Barclays Bank
UK Plc. After consulting with Kathryn, and assessing her time
commitments, the board approved the appointment, but put in
place procedures and requirements, which Kathryn must observe.
Board induction
Our non-executive directors are offered a comprehensive and
tailored induction programme to introduce them to the business,
industry and regulatory context. The programme is based on one-
to-one meetings with the executive directors and executive
committee members, the heads of group functions and the
company secretary and covers the areas of business outlined
below.
Business review
— Strategic direction and priorities
— Business strategy and market analysis
— Risk appetite, principal risks and risk management framework
— Operations
Performance and market positioning
— Review of financial and market performance
— Recent analyst and media coverage
— Budget review
— Analysis of shareholder base and investor perception
— Shareholder engagement
Regulatory environment
— Overview of the group’s key compliance and regulatory policies
— Recent changes in regulatory landscape and impact of
upcoming regulatory developments
— Hot topics and key priorities
People, culture and values
— Discussion of key business principles and the firm’s culture
— Key people and succession plans
Board procedures and governance framework
— Board structure, processes and relationships
— Board interaction with key business areas
— Overview of listed company obligations, reporting and
governance framework
— Directors’ duties and responsibilities
Board development
The firm is committed to the training and development of all staff
to ensure professional standards are maintained and enhanced. All
directors are encouraged to update their skills and any training
needs are assessed as part of the board evaluation process. Their
knowledge and the non-executive directors’ familiarity with the
firm is facilitated by access to senior management and visits to
teams in London and offices across the country. The company
secretary assists with professional development requirements of
the board. In addition, the board receives mandatory annual
training on the following areas:
— CASS
— SEC obligations
— ICAAP and ILAAP
During the year, the board received presentations on the impact
of the General Data Protection Regulation (GDPR) and MiFID II
(Markets in Financial Instruments Directive) on the firm, including
the associated change programmes that will be involved. Finally,
committee members also receive regular updates on technical
developments at scheduled meetings.
Governance of the company
In relation to compliance with the Code, this report, together
with the directors’ report, states the position at 21 February 2018.
The Code was updated in April 2016 by the FRC and applies to the
company’s 2017 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 diversity policy
Diversity, including professional and ethnic diversity, is a key
factor when assessing the board’s composition. It ensures there is
the correct balance of skills, experience and expertise amongst
non-executive directors to lead decision-making and assess the
performance and strategy of the company.
The board has adopted a board diversity policy to ensure transparency
and diversity in making appointments to the board on the
recommendation of the nomination committee. This policy expresses
our commitment to the principle of non-discrimination and to the
promotion of fair participation and equality of opportunity for all.
The gender balance of the board is also taken into consideration
when recruiting a new non-executive director. This is reflected by
the current composition of the board.
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Rathbone Brothers Plc Report and accounts 2017
65
65
Governance
Corporate governance report continued
Board and board committee evaluation
The board’s effectiveness, composition and operation are
reviewed and assessed on an annual basis. Every three years, the
evaluation is undertaken externally. Accordingly, in 2017,
Independent Audit Limited were selected to evaluate the board.
Independent Audit have no connection to the firm.
This evaluation involved observing a board meeting, reviewing
board papers and conducting interviews with all board members,
members of the executive committee who attend board meetings
and the company secretary. The review covered a number of
topics, including succession planning, board operations and
dynamics, governance and composition. The evaluation also
looked at the board committees and how they operated.
The review concluded that all directors enjoy serving on the board
and are proud to be associated with Rathbones. The review
identified a number of strengths but also areas for further
improvement. All the interviewees described the very high degree
of integrity shared by all directors, matched by a strong
commitment to Rathbones and a universal desire to see it flourish.
The key themes identified in the report were as follows.
Strengths of the board
— Board dynamics: the board is not only functioning well but also
has the capacity and will to improve. Interactions have a
balance between efficiency and amicability, although there is
still a need to work on building a more collegiate atmosphere
and sense of common purpose
— Risk control: there have been significant improvements in this
area in recent years. It was widely felt that risks are correctly
identified and that mechanisms for controlling and mitigating
them are effective
— Internal audit: praise for the way audit issues are managed at
board level
— Board committees: the board committees were found to be
operating effectively and were well run. There was timely and
effective reporting to the board
Areas for improvement
— Communication: communication from top management could
be improved. This is an area where relatively minor changes
could deliver significant improvement
— Succession planning: the board should have clearer timelines
generally and greater visibility of the executive succession
planning process, including increasing the non-executive
exposure to senior management below executive
committee level
— Board diversity: a need to review the composition of the board
to ensure that diversity in its broadest sense (age, outlook, skills
and ethnicity) is considered
Overall, the conclusion from the board evaluation and appraisal
process was positive, with all directors contributing actively to the
effective performance of the board and the board committees of
which he or she is a member. The new non-executive director had
settled in well and felt he had received a comprehensive and
useful induction. The review confirmed the strengths that had
been identified in 2014 and identified a number of areas of focus
for further improvement. The board is committed to making
improvements in these areas.
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 a separate
consultation with the chief executive. The senior independent
director subsequently provided feedback to the chairman on
his appraisal, which confirmed his effectiveness.
Succession planning
The nomination committee is responsible for both executive and
non-executive director succession planning and recommends
new appointments to the board. When making board
appointments, the board seeks to ensure that there is a diverse
range of skills, backgrounds and experience, including relevant
industry experience. Further information is included in the
nomination committee report.
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.
Accountability
The statement of directors’ responsibility for preparing the annual
report and accounts is set out at the end of this governance
section. Within this, the directors have included a statement that
the annual report and accounts present a fair, balanced and
understandable assessment of the group’s position and prospects.
To help the board discharge its responsibilities in this area, the
board consulted the audit committee, which advised on the key
considerations to comply with best practice and the Code’s
requirements. Following the committee’s advice, the board
considered and concluded that:
— the business model and strategy were clearly described
— the assessment of performance was balanced
— the language used was concise, with good linkages to different
parts of the document
— an appropriate forward-looking orientation had been adopted.
The directors’ report on viability and the going concern basis of
accounting, which the directors have determined to be
appropriate, can be found in the strategic report, which also
describes the group’s performance during the year.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017 Risk management
In accordance with the Code, the board is required to monitor the
firm’s risk management and internal controls systems on an
ongoing basis. They carry out a review of their effectiveness and
report on this review to shareholders. Details of the company’s
ongoing process for identifying, assessing and managing the
principal risks faced by the firm are contained in the risk
management section on pages 21 to 27, together with details of
those principal risks and their related mitigating factors. Whilst the
board retains overall responsibility for the firm’s risk management
and internal controls systems, it has delegated oversight to the
audit and risk committees.
The group’s financial controls framework is designed to provide
assurance that proper accounting records are adequately
maintained and that financial information used within the business
and for external publication is reliable and free from material
misstatement, thereby safeguarding the company’s assets.
The board receives regular reports from the chairman of the risk
committee and chief risk officer on the key risks facing the firm
that may impact on operational and financial objectives. This
assessment is completed together with assurance that the level
of risk retained is consistent with and is being managed in
accordance with the board’s risk appetite. These reports include
current and forward-looking assessments of capital and liquidity
adequacy and a summary ‘risk dashboard’ is presented.
Also, during the year, the board reviewed and approved the
operational risk assessment process for the 2017 ICAAP document,
which includes a capital assessment of financial, conduct and
operational risks.
The board assesses the effectiveness of the firm’s internal controls
on an annual basis and a report is provided for consideration.
The report is considered one element of the overall assurance
processes, and other references for board consideration include
reports emanating from first line of defence and second line of
defence assurance teams, including group compliance, anti-
money laundering (AML), as well as the investment risk team and
information security.
A one-year risk-based approach drives internal audit coverage and,
over the course of the year, review work by the function covers all
material controls across the firm including, compliance, operations
and financial. The observations arising from this work form the
basis for the annual internal audit opinion.
Following these reviews, the board concluded that the firm’s
risk management processes were effective and there were
no significant weaknesses or failings in the system of
internal controls.
Relations with shareholders
The board is committed to proactive and constructive
engagement with the firm’s investors and is keen to develop its
understanding of shareholder views.
Effective communication with investors and analysts regarding
the firm’s strategy and performance is held through regular
meetings and roadshows by the chief executive and finance
director. The board receives and discusses shareholder and
analyst feedback at each board meeting. The chairman and
non-executive directors are also available to meet with investors
at the AGM.
Investor relations activity in 2017 included the following:
— 2016 year-end results: UK investor roadshow and analyst
presentations
— Q1 trading update: analyst call
— Annual general meeting: all directors available for questions
— 2017 interim results: UK investor roadshow and analyst
presentations.
On the initiative of the chairman of the remuneration committee,
shareholder consultation letters were issued to our 15 largest
shareholders on our proposed new remuneration policy and
meetings held with those interested to discuss the proposed
changes. We will also continue to engage with ISS (Institutional
Shareholder Services) and the Institutional Voting Information
Service (IVIS) of the Investment Association and Pensions &
Investment Research Consultants Ltd (PIRC) before the AGM.
During 2017, the key areas which the chief executive and finance
director have discussed with investors included:
— progress on strategic initiatives
— the proposed merger with Smith & Williamson
— industry trends including consolidation and the increased use
of technology
— upcoming changes to regulation including MiFID II, the FCA
Asset Management Review and GDPR
— the closure of our defined benefit pension schemes
— the London office move to Finsbury Circus and progress on
the letting of our Curzon Street premises.
Shareholder meetings
We welcome shareholders to our AGM in May each year. At every
AGM, our shareholders are given an overview of the progress of
the business and outlook for the year. This is followed by the
opportunity for shareholders to ask questions about the
resolutions before the meeting and about the business more
generally. We look forward to meeting shareholders and providing
a further business update at our 2018 AGM in May this year.
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Rathbone Brothers Plc Report and accounts 2017
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67
Governance
Group risk committee report
Membership and attendance
Director
K A Matthews (chairman)
J W Dean
S F Gentleman
J N Pettigrew1
Meetings attended (eligible to attend)
4(4)
4(4)
4(4)
2(3)
Former director
D T D Harrel2
1. Jim Pettigrew joined the committee on 6 March 2017
2. David Harrel retired from the committee on 10 May 2017
1(1)
Roles and responsibilities
The key activities of the committee are to provide oversight
on the firm’s risk appetite and framework. To do this we:
— Review reports from the risk team on risk appetite
issues including any early warning signals and advise
the board accordingly
— Discuss any loss events and near misses, the lessons
learned and management action taken
— 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 risk weightings on performance objectives for
executive remuneration
— Review (prior to board approval) key regulatory
submissions including the Group Internal Capital
Adequacy Assessment Process (ICAAP) document
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
Group risk committee chairman’s
annual statement
The group risk committee plays a vital part in helping support the
firm’s governance structure and the ongoing monitoring of the
firm’s risk management framework.
During the year, the economic challenges and heavy regulatory
agenda, coupled with firm-specific risks, have kept the committee
fully occupied. There have been ongoing enhancements to our risk
management and risk appetite frameworks and we are satisfied that
we have the skills and talent across the group to meet the challenges
and opportunities that lie ahead.
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. Details of management risk
mitigation plans are well understood and appropriate resource is
provided. The committee saw further improvement in the quality
of the management information that it receives.
During the year, I met with the Prudential Regulatory Authority
(PRA) to keep them apprised of our key risks and mitigating
factors and the impact of the regulatory agenda on the firm.
Committee meetings
Our current members are the independent non-executive
directors, who met on four occasions in 2017 (2016: four). Jim
Pettigrew was appointed to the committee following David
Harrel’s retirement as a director in May 2017.
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 executive committee members and risk team
members are invited to attend the committee from time-to-time
as required to present and advise on reports commissioned.
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.
The committee has an agreed annual standing agenda to cover
key risk events in the year and are required to be addressed in
accordance with the terms of reference. Prior to each meeting, I
agree the agenda with the chief risk officer and the company
secretary to identify key issues impacting on the firm that may
require the committee’s attention.
At each meeting, the committee reviews and considers the risk
and compliance dashboards, which highlight changes in key risks
impacting on the firm. These dashboards are designed to enable
the committee to monitor and focus on ongoing or emerging risks.
In addition, the committee receives reports and presentations on
compliance and anti-money laundering matters, including any
regulatory changes impacting on the firm.
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Rathbone Brothers Plc Report and accounts 2017
Finally, the committee conducted ‘deep dive’ reviews on key risks
such as the General Data Protection Regulation (GDPR), internal
investment processes and the Internal Liquidity Adequacy
Assessment Process (ILAAP).
Committee effectiveness
A formal and rigorous evaluation of the committee’s effectiveness
was undertaken during the year as part of the external board
effectiveness review. The review found that the committee
operated well and ensured that the firm’s risks were sufficiently
analysed during the year.
In addition, the committee is satisfied that it has access to
sufficient resource to enable it to carry out its duties and continue
to perform effectively.
Committee activity in 2017
Further enhancements were made to the group’s risk management
framework in 2017, including the continued evolution of the ‘three
lines of defence’ model to ensure that it remains aligned to industry
and regulatory standards. The committee also reviewed the risk
assessment on the firm’s various strategic initiatives.
A number of areas of operational risk were stressed as part of
the annual ICAAP. 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.
The list below summarises the key issues that the committee
considered at each of its meetings during the year in addition to
standing reports from each control function.
February 2017
— Review of investment risk report
— Annual review of the firm’s risk appetite
— Review of the compliance report
— Approval of ICAAP operational risk factors
— Approval of the firm’s risk assessment plan
— Review of risk register and emerging risks
June 2017
— Approval of ICAAP and reverse stress testing
— Approval of ILAAP and liquidity contingency plan
— Approval of recovery and resolution plan
— Review of the firm’s culture dashboard
— Review of risk profile for business continuity
— Approval of the money laundering reporting officer’s (MLRO)
annual report
— Review of risk register and emerging risks
— Review of terms of reference
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September 2017
— Assessment of key risks of GDPR and investment process
— Review of risk register and emerging risks
December 2017
— Approval of risk management policy statement
— Review of remuneration policy and associated risks with
executive remuneration
— Review of risk register and emerging risks
— Approval of 2018 ICAAP and ILAAP stress testing proposals
Looking ahead to 2018
In reviewing the committee’s priorities for the coming year,
consideration will be given to the following areas:
— Preparation and continued risk assessment of recent and
upcoming regulatory changes such as GDPR
— Effective risk management framework for external and internal
emerging risks
— Continued assessment of the firm’s risk culture against its
core values
— Risk assessment on the impact of technology, Know Your
Client (KYC) and suitability requirements.
We are committed to the continuing development of our
approach to risk management across the three lines of defence.
In the first line, we expect to see delivery of a number of projects
currently underway that should strengthen further the
sustainability of good client outcomes. We have recently agreed
several additional resources, which will be used to strengthen the
second line teams in anticipation of the likely demands arising
from the current change agenda.
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.
Full details of our risk management framework are included in the
strategic report on pages 21 to 27.
Kathryn Matthews
Chairman of the group risk committee
21 February 2018
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Governance
Audit committee chairman’s
annual statement
The audit committee’s key role is to ensure there is confidence in
the integrity of our processes and procedures as they relate to
internal financial controls and corporate reporting. The board relies
on the committee to review financial reporting and to appoint and
oversee the work of the internal and external auditors.
During 2017, 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 of accounting judgments taken during the
preparation of the financial statements
— review of the firm’s client assets sourcebook (CASS) audit and
submissions
— impact of the reporting standards relating to IFRS 9 ‘Financial
Instruments’, IFRS 15 ‘Revenue from Contracts with
Customers’ and IFRS 16 ‘Leases’.
In addition, the Financial Reporting Council (FRC) informed the
company that it had reviewed the presentation of investment
performance in the annual report for the year ended 31 December
2016. The FRC stated that the disclosure on investment
performance metrics for asset managers should be expanded to
provide additional information on the quartile rankings for fund
performance. The firm submitted a response to the FRC, which
included the information requested and consideration of potential
disclosure in the future. The FRC confirmed in October 2017 that
this matter was closed.
Audit committee report
Membership and attendance
Director
J W Dean (chairman)
S F Gentleman
K A Matthews
J N Pettigrew1
Meetings attended (eligible to attend)
6(6)
6(6)
6(6)
4(5)
Former director
D T D Harrel2
1. Jim Pettigrew joined the committee on 6 March 2017
2. David Harrel retired from the committee on 10 May 2017
4(4)
Roles and responsibilities
The key activities of the committee are as follows:
— Provide oversight of the firm’s financial performance
and reporting, announcement of results and significant
judgements areas
— Review the firm’s whistleblowing arrangements and
ensuring appropriate and independent investigations
on matters
— Review the firm’s internal controls and effectiveness of
the internal audit function
— Oversee the appointment, performance and
remuneration of the external auditor, including the
provision of non-audit services to the firm
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
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Rathbone Brothers Plc Report and accounts 2017
Committee meetings
Our current members are the independent non-executive
directors who met on six occasions in 2017 (2016: six).
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.
In addition to the members of the committee, standing invitations
are extended to the chairman, executive directors, chief risk officer,
head of internal audit, financial controller, the external audit
partner and manager. Other executives and external advisers are
invited to attend the committee from time-to-time as required to
present and advise on reports commissioned.
During the year, I have regular meetings with the finance director,
head of internal audit and the external audit partner to discuss key
audit-related topics ahead of each meeting.
Following the publication of the 2016 UK Corporate Governance
Code (‘the Code’) and revised FRC Guidance for Audit Committees,
the committee’s terms of reference were updated. The changes
formalise the committee’s oversight of internal and external
audit arrangements.
The committee has an agreed annual standing agenda to ensure
key areas are covered during the year, which it is required to
address under its terms of reference. Prior to each meeting, I agree
the agenda with the finance director and the company secretary.
Committee effectiveness
A formal and rigorous evaluation of the committee’s effectiveness
was undertaken during the year as part of the external board
effectiveness review. The review found that the committee was
well run and performed at a high standard. For further
information, please refer to the corporate governance report.
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Governance
Audit committee report continued
Committee activity in 2017
Below is a summary of the key issues that the committee
considered at each of its meetings during the year.
January 2017
— Review of the report and accounts
— Review of key judgements for the annual report
— Assessment of going concern and the viability statement
— Review of 2016 internal audit plan and 2017 internal audit cycle
February 2017
— Annual review of audit fees
— Approval of the report and accounts
— Assessment of the report being fair, balanced and
understandable
— Review of the firm’s distributable reserves and dividend policy
for 2017
— Year end external audit report and audit opinion
— Review and approval of representation letter
— Review of external auditor’s letter of independence
— Review and approval of the firm’s CASS submission
May 2017
— Annual review of external audit firm processes
— Review and approval of the Q1 interim management statement
— Review and approval of the external auditor’s letter of
engagement and audit fee
— Review of internal audit plan for 2017 and completed
assessments across the firm
— Annual review of the whistleblowing reports for 2016
July 2017
— Approval of half year report for 2017
— Assessment of the firm’s statement of going concern
— External auditor’s half year review
— Review and approval of representation letter
— Review of external auditor’s letter of independence
— Proposed audit plan for the year end
— Review of non-audit services fees for the year
— Review of internal audit plan for 2017 and completed
assessments across the firm
— Approval of committee’s terms of reference
October 2017
— Review and approval of the Q3 interim management
statement
— Review of internal audit plan for 2017 and completed
assessments across the firm
— Review planning of internal audit plan for 2018
— Approval of the firm’s non-audit service policy
December 2017
— Review of key judgements and provisioning for the year end
— Review of audit and non-audit fees for the year
— Assessment of reporting standard changes relating to IFRS 9, 15
and 16
— Review of internal audit plan for 2017 and approval of the 2018
internal audit plan
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Rathbone Brothers Plc Report and accounts 2017
Financial reporting
Accounting judgements
As part of the committee’s role of monitoring the integrity of the
firm’s financial information contained in the interim and annual
financial statements, a review of key accounting judgements and
policies that were adopted by management was conducted and
assessed. Following discussion with management and the
external auditors, the committee concluded that these
judgements were appropriate and proportionate for the firm.
Details of these key significant judgements can be found in note 2
of the financial statements on page 126.
Fair, balanced and understandable statement
The committee considered whether the interim statement and
report and accounts were fair, balanced and understandable and
provided the information necessary for shareholders to assess the
firm’s performance, business model and strategy. The committee
reviewed the interim and annual financial statements in
conjunction with the narrative sections of the reports to ensure
that there was consistency in the information reported, that
appropriate weight had been given to both positive and negative
aspects of business performance and that key messages had been
presented coherently. The committee concluded that, taken as a
whole, the interim statement and the annual report and accounts
were fair, balanced and understandable.
Viability and going concern
The committee considered the requirements contained in the
Code regarding the company’s viability statement, including the
proposed three-year assessment period. After significant
discussion, and having considered the firm’s current position and
impact of potential risks, the committee concluded that the three-
year assessment period continued to be appropriate and
recommended the draft viability statement (as set out on page 28)
to the board for approval. The committee also reviewed the going
concern disclosure (as set out on page 105) and concluded that the
firm had adequate resources to continue in operational existence
for the foreseeable future and confirmed to the board that it was
appropriate for the firm’s financial statements to be prepared on a
going concern basis.
The carrying value of assets
We reviewed the methodology for valuing assets where a
significant amount of judgement is required, including intangible
assets, particularly goodwill and client relationships.
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
external auditors. We satisfied ourselves that the assumptions
used were reasonable.
Provisions and contingent liabilities
The committee discussed provisions totalling £23.7 million,
which have been summarised in note 25 to the financial
statements. The main areas of provisions relate to the recognition
of the onerous lease relating to 1 Curzon Street, deferred payment
for acquired business and property dilapidation liabilities.
New accounting standards
During the year, the committee reviewed three new accounting
standards that will be implemented over the next two years
and will impact on the financial statements as they will have a
number of transitional arrangements. The committee looked at
the following:
i) IFRS 9
Following a review of this standard internally and having
received external advice, the committee ensured that the firm’s
accounting policies and working models were updated to reflect
the changes from this standard. It was noted that no material
changes to the financial statements are anticipated as result of
adopting this new standard.
ii) IFRS 15
A review was conducted on the impact of this standard and the
manner in which the firm is required to capitalise earn out
payments. Following an extensive review of our contracts, it was
determined that the net impact of this standard would result in a
£8 million adjustment to the opening equity position and is
disclosed in the financial statements.
iii) IFRS 16
A review of the firm’s future lease payments was conducted
during the year to establish the potential financial liability that
will need to be recognised on the balance sheet. The firm’s most
significant property lease contracts were examined and may
lead to the firm being required to hold additional capital from
the inception of the standard from (1 January 2019).
For further information, please refer to note 1.3 to the financial
statements on page 118.
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Governance
Audit committee report continued
Internal audit
External audit
Internal audit plan
The 2017 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 is reviewed at each meeting, to ensure that agreed
recommendations are acted upon promptly and regularly
reported to the committee.
At each meeting, the committee reviewed the internal audit
reports presented by the head of internal audit and monitored
progress against the 2017 plan. In response to feedback from the
committee, a number of changes were made to the format of the
committee report to strengthen the focus on any significant issues
identified in the audits and highlight any overdue items. Whilst no
significant weaknesses were identified in any of the internal audit
reports, a number of improvements to certain processes and
controls were implemented in response to the recommendations
put forward.
Internal audit function
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
evaluating and improving 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, and 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. Deloitte’s significant resource
and knowledge base means 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 committee reviewed the effectiveness of the internal audit
function during the year to assess whether the function continued
to meet key stakeholder objectives. The outcome of this review
indicated that the internal audit function continued to be effective,
operating in line with professional standards and well supported
by Deloitte.
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.
Audit work 2017
KPMG present their audit plan to the committee for review each
year. The committee reviewed and challenged reports from
KPMG, which outlined their risk assessments and audit plans for
2017 (including their proposed materiality level for the
performance of the annual audit), the status of their audit work
and issues arising from it. Particular focus was given to their testing
of internal controls, their work on the key judgement areas and
possible audit adjustments. We can confirm that there are no such
material items remaining unadjusted in the financial statements.
External audit effectiveness and reappointment
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
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
2018 annual general meeting (AGM). There are no contractual or
similar obligations restricting the firm’s choice of external auditors.
External audit review
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 in 2009. We plan to
undertake an audit services contract tender process and planning
will commence during 2018. 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.
Auditor independence and non-audit services
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, the non-audit services policy was updated
and approved. The revised policy includes prohibited services
and sets a fee guide that aims to achieve a target cap of 70% of
the statutory audit fee in any year by 2019. The committee's
prior approval is only required where the fee for an individual
non-audit service is expected to exceed £50,000, and it is on the
list of pre-approved services.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017 Overview of priorities for 2018
As well as considering the standing items of business, the
committee will also focus on the following areas during 2018:
— Initiation of the external audit tender process
— Assessment and implementation of new accounting standards
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
21 February 2018
Non-audit fees, excluding services required by national legislation,
payable to the auditor in 2017 were £274,000. This represents 71%
of the three-year average statutory audit fee of £385,000. Other
non-audit work undertaken by the auditor in 2017 was largely in
relation to the potential corporate transaction, pensions advisory
work and the annual ISAE3402 internal controls report. We
recognise that, given KPMG’s 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. This was the
case in respect of the work relating to the proposed corporate
transaction during the year, which resulted in fees slightly
exceeding the 70% target cap on non-audit services.
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 submits six-monthly
reports on the non-audit services it has provided.
Following a formal assessment of the external auditor’s
independence and objectivity, the committee concluded that
KPMG continued to be independent and objective.
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.
Whistleblowing policy
We annually review the firm’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.
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Governance
Nomination committee report
Membership and attendance
Director
Mark Nicholls (chairman)
S F Gentleman
J W Dean
K A Matthews
J N Pettigrew
Former directors
D T D Harrel
Meetings attended (eligible to attend)
3(3)
3(3)
3(3)
3(3)
3(3)
1(1)
Roles and responsibilities
The responsibilities of the committee include reviewing the
composition (including the skills, knowledge, experience and
diversity) of the board and making recommendations to the
board for the appointment of directors. The board as a whole
then decides on any such appointment.
The committee also has wider responsibilities for succession
planning and the leadership needs of the organisation, both
executive and non-executive, to ensure the continued ability
of the firm to implement its strategy and compete effectively
in the marketplace.
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
Nomination committee chairman’s
annual statement
The nomination committee’s primary focus this year has been on
succession planning for the board and executive team.
In April 2017, the committee agreed to recommend to the board that
Jim Pettigrew be appointed senior independent director following the
annual general meeting (AGM). In the following months, a number of
informal discussions were held about the appropriate composition of
the board in the event of a merger with Smith & Williamson.
Following termination of these merger discussions, the committee
approved the appointment of Independent Audit Limited to carry
out an external board effectiveness review. This generally positive
review was discussed at the November nomination committee
meeting prior to being presented to the board in December.
A draft skills matrix was presented to the committee in November
in the context of a wider discussion about strategy and succession
planning. As Kathryn Matthews, chairman of the group risk
committee, will be close to the end of her nine year tenure as a
director by the end of 2018, a job description for an experienced
replacement non-executive director was approved in November
and an independent search consultant, Zygos (now part of Russell
Reynolds), was chosen to undertake the search. It was agreed that
a second non-executive appointment would be made if an
appropriate candidate is identified.
During 2017, a number of discussions have taken place in the
committee about identifying and developing future leaders
within the firm. There has historically been a reluctance among
investment managers to take on management responsibilities.
The firm is addressing this by developing a broader management
structure within investment management together, with a
remuneration structure that encourages investment managers
to take on management responsibilities.
Succession planning and talent development
As mentioned above, a key responsibility of the committee is to
ensure that the board maintains a balance of skills, knowledge and
experience appropriate to the operation of the business and
required to deliver the strategy. During 2017, the committee
reviewed the composition of the board and considered (a) the core
skills and experience of each director, (b) the independence of
each director and (c) the diversity, including age and gender, of the
board as a whole. This was used to develop a skills matrix which
will underpin the evolution of the board.
Following this review the committee was satisfied that the board
continues to have an appropriate mix of skills, knowledge and
experience to operate effectively. In addition to their professional
skills, the directors have collectively many years of experience
gained in a wide range of businesses and excellent track records in
a range of sectors. During this process, the committee assessed
areas which require further development or skills and experience
that could be addressed through the recruitment of a new non-
executive director.
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Rathbone Brothers Plc Report and accounts 2017
The committee also takes a keen interest in executive succession
plans, which include executive directors, the group executive
committee members and management roles across the business.
Potential successors have been identified for many 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 offices across the country.
The committee continues to receive reports on the talent pipeline
which identifies high-calibre individuals with management
potential. The committee acknowledges that, in a company the
size of Rathbones, there may not always be successors for every
senior role. The committee will continue to focus on this issue
as a key part of its remit.
Independence and conflicts of interest
It is of the utmost importance that the board of a financial services
firm has high-quality, experienced non-executive directors with
the skills and integrity to undertake senior management roles.
At Rathbones, we are fortunate to have such non-executives.
I maintain a dialogue with each of them on potential conflicts of
interest and time commitments. I am quite satisfied that in each
case potential conflicts of interest are likely to be rare and will be
handled appropriately by the individual concerned. I have also
been impressed by the whole-hearted commitment of all our non-
executive colleagues to Rathbones during a year in which they
were often called upon to attend non-scheduled or informal
meetings at short notice.
All non-executive directors will be standing for re-election at the
2018 AGM.
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 43 to 56.
Board effectiveness review
Full details of the process and outcome of this review are set out
on page 66.
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
21 February 2018
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Governance
Group executive committee report
Membership and attendance
Director
P L Howell (chairman)
R N K Baron
M T Bolsover
J A Butcher
I D Darnley
A T Morris
S Owen-Jones
R I Smeeton
R P Stockton
M M Webb
Meetings attended (eligible to attend)
12(12)
11(12)
11(12)
11(12)
12(12)
11(12)
11(12)
10(12)
11(12)
12(12)
Roles and responsibilities
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.
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
Executive committee chairman’s
annual statement
Please see the chief executive’s review on pages 12 to 14.
Biographies for the executive committee members are available
on our website.
Committee meetings
We formally meet each month. These formal meetings are
minuted and copies of the minutes are sent to committee
members and to the board. Ad hoc and informal meetings are held
as required.
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.
The committee has an agreed annual standing agenda to cover
key areas in the year. Prior to each meeting, I agree the agenda
with the company secretary.
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 2017 were as follows:
— Implementation of the strategic initiatives relating to Rathbone
Financial Planning
— Development of intermediary distribution channel
— The move to new London premises
— Implementation of an IT transformational programme
— Implementation of regulatory changes relating to the General
Data Protection Regulation (GDPR) and MiFID II (Markets in
Financial Instruments Directive)
— Review of investment processes and development of the
client journey
— Review and assessment of annual budget
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Rathbone Brothers Plc Report and accounts 2017
Our people are our main asset and so human resources (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. 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.
Overview of priorities for 2018
As well as considering the standing items of business, the
committee will also focus on the following areas during 2018:
— Implementation of planned enhancements to our investment
process
— Implementation of our IT transformation programme
— Implementation of new regulatory regimes including MiFID II
and GDPR
— Delivery of our strategic growth projects
— Formulation of the next five-year strategic plan
— Sub-let of our former Curzon Street premises
Philip Howell
Chairman of the executive committee
21 February 2018
Executive committee members
Our current members are below.
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 Darnley
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
rathbones.com
rathbones.com
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Governance
Remuneration committee report
Membership and attendance
Director
S F Gentleman (chairman)
J W Dean
K A Matthews
M P Nicholls
J N Pettigrew1
Meetings attended (eligible to attend)
4(4)
4(4)
4(4)
4(4)
3(3)
Former director
D T D Harrel2
2(2)
1. Jim Pettigrew joined the committee on 6 March 2017
2. David Harrel stepped down as chairman of the committee on 11 May 2017
Roles and responsibilities
The committee’s responsibilities are
— Determine and set the firm’s remuneration philosophy,
ensuring that it is aligned with the business plan and risk
appetite
— Approve the remuneration policy for executive directors
for final approval by shareholders and make
remuneration decisions within the policy
— Approve total annual remuneration for executive
directors based on achievements against objectives set
by the committee
— Review total annual remuneration for executive
committee members and material risk takers
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
Remuneration committee chairman’s
annual statement
On behalf of the board, I am pleased to present my first directors’
remuneration report as chairman, having been appointed
following the 2017 annual general meeting (AGM). I would like to
thank my predecessor, David Harrel, for his contribution to the
committee and support throughout my transition to this role.
2017 has been a busy year for the remuneration committee. In
addition to the committee’s usual activities, we have undertaken
an extensive review of the remuneration policy, which applies to
executive directors in order to ensure that it remains fit for
purpose, aligned to our business strategy and supportive of the
interests of shareholders and clients. We have also ensured that
the key principles of the remuneration policy are consistently
applied to executive committee members.
As part of this process, I had the opportunity to meet with a
number of our larger shareholders to discuss our proposed
revisions to our remuneration policy that will apply for the next
three years. I would personally like to thank them all for their
valuable and considered input into this process. Their feedback
has been very helpful in informing the committee’s view.
2017 performance and remuneration outcomes
Our remuneration framework is closely aligned with the financial
performance of the group, which has been strong in 2017 as
continued growth and robust investment markets helped funds
under management reach £39.1 billion at 31 December 2017. This
performance is reflected in the 17.6% growth in 2017 profit before
tax to £58.9 million and an underlying operating margin of 30.6%.
Consequently, these financial outcomes are directly reflected in
the respective elements of the Executive Incentive Plan (EIP),
which delivered above target performance in respect of three-year
return on capital employed (ROCE), annual profit before tax and
underlying operating margin. Due largely to the non-underlying
costs associated with the relocation of our London office,
threshold performance in respect of earnings per share (EPS) was
not achieved. Similarly, whilst the total net organic growth of our
Investment Management and Unit Trusts businesses in 2017 was
5.2%, this was not enough to meet the 5.5% threshold.
Positive progress was made during the year on the non-financial
objectives which cover critical project performance, stakeholder
measures and client experience. We have set out in more detail
the EIP results for 2017 on page 95.
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Rathbone Brothers Plc Report and accounts 2017
A new remuneration policy for 2018
In line with our now established three-year cycle, a new
remuneration policy is being put forward to our shareholders
for approval at our AGM in May 2018. In setting this policy,
the priorities for the committee have been to ensure that
remuneration structures and performance measures:
— support the future strategy of our business, reflecting the need
for investment at different times in the market cycle and the
opportunities for inorganic growth that may arise
— align the reward received by our executive directors and the
experience and interests of our shareholders
— continue to comply with regulations and industry best practice.
A summary of the proposed changes to our policy is set out below,
with further details presented on pages 86 and 87.
1. There are no material changes to the EIP structure, but we have
increased the level of disclosure
We operate one single incentive plan for executive directors,
the EIP (which combines both short and long term metrics)
and recognise that it is atypical in the market. We believe,
however, that it continues to work well in incentivising
positive business and financial performance and aligning the
interests of executive directors with our shareholders and
clients. We therefore propose to retain the EIP structure in its
current form.
The committee has, however, recognised that market
practice has moved on since the policy was last approved.
From a shareholder perspective, the key difference in our
approach when compared with a more traditional annual
bonus and long-term incentive construct, is the additional
disclosure of long-term performance metrics that accompany
separate long-term incentive schemes. This year, therefore,
we will disclose, on a forward-looking basis, the long-term
performance ranges against which we will be assessing
performance. This aims to improve transparency for
shareholders as to the performance ranges that will apply to
the long-term elements of our plan. The long-term targets for
the 2018–2020 cycle are disclosed on page 87 of this report.
2. Increase the maximum opportunity under the EIP from 200%
to 300% of salary and retained holding restrictions
Our existing remuneration policy was introduced at a time
when there was significant regulatory uncertainty as to
whether smaller banks would be required to comply with
new bonus capping requirements introduced under the
Capital Requirements Directive.
In response to this uncertainty, and anticipating that this
would be likely to become required practice across the sector,
a maximum 200% cap was included in our remuneration
policy (which was approved in advance of any clarification
from the regulator regarding its expectation). Our approach,
however, reserved the firm’s position regarding fixed salaries
until the regulations became clearer.
The UK regulator has since confirmed that it does not expect
smaller banks, including Rathbones, to comply with this
capping requirement. In reviewing our remuneration policy,
the committee has concluded that this cap has reduced total
remuneration levels to an uncompetitive level when
compared to peers, who, as non-banks, did not (and were not
required to) apply the cap in a similar way.
rathbones.com
rathbones.com
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Governance
Remuneration committee report continued
The committee discussed at length the appropriateness of
increasing the maximum opportunity of the EIP in the
current environment, recognising the wider sensitivities and
market focus on executive pay and the award quantum at
this time. We placed considerable emphasis on the
importance to shareholders and stakeholders of ensuring
that the remuneration arrangements we have in place were
sufficiently competitive and appropriate both for current and
any future executives.
In order to increase alignment with performance, it was
determined that any increase should be applied to the
incentive element of the plan (as opposed to fixed pay). In
setting the quantum of the award, the committee observed
that the proposed package for the executive directors was
consistent with the lower quartile of our competitive market.
This reflected the committee’s desire to balance the need for
an award increase with any concerns on pay ratcheting
and/or excessive focus on benchmarking. The committee
reaffirmed the current five-year holding and vesting
provisions associated with all deferred share awards to
ensure that executive director interests were aligned
for the longer term.
Recognising the wider sensitivities to increasing quantum,
the committee was very keen to test the proposal with
shareholders as part of a consultation process before
finalising its decision. The committee gained a high level of
confidence from this process as a significant majority of the
shareholders consulted (which covered 50% of our register)
understood the changes and were very supportive, noting
the context of current relatively modest salary levels and
lower leverage compared to other listed peers.
3. Increase in the weighting of performance metrics linked to both
the long-term and financial performance, whilst removing
personal objectives
In the consultation process, some shareholders did highlight
a desire for a greater proportion of the EIP to be based on
financial metrics only, to ensure that only a similar proportion
of the total EIP award as a percentage of base salary could be
earned from the non-financial components. We have
accordingly amended the weightings of our performance
measures to reduce the non-financial weighting and have
removed the personal component altogether.
The personal objective element (20%) has been replaced with
a 5% increase in the strategic element, a 5% increase to the
short-term financial metrics and a 10% increase to the long-
term financial metrics. Overall, this means the EIP will be 80%
weighted towards financial metrics, of which 50% are
weighted to long-term. This, combined with the five-year
deferral and full restriction on share sales over this period,
means a significant portion of this plan is measured over
eight years. In removing the personal element, the committee
noted the tension between investors’ desire for less
subjectivity and the desire of UK regulators to align conduct
with remuneration.
Our policy requires that a minimum of 70% of the EIP will
be based on financial performance measures. This is to
ensure that the committee has maximum flexibility to
change the weightings of these different elements as
appropriate. This is important, recognising that we are
coming towards the end of our current five-year strategy
planning period and require an incentive structure which can
support any refinements of our strategy in 2019. We would
consult with shareholders before making any changes to the
weightings as they have been implemented for 2018.
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Rathbone Brothers Plc Report and accounts 2017 4. Other changes
In order to align to best practice and the expectations of our
shareholders, the current shareholding requirements applied
to our executive directors will increase to 200% from the
current 100% of base salary. In addition, new post-cessation
holding requirements will also apply, requiring our executive
directors to continue to meet the shareholding requirements
in full for at least one year post-cessation, and to continue to
meet 50% of the shareholding requirements for the second
year post-cessation.
In light of other changes, the committee felt it appropriate to
reduce the maximum policy level of pension contributions
for the executive directors from 14% of base salary to 12%.
This change aligns more closely to the maximum level of
pension contributions of the majority of our wider workforce.
Our new remuneration policy will have immediate effect,
subject to approval from our shareholders.
Further detail on the new remuneration policy and more
detail on these changes can be found on pages 86 and 91,
respectively.
Fees and salaries
The 2018 budget for salary increases across the company is set at
around 3.5%. In setting directors’ remuneration, the committee
takes into account the pay and employment conditions of all our
employees, the performance of the firm and the views of
shareholders and their representatives. Remuneration
arrangements at other firms of similar size and complexity are also
reviewed for guidance. The committee will continue to use a
number of reference points to determine future pay structure,
quantum and peer group positioning for executive directors and
members of the executive committee.
Conclusion
I hope that you find the information in this letter and sections
of the directors remuneration report clear and useful. The
remuneration landscape continues to be the subject of many
political and regulatory policy changes and, as these evolve, the
committee will ensure that our policy and practices change to be
compliant, balancing the need to remain performance-driven and
competitive. I welcome any feedback you may have during the
year and hope to receive your support for the approval of the
remuneration policy.
Sarah Gentleman
Chairman of the remuneration committee
21 February 2018
Where to find relevant information
1) Remuneration outcomes for 2017
2) Our new remuneration policy
3) Remuneration policy
Introduction
Table
Notes
4) Annual report on remuneration
Single total figure
EIP
Directors’ share interests
Additional information
page 84
page 86
page 88
page 88
page 88
page 91
page 94
page 95
page 99
page 98
page 102
rathbones.com
rathbones.com
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Governance
Remuneration outcomes for 2017
Our remuneration philosophy
Overview of our 2017
remuneration framework
Our remuneration policy is designed to be:
Key features
— linked to our strategy
— aligned with shareholders’ interests with significant,
long-term equity participation
— simple and transparent
— include both annual and long-term elements compliant
with financial services rules and regulations
— in line with the market, having regard to the size and
complexity of the group’s operations
— fair for both the director and the company with some
element of discretion
— aligned with the board’s approved risk appetite
— flexible, recognising that the business is evolving and
responsibilities change.
Salary
— The core, fixed component of the package is designed
to enable the recruitment and retention of high-calibre
individuals (no increase for the last three years for the
executive directors)
Pensions and benefits
— Defined contribution benefit or a fixed maximum
pension allowance
Shareholding requirement
— Executive directors and executive committee members
are required to build and maintain a shareholding of at
least 100% of base salary
EIP
— One variable pay plan with annual and long-term
measures
— Balanced scorecard approach linked to strategic and
financial targets
— Aligns the interests of shareholders and directors with
long-term value creation
— Five year deferral period for each award
— Malus and clawback provisions
To read about our remuneration policy, please see page 88
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Rathbone Brothers Plc Report and accounts 2017
EIP performance targets
EIP performance
EIP achievement summary 2017
EIP achievement summary 2017
One-year financial (25% of award)
— 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
Three-year financial (40% of award)
— Compound annual growth in EPS over three years
— Average ROCE over three years
Non-financial metrics (15% of award)
— Performance relating to delivery of strategic objectives
— Assessed and approved by remuneration committee
Personal performance metrics
(20% of award)
— Personal performance against annual objectives
— Approved by remuneration committee
One-year
measures
Annual profit
before tax
Total net
organic growth
Underlying
profit margin
% of
salary
Achieved
8.34%
8.34%
8.33%
—
8.33%
8.33%
Non-financial
strategic measures
15.00%
11.00%
Three-year
measures
Underlying
ROCE average
EPS growth
20%
20%
18.4%
0%
Achieved
Remuneration outcomes (£‘000)
0
3
4
1
,
0
6
0
1
,
4
0
1
,
1
1,500
1,000
£‘000
3
0
5
500
0
9
0
9
8
1
7
3
7
6
0
2
3
Philip Howell
Paul Stockton
Minimum
Target
Maximum
Actual
rathbones.com
85
Governance
Our new remuneration policy
A summary of the proposed changes to our policy is provided below.
Fixed remuneration
Salary
Benefits
Pension
Variable remuneration
Current policy
Proposed policy
Reviewed annually on 1 January. % increases
are normally in line with wider workforce.
Additional benefits set by the committee and
make up a small percentage of total
remuneration costs.
No change.
No change.
Maximum 14% of base salary.
Maximum reduced to 12% of base salary.
Maximum opportunity
200% of base salary.
Maximum increased to 300% of base salary.
Deferral
Retention period
60% deferred into Rathbones shares for
five years.
No change.
Vested deferred shares cannot be sold until five
years post-award.
No change.
Performance measures
The level of EIP awarded depends on a robust
assessment of performance, weighted as follows:
Changes in weightings are as follows:
— no less than 70% based on financial
25% – 1-year financial measures
40% – 3-year rolling financial measures
15% – non-financial strategic measures
20% – personal performance measures.
measures. The remainder will be based on
non-financial performance measures
— at least 50% based on long-term
financial performance
— removal of personal performance objectives.
Malus/clawback
Applied in certain circumstances.
No change.
Other
Shareholding requirements
100% of base salary within five years
of appointment.
Increased to 200% of base salary within five
years of appointment.
No post-cessation holding.
Disclosure
In line with regulatory requirements.
Retain 200% of base salary in the first year
post-cessation and 100% of base salary in the
second year post-cessation.
Will prospectively disclose the range of
performance that will give rise to threshold and
maximum vesting.
86
Rathbone Brothers Plc Report and accounts 2017 How the implementation of our new policy in 2018 supports our strategic priorities
Strategic target
Weighting
EIP measures
Financial – 1 year
Annual profit before tax
Total net organic growth in funds under management (FUM)
Underlying operating margin
Financial – 3 year
EPS growth
Underlying ROCE average
Non-financial strategic
30%
50%
20%
Quality service
See page 18
Earnings growth
See page 19
Employee value
See page 20
How does the EIP work and how will performance be assessed for 2018?
We measure short- and long- term
historic performance...
… to determine
an award value.
We pay a portion
immediately in cash…
2016
2017
2018
Non-deferred
EIP
Cash
40%
EIP
300% max
EPS growth
25%
Underlying
ROCE average
25%
Annual PBT
10%
FUM growth
10%
Profit margin
10%
Strategic
measures
20%
%
0
8
%
0
2
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
F
i
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
fi
-
n
o
N
… and we defer the remaining portion
in shares over a five-year period.
2022
2020
2021
2023
2024
Restriction on sales over the whole
deferred EIP for five years
Year 1
Year 2
Deferred
EIP
Shares
60%
Year 3
Year 4
Year 5
rathbones.com
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Governance
Remuneration committee report continued
Directors’ remuneration policy
The directors’ remuneration policy (‘Policy’) outlined below includes the proposed changes set out in the remuneration committee
chairman’s annual statement, and describes the policies, principles and structures that guide the remuneration committee’s decisions on
executive remuneration. If approved at the AGM in May 2018, it will apply for a period of three years from the date of the 2018 AGM unless
a revised Policy is put to shareholders before then.
Applicable performance measures Recovery
Not applicable.
Not applicable.
Applicable performance measures Recovery
Not applicable.
Not applicable.
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 is significantly below
market median and is being
brought into line.
Opportunity
Benefits make up a small
percentage of total
remuneration costs.
Executive directors
Base salary
Purpose and link to strategy
The core, fixed component
of the package designed to
enable the recruitment and
retention of high-calibre
individuals.
Benefits
Purpose and link to strategy
Benefits are typically
provided to directors to be
generally consistent with
other employees and to
complement the
remuneration package to
ensure that it is sufficiently
competitive.
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 a competitive
rate is being paid.
Adjustments may be made
at other times to reflect a
change of responsibility.
Operation
Benefits are set by the
committee and may include,
for example:
— private medical
insurance for directors
and their dependants
— death in service cover
— Share Incentive Plan
free and matching
shares
— Save As You Earn
scheme
— annual medicals
— limited legal and
professional advice on
company-related
matters
— relocation costs.
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Rathbone Brothers Plc Report and accounts 2017
Opportunity
The maximum EIP award is
300% of base salary.
Target performance is 60%
of maximum.
Threshold performance is
25% of maximum.
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.
The committee has the
discretion to make changes
to its EIP policy where
required under regulations.
rathbones.com
rathbones.com
Applicable performance measures Recovery
The EIP is based on the
remuneration committee’s
assessment of financial and
non-financial performance
against a balanced
scorecard of measures,
which are aligned to the
company’s strategy.
No less than 70% of the EIP
will be based on financial
measures. The remainder
will be based on non-
financial performance
measured against strategic
objectives.
At least 50% of the EIP will
be based on long-term
financial performance.
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.
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.
All unvested awards will
normally lapse on termination
of office unless the
termination was as a ‘good
leaver’. A good leaver is a
director who leaves on
retirement, due to injury or
disability, on the sale of the
business or in any other
circumstances where the
committee determines good
leaver treatment is
appropriate in relation to the
malus/clawback there is a
slight misalignment between
the policy and the provisions
of the rules. The rules provide
that malus/clawback can be
applied at any time up to 7
years from the date of grant in
the case of share awards and
7 years from the payment of
cash on cash awards. The
vesting schedule for the share
awards is 20% p.a. over 5
years. The policy provides that
clawback can be applied up to
3 years from vesting.
In all but the 5th tranche of
share awards, the rules grant
the power to effect the
clawback in line with the
terms of the policy (the rules
actually give more power but
the remuneration committee
could choose not to exercise it
if to do so would be more
onerous than the policy). The
last tranche of the share
awards could, in theory (under
the policy), be clawed back up
to 8 years from the date of
award. This is wider than the
power given under the rules
so it would be necessary to
change the rules to ensure
that the policy could be
complied with. As this would
be a detrimental change to
participants, it could be made
without shareholder approval
being required.
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Governance
Remuneration committee report continued
Directors’ remuneration policy continued
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
pension arrangement such
as a self-invested personal
pension (SIPP) or to the
group defined contribution
scheme. Alternatively,
they may receive a cash
allowance in lieu of pension.
Opportunity
The maximum personal
pension or allowance
payment is 12% of salary.
This is in line with the
maximum personal
pension or allowance
payment for the majority of
other employees.
Chairman and other non-executive directors
Base fee
Purpose and link to strategy
To enable the recruitment
of high-calibre non-
executive directors with
the appropriate skills and
experience.
Operation
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
1 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.
Applicable performance measures Recovery
Not applicable.
Not applicable.
Applicable performance measures Recovery
Not applicable.
Not applicable.
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Rathbone Brothers Plc Report and accounts 2017
Remuneration committee report continued
Directors’ remuneration policy continued
Pension or cash allowance
Purpose and link to strategy
Operation
Opportunity
Applicable performance measures Recovery
To provide the executive
Payments may be made to
The maximum personal
Not applicable.
Not applicable.
directors with retirement
a defined contribution
pension or allowance
benefits.
pension arrangement such
payment is 12% of salary.
as a self-invested personal
This is in line with the
pension (SIPP) or to the
maximum personal
group defined contribution
pension or allowance
scheme. Alternatively,
payment for the majority of
they may receive a cash
other employees.
allowance in lieu of pension.
Chairman and other non-executive directors
Base fee
experience.
Purpose and link to strategy
Operation
Opportunity
Applicable performance measures Recovery
To enable the recruitment
Base fees are reviewed
The base fee for the
Not applicable.
Not applicable.
of high-calibre non-
annually by the board
executive directors with
on 1 January and are
chairman in 2016 was
£160,000. This was
the appropriate skills and
compared to fees in other
retained at £160,000 on
companies of similar size
1 January 2017. The base
and complexity to ensure
fee for the other non-
that the market rate is being
executive directors in 2016
paid. Adjustments may
be made at other times
to reflect a change of
responsibility. Fees are paid
in cash.
was £50,000. This was
retained at £50,000 on
1 January 2017.
Purpose and link to strategy
Operation
Opportunity
Applicable performance measures Recovery
To recognise the additional
Additional responsibility fees
The additional responsibility
Not applicable.
Not applicable.
responsibility involved in
are reviewed annually by the
fee remained unchanged
board on 1 January.
and payable at £10,000
per annum.
Additional responsibility fee
chairing a committee
(audit, group risk and
remuneration) or being the
senior independent
director.
Key changes to the remuneration policy
The new Policy for which approval is being sought at the AGM in May 2018 is similar in structure to the Policy that was previously
approved by shareholders at the 2015 AGM. As such, we propose to maintain the structure of our variable award, but as amended by the
changes set out in the table below.
Remuneration
elements
Executive
Incentive Plan
Aspect
Maximum opportunity
Overview of changes
Increase from 200% to 300%
Executive
Incentive Plan
Nature of performance
measures
Weightings of
performance measures
Removal of the personal performance element, to be
replaced with a 5% increase to the strategic element,
a 5% increase to the short-term financial metrics and
a 10% increase to the long-term financial metrics
Performance weightings are now 80% derived from
financial outcomes (was 65%), with the remaining
20% assessed against strategic objectives.
Pension
contributions
Shareholding
requirements
Shareholding
requirements
Maximum opportunity Reduction from 14% to 12%
Level of shareholding
Increased from 100% to 200%
Post-cessation holding
Introduced for the first time. A requirement for
executive directors to retain 200% of base salary in
the first year post-cessation in shares and 100% of
base salary in the second year post-cessation.
Rationale
To ensure that maximum opportunity levels of
the current executive directors remain
competitive following the clarification of UK
bank regulations.
To orientate awards more objectively towards
financial performance overall with now a 50%
weighting linked to the longer term.
To align the Policy more closely with the
majority of other employees.
To align to emerging best practice and to
increase alignment with shareholder interests.
To align to emerging best practice and to
increase alignment with shareholder interests.
Definition of performance metrics
The EIP performance metrics chosen by the committee are key indicators of performance used by the business and shareholders which
are detailed below.
Executive Incentive Plan weighting
a) One-year financial measures: incentivises the delivery of strong
One-year financial
Three-year financial
Non-financial metrics
30%
50%
20%
financial performance for our shareholders in the relevant
financial year
b) Three-year financial measures: aligns the delivery of strong,
sustainable financial performance for our shareholders over the
longer term
c) Non-financial measures: links executive performance to the
delivery of key strategic initiatives and projects that support the
firm’s business plan
The committee reviews the specific choice of performance metrics for the EIP on an annual basis at the beginning of each financial year to
ensure that the nature and weighting of these remain appropriate to ensure alignment between the interests of our executive directors,
our business strategy and the interests of our clients and shareholders. Further detail on how the specific choice of measures for the 2018
EIP links to our strategic goals is provided on page 87.
The targets for these measures are considered annually by the committee and are set to encourage stretching levels of performance
without inadvertently motivating inappropriate behavior. Rathbones will prospectively disclose the target ranges for three-year financial
measures, but will not disclose any of the one-year measures on a prospective basis as these are considered commercially sensitive
(however actual performance against these will be retrospectively disclosed).
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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 adjust retrospectively 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 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
awards of variable remuneration and, in relation to an award
over shares, the associated terms agreed at the time the award
is granted.
Consultation
The company consulted extensively with major shareholders and
their representative bodies on remuneration issues, including in
the development of this new directors’ remuneration Policy. While
we did not consult explicitly with employees on this new Policy,
the committee took account of remuneration policies elsewhere
in the group.
Appointment of new directors
For new executive and non-executive directors, the structure of
the package offered will mirror that provided to current directors
under the new directors’ remuneration Policy. 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. Any future variable award will be made within the
300% maximum (subject to shareholder approval).
The company may pay compensation to new directors for
remuneration the individual has forfeited in order to take up the
role with Rathbones. Rathbones will ensure that these awards are
no more generous in either amount or terms than the awards they
replace. These awards may be structured differently from awards
made under our standard directors’ remuneration Policy in order
to best reflect the remuneration being forfeited.
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 L Howell
R P Stockton
Date of contract
12 Feb 2013
14 Oct 2011
Notice period
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. 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 and these are available for inspection at
the AGM. 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.
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Consideration of remuneration across the firm
The committee provides oversight of remuneration structures
across the firm, including members of the group executive
committee, material risk takers and the risk and compliance teams.
In addition, the committee reviews on an annual basis total
remuneration costs across the firm in light of its short- and
longer-term financial targets and ongoing sustainability.
The committee is well aware of the remuneration structures
across the firm and takes these into consideration when taking
decisions on remuneration for executive directors.
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
unwinding 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
committee members are eligible to benefit from membership
of an EIP.
Payments for loss of office
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.
Any entitlement to EIP awards will depend on whether the
individual is treated as a good or bad leaver, in line with the
table below.
Definition
Status
Good leaver Leave for reasons including
retirement, ill health, sale
of the business and any
other reason as the
committee determines.
Bad leaver
Leave for other reasons
unless the committee
determines otherwise.
Treatment
All unvested awards
will be delivered in
line with the existing
vesting schedule.
Awards in the year of
departure will be
made at the
discretion of the
committee
depending on the
circumstances at
the time and, if
made, will be
reduced to reflect
time served
All unvested awards
will normally lapse.
Other directorships
The board believes that the firm can benefit from experience
gained when executive directors hold non-executive
directorships. Executive directors are permitted to hold external
appointments and to receive payments, provided such
appointments are agreed by the board in advance, there no
conflicts of interests and the appointment does not lead to
deterioration in the executive’s performance.
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Annual report on remuneration
This part of the directors’ remuneration report explains how we
have implemented our remuneration policy during the year in line
with the remuneration policy that was approved by shareholders
at the 2015 AGM. This annual report on remuneration will be
subject to an advisory vote at the 2018 AGM. The financial
information in this part of the directors’ remuneration report has
been audited where indicated.
Role of remuneration committee
The role of the committee is to set the overarching principles of
the remuneration Policy and provide oversight on remuneration
across the firm. Details of the committee’s responsibilities and
composition are detailed above. At the invitation of the committee
chairman, the chief executive, finance director and the head of
strategy and organisation development attend some or all of each
meeting. The chief risk officer also advises the committee on
matters relating to remuneration and attends meetings as
required. The company secretary acts as secretary and, with the
chairman, agrees the agenda for each meeting.
At the end of each meeting, there is an opportunity for private
discussion between committee members without the presence of
management. No committee member or attendee is present when
matters relating to his or her own remuneration are discussed.
Committee activity in 2017/18
Below is a summary of the key issues that the committee
considered at each of its meetings during the year.
February 2017
— Review annual risk report on variable pay targets to ensure
alignment with the firm’s risk appetite
— Assess and approve 2016 EIP award for executive directors and
members of the executive committee
— Review and approve EIP performance measures for 2017
— Assess and approve Long Term Incentive Plan award for 2016
— Review and approve the directors’ remuneration report for
shareholder approval
May 2017
— Annual review of remuneration for material risk takers across
the firm
— Review and discuss shareholder and proxy agency feedback
on the directors’ remuneration report
— Review executive directors and members of the executive
committee’s shareholding requirement levels against market
practice
— Review regulatory developments on remuneration and their
implications on the firm
October 2017
— Review remuneration landscape and implications on
executive remuneration
— Review progress against financial and non-financial EIP targets
for the current year
— Review and debate potential changes to the remuneration
policy and structures
— Appointment of new remuneration consultants
December 2017
— Review and approve executive director salaries for 2018
— Review progress against financial and non-financial EIP targets
for 2017
— Agree remuneration policy ahead of shareholder consultation
— Approval of the committee’s terms of reference
January 2018
— Consultation with major shareholders and representative
bodies on new remuneration policy
— Finalise remuneration policy following shareholder feedback
— Review annual risk report on variable pay targets to ensure
alignment with the firm’s risk appetite
— Assess and approve 2017 EIP award for executive directors and
members of the executive committee, and approve EIP
performance measures for 2018
— Review and approve the directors’ remuneration report for
shareholder approval
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Single total figure of remuneration for each executive director (audited)
The table below sets out a single figure for the total remuneration received by each executive director for the year ended 31 December 2017
and the prior year:
Taxable
benefits and
allowances
£’000
EIP award
for the
year – cash
£’000
EIP award for
the year –
unvested
deferred
shares
£’000
Historic
LTIP awards
£’000
Pensions
£’000
SIP
£’000
SAYE
£’000
Total
£’000
2
2
13
13
238
244
151
155
356
365
226
232
–
279
–
177
40
40
25
25
4
4
5
4
–
–
3
1
1,104
1,398
718
902
Salary
£’000
464
464
295
295
P L Howell
2017
2016
R P Stockton
2017
2016
Notes to the single total figure of remuneration for each director table
Executive directors’ salaries
Salaries have not been increased since 1 January 2015.
Taxable benefits
Taxable benefits are the provision of private medical insurance for executive directors and their dependants and contractual travel
expenses for the executive directors.
Executive Incentive Plan (EIP) (audited)
The EIP was approved by shareholders at the 2015 AGM, replacing both an annual bonus scheme and a Long Term Incentive Plan which
fully vested in 2017. The overall maximum award level achievable under the existing Policy is 200% of base salary, with 60% of awards
made in deferred shares, which must be held for a minimum period of five years.
Executive Incentive Plan award 2017
Performance is assessed using a combination of measures that are detailed below:
One year financial
Three year financial
Non-financial strategic
Personal performance
Total
Weight %
% of base salary
25
40
15
20
100
50
80
30
40
200
1) One year financial
The one year financial performance measures are three key performance indicators used by the business which are closely aligned to
strategy. The one year financial measures and achievement levels are provided below:
Financial 1 year
Annual profit before tax (£m)
Total net organic growth in funds
under management (%)
Underlying operating margin (%)
% of base salary
Threshold
25% of base salary
On target
120% of base salary
Maximum
200% of base salary
Actual
Weighted payout
(% of base salary)
16.68%
16.66%
16.66%
50.00%
41.3
5.6
25.5
45.9
6.2
27.0
50.5
6.8
28.5
58.9
16.68%
5.2
30.6
0.00%
16.66%
33.34%
The organic growth in funds under management covers both our Investment Management and Unit Trusts businesses.
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2) Three year financial
The three year financial performance measures and achievement levels are provided below:
EPS growth (% CAGR)
ROCE average (%)
Total
% of base salary
40.00%
40.00%
80.00%
130.00%
Threshold
25% of base salary
6.0
16.6
On target
120% of base salary
9.0
18.1
Maximum
200% of base salary
12.0
19.6
Actual
0.9
19.3
Weighted payout
(% of base salary)
0.00%
36.80%
36.80%
70.14%
3) Non-financial strategic
The non-financial strategic measures are designed to drive strategic goals. Details of the performance measures, assessment and outcomes
are detailed below:
Strategic
objective
Quality
service
Earnings
growth
Objective
— Develop the investment process to
support investment team decisions
and drive positive portfolio outcomes
— Deliver key projects, to better
evaluate client attitudes to risk,
improve communication and manage
investment team capacity and
efficiency
— Selectively add complementary
service offerings that can help
support and grow the core
investment service
— In addition to the financial targets set
for 2017:
— Achieve budgeted funds under
management inflows for Vision, Unit
Trusts, Charities/Greenbank and the
intermediary distribution teams
— Establish Rathbone Private Office
revenues
Performance in 2017
— Enhancements to suitability processes were supported by the
migration of our client relationship management system and
delivery of a client risk assessment tool
— Plans for a new client relationship management system are
well progressed
— Output from the research team improved as did performance
monitoring processes
— 33 projects were completed during the year. Complex MiFID II
(Markets in Financial Instruments Directive) changes delivered on
time and progress on IT infrastructure plans was demonstrated
— The internal financial planning proposition was launched with
adviser recruitment as planned
— Rathbone Private Office infrastructure was put in place
— Charities and Greenbank funds under management grew to
£4.7 billion and £1.2 billion respectively
— Unit Trusts performance continued to be strong
— Vision funds under management grew higher than expectations
to £1.4 billion and other budget growth targets were exceeded
— Rathbone Private Office sales activity was positive but with lower
than expected outcomes
— Substantial efforts were made to secure prospective tenants in
— Sub-let available space in Curzon Street
Curzon Street and activity continues into 2018
Employee
value
— Launch performance based remuneration
for investment teams to support efficiency
— Changes to team remuneration schemes have resulted in
positive changes within the business
— Deliver on 2017 learning and
development plans
— Learning and development plans were delivered
— The London head office move to Finsbury Circus was
— Ensure that the London head office move
maintains a positive working environment
completed with minimal disruption with extensive client use
of the new facilities
Risk
conduct
and
compliance
— Maintain a proactive and effective
relationship with regulators
committing to maintain high
standards in managing conduct and
prudential matters
— Engagement with regulators was positive during the year, providing
comprehensive responses to three FCA questionnaires with positive
engagement on PRA evaluation processes
— No material issues have been identified by the risk or audit
committees during 2017
Extent to which objective
has been met
A lot has been
achieved in 2017
but technology
and process
design delays
impaired the
timing of delivery
of some client
suitability process
enhancements
Strong financial
performance, but
recognising that
progress on
sub-letting and
Rathbone Private
Office was less
than expected
Fully achieved
Fully achieved
— Investment coverage by the research team has been enhanced
— A Risk Culture dashboard is in place and was formally presented
twice to the board during 2017
— Client complaints were promptly investigated and continue to be
very small
The committee concluded that an overall score for this element of the EIP of 11% out of a maximum of 15% of base salary is merited.
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4) Personal performance
Personal performance has been assessed against objectives set at
the beginning of 2017 that are appropriate to the directors’ roles
and responsibilities. The outcomes of this assessment are shown
below for each executive director.
Paul Stockton
2017 objectives
Respond to changes in financial and regulatory reporting
standards to ensure that external and internal financial
outputs remain insightful, accurate and timely
Assessment
Assessment
Ensure that the financial outcomes of key 2017 projects
are monitored carefully to ensure that underlying operating
margin targets are met
Upgrade financial performance systems to improve
efficiency and transparency and support remuneration
changes
Ensure that the banking and treasury function operates
within risk appetite whilst taking advantage of opportunities
to grow the amount lent to clients
Closely manage the capital impacts associated with the
closure of defined benefit schemes
Total achieved
18%
The committee’s assessment was that Paul Stockton’s
performance had largely met his objectives in 2017, but some
adjustment was necessary for the technology and process
design delays in the delivery of some important process
enhancements. A summary of Paul Stockton’s total award for
2017 is presented below:
Target
Financial – 1 year total
Financial – 3 year trailing
Non-financial strategic measures
Personal performance
Total award
Weighting
Award
achieved
25% 16.67%
40% 18.40%
15% 11.00%
20% 18.00%
64.07%
Philip Howell
2017 objectives
Oversee the delivery of growth initiative targets for
Investment Management, Unit Trusts, Vision and other
services within risk appetite
Enhance the quality of research output and portfolio
monitoring capabilities
Continually review and assess the progress on key business
projects, particularly ensuring that regulatory project
deadlines are met
Maintain a robust risk conduct culture fostering effective
relationships with PRA and FCA
Sponsor the development of senior management team
and oversee the delivery of people development plans
Total achieved
18%
The committee’s assessment of the 2017 overall performance for
Philip Howell was that he had performed well and largely
achieved his objectives, but some adjustment was necessary to
reflect technology and process design delays in delivery of some
important process enhancements. A summary of Philip Howell’s
total award for 2017 is presented below:
Target
Financial – 1 year total
Financial – 3 year trailing
Non-financial strategic measures
Personal performance
Total award
Weighting
Award
achieved
25% 16.67%
40% 18. 40%
15% 11.00%
20% 18.00%
64.07%
Assessment key
Achieved
Largely achieved
Partially achieved
Not achieved
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Pensions
Philip Howell and Paul Stockton are paid a cash allowance
of 8.62% of salary and neither are in receipt of a defined
benefit pension.
All executive directors are eligible to participate in the Rathbone
1987 Scheme for death in service benefits.
Share Incentive Plan (SIP)
This benefit is the value of the SIP matching and free share
awards made in the year. Employees may contribute up to
£150 per month 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.
Remuneration outcomes under different performance scenarios
The charts below show the relative split of fixed and
variable remuneration showing minimum, on-target and
maximum awards.
Value of package (£’000)
(£’000)
1,500
1,000
1,430
1,060
1,104
909
673
718
503
500
320
0
Philip Howell
Paul Stockton
Minimum
Target
Maximum
Actual
Directors’ interests in shares (audited)
The table below sets out details of the directors’ shareholdings and outstanding share awards that are subject to vesting conditions:
Executive directors
P L Howell
R P Stockton
Beneficially owned shares
Subject to relevant holding period
Private shares
20,399
59,188
79,587
SIP1
511
2,480
2,991
Total
20,910
61,668
82,578
EIP
31,490
19,886
51,376
Deferred profit
scheme
12,434
7,478
19,912
SIP (not yet
beneficially
owned)1
438
595
1,033
SAYE
2,299
983
3,282
Total
46,661
28,942
75,603
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
Shareholding guidelines
In order to align the interests of executive directors and shareholders, with effect from 1 January 2018, the executive directors are required
to acquire and retain a holding in shares or rights to shares equivalent to the value of 200% of basic salary within five years of the date of
appointment, or the date of adoption of the policy. Shares that count towards these guidelines include shares that are owned outright,
vested and not exercised EIP and SIP awards. Philip Howell and Paul Stockton have both achieved this target. The chart below compares
the values of each executive director’s shareholding for this purpose as at 31 December 2017 with the shareholding required:
Share ownership versus policy
R P Stockton
534%
P L Howell
115%
0%
100%
200%
300%
400%
500%
600% 700% 800% 900% 1000%
Beneficially owned
Conditional
Old policy
New policy
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Pensions
Philip Howell and Paul Stockton are paid a cash allowance
of 8.62% of salary and neither are in receipt of a defined
maximum awards.
benefit pension.
All executive directors are eligible to participate in the Rathbone
1987 Scheme for death in service benefits.
Share Incentive Plan (SIP)
This benefit is the value of the SIP matching and free share
awards made in the year. Employees may contribute up to
£150 per month 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.
Directors’ interests in shares (audited)
The table below sets out details of the directors’ shareholdings and outstanding share awards that are subject to vesting conditions:
Executive directors
P L Howell
R P Stockton
Shareholding guidelines
Beneficially owned shares
Subject to relevant holding period
Private shares
20,399
59,188
79,587
SIP1
511
2,480
2,991
Total
20,910
61,668
82,578
Deferred profit
scheme
EIP
31,490
19,886
51,376
12,434
7,478
19,912
SIP (not yet
beneficially
owned)1
438
595
SAYE
2,299
983
Total
46,661
28,942
1,033
3,282
75,603
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
In order to align the interests of executive directors and shareholders, with effect from 1 January 2018, the executive directors are required
to acquire and retain a holding in shares or rights to shares equivalent to the value of 200% of basic salary within five years of the date of
appointment, or the date of adoption of the policy. Shares that count towards these guidelines include shares that are owned outright,
vested and not exercised EIP and SIP awards. Philip Howell and Paul Stockton have both achieved this target. The chart below compares
the values of each executive director’s shareholding for this purpose as at 31 December 2017 with the shareholding required:
Remuneration outcomes under different performance scenarios
The charts below show the relative split of fixed and
variable remuneration showing minimum, on-target and
Executive Incentive Plan
Executive directors
Grant date
Type of security
At 1 January
2017
During
2017
At 31 December
2017
Face value
of award at
grant1
£
Number of
unvested
securities
Securities
granted2
Vested but
unexercised
(subject to
sales
restriction
period)
Vested but
unexercised
(subject to
sales
restriction
period)
Unvested
securities
Normal exercise
date (end of sales
restriction period)3
P L Howell
R P Stockton
22/03/2016
22/03/2017
Nil paid options
Conditional shares
434,670 19,491
365,201
–
– 15,897
3,898
–
15,593
15,897
3,898 22/03/2021
– 21/03/2022
22/03/2016
22/03/2017
Nil paid options
Conditional shares
272,722 12,229
232,105
–
– 10,103
2,446
–
9,783
10,103
2,446 22/03/2021
– 21/03/2022
1. Exercise price is nil
2. 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 £22.97
3. 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
Long Term Incentive Plan
Executive directors
Plan cycle
Grant date
Market value
of shares at
date of grant
Performance
period end date
Vesting date
At 1 January
2017
Dividend
adjustment on
vesting
Exercised in
2017
Lapsed
in 2017
At 31
December
2017
Number of shares
P L Howell
R P Stockton
Total
2014/16 25/03/14
£17.37 31/12/16 25/03/17
19,436
1,568
14,072
6,932
2014/16 25/03/14
£17.37 31/12/16 25/03/17
12,352
31,788
994
2,562
8,941
23,013
4,405
11,337
98
Rathbone Brothers Plc Report and accounts 2017
rathbones.com
rathbones.com
–
–
–
99
99
Governance
Remuneration committee report continued
Annual report on remuneration continued
Deferred profit share scheme
Executive directors
P L Howell
2013
2014
R P Stockton
2013
2014
Total
Share Incentive Plan
P L Howell
R P Stockton
Total
Number of shares
At 1 January
2017
Vested in
2017
Dividend
adjustment in
2017
At
31 December
2017
–
12,151
12,151
9,654
7,308
16,962
29,113
–
–
–
9,654
–
9,654
9,654
–
283
283
–
169
169
452
–
12,434
12,434
–
7,477
7,477
19,911
At 1 January
2017
Total number
of SIP shares1
743
2,820
3,563
During 2017
Partnership
shares acquired
Matching
shares acquired
Dividend
shares acquired
Free
shares received
88
88
176
88
88
176
18
67
85
12
12
24
At 31 December
2017
Total number
of SIP shares1
949
3,075
4,024
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
Save As You Earn outstanding options
Number of shares
Executive directors
Grant date
P L Howell
At
1 January
2017
Granted
in 2017
Exercised
in 2017
Lapsed in
2017
At 31
December
2017
Earliest
exercise
date
Latest
exercise
date
Market price
on grant
(p)
Exercise
price
(p)
28/03/13
01/05/14
28/04/15
1,356
578
365
01/05/14
28/04/16
28/04/17
867
273
–
3,439
–
–
–
–
–
710
710
–
–
–
867
–
–
867
R P Stockton
Total
–
–
–
–
–
–
–
1,356 01/05/18 01/11/18
578 01/06/19 01/12/19
365 01/06/20 01/12/20
– 01/06/17 01/12/17
273 01/06/19 01/12/19
710 01/06/20 01/12/20
3,282
1,397
1,945
2,051
1,945
2,059
2,373
1,106
1,556
1,641
1,556
1,648
1,899
100
100
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Performance graph (unaudited)
The chart below shows the company’s TSR against the FTSE
All Share Index for the nine years to 31 December 2017. TSR is
calculated assuming that dividends are reinvested on receipt.
Performance TSR (% change)
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.
350
300
250
200
150
100
50
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
31 Dec
2017
Rathbone Brothers Plc – Total Shareholder Return
FTSE All Share – Total Shareholder Return
Chief executive officer single figure (unaudited)
During the nine years to 31 December 2017, Andy Pomfret was
chief executive until 28 February 2014 when he was succeeded
by Philip Howell.
Year
CEO
Philip Howell
2017
2016 Philip Howell
2015
Philip Howell
2014
Philip Howell
2014
Andy Pomfret
2013
Andy Pomfret
2012
Andy Pomfret
2011
Andy Pomfret
2010
Andy Pomfret
CEO single
figure of total
remuneration
£’000
EIP award
or short term
bonus as % of
maximum
opportunity
Long term
incentive
vesting as %
of maximum
opportunity
1,104
1,398
1,608
999
342
1,204
1,046
678
736
64
66
78
89
n/a
59
38
46
52
–
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 2017 for the chief executive
compared with the average Rathbones employee.
CEO
Average pay based on all
Salary
Benefits
Annual bonus
–
–
(2%)
Rathbones’ employees
(1%)
13%
32%
Chairman and non-executive directors’ fees (audited)
Fees paid to the non-executive directors were not increased
in 2017 with no increase for the 2018 financial year. Any future
increases will depend upon a rigorous assessment of the burden
of responsibilities and market rates.
Chairman
M P Nicholls
Non-executive directors
J W Dean
J N Pettigrew
S F Gentleman
K A Matthews
D T D Harrel
Total
2017
£’000
160
60
45
56
60
26
407
2016
£’000
160
60
–
50
60
70
400
Non-executive directors’ share interests
The interest of the directors in the ordinary shares of the company
are set out below:
Chairman
M P Nicholls
Non-executive directors
J W Dean
S F Gentleman
K A Matthews
J N Pettigrew
Total
Private
shares
SIP
Total
3,000
749
3,749
1,000
–
–
–
4,000
–
–
1,260
–
2,009
1,000
–
1,260
–
6,009
rathbones.com
rathbones.com
101
101
Governance
Remuneration committee report continued
Relative importance of spend on pay
The chart below shows the relationship between total employee
remuneration, profit after tax and dividend distributions for 2017
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)
13%
150
141.1
125
100
75
50
25
0
124.7
23%
46.8
38.2
11%
29.4 26.5
Total staff costs
Profit after tax
Dividends paid
2017
2016
Implementation of the remuneration
policy in 2018
In 2018, the remuneration policy will be applied in a similar way
to 2017, albeit with the changes to reflect the new directors’
remuneration policy outlined above if approved. Salary
adjustments awarded to executive directors for 2018 are
noted below.
Salary
The executive directors’ salaries for 2018 is noted below. These are
in line with the awards made to the general employee base. Paul
Stockton’s salary increase reflects his performance and
contribution to the role.
Chief Executive
Finance Director
Salary effective
1 January 2018
£477,920
£309,750
Salary effective
1 January 2017
£464,000
£295,000
% increase
3%
5%
Pensions and benefits
Pensions and benefits will be delivered in line with the
remuneration policy. Pension benefits for the year will be 12%,
which is in line with the new maximum opportunity of 12%.
EIP 2018 – forward looking targets
The 2018 EIP (which would be awarded in 2019), subject to
performance, will be delivered in line with the new remuneration
policy, which allows for a maximum award level of 300% of base
salary. While the committee is able to make awards up to this new
maximum award level, actual award levels will continue to be
determined by the committee based on a robust assessment of
performance during the 2018 performance year.
Incentive awards under the EIP will continue to be linked to a
scorecard of short and longer term financial metrics, and annual
objectives covering financial and non-financial criteria. Annual
targets set for 2018 will take into account the amount of
expenditure and investment approved by the board in the 2018
budget to develop the business and support its growth initiatives.
The committee will not, at this time, disclose any of the remaining
one year measures on a prospective basis as these are considered
commercially sensitive (however actual performance against
these will be disclosed).
Whilst recognising the potential volatility associated with
investment markets and its direct impact on the financial
outcomes for Rathbones, the committee believes earnings per
share and underlying ROCE measures continue to be appropriate
measures to use when assessing longer term performance targets.
Long term targets for the 2018-20 award period, have accordingly
been set as outlined in the table below. When establishing
performance ranges for these targets, the committee has been
particularly mindful of the historic performance of the business in
different market conditions, the continuing need for investment in
the business and the increase in regulatory capital buffers in 2018
and 2019 required by Capital Requirements Regulations (see pages
38 to 41).
Performance measure
Three year CAGR EPS
Three year underlying average ROCE
Threshold Maximum
15%
20%
5%
14%
In respect of the two open-award years to 31 December 2019, the
committee has set a threshold and maximum of 4% to 14%
respectively for the three year EPS performance measure, and 14%
to 20% for three year underlying ROCE. The committee may also
make adjustments to performance targets to reflect significant
one-off events (e.g. a material transaction), where considered
appropriate and reasonable. Clear disclosure will be provided in
this instance regarding the nature and materiality of any change in
the directors’ remuneration report for the relevant financial year.
102
102
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Remuneration committee report continued
Relative importance of spend on pay
EIP 2018 – forward looking targets
The chart below shows the relationship between total employee
The 2018 EIP (which would be awarded in 2019), subject to
remuneration, profit after tax and dividend distributions for 2017
performance, will be delivered in line with the new remuneration
and 2016. The reported profit after tax has been selected by the
policy, which allows for a maximum award level of 300% of base
directors as a useful indicator when assessing the relative
salary. While the committee is able to make awards up to this new
importance of spend on pay.
Statement of shareholder voting
At the 2015 AGM, shareholders approved the directors’ remuneration policy, to apply for three years from the date of the AGM. At the 2017
AGM, shareholders approved the remuneration report that was published in the 2016 Annual Report and the results are detailed below:
Votes on Remuneration
Remuneration policy
(2015 AGM)
Annual report
on remuneration
(2016 AGM)
Annual report
on remuneration
(2017 AGM)
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
0%
10%
20%
30%
40%
50%
60% 70% 80% 90% 100%
Votes withheld
Votes cast against
Votes cast in favour
Annual report on remuneration
(2017 AGM)
96.2%
3.8%
79.0%
1,268,045
Annual report on remuneration
(2016 AGM)
96.4%
3.6%
78.2%
210,393
Remuneration policy
(2015 AGM)
96.8%
3.2%
77.7%
1,373,106
Advisers to the committee and their fees
During the year, the remuneration committee reviewed its consultants and received proposals from a number of firms. After a selection
process, PwC were appointed as advisers to the committee in August 2017. They are members of the Remuneration Consultants Group
and advise the committee on a range of matters including on remuneration package assessments, scheme design and reporting best
practice. PwC also provide professional services in the ordinary course of business, including advisory work to the group. The committee is
of the opinion that the advice received is objective and independent. PwC’s fees are charged on a time cost basis and were £71,400 in 2017.
The appointment of advisers is reviewed annually.
Evaluating the performance of the committee
The annual evaluation of the committee’s effectiveness was undertaken as part of the board’s external evaluation process. The findings
were discussed with the committee’s chairman and additional information can be found in the corporate governance report.
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
Sarah Gentleman
Chairman of the remuneration committee
21 February 2018
maximum award level, actual award levels will continue to be
determined by the committee based on a robust assessment of
performance during the 2018 performance year.
Incentive awards under the EIP will continue to be linked to a
scorecard of short and longer term financial metrics, and annual
objectives covering financial and non-financial criteria. Annual
targets set for 2018 will take into account the amount of
expenditure and investment approved by the board in the 2018
budget to develop the business and support its growth initiatives.
The committee will not, at this time, disclose any of the remaining
one year measures on a prospective basis as these are considered
commercially sensitive (however actual performance against
these will be disclosed).
Whilst recognising the potential volatility associated with
investment markets and its direct impact on the financial
outcomes for Rathbones, the committee believes earnings per
share and underlying ROCE measures continue to be appropriate
measures to use when assessing longer term performance targets.
Long term targets for the 2018-20 award period, have accordingly
been set as outlined in the table below. When establishing
performance ranges for these targets, the committee has been
particularly mindful of the historic performance of the business in
different market conditions, the continuing need for investment in
the business and the increase in regulatory capital buffers in 2018
and 2019 required by Capital Requirements Regulations (see pages
38 to 41).
Performance measure
Three year CAGR EPS
Three year underlying average ROCE
Threshold Maximum
5%
14%
15%
20%
In respect of the two open-award years to 31 December 2019, the
committee has set a threshold and maximum of 4% to 14%
respectively for the three year EPS performance measure, and 14%
to 20% for three year underlying ROCE. The committee may also
make adjustments to performance targets to reflect significant
one-off events (e.g. a material transaction), where considered
appropriate and reasonable. Clear disclosure will be provided in
this instance regarding the nature and materiality of any change in
the directors’ remuneration report for the relevant financial year.
Implementation of the remuneration
policy in 2018
In 2018, the remuneration policy will be applied in a similar way
to 2017, albeit with the changes to reflect the new directors’
remuneration policy outlined above if approved. Salary
adjustments awarded to executive directors for 2018 are
noted below.
Salary
The executive directors’ salaries for 2018 is noted below. These are
in line with the awards made to the general employee base. Paul
Stockton’s salary increase reflects his performance and
contribution to the role.
Salary effective
1 January 2018
Salary effective
1 January 2017
Chief Executive
Finance Director
£477,920
£309,750
£464,000
£295,000
% increase
3%
5%
Pensions and benefits
Pensions and benefits will be delivered in line with the
remuneration policy. Pension benefits for the year will be 12%,
which is in line with the new maximum opportunity of 12%.
102
Rathbone Brothers Plc Report and accounts 2017
rathbones.com
rathbones.com
103
103
Governance
Directors’ report
Group results and company dividends
The Rathbone Brothers Plc group profit after taxation for the year
ended 31 December 2017 was £46,829,000 (2016: £38,157,000).
The directors recommend the payment of a final dividend of 39.0p
(2017: 36.0p) on 14 May 2018 to shareholders on the register on
20 April 2018. An interim dividend of 22.0p (2016: 21.0p) was paid on
3 October 2017 to shareholders on the register on 8 September
2017. This results in total dividends of 61.0 (2016: 57.0p) per
ordinary share for the year. These dividends amount to £30,429,000
(2016: £28,267,000) – 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 2017, 51,302,074 shares were in
issue (2016: 50,682,679). No shares were held in treasury (2016:
8,979). 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 16,894,680 shares (approximately one
third of the issued share capital at 31 March 2017). The existing
authorities given to the company at the last annual general
meeting (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 satisfied
from a combination of shares held either in treasury or in the
employee benefit trust and by newly issued shares. During the
year, the company transferred 8,979 shares out of treasury for a
total consideration of £160,000, issued 181,712 shares to satisfy
share awards and issued 437,683 shares to the company’s
employee benefit trust, to satisfy future awards under the group’s
share-based payment schemes.
Purchase of own shares
Following the 2017 AGM, resolution to purchase own shares,
the board currently has the authority to buy back up to
2,500,000 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.
Corporate governance statement
As required by Disclosure and Transparency Rule 7.2, you can
find our corporate governance statement in the governance report
on pages 58 to 67 and it is incorporated into this directors’ report
by reference.
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.
Employee share trust
During the year Accuro Fiduciary Services (Jersey) Limited
(formerly Salamanca Trustees Limited) retired as trustee of the
first employee benefit trust.
On 4 April 2017, Equiniti Trust (Jersey) Limited were appointed as
trustee of the second employee benefit trust. The trust is
independent and holds shares for the benefit of employees and
former employees of the group. The trustee has agreed to satisfy
awards under the Executive Incentive Plan, Share Incentive Plan
and the Savings Related Share Option 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 number of
shares issued by both trustees totaled 99,725 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 62 to 63. The directors’ interests in the share capital
of the company at 31 December 2017 are set out on pages 98 to 101
of the remuneration committee report.
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 46 to 49.
104
104
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017 Corporate responsibility
Information about greenhouse gas emissions and our corporate
social responsibility are set out in the corporate responsibility
report on pages 50 to 53.
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 2017 and remain in force at the date of this report.
Substantial shareholdings
As at 31 December 2017, the company had received notifications in
accordance with the Financial Conduct Authority’s Disclosure and
Transparency Rule 5, of the following interests:
Shareholder
Lindsell Train Ltd.
MFS Investment
Mawer Investment Management Ltd.
Aviva Investors
Troy Asset Management
Heronbridge Investment Management
Holding at
21 Feb 2018
7,099,014
4,293,793
4,021,545
1,914,423
1,795,500
1,563,256
% held at
21 Feb 2018
13.84%
8.37%
7.84%
3.73%
3.50%
3.05%
Share price
The mid-market price of the company’s shares at 31 December 2017
was £25.54 (2016: £19.83) and the range during the year was £19.79
to £28.12 (2016: £15.90 to £23.59).
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 2018 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
herselfaware 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.
The 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 2017, the group has continued to generate organic growth in
client funds under management and this is expected to continue.
The directors believe that the company is well placed to manage
its business risks successfully despite the continuing uncertain
economic and political outlook. As the directors have a reasonable
expectation that the company has adequate resources to continue
in operational existence for the foreseeable future, they continue
to adopt the going concern basis of accounting in preparing the
annual financial statements.
Political donations
No political donations were made during the year (2016: 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 comprise the management report.
Annual General Meeting
The 2018 AGM will be held on Thursday 10 May 2018 at 12.00
noon at 8 Finsbury Circus, London EC2M 7AZ. Full details of all
resolutions and notes are set out in the separate Notice of AGM.
By order of the board
Ali Johnson
Company Secretary
21 February 2018
Registered office: 8 Finsbury Circus, London EC2M 7AZ
rathbones.com
Rathbone Brothers Plc Report and accounts 2017
105
105
Governance
Statement of directors’ responsibilities in respect of the report and accounts
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, directors’ report,
directors’ remuneration report and corporate governance
statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the directors
in respect of the annual financial report
We confirm that to the best of our knowledge:
— the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole; and
— the strategic report and directors’ report includes 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.
We consider 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
21 February 2018
The directors are responsible for preparing the report and
accounts 2017, and the group and parent company financial
statements 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 International Financial Reporting Standards as
adopted by the European Union (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 judgements and estimates that are reasonable, relevant
and reliable
— state whether they have been prepared in accordance with
IFRS as adopted by the EU
— assess the group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern
— use the going concern basis of accounting unless they either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
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 are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and 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.
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Financial statements
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107
Financial statements Independent auditor’s report to the members of Rathbone Brothers Plc
1 Our opinion is unmodified
We have audited the financial statements of Rathbone Brothers
Plc for the year ended 31 December 2017 which comprise the
consolidated statement of comprehensive income, consolidated
statement of changes in equity, consolidated balance sheet,
consolidated statement of cash flows, company statement of
changes in equity, company balance sheet and company
statement of cash flows, and the related notes, including the
accounting policies in note 1 and 39.
In our opinion:
— the financial statements give a true and fair view of the state
of the group’s and of the parent company’s affairs as at
31 December 2017 and of the group’s profit for the year
then ended;
— the group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS as adopted
by the EU);
— the parent company financial statements have been properly
prepared in accordance with IFRS as adopted by the EU and as
applied in accordance with the provisions of the Companies
Act 2006; and
— the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the
IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities are described in the next paragraph. We believe
that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion is consistent
with our report to the audit committee.
We were appointed as auditor by the shareholders on 9 June
2009. The period of total uninterrupted engagement is for the nine
financial years ended 31 December 2017. We have fulfilled our
ethical responsibilities under, and we remain independent of the
group in accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed public interest entities.
No non-audit services prohibited by that standard were provided.
2 Key audit matters: our assessment of
risks of material misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit and directing
the efforts of the engagement team. We summarise below the key
audit matters, in decreasing order of audit significance, in arriving
at our audit opinion above, together with our key audit procedures
to address those matters and, as required for public interest
entities, our results from those procedures. These matters were
addressed, and our results are based on procedures undertaken, in
the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion
thereon, and consequently are incidental to that opinion, and we
do not provide a separate opinion on these matters.
Recognition and impairment of client relationship
intangibles. Amount capitalised during the year
£2,743,000 (2016: £7,926,000), amount expensed as
capitalisation criteria not met £5,094,000 (2016:
£4,005,000) and carrying balance of client relationship
intangible £88,511,000 (2016: £97,201,000)
Risk vs 2016:
Refer to page 73 (audit committee report), page 124 (accounting
policy) and pages 126 and 140 (financial disclosures).
The risk – accounting application in relation to recognition of client
relationship intangibles
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).
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Rathbone Brothers Plc Report and accounts 2017
The key judgement areas our audit concentrated on were:
— 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
introducing previously held client relationships beyond that
period; during the year payments were capitalised outside the
12 month earn-out period. 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.
The risk – accounting application in relation to impairment of client
relationship intangibles
— For client relationship intangibles, 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.
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.
Our response
In this area our procedures included:
Accounting application in relation to recognition of client relationship
intangibles
— Methodology implementation: we considered whether the
payments capitalised fell within the relevant 12 month period
by comparing the dates of client transfer and employment
contract of the investment manager.
— Tests of details: in respect of those instances where payments
were capitalised beyond the 12 month period, for each
significant addition we confirmed whether these relationships
were held by the investment manager in a previous
employment, challenged the group on the nature of the
relationship and obtained documentary evidence.
— Independent re-performance: 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.
— Tests of details: on a sample basis we tested that such costs
related to relationships already held by the investment
manager by obtaining relevant documentation evidencing
previous relationship.
Accounting application in relation to impairment of client relationship
intangibles
— Independent re-performance: 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
impairment triggers.
— Tests of details: in considering the adequacy of the impairment
assessment performed by the group to support the carrying
value of client relationship intangibles previously capitalised,
we assessed the population for closed client accounts or non-
income generating clients to assess whether they were
appropriately derecognised.
Assessing transparency: we have also considered the adequacy of
the group’s disclosure in respect of intangible assets.
Our results – we found the recognition and carrying value of client
relationship intangibles to be acceptable.
Valuation of defined benefit pension deficit
£15,600,000 (2016: £39,455,000)
Refer to page 73 (audit committee report), page 125 (accounting
policy) and pages 126, 143 to 148 (financial disclosures).
The risk – subjective valuation
The group and parent company has recognised a pension deficit
of £15.6 million as at 31 December 2017.
— The valuation of the defined benefit pension deficit depends
on a number of judgemental 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, the life expectancy of pension
scheme members and the number of members who will
transfer out of the schemes. The valuation is an important
judgement as this balance is volatile and impacts the parent
company’s distributable reserves.
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.
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109
Consolidated financial statements
Independent auditor’s report to the members of Rathbone Brothers Plc continued
2 Key audit matters: our assessment
of risks of material misstatement
continued
— The plan assets are not subject to significant risk of
misstatement, but due to their materiality in the context of the
group’s financial statements, they are considered to be part of
this key audit matter.
Our response – our procedures include:
— Our actuarial expertise: we used 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 number of members who
transfer out of the schemes, the discount rate, RPI inflation and
life expectancy that were applied to the valuation.
— Benchmarking assumptions: we performed a comparison of
key assumptions against externally derived data and our
benchmark ranges for similar schemes.
— Methodology choice: we considered the group’s judgement in
selecting its assumptions and whether there were any
indicators of management bias.
— Comparing valuations: we obtained a breakdown of assets held
in both defined benefit pension schemes. We used our own
valuation specialists to independently verify the value of a
sample of the assets held within both schemes.
— Assessing transparency: we 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.
Our results – we found the valuation of defined benefit pension
deficit to be acceptable.
(New) Measurement of Onerous Lease Provision
£11,478,000 (2016: nil)
Risk vs 2016:
Refer to page 73 (audit committee report), page 131 (accounting
policy) and pages 126 and 141 to 142 (financial disclosures).
The risk – subjective estimate
The measurement of the onerous lease provision depends on a
number of assumptions and estimates. In particular, the value of
the provision is sensitive to the underlying key assumptions
around future cash flows and discount rates. The key assumptions
applied by the group are:
— the discount rates applied;
— the estimated period of time the property remains empty
(‘void period’);
— the period of time a rent-free agreement is offered (‘rent-free
period’); and
— the level of sub-lease income and the adjustment made in
relation to the risk of uncertainty.
In determining the provision, the group obtained advice from
independent property specialists. These are estimates made in
respect of current market trends and conditions, and the value of
the provision is determined by the group’s known future costs for
the premises and expectations of the potential rental income.
Our response – our procedures included:
— Our property valuation expertise: we used our own property
specialists to challenge key assumptions and estimates used in
the calculation of the onerous lease provision. This included
comparing these assumptions against our specialist’s own
knowledge of property lettings in the industry, and assessing
the reasonableness of the group’s assumptions against their
benchmark ranges for similar properties in the area.
— Test of details: we tested the accuracy and completeness of
key data inputs by reviewing documentation in relation to
signed lease agreements.
— Our sector experience: we assessed the reasonability of the
discount rate used for both certain and uncertain cash flows.
— Methodology choice: we considered the group’s judgement in
selecting its assumptions and whether there were any
indicators of management bias.
— Assessing transparency: we considered the adequacy of the
group’s disclosure in respect of the onerous lease provision.
Our results – we found the measurement of the onerous lease
provision to be acceptable.
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Rathbone Brothers Plc Report and accounts 2017
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
£3.6 million (2016: £2.8 million), determined with reference to a
benchmark of group profit before tax, normalised to exclude the
loss on recognition of the onerous lease for the year of £16.1 million
(as disclosed in note 25) and the credit of £2.0 million in relation to
the rent-free accrual (as disclosed in note 9), a credit of £5.5 million
relating to the plan amendment gain for the defined benefit
pension scheme (as disclosed in note 27), as well as expense of
£4.9 million relating to an aborted acquisition during the year
(as disclosed in note 8). These are one-off expenses and not
considered to be part of the normalised profit before tax.
Materiality represents 5% (2016: 5%) of the normalised group
profit before tax.
Materiality for the parent company financial statements as a
whole was set at £2.9 million (2016: £2.2 million). This is lower than
the materiality we would otherwise have determined by reference
to net assets, and represents 1.4% of the parent company’s net
assets (2016: 1.2%).
We agreed to report to the audit committee any corrected or
uncorrected identified misstatements exceeding £180,000
(2016: £140,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Of the group's eight (2016: eight) reporting components, we
subjected eight (2016: eight) to full scope audits for group
purposes. The audit work for eight (2016: six) was performed by
the group team to materiality levels set individually for each entity
which ranged from £0.03 million to £2.9 million (2016: £0.2 million
to £2.2 million), having regard to the mix of size and risk profile of
the group across the components.
4 We have nothing to report on going
concern
We are required to report to you if:
— we have anything material to add or draw attention to in
relation to the directors’ statement on page 121 of the financial
statements on the use of the going concern basis of accounting
with no material uncertainties that may cast significant doubt
over the group and company’s use of that basis for a period of
at least twelve months from the date of approval of the
financial statements; or
— the same statement under the Listing Rules set out on page 105
is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
5 We have nothing to report on the
other information in the Annual
Report and Accounts
The directors are responsible for the other information presented
in the annual report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent
with the financial statements or our audit knowledge. Based solely
on that work we have not identified material misstatements in the
other information.
The group team performed procedures on the items excluded
from normalised group profit before tax.
Strategic report and directors’ report
Based solely on our work on the other information:
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 £72.2m
(2016: £54.5m)
£3.6m
Group materiality
(2016: £2.8m)
£3.0m
Range of materiality
at eight components
(£0.03m to £2.0m)
(2016: £0.2m to £2.2m)
£0.18m
Group misstatements reported
to the audit committee
(2016: £0.14m)
— we have not identified material misstatements in the strategic
report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the directors’ remuneration report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
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111
Consolidated financial statements
Independent auditor’s report to the members of Rathbone Brothers Plc continued
6 We have nothing to report on the
other matters on which we are
required to report by exception
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.
We have nothing to report in these respects.
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 106,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless they either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
5 We have nothing to report on the
other information in the annual
report and accounts continued
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
— the directors’ confirmation within viability statement on
page 28 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
and liquidity;
— the risk management disclosures describing these risks and
explaining how they are being managed and mitigated; and
— the directors’ explanation in the viability statement of how
they have assessed the prospects of the group, over what
period they have done so and why they considered that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the group will be
able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
— we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
audit committee does not appropriately address matters
communicated by us to the audit committee.
We are required to report to you if the corporate governance
report does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report in these respects.
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Rathbone Brothers Plc Report and accounts 2017
8 The purpose of our audit work and to
whom we owe our responsibilities
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the
company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Nicholas Edmonds (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
21 February 2018
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud, other irregularities, or error,
and to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee that
an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud, other irregularities or error and are considered material
if, individually or in aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis
of the financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is higher
than for one resulting from error, as they may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal control and may involve any area of law and regulation
not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified relevant areas of laws and regulations that could
have a material effect on the financial statements from our sector
experience, through discussion with the directors and other
management (as required by auditing standards), and from
inspection of the group’s regulatory correspondence.
We had regard to laws and regulations in areas that directly affect
the financial statements including financial reporting (including
related company legislation) and taxation legislation. We
considered the extent of compliance with those laws and
regulations as part of our procedures on the related financial
statements items.
In addition we considered the impact of laws and regulations in
the specific areas of regulatory capital and liquidity, conduct,
financial crime including money laundering, sanctions list and
market abuse regulations recognising the financial and regulated
nature of the group’s activities. With the exception of any known
or possible non-compliance, and as required by auditing
standards, our work in respect of these was limited to enquiry of
the directors and other management and inspection of regulatory
correspondence. We considered the effect of any known or
possible non-compliance in these areas as part of our procedures
on the related financial statements items.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
As with any audit, there remained a higher risk of non-detection of
irregularities, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls.
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113
Consolidated financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2017
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
Gain on plan amendment of defined benefit pension schemes
Other operating income
Operating income
Charges in relation to client relationships and goodwill
Acquisition-related costs
Head office relocation costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Profit for the year attributable to equity holders of the company
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability
Deferred tax relating to net remeasurement of defined benefit liability
Items that may be reclassified to profit or loss
Revaluation of available for sale investment securities:
— net gain from changes in fair value
— net profit on disposal transferred to profit or loss during the year
Deferred tax relating to revaluation of available for sale investment securities
Other comprehensive income net of tax
Total comprehensive income for the year net of tax attributable to equity holders
of the company
Dividends paid and proposed for the year per ordinary share
Dividends paid and proposed for the year
Earnings per share for the year attributable to equity holders of the company:
— basic
— diluted
The accompanying notes form an integral part of the consolidated financial statements.
Note
4
5
6
27
6
7
8
9
7
11
27
20
17
20
12
13
2017
£’000
13,501
(1,907)
11,594
292,034
(22,715)
269,319
3,071
5,523
2,065
291,572
(11,716)
(6,178)
(16,248)
(198,529)
(232,671)
58,901
(12,072)
46,829
46,829
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
17,288
(2,939)
(37,318)
5,936
163
(43)
120
(20)
14,449
93
–
93
(14)
(31,303)
61,278
6,854
61.0p
30,429
57.0p
28,267
92.7p
91.9p
78.9p
78.2p
114
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Consolidated statement of changes in equity
for the year ended 31 December 2017
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 1 January 2017
Profit for the year
Net remeasurement of defined benefit liability
Revaluation of available for sale investment
securities:
— net gain from changes in fair value
— net profit on disposal transferred to profit or loss
during the year
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
— value of employee services
— cost of own shares acquired
— cost of own shares vesting
— tax on share-based payments
At 31 December 2017
27
17
20
12
28
29
29
29
20
27
17
20
12
28
29
29
20
Note
Share
capital
£’000
2,407
Share
premium
£’000
97,643
Merger
reserve
£’000
31,835
Available for
sale reserve
£’000
71
93
(14)
79
–
–
–
128
42,003
345
2,535 139,991
31,835
150
Own
shares
£’000
Total
Retained
equity
earnings
£’000
£’000
(6,177) 174,413 300,192
38,157
38,157
(37,318)
(37,318)
93
5,936
(31,382)
5,922
(31,303)
–
(26,479)
(26,479)
42,131
3,035
(1,084)
(1,585)
1,084
435
3,035
(1,585)
–
780
(115)
(6,243) 156,545 324,813
46,829
46,829
17,288
17,288
(115)
163
(43)
(20)
100
163
(43)
(2,939)
14,349
(2,959)
14,449
–
(29,420)
(29,420)
3,129
–
–
–
31
3,098
2,566 143,089
31,835
250
3,591
(441)
1,820
3,591
(441)
–
328
(4,864) 190,402 363,278
(1,820)
328
The accompanying notes form an integral part of the consolidated financial statements.
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115
Consolidated financial statements
Consolidated balance sheet
as at 31 December 2017
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
2017
£’000
2016
£’000
14
15
16
17
17
18
19
20
21
22
23
24
26
27
28
28
29
1,375,382
46,784
117,253
126,213
109,312
701,966
74,445
16,457
9,061
161,977
2,738,850
1,338
54,452
2,170,498
108,391
5,598
19,695
15,600
2,375,572
2,566
143,089
31,835
250
(4,864)
190,402
363,278
2,738,850
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
The financial statements were approved by the board of directors and authorised for issue on 21 February 2018 and were signed on their
behalf by:
Philip Howell
Chief Executive
Company registered number: 01000403
Paul Stockton
Finance Director
The accompanying notes form an integral part of the consolidated financial statements.
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Rathbone Brothers Plc Report and accounts 2017
Consolidated statement of cash flows
for the year ended 31 December 2017
Cash flows from operating activities
Profit before tax
Net profit on disposal of available for sale investment securities
Net interest income
Net impairment charges on impaired loans and advances
Net charge for provisions
Profit on disposal of property, plant and equipment
Depreciation, amortisation and impairment
Foreign exchange movements
Defined benefit pension scheme charges
Defined benefit pension contributions paid
Share-based payment charges
Interest paid
Interest received
Changes in operating assets and liabilities:
— net (increase)/decrease 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 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
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
Dividends paid
Net cash (used in)/generated from 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 consolidated financial statements.
Note
2017
£’000
2016
£’000
58,901
(43)
(11,594)
1
16,728
–
19,415
1,480
(2,948)
(3,619)
3,871
(1,663)
13,084
93,613
(16,643)
(8,997)
(8,318)
282,647
15,163
8,146
365,611
(14,087)
351,524
–
(16,123)
–
(746,566)
742,581
(20,108)
2,688
(29,420)
(26,732)
304,684
1,263,074
1,567,758
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
16
25
17
27
27
10
17
17
36
12
36
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117
117
Consolidated financial statements
Notes to the consolidated financial statements
Principal accounting policies
1
Rathbone Brothers Plc (‘the company’) is a public company
incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1 Basis of preparation
The consolidated and company financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU. The company financial
statements are presented on pages 114 to 117.
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, the group has adopted the amendments to IAS
7 ‘Statement of Cash Flows’, which improves disclosures on net
debt in these financial statements. The group now provides a
reconciliation between the opening and closing balances for
liabilities arising from financial activities (see note 36).
No other 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:
– Recognition of Deferred Tax Assets for Unrealised Losses
(Amendments to IAS 12)
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 2017 and, therefore, have not been
applied in preparing these consolidated financial statements.
The effects of IFRS 9 ‘Financial Instruments’, IFRS 15 'Revenue
from Contracts with Customers' and IFRS 16 ‘Leases’ on
the consolidated financial statements of the group are
discussed below.
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 in preparing these
consolidated financial statements.
IFRS 9 governs the accounting treatment for the classification and
measurement of financial instruments and the timing and extent
of credit provisioning. The standard replaces IAS 39.
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.
The classification criteria for allocating financial assets between
categories under IFRS 9 requires the group to document the
business models under which its assets are managed,
distinguishing whether they are:
– held-to-collect;
– both held-to-collect and for sale; or
– another type of business model (e.g. trading).
The group is also required to review contractual terms and
conditions to determine whether the cash flows arising on these
assets are solely payments of principal and interest.
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Rathbone Brothers Plc Report and accounts 2017
The group has not identified any material differences from the
classification of financial assets under the new standard. Debt
securities currently classified as held to maturity will be classified
as amortised cost. Other assets currently carried at amortised cost
such as cash with central banks (including deposits held with the
Bank of England) and loans and advances to banks and customers
will also continue to be classified as such. Investments in money
market funds, which are currently classified as available for sale,
will be classified as FVTPL as they are equity instruments. The
group does not intend to make the FVOCI election. Under this
classification, fair value gains and losses will be recognised in profit
or loss.
Impairment of financial assets
Under IFRS 9, an expected credit loss (ECL) model replaces the
incurred loss model, meaning there no longer needs to be a
triggering event in order to recognise impairment losses. A credit
loss provision must be made for the amount of any loss expected
to arise, whereas under IAS 39, credit losses are recognised when
they are incurred.
Under the ECL model, a dual measurement approach applies
whereby a financial asset will attract a loss allowance equal
to either:
– 12 month expected credit losses: losses resulting from possible
defaults within the next 12 months; or
–
lifetime expected credit losses: losses resulting from possible
defaults over the remaining life of the financial asset.
The latter applies if there has been a significant deterioration in the
credit quality of the asset, albeit lifetime ECLs will always be
recognised for assets without a significant financing component.
The group has developed a detailed model for calculating ECLs on
its treasury book and investment management loan book. This
requires considerable judgement in developing different
economic scenarios and probability-weighting them accordingly.
The economic scenarios in the model are based on the projections
of GDP, inflation, unemployment rates, house price indices,
financial markets and interest rates as set out in the banking
system stress testing scenario published annually by the PRA. In
addition, management prepare ‘better’ and ‘worse’ case economic
forecasts by adjusting the projections for the economic variables.
Under each resultant scenario, an expected credit loss is forecast
for each exposure in the treasury book and investment
management loan book. The expected credit loss is calculated
based on management’s estimate of the probability of default, the
loss given default and the exposure at default of each exposure
taking into account industry credit loss data, the group’s own
credit loss experience, the expected repayment profiles of the
exposures and the level of collateral held. Industry credit loss
information is drawn from data on credit defaults for different
categories of exposure published by the Council of Mortgage
Lenders and Standard & Poor’s.
The model adopts a staging allocation methodology, primarily
based on changes in the internal and/or external credit rating of
exposures to identify significant increases in credit risk since
inception of the exposure.
The group’s trade receivables (including trust and financial
planning debtors) are generally short term and do not contain
significant financing components. Therefore, the group expects to
apply a practical expedient by using a provision matrix to calculate
lifetime expected credit losses.
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.
Transition
In adopting IFRS 9, the group plans to take advantage of the
exemption from having to restate comparative information,
instead recognising any differences between the previous and the
new carrying amounts in opening equity and reserves.
Estimated impact of adoption of IFRS 9
The group has assessed the estimated impact that the initial
application of IFRS 9 will have on its consolidated financial
statements, based on the profile of its financial instruments as at
the balance sheet date. From the work completed to date, the
group estimates that adoption of IFRS 9 will not result in any
material adjustments to opening equity, or the carrying amount of
financial assets and liabilities recognised on the balance sheet.
Additional expected credit loss provisions recognised under IFRS
9 are expected to be immaterial, reflecting the high credit quality of
instruments in the treasury book, the high level of security held
against the investment management loan book and relatively low
value of trade receivables.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 is effective for periods commencing on or after 1 January
2018 and replaces existing revenue recognition guidance, in
particular under IAS 18. The standard was endorsed by the EU
during 2016. The group has not adopted this standard early in
preparing these consolidated financial statements.
IFRS 15 changes how and when revenue is recognised from
contracts with customers and the treatment of the costs of
obtaining a contract with a customer. The standard requires that
the recognition of revenue is linked to the fulfilment of identified
performance obligations that are enshrined in the customer
contract. It also requires that the incremental cost of obtaining a
customer contract should be capitalised if that cost is expected to
be recovered.
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119
119
Consolidated financial statements
Notes to the consolidated financial statements continued
1
Principal accounting policies
continued
The group has considered the impact of adopting the standard, on
its existing revenue streams, as well as on its policy of capitalising
the cost of obtaining customer contracts.
Net fee and commission income
Included within net fee and commission income are initial fees,
charged by a number of group companies in relation to certain
business activities. Under IFRS 15, the group is 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 the relevant performance obligation has been satisfied; if
not, then the fees can only be recognised in the period the services
are provided.
We have not identified any instances where the recognition of
revenue will change materially from the current treatment in the
consolidated financial statements.
Contract costs
Under the group’s current policy for capitalising contract costs,
incremental payments that are made to secure investment
management contracts are capitalised as client relationship
intangibles if they are separable, reliably measurable and expected
to be recovered. The period during which such payments are
capitalised is typically 12 months, as explained in note 2.1.
Estimated impact of adoption of IFRS 15
The group has assessed the estimated impact that the initial
application of IFRS 15 will have on its consolidated financial
statements.
From the work completed to date, the group estimates that it will
recognise a pre-tax adjustment of approximately £8 million to
opening equity, with a corresponding adjustment to client
relationship intangibles, in respect of the additional capitalisation
of payments made to investment managers.
IFRS 16 'Leases'
IFRS 16 is effective for periods commencing on or after 1 January
2019. The standard was endorsed by the EU during 2017. The
group has not adopted 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.
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 as if
IFRS 16 had always applied; or
– apply a practical expedient and retain its previous assessments
of which contracts contain a lease.
Under IFRS 15, the scope requirements are broader such that costs
to obtain any contract with a customer should be capitalised if
those costs are incremental and the entity expects to recover them.
The group intends to apply the practical expedient and therefore
will not be reassessing those contracts that are not deemed to
contain a lease prior to the date of adoption.
The group has assessed its current policy and expects to remove
the 12 month limit on capitalisation of payments to newly
recruited investment managers under the new standard. The
policy will be unchanged in all other respects.
The group has also identified a number of other schemes where
awards are linked to obtaining client contracts and has considered
whether any meet the new criteria for capitalising costs under
IFRS 15. The group does not believe that the adoption of the new
standard will result in any awards made under these schemes
being capitalised.
Transition
The group plans to adopt IFRS 15 using the cumulative effect
method, with the effect of initially applying the standard
recognised at the date of initial application, with no restatement of
the comparative period.
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 has assessed the impact of both approaches in relation
to its existing lease contracts, and plans to apply the modified
retrospective approach.
Potential impact
The group has conducted an initial quantification of the impact
of adopting the standard, based on its existing lease contracts.
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.
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Rathbone Brothers Plc Report and accounts 2017
The most significant impact is in respect of its London head office
premises. As at 31 December 2017, the group’s future minimum
lease payments under non-cancellable operating leases amounted
to £90,602,000, on an undiscounted basis, of which £75,946,000
relates to its 8 Finsbury Circus office (see note 33).
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.
Lessor accounting
The group is not required to make any adjustments for leases in
which it is a lessor except where it is an intermediate lessor in a
sub-lease. The work to quantify the impact of being an
intermediate lessor remains ongoing.
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.
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.
Income
1.7
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.
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121
121
Consolidated financial statements
Notes to the consolidated financial statements continued
1
Principal accounting policies
continued
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.
1.9 Share-based payments
The group engages in equity-settled and cash-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.
1.10 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;
– 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.
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Rathbone Brothers Plc Report and accounts 2017 – 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.
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.
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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; and
–
– 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.
123
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Consolidated financial statements
Notes to the consolidated financial statements continued
1
Principal accounting policies
continued
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 judgement. The factors that the group
takes into consideration in making this judgement are set out in
note 2.1.
Individually purchased client relationships are initially recognised
at cost. Where a transaction to acquire client relationship
intangibles includes an element of variable deferred consideration,
an estimate is made of the value of consideration that will
ultimately be paid. The client relationship intangible recognised on
the balance sheet is adjusted for any subsequent change in the
value of deferred consideration. Note 2.1 sets out the approach
taken by the group where judgement is required to determine
whether payments made for the introduction of client
relationships should be capitalised as intangible assets or charged
to profit or loss.
Client relationships are subsequently carried at the amount
initially recognised less accumulated amortisation, which is
calculated using the straight line method over their estimated
useful lives (normally 10 to 15 years, but not more than 15 years).
Computer software and software development costs
Costs incurred to acquire and bring to use computer software
licences are capitalised and amortised through profit or loss over
their expected useful lives (three to four years).
Costs that are directly associated with the production of
identifiable and unique software products controlled by the group
are recognised as intangible assets when the group is expected to
benefit from future use of the software and the costs are reliably
measurable. Other costs of producing software are charged to
profit or loss as incurred. Computer software development costs
recognised as assets are amortised using the straight line method
over their useful lives (not exceeding four years).
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.
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.
If the recoverable amount of any asset other than client
relationships or goodwill is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its
recoverable amount.
Any impairment loss is recognised immediately in profit or loss.
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Rathbone Brothers Plc Report and accounts 2017
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 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
benefit schemes
The group’s net liability in respect of defined benefit pension plans
is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their
service in the current and prior years; that benefit is discounted to
determine its present value, and the fair value of any plan assets
(at bid price) are deducted. Any asset resulting from this
calculation is limited to the present value of available refunds and
reductions in future contributions to the plan.
The cost of providing benefits under defined benefit plans is
determined using the projected unit credit method, with
actuarial valuations being carried out at each balance sheet date.
Net remeasurements of the defined benefit liability are
recognised in full in the period in which they occur in other
comprehensive income.
Past service costs or gains are 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.
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.
rathbones.com
rathbones.com
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Consolidated financial statements
Notes to the consolidated financial statements continued
2 Critical accounting judgements
and key sources of estimation
and uncertainty
The group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next financial
year. Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
2.1 Client relationship intangibles (note 21)
Client relationship intangibles purchased through corporate
transactions
When the group purchases client relationships through
transactions with other corporate entities, a judgement is made as
to whether the transaction should be accounted for as a business
combination or as a separate purchase of intangible assets. In
making this judgement, the group assesses the assets, liabilities,
operations and processes that were the subject of the transaction
against the definition of a business in IFRS 3. In particular,
consideration is given to the scale of the operations subject to the
transaction, whether ownership of a corporate entity has been
acquired and to whom any amounts payable under the
transaction are payable, among other factors.
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited
investment managers under contractual agreements represent
payments for the acquisition of client relationship intangibles or
remuneration for ongoing services provided to the group. If the
client relationships introduced are judged to be capable of being
sold separately and the corresponding payments are judged to be
reliably measurable and have a high probability of recoverability
then they are capitalised as client relationship intangibles.
Otherwise, they are judged to be in relation to the provision of
ongoing services and 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 £2,743,000 of payments
made to investment managers and expensed £5,094,000
(2016: £7,926,000 capitalised and £4,005,000 expensed).
A reduction in the capitalisation period by one month would
decrease client relationship intangibles by £281,000 and decrease
profit before tax for the year by £281,000 (2016: £617,000 and
£617,000 respectively).
Amortisation of client relationship intangibles
The group makes estimates as to the expected duration of client
relationships to determine the period over which related
intangible assets are amortised. The amortisation period is
estimated with reference to historical data on account closure
rates and expectations for the future. During the year client
relationship intangible assets were amortised over a 10 to 15 year
period. Amortisation of £11,433,000 (2016: £11,594,000) was
charged during the year. A reduction in the average amortisation
period of one year would increase the amortisation charge by
approximately £1,076,000 (2016: £1,100,000). At 31 December 2017,
the carrying value of client relationship intangibles was
£88,511,000 (2016: £97,201,000).
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
judgemental and subject to risk that actual events may be
significantly different to those forecast. If actual events deviate
from the assumptions made by the group then the reported
surplus or deficit in respect of retirement benefit obligations may
be materially different.
The principal assumptions underlying the reported deficit of
£15,600,000 (2016: £39,455,000 deficit) and information on the
sensitivity of the retirement benefit obligations to changes in
underlying estimates are set out in note 27.
2.3 Head office relocation (notes 9 and 25)
During the year, the group moved its head office to 8 Finsbury
Circus, vacating 1 Curzon Street but retaining lease commitments
until September 2023. This triggered recognition of a provision for
the net cost of the surplus property at 1 Curzon Street until the end
of the existing leases.
The value of the onerous lease provision is dependent on
assumptions about the amount and timing of the cash flows to be
received under any sublet agreement or assignment of the leases.
During the year, the group recognised an onerous lease provision,
including the effect of discounting, of £16,265,000 (2016: £nil).
At 31 December 2017, the outstanding provision stood at
£11,478,000. Allowing for alternative assumptions about the
duration of any void period, any rent-free periods offered and
any discount on the passing rent, the onerous lease provision
at 31 December 2017 could reasonably fall within the range of
£7,600,000 to £15,100,000.
126
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Rathbone Brothers Plc Report and accounts 2017
Segmental information
3
For management purposes, the group is organised into two operating divisions: Investment Management and Unit Trusts. Centrally
incurred indirect expenses are allocated to these operating segments on the basis of the cost drivers that generate the expenditure;
principally, the headcount of staff directly involved in providing those services from which the segment earns revenues, the value of
funds under management and the segment's total revenue. The allocation of these costs is shown in a separate column in the table
below, alongside the information presented for internal reporting to the group executive committee, which is the group’s chief operating
decision maker.
31 December 2017
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
Gain on plan amendment of defined benefit pension schemes (note 27)
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
189,465
38,729
11,594
14,831
254,619
(59,457)
(40,240)
(99,697)
(21,893)
(56,188)
(177,778)
76,841
(11,716)
(1,273)
63,852
Unit Trusts
£’000
28,020
–
–
3,410
31,430
Indirect expenses
£’000
–
–
–
–
–
(3,040)
(7,246)
(10,286)
(4,415)
(6,050)
(20,751)
10,679
–
–
10,679
(25,294)
(5,843)
(31,137)
(31,101)
62,238
–
–
–
(4,905)
(4,905)
Investment
Management
£’000
2,659,723
Unit Trusts
£’000
74,672
Total
£’000
217,485
38,729
11,594
18,241
286,049
(87,791)
(53,329)
(141,120)
(57,409)
–
(198,529)
87,520
(11,716)
(6,178)
69,626
5,523
(16,248)
58,901
(12,072)
46,829
Total
£’000
2,734,395
4,455
2,738,850
rathbones.com
rathbones.com
127
127
Consolidated financial statements
Notes to the consolidated financial statements continued
3
Segmental information continued
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
The following table reconciles underlying operating income to operating income:
Underlying operating income
Gain on plan amendment of defined benefit pension schemes (note 27)
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)
Head office relocation costs (note 9)
Operating expenses
2017
£’000
286,049
5,523
291,572
2017
£’000
198,529
11,716
6,178
16,248
232,671
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
2016
£’000
251,283
–
251,283
2016
£’000
176,403
11,735
5,985
7,031
201,154
128
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
£’000
280,892
10,680
291,572
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.
2017
£’000
173,496
4,938
178,434
2016
£’000
241,882
9,401
251,283
2016
£’000
178,172
5,610
183,782
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 (see note 26)
Net interest income
5 Net fee and commission income
Fee and commission income
Investment Management
Unit Trusts
Fee and commission expense
Investment Management
Unit Trusts
Net fee and commission income
2017
£’000
2016
£’000
3,963
4,242
808
1,409
3,079
13,501
(631)
(1,276)
(1,907)
11,594
3,293
6,014
368
1,202
3,013
13,890
(1,050)
(1,269)
(2,319)
11,571
2017
£’000
2016
£’000
256,476
35,558
292,034
225,937
27,255
253,192
(17,293)
(5,422)
(22,715)
269,319
(13,558)
(4,378)
(17,936)
235,256
rathbones.com
rathbones.com
129
129
Consolidated financial statements
Notes to the consolidated financial statements continued
6 Net trading and other operating income
Net trading income
Net trading income of £3,071,000 (2016: £3,103,000) comprises Unit Trusts net dealing profits.
Other operating income
Other operating income of £2,065,000 (2016: £1,353,000) 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
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)
Head office relocation costs (note 9)
Total operating expenses
A more detailed analysis of auditor's remuneration is provided below:
Fees payable to the company’s auditor for the audit of the company’s annual financial statements
Fees payable to the company’s auditor and their associates for other services to the group:
— audit of the company’s subsidiaries pursuant to legislation
— audit-related assurance services
— tax compliance services
— other services
2017
£’000
141,120
3,619
492
2,809
857
1
8,221
41,410
198,529
11,716
6,178
16,248
232,671
2017
£’000
136
280
297
25
119
857
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
2016
£’000
165
233
199
55
106
758
Of the above, audit-related services for the year totalled £713,000 (2016: £597,000).
Fees payable for the audit of the company's annual financial statements include £39,000 (2016: £62,000) relating to prior year audit work.
Fees for audit-related assurance services include £208,000 for the provision of assurance reports to our regulators and review of the
interim statement (2016: £111,000). Fees for other services include advice in relation to the pension schemes, a qualified intermediary
compliance review and work related to the merger discussions.
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
8 Acquisition-related costs
Costs relating to merger discussions with Smith & Williamson
The group incurred professional services costs of £4,905,000 in relation to the merger discussions with Smith & Williamson. On 31 August
2017, the group announced that these discussions had been terminated.
Costs relating to the acquisition of Vision Independent Financial Planning and Castle Investment Solutions
The group has incurred the following costs in relation to the 2015 acquisition of Vision Independent Financial Planning and
Castle Investment Solutions, summarised by the classification with the income statement:
Staff costs
Interest expense
Legal and advisory fees
Acquisition-related costs
2017
£’000
1,026
247
–
1,273
2016
£’000
5,418
120
447
5,985
Amounts reported in staff costs relate to deferred payments to previous owners who remain in employment with the acquired companies.
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.
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 25).
During the year ended 31 December 2017, incremental costs of £16,248,000 (2016: £7,031,000) 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 prior to occupancy
Accelerated depreciation charge for 1 Curzon Street
Provision for dilapidations
Charge in relation to onerous lease provision (note 25)
Release of rent free period and landlord contribution on recognition of the onerous lease provision
Professional and other costs
2017
£’000
536
779
248
16,265
(2,148)
568
16,248
2016
£’000
3,328
2,745
739
–
–
219
7,031
rathbones.com
rathbones.com
131
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Consolidated financial statements
Notes to the consolidated financial statements continued
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
2017
£’000
113,719
14,695
4,120
(249)
2,575
6,260
8,835
141,120
2016
£’000
99,543
12,298
4,352
849
3,058
4,635
7,693
124,735
2017
2016
734
92
28
293
1,147
698
82
27
259
1,066
2017
£’000
2016
£’000
13,466
(303)
(1,034)
(57)
12,072
12,366
(177)
(233)
16
11,972
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 (2016: higher) than the standard rate of corporation tax in the UK of 19.2% (2016: 20.0%). The
differences are explained below:
Tax on profit from ordinary activities at the standard rate of 19.2% (2016: 20.0%) effects of:
— disallowable expenses
— share-based payments
— tax on overseas earnings
— adjustments in respect of prior year
— deferred payments to previous owners of acquired companies (note 8)
— other
Effect of change in corporation tax rate on deferred tax
2017
£’000
11,338
1,045
(79)
(230)
(360)
247
(28)
139
12,072
2016
£’000
10,026
958
(72)
(183)
(161)
1,237
63
104
11,972
132
132
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
12 Dividends
Amounts recognised as distributions to equity holders in the year:
— final dividend for the year ended 31 December 2016 of 36.0p (2015: 34.0p) per share
— interim dividend for the year ended 31 December 2017 of 22.0p (2016: 21.0p) per share
Dividends paid in the year of 58.0p (2016: 55.0p) per share
Proposed final dividend for the year ended 31 December 2017 of 39.0p (2016: 36.0p) per share
2017
£’000
18,236
11,184
29,420
19,245
2016
£’000
16,336
10,143
26,479
18,124
An interim dividend of 22.0p per share was paid on 3 October 2017 to shareholders on the register at the close of business on 8 September
2017 (2016: 21.0p).
A final dividend declared of 39.0p per share (2016: 36.0p) is payable on 14 May 2018 to shareholders on the register at the close of business
on 20 April 2018. The final dividend is subject to approval by shareholders at the Annual General Meeting on 10 May 2018 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 plan amendment of defined benefit pension schemes (note 27)
Charges in relation to client relationships and goodwill (note 21)
Acquisition-related costs (note 8)
Head office relocation costs (note 9)
Profit attributable to shareholders
2017
Taxation
£’000
2016
Taxation
£’000
Pre-tax
£’000
Pre-tax
£’000
Post-tax
£’000
Post-tax
£’000
87,520 (17,426) 70,094 74,880 (15,816) 59,064
5,523
–
(11,716)
(9,388)
(6,178)
(5,894)
(16,248)
(5,625)
58,901 (12,072) 46,829 50,129 (11,972) 38,157
4,460
–
(9,461) (11,735)
(5,234)
(5,985)
3,218 (13,030)
(7,031)
–
2,347
91
1,406
(1,063)
2,255
944
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 50,493,984 (2016: 48,357,728).
Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the 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 Executive Incentive Plan
Diluted ordinary shares
2017
2016
50,493,984 48,357,728
114,415
37,186
260,655
50,970,265 48,769,984
188,549
59,030
228,702
Underlying earnings per share for the year attributable to equity holders of the company:
— basic
— diluted
2017
2016
138.8p
137.5p
122.1p
121.1p
rathbones.com
rathbones.com
133
133
Consolidated financial statements
Notes to the consolidated financial statements continued
14 Cash and balances with central banks
Cash in hand
Balances with central banks
2017
£’000
2
1,375,380
1,375,382
2016
£’000
3
1,075,670
1,075,673
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
2017
£’000
2016
£’000
1,374,002
1,380
1,375,382
1,075,003
670
1,075,673
1,374,000
1,382
1,375,382
1,075,000
673
1,075,673
2017
£’000
2016
£’000
75,826
11,183
30,244
–
117,253
75,734
41,183
336
117,253
73,844
10,000
30,226
18
114,088
73,766
40,000
322
114,088
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 2017 were £87,009,000 (note 36) (2016: £83,844,000).
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
2017
£’000
4,621
120,509
1,048
35
126,213
2016
£’000
3,740
106,335
855
21
110,951
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.
134
134
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
£’000
2016
£’000
4,732
13,312
42,519
65,716
–
(66)
126,213
125,046
1,167
126,213
3,821
21,214
43,884
41,753
370
(91)
110,951
110,051
900
110,951
No overdrafts or investment management loan book balances were impaired as at 31 December 2017 (2016: none impaired).
Allowance for losses. The group’s exposure to credit risk arising from loans and advances to customers is described in note 31.
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
2017
£’000
2016
£’000
2,565
1,864
106,747
109,312
103,557
105,421
2017
£’000
2016
£’000
701,966
701,966
700,000
700,000
All held to maturity debt securities are due to mature within one year (2016: 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).
rathbones.com
rathbones.com
135
135
Consolidated financial statements
Notes to the consolidated financial statements continued
Investment securities continued
17
The change in the group's holdings of investment securities in the year is summarised below.
At 1 January 2016
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 1 January 2017
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 31 December 2017
Available
for sale
£’000
53,386
97,658
(53,859)
8,143
93
105,421
36,248
(27,416)
(5,104)
163
109,312
Held to
maturity
£’000
707,745
905,000
(912,745)
–
–
700,000
745,867
(742,421)
(1,480)
–
701,966
Total
£’000
761,131
1,002,658
(966,604)
8,143
93
805,421
782,115
(769,837)
(6,584)
163
811,278
Included within available for sale securities are additions of £699,000 (2016: £701,000) and £160,000 (2016: £nil) of disposals of financial
instruments that are not classified as cash and cash equivalents.
18 Prepayments, accrued income and equipment
Work in progress
Prepayments and other assets
Accrued income
19 Property, plant and equipment
Cost
At 1 January 2016
Additions
Disposals
At 1 January 2017
Additions
Disposals
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Carrying amount at 31 December 2017
Carrying amount at 31 December 2016
Carrying amount at 1 January 2016
2017
£’000
1,461
12,396
60,588
74,445
Short term
leasehold
improvements
£’000
Plant and
equipment
£’000
13,036
9,729
–
22,765
1,940
–
24,705
5,991
3,870
–
9,861
2,436
–
12,297
12,408
12,904
7,045
15,131
2,446
(216)
17,361
2,325
(1,970)
17,716
12,170
1,721
(216)
13,675
1,962
(1,970)
13,667
4,049
3,686
2,961
2016
£’000
1,530
12,020
52,160
65,710
Total
£’000
28,167
12,175
(216)
40,126
4,265
(1,970)
42,421
18,161
5,591
(216)
23,536
4,398
(1,970)
25,964
16,457
16,590
10,006
136
136
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
20 Net deferred tax asset
The Finance Bill 2016 contained legislation to reduce the UK corporation tax rate to 17.0% in April 2020 and was substantively enacted in
September 2016. Deferred income taxes are calculated on all temporary differences under the liability method 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 2017
Recognised in profit or loss in respect of:
— current year
— prior year
— change in rate
Total
Recognised in other comprehensive income in
respect of:
— current year
— prior year
— change in rate
Total
Recognised in equity in respect of:
— current year
— prior year
— change in rate
Total
Deferred
capital
allowances
£’000
1,122
(38)
196
4
162
–
–
–
–
–
–
–
–
Pensions
£’000
6,705
(1,264)
–
148
(1,116)
(3,327)
–
388
(2,939)
–
–
–
–
Share-based
payments
£’000
1,264
(57)
–
4
(53)
–
–
–
–
318
10
–
328
Staff-
related
costs
£’000
2,320
2,434
(139)
(284)
2,011
–
–
–
–
–
–
–
–
Available
for sale
securities
£’000
(30)
Intangible
assets
£’000
(780)
–
–
–
–
(23)
–
3
(20)
–
–
–
–
99
–
(12)
87
–
–
–
–
–
–
–
–
Total
£’000
10,601
1,174
57
(140)
1,091
(3,350)
–
391
(2,959)
318
10
–
328
As at 31 December 2017
1,284
2,650
1,539
4,331
(50)
(693)
9,061
Deferred tax assets
Deferred tax liabilities
As at 31 December 2017
Deferred
capital
allowances
£’000
1,284
–
1,284
Pensions
£’000
2,650
–
2,650
Share-based
payments
£’000
1,539
–
1,539
Staff-
related
costs
£’000
4,331
–
4,331
Available
for sale
securities
£’000
–
(50)
(50)
Intangible
assets
£’000
–
(693)
(693)
Total
£’000
9,804
(743)
9,061
rathbones.com
rathbones.com
137
137
Consolidated financial statements
Notes to the consolidated financial statements continued
20 Net deferred tax asset continued
As at 1 January 2016
Recognised in profit or loss in respect of:
— current year
— prior year
— change in rate
Total
Recognised in other comprehensive income in
respect of:
— current year
— prior year
— change in rate
Total
Recognised in equity in respect of:
— current year
— prior year
— change in rate
Total
Deferred
capital
allowances
£’000
865
348
57
(148)
257
–
–
–
–
–
–
–
–
Share-based
payments
£’000
1,690
(182)
–
(129)
(311)
Staff-
related
costs
£’000
2,154
542
(73)
(303)
166
–
–
–
–
(99)
–
(16)
(115)
–
–
–
–
–
–
–
–
Pensions
£’000
853
(473)
–
389
(84)
7,464
–
(1,528)
5,936
–
–
–
–
Available
for sale
securities
£’000
(16)
–
–
–
–
(18)
–
4
(14)
–
–
–
–
Intangible
assets
£’000
(969)
103
–
86
189
–
–
–
–
–
–
–
–
Total
£’000
4,577
338
(16)
(105)
217
7,446
–
(1,524)
5,922
(99)
–
(16)
(115)
As at 31 December 2016
1,122
6,705
1,264
2,320
(30)
(780)
10,601
Deferred tax assets
Deferred tax liabilities
As at 31 December 2016
Deferred
capital
allowances
£’000
1,122
–
1,122
Pensions
£’000
6,705
–
6,705
Share-based
payments
£’000
1,264
–
1,264
Staff-
related
costs
£’000
2,320
–
2,320
Available
for sale
securities
£’000
–
(30)
(30)
Intangible
assets
£’000
–
(780)
(780)
Total
£’000
11,411
(810)
10,601
138
138
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
21
Intangible assets
Goodwill
Other intangible assets
2017
£’000
63,182
98,795
161,977
2016
£’000
63,465
103,727
167,192
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 2016, 2017 and 31 December 2017
Impairment
At 1 January 2016
Charge in the year
At 1 January 2017
Charge in the year
At 31 December 2017
Carrying amount at 31 December 2017
Carrying amount at 31 December 2016
Carrying amount at 1 January 2016
Investment
Management
£’000
Trust and
tax
£’000
Rooper &
Whately
£’000
Total
£’000
62,091
1,954
227
64,272
–
–
–
–
–
62,091
62,091
62,091
666
141
807
283
1,090
864
1,147
1,288
–
–
–
–
–
227
227
227
666
141
807
283
1,090
63,182
63,465
63,606
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 organic growth rates, revenue margins and profit margins are 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
2017
Trust and tax
Rooper & Whately
2017
2016
2017
11.1%
5.0%
9.3%
4.0%
13.1%
(1.0)%
11.3%
(1.0)%
11.1%
0.0%
2016
9.3%
0.0%
At 30 June 2017, the group recognised an impairment charge of £283,000 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 2017 was £864,000, which was lower than the carrying
value of £1,147,000 at 31 December 2016. The recoverable amount was calculated based on forecast earnings for 2017, 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 14.0%. The
impairment was recognised in the Investment Management segment in the segmental analysis. No further impairment was recognised at
31 December 2017.
Based on the assumptions in the table above, the calculated recoverable amount of the trust and tax CGU at 31 December 2017 was
£1,181,000; this was higher than its carrying value of £864,000. 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 £828,000. 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.
rathbones.com
rathbones.com
139
139
Consolidated financial statements
Notes to the consolidated financial statements continued
21
Intangible assets continued
Other intangible assets
Cost
At 1 January 2016
Internally developed in the year
Purchased in the year
Disposals
At 1 January 2017
Internally developed in the year
Purchased in the year
Disposals
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
Disposals
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Carrying amount at 31 December 2017
Carrying amount at 31 December 2016
Carrying amount at 1 January 2016
Client
relationships
£’000
Software
development
costs
£’000
138,659
–
7,926
(1,933)
144,652
–
2,743
(1,983)
145,412
37,790
11,594
(1,933)
47,451
11,433
(1,983)
56,901
88,511
97,201
100,869
4,514
408
–
–
4,922
837
–
–
5,759
3,616
421
–
4,037
492
–
4,529
1,230
885
898
Purchased
software
£’000
21,838
–
2,530
–
24,368
–
6,222
–
30,590
15,758
2,969
–
18,727
2,809
–
21,536
9,054
5,641
6,080
Total
£’000
165,011
408
10,456
(1,933)
173,942
837
8,965
(1,983)
181,761
57,164
14,984
(1,933)
70,215
14,734
(1,983)
82,966
98,795
103,727
107,847
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 £11,716,000 (2016: £11,735,000).
A further £5,094,000 (2016: £4,005,000) 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 £18,069,000 (2016: £14,117,000) has been fully amortised but is still in use.
22 Deposits by banks
On 31 December 2017, deposits by banks included overnight cash book overdraft balances of £1,338,000 (2016: £294,000).
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.
140
140
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
£’000
2016
£’000
2,081,788
83,425
5,285
2,170,498
2,060,565
83,908
26,025
2,170,498
1,768,215
119,438
1,242
1,888,895
1,751,483
115,148
22,264
1,888,895
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
Trade creditors
Other creditors
Accruals and deferred income
Other provisions (note 25)
25 Other provisions
At 1 January 2016
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 1 January 2017
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 2017
Payable within 1 year
Payable after 1 year
rathbones.com
rathbones.com
2017
£’000
2,259
18,294
64,126
23,712
108,391
2016
£’000
2,319
15,471
52,620
14,744
85,154
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
13,392
–
–
–
7,926
(11,106)
10,212
–
–
–
2,743
(4,883)
8,072
Deferred and
contingent
consideration
in business
combinations
£’000
3,908
–
(79)
(79)
82
(2,775)
1,136
–
–
–
84
–
1,220
Legal and
compensation
£’000
721
917
(486)
431
–
(554)
598
248
(54)
194
–
(115)
677
4,769
3,303
8,072
–
1,220
1,220
677
–
677
Property-
related
£’000
1,795
1,003
–
1,003
–
–
2,798
16,534
–
16,534
–
(5,589)
13,743
5,794
7,949
13,743
Total
£’000
19,816
1,920
(565)
1,355
8,008
(14,435)
14,744
16,782
(54)
16,728
2,827
(10,587)
23,712
11,240
12,472
23,712
141
141
Consolidated financial statements
Notes to the consolidated financial statements continued
25 Other provisions continued
Deferred, variable costs to acquire client relationship intangibles
Deferred, variable costs to acquire client relationship intangibles of £2,743,000 arose during the year, in relation to deferred payments to
investment managers and third parties linked to the value of client funds introduced (2016: £7,820,000). These amounts have been
capitalised (see note 21).
Deferred and contingent consideration in business combinations
Deferred and contingent consideration of £1,220,000 (2016: £1,136,000) is the present value of amounts payable at the end of 2019 in
respect of the acquisition of Vision Independent Financial Planning and Castle Investment Solutions.
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 of £13,743,000 relate to dilapidation and onerous lease provisions expected to arise on leasehold premises held
by the group (2016: £2,798,000 dilapidations).
The move to the 8 Finsbury Circus office was completed on 13 February 2017, which triggered the recognition of a provision for the net
cost of the surplus property at 1 Curzon Street until the end of the existing leases. The ultimate amount of the provision is dependent on
the timing of any subletting or assignment arrangements and the associated terms negotiated with prospective third parties. Based on
management's expectations of future costs for the premises and potential rental income, and timings thereof, the group recognised a
provision of £16,265,000. The group utilised £4,787,000 (2016: £nil) of the onerous lease provision during the year, being the payment of
rent, rates and service charge.
Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2017, dilapidation
provisions decreased by £533,000 (2016: increased £1,003,000). The group utilised £802,000 (2016: £nil) of the dilapidations provision held
for the surplus property at 1 Curzon Street during the year. The impact of discounting led to an additional £82,000 (2016: £1,003,000) being
provided for over the year.
Amounts payable after one year
Property-related provisions of £7,949,000 are expected to be settled within 19 years of the balance sheet date, which corresponds to the
longest lease for which a dilapidations provision is being held. Provisions for deferred and contingent consideration in business
combinations of £1,220,000 are expected to be settled within two years of the balance sheet date. Remaining provisions payable after one
year are expected to be settled within three years of the balance sheet date.
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Rathbone Brothers Plc Report and accounts 2017
26 Subordinated loan notes
Subordinated loan notes
— face value
— carrying value
2017
£’000
2016
£’000
20,000
19,695
20,000
19,590
Subordinated loan notes consist of 10-year Tier 2 notes ('Notes'), which 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 6 month
LIBOR thereafter. An interest expense of £1,276,000 (2016: £1,269,000) was recognised in the year (see note 4).
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 £6,213,000 (2016:
£4,595,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions were
£47,000 (2016: £40,000).
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.
With effect from 30 June 2017, the link between past service benefit and pensionable salaries was broken for both schemes and the
Rathbone 1987 Scheme was closed to future accrual from this date. This resulted in a plan amendment gain of £5,523,000 being recognised
in operating income on that date.
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 £1,167,000 of related insurance premiums were expensed to profit or loss in the year (2016: £1,134,000).
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
During 2017, triennial valuations of both schemes as at 31 December 2016 were being carried out. These valuations are yet to be formally
finalised.
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.
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Consolidated financial statements
Notes to the consolidated financial statements continued
27 Long-term employee benefits continued
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*
Percentage of members transferring out of the schemes per annum
Average age of members at date of transferring out (years)
*
Inflation assumptions are based on the Retail Price Index
Laurence Keen Scheme
Rathbone 1987 Scheme
2017
%
(unless stated)
n/a
3.60
3.50
2.65
3.50
3.00
52.5
2016
%
(unless stated)
4.50
3.60
3.50
2.80
3.50
3.00
52.5
2017
%
(unless stated)
n/a
3.40
3.50
2.65
3.50
3.00
52.5
2016
%
(unless stated)
4.50
3.40
3.50
2.80
3.50
3.00
52.5
Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically:
1. the discount rate has been decreased by 0.15% to reflect a decrease in the yields available on AA-rated corporate bonds at a
term consistent with the average duration of the liabilities;
2. the assumed rate of future inflation is unchanged and reflects expectations of long-term inflation as implied by changes in the
fixed-interest and index-linked gilts market;
3. the assumed rates of future increases to pensions in payment are unchanged, consistent with the assumed rate of future
inflation.
Over the year the demographic assumptions adopted remain unchanged, other than updating the CMI model used to project future
improvements in mortality from the 2013 version to the 2016 version.
The assumed duration of the liabilities for the Laurence Keen Scheme is 16 years (2016: 20 years) and the assumed duration for the
Rathbone 1987 Scheme is 20 years (2016: 24 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 (2016: S2NA tables). The assumed life expectations on retirement were:
Retiring today:
Retiring in 20 years:
— aged 60
— aged 65
— aged 60
— aged 65
2017
Males
28.5
23.7
30.4
25.4
Females
30.6
25.6
32.4
27.4
2016
Males
29.3
24.3
31.8
26.6
Females
31.5
26.5
33.9
28.8
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
(12,980)
12,278
(702)
2017
Rathbone
1987 Scheme
£’000
(151,133)
136,235
(14,898)
Total
£’000
(164,113)
148,513
(15,600)
Laurence Keen
Scheme
£’000
(16,203)
14,099
(2,104)
2016
Rathbone
1987 Scheme
£’000
(216,238)
178,887
(37,351)
Total
£’000
(232,441)
192,986
(39,455)
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
The amounts recognised in profit or loss, within operating expenses, are as follows:
Current service cost
Net interest on net liability
Gain on plan amendment
Laurence Keen
Scheme
£’000
–
59
(305)
(246)
2017
Rathbone
1987 Scheme
£’000
1,559
957
(5,218)
(2,702)
Total
£’000
1,559
1,016
(5,523)
(2,948)
Laurence Keen
Scheme
£’000
–
1
–
1
2016
Rathbone
1987 Scheme
£’000
3,022
35
–
3,057
Total
£’000
3,022
36
–
3,058
Remeasurements of the net defined benefit liability have been reported in other comprehensive income. The actual return on scheme
assets was a rise in value of £1,170,000 (2016: £2,018,000 rise) for the Laurence Keen Scheme and a rise in value of £13,558,000
(2016: £31,353,000 rise) for the Rathbone 1987 Scheme.
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Service cost (employer’s part)
Interest cost
Contributions from members
Actuarial experience gains
Actuarial (gains)/losses arising from:
— demographic assumptions
— financial assumptions
Gain on plan amendment
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
16,203
–
412
–
(214)
(494)
369
(305)
(2,991)
12,980
2017
Rathbone
1987 Scheme
£’000
216,238
1,559
5,219
314
(4,489)
(7,786)
5,439
(5,218)
(60,143)
151,133
Total
£’000
232,441
1,559
5,631
314
(4,703)
(8,280)
5,808
(5,523)
(63,134)
164,113
Laurence Keen
Scheme
£’000
14,002
–
522
–
(135)
(519)
4,262
–
(1,929)
16,203
Movements in the fair value of scheme assets were as follows:
At 1 January
Remeasurement of net defined benefit liability:
— interest income
— return on scheme assets (excluding amounts
included in interest income)
Contributions from the sponsoring companies
Contributions from scheme members
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
14,099
2017
Rathbone
1987 Scheme
£’000
178,887
Total
£’000
192,986
Laurence Keen
Scheme
£’000
13,991
353
4,262
4,615
521
6,137
6,658
817
–
–
(2,991)
12,278
9,296
3,619
314
(60,143)
136,235
10,113
3,619
314
(63,134)
148,513
1,497
19
–
(1,929)
14,099
25,216
5,403
981
(16,325)
178,887
26,713
5,422
981
(18,254)
192,986
2016
Rathbone
1987 Scheme
£’000
161,965
3,022
6,172
981
(1,783)
(4,379)
66,585
–
(16,325)
216,238
2016
Rathbone
1987 Scheme
£’000
157,475
Total
£’000
175,967
3,022
6,694
981
(1,918)
(4,898)
70,847
–
(18,254)
232,441
Total
£’000
171,466
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Consolidated financial statements
Notes to the consolidated financial statements continued
27 Long-term employee benefits continued
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 also seeks to hedge
around 50% of its interest rate and inflation risk by using Liability Driven Investment (LDI) strategies.
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 2017 as set out in the statements of investment principles are as follows:
Target asset allocation at 31 December 2017
Benchmark
Return seeking assets
Growth assets
Range
Return seeking assets
Growth assets
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
2017
Fair
value
£’000
3,722
409
755
558
5,444
4,482
1,686
6,168
283
383
12,278
2016
Fair
value
£’000
4,178
358
921
710
6,167
5,413
1,918
7,331
10
591
14,099
Laurence Keen
Scheme
%
Rathbone
1987 Scheme
%
52
48
40
60
46 – 58
42 – 54
32 – 44
54 – 66
2017
Current
allocation
%
2016
Current
allocation
%
45
44
50
2
3
100
52
–
4
100
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
Fair
value
£’000
41,736
6,016
9,422
7,168
64,342
36,069
1,973
10,100
–
48,142
2016
Fair
value
£’000
57,134
8,807
14,486
12,384
92,811
35,836
3,670
17,505
1,010
58,021
20,222
20,222
3,529
–
136,235
17,365
17,365
9,885
805
178,887
2017
Current
allocation
%
2016
Current
allocation
%
47
52
35
32
15
3
–
100
10
6
–
100
During 2017, the Rathbone 1987 Scheme held shares in real time inflation-linked interest rate swap funds, which had a fair value of
£20,222,000 at the year end (2016: £17,365,000). The value of these investments is expected to increase when the value of the scheme's
liabilities increase (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 Ratings Limited (Fitch) or Moody’s Corporation (Moody’s) as at the balance sheet date. Other scheme assets comprise commodities
and property funds, both of which also have quoted prices in active markets.
The key assumptions affecting the results of the valuation are the discount rate, future inflation, 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 are set out below.
0.5% increase in:
— discount rate
— rate of inflation
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
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Combined impact on schemes' liabilities
(Decrease)/increase
£'000
(Decrease)/increase
%
(16,124)
7,323
(449)
6,759
574
(9.8)
4.5
(0.3)
4.1
0.3
147
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Consolidated financial statements
Notes to the consolidated financial statements continued
27 Long-term employee benefits continued
The total regular contributions made by the group to the Rathbone 1987 Scheme during the year were £856,000 (2016: £2,558,000) based
on 20.3% of pensionable salaries (2016: 20.3%). Additional lump sum contributions of £2,838,000 were paid in 2017 (2016: £2,917,000). The
group is not committed to making any further deficit reduction contributions as at the year end. As part of the ongoing triennial valuation,
the group has agreed with the trustees of the Rathbone 1987 Scheme to put in place a funding deficit reduction plan, which requires
annual contributions of £2,750,000, so long as that scheme remains in deficit. The deficit funding plan will be reviewed following the next
triennial valuation, as at 31 December 2019.
The total contributions made by the group to the Laurence Keen Scheme during the year were £nil (2016: £nil). No additional lump sum
contributions were paid in 2017 (2016: £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. Although the funding valuation for the Laurence Keen Scheme as at
31 December 2016 has not yet been finalised, the group does not expect that material funding deficit contributions will be required.
28 Share capital and share premium
The following movements in share capital occurred during the year:
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 1 January 2017
Shares issued:
— to Share Incentive Plan
— to Save As You Earn scheme
— to Employee Benefit Trust
At 31 December 2017
Number of
shares
48,134,286
37,898
170,177
116,108
2,224,210
–
50,682,679
86,671
95,041
437,683
51,302,074
Exercise/
issue price
pence
1,705.0
1,820.0 – 2,039.0
934.0 – 1,648.0
1,710.0
1,754.0 – 1,949.0
1,784.0 – 2,611.0
984.0 – 1,648.0
5.0
Share
capital
£’000
2,407
2
9
6
111
–
2,535
4
5
22
2,566
Share
premium
£’000
97,643
644
3,259
1,270
36,830
345
139,991
1,725
1,373
–
143,089
Total
£’000
100,050
646
3,268
1,276
36,941
345
142,526
1,729
1,378
22
145,655
The total number of issued and fully paid up ordinary shares at 31 December 2017 was 51,302,074 (2016: 50,682,679) 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.
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Rathbone Brothers Plc Report and accounts 2017
29 Own shares
The following movements in own shares occurred during the year:
At 1 January 2016
Acquired in the year
Released on vesting
Sold in the year
At 1 January 2017
Acquired in the year
Released on vesting
At 31 December 2017
Number of
shares
384,295
81,992
(88,279)
(41,021)
336,987
461,067
(141,361)
656,693
£’000
6,177
1,585
(1,084)
(435)
6,243
441
(1,820)
4,864
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
company held no own shares as treasury shares at 31 December 2017 (2016: 8,979). However, 382,751 shares were held in the Employee
Benefit Trust at 31 December 2017 (2016: 31,803) and a further 273,942 (2016: 296,205) 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 2017, the trustees of the SIP held 1,092,120 (2016: 1,243,979) ordinary shares of 5p each in Rathbone Brothers Plc with a
total market value of £28,330,000 (2016: £24,668,000). Of the total number of shares held by the trustees, 263,165 (2016: 294,680) have
been conditionally gifted to employees and 10,777 (2016: 1,525) remain unallocated. Dividends on the unallocated shares have been waived
by the trustees.
Savings-related share option or Save As You Earn (SAYE) plan
Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three or five year savings period.
Options with an aggregate estimated fair value of £625,000, determined using a binomial valuation model including expected dividends,
were granted on 28 April 2017 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2017, as at the date of issue, were as follows:
Share price
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
2017
2,351p
1,899p
20%
0.2%
2.4%
2016
2,033p
1,648p
21%
0.7%
2.7%
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149
149
Consolidated financial statements
Notes to the consolidated financial statements continued
30 Share-based payments continued
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
2012
2013
2014
2015
2016
2017
At 31 December
Exercise
price
pence
984.0
1,106.0
1,556.0
1,641.0
1,648.0
1,899.0
Exercise
period
2017
2018
2019
2018 and 2020
2019 and 2021
2020 and 2022
2017
Number
of share
options
–
74,868
59,415
123,182
141,034
127,392
525,891
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
2017
2016
Number
of share
options
507,714
130,745
(17,520)
(95,048)
525,891
Weighted
average
exercise price
pence
1,518.0
1,899.0
1,684.0
1,450.0
1,620.0
Number
of share
options
484,364
155,334
(15,876)
(116,108)
507,714
2016
Number
of share
options
16,966
76,495
134,265
128,418
151,570
–
507,714
Weighted
average
exercise price
pence
1,379.0
1,648.0
1,612.0
1,098.0
1,518.0
The weighted average share price at the dates of exercise for share options exercised during the year was £25.72 (2016: £20.06). The options
outstanding at 31 December 2017 had a weighted average contractual life of 2.3 years (2016: 2.5 years) and a weighted average exercise price
of £16.20 (2016: £15.18).
Executive Incentive Plan
Details of the general terms of this plan are set out in the remuneration committee report on page 86.
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.
Other schemes
The group operates a number of other plans for rewarding employees. Participants are granted awards under these plans in the form of
options, which vest automatically on an anniversary of the grant date (generally between one and five years). As the intention is to settle
the options in such plans in shares, the awards are treated as equity-settled share-based payments under IFRS 2.
The group recognised total expenses of £3,871,000 in relation to share-based payment transactions in 2017 (2016: £5,201,000) (see note 10).
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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 68 to 69.
The group categorises its financial risks into the following primary areas:
credit risk (which includes counterparty default 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) 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.
(i) Credit risk
The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its
banking, treasury, trust and 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 or Moody’s. Each exposure is
assessed individually, both at inception and in ongoing monitoring. In addition to formal external ratings, the banking committee also
utilises market intelligence information to assist its ongoing monitoring.
The group's financial assets are categorised as follows:
Balances with central banks (note 14)
The group has exposure to central banks through its deposits held with the Bank of England.
Settlement balances
Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding
delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results
in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a
daily basis.
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.
rathbones.com
rathbones.com
151
151
Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(i) Credit risk continued
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 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 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) Overdrafts
Overdrafts on clients’ investment management accounts arise from time-to-time due to short term timing differences between the
purchase and sale of assets on a client's behalf. Overdrafts are actively monitored and reported to the banking committee on a
monthly basis.
(b) Investment management loan book
Loans are provided as a service to investment management clients who are generally asset rich but have short to medium term cash
requirements. Such loans are normally made on a fully secured basis against portfolios held in Rathbones’ nominee name, and some
loans may be partially secured by property. Extensions to the initial loan period may be granted subject to credit criteria.
At 31 December 2017, the total lending exposure limit for the investment management loan book was £175,000,000
(2016: £150,000,000), of which £120,433,000 had been advanced (2016: £106,276,000) and a further £30,025,000 had been
committed (2016: £31,642,000).
(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.
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.
152
152
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
2017
£’000
2016
£’000
1,375,380
46,784
117,253
1,075,670
37,787
114,088
4,621
120,509
1,114
35
3,740
106,335
946
21
808,713
71,562
803,557
56,986
30,025
117
2,576,113
31,642
117
2,230,889
The above table represents the group's gross credit risk exposure at 31 December 2017 and 2016, 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.
9.5% of the total maximum exposure is derived from loans and advances to banks and customers (2016: 10.1%) and 31.4% represents
investment securities (2016: 36.0%).
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
2017
£’000
1,375,380
1,375,380
2016
£’000
1,075,670
1,075,670
2017
£’000
46,679
105
–
46,784
2016
£’000
36,964
823
–
37,787
rathbones.com
rathbones.com
153
153
Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(i) Credit risk continued
Loans and advances
Loans and advances are summarised as follows:
Neither past due nor impaired
Past due but not impaired
Impaired
Gross carrying value
Less: allowance for impairment (note 16)
Net carrying value
No loans and advances have been renegotiated (2016: none).
(a) Neither past due nor impaired
2017
2016
Loans and
advances
to banks
£’000
117,253
–
–
117,253
–
117,253
Loans and
advances
to customers
£’000
125,610
601
68
126,279
(66)
126,213
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
The credit quality of loans and advances to banks that were neither past due nor impaired at 31 December 2017 is analysed below by
reference to the long term credit rating awarded by Fitch, or equivalent rating by Moody’s as at the balance sheet date:
AA+ to AA-
A+ to A
Other*
* Cash held within the Employee Benefit Trust
2017
£’000
24,538
90,904
1,811
117,253
2016
£’000
23,321
90,737
30
114,088
The credit quality of loans and advances to customers that were neither past due nor impaired at 31 December 2017, which are all
externally unrated, is analysed between those loans that are subject to standard lending criteria, which are described on page 152, and,
where applicable, those loans for which there are no standard lending criteria. At 31 December 2017, all loans are subject to standard
lending criteria (2016: 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 2017 and 2016, 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:
At 31 December
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
2017
£’000
385
75
53
24
64
601
2016
£’000
149
148
55
46
89
487
154
154
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
(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 2017
Amounts written off
Credit to profit or loss
At 31 December 2017
Gross carrying value of impaired loans and advances to customers
At 31 December 2017
At 31 December 2016
Trust and
financial
planning
debtors
£’000
91
(26)
1
66
68
94
All loans and advances to customers impaired relate to trust and financial planning debtors (2016: all). There were no other impaired
credit exposures at 31 December 2017 (2016: £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.
AAA
AA+ to AA-
A+ to A-
2017
Money
market
funds
£’000
106,747
–
–
106,747
2017
Certificates
of deposit
£’000
–
264,569
437,397
701,966
2017
Total
£’000
106,747
264,569
437,397
808,713
2016
Money
market
funds
£’000
103,557
–
–
103,557
2016
Certificates
of deposit
£’000
–
325,000
375,000
700,000
2016
Total
£’000
103,557
325,000
375,000
803,557
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 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 2017
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
1,375,380
43,688
113,225
4,295
112,286
1,048
35
Eurozone
£’000
–
1,211
4,028
68
269
–
–
Rest of
the world
£’000
–
1,885
–
258
7,954
–
–
Total
£’000
1,375,380
46,784
117,253
4,621
120,509
1,048
35
205,000
63,238
1,918,195
306,751
1,076
313,403
296,962
1,385
308,444
808,713
65,699
2,540,042
rathbones.com
rathbones.com
155
155
Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(i) Credit risk continued
Concentration of credit risk continued
(a) Geographical sectors continued
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
At 31 December 2017, materially all eurozone exposures were to counterparties based in the Netherlands and France (2016: Netherlands and
France) and all rest of the world exposures were to counterparties based in Switzerland, Sweden, Canada and Australia (2016: Switzerland,
Sweden, Canada and Australia). At 31 December 2017, the group had no exposure to sovereign debt (2016: no exposure to sovereign debt).
(b) Industry sectors
The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties operate, were:
At 31 December 2017
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
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
1,375,380
–
–
Financial
institutions
£’000
–
46,784
117,253
–
–
–
–
–
–
–
–
Clients
and other
corporates
£’000
–
–
–
4,621
120,509
1,048
35
Total
£’000
1,375,380
46,784
117,253
4,621
120,509
1,048
35
–
1,138
1,376,518
808,713
2,578
975,328
–
61,983
188,196
808,713
65,699
2,540,042
Public
sector
£’000
1,075,670
–
–
Financial
institutions
£’000
–
37,787
114,088
–
–
–
–
–
–
–
–
Clients
and other
corporates
£’000
–
–
–
3,740
106,335
855
21
Total
£’000
1,075,670
37,787
114,088
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
156
156
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
(ii) Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
The primary objective of the group’s treasury policy is to manage short to medium term liquidity requirements. In addition to setting the
treasury policy, Rathbone Investment Management ('the Bank') performs an annual assessment of liquidity adequacy in accordance with
the regulatory requirements of the Prudential Regulation Authority (PRA) (our Individual Liquidity Adequacy Assessment). The Bank
faces two principal risks, namely that a significant proportion of client funds are withdrawn over a short period of time (retail funding risk)
and the risk that marketable assets may not be capable of being realised in the time and at the value required (marketable assets risk).
Retail funding risks are monitored by daily cash mismatch analyses and Basel Committee ratios using expected cash and asset maturity
profiles and regular forecasting work. This is supported by stress tests which cover firm-specific idiosyncratic scenarios and/or the effects
of unforeseen market wide stresses. Marketable assets risk is primarily managed by holding cash and marketable instruments which are
realisable at short notice. The group operates strict criteria to ensure that investments are liquid and placed with high-quality
counterparties. A minimum liquid assets buffer (to be held in eligible liquid assets) is set by the board at least annually in conjunction with
an amount prescribed by the PRA.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and
liabilities analysed by the remaining contractual maturities at the balance sheet date.
On
demand
£’000
At 31 December 2017
1,374,002
Cash and balances with central banks
–
Settlement balances
75,826
Loans and advances to banks
4,733
Loans and advances to customers
106,816
Debt securities and money market funds
110
Other financial assets
Cash flows arising from financial assets
1,561,487
1,338
Deposits by banks
–
Settlement balances
2,081,805
Due to customers
–
Subordinated loan notes
1,192
Other financial liabilities
Cash flows arising from financial liabilities 2,084,335
(522,848)
Net liquidity gap
(522,848)
Cumulative net liquidity gap
Not more
than
3 months
£’000
1,138
46,785
11,490
13,407
263,385
60,859
397,064
–
54,452
83,469
586
52,612
191,119
205,945
(316,903)
After 3
months
but not
more than
1 year
£’000
1,380
–
30,577
43,304
442,503
640
518,404
–
–
5,306
586
3,587
9,479
508,925
192,022
After 1
year but
not more
than
5 years
£’000
–
–
–
70,450
–
3,435
73,885
–
–
–
22,342
38,023
60,365
13,520
205,542
After 5
years
£’000
–
–
–
–
–
2,819
2,819
–
–
–
–
5,985
5,985
(3,166)
202,376
No fixed
maturity
date
£’000
Total
£’000
– 1,376,520
46,785
–
117,893
–
131,894
–
812,704
–
67,863
–
– 2,553,659
1,338
–
–
54,452
– 2,170,580
23,514
–
–
101,399
– 2,351,283
–
202,376
202,376
Included in ‘Other financial liabilities’ in the table above are cash flows for lease payments under the group’s agreement for leased space at
1 Curzon Street. These contractual payments comprise part of the onerous lease provision for that property (see note 25).
rathbones.com
rathbones.com
157
157
Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(ii) Liquidity risk continued
Non-derivative cash flows continued
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
1,770,041
(513,618)
(513,618)
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
197,024
177,011
(336,607)
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
5,795
523,509
186,902
After 1
year but
not more
than
5 years
£’000
–
–
18
45,233
–
343
45,594
–
–
–
23,514
27,128
50,642
(5,048)
181,854
After 5
years
£’000
–
–
–
430
–
–
430
–
–
–
–
3,386
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
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 £2,565,000 of equity investments (2016: £1,864,000) 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.
158
158
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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 2017
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2016
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2017
Cash flows arising from financial liabilities
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
30,025
–
712
48
30,785
Not more
than
3 months
£’000
31,642
–
1,481
4,430
37,553
Not more
than
3 months
£’000
191,119
30,785
221,904
Not more
than
3 months
£’000
197,024
37,553
234,577
After 3
months
but not
more than
1 year
£’000
–
–
3,817
–
3,817
After 3
months
but not
more than
1 year
£’000
–
–
4,530
–
4,530
After 3
months
but not
more than
1 year
£’000
9,479
3,817
13,296
After 3
months
but not
more than
1 year
£’000
5,795
4,530
10,325
After 1
year but
not more
than
5 years
£’000
–
117
28,780
–
28,897
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
60,365
28,897
89,262
After 1
year but
not more
than
5 years
£’000
50,642
39,453
90,095
After
5 years
£’000
–
–
57,293
–
57,293
After
5 years
£’000
–
–
69,148
–
69,148
Total
£’000
30,025
117
90,602
48
120,792
Total
£’000
31,642
117
114,495
4,430
150,684
After
5 years
£’000
Total
£’000
5,985 2,351,283
57,293
120,792
63,278 2,472,075
After
5 years
£’000
Total
£’000
3,386 2,026,888
69,148
150,684
72,534 2,177,572
On
demand
£’000
2,084,335
–
2,084,335
On
demand
£’000
1,770,041
–
1,770,041
rathbones.com
rathbones.com
159
159
Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(iii) Market risk
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
interest rates.
The group’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets and
liabilities. In particular, customer accounts and loan balances are repriced very shortly after changes in base rates, whereas the yield on the
group’s interest-bearing assets is correlated to the future expectation of base rates and varies depending on the maturity profile of the
group’s treasury portfolio. The average maturity mismatch is controlled by the banking committee, which generally lengthens the
mismatch when the yield curve is rising and shortens it when the yield curve is falling.
The 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 2017
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
1,374,000
–
86,673
125,046
–
368,708
–
1,954,427
1,338
–
2,139,188
–
–
2,140,526
(186,099)
After 3
months
but not
more than
6 months
£’000
–
–
244
–
–
85,005
–
85,249
–
–
5,285
–
–
5,285
79,964
After 6
months
but not
more than
1 year
£’000
–
–
30,000
–
–
355,000
–
385,000
–
–
–
–
–
–
385,000
After 1
year but
not more
than
5 years
£’000
–
–
–
–
–
–
–
–
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
1,382 1,375,382
46,784
117,253
126,213
46,784
336
1,167
2,565
–
65,699
2,565
808,713
65,699
117,933 2,542,609
–
–
–
19,695
–
19,695
(19,695)
–
–
–
–
42
42
(42)
1,338
–
54,452
54,452
26,025 2,170,498
19,695
81,736
162,171 2,327,719
214,890
(44,238)
–
81,694
160
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Rathbone Brothers Plc Report and accounts 2017
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
–
–
–
–
–
–
–
–
–
–
–
19,590
–
19,590
(19,590)
After
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
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
The banking committee has set an overall pre-tax interest rate exposure limit of £6,000,000 (2016: £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 2017, the Bank had a net present value sensitivity of £4,310,000 (2016: £3,696,000) for an upward 2% shift in rates.
The group held no forward rate agreements at 31 December 2017 (2016: none).
Foreign exchange risk
The group is exposed to translational foreign exchange risk as it undertakes transactions in foreign currencies and is therefore exposed to
foreign exchange rate fluctuations. The group monitors its currency exposures that arise in the ordinary course of business on a daily basis
and significant exposures are managed through the use of spot contracts, from time-to-time, so as to reduce any currency exposure to a
minimal amount. The group has no structural foreign currency exposure.
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Consolidated financial statements
Notes to the consolidated financial statements continued
31 Financial risk management continued
(iii) Market risk continued
Foreign exchange risk continued
The group does not have any material exposure to transactional foreign exchange risk. The table below summarises the group’s exposure
to foreign currency translation risk at 31 December 2017. Included in the table are the group’s financial assets and liabilities, at carrying
amounts, categorised by currency.
At 31 December 2017
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
— equity securities
— unlisted debt securities and money market funds
Other financial assets
Total financial assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Total financial liabilities
Net on-balance sheet position
Loan commitments
At 31 December 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
US dollar
£’000
Euro
£’000
1,375,382
46,166
80,727
118,591
2,565
720,005
65,242
2,408,678
1,338
52,431
2,039,156
19,695
81,580
2,194,200
214,478
30,025
–
465
15,363
4,482
–
88,708
341
109,359
–
950
109,453
–
26
110,429
(1,070)
–
–
–
13,946
3,140
–
–
61
17,147
–
958
14,773
–
130
15,861
1,286
–
Sterling
£’000
US dollar
£’000
Euro
£’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
–
809
21,205
4,974
–
48,557
303
75,848
–
1,830
72,439
–
31
74,300
1,548
–
–
10
12,217
2,867
–
–
10
15,104
–
116
14,567
–
44
14,727
377
–
Other
£’000
–
153
7,217
–
–
–
55
7,425
–
113
7,116
–
–
7,229
196
–
Other
£’000
–
57
6,163
–
–
–
49
6,269
–
–
5,723
–
44
5,767
502
–
Total
£’000
1,375,382
46,784
117,253
126,213
2,565
808,713
65,699
2,542,609
1,338
54,452
2,170,498
19,695
81,736
2,327,719
214,890
30,025
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
A 10% weakening of the US dollar against sterling, occurring on 31 December 2017, would have increased equity and profit after tax by
£86,000 (2016: reduced by £124,000). A 10% weakening of the euro against sterling, occurring on 31 December 2017, would have reduced
equity and profit after tax by £104,000 (2016: reduced by £30,000). 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.
162
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Rathbone Brothers Plc Report and accounts 2017
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 2017, the fair value of equity securities recognised on the balance sheet was £2,565,000 (2016: £1,864,000). A 10% fall in
global equity markets would, in isolation, result in a pre-tax decrease to net assets of £133,000 (2016: £110,000); there would be no impact
on profit after tax. A 10% rise in global markets would have had an equal and opposite effect.
Fair values
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to
determine the fair value.
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
– Level 3: inputs for the asset or liability that are not based on observable market data.
At 31 December 2017
Assets
Available for sale securities:
— equity securities
— money market funds
At 31 December 2016
Assets
Available for sale securities:
— equity securities
— money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
2,565
–
2,565
Level 1
£’000
1,864
–
1,864
–
106,747
106,747
–
–
–
2,565
106,747
109,312
Level 2
£’000
Level 3
£’000
Total
£’000
–
103,557
103,557
–
–
–
1,864
103,557
105,421
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 (2016: 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.
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. The fair value of debt securities at 31 December 2017 was £704,002,000 (2016: £704,815,000) and the carrying value was
£701,966,000 (2016: £700,000,000). 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. The fair value of the loan notes at 31 December 2017 was £20,478,000
(2016: £19,578,000) and the carrying value was £19,695,000 (2016: £19,590,000). 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.
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163
Consolidated financial statements
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 2017 this totalled £363,278,000 (2016:
£324,813,000).
Rathbone Investment Management has issued 10 year subordinated Tier 2 loan notes (note 26). As at 31 December 2017, the carrying value
of the notes was £19,675,000 (2016: £19,590,000). 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 2017 the group’s regulatory capital resources, including retained earnings for 2017, were £216,838,000 (2016: £174,192,000).
The increase in reserves during 2017 is due an increase in the group's retained earnings on account of profits generated in the year and the
gain 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 2016 and 2017.
33 Contingent liabilities and commitments
(a) Capital expenditure authorised and contracted for at 31 December 2017 but not provided in the financial statements amounted to
£48,000 (2016: £4,430,000).
(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 (2016: £nil).
2017
£’000
117
20,985
9,040
30,142
2016
£’000
117
25,661
5,981
31,759
164
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
(c) The group leases various offices and other assets under non-cancellable operating lease agreements. The leases have varying terms
and renewal rights. At 31 December 2017, the group’s agreements to lease space at 8 Finsbury Circus had remaining lease terms of 15
years; total payments due over this period are £75,946,000. The leases provide for rent reviews every 5 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
2017
£’000
4,529
28,780
57,293
90,602
2016
£’000
6,011
39,336
69,148
114,495
The above table excludes total lease payments of £18,124,000, at 31 December 2017, under the group’s agreement for leased space at 1
Curzon Street, as these payments are included as part of the cash flows that comprise the onerous lease provision for that property
(see note 25). These cash flows have been included in ‘Other financial liabilities’ in note 31.
(d) The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors from loss
in the event of failure of financial institutions has resulted in significant levies on the industry in recent years. The financial impact of
unexpected FSCS levies is largely out of the group’s control as they result from other industry failures.
There is uncertainty over the level of future FSCS levies as they depend on the ultimate cost to the FSCS of industry failures. The
group contributes to the deposit class, investment fund management class and investment intermediation levy classes and accrues
levy costs for future levy years when the obligation arises.
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 directors' remuneration report on page 95.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2017
£’000
10,951
327
2,425
2,187
15,890
2016
£’000
10,750
330
1,581
2,775
15,436
Dividends totalling £408,000 were paid in the year (2016: £302,000) in respect of ordinary shares held by key management personnel
and their close family members.
As at 31 December 2017, the group had outstanding interest-free season ticket loans of £6,000 (2016: £6,000) issued to key
management personnel.
At 31 December 2017, key management personnel and their close family members had gross outstanding deposits of £4,059,000 (2016:
£5,464,000) and gross outstanding banking loans of £728,000 (2016: £959,000), all of which (2016: 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.
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165
165
Consolidated financial statements
Notes to the consolidated financial statements continued
34 Related party transactions continued
Other related party transactions
The group’s transactions with the pension funds are described in note 27. At 31 December 2017, no amounts were outstanding with either
the Laurence Keen Scheme or the Rathbone 1987 Scheme (2016: £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 2017, the group managed 25 unit trusts, Sociétés d'Investissement à Capital
Variable (SICAVs) and open-ended investment companies (OEICs) (together, 'collectives') (2016: 25 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 unit trusts:
Year ended 31 December
Total management fees
As at 31 December
Management fees owed to the group
Holdings in unit trusts (note 17)
2017
£’000
35,525
2017
£’000
3,266
2,565
5,831
2016
£’000
27,783
2016
£’000
2,557
1,864
4,421
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 2017, the group owned units in collectives managed by Rathbone Unit Trust Management with
a value of £2,565,000 (2016: £1,864,000), representing 0.05% (2016: 0.05%) 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.
166
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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)
At 31 December
2017
£’000
1,374,002
87,009
106,747
1,567,758
2016
£’000
1,075,673
83,844
103,557
1,263,074
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)
A reconciliation of the movements of liabilities to cash flows arising from financing activities were as follows:
2017
£’000
31
3,098
(441)
–
2,688
2016
£’000
128
42,348
(1,631)
(646)
40,199
At 1 January 2017
Changes from financing cash flows
Proceeds from issue of share capital
Proceeds from sale of treasury shares
Dividends paid
Total changes from financing cash flows
The effect of changes in foreign exchange rates
Changes in fair value
Other changes
Liability-related
Interest expense
Interest paid
Total liability-related changes
Total equity-related other changes
At 31 December 2017
Liabilities
Subordinated
loan notes
£’000
19,590
Equity
Share capital/
premium
£’000
Reserves
£’000
142,526 25,742
Retained
earnings
£’000
Total
£’000
156,545 344,403
–
–
–
–
–
–
3,129
–
–
3,129
–
–
–
1,379
–
1,379
–
–
–
(1,820)
(29,420)
(31,240)
–
–
3,129
(441)
(29,420)
(26,732)
–
–
1,276
(1,171)
105
–
19,695
–
–
–
–
–
–
100
–
145,655 27,221
–
–
–
65,097
1,276
(1,171)
105
65,197
190,402 382,973
37 Events after the balance sheet date
There have been no material events occurring between the balance sheet date and the date of signing this report
.
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167
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Consolidated financial statements
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 2017.
Basis of preparation:
Country
In most cases, we have determined the country by reference to the country of tax residence. Where an
entity is not subject to tax (e.g. a partnership) we have considered the location of management or the
jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a different
country to the one in which profits are reported.
Nature of activities
The nature of activities within the United Kingdom are described within our services on page 2 to 5.
Discretionary investment management is the sole activity which occurs in Jersey.
Turnover
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
284,726
10,831
295,557
(3,985)
291,572
Profit/(loss)
before
taxation
£'000
56,914
2,493
59,407
(506)
58,901
Tax paid
£'000
13,850
237
14,087
–
14,087
Number of
employees
1,132
15
1,147
–
1,147
168
168
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Company statement of changes in equity
for the year ended 31 December 2017
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 1 January 2017
Profit for the year
Net remeasurement of defined benefit liability
Revaluation of available for sale investment
securities:
— net gain from changes in fair value
— net profit on disposal transferred to profit or loss
during the year
Deferred tax relating to components of other
comprehensive income
Other comprehensive income net of tax
Dividends paid
Issue of share capital
Share-based payments:
— value of employee services
— cost of own shares acquired
— cost of own shares vesting
— tax on share-based payments
At 31 December 2017
49
17
46
42
50
50
50
50
46
49
17
46
42
50
50
50
46
Note
Share capital
£’000
2,407
Share premium
£’000
97,643
Available for
sale reserve
£’000
71
Own shares
£’000
(6,177)
Retained
earnings
£’000
63,981
40,950
(37,318)
Total equity
£’000
157,925
40,950
(37,318)
93
5,936
(31,382)
5,922
(31,303)
–
(26,479)
3,035
(1,084)
(115)
48,906
32,614
17,288
(26,479)
42,131
3,035
(1,585)
–
780
(115)
185,339
32,614
17,288
163
(43)
(2,939)
14,349
(2,959)
14,449
–
(29,420)
3,591
(1,820)
328
68,548
(29,420)
3,129
3,591
(441)
–
328
209,589
93
(14)
79
–
–
128
42,003
345
(1,585)
1,084
435
2,535
139,991
150
(6,243)
163
(43)
(20)
100
–
–
31
3,098
(441)
1,820
2,566
143,089
250
(4,864)
The accompanying notes form an integral part of the company financial statements.
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Company financial statements
Company balance sheet
as at 31 December 2017
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
Retirement benefit obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Available for sale reserve
Own shares
Retained earnings
Equity shareholders' funds
Note
43
44
46
45
2017
£’000
2016
£’000
180,503
12,565
4,455
197,523
114,597
1,616
7,400
123,613
140,503
11,864
8,128
160,495
131,310
92
6,212
137,614
321,136
298,109
47
48
(73,018)
(22,929)
(95,947)
(59,264)
(14,051)
(73,315)
27,666
64,299
49
(15,600)
(111,547)
(39,455)
(112,770)
209,589
185,339
50
50
50
2,566
143,089
250
(4,864)
68,548
209,589
2,535
139,991
150
(6,243)
48,906
185,339
The financial statements were approved by the board of directors and authorised for issue on 21 February 2018 and were signed on their
behalf by:
Philip Howell
Chief Executive
Company registered number: 01000403
Paul Stockton
Finance Director
The accompanying notes form an integral part of the company financial statements.
170
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Rathbone Brothers Plc Report and accounts 2017
Company statement of cash flows
for the year ended 31 December 2017
Cash flows from operating activities
Profit before tax
Net profit on disposal of available for sale investment securities
Net interest and dividends receivable
Net charge for provisions
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 decrease/(increase) in prepayments, accrued income and other assets
— net increase in accruals, deferred income, provisions and other liabilities
Cash used in/(generated from) operations
Tax received
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Interest received
Interest paid
Inter-company dividends received
Acquisition of subsidiaries
Investment in subsidiaries
Repayment of subordinated loans by group undertakings
Purchase of other investments
Proceeds from sale of investments
Net cash generated from investing activities
Cash flows from financing activities
Issue of ordinary shares
Dividends paid
Net cash (used in)/generated from financing activities
Net increase 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
2017
£’000
2016
£’000
30,390
(43)
(47,576)
16,523
(2,948)
(3,619)
3,871
(3,402)
–
16,712
5,590
18,900
1,747
20,647
24
(208)
48,000
–
(40,000)
–
(698)
160
7,278
2,688
(29,420)
(26,732)
1,193
5,963
7,156
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
48
49
49
50
43
43
50
42
55
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Company financial statements
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.
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 judgements and key sources of estimation and uncertainty
The critical accounting judgement and key sources of estimation and uncertainty arise from the company's defined benefit pension
schemes and the onerous lease provision in relation to surplus property at the company’s previous head office at 1 Curzon Street. These
are 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 2017 of £32,614,000 (2016:
£40,950,000).
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
2017
2016
715
92
28
293
1,128
681
82
27
259
1,049
172
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Rathbone Brothers Plc Report and accounts 2017
42 Dividends
Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 12 to the
consolidated financial statements.
The company's dividend policy is described in the directors' report on page 104.
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 2016
Additions
Disposals
At 1 January 2017
Additions
Disposals
At 31 December 2017
2017
£’000
209,589
2016
£’000
185,339
(2,566)
(143,089)
63,934
(2,535)
(139,991)
42,813
2017
£’000
42,813
32,614
14,349
100
(29,420)
3,478
63,934
Subordinated
loans to group
undertakings
£’000
1,750
–
(1,750)
–
–
–
–
Equities
£’000
128,857
11,725
(79)
140,503
40,000
–
180,503
2016
£’000
57,875
40,950
(31,382)
79
(26,479)
1,770
42,813
Total
£’000
130,607
11,725
(1,829)
140,503
40,000
–
180,503
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Company financial statements
Notes to the company financial statements continued
43 Investment in subsidiaries continued
Equities
On 11 December 2017, 445,000 ordinary shares of £1 each in Rathbone Investment Management were issued to the company at a price of
£90 per share for cash consideration.
At 31 December 2017 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
Rathbone Trust Legal Services 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 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
Trust and legal 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
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.
On 1 January 2018, 17,645 ordinary shares of 5p each in Vision Independent Financial Planning Limited were issued to the company at a
price of £295 per share in exchange for the company’s equity holding in Castle Investment Solutions. This transaction is not reflected in the
above disclosure.
44 Other investments
Available for sale securities
Equity securities – at fair value:
— listed
Money market funds – at fair value:
— unlisted
2017
£’000
2016
£’000
2,565
1,864
10,000
12,565
10,000
11,864
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Rathbone Brothers Plc Report and accounts 2017
45 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
2017
£’000
4,403
110,194
114,597
114,597
–
114,597
2016
£’000
3,836
127,474
131,310
131,310
–
131,310
46 Deferred tax
The Finance Bill 2016 contained legislation to reduce the UK corporation tax rate to 17.0% in April 2020 and was substantively enacted in
September 2016. Deferred income taxes are calculated on all temporary differences under the liability method 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 2017
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
(1,264)
–
148
(1,116)
(3,327)
–
388
(2,939)
–
–
–
–
Share-based
payments
£’000
1,264
(57)
–
4
(53)
–
–
–
–
318
10
–
328
Staff-
related
costs
£’000
189
144
–
(17)
127
–
–
–
–
–
–
–
–
Available
for sale
securities
£’000
(30)
–
–
–
–
(23)
–
3
(20)
–
–
–
–
Total
£’000
8,128
(1,177)
–
135
(1,042)
(3,350)
–
391
(2,959)
318
10
–
328
As at 31 December 2017
2,650
1,539
316
(50)
4,455
Deferred tax assets
Deferred tax liabilities
As at 31 December 2017
Pensions
£’000
2,650
–
2,650
Share-based
payments
£’000
1,539
–
1,539
Staff-
related
costs
£’000
316
–
316
Available
for sale
securities
£’000
–
(50)
(50)
Total
£’000
4,505
(50)
4,455
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Company financial statements
Notes to the company financial statements continued
46 Deferred tax continued
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)
–
–
–
–
(99)
–
(16)
(115)
As at 31 December 2016
6,705
1,264
Pensions
£’000
6,705
–
6,705
Share-based
payments
£’000
1,264
–
1,264
Deferred tax assets
Deferred tax liabilities
As at 31 December 2016
47 Trade and other payables
Trade creditors
Accruals, deferred income and other creditors
Amounts owed to group undertakings
Other taxes and social security costs
The fair value of trade and other payables is not materially different from their carrying amount.
Staff-
related
costs
£’000
37
137
44
(29)
152
–
–
–
–
–
–
–
–
189
Staff-
related
costs
£’000
189
–
189
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)
(30)
8,128
Available
for sale
securities
£’000
–
(30)
(30)
2017
£’000
355
64,672
230
7,761
73,018
Total
£’000
8,158
(30)
8,128
2016
£’000
571
53,338
–
5,355
59,264
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Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
48 Provisions for liabilities and charges
As at 1 January 2016
Charged to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2016
Charged to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2017
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
9,001
–
7,820
(6,611)
10,210
–
2,743
(4,883)
8,070
Deferred and
contingent
consideration
in business
combinations
£’000
3,908
–
3
(2,775)
1,136
–
84
–
1,220
4,768
3,302
8,070
–
1,220
1,220
Property-
related
£’000
1,741
964
–
–
2,705
16,523
–
(5,589)
13,639
5,794
7,845
13,639
Total
£’000
14,650
964
7,823
(9,386)
14,051
16,523
2,827
(10,472)
22,929
10,562
12,367
22,929
Deferred, variable costs to acquire client relationship intangibles of £2,743,000 arose during the year, in relation to deferred payments to
investment managers and third parties linked to the value of client funds introduced (2016: £7,820,000).
Deferred and contingent consideration of £1,220,000 (2016: £1,136,000) is the present value of amounts payable at the end of 2019 in
respect of the acquisition of Vision Independent Financial Planning and Castle Investment Solutions.
Property-related provisions of £13,639,000 relate to dilapidation and onerous lease provisions expected to arise on leasehold premises held
by the company (2016: £2,705,000). Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions
have decreased by £544,000 (2016: increased by £964,000) due to the utilisation of the dilapidation provision held for surplus property at
1 Curzon Street during the year.
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2016: three years), except for the
property-related provisions of £7,845,000 (2016: £1,413,000). These are expected to be settled within 19 years of the balance sheet date
(2016: 20 years).
49 Long-term employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 27 to the consolidated 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 consolidated financial statements. Details of options on the company's shares and share-based payments are set out in
note 30 to the consolidated financial statements.
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Company financial statements
Notes to the company financial statements continued
51 Financial instruments
The company's risk management policies and procedures are integrated with the wider Rathbones group's risk management process. The
Rathbones group has identified the risks arising from all of its activities, including those of the company, and has established policies and
procedures to manage these items in accordance with its risk appetite. The company categorises its financial risks into the following
primary areas:
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) pension risk.
The company's exposures to pension risk are set out in note 27 to the consolidated financial statements.
The sections below outline the group risk appetite, as applicable to the company, and explain how the company defines and manages
each category of financial risk.
The company’s financial risk management policies are designed to identify and analyse the financial risks that the company faces, to set
appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means of reliable and up-to-
date information systems. The company regularly reviews its financial risk management policies and systems to reflect changes in the
business and the wider industry.
The company’s overall strategy and policies for monitoring and management of financial risk are set by the board of directors (the board).
The board has embedded risk management within the business through the executive committee and senior management.
(i) Credit risk
The company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due,
through its trading activities. The principal sources of credit risk arise from depositing funds with banks and through providing long term
and working capital financing for subsidiaries.
The company's financial assets are categorised as follows:
Trade and other receivables
Trade and other receivables relate to amounts placed with subsidiaries, loans provided to subsidiaries and derivative financial instruments.
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 or 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 2016.
178
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Rathbone Brothers Plc Report and accounts 2017
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
2017
£’000
2016
£’000
10,002
10,000
110,194
7,500
7,400
135,096
127,474
1,112
6,212
144,798
The above table represents the gross credit risk exposure of the company at 31 December 2017 and 2016, 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
2017
£’000
110,194
–
110,194
–
110,194
2016
£’000
127,474
–
127,474
–
127,474
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
2017
£’000
5,733
1,667
7,400
2016
£’000
6,194
18
6,212
Debt securities
The table below presents an analysis of debt securities by rating agency designation, as at 31 December 2017, based on Fitch or Moody’s
long term rating designation.
AAA
2017
Money
market
funds
£’000
10,000
Total
£’000
10,000
2016
Money
market
funds
£’000
10,000
Total
£’000
10,000
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Company financial statements
Notes to the company financial statements continued
51 Financial instruments continued
(i) Credit risk continued
Concentration of credit risk
The company has counterparty credit risk within its balances at banks in that the principal exposure is to its banking subsidiary. The board
sets and monitors the group policy for the management of group funds, which include the placement of funds with a range of high-quality
financial institutions.
(a) Geographical sectors
The following table analyses the company’s credit exposures, at their carrying amounts, by geographical region as at the balance sheet
date. In this analysis, exposures are categorised based on the country of domicile of the counterparty.
At 31 December 2017
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2016
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
109,906
1,196
7,400
128,502
288
439
–
727
110,194
1,635
7,400
129,229
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
At 31 December 2017, all rest of the world exposures were to counterparties based in Jersey and the United States of America
(2016: Jersey and the United States of America). At 31 December 2017, the company had no exposure to sovereign debt (2016: 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 2017
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2016
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
180
180
Financial
institutions
£'000
Clients and other
corporates
£'000
Total
£'000
10,000
82,131
2
7,400
99,533
–
10,000
28,063
1,633
–
29,696
110,194
1,635
7,400
129,229
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
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
(ii) Liquidity risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities that are settled
by delivering cash or another financial asset. The company places its funds in short term or demand facilities with financial institutions to
ensure liquidity. The company has no bank loans (2016: £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 2017
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:
— amounts owed to group
undertakings
— other financial liabilities
Cash flows arising from
financial liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
Not more
than
3 months
£’000
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After 5
years
£’000
No fixed
maturity
date
£’000
10,002
–
–
–
–
110,194
7
7,156
127,359
–
600
–
600
–
639
244
883
–
3,435
–
–
2,819
–
3,435
2,819
230
244
–
42,858
–
3,404
–
37,746
474
126,885
126,885
42,858
(42,258)
84,627
3,404
(2,521)
82,106
37,746
(34,311)
47,795
–
5,873
5,873
(3,054)
44,741
–
–
–
–
–
–
–
–
–
44,741
Total
£’000
10,002
110,194
7,500
7,400
135,096
230
90,125
90,355
44,741
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181
Company financial statements
Notes to the company financial statements continued
51 Financial instruments continued
(ii) Liquidity risk continued
Non-derivative cash flows continued
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
Not more
than
3 months
£’000
After 3
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After 5
years
£’000
No fixed
maturity
date
£’000
10,002
–
–
–
127,474
5
5,971
143,452
–
429
–
429
–
335
226
561
–
343
18
361
–
–
–
–
–
226
29,794
3,722
26,718
3,364
–
–
–
–
–
–
226
143,226
143,226
29,794
(29,365)
113,861
3,722
(3,161)
110,700
26,718
(26,357)
84,343
3,364
(3,364)
80,979
–
–
80,979
Total
£’000
10,002
127,474
1,112
6,215
144,803
63,824
63,824
80,979
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.
Included within other financial liabilities disclosed above are cash flows for lease payments under the company’s agreement for leased
space at 1 Curzon Street. These contractual payments comprise part of the onerous lease provision for that property (see note 25).
The company holds £2,565,000 of equity investments (2016: £1,864,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as available for sale securities and have no fixed maturity date; cash flows arise from receipt of dividends or
through sale of the assets.
Off-balance sheet items
Cash flows arising from the 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 2017
At 31 December 2016
Not more
than
3 months
£’000
658
1,426
After 3
months
but not
more than
1 year
£’000
3,651
4,362
After 1
year but
not more
than
5 years
£’000
27,973
38,487
After 5
years
£’000
57,002
68,681
Total
£’000
89,284
112,956
182
182
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Total liquidity requirement
At 31 December 2017
Cash flows arising from financial liabilities
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
On
demand
£’000
474
–
474
On
demand
£’000
226
–
226
Not more
than
3 months
£’000
42,858
658
43,516
Not more
than
3 months
£’000
29,794
1,426
31,220
After 3
months
but not
more than
1 year
£’000
3,404
3,651
7,055
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
37,746
27,973
65,719
After 1
year but
not more
than
5 years
£’000
26,718
38,487
65,205
After 5
years
£’000
5,873
57,002
62,875
Total
£’000
90,355
89,284
179,639
After 5
years
£’000
3,364
68,681
72,045
Total
£’000
63,824
112,956
176,780
(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 2017
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:
— amounts owed to group
undertakings
— other financial liabilities
Total financial liabilities
Interest rate repricing gap
Not more
than
3 months
£’000
–
10,000
–
–
7,150
17,150
–
–
–
17,150
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
–
–
–
–
244
244
–
–
–
244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,565
–
2,565
10,000
110,194
1,635
6
114,400
110,194
1,635
7,400
131,794
230
70,520
70,750
43,650
230
70,520
70,750
61,044
rathbones.com
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183
183
Company financial statements
Notes to the company financial statements continued
51 Financial instruments continued
iii. Market risk continued
Interest rate risk continued
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
Not more
than
3 months
£’000
–
10,000
–
–
6,206
16,206
–
–
16,206
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
1,101
6
130,445
127,474
1,101
6,212
146,651
54,224
54,224
76,221
54,224
54,224
92,427
A 1% parallel increase/decrease in the sterling yield curve would have no impact on profit after tax or equity (2016: no impact).
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 2017. Included in the table are the company’s financial assets and liabilities,
at carrying amounts, categorised by currency.
At 31 December 2017
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:
— amounts owed to group undertakings
— other financial liabilities
Total financial liabilities
Net on-balance sheet position
Sterling
£’000
US dollar
£’000
Euro
£’000
Total
£’000
2,565
10,000
110,194
1,383
7,400
131,542
230
70,520
70,750
60,792
–
–
–
252
–
252
–
–
–
252
–
–
–
–
–
–
–
–
–
–
2,565
10,000
110,194
1,635
7,400
131,794
230
70,520
70,750
61,044
184
184
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
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
Sterling
£’000
US dollar
£’000
Euro
£’000
Total
£’000
1,864
10,000
127,474
841
6,212
146,391
54,224
54,224
92,167
–
–
–
260
–
260
–
–
260
–
–
–
–
–
–
–
–
–
1,864
10,000
127,474
1,101
6,212
146,651
54,224
54,224
92,427
A 10% weakening of the US dollar against sterling, occurring on 31 December 2017, would have reduced equity and profit after tax by
£20,000 (2016: £21,000). 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.
At 31 December 2017
Assets
Available for sale securities:
— equity securities
— money market funds
At 31 December 2016
Assets
Available for sale securities:
— equity securities
— money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
2,565
–
2,565
–
10,000
10,000
–
–
–
2,565
10,000
12,565
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
1,864
–
1,864
–
10,000
10,000
–
–
–
1,864
10,000
11,864
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 (2016: 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.
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).
rathbones.com
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185
185
Company financial statements
Notes to the company financial statements continued
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 group leases various offices and other assets under non-cancellable operating lease agreements. The leases have varying terms and
renewal rights. At 31 December 2017, the company’s agreements to lease space at 8 Finsbury Circus had remaining lease terms of 15 years;
total payments due over this period are £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
2017
£’000
4,310
27,973
57,002
89,285
2016
£’000
5,788
38,487
68,681
112,956
The above table excludes total lease payments of £18,124,000 at 31 December 2017, under the company’s agreement for leased space at
1 Curzon Street as these payments are included as part of the cash flows that comprise the onerous lease provision for that property
(see note 25). These cash flows have been included in ‘Other financial liabilities’ in note 51.
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
Share-based payments
2017
£’000
1,569
–
602
2,171
2016
£’000
1,727
12
847
2,586
Dividends totalling £408,000 were paid in the year (2016: £302,000) 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.
186
186
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Interest
Charges for management services
Dividends received
2017
2016
Receivable
£'000
–
152,708
48,000
200,708
Payable
£'000
–
–
–
–
Receivable
£'000
34
139,954
48,800
188,788
Payable
£'000
–
–
–
–
The company's balances with fellow group companies at 31 December 2017 are set out in notes 45 and 47.
The company’s transactions with the pension funds are described in note 49. At 31 December 2017, no amounts were due from the
pension schemes (2016: £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)
2017
£’000
7,156
2016
£’000
5,963
A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 36 to the consolidated
financial statements.
56 Events after the balance sheet date
On 1 January 2018, the company transferred 100% of its equity holding in Castle Investment Solutions to Vision Independent Financial
Planning, a 100% owned subsidiary undertaking, in a share-for-share exchange (see note 43).
rathbones.com
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187
187
Company financial statements
Further information
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
2017
£’000
286,049
87,520
58,901
46,829
30,429
92.7p
91.9p
138.8p
61.0p
363,278
£39.1bn
2016
£’000
251,283
74,880
50,129
38,157
28,267
78.9p
78.2p
122.1p
57.0p
324,813
£34.2bn
2015
£’000
229,178
70,365
58,632
46,371
26,305
97.4p
96.6p
117.0p
55.0p
300,192
£29.2bn
2014
£’000
200,803
61,556
45,710
35,678
24,863
76.0p
75.4p
102.4p
52.0p
271,271
£27.2bn
2013
£’000
176,409
50,510
44,204
34,751
22,645
76.1p
75.6p
86.7p
49.0p
251,000
£22.0bn
Investment Management
Rathbone Investment Management
Rathbone Investment Management International
Rathbone Greenbank Investments
Rathbone Trust Company
Rathbone Trust Legal Services
Vision Independent Financial Planning
Castle Investment Solutions
826
16
www.rathbones.com
www.rathboneimi.com
www.rathbonegreenbank.com
Unit Trusts
Rathbone Unit Trust Management
28
1
www.rathbones.com
www.rutm.com
Company secretary and registered office
Registrars and transfer office
A Johnson
Rathbone Brothers Plc
8 Finsbury Circus
London
EC2M 7AZ
Company No. 01000403
www.rathbones.com
ali.johnson@rathbones.com
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
188
188
Rathbone Brothers Plc Report and accounts 2017
Rathbone Brothers Plc Report and accounts 2017
Our offices
Head office
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
The Athenaeum
8 Nelson Mandela Place
Glasgow
G2 1BT
+44 (0)141 397 9900
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
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
Unit Trusts
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
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Rathbone Brothers Plc
8 Finsbury Circus, London, EC2M 7AZ
+44 (0)20 7399 0000
rathbones.com