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Rathbone Brothers Plc
Report and accounts 2018
Creating value
together
Contents
Strategic report
1 Our investment case
2 Chairman’s statement
4 Rathbones at a glance
6 Speirs & Jeffery acquisition
8 Our business model
Our strategy
11 Chief executive’s review
14 Market review
16 Our journey
17 Five years of strategic progress
Our performance
19 Key performance indicators
22 Financial performance
25 Segmental review
30 Financial position
34 Liquidity and cash flow
35 Risk management and control
41 Corporate responsibility report
Governance
56 Corporate governance report
66 Group risk committee report
69 Audit committee report
74 Nomination committee report
76 Group executive committee report
78 Remuneration committee report
92 Directors’ report
95 Statement of directors’ responsibilities
in respect of the report and accounts
Financial statements
97 Independent auditor’s report to the members
of Rathbone Brothers Plc
104 Consolidated financial statements
108 Notes to the consolidated financial statements
169 Company financial statements
172 Notes to the company financial statements
Further information
191 Five year record
191 Corporate information
192 Our offices
Rathbone Brothers Plc, through its subsidiaries,
is a leading provider of high-quality, personalised
investment and wealth management services for
private clients, charities and trustees. Our services
include discretionary investment management, unit
trusts, financial planning, banking and loan services,
unitised portfolio services, and UK trust, legal, estate
and tax advice.
As at 31 December, Rathbone Brothers Plc managed
£44.1 billion of client funds, of which £38.5 billion were
managed by our Investment Management business.
2018 financial highlights
Profit before
tax
£61.3m
(2017: £58.9m)
Basic earnings
per share
88.7p
(2017: 92.7p)
Underlying1
profit before tax
£91.6m
(2017: £87.5m)
Underlying1
earnings per share
142.5p
(2017: 138.8p)
Dividends paid and
proposed per share
Return on capital
employed (ROCE)2
66.0p
(2017: 61.0p)
16.9%
(2017: 19.5%)
For a full five year record, please see page 191
1. A reconciliation between underlying profit before tax and profit before tax is shown on page 23
2. Underlying profit after tax as a percentage of average equity of each quarter end
Rathbone Brothers Plc Report and accounts 2018
Our investment case
Rathbones – a sector leader
A face-to-face approach and consistent growth in funds under
management and administration
– An established brand and reputation
– A face-to-face approach, which supports clients and advisers by providing
the flexibility to meet their investment needs across different economic
and lifestyle conditions
– A range of complementary services that enhance client engagement
– Longevity of client and adviser relationships
– Branches in major wealth centres across the UK and an offshore presence
in Jersey
– An investment process which uses a whole of market approach
to access both direct and collective investments
– An in-house research team that pools intellectual investment talent
Total funds under management
and administration (£bn)
£44.1bn
44.1
39.1
34.2
27.2
29.2
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2014
2015
2016
2017
2018
A strong operating margin
– Measured investment in initiatives that support organic and acquired growth
– An ongoing cost discipline across market cycles
– Consistent investment in technology and infrastructure to keep abreast
of regulatory and industry changes
– Employee remuneration that is closely linked to investor outcomes
Underlying operating margin (%)
29.4%
29.4
30.7
29.8 30.6
29.4
2014
2015
2016
2017
2018
Consistent returns for shareholders
– A progressive dividend policy
– A high return on capital employed
– An ability to execute accretive acquisitions that fit our culture
– A commitment to high standards of corporate governance,
stewardship and transparency
Dividend per share (p)
66p
66
61
55
57
52
rathbones.com
1
2014
2015
2016
2017
2018
Chairman’s statement
the board and at the heart of our success. We have ongoing
discussions at board level about how we measure and monitor
our culture. As our business grows, the board recognises
the continued importance of good communication and
will ensure that the strong client-centric behaviours that are
embedded within the business continue to thrive. Throughout
2018, the board had particular focus on the impact of growth
on our culture. Outside of board meetings, non-executive
directors have held a number of constructive meetings,
both individually and as a whole, with groups of employees
across the business to share experiences more directly.
Corporate governance and stewardship continue to be
important in Rathbones and the report on pages 56 to 65
outlines how we have taken this important agenda forward
in 2018. We believe that the active approach we take on
corporate governance and stewardship issues arising in the
companies we invest in is in the best interests of our clients.
It also helps us strive for high standards in our own corporate
governance and disclosure, and we are supportive of the 2018
UK Corporate Governance Code changes, which we plan to
adopt in full by the end of 2019.
Risk and regulation
The past year has involved considerable work to implement
changes driven by continued regulatory developments. The
effects of these changes will be felt for some time. Our risk
management processes continue to play an important role in
decision-making and managing the business. The report from
the new chairman of the group risk committee, Terri Duhon,
is set out on page 66. In 2018, we paid particular attention to
the risks associated with cybercrime and business resilience,
and the operational risks of implementing the GDPR and
MiFID II. Non-executive members of the board have also
participated in a number of training and operational exercises
associated with these risks. We will continue to see the
impacts of regulatory change in 2019.
At the beginning of June, we significantly reduced our
exposure to property risk when we successfully assigned
all legacy Curzon Street leases to a third party. This has
resulted in a net write-back of non-underlying head office
relocation costs of £2.8 million (2017: net costs of £16.2 million)
in the year.
The board also recognises the additional operational risks
associated with the integration of Speirs & Jeffrey and will
ensure these are managed to within a sensible risk appetite.
Brexit
Brexit is likely to be one of the most significant political and
economic events to impact the United Kingdom in our
lifetimes. The lack of consensus on the United Kingdom's
strategy for the future creates unprecedented levels of
uncertainty and the longer term implications will not
be clear for some time.
For these reasons we continue to monitor Brexit-related
developments closely. As a UK business with no operations
in other European Union countries, no material dependencies
on goods or people from other European Union countries and
a predominantly UK client base, we anticipate that the
operational impacts on our business will be relatively small.
Mark Nicholls
Chairman
A review of 2018
Despite weaker investment markets in the final quarter of
the year, 2018 was a good year financially for Rathbones.
During the year we also implemented considerable regulatory
changes associated with MiFID II, the Asset Management
Market Study and the General Data Protection Regulation
successfully. These changes had a significant impact on
our clients and across the business.
Rathbones continues to grow organically, but our growth
in 2018 was dominated by the completion of the Speirs &
Jeffrey acquisition in August. The business is a strong
cultural fit, adding £6.7 billion of funds under management
and administration at the time of acquisition, and creating
a leading presence in Scotland. We are enjoying working
with the Speirs & Jeffrey team and look forward to
welcoming their clients on to our systems in mid-2019.
Our financial results reflected the relatively strong investment
markets that featured for most of the year but the final quarter
of 2018 was a poor one for investors and asset managers alike.
Despite weak markets at the end of the year, our funds under
management and administration reached £44.1 billion at 31
December 2018, up 12.8% from £39.1 billion last year. Profit
before tax for the year of £61.3 million increased 4.1% year
on year (2017: £58.9 million) and reflected the impact of a
number of non-underlying items, including costs associated
with the acquisition of Speirs & Jeffrey. Basic earnings per
share of 88.7p represented a decrease of 4.3% from 92.7p in
2017. A full analysis of all non-underlying items impacting
profit before tax can be found on page 23.
Our overall growth helped deliver underlying profit
before tax of £91.6m (2017: £87.5 million), resulting in an
underlying operating margin of 29.4% for the year (2017:
30.6%). Underlying earnings per share of 142.5p represented
an increase of 2.7% from 138.8p in 2017. In line with our
progressive dividend policy, the board is recommending a
final dividend of 42p per share. This brings the total dividend
for the year to 66p per share, an increase of 8.2% over last year.
Governance and culture
Rathbones’ culture (based on professionalism, putting clients
first, a collegiate approach and integrity) remains a priority of
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Rathbone Brothers Plc Report and accounts 2018
In particular, Brexit will bring no changes to the basis or nature
of the services we provide to the vast majority of our clients
and investors, who are based in the UK. However, we
recognise that the impact of Brexit more generally could affect
the value of our funds under management and administration.
Investors in the Luxembourg SICAV funds managed by
Rathbone Unit Trust Management will see some changes to
the basis on which these funds are delivered. It is also possible
that there may be some implications for our private clients
based in other EEA countries depending on the exact nature
of the services they receive and regulatory framework agreed
in the transitional period or in the event of an exit from the EU
without agreement.
We continue to devote considerable resources to the
investment implications of Brexit for client portfolios and
our range of funds, and regularly communicate our views
through formal and informal briefings from our research
team to clients and advisers.
Board changes and succession
As part of our normal succession planning, the board
continues to monitor its capabilities and assesses what
new skills are necessary to strengthen both the board and
the wider business over time, taking into account the existing
balance of knowledge, experience and diversity. This year,
we have implemented a number of changes in accordance
with our succession plans which place us in a strong position
to lead the business successfully in the future.
Taking these in order, in July 2018 we welcomed Terri Duhon
to the board. Terri has wide experience in the financial services
industry and was appointed chair of the risk committee on the
departure of Kathryn Matthews after nine years of excellent
service. We were also delighted to welcome Colin Clark to the
board in October 2018. Colin’s considerable experience in the
investment management industry will be of great value to
Rathbones in the years ahead.
Following a rigorous recruitment process, we announced the
appointment of Jennifer Mathias to the group finance director
role in October 2018. Jennifer’s knowledge and experience in
the wealth management and private banking sectors will be
welcome and she will join us on 1 April 2019.
Finally, in November 2018, we announced that Philip Howell
would be retiring from his role as chief executive by our
Annual General Meeting on 9 May 2019 having achieved
a successful period of considerable growth. Under Philip’s
leadership, Rathbones has firmly established itself as the
leading independent UK wealth manager and, on behalf of
the board, I would like to thank him for the strong direction,
unfailing commitment and dedication he has provided to
Rathbones during his tenure.
Philip is to be succeeded by Paul Stockton, currently
group finance director and managing director of Rathbone
Investment Management. Having worked with Paul for many
years, I am delighted with his promotion to the role of chief
executive. Paul has both considerable experience and a deep
knowledge of Rathbones, its values and culture. I wish him
every success as he takes on his new responsibilities.
Strategy
When we set our five-year strategy in 2014, we had the
ambition to reach £40 billion of funds under management
by the end of 2018. A combination of organic growth, earnings-
enhancing acquisitions, positive investment performance and
favourable markets has helped us to realise this ambition and
we now manage £44.1 billion (2014 opening funds: £22.0
billion). Further detail on our journey over the last five years
can be found on page 17. We expect to update the market on
the next phase of our growth during the second half of 2019.
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Supporting our employees
We support the broader initiatives in the 2018 Corporate
Governance Code, which include workforce engagement,
diversity and cultural issues. We believe that these require
separate but related initiatives and we are actively considering
how best to give them impetus. The board holds a strong
desire for Rathbones to be a business where every employee
has the opportunity to build a successful career and find the
right balance between work and personal life. This has been
our broad goal for some time and, over the past year, we have
made specific improvements including signing the Women in
Finance Charter and rolling out training programmes covering
diversity, inclusion and unconscious bias across the firm.
The board recognises that the securing of true diversity is not
an overnight change and will take time, but we are committed
to tackling the underlying causes of our gender imbalance in
particular. This will involve attracting talented people,
enabling their career paths to senior management, removing
any unconscious bias in our behaviours and actively creating
a culture of inclusion across the company. Further information
on the initiatives we offer to support and engage staff can be
found in our corporate responsibility report on page 41.
Engaging with shareholders
We are fortunate to have many supportive long-term
shareholders with whom we engage on a regular basis. In
2018 and at the beginning of 2019 we have consulted with
them on executive remuneration and we continue to hold
an open and constructive dialogue in analyst and investor
meetings. Shareholder support was evidenced this year by
the success of our £60 million share placing to support the
acquisition of Speirs & Jeffrey.
Outlook
Our priorities for 2019 will be the successful integration of
Speirs & Jeffrey, the roll-out of the next phase of our growth
and the smooth transition of our executive management team.
Despite political and economic uncertainties, we remain
confident in the underlying strength of our business and its
longer-term prospects.
Mark Nicholls
Chairman
20 February 2019
rathbones.com
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Rathbones at a glance
Delivering our services
We employ over
1,400
people
We operate from
15
UK locations1
and Jersey
We manage over
£44.1bn
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 who understands their requirements and provides 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
Investment Management funds under management and
administration have increased by 90.6 % to £38.5bn over the
past five years
Size of
relationship
by value
Client account
type by value
£0-£250k
£250k-£500k
£500k-£750k
£750k-£1.5m
£1.5m-£5.0m
£5.0m-£10.0m
£10m+
Private client
ISA
Charities
Pensions
Trusts
Other
8.1%
12.0%
9.6%
17.3%
23.8%
8.3%
20.9%
37.0%
17.0%
13.4%
11.5%
10.8%
10.3%
Within Investment Management, we have several specialist capabilities including:
Charities
Our charities business manages £5.3 billion of funds and is the fourth largest charity
manager in the UK. The team is diverse, in both its expertise and experience, and aims
to deliver suitably tailored investment portfolios to meet the specific 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 £1.2 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
Based in Jersey, Rathbone Investment Management International caters for the investment
needs of individuals and families, charities and professional advisers who are looking for
offshore investment management. The services are delivered by an experienced team of
investment professionals.
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Rathbone Brothers Plc Report and accounts 2018
Unit Trusts
Rathbone Unit Trust Management is an active UK
fund manager with £5.6 billion under management,
providing a range of specialist and multi asset funds
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 our Rathbone Luxembourg Funds
SICAV (Société d’Investissement à Capital Variable)
which allows access to a similar range of actively
managed funds.
Unit Trusts funds under management
have increased by 211.1% to £5.6bn over
the past five years
Total Unit
Trusts FUM
£5,642m
Rathbone Global
Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Income Fund
Rathbone Multi Asset Portfolios
Rathbone Active Income
Fund for Charities
Rathbone Strategic Bond Fund
Rathbone Global Alpha Fund
Rathbone High Quality Bond Fund
Rathbone UK Opportunities Fund
Other funds
£1,351m
£1,236m
£1,091m
£965m
£179m
£145m
£111m
£52m
£48m
£464m
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Complementary services2
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 highly qualified and
work closely with investment managers to help clients
create a bespoke financial plan. We have long-standing
experience of advising individuals, couples and families,
companies and trusts and can act on a one-off basis or
as part of an ongoing service.
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 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.
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 larger clients.
Vision Independent Financial Planning
Vision Independent Financial Planning is an
independent IFA network providing financial
advisory solutions to UK private clients.
Since it was fully acquired in 2015, it has grown
from £845 million of assets on its discretionary fund
management panel and 81 advisers to £1.5 billion and
125 independent financial advisers.
2. All complementary services are reported on as part of our Investment
Management segment
rathbones.com
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Speirs & Jeffrey acquisition
Combining businesses with
a cultural and strategic fit
On 31 August 2018, Rathbones completed the acquisition of Speirs & Jeffrey.
Founded in 1906, Speirs & Jeffrey is one of the largest independent private
client investment managers in Scotland with a total of £6.7 billion of funds
under management and administration (FUMA) at the time of acquisition.
Like Rathbones, Speirs & Jeffrey has a long-standing heritage and client-centric
philosophy, making the two businesses an excellent fit.
Building scale in an increasingly
fragmented marketplace
Together, we now manage
£44.1bn
in assets, making us one of the largest wealth
managers in the UK.
Scale gives us additional reach and strength and enables
greater financial and organisational capacity to invest in
our people, technology and processes, and to manage
regulatory change.
An enhanced presence in Scotland
Funds under
management and
administration
Investment
professionals
Speirs &
Jeffrey
£6.4bn 38
£2.9bn 36
Existing
Rathbones
presence in
Edinburgh,
Glasgow and
Aberdeen
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Rathbone Brothers Plc Report and accounts 2018
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A reduced dependency
on the London office
Clear benefits
for our stakeholders
Scotland
24%
Jersey1
2%
London
51%
Benefits our shareholders
The increased scale firmly establishes our
regional credentials and offers earnings per
share accretion, cost and revenue synergies.
London now accounts
for c.50% of FUMA
from over 60%
previously2
Northern
England
9%
Southern
England
14%
Glasgow is now the second-largest
Rathbones office with £6.8 billion
of funds under management
and administration. Our Scottish
offices now manage £9.3 billion
(2017: £3.3 billion).
1. Jersey funds under management and administration
excludes assets managed on a delegated basis
2. Based on funds under management and administration
Benefits our clients
The increased operational capacity allows further
investment in client-facing technology, central processes
and research capability, which supports a better service
for clients.
Benefits employees
The ability to invest in front office systems allows
employees to work with more effective and efficient
tools, improving team capacity.
rathbones.com
7
Our business model
Building value
Through a personalised approach to investment management, we offer
a compelling and attractive way to build value.
What we do
What makes us different
How we do it
We are a 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 single strategy and
multi asset fund products
– Complementary services including:
– banking and loan services
– in-house financial
planning advice
– a unitised portfolio service
– a managed portfolio service
– UK trust, legal, estate
and tax advice
– Vision Independent
Financial Planning
A sound investment case
– A relationship-based approach
– A whole of market approach
to investment
– Leading margins
Scale and expertise
– 341 trained investment professionals
– £44.1 billion of funds under
management and administration
– 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 clients and
advisers
Supported
by in-house
operations
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Rathbone Brothers Plc Report and accounts 2018
– 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, but have a suite of fund solutions through Rathbone
Unit Trust Management for clients who do not require a fully bespoke
investment service
– Our Jersey office can cater for offshore investment needs
– 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
– Clients have the ability to join Rathbones either directly
or through their own 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
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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 returns on capital employed
Read more on our aim to
provide earnings growth
on pages 17 and 20
For clients
– Active management of portfolios
through changing market conditions
– A valued and quality service that
builds trust
– Specialist mandate capability in
charity and sustainable investing
– High-quality adviser services
Read more on our aim to
provide quality service on
pages 17 and 19
For employees
– Empowered to make individual
investment decisions
– Performance-based remuneration
– Investment in training, support
and development
– Graduate and apprenticeship
programmes
– Low staff turnover
Read more on our aim to
provide employee value
on pages 17 and 21
rathbones.com
9
Our
strategy
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Rathbone Brothers Plc Report and accounts 2018
Chief executive’s review
Philip Howell
Chief Executive
A resilient year
The wealth management industry continues to grow, with
sector assets reaching close to £1 trillion according to a recent
Compeer study. The case for independent wealth managers
providing discretionary investment management through
a personalised client relationship model continues to be
compelling. A discretionary service can respond dynamically
to volatile market conditions and deliver a quality outcome.
Capitalising on the market opportunity requires continuous
investment in technology and professional talent, which in
turn calls for the advantages of scale. In this environment,
Rathbones is well-positioned.
Markets during the first half of 2018 were slow to react to the
growing economic and political uncertainties that were widely
reported. They did however begin to reflect sentiment more
closely during the second half of the year when we saw the
considerable falls in asset levels that have perhaps reset
expectations for 2019. Our own funds under management
and administration grew to £44.1 billion at 31 December 2018
(2017: £39.1 billion).
The year was characterised by some additional demands
placed upon the business. On the one hand, we needed to
adapt to new regulatory regimes and navigate increasingly
complex investment conditions. On the other, we continued
to progress our five-year strategic initiatives and completed
the most significant acquisition in our history. Our positive
financial results despite this significant level of activity
demonstrate the resilience of our business.
“The case for independent wealth managers
providing discretionary investment
management through a personalised
client relationship model continues to
be compelling. A discretionary service
can respond dynamically to volatile market
conditions and deliver a quality outcome.”
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A strong 2018 financial performance and the
completion of the acquisition of Speirs & Jeffrey
The 12.8% growth in our total funds under management and
administration in 2018 reflected continued net organic growth
and the completion of our acquisition of Speirs & Jeffrey in
August 2018, which added funds of £6.7 billion at the time
of completion. Total funds in our Investment Management
business were £38.5 billion (2017: £33.8 billion), whilst our
Unit Trusts business totalled £5.6 billion (2017: £5.3 billion).
This growth helped deliver underlying profit before tax of
£91.6 million (2017: £87.5 million), resulting in an underlying
operating margin of 29.4% for the year (2017: 30.6%).
Underlying earnings per share of 142.5p, increased 2.7% from
138.8p in 2017. Profit before tax of £61.3 million (2017: 58.9
million) reflected a number of non-underlying items including
costs associated with the acquisition of Speirs & Jeffrey.
Net new organic inflows totalled £1.1 billion in 2018,
representing a growth rate of 3.4% (2017: 3.0%). This was
a relatively steady performance compared to last year.
Outflows reflected the ongoing use of funds for lifestyle
and property, as well as the departure of a small number
of investment managers over the past year.
Net flows into Unit Trusts totalled £543 million in the year
(2017: £883 million) representing 10.1% of opening funds under
management. Encouragingly, this meant Rathbones funds
ranked 11th overall for net retail sales in 2018, according to
numbers published in the February 2019 Pridham report.
As reported on page 30, our balance sheet remains
stable with a consolidated Common Equity Tier 1 ratio
at 31 December 2018 of 20.6% compared with 20.7% at
31 December 2017. We remain very lightly geared with a
consolidated leverage ratio at 31 December 2018 of 8.9%
compared with 7.8% at 31 December 2017. Our underlying
return on capital employed was lower at 16.9% as a result
of the £60 million share placing to part-fund the acquisition
of Speirs & Jeffrey (2017: 19.5%). A detailed analysis of our
regulatory capital position at 31 December 2018 can be found
on page 30.
rathbones.com
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Chief executive’s review continued
Performance against our strategy
Supplementing our growth through acquisitions
Our growth strategy has always been supported by the
acquisition of teams and businesses, and our approach
here has and will remain opportunistic. Our acquisitions
and recruitment have added 137 investment professionals
over the past five years. In 2014, we acquired Deutsche Bank's
London and Jupiter's private client businesses (£2.6 billion)
and in 2018 we acquired Speirs & Jeffrey (£6.7 billion). This
was in addition to the acquisition of Vision Independent
Financial Planning in 2015.
Our acquisition of Speirs & Jeffrey makes Rathbones the
largest independent discretionary wealth manager in Scotland
and further reinforces our long-held commitment to the
region. Like Rathbones, Speirs & Jeffrey has a long-standing
heritage and client-centric philosophy and our combined scale
enables greater financial and organisational capacity to invest
in our people, technology and processes. Work to bring the
business into Rathbones is progressing well and the migration
to our systems is intended to complete by mid-2019. Our
commitment to keeping clients at the forefront of what
we do will remain as we bring our two businesses together.
We will continue to focus on our key competencies to take
advantage of industry trends and drive organic growth, while
also seeking out acquisition opportunities that fit our culture.
Steady investment in our infrastructure
Capital expenditure excluding property costs was relatively
stable at £9.7 million in 2018 (£9.3 million in 2017) but as an
overall trend it has been increasing in recent years. Our
investment systems remain market-leading and these have
been enhanced, offering the ability to deal more efficiently,
better manage asset allocation and measure investment
performance. The roll-out of our asset allocation modelling
software across Rathbone Investment Management five
years ago was an exciting step for us and enabled each of
our investment managers to better manage client portfolios
through the ability to actively compare them to model
strategies. This tool is now a critical part of our infrastructure.
Over the same period, we have steadily grown our research
skills and capability, which now represents a strong backbone
to our investment process and a considerable source of
investment intellectual property.
Like many other businesses, we continue to strive to make
all our desired improvements to our client relationship
management systems and will continue to work diligently
this year to achieve our goals. Our other operational systems
remain well controlled, supported by a technology
infrastructure that is considerably more resilient than
it was five years ago.
Our aim to build trusted relationships with our clients and be
accountable for the outcome of their portfolios is as relevant
today as it was five years ago.
The combination of organic growth, earnings-enhancing
acquisitions, positive investment performance and effective
cost management has helped Rathbones create and
maintain value for shareholders and employees alike. In
an environment of continued growth and favourable markets,
we have delivered underlying operating profit margins at
around the 30% mark over a period of significant change.
This has been achieved while investing in our infrastructure,
managing regulatory developments and pursuing a number
of growth initiatives.
Market growth has not been particularly strong over the last
five years, with the FTSE 100 Index average of 7269 for 2018
representing only a 13.2% increase over the average in 2014
of 6419. In spite of this, our underlying profits over that
period have grown 81.4% to £91.6 million in the year ended
31 December 2018 (31 December 2013: £50.5m).
Funds under management and administration in the
Investment Management business have grown 90.6%
to £38.5 billion at 31 December 2018 from £20.2 billion five
years ago. While our average net organic growth of 3.3%
did not meet the 5% we aimed for, it does reflect somewhat
the headwinds of a sustained period of low yields and a
continuing client appetite to invest away from public
investment markets and into property.
Our strategic focus on distribution of our discretionary fund
management services through UK IFA networks continues
to positively contribute to organic growth.
Our charity and Greenbank specialist mandate businesses
have continued to perform strongly. Rathbones is the
fourth largest charity investment manager in the UK, with
£5.3 billion of charity-related funds at 31 December 2018,
and now competes for some of the largest charity business
in the country. Our specialist ethical investment business,
Rathbone Greenbank Investments, has also benefited from
momentum in this period, growing funds to £1.2 billion at
31 December 2018.
The Unit Trusts business in particular has gained considerable
momentum and is now a £5.6 billion business (funds under
management at 31 December 2018) in its own right and
importantly does not rely on internal funds for growth. We
now manage three funds of over £1 billion and have launched
several new funds and strategies to keep up with growing
demand and the ever-changing investment market.
Some other growth initiatives have been slower to bear
fruit. Our in-house financial planning business has been
restructured recently. It will require investment in the
short term to ensure that all of our key offices have an
appropriate level of access to financial advisers to support
business development. We will continue to invest selectively
in financial planning talent in 2019. The Rathbone Private
Office has also recently been restructured to simplify
its proposition and build closer links with private client
discretionary managers. We will continue to leverage the
professional network it has established to add to growth.
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Outlook and succession
We have made some significant progress over the last five
years, but there is still work to do to develop our services
and strive for greater operational efficiency. This year will
be a busy one, with strategic investment decisions being
made amid the heightened uncertainties in investment
markets. During 2019, we will not only focus on ensuring
that the transfer of Speirs & Jeffrey clients to our platform is
successful, but we will also improve our customer relationship
management systems and client reporting tools, while
continuing to develop other systems and processes as we
progress our digital agenda and continue to grow. We will
continue to maintain our cost discipline, investing as market
conditions allow and ensuring that our infrastructure supports
the business and manages operational risks appropriately.
On 27 November 2018, we announced that I will be retiring
from my role as chief executive by the Annual General
Meeting in May 2019. When I joined Rathbones in 2013,
we were a business with £22.0 billion of funds under
management, 41,000 clients and around 800 people.
Back then, I could not have imagined the opportunities
and challenges that we would face along the way but,
five years later, at the end of 2018, we have emerged as the
largest independent discretionary fund management provider
in the UK, with £44.1 billion of funds under management and
administration, some 60,000 clients and over 1,400 people.
These achievements are down to the many talented
employees who compose Rathbones.
Paul Stockton will take on the role of chief executive and,
having worked closely with him for several years, I believe
he is the right person to lead the company into the next
chapter of its history.
I leave Rathbones with great confidence that the business
is well-positioned for the next phase of growth, which will be
announced in the second half of 2019. It has been my privilege
to lead Rathbones and I thank you all for your support over the
last five years.
Philip Howell
Chief Executive
20 February 2019
“The combination of organic growth, earnings-
enhancing acquisitions, positive investment
performance and effective cost management
has helped Rathbones create and maintain
value for shareholders and employees alike.”
Managing the impacts of greater regulation
2018 was a year in which significant new regulation was
implemented, adding to both capital and operating costs
and involving some considerable internal resource. We
were not alone as many industry participants wrestled
with MiFID II and GDPR implementation projects whilst
continuing to pursue a busy change agenda. Notwithstanding
a sustained period of heavy regulatory change in 2018, we
expect the impact to continue to be felt in 2019. Income in
2018 for example continued to benefit from the generation
of ‘risk-free’ managers' box dealing profits (£3.4 million in the
year ended 31 December 2018 and £3.1 million in 2017) in our
Unit Trust business, but such profits will not recur in 2019.
Alongside the wider asset management industry, we also
expect to face greater public scrutiny of costs and charges
following the implementation of MiFID II. We remain
confident in our value proposition but will continue to
improve our services to clients.
Employees
Our employees remain the most valuable part of our
business and without them we would not be the leading
wealth manager we are today. We explained last year that
current employee share ownership had been falling and we
are pleased to have addressed this during the year with our
new Staff Equity Plan. From May 2018, this adds £4.5 million
per annum over five years to operating expenses. We also
continue to support the Share Incentive Plan (SIP) and it is
encouraging to see that 1,055 (nearly 80%) of employees now
actively participate in that plan. The increased employee share
ownership provided by all of these plans ensures employees
are directly incentivised by, and motivated to ensure, the
positive performance of the group and its continuing long-
term success.
Training and career development is important to us and
we strive to provide a high-quality learning and development
experience for all of our employees to ensure they are well-
informed and to help them achieve both their professional
and personal potential. In 2019, we also expect our emphasis
to move away from the considerable amount of regulatory
training completed in recent years to pay greater attention
to other areas such as leadership development and
succession planning.
rathbones.com
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Market review
Our market and opportunities
Enduring demand for
face-to-face advice
An ageing population with increased
life expectancy along with greater pension
freedoms increases the need to save for
retirement and finance lifestyles over a
longer period of time. Clients and advisers
value face-to-face delivery of services.
How we respond
– Focus on a discretionary model, which
promotes regular client and adviser contact
– A strong investment process to support
a wide variety of differing client needs
– Specialist services such as our charities business
and Rathbone Greenbank Investments to cater
to differing investment requirements
– A suite of fund solutions through Rathbone
Unit Trust Management for clients who do
not require a fully bespoke investment service
– Complementary services such as loans and
financial planning
Leveraging technology
The industry continues to change with all
business models looking for technological
advantage. Keeping pace with this change
is fundamental to sustaining a quality service.
How we respond
– Leading investment management systems
and a stable core platform
– A desire to enhance the digital client experience
– Investment in client relationship management
systems
Taking advantage of scale economies
Many businesses in the marketplace are
unable to keep up with the pace of regulatory
and technological change. This has led to
an increased need for consolidation.
How we respond
– Selectively added 137 investment managers
over the last five years
– Opened new regional offices in Newcastle
and Glasgow
– Successfully acquired the Deutsche Bank's
London and Jupiter's private client businesses
in 2015 (£2.6 billion funds under management
and administration), Vision Independent
Financial Planning in 2015 and Speirs & Jeffrey
in 2018 (£6.7 billion funds under management
and administration)
– Further developed our distribution channels
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Female
Male
How we will develop
– Continue to improve the delivery of our discretionary
Average life expectancy continues
to increase in the UK1 (years)
84
82
80
78
76
74
72
service offering
– Widen breadth and depth of investment and
research capability
– Leverage our existing environmental, social and
governance capability to make this form of investing
more mainstream
– Selectively add to the funds provided by Rathbone Unit
Trust Management in response to client and adviser needs
– Fully embed our financial planning capability in all offices
– Continue to grow the Vision Independent Financial
Planning adviser network
How we will develop
– Continue to invest in systems that will reduce time
spent on administrative tasks
– Enhance the use of data to reduce costs and improve
profitability
– Further develop and expand our digital client experience
– Continue to upgrade relationship management tools and
risk management processes
1992-
1994
1997-
1999
2002-
2004
2007-
2009
2012-
2014
2015-
2017
Capital expenditure (excluding property) (£m)
9.7
9.3
5.3
4.9
4.4
IT and other
Internally
developed
software
Purchased
software
2014
2015
2016
2017
2018
How we will develop
– Continue to look for consolidation opportunities that
fit our culture but maintain strict acquisition criteria
– Support business development activity to improve organic
growth with direct clients, intermediaries and advisers
– Continue to selectively recruit individuals and teams
to the business
The market is fragmented and there are
several firms that have less than £5bn
of funds under management, making
the consolidation argument strong2
1. Data from the Office for National Statistics
2. Data from the 2018 Private Asset Managers (PAM) Directory
rathbones.com
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Our journey
Our objective in 2014 was to be the UK’s leading independently-owned provider
of investment management services to private clients, charities and trustees.
From a starting point of £22.0 billion, we have grown to manage £44.1 billion today.
The combination of organic growth, earnings-enhancing acquisitions, positive
investment performance, favourable markets and effective cost management has
also helped Rathbones create and maintain value for shareholders and employees alike.
Earnings-enhancing acquisitions
2014: Deutsche Bank's London and Jupiter's
private client businesses (£2.6 billion)
2015: Vision Independent Financial Planning
to help expand distribution channels
2018: Speirs & Jeffrey (£6.7 billion)
2018
Closing funds under
management and
administration
£44.1bn
2017
£39.1bn
2016
£34.2bn
2015
£29.2bn
2014
£27.2bn
2014
Opening funds under
management and
administration
£22.0bn
2014
2015
2016
2017
2018
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Five years of strategic progress
Quality
service
Earnings
growth
Employee
value
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.
– Added new funds to broaden
our Unit Trusts offering, with
three funds now managing
over £1 billion
– Widened specialist mandate
capability, building on our
dedicated charity capability
to grow Rathbone Greenbank
Investments and offer more
mainstream sustainable
investment options
– Enhanced management
information tools to improve
support for commercial
decision-making
– Selectively added 137 investment
managers over the last five years
– Opened offices in Newcastle
in 2013 and Glasgow in 2015
– Created a combined dedicated
intermediary sales team to
focus on strategic partners
– Established dedicated support
teams for IFA networks
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.
– Redefined remuneration
structures and created
opportunities for more
employees to build a larger
element of equity ownership
– Continued to monitor succession
and development plans for critical
roles and functions
– Established ongoing development
and monitoring of culture
– Expanded graduate and
apprenticeship schemes
– Increased average annual
training investment per employee
each year for the last five years
– Rolled out training programmes
covering diversity, inclusion and
unconscious bias
– Signed the Women in Finance
Charter and made significant
improvements to both maternity
and paternity policies
We aim to provide our clients
with the highest quality of
service to maintain our brand
reputation and competitive
positioning.
– Upgraded investment process
to facilitate more efficient
management of portfolios
– Invested in in-house research,
adding intellectual capacity,
improving both written outputs
and their timely communication
to clients
– Improved ability to demonstrate
performance by attaining
GIPS accreditation
– Invested in front office tools
and automation of operational
processes, allowing teams
to manage client bases
more effectively
– Continued the development
of our customer relationship
management platform
– Began a technology upgrade
programme, which will improve
data management capabilities,
and introduced additional security
measures to combat the growing
cyber threat
– Managed investment management
team capacity to support growth
and ongoing client service
– Developed reporting tools to
support client meetings and
client engagement
– Implemented a new brand identity
and marketing communications
suite that appeals to a broader
range of clients
Principal risks:
Suitability and advice (see page 38)
Regulatory (see page 39)
Principal risks:
Suitability and advice (see page 38)
Regulatory (see page 39)
Principal risks:
Regulatory (see page 39)
People (see page 39)
Read more on our KPIs on pages 19 to 21.
rathbones.com
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Our
performance
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Key performance indicators
Monitoring our performance
Quality service
Capital expenditure
excluding property (£m)
£9.7m
9.3
9.7
4.9
5.3
4.4
2014
2015
2016
2017
2018
Definition
Funds used to acquire,
upgrade and maintain
physical and technological
assets (mostly intangible),
with the exception
of property.
Relevance
Reflects how much
we are investing back into
the business as well as on
undertaking new projects
or investments to maintain
or increase the scope and
efficiency of our operations.
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Total funds under management
and administration (£bn)
£44.1bn
44.1
39.1
34.2
27.2
29.2
2014
2015
2016
2017
2018
Definition
Total funds under
management and
administration at
the end of the year.
Relevance
The amount of funds
that we manage directly
impacts the level of
income we receive.
Investment Management net
organic growth rates (%)
Number of Investment
Management clients (‘000)
3.4%
4.0
3.0
2.9
3.0
3.4
Definition
The value of annual
net inflows from
Investment Management
as a percentage of opening
funds under management
and administration.
Relevance
Measures the ability of the
firm to grow business in
the absence of acquisitions.
60,000
Definition
The number of clients
who use our services.
60
46
47
48
50
Relevance
In an industry where scale
is important, the size of
our client base helps to
determine market share.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
rathbones.com
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Key performance indicators continued
Earnings growth
Dividend per share (p)
66p
66
61
55
57
52
Definition
Total annual dividend per
share (interim and final).
Relevance
Dividends represent
an important part of the
returns to shareholders.
Underlying
operating margin (%)
29.4%
29.4
30.7
29.8 30.6
29.4
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Return on capital employed (%)
16.9%
19.1
19.3
19.5
17.8
16.9
2014
2015
2016
2017
2018
Definition
Underlying profit after
tax as a percentage of
the quarterly average
total of equity.
Relevance
A useful measure of
financial efficiency as it
measures profitability after
factoring in the amount
of capital employed by
the business.
Underlying earnings
per share (p)
142.5p
117.0 122.1
102.4
138.8 142.5
2014
2015
2016
2017
2018
Definition
Underlying profit before
tax as a percentage of
underlying operating
income.
Relevance
This measure enables the
group’s operational and
segmental performance to
be understood, accurately
reflecting key drivers of
long-term profitability.
Refer to page 22 for
a full definition of
adjusted measures.
Definition
Underlying profit after tax
divided by the weighted
average number of
ordinary shares.
Relevance
An important measure
of performance as it shows
profitability reflecting
the effects of any new
share issuance.
Refer to page 22 for a
full definition of adjusted
measures.
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Employee value
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Staff turnover (%)
6.0%
6.0
6.0
5.0
5.0
4.0
2014
2015
2016
2017
2018
Definition
Number of permanent
employees who have
left during the year,
excluding retirements
and redundancies, as
a percentage of opening
headcount.
Relevance
A measure of staff retention,
which can be a reflection
of the work environment
and commitment to
the organisation.
Number of participants with SIP
partnership shares
1,055
1,055
946
845
844
767
2014
2015
2016
2017
2018
Definition
The number of staff
who make a direct
contribution to purchase
shares in the business.
Relevance
A measure of commitment
to the organisation and
belief in the future financial
success of the company.
Average full-time
equivalent employees
1,329
1,329
1,147
1,066
981
880
Variable staff costs as a % of underlying profit
before tax and before variable staff costs
37.6%
36.4
36.1
37.5
37.9
37.6
Definition
Monthly average number
of full-time equivalent
staff during the year.
Relevance
A fundamental measure
for cost growth and
operational efficiency.
Definition
Variable staff costs divided
by underlying profit before
tax and before variable
staff costs.
Relevance
Shows the extent to
which reward is aligned
to the performance of
the company.
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
rathbones.com
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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
2018
£m
(unless stated)
312.0
(220.4)
91.6
29.4%
61.3
24.6%
(15.1)
46.2
142.5p
88.7p
66.0p
16.9%
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%
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 14) as a % of average equity at each quarter end
Overview of financial performance
Our financial results in 2018 were reasonably strong, as
underlying profit before tax grew by 4.7% to £91.6 million.
The underlying operating margin, which is calculated as the
ratio of underlying profit before tax to underlying operating
income, was 29.4% for the year and thus in line with our target
of 30% over the cycle (2017: 30.6%). Profit before tax increased
by 4.1% to £61.3 million.
Profits from Speirs & Jeffrey are included for the four-month
period since completion of the acquisition on 31 August 2018,
together with all of the associated acquisition-related profit
and loss charges.
Underlying operating income
Fee income of £233.4 million in 2018 increased 7.3% compared
to £217.5 million in 2017, reflecting organic and acquired new
business over the period. Fees represented 74.8% of total
underlying operating income in 2018, lower than the 76.0%
in 2017, largely reflecting a higher proportion of commissions in
Speirs & Jeffrey and increased interest margins. Net commission
income increased 7.0% to £41.4 million (2017: £38.7 million)
in 2018. Net interest income increased 31.9% to £15.3 million,
reflecting higher interest rates and a longer average duration
in treasury assets.
A full reconciliation between underlying operating income
and reported operating income is provided on page 122.
Underlying operating expenses
Underlying operating expenses increased by 11.0%, not only
reflecting £5.9 million of Speirs & Jeffrey operating costs, but
also underlying growth in the business as well as additional
research costs totalling £2.3 million, which are now borne by
the company rather than our investment funds following the
adoption of MiFID II.
Planned additions to headcount increased fixed staff costs
by 5.5% to £92.6 million, with Speirs & Jeffrey adding a further
£3.3 million of fixed staff costs and 156 heads. In total, average
headcount increased by 15.9% to 1,329 in 2018.
Total variable staff costs increased by 3.4% to £55.1 million,
reflecting improved performance pay levels and the
additional cost of share incentives to staff. Variable staff
costs in 2018 represented 17.7% of underlying operating
income (2017: 18.6%) and 37.6% of underlying profit before
variable staff costs and tax (2017: 37.9%).
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Rathbone Brothers Plc Report and accounts 2018
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
2018
£m
2017
£m
(unless stated)
(unless stated)
312.0
(220.4)
91.6
29.4%
61.3
24.6%
(15.1)
46.2
142.5p
88.7p
66.0p
16.9%
286.0
(198.5)
87.5
30.6%
58.9
20.5%
(12.1)
46.8
138.8p
92.7p
61.0p
19.5%
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 14) as a % of average equity at each quarter end
Overview of financial performance
Our financial results in 2018 were reasonably strong, as
underlying profit before tax grew by 4.7% to £91.6 million.
The underlying operating margin, which is calculated as the
ratio of underlying profit before tax to underlying operating
income, was 29.4% for the year and thus in line with our target
of 30% over the cycle (2017: 30.6%). Profit before tax increased
by 4.1% to £61.3 million.
Profits from Speirs & Jeffrey are included for the four-month
period since completion of the acquisition on 31 August 2018,
together with all of the associated acquisition-related profit
and loss charges.
Underlying operating income
Fee income of £233.4 million in 2018 increased 7.3% compared
to £217.5 million in 2017, reflecting organic and acquired new
business over the period. Fees represented 74.8% of total
underlying operating income in 2018, lower than the 76.0%
in 2017, largely reflecting a higher proportion of commissions in
Speirs & Jeffrey and increased interest margins. Net commission
income increased 7.0% to £41.4 million (2017: £38.7 million)
in 2018. Net interest income increased 31.9% to £15.3 million,
reflecting higher interest rates and a longer average duration
in treasury assets.
A full reconciliation between underlying operating income
and reported operating income is provided on page 122.
Underlying operating expenses
Underlying operating expenses increased by 11.0%, not only
reflecting £5.9 million of Speirs & Jeffrey operating costs, but
also underlying growth in the business as well as additional
research costs totalling £2.3 million, which are now borne by
the company rather than our investment funds following the
adoption of MiFID II.
Planned additions to headcount increased fixed staff costs
by 5.5% to £92.6 million, with Speirs & Jeffrey adding a further
£3.3 million of fixed staff costs and 156 heads. In total, average
headcount increased by 15.9% to 1,329 in 2018.
Total variable staff costs increased by 3.4% to £55.1 million,
reflecting improved performance pay levels and the
additional cost of share incentives to staff. Variable staff
costs in 2018 represented 17.7% of underlying operating
income (2017: 18.6%) and 37.6% of underlying profit before
variable staff costs and tax (2017: 37.9%).
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 reviewing 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.
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
2018
£m
91.6
2017
£m
87.5
–
5.5
(13.2)
(19.9)
2.8
61.3
(11.7)
(6.2)
(16.2)
58.9
Charges in relation to client relationships and
goodwill (note 22)
As explained in notes 1.14 and 3.1, 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 relates to the financial
reporting period. Charges for amortisation of client relationship
intangibles in the year ended 31 December 2018 were £13.2
million (2017: £11.7 million), reflecting the Speirs & Jeffrey
and other acquisitions.
Acquisition-related costs (note 9)
Acquisition-related costs are significant costs which arise
from strategic investments to grow the business rather than
from its trading performance and are therefore excluded from
underlying results.
Net costs of £18.4 million were incurred in 2018 in relation
to the acquisition of Speirs & Jeffrey. These amounts are largely
capital in nature but, in accordance with IFRS 3, any deferred
consideration payments to shareholders of the acquired
business who remain in employment with the group must
be treated as remuneration. During 2018, £14.7 million of
deferred consideration payments were expensed to the
income statement and are considered separately for
executive remuneration purposes (see page 78).
Deferred costs of £1.5 million (2017: £1.3 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. The final payment
for this acquisition of £7.0 million is due at the end of 2019.
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As announced on 31 August 2017, we incurred professional
services costs of £4.9 million in relation to the merger
discussions with Smith & Williamson during 2017.
Head office relocation costs (note 10)
During February 2017, we relocated our London head office to
new premises following a nine-month fit-out period. Charges
incurred in relation to the double running of the two London
premises and the relocation amounted to £16.2 million in 2017.
This included the recognition of a provision for the cost of the
surplus property until the end of the existing lease, net of any
expected rental income from sub-letting the space.
On 6 June 2018, our legacy lease was assigned, several
months earlier than anticipated, triggering a release of the
unused element of the provision. Professional costs were
also incurred in 2018 and, consequently, a net credit of
£2.8 million has been recognised in the result for 2018.
These items 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.
Gain on plan amendment of defined benefit pension
schemes (note 28)
All defined benefit schemes were closed with effect from
30 June 2017, 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 in
2017. This gain was a significant one-off item which does not
directly relate to the trading performance of the business and
it has, therefore, been excluded from underlying results.
Taxation
The corporation tax charge for 2018 was £15.1 million
(2017: £12.1 million) and represents an effective tax rate
of 24.6% (2017: 20.5%). The effective tax rate in 2018 reflects
the disallowable costs of the deferred consideration payments
in relation to the acquisition of Speirs & Jeffrey. The effective
tax rate in 2019 and 2020 is expected to remain elevated as
the group continues to recognise these costs. Thereafter,
the group expects it to return to 1-2% above the statutory rate.
A full reconciliation of the income tax expense is provided
in note 12 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.
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23
23
Financial performance continued
Basic earnings per share
Basic earnings per share for the year ended 31 December 2018
were 88.7p compared to 92.7p in 2017. This reflects the full
impact of non-underlying income and charges as well as the
issue of 3.9 million shares to partially finance the acquisition
of Speirs & Jeffrey and to satisfy share-based remuneration
scheme awards. On an underlying basis, earnings per share
increased by 2.7% to 142.5p in 2018 (see note 14 to the
financial statements).
Dividends
We operate a generally progressive dividend policy, as set out
in the directors’ report on page 92.
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 2018 the company’s distributable reserves
were £68.9 million (2017: £63.9 million).
In light of the results for the year, the board has proposed a final
dividend for 2018 of 42.0p. This results in a full-year dividend of
66.0p, an increase of 5.0p on 2017 (8.2%). The proposed full-year
dividend is covered 1.3 times by basic earnings and 2.2 times by
underlying earnings.
Capital expenditure
Overall, capital expenditure of £11.0 million in 2018 was
down £0.3 million compared to 2017, a fall of 2.7%. As
planned, expenditure on software increased by £0.7 million
as we continued with the IT change programme announced
in 2017. These activities are expected to continue into 2019
with a similar level of capital expenditure.
Premises-related capital expenditure fell by £1.0 million
following the completion of our head office relocation in 2017.
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 81. 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
of all investment decisions, particularly in relation to
acquired growth.
In 2018, ROCE was 16.9%, a decrease of 2.6% on 2017. Quarterly
average total equity increased by £73 million in 2018 compared
to 2017, reflecting the issue of £60 million of new share capital
in 2018 and the impact of retained earnings.
Outlook
The group’s profitability remains closely linked with the
performance in investment markets, which are expected to
be more volatile in 2019. In 2019, the group’s results will reflect
a full year of profits from Speirs & Jeffrey, together with the
associated costs of acquisition and integration. Client migration
to Rathbones’ systems is expected to complete towards the
middle of 2019.
Staff costs in 2019 will reflect the full impact of hiring activity
in 2018 in addition to salary inflation of 3.6% and the cost of
five-year share-based awards made in May 2018, which will
be spread on a straight line basis over five years from launch.
Following the announcement of Philip Howell’s planned
retirement from the role of chief executive in May 2019, the
cost of his outstanding deferred awards are being accelerated
to recognise the full cost over the shorter service period.
Following publication of the final rules associated with the
FCA’s Asset Management Market Study, we have converted our
unit trust funds to single priced units from 21 January 2019. The
£3.4 million of associated managers’ box dealing profits earned
in 2018 (2017: £3.1 million) are not expected to recur in 2019.
We will continue to maintain our cost discipline, investing as
market conditions allow to support our growth strategy and
ensure that our infrastructure supports the business and
manages operational risks appropriately.
Other financial impacts
The group is required to adopt IFRS 16, a new accounting
standard for leases, with effect from 1 January 2019. As
described in note 1 to the financial statements, IFRS 16 requires
a change in the accounting requirements for operating leases
which accelerates the charge to profit or loss associated with the
leases. In 2019, we expect this change will add approximately
£0.3 million to the group’s net charge for leases.
Deferred consideration payments to former shareholders of
Speirs & Jeffrey will be made in 2019 to 2022. The ultimate
amounts payable are conditional on performance against
certain operational targets. The final payment to the sellers of
Vision Independent Financial Planning and Castle Investment
Solutions will be made at the end of 2019. We currently expect
to recognise a non-underlying charge of approximately
£31 million in 2019 in relation to these deferred payments.
24
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
Financial performance continued
Segmental review
Basic earnings per share
Basic earnings per share for the year ended 31 December 2018
were 88.7p compared to 92.7p in 2017. This reflects the full
impact of non-underlying income and charges as well as the
issue of 3.9 million shares to partially finance the acquisition
of Speirs & Jeffrey and to satisfy share-based remuneration
scheme awards. On an underlying basis, earnings per share
increased by 2.7% to 142.5p in 2018 (see note 14 to the
financial statements).
Dividends
We operate a generally progressive dividend policy, as set out
in the directors’ report on page 92.
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 2018 the company’s distributable reserves
were £68.9 million (2017: £63.9 million).
In light of the results for the year, the board has proposed a final
dividend for 2018 of 42.0p. This results in a full-year dividend of
66.0p, an increase of 5.0p on 2017 (8.2%). The proposed full-year
dividend is covered 1.3 times by basic earnings and 2.2 times by
underlying earnings.
Capital expenditure
Overall, capital expenditure of £11.0 million in 2018 was
down £0.3 million compared to 2017, a fall of 2.7%. As
planned, expenditure on software increased by £0.7 million
as we continued with the IT change programme announced
in 2017. These activities are expected to continue into 2019
with a similar level of capital expenditure.
Premises-related capital expenditure fell by £1.0 million
following the completion of our head office relocation in 2017.
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 81. 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
of all investment decisions, particularly in relation to
acquired growth.
In 2018, ROCE was 16.9%, a decrease of 2.6% on 2017. Quarterly
average total equity increased by £73 million in 2018 compared
to 2017, reflecting the issue of £60 million of new share capital
in 2018 and the impact of retained earnings.
Outlook
The group’s profitability remains closely linked with the
performance in investment markets, which are expected to
be more volatile in 2019. In 2019, the group’s results will reflect
a full year of profits from Speirs & Jeffrey, together with the
associated costs of acquisition and integration. Client migration
to Rathbones’ systems is expected to complete towards the
middle of 2019.
Staff costs in 2019 will reflect the full impact of hiring activity
in 2018 in addition to salary inflation of 3.6% and the cost of
five-year share-based awards made in May 2018, which will
be spread on a straight line basis over five years from launch.
Following the announcement of Philip Howell’s planned
retirement from the role of chief executive in May 2019, the
cost of his outstanding deferred awards are being accelerated
to recognise the full cost over the shorter service period.
Following publication of the final rules associated with the
FCA’s Asset Management Market Study, we have converted our
unit trust funds to single priced units from 21 January 2019. The
£3.4 million of associated managers’ box dealing profits earned
in 2018 (2017: £3.1 million) are not expected to recur in 2019.
We will continue to maintain our cost discipline, investing as
market conditions allow to support our growth strategy and
ensure that our infrastructure supports the business and
manages operational risks appropriately.
Other financial impacts
The group is required to adopt IFRS 16, a new accounting
standard for leases, with effect from 1 January 2019. As
described in note 1 to the financial statements, IFRS 16 requires
a change in the accounting requirements for operating leases
which accelerates the charge to profit or loss associated with the
leases. In 2019, we expect this change will add approximately
£0.3 million to the group’s net charge for leases.
Deferred consideration payments to former shareholders of
Speirs & Jeffrey will be made in 2019 to 2022. The ultimate
amounts payable are conditional on performance against
certain operational targets. The final payment to the sellers of
Vision Independent Financial Planning and Castle Investment
Solutions will be made at the end of 2019. We currently expect
to recognise a non-underlying charge of approximately
£31 million in 2019 in relation to these deferred payments.
The group is managed through two key operating segments, Investment Management and Unit Trusts.
Investment Management – number of clients
Chart 1. Investment Management – number of clients
and investment managers
and investment managers
Investment Management
The activities of the group are described in detail on pages
4 to 9. The Investment Management segment comprises
those activities described under the headings ‘Investment
Management’ and ‘complementary services’ on pages
4 and 5. The results of the Investment Management
segment described below include the trading results
of Speirs & Jeffrey for the last four months of the year,
following its acquisition on 31 August 2018.
Investment Management income is largely driven by
revenue margins earned from funds under management
and administration. 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
2017
2018
Funds under management and
administration at 31 December1
£38.5bn
£33.8bn
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80
60
40
20
0
249
46.0
260
47.0
273
48.0
277
50.0
327
60.0
400
300
200
100
0
2014
2015
2016
2017
2018
Number of investment managers
Number of Investment Management clients (’000)
Funds under management and administration
Investment Management funds under management
and administration increased by 13.9% to £38.5 billion at
31 December 2018 from £33.8 billion at the start of the year.
This increase is analysed in table 4.
Table 4. Investment Management – funds under management
and administration
Underlying rate of net organic
growth in Investment
Management funds under
management and administration1
Underlying rate of total net growth
in Investment Management funds
under management and
administration1
Average net operating basis point
return2
Number of Investment
Management clients
Number of investment managers
1. See table 4
2. See table 7
3.4%
3.0%
23.5%
3.9%
71.4 bps
72.7 bps
60,000
327
50,000
277
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
2018
£bn
33.8
10.6
3.8
6.8
(2.7)
(3.2)
38.5
1.1
2017
£bn
30.2
3.4
3.1
0.3
(2.2)
2.4
33.8
0.9
3.4%
23.5%
3.0%
3.9%
During 2018, 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 50,000 in 2017 to approximately 60,000 during
the year. During 2018, the total number of investment managers
increased to 327 at 31 December 2018 from 277 at the end of
2017. Of these, approximately 8,500 clients and 38 investment
managers joined the group with the acquisition of Speirs &
Jeffrey on 31 August 2018.
1. Value at the date of transfer in/(out)
2. Value at date of acquisition
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 and administration
6. Net organic new business and acquired inflows as a % of opening funds under management
and administration
Net organic growth in our Investment Management business
was 3.4% (2017: 3.0%). Total gross organic inflows grew 22.6%
to £3.8 billion, with approximately half coming from existing
client relationships.
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Rathbone Brothers Plc Report and accounts 2018
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Segmental review continued
Charity funds under management and administration
continued to grow strongly and reached £5.3 billion at
31 December 2018, up 12.8% from £4.7 billion at the start
of the year.
Funds under management and administration in accounts
linked to independent financial advisers and provider panel
relationships increased by £0.1 billion during 2018, ending the
year at £7.8 billion.
The acquisition of Speirs & Jeffrey on 31 August 2018 added
£6.7 billion to funds under management and administration.
Outflows of funds under management and administration
during the year were 8% of the opening balance (2017: 7%)
largely reflecting some recent losses of investment managers.
Investment Management – funds under
Chart 2. Investment Management – funds under
management and administration five year growth
management and administration five-year growth (£bn)
26.1
30.2
24.7
38.5
33.8
40
30
20
10
0
2014
2015
2016
2017
2018
FTSE 100*
MSCI Balanced*
* Index figures show how funds under management and administration would have changed between
2014 and 2018 if they had tracked each index
In total, net organic and acquired growth added £7.9 billion
to Investment Management funds under management and
administration in 2018 (2017: £1.2 billion), representing 23.5%
of opening funds under management and administration
(2017: 3.9%).
As at 31 December 2018, Vision Independent Financial Planning
advised on client assets of £1.54 billion, up 10.0% from 2017.
2018 was an extremely testing year for UK investors, beset by
Brexit concerns. This was exacerbated in the final quarter as
investors worried about the impact on global growth of the
US Federal Reserve raising interest rates more quickly. The
ongoing trade dispute between the US and China also hit
sentiment later in the year. Reflecting these factors, the
MSCI WMA Balanced index finished the year down 7.18%.
Against this backdrop, the average investment return
across all Investment Management client portfolios slightly
outperformed the WMA index by 0.2%. This outperformance
was largely driven by UK equities, which have benefited from
the weakness in sterling, and more defensive alternative asset
classes, as well as UK property and gold. Overall performance
against other competitor indices, such as the Private Client
Indices published by ARC, was robust.
Financial performance
Table 5. Investment Management – financial performance
Net investment management fee
income1
Net commission income
Net interest income
Fees from advisory services2
and other income
Underlying operating income
Underlying operating expenses3
Underlying profit before tax
Underlying operating margin4
2018
£m
2017
£m
200.5
41.4
15.3
18.1
275.3
(196.5)
78.8
28.6%
189.5
38.7
11.6
14.8
254.6
(177.8)
76.8
30.2%
1. Net investment management fee income is stated after deducting fees and commission expenses
paid to introducers
2. Fees from advisory services includes income from trust, tax and financial planning services
(including Vision)
3. See table 8
4. Underlying profit before tax as a % of underlying operating income
Net investment management fee income increased by 5.8%
to £200.5 million in 2018, benefiting from positive markets for
most of the year as well as organic and acquired growth in funds
under management and administration. Fee income in Speirs &
Jeffrey in the period post acquisition totalled £4.3 million.
Fees are applied to the value of funds on quarterly charging
dates. Average funds under management and administration
on these billing dates in 2018 were £36.6 billion, up 8.3% from
2017 (see table 6).
Table 6. Investment Management – average funds under
management and administration
Valuation dates for billing
– 5 April
– 30 June
– 30 September1
– 31 December
Average
Average FTSE 100 level2
2018
£bn
32.4
34.1
41.3
38.5
36.6
7269
2017
£bn
31.5
32.0
32.5
33.8
32.4
7426
1. Funds under management and administration at 30 September 2018 included £6.7 billion in
Speirs & Jeffrey, for which only one month’s fees accrued to the group post-acquisition
2. Based on the corresponding valuation dates for billing
In 2018, net commission income was £41.4 million, an
increase of 7.0% on 2017, including £4.2 million earned
by Speirs & Jeffrey during the last four months of the year.
Excluding the acquisition, commission levels were £1.5 million
lower than 2017, reflecting the continued trend towards to our
fee-only tariff as well as challenging investment markets.
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
Segmental review continued
Charity funds under management and administration
continued to grow strongly and reached £5.3 billion at
31 December 2018, up 12.8% from £4.7 billion at the start
of the year.
Funds under management and administration in accounts
linked to independent financial advisers and provider panel
relationships increased by £0.1 billion during 2018, ending the
year at £7.8 billion.
The acquisition of Speirs & Jeffrey on 31 August 2018 added
£6.7 billion to funds under management and administration.
Outflows of funds under management and administration
during the year were 8% of the opening balance (2017: 7%)
largely reflecting some recent losses of investment managers.
Chart 2. Investment Management – funds under
management and administration five-year growth (£bn)
* Index figures show how funds under management and administration would have changed between
2014 and 2018 if they had tracked each index
In total, net organic and acquired growth added £7.9 billion
to Investment Management funds under management and
administration in 2018 (2017: £1.2 billion), representing 23.5%
of opening funds under management and administration
(2017: 3.9%).
As at 31 December 2018, Vision Independent Financial Planning
advised on client assets of £1.54 billion, up 10.0% from 2017.
2018 was an extremely testing year for UK investors, beset by
Brexit concerns. This was exacerbated in the final quarter as
investors worried about the impact on global growth of the
US Federal Reserve raising interest rates more quickly. The
ongoing trade dispute between the US and China also hit
sentiment later in the year. Reflecting these factors, the
MSCI WMA Balanced index finished the year down 7.18%.
Against this backdrop, the average investment return
across all Investment Management client portfolios slightly
outperformed the WMA index by 0.2%. This outperformance
was largely driven by UK equities, which have benefited from
the weakness in sterling, and more defensive alternative asset
classes, as well as UK property and gold. Overall performance
against other competitor indices, such as the Private Client
Indices published by ARC, was robust.
Financial performance
Table 5. Investment Management – financial performance
Net investment management fee
income1
Net commission income
Net interest income
Fees from advisory services2
and other income
Underlying operating income
Underlying operating expenses3
Underlying profit before tax
Underlying operating margin4
2018
£m
2017
£m
200.5
41.4
15.3
18.1
275.3
(196.5)
78.8
28.6%
189.5
38.7
11.6
14.8
254.6
(177.8)
76.8
30.2%
1. Net investment management fee income is stated after deducting fees and commission expenses
2. Fees from advisory services includes income from trust, tax and financial planning services
paid to introducers
(including Vision)
3. See table 8
4. Underlying profit before tax as a % of underlying operating income
Net investment management fee income increased by 5.8%
to £200.5 million in 2018, benefiting from positive markets for
most of the year as well as organic and acquired growth in funds
under management and administration. Fee income in Speirs &
Jeffrey in the period post acquisition totalled £4.3 million.
Fees are applied to the value of funds on quarterly charging
dates. Average funds under management and administration
on these billing dates in 2018 were £36.6 billion, up 8.3% from
2017 (see table 6).
Table 6. Investment Management – average funds under
management and administration
Valuation dates for billing
– 5 April
– 30 June
– 30 September1
– 31 December
Average
2018
£bn
32.4
34.1
41.3
38.5
36.6
2017
£bn
31.5
32.0
32.5
33.8
32.4
Average FTSE 100 level2
7269
7426
1. Funds under management and administration at 30 September 2018 included £6.7 billion in
Speirs & Jeffrey, for which only one month’s fees accrued to the group post-acquisition
2. Based on the corresponding valuation dates for billing
In 2018, net commission income was £41.4 million, an
increase of 7.0% on 2017, including £4.2 million earned
by Speirs & Jeffrey during the last four months of the year.
Excluding the acquisition, commission levels were £1.5 million
lower than 2017, reflecting the continued trend towards to our
fee-only tariff as well as challenging investment markets.
Net interest income increased 32.1% to £15.3 million in 2018
as a result of higher interest rates during 2018, coupled with an
increase in both the average maturity of the treasury book and
the level of exposure to higher yielding asset classes. Cash held
at the Bank of England reduced from £1.4 billion at 31 December
2017 to £1.2 billion at the end of 2018.
The investment management loan book grew to £131.7 million
by the end of the year and contributed £3.5 million to net
interest income in 2018 (2017: £3.1 million). Also included in
net interest income is £1.3 million (2017: £1.3 million) of interest
payable on the Tier 2 notes which are callable in August 2020.
As shown in table 7, the average net operating basis point return
on funds under management and administration has decreased
by 1.3 bps to 71.4 bps in 2018.
Table 7. Investment Management – revenue margin
2018
bps
Basis point return1 from:
– fee income
– commission
– interest
Basis point return on funds under
management and administration
2017
bps
58.4
11.9
2.4
56.5
11.7
3.2
71.4
72.7
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 and administration on the quarterly billing dates (see table 6).
Speirs & Jeffrey funds under management and administration have been included pro-rata
for the period of ownership
Fees from advisory services and other income increased 22.3%
to £18.1 million. This largely reflects a higher level of retained
advisory fees earned by Vision Independent Financial Planning
and growth in trust administration revenues.
Underlying operating expenses in Investment Management
for 2018 were £196.5 million, compared to £177.8 million in 2017,
an increase of 10.5%. This is highlighted in table 8.
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Table 8. Investment Management – underlying
operating expenses
Staff costs1
– fixed
– variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio2
2018
£m
2017
£m
66.5
37.7
104.2
92.3
196.5
71.4%
59.5
40.2
99.7
78.1
177.8
69.8%
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 £66.5 million increased by 11.8% year on year,
principally reflecting an 11% increase in average headcount,
including c. 1% from Speirs & Jeffrey, and salary inflation.
Variable staff costs of £40.2 million in 2017 include £5.1 million
for the cost of variable awards for new teams who had been in
situ for longer than 12 months. Following the adoption of IFRS
15, such costs are now capitalised (see note 2 to the financial
statements). Excluding these costs from 2017, variable staff
costs increased by 7.4% to £37.7 million in 2018, reflecting
both the higher profitability in the period and the introduction
of the Staff Equity Plan in May 2018 (note 31).
Other operating expenses of £92.3 million include property,
depreciation, settlement, IT, finance and other central support
services costs. The year-to-year increase of £14.2 million (18.2%)
reflects increased investment in the business, recruitment and
higher variable awards in support departments in line with
overall business performance.
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27
Segmental review continued
Unit Trusts
Table 9. Unit Trusts – funds
Rathbone Global Opportunities
Fund
Rathbone Ethical Bond Fund
Rathbone Income Fund
Rathbone Multi Asset Portfolios
Rathbone Active Income Fund for
Charities
Rathbone Strategic Bond Fund
Rathbone Global Alpha Fund
Rathbone High Quality Bond Fund
Rathbone UK Opportunities Fund
Rathbone Blue Chip Income and
Growth Fund1
Other funds
2018
£m
2017
£m
1,351
1,236
1,091
965
179
145
111
52
48
1,168
1,100
1,433
736
173
108
127
–
61
–
464
5,642
78
383
5,367
1. The Rathbone Blue Chip Income and Growth Fund was merged into the Rathbone Income Fund
on 5 October 2018
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 10.
Table 10. Unit Trusts – key performance indicators
2018
2017
5.3
5.6
Funds under management
at 31 December1
Underlying rate of net growth
in Unit Trusts funds under
management1
Underlying profit before tax2
1. See table 11
2. See table 13
Against this backdrop, overall positive momentum in sales of
our funds continued through 2018, with gross sales up 11.8%
in the year to £1.9 billion. However, redemptions also increased
markedly to £1.4 billion (2017: £0.8 billion), reflecting experience
across the industry.
Net inflows of £0.5 billion (2017: £0.9 billion) continued to be
spread across the range of funds. The multi asset portfolios,
Global Opportunities Fund and Ethical Bond Fund attracted
particularly strong net flows in the year, the latter notably
contrasting with the industry trend in its sector. This level
of net retail sales ranked as the 11th highest in the UK,
according to the Pridham Sales Report for 2018.
Unit Trusts funds under management closed the year up
5.7% at £5.6 billion (see table 11). Included within this was
£464 million managed through Luxembourg-based feeder
funds; up 8.4% from £428 million at the end of 2017.
Table 11. Unit Trusts – funds under management
As at 1 January
Net inflows
– inflows1
– outflows1
Market adjustments2
As at 31 December
Underlying rate of net growth3
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a % of opening funds under management
2018
£bn
5.3
0.5
1.9
(1.4)
(0.2)
5.6
10.1%
2017
£bn
4.0
0.9
1.7
(0.8)
0.4
5.3
21.8%
Chart 3. Unit Trusts – annual net flows (£m)
900
883
10.1%
12.7
21.8%
10.7
600
554
554
543
371
300
0
2014
2015
2016
2017
2018
Funds under management
Net retail sales in the asset management industry totalled
approximately £7 billion in 2018, as reported by the Investment
Association (IA), down around £41 billion on 2017. Fixed income
funds saw significant outflows in the final quarter, as did UK
equity funds throughout the year, reflecting signs of faster
US interest rate hikes and the potential for a disorderly Brexit.
Global equity was the best-selling sector overall during 2018
and mixed asset funds were also strong sellers, attracting net
sales in every month during 2018.
Industry-wide funds under management dropped 6.5% to
£1.15 trillion at the end of the year. In total, the IA sectors in
which we manage funds saw net inflows of £0.8 billion, down
93% from £11.9 billion in 2017. However, gross sales in those
sectors were up 28.7% at £128.4 billion in 2018.
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Segmental review continued
Unit Trusts
Table 9. Unit Trusts – funds
Rathbone Global Opportunities
Fund
Rathbone Ethical Bond Fund
Rathbone Income Fund
Rathbone Multi Asset Portfolios
Rathbone Active Income Fund for
Charities
Rathbone Strategic Bond Fund
Rathbone Global Alpha Fund
Rathbone High Quality Bond Fund
Rathbone UK Opportunities Fund
Rathbone Blue Chip Income and
Growth Fund1
Other funds
Against this backdrop, overall positive momentum in sales of
our funds continued through 2018, with gross sales up 11.8%
in the year to £1.9 billion. However, redemptions also increased
markedly to £1.4 billion (2017: £0.8 billion), reflecting experience
2018
£m
2017
£m
across the industry.
Net inflows of £0.5 billion (2017: £0.9 billion) continued to be
spread across the range of funds. The multi asset portfolios,
Global Opportunities Fund and Ethical Bond Fund attracted
particularly strong net flows in the year, the latter notably
contrasting with the industry trend in its sector. This level
of net retail sales ranked as the 11th highest in the UK,
according to the Pridham Sales Report for 2018.
Unit Trusts funds under management closed the year up
5.7% at £5.6 billion (see table 11). Included within this was
£464 million managed through Luxembourg-based feeder
funds; up 8.4% from £428 million at the end of 2017.
Table 11. Unit Trusts – funds under management
1,351
1,236
1,091
965
179
145
111
52
48
1,168
1,100
1,433
736
173
108
127
–
61
–
464
5,642
78
383
5,367
1. The Rathbone Blue Chip Income and Growth Fund was merged into the Rathbone Income Fund
on 5 October 2018
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 10.
As at 1 January
Net inflows
– inflows1
– outflows1
Market adjustments2
As at 31 December
Table 10. Unit Trusts – key performance indicators
2018
2017
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
5.6
5.3
Chart 3. Unit Trusts – annual net flows (£m)
Underlying rate of net growth3
10.1%
21.8%
2018
£bn
5.3
0.5
1.9
(1.4)
(0.2)
5.6
2017
£bn
4.0
0.9
1.7
(0.8)
0.4
5.3
Funds under management
at 31 December1
Underlying rate of net growth
in Unit Trusts funds under
management1
Underlying profit before tax2
1. See table 11
2. See table 13
Funds under management
10.1%
12.7
21.8%
10.7
Net retail sales in the asset management industry totalled
approximately £7 billion in 2018, as reported by the Investment
Association (IA), down around £41 billion on 2017. Fixed income
funds saw significant outflows in the final quarter, as did UK
equity funds throughout the year, reflecting signs of faster
US interest rate hikes and the potential for a disorderly Brexit.
Global equity was the best-selling sector overall during 2018
and mixed asset funds were also strong sellers, attracting net
sales in every month during 2018.
Industry-wide funds under management dropped 6.5% to
£1.15 trillion at the end of the year. In total, the IA sectors in
which we manage funds saw net inflows of £0.8 billion, down
93% from £11.9 billion in 2017. However, gross sales in those
sectors were up 28.7% at £128.4 billion in 2018.
Reflecting the general market trends, the Ethical Bond and
UK Opportunities Funds underperformed their peers during
the year. The more defensive positioning of the Income
and Strategic Bond funds helped relative performance and
the funds out performed their peers over the year. The Global
Opportunities Fund’s overweight position in the US equity
market helped it to generate top quartile performance for the
year, despite a weaker performance in the final quarter. Long-
term performance for most of our retail funds remains strong
and the funds are performing in line with expectations given
their investment mandates.
Our multi asset funds posted negative overall returns in 2018,
although risk-adjusted returns remained relatively strong
compared to peers. Longer-term performance of the multi
asset funds remains ahead of benchmark.
Table 12. Unit Trusts – performance1, 2
2018/(2017) Quartile ranking3 over
Rathbone Ethical Bond Fund
Rathbone Global Opportunities
Fund
Rathbone Income Fund
Rathbone UK Opportunities Fund
Rathbone Strategic Bond Fund
1 year
4 (1)
3 years
1 (1)
5 years
1 (1)
1 (1)
2 (4)
4 (1)
1 (2)
1 (1)
3 (3)
4 (1)
1 (2)
1 (1)
1 (3)
4 (2)
2 (2)
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 72%
of the total FUM of the Unit Trusts business
3. Ranking of institutional share classes at 31 December 2018 and 2017 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 2018, 92% of holdings in Unit Trusts’ retail
funds were in institutional units (31 December 2017: 88%).
During 2018, the total number of investment professionals
in Unit Trusts increased to 14 at 31 December 2018 from 13
at the end of 2017.
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 17.5% to £32.9
million in 2018, driven principally by the rise in average funds
under management. Net annual management charges as a
percentage of average funds under management fell to 58 bps
(2017: 60 bps) reflecting the increased proportion of holdings
in institutional units and the continued growth in the fixed
income mandate funds, which levy a lower rate of annual
management charges.
Table 13. 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
Operating % margin2
2018
£m
32.9
3.4
0.4
36.7
(24.0)
12.7
34.6%
2017
£m
28.0
3.1
0.3
31.4
(20.7)
10.7
34.1%
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1. See table 14
2. Underlying profit before tax divided by underlying operating income
Net dealing profits of £3.4 million were marginally higher
than the previous year (2017: £3.1 million). These revenues
will no longer be earned following the conversion of all funds
to single-priced units, with effect from 21 January 2019,
in compliance with the final rules published by the FCA
following its Asset Management Market Study.
Underlying operating income as a percentage of average funds
under management fell to 65 bps in 2018 from 67 bps in 2017,
reflecting reduced revenue margins.
Table 14. Unit Trusts – underlying operating expenses
Staff costs1
– Fixed
– Variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio1
2018
£m
2017
£m
3.3
7.6
10.9
13.1
24.0
65.4%
3.0
7.2
10.2
10.5
20.7
65.9%
1. Underlying operating expenses as a % of underlying operating income
(see table 13)
Fixed staff costs of £3.3 million for the year ended 31 December
2018 were 10% higher than in 2017, reflecting salary inflation
and growth in headcount in response to regulatory changes.
Variable staff costs of £7.6 million were 5.6% higher than
£7.2 million in 2017 as higher profitability and growth in gross
sales drove increases in profit share and sales commissions.
Other operating expenses have increased by 24.8% to £13.1
million, reflecting an increase in third-party administration
costs in line with growth in the business, the absorption of
£0.9 million of research costs, which were previously charged
to the funds, and project costs related to the high level of
regulatory change during the year.
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Financial position
Table 15. Group financial position Please fix the leading on this
table.
2018
£m
(unless stated)
2017
£m
(unless stated)
20.6%
22.0%
464.1
19.8
1,141.8
1.6%
8.9%
20.7%
22.2%
363.3
19.7
977.2
1.8%
7.8%
2,867.7
2,351.7
2,738.9
2,303.9
131.7
120.5
160.1
30.2
151.7
26.7
2,225.5
2,170.5
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 2018, the group’s regulatory capital resources
(including verified profits for the year) were £251.4 million
(2017: £216.8 million).
Table 16. Regulatory capital resources
Share capital and share premium
Reserves
Less:
Own shares
Intangible assets1
Total Common Equity Tier 1 capital
resources
Tier 2 capital resources
Total own funds
2018
£m
233.0
263.9
2017
£m
145.7
222.5
(32.7)
(229.3)
(4.9)
(161.3)
234.9
16.5
251.4
202.0
14.8
216.8
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
11.2
15.6
1. Net book value of goodwill, client relationship intangibles and software are deducted directly
from capital resources, less any related deferred tax
1. Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 16) 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 17 to the financial statements
7. Net book value of acquired client relationships and goodwill (note 22)
8. Net book value of property, plant and equipment and computer software (notes 20 and 22)
9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a
bank (note 24)
Common Equity Tier 1 capital (CET1) resources increased by
£32.9 million during 2018, largely due to the inclusion of verified
profits for the 2018 financial year and the capital raised from the
placing of 2.4 million shares on 18 June 2018, net of dividends
paid in the year and the intangible assets acquired through the
acquisition of Speirs & Jeffrey.
The CET1 ratio was 20.6%, in line with 20.7% at the previous
year end. Our consolidated CET1 ratio remains higher than
the banking industry norm, reflecting the low-risk nature
of our banking activity.
The leverage ratio was 8.9% at 31 December 2018, up from
7.8% at 31 December 2017. 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 LIBOR thereafter (note 27).
The consolidated balance sheet total equity was £464.1 million
at 31 December 2018, up 27.7% from £363.3 million at the end
of 2017, primarily reflecting the issue of new share capital and
retained profits for the year.
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Financial position
Table 15. Group financial position Please fix the leading on this
Capital resources
table.
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
Intangible assets from acquired
loan book6
growth7
Tangible assets and software8
Liabilities:
Due to customers9
Net defined benefit pension
liability
2018
£m
2017
£m
(unless stated)
(unless stated)
20.6%
22.0%
464.1
19.8
1,141.8
1.6%
8.9%
20.7%
22.2%
363.3
19.7
977.2
1.8%
7.8%
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 2018, the group’s regulatory capital resources
(including verified profits for the year) were £251.4 million
(2017: £216.8 million).
Table 16. Regulatory capital resources
Share capital and share premium
2,867.7
2,351.7
2,738.9
2,303.9
Reserves
Less:
131.7
120.5
160.1
30.2
151.7
26.7
Own shares
Intangible assets1
Total Common Equity Tier 1 capital
resources
Tier 2 capital resources
2,225.5
2,170.5
Total own funds
2018
£m
233.0
263.9
2017
£m
145.7
222.5
(32.7)
(229.3)
(4.9)
(161.3)
234.9
16.5
251.4
202.0
14.8
216.8
11.2
15.6
1. Net book value of goodwill, client relationship intangibles and software are deducted directly
from capital resources, less any related deferred tax
1. Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 16) 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 17 to the financial statements
7. Net book value of acquired client relationships and goodwill (note 22)
8. Net book value of property, plant and equipment and computer software (notes 20 and 22)
9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a
bank (note 24)
Common Equity Tier 1 capital (CET1) resources increased by
£32.9 million during 2018, largely due to the inclusion of verified
profits for the 2018 financial year and the capital raised from the
placing of 2.4 million shares on 18 June 2018, net of dividends
paid in the year and the intangible assets acquired through the
acquisition of Speirs & Jeffrey.
The CET1 ratio was 20.6%, in line with 20.7% at the previous
year end. Our consolidated CET1 ratio remains higher than
the banking industry norm, reflecting the low-risk nature
of our banking activity.
The leverage ratio was 8.9% at 31 December 2018, up from
7.8% at 31 December 2017. 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 LIBOR thereafter (note 27).
The consolidated balance sheet total equity was £464.1 million
at 31 December 2018, up 27.7% from £363.3 million at the end
of 2017, primarily reflecting the issue of new share capital and
retained profits for the year.
Own funds and liquidity requirements
Pillar 1 – minimum requirement for capital
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.
The group’s own funds requirements were as follows:
Table 17. 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
2018
£m
44.6
0.4
46.3
91.3
48.4
2017
£m
39.5
0.4
38.4
78.3
46.1
139.7
124.4
28.5
8.9
18.3
0.1
requirements and CRD IV buffers
177.1
142.8
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
Pillar 1 focuses on the determination of a total risk exposure
amount (also known as ‘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 2018, the group’s total risk exposure amount
was £1,142.7 million (2017: £977.2 million).
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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.
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.
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.
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Financial position continued
Capital conservation buffer (CCB)
The CCB is a general buffer, designed to provide for losses
in the event of a stress and was 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 finally increased 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 Financial Policy Committee 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 1.0% for the UK. The group
also has some small, relevant credit exposures in Canada
and Australia, both of which have applicable buffer rates of
0%, resulting in a weighted buffer rate of 0.78% of the group’s
total risk exposure amount as at 31 December 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.
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 £74.1 million, up from £74.0 million
at the end of 2017.
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;
– regulatory developments; and
– 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 2018 were £2.9 billion (2017: £2.7
billion), of which £2.2 billion (2017: £2.2 billion) represents the
investment in the money markets of 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 (2017: £2.2 billion) represented 5.8% of total
Investment Management funds at 31 December 2018 compared
to 6.4% at the end of 2017. Cash held in client money accounts
was £3.0 million (2017: £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 32 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 reduced the share of treasury assets
held with the Bank of England to £1.2 billion from £1.4 billion
at 31 December 2017 and increased the balance invested in
certificates of deposit with maturities of up to one year.
Interest rates paid by those assets had increased during
the year, enabling us to increase the interest margin earned
whilst maintaining 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 17 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 to clients totalled £131.7 million at the end
of 2018 (2017: £120.5 million).
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Rathbone Brothers Plc Report and accounts 2018
Financial position continued
The CCB is a general buffer, designed to provide for losses
in the event of a stress and was 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 finally increased 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 Financial Policy Committee 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 1.0% for the UK. The group
also has some small, relevant credit exposures in Canada
and Australia, both of which have applicable buffer rates of
0%, resulting in a weighted buffer rate of 0.78% of the group’s
total risk exposure amount as at 31 December 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.
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 £74.1 million, up from £74.0 million
at the end of 2017.
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;
– regulatory developments; and
– 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 at 31 December 2018 were £2.9 billion (2017: £2.7
billion), of which £2.2 billion (2017: £2.2 billion) represents the
investment in the money markets of 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 (2017: £2.2 billion) represented 5.8% of total
Investment Management funds at 31 December 2018 compared
to 6.4% at the end of 2017. Cash held in client money accounts
was £3.0 million (2017: £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 32 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 reduced the share of treasury assets
held with the Bank of England to £1.2 billion from £1.4 billion
at 31 December 2017 and increased the balance invested in
certificates of deposit with maturities of up to one year.
Interest rates paid by those assets had increased during
the year, enabling us to increase the interest margin earned
whilst maintaining 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 17 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 to clients totalled £131.7 million at the end
of 2018 (2017: £120.5 million).
Capital conservation buffer (CCB)
Total assets
Intangible assets
Capital expenditure
Intangible assets arise principally from acquired growth
in funds under management and administration and are
categorised as goodwill and client relationships. Intangible
assets reported on the balance sheet also include purchased
and developed software.
At 31 December 2018, the total carrying value of intangible
assets arising from acquired growth was £225.6 million (2017:
£151.7 million). On 31 August 2018, the group completed the
purchase of Speirs & Jeffrey, which resulted in the acquisition
of £28.1 million of goodwill and £54.3 million of client
relationship intangible assets.
During the year, further client relationship intangible assets
of £1.3 million were capitalised (2017: £2.7 million) in relation
to awards to newly joined investment teams for new client
relationships introduced. As described in note 2 to the financial
statements, the adoption of IFRS 15 in the year required us to
change the accounting policy for these awards. Historically,
the cost of awards for funds introduced by investment
managers who have been in situ for more than 12 months
were charged to profit or loss (2017: £5.1 million). Under the
new accounting standard, these amounts are also capitalised.
Consequently, the opening balance of client relationship
intangible assets was increased by £8.3 million.
Client relationship intangibles are amortised over the estimated
life of the client relationship, generally a period of 10 to 15 years.
When client relationships are lost, any related intangible asset
is derecognised in the year. The total amortisation charge for
client relationships in 2018, including the impact of any lost
relationships, was £12.9 million (2017: £11.4 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 (2017: £0.3 million). Further detail
is provided in note 22 to the financial statements.
During 2018, we have broadly maintained the level of
investment in the development of our premises and systems,
with capital expenditure for the year totalling £11.0 million (2017:
£11.3 million). Capital expenditure in 2017 included £2.8 million
for the completion of the fit out of our London head office. In
2018, property-related spend of £3.2 million included the cost
of moving to a new office in Birmingham and the fit out of
additional space in Liverpool.
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The level of spend on our systems has increased slightly in
2018, as we have continued with the IT change programme
announced in 2017. Total costs for the purchase and
development of software were £7.7 million in the year (2017:
£7.1 million). Key areas of investment during the year included
continuing the development of our new client relationship
management system and work to streamline the client journey.
Overall, new investment accounted for approximately 77%
of total capital expenditure in 2018, broadly consistent with
79% in 2017. The balance of total spend has been incurred
for the maintenance and replacement of existing software
and equipment.
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 in 2017.
At 31 December 2018 the combined schemes’ liabilities,
measured on an accounting basis, had fallen to £146.5 million,
down 10.7% from £164.1 million at the end of 2017. Reflecting
the performance of the schemes’ assets over the course of the
year, the reported position of the schemes at 31 December 2018
was a deficit of £11.2 million (2017: deficit of £15.6 million).
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. During 2018,
funding valuations of the schemes as at 31 December 2016
were finalised, resulting in committed annual contributions
to the schemes totalling £12.0 million, paid at a rate of
£3.1 million per year until 2022.
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The most significant non-operating cash flows during the year
were as follows:
– Net outflows of £72.9 million in relation to the acquisition
of Speirs & Jeffrey, being cash consideration of £88.4 million
less cash balances of £15.5 million in the acquired entity;
– Net cash inflows of £57.4 million from the issue of shares
during the year to partially finance the acquisition of
Speirs & Jeffrey;
– Outflows relating to the payment of dividends of £32.7 million
(2017: £29.4 million);
– Outflows relating to payments to acquire intangible assets
(other than as part of a business combination) of £15.1 million
(2017: £11.9 million); and
– £3.2 million of capital expenditure on property, plant and
equipment (2017: £4.2 million).
Liquidity and cash flow
Table 18. Extract from the consolidated statement of cash flows
2017
£m
2018
£m
Cash and cash equivalents at the
end of the year
1,408.5
1,567.8
Net cash inflows from operating
activities
Net change in cash and cash
equivalents
111.1
351.5
(159.2)
304.7
Fees and commissions are 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 £1.2 billion at
31 December 2018 (2017: £1.4 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 38 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
£54.2 million increase in banking client deposits (2017: £282.6
million increase) and a £11.4 million increase in the component
of treasury assets placed in term deposits for more than three
months or lent to clients (2017: £16.6 million increase).
Cash flows from investing activities also included a net outflow
of £203.8 million from the purchase of longer dated certificates
of deposit (2017: £4.0 million).
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Risk management and control
Managing our risks
In 2018, we have continued to evolve our risk management framework in support of our ‘three lines of
defence’ model. Our approach to risk governance, risk processes and risk infrastructure ensures that the
management of risk across the group considers existing and emerging challenges to our values and strategy.
Going forward into 2019, we will continue our approach to ensure that effective risk management is in place
to protect our stakeholders.
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Risk culture
Managing risk
We believe an embedded risk culture enhances the
effectiveness of risk management and decision making across
the group. The board is responsible for setting the right tone,
which supports a strong risk culture and, through our senior
management team, encouraging appropriate behaviours
and collaboration on managing risk across the business. Risk
management is accepted as being part of everyone’s day-to-
day responsibilities and activities; it is linked to performance
and development, as well as to the group’s remuneration and
reward schemes. Our approach through 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.
Risk appetite
The board is ultimately accountable for risk management
and regularly considers the most significant risks and
emerging threats to the group’s strategy. The board,
audit and group risk committees exercise further oversight
and challenge of risk management and internal control.
Day-to-day, the group chief executive and executive
committee are responsible for managing risk and the
regular review of key risks facing the group.
In 2018, we merged our conduct and operational risk
management committees to form a new executive risk
committee, which complements the banking committee
that oversees financial risk management.
Throughout the group, all employees have a responsibility
for managing risk and adhering to our control framework.
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.
Three lines of defence
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 at each meeting, risks are reported
which have triggered key risk indicators or risk appetite
measures so that risk mitigation can be reviewed and
strengthened if appropriate.
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.
Our three lines of defence model supports the risk
management framework and the expectations of all
employees, with responsibility and accountability
for risk management broken down as follows.
First line: Senior management, business operations and
support 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.
Three lines of defence
Overview
External independent assurance
Third line: Internal independent assurance
Second line: Oversight and challenge functions
First line: Business operations and support
Executive risk
committee
Executive
committee
Audit and group
risk committee
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Risk management and control continued
Identification and profiling of principal risks
Risk assessment process
Our risks are classified using a hierarchical approach, which is
regularly reviewed to ensure we identify all known material
risks to the business and consider emerging risks, which may
impact future performance. Our highest level of risk analysis
(Level 1) comprises financial, conduct and operational risks.
This year we have made some adjustments to our next level
(Level 2), which contains 17 risk categories, each allocated to
a Level 1 risk. The changes reflect the future risk landscape
and profile of the group. Detailed risks (Level 3) continue to
be 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 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.
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, systems development or regulatory changes. The
group’s risk profile, risk register and watch list are regularly
reviewed by the executive committee, senior management,
board and group risk committee.
This year, we have reviewed our risk assessment approach
and adjusted our scoring system. Each Level 3 risk is assessed
for the inherent likelihood of its occurrence in a three-year
period (a reduction from five years) and against a number of
different impact criteria, including financial, client, operations,
reputation, strategy and regulation indicators. A residual risk
exposure and overall risk profile rating of high, medium,
low or very low is then derived for the three-year period by
taking into account an assessment of the internal control
environment or insurance mitigation. The assessment of
our control environment, undertaken by senior management
within the firm, includes contributions from first, second and
third line people, data, monitoring and/or assurance activity.
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.
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, executive committee and executive
risk committee receive regular reports and information from
senior management, operational business units, risk oversight
functions and specific risk committees.
The executive risk committee, 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, 17 Level 2
risks and 47 Level 3 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 reasonably stable during 2018.
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, which could impact the delivery of our
strategic objectives, have been identified below. These reflect
the impact of the acquisition of Speirs & Jeffrey, the increased
and evolving cyber threat landscape, increasing political risk
including Brexit and global trends impacting market volatility,
and continuing focus on client suitability. 2018 also saw two
material regulatory changes come into effect, MiFID II and
the General Data Protection Regulation, which remain areas
of focus for the firm. The board remains vigilant to the risks
associated with the pension schemes’ deficit. The other
key risks are operational risks that arise from growth and
regulatory risks that, in turn, may arise from the continuing
development of law, regulation and standards in our sector.
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Our overall risk profile and control environment for principal
risks 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 and developing 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, low and very 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-, low- and very low-rated items
having proportionately less impact on the firm. Likelihood
is similarly based on a qualitative assessment.
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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 2019.
The group’s view is that we can reasonably expect current
market conditions and uncertainties to remain throughout
2019, given the implications of Brexit and the UK political
environment. Other developing risks include, for example,
cyber threats, regulatory change and further scenarios
potentially arising from geopolitical developments and
increasing tensions around global trade.
We are continuing to monitor the potential consequences
of Brexit very closely. Our current assessment is that the
direct impacts of Brexit as currently proposed are manageable
given our largely UK-based business model. However, we are
conscious that the position is uncertain, has the potential to
change and may raise unexpected challenges and implications
for the firm, possibly extending to our supply chain. The firm’s
income is correlated to market levels, which are expected to
be impacted by Brexit and other areas of political uncertainty.
Key changes to risk profile
Risk
Business model
(including Brexit)
Description of change
This risk includes the impacts arising from changing market conditions, which are
impacted in turn by political uncertainty and the global economy.
Risk change in 2018
Although the firm does not have operations in other European Union countries, or
material dependencies on goods or people from other European Union countries and has
a predominantly UK client base, any impact of Brexit on investment markets will also affect
the value of our funds under management and administration.
Suitability and advice Our forward-looking risk assessment increased during the year, largely reflecting regulatory
Change
Data integrity
and security
People
Pension
drivers. In addition to changes delivered in 2017/18, we plan to improve our processes
further in 2019 through systems enhancements designed to simplify the workflows
involved for our clients and employees.
We increased our risk assessment to reflect the firm’s change plans, including the integration
programme for Speirs & Jeffrey.
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.
Our forward-looking risk assessment increased further 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.
The funding deficit decreased materially due to the closure of the schemes in 2017,
with a significant number of members transferring benefits out of the schemes. However,
this remains an important risk for the firm to manage.
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Risk management and control continued
Principal risks
The most significant risks which could impact the delivery of our strategy and annual business plans are detailed below.
Level 2 risk
Credit
The risk that one or more
counterparties fail to fulfil
contractual obligations,
including stock settlement
How the risk arises
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
Pension
The risk that the cost of
funding our defined benefit
pension schemes increases,
or their valuation affects
dividends, reserves and capital
This risk can arise through a
sustained deficit between the
schemes’ assets and liabilities.
A number of factors impact
a deficit, including increased
life expectancy, falling interest
rates and falling asset values
Residual rating
I
High
L
Very
low
High Med
Business model
The risk that the business
model does not respond
in an optimal manner to
changing market conditions
such that sustainable growth,
market share or profitability
is adversely affected
This risk can arise from 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
High Med
Control environment
– Banking committee oversight
– Counterparty limits and credit reviews
– Treasury policy and procedures
– Active monitoring of exposures
– Client loan policy and procedures
– Annual ICAAP
– Board, senior management and trustee
oversight
– Monthly valuation estimates
– Triennial independent actuarial valuations
– Investment policy
– Senior management review and defined
management actions
– Annual ICAAP
– 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
Suitability and advice
The risk that clients receive
inappropriate financial,
trust or investment advice,
inadequate documentation
or unsuitable portfolios
This risk can arise through failure
to appropriately understand the
wealth management needs of our
clients, or failure to apply suitable
advice or investment strategies
High Med
– Investment governance and structured
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
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Level 2 risk
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
How the risk arises
This risk can arise from failures
by the business to comply
with existing regulation or
failure to identify and react
to regulatory change
Residual rating
L
I
High Med
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
This risk can arise if the business
is too aggressive and unstructured
in its change programme to
manage project risks, or fails
to make available the capacity
and capabilities to deliver
business benefits
High Med
High Med
This risk can arise from the
firm failing to maintain and
keep secure sensitive and
confidential data through
its operating infrastructure,
including the activities of
employees, and through
the management of
cyber threats
High Med
This risk can arise across all
areas of the business as a result
of resource management failures
or from external factors such as
increased competition or material
changes in regulation
Data integrity and security
The risk of a lack of integrity
of, inappropriate access to,
or disclosure of, client or
company-sensitive
information
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 to behaviour leading
to complaints, regulatory
action or litigation
Control environment
– Board and executive oversight
– Active involvement with industry bodies
– Compliance monitoring programme to
examine the control of key regulatory risks
– Separate anti-money laundering function
with specific responsibility
– Oversight of industry and regulatory
developments
– Documented policies and procedures
– Staff training and development
– Executive and board oversight of material
change programmes
– Dedicated change delivery 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
– 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
– 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
Further detailed discussion of the group’s exposures to financial risks is included in note 32 to the financial statements.
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Risk management and control continued
Assessment of the company’s prospects
Viability statement
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 the
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.
While 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.
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. 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
2021 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
for two years, the group would remain profitable and is able
to withstand the impact of such scenarios. We see this
scenario as also incorporating the potential adverse indirect
impact of Brexit on the firm. 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 2021.
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Rathbone Brothers Plc Report and accounts 2018
Corporate responsibility report
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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 donations can make a
real difference. The overall charitable objective of the firm
is to support small, local charities that help to improve the
lives of young people. We also support our staff's involvement
in charities and their communities through the two and a half
volunteering days we offer, which will increase to three days
in 2019. Further information on our various initiatives can be
found below.
Through our sponsorship of the Rathbones Folio Prize,
we were also involved in the establishment of a mentoring
programme for young writers.
Environmental reporting
This year, we are pleased to report significant reductions
in both total emissions and the emissions intensity of our
business. Though our core business grew considerably,
with increases in total headcount (+8.3%), funds under
management and administration (+12.8%) and operating
income (+7.0%), our total emissions were reduced to 2,214
tCO2e (down 343 tCO2e). Across all business activities, total
emissions are therefore 13.4% lower than 2017 and 23.1%
below our baseline year.
These reductions are primarily attributable to reduced energy
consumption across our buildings and the continued trend
of UK grid decarbonisation. Across all buildings, our total
energy consumption fell by 0.4%, with our Building Research
Establishment Environmental Assessment Method (BREEAM)
excellent-rated head office at Finsbury Circus proving to be
significantly less energy-intensive than our previous Curzon
Street location. Across the UK, the increasing share of
electricity from renewables and declining generation from
coal resulted in a 19.5% reduction in emissions intensity – a
significant driver of reduced emissions from our operations.
Despite an 8.3% increase in headcount, business travel
emissions rose at a lower rate of 3.7%, with higher emissions
from flights (+12.6%) offset by reduced emissions from rail
(-8.7%) and employee-owned car use (-3.5%). Other reported
emissions from paper and waste also fell considerably (down
31.2%) primarily due to a reduction in paper consumption.
We are committed to reducing the environmental impacts
of our business and to improving our environmental
management and reporting processes in line with our
sustainability strategy.
For further details of our carbon footprint, please read
the environmental impact section of this report.
Philip Howell
Chief Executive
20 February 2019
Philip Howell
Chief Executive
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 executive committee has identified
and assessed the significant risks to the company as well as
focusing 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.
In 2018, we concluded a review to assess the alignment of 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 sustainability 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 objective of stewardship and responsible investment
(SRI) is to ensure that in discharging our responsibilities to
our clients, we ensure that their interests are prioritised and
that we adopt an active approach to the management of
their investments in securities on their behalf. 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 2018, we reviewed and updated our policies in this area
and are pleased to report on our progress below. We also
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
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Corporate responsibility report continued
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
– Engaging with 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. It is essential 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, while maintaining investment
flexibility for investment managers.
Nonetheless, we are long-term investors and ESG factors
form a key part of our equity analysis. Since 2016, our
approach in this area has been governed by the group
stewardship policy. 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.
Core principles
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 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 specialist funds, the company is
able to provide investment services tailored to clients’ interests
in the area of socially responsible or sustainable investment.
In addition to the well established Rathbone Greenbank
Investments service and the Rathbone Unit Trust Management
Ethical Bond Fund, in 2018 we launched the Rathbone
Global Sustainability Fund, an investment vehicle which
fully integrates sustainability analysis into its approach. 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
2018, Rathbone Greenbank Investments had £1.2 billion of funds
equivalent to 3.12% of Rathbone Investment Management’s
funds under management and administration.
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
forestry. In 2018, we improved our score to a ‘C’ reflecting
our continued focus on environmental performance
management and climate-related issues.
– UN-backed PRI. We also play an active role in the PRI
Collaboration Platform. 2019 marks our tenth year of
membership, a milestone which we will mark with the
publication of a special report on our activities later in
the year. In 2018, we were ranked in the highest tier for
our approach to the management and governance of
responsible investment, reflecting expanding resources
applied to this area.
– 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).
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Rathbone Brothers Plc Report and accounts 2018
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 Institutional Shareholder Services (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. It also applies a more detailed sustainability-
themed voting policy in the relevant funds.
Votes are entered in line with UK corporate governance
best practice, overseen by the stewardship director, fund
managers and investment managers. During 2018, the
committee oversaw active proxy voting on 5,232 resolutions
at 395 company meetings. Voting on these resolutions
includes consideration of such issues as executive
remuneration, auditor independence, appointment
of directors and non-financial reporting.
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
ESG spectrum. In 2018, we joined the steering committee for
the PRI-coordinated engagement on responsible sourcing of
cobalt and fuelling water disclosure for oil and gas companies.
We continued our work on responsible tax, cyber security and
combating deforestation.
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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 1,400 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 have offered share ownership plans to our
employees since 1996 and now have 55% participation
in our SAYE and 91% participation in our SIP plans.
We also encourage our employees to become financially
aware and offer discounted independent financial advice.
Employee statistics
Percentage of female employees
Percentage of employees working part-time
Resignation rate
47%
11%
6.6%
Unilever case study
The contentious decision announced by Unilever's
management to simplify its dual legal structure and
re-locate its HQ to the Netherlands was a good example
of how our engagement approach can see results.
We were made aware of the plans by senior
management as part of our regular cycle of company
meetings. We expressed concerns, less over the decision
to simplify the dual structure, and more over the process
which had been followed, and the apparent lack of
sufficient justification. Having failed to receive sufficient
assurances from senior management, we began to work
with other concerned investors through the Investor
Forum, a membership group established to help
investors coordinate engagements on difficult issues.
Following several interactions with senior management
through formal and informal channels, it became clear
that the company had failed to make the case that
relocating the business to the Netherlands was the
best option for all shareholders. This was in no small
part owing to a lack of clarity regarding tax arrangements,
which could have negatively affected our clients. We
spoke directly to the finance director and chairman on
several occasions, and were pleased when the managers
decided to put their plans on hold.
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Corporate responsibility report continued
Learning
We continue to support the development of all our employees
and have maintained our average investment per person at
a significant level of £710 (2017: £783) 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 are 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. Also, during the year, we implemented online
learning for regulatory issues such as anti-money laundering
and courses to provide additional support on key client issues.
Leadership and management development
We deploy a comprehensive suite of management and
leadership courses. These are designed to enable the business
to support 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 roll out through the firm during 2019
to build leadership and management skills across the group.
We have aligned some of our management development to
formal qualifications. A number of managers have successfully
achieved a level five qualification awarded by the Chartered
Management Institute. 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 fourth apprenticeship programme in Liverpool
is well underway with eight participants and, in light of the
ongoing success of this programme, a further group will be
recruited in 2019. Our continued commitment to developing
younger talent means that a new graduate development
programme will start in September 2019. 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
The introduction of a more comprehensive performance
appraisal regime is helping to identify individual training
needs and provides a framework to help employees see their
future pathway for career progression within the organisation.
There is further work to be done in this area but the leadership
team recognises the benefits both to the individual employees
and to the firm of deeper succession planning.
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 eight 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, which
will be achieved once Jenny Mathias joins our board in
April 2019. We continue to develop our plans to align with
the recommendations published in the Hampton-Alexander
review and we will work towards achieving the targets set
by the Women in Finance Charter. 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 appoint more women in graduate
trainee positions and are also trying to encourage 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. In 2017, we implemented
significant improvements to our maternity, adoption and
paternity policies. We also introduced group coaching and
online support for working parents and have put in place
a diversity strategy. We will establish a diversity task force
with executive representation in early 2019.
We are continuing a training programme covering diversity,
inclusion and unconscious bias. Rathbones prides itself on
being a ‘real Living Wage’ employer and pays Living Wage
Foundation rates of pay to internal employees and sub-
contractor staff.
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Rathbone Brothers Plc Report and accounts 2018
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 initiatives in place such as our policy
on stewardship, being a real Living Wage employer, and our
equal opportunities and whistleblowing policies.
Since 2017, Rathbones has been working towards a set of
objectives to improve and refine our approach to ensuring
that slavery and human trafficking are not taking place
in our supply chains. This is a three-year plan and is
a key component of the development of our wider
sustainability strategy.
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.
In 2018, 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:
– Paper and paper-based products
– Electrical equipment
– Construction
– Cleaning products and other chemicals
In addition, we have identified two sectors, which have
an elevated risk relative to the rest of our supply chain
but are themselves low risk. These are hotels and
telecommunications.
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 wishing 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 more
widely to 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.
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721
1,220
1,400
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300
600
900
1,200
1,500
Number of employees
in SAYE
Number of employees in SIP
Headcount at
31 Dec 2018
Number of employees by length of service (years)
0-15
16-30
31-45
1,160
209
31
Number of employees by age range
16-20
21-35
36-50
51-65
66+
19
568
473
325
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Corporate responsibility report continued
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 so 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
breaches or concerns
– reporting 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 published its gender pay gap data in April 2018 and
will do so again before April 2019. The report is available on
our website.
We regularly review both fixed and variable remuneration
and are confident that men and women are paid equally for
performing equivalent roles across our business. Historically,
there have been significantly less women in the wealth
management sector and as a consequence we have found it
harder to hire senior women into the firm. We are committed
to taking all steps possible to reduce our gender pay gap and
have had some success in increasing representation in more
junior professional levels, which will in due course provide
better representation at senior levels, albeit over time. We
are signatories to the Women in Finance Charter and the firm
is committed to achieving 25% female senior management
representation by 2023. Also, the firm is mindful of the
Hampton-Alexander gender targets for executives and
their direct reports and we plan to take further action
to achieve these targets.
Performance and reward
We offer a comprehensive remuneration package, which
is regularly reviewed to ensure that our employees are fairly
rewarded. This includes annual equal pay audits. This is also
supported by challenging objective-setting and appraisal
processes to align variable reward to the achievement
of corporate goals and individual performance and to
motivate and appropriately reward performance.
All employees have the opportunity to participate in a
pension arrangement and are eligible to receive at least
a 6% contribution from the company (on an employee
non-contributory basis) to a group personal pension
arrangement, rising to 10% with employee contributions.
We provide a wide range of core benefits such as private
medical cover, income protection insurance and life assurance.
All employees are eligible for an annual medical examination
funded by the company.
Employees are encouraged to identify with and benefit from
the financial performance of the group through ownership of
shares in the company. Our Share Incentive Plan (SIP) enables
employees to benefit from share-matching by the company
on a one-to-one basis. Employees are also eligible to receive
free shares and join the Save As You Earn (SAYE) share
option plan.
We have continued to grow our employee wellbeing offering.
Employees have access to a free, independent employee
assistance programme (EAP) offering confidential advice
and support to them and their families. We have increased
the range and number of training, one-to-one and drop-in
sessions on wellbeing-related topics and widened this to
include mental health awareness and mental health first aid
training. We continue to provide support for working parents
through targeted seminars and training sessions, as well as
a number of physical wellbeing sessions.
Our people can also take advantage of a vast range of
voluntary benefits available, such as the cycle to work scheme,
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
employee engagement survey run in 2016, we will be running
a second in 2019 in order to reassess 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. In 2018, we ran a series of flexible
working workshops for managers, focusing on how to manage
and support flexible working opportunities in the business.
We aim to focus more effort on flexible working as part of
our diversity and employee engagement efforts.
Communities
Donations and fundraising
During the year, the group made total charitable donations
of £355,000, representing 0.5% of group pre-tax profits
(2017: £378,000, representing 0.7% 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 2018, Rathbones employees made payments
totalling £199,000 (2017: £225,000) 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 2018, donated £166,000 (2017: £161,000) to causes
chosen by employees through this method.
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Investing in brighter futures
Sport offers the opportunity to teach key life skills to young
people, and from 2012 to 2018 Rathbones has been a strong
supporter of female sport through our partnerships with
Lacrosse Scotland and England Lacrosse. Over that time, more
than 3,500 young women competed each year in tournaments
that we sponsored and many more were introduced to the
sport through community programmes that we supported.
2018 represented our last year of involvement in lacrosse as
we feel it is important to focus more on our programmes
supporting writing and literacy for young people.
The Rathbones Folio Mentorships programme, which
started in 2017, provides talented young writers from state
schools the transformational opportunity to be mentored
by published authors, one-on-one, for a year. Alongside this,
in 2018, Rathbones also piloted a digital reading programme
in schools, in association with The Pigeonhole (a digital book
club) and Harper Collins Publishers.
The Rathbones Financial Awareness programme is another way
in which we invest in the future of 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 2018, the
programme was delivered to over 1,500 young people.
to imagine what that must be like. The resilience of
some of the people I have met, in the face of true hardship,
is awe-inspiring. This is not something I would be able
to do without the support of Rathbones though. Not all
companies would allow their staff to disappear for three
weeks at short notice, even if it was to help others. I am
forever grateful to the company, my line manager and
my team for enabling me to do what I do.”
For more information about ShelterBox, please visit
shelterbox.org
During 2018, the Rathbone Brothers Foundations across
the country considered many requests for assistance and
met a number of charities. Examples of our donations and
volunteering support include:
– A team of nine employees from the London research team
volunteered in November 2018 for a day at Divine Rescue,
which provides meals, clothes, hostel referrals and hospital
visits to homeless, vulnerable people, ex-offenders and
substance abuse victims in the Borough of Southwark.
In 2017, Divine Rescue supported 36,960 people with
food, clothes and advice.
– A group of six Rathbones employees from the London office
hosted a group of 30 students from Dairy Meadow Primary
School in September 2018. The event was organised by
Enabling Enterprise, which works with schools and teachers
to help students develop essential skills through a range of
experiences in British companies. At Rathbones, students
were set a challenge to devise and secure a loan for a new
business venture before running the initial set-up of the
business. The students demonstrated their leadership
and presenting skills throughout the challenge.
– In 2018, the Cambridge office undertook a 24-hour rowing
relay event to raise funds for the Cambridge Central Aid
Society, a charity, which gives funding grants to help needy
individuals and families in Cambridge and its environment.
– In May 2018, 10 employees in the Winchester office, along
with 200 members of the general public descended upon
the gardens of Wolvesey Castle to participate in 'The Big
Sleep Out'. The event, organised by the Trinity Winchester
charity, intends to draw attention to the estimated 300,000
homeless people in England and raise money in support of
the charity.
ShelterBox case study
Laura Coleman is head of client marketing and has
worked at Rathbones since 2014. Laura is also a ShelterBox
response team volunteer. ShelterBox is an international
disaster relief charity that provides temporary shelter
and life saving supplies to displaced families.
As a response team volunteer, Laura is on call twice a
year ready to be deployed, sometimes with only 48 hours
notice, to countries affected by natural disaster or conflict.
In June 2018, Fuego Volcano in Guatemala erupted killing
hundreds, displacing over 12,000 and otherwise affecting
hundreds of thousands of people. Laura was part of the
second ShelterBox team on the ground to work with
the government, aid agencies and local organisations
to support those affected.
In August, Laura was deployed to Ethiopia where nearly
a million people were displaced as a result of conflict within
the country. This was an extremely complex response,
but ShelterBox were able to help nearly 2,000 families in
some of the greatest need, approximately 10,000 people,
with shelter, blankets, water purifiers, kitchen sets and
mosquito nets.
“I am humbled and honoured to be a ShelterBox response
team volunteer. An estimated 85 million people are
displaced across the world right now; I can’t even begin
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Corporate responsibility report continued
Environmental impact
Rathbones has been reporting its environmental impacts
since 2007. As a responsible investor, we aim to lead 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. Since
2017, we have produced internal reporting of environmental
impacts and emissions on a quarterly basis in order to improve
our ability to manage year-on-year performance.
Our 2018 carbon footprint
We are pleased to report a 13.4% reduction in our overall
emissions to 2,214 tCO2e, down from 2,557 tCO2e in 2017.
Furthermore, our emissions intensity has also reduced
by around 20% despite continued growth in headcount,
funds under management and administration, and
operating income.
These reductions are primarily attributable to reduced
energy consumption across our offices, reduced consumption
of natural resources and the continued decarbonisation of
the UK’s electricity supply. Our BREEAM excellent-rated
head office building in Finsbury Circus is considerably more
energy-efficient than our previous Curzon Street location,
with almost 30% less energy consumed on an annual basis.
Total emissions (tCO2e) since baseline year
Building energy emissions arising from energy consumption
at our offices and data centres were 1,248 tCO2e in 2018,
down 16.2% from 1,490 tCO2e in 2017.
Business travel emissions grew by 3.7% to 741 tCO2e (up
from 715 tCO2e last year). Emissions from flights increased
by 12.6%, linked to the increase in headcount, whilst emissions
from rail and employee-owned car usage fell by 8.7% and
3.5% respectively.
Emissions from other resource consumption, namely
paper, waste and refrigerants, fell sharply by 36.1% to
226 tCO2e, primarily driven by a significant reduction
in paper consumption.
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 and
administration (£bn)
Carbon intensity / tCO2e
Staff (FTE)
Net internal area
of offices (m2)
Operating income (£m)
Funds under
management and
administration (£bn)
2,843
2,985
3,052
2,798
2,557
2,214
2013
829
2014
867
2015
965
14,430
176.4
14,430
209.3
14,518
230.1
2016
1,045
15,369
243.8
2017
1,227
22,924
291.6
2018
1,329
Vs. 2017
+14.1%
19,640
312.0
+12.8%
+6.8%
22.0
27.2
29.2
33.2
39.1
44.1
+12.8%
3.4
0.20
16.1
3.4
0.21
14.3
3.2
0.21
13.3
2.7
0.18
11.5
2.1
0.11
8.8
1.7
-19.7%
0.11
7.1
-0.1%
-19.0%
129.1
109.8
104.5
84.3
65.4
50.2
-23.2%
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Rathbone Brothers Plc Report and accounts 2018
Key achievements in 2018
This has delivered the following key benefits to management:
Rathbones completed several important initiatives in
2018 to mark the tenth anniversary of our reporting on
environmental impacts.
Office portfolio consolidation
Following the move to our new head office at 8 Finsbury
Circus in February 2017, last year saw further changes to
consolidate our office portfolio. Our previous head office
location at Curzon Street is now sub-let and we moved
offices in Birmingham, taking Rathbones’ total office space
in 2018 to 19,640 m2 (down from 22,924 m2 in 2017).
Last year was the first full year of occupancy at 8 Finsbury
Circus, thereby enabling a comparison of annual performance
with our previous head office location. In 2018, total energy
consumption at 8 Finsbury Circus was 1,317,815 kWh against
an average annual consumption of 1,810,035 kWh at Curzon
Street between 2014 and 2016, representing a reduction of
492,220 kWh (27.2%). Despite a 60% increase in headcount
since baseline, changes to our office portfolio have contributed
towards a 12.3% reduction in energy consumption (576,693
kWh per annum).
In addition to improvements in energy performance and
reduced emissions, our award-winning head office location
also provides other environmental benefits including 160
cycle spaces, photovoltaics, and a green roof grey water
recycling system.
Improved performance management and reporting
Rathbones has reported its environmental performance and
impacts on an annual basis since 2007. Since 2017, we have
increased the frequency of our reporting to provide quarterly
performance updates, analysis and trend information
throughout the year, thereby creating an improved
performance management capability.
– More timely provision of environmental 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.
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Carbon offsetting programme
Alongside the firm’s growth, we have succeeded in
maintaining a steady carbon footprint and continue to pursue
efforts to reduce this year-on-year. As per environmental
best practice, since 2011 we have taken action to mitigate
this footprint by supporting low carbon projects around
the world through a process known as carbon offsetting.
With our partner ClimateCare, specialists in climate and
sustainable development, we have to-date supported 14
projects across the world that reduce global carbon emissions
and improve lives for local communities. To compensate
for our 2017 carbon footprint we have supported two solar
projects in India: one delivering solar lighting and heating
solutions for households and businesses, another producing
electricity at a large scale to supply the Indian grid. Both
projects avoid carbon emissions by displacing fossil fuels,
and these savings are rigorously measured and certified
by internationally accredited third-party bodies.
We work with ClimateCare to ensure our carbon offset
programme goes beyond reducing emissions. In line with
our support of the UN’s Sustainable Development Goals we
have selected these two projects on the basis of their delivery
of renewable energy infrastructure in India and creation of
jobs in the low-carbon sector.
Orb Energy, India case study
Orb Energy delivers transformational outcomes for
households and businesses across India with its solar
lighting and heating solutions.
With the support of carbon finance from Rathbones
and others, Orb has sold over 130,000 solar units and
employs over 500 people across the country.
rathbones.com
49
Corporate responsibility report continued
Compliance with regulations
Rathbones complies with the regulations for reporting
greenhouse gas emissions. Following an operational
control approach, our 2018 greenhouse gas emissions
from business activities amounted to:
– 328 tCO2e resulting from the combustion of fuel and
the operation of any facilities (classified as Scope 1 in
this report)
– 680 tCO2e from the purchase of electricity by the company
for its own use (classified as Scope 2 in this report).
In June 2018, we sub-let our previous head office location in
Curzon Street and vacated our Birmingham office, thereby
reducing our reporting boundary. It has not been practical
to gather data on energy use at our Lymington office and
we have used typical energy consumption benchmarks
to calculate the energy use at this site based on floor area.
Please note that our reported 2018 emissions do not include
any data for the newly acquired Speirs & Jeffrey business. In
our 2019 report, we will include full-year performance data
for the newly-acquired business and will rebaseline historic
emissions to support consistency of comparison.
The methodology used is in accordance with the requirements
of the World Resources Institute Greenhouse Gas Protocol
(revised version) (WRI GHG). 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.
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 2018 to 31 December 2018. It does not
represent an independent third-party assurance of
Rathbones’ management approach to sustainability.
Carbon Smart has been commissioned by Rathbones for
the eleventh consecutive year to calculate Rathbones’ carbon
footprint for all offices for its 2018 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 and
interrogation of source data and data collection systems,
including comparison with the previous years’ data.
Carbon Smart has concluded the following:
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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Rathbone Brothers Plc Report and accounts 2018
Carbon footprint by scope (tCO2e)
Rathbones’ reporting period for greenhouse gas emissions is 1 January to 31 December, aligned to our financial year.
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-based4
Market-based emissions
Purchased electricity
Data centres
2018
328
328
0
–
680
680
1,206
182
741
219
7
58
2,214
2018
807
217
2017
327
302
25
–
852
852
1,378
257
715
319
9
80
2,558
2017
909
285
2016
404
404
–
–
947
947
1,447
294
699
342
27
86
2,798
2016
1,061
294
2015
317
315
2
0.02
1,282
1,282
1,453
317
677
328
26
106
3,052
2015
1,282
317
2014
310
272
39
0.01
1,443
1,443
1,232
252
528
310
15
126
2,985
2013 (baseline)
306
276
30
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1,424
1,424
1,113
150
496
328
9
130
2,843
1.
In accordance with best practice introduced in 2015, we report two numbers to reflect emissions from electricity. Location-based emissions are 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
4. Previously reported as 2,553 tCO2e in 2017. For some data sources sites, we have to estimate the full-year consumption based on part-year data when aligning the emissions reporting period to our
financial year. These estimates have now been replaced with actual data resulting in a net difference of 5 tCO2e
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 and administration.
Staff (FTE)
Net internal area
of offices (m2)
Operating
income (£m)
Funds under
management and
administration
(£bn)
Operational indicators
2018
1,329
2017
1,227
2016
1,045
2015
965
2014
867
2013
829
2018
1.7
Carbon intensity (tC02e)1
2015
3.2
2016
2.7
2017
2.1
2014
3.4
2013
3.4
19,460 22,924 15,369 14,518 14,430 14,430
0.11
0.11
0.18
0.21
0.20
0.20
312 291.6
243.8
230.1
209.3
176.4
7.10
8.8
11.54
13.39
13.89
16.34
44.1
39.1
34.2
29.2
27.2
22.0
50.2
64.4
84.3
104.5
109.8
129.2
1. Carbon intensity is the total all scopes tCO2e per: FTE; m2; £m of operating income; £bn of funds under management and administration
rathbones.com
51
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.
CDP respondent since 2006
Over £2.3 million in charitable donations
since 2007
UN PRI signatory since 2009
PwC Building Public Trust Award 2011:
Best People Reporting in a FTSE 250
2013 FTSE4Good ranking: 98th percentile
2014 ICSA Excellence in Governance Award:
Best sustainability and stakeholder disclosure
in a FTSE 250
CDP investor member since 2015
One of the top 20 most active and influential
members of the UN PRI Collaboration Platform
(2015 and 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
52
Rathbone Brothers Plc Report and accounts 2018
CSR strategy review
In 2018, we concluded 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 socially conscientious family
business and is proud to have carried those values through
to today. Most of our employees are also shareholders with
a deep sense of responsibility and care for the good standing
of the business within society. The business is determined to
respect the rights and wellbeing of both our direct employees
and those within our supply chain.
Our sustainability framework
High-level sustainability drivers, themes and stakeholders
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.
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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.
Key drivers
Four pillars of sustainability
Stakeholders
Responsible investment
trends
Increasing regulations
and transparency
Millennials as employees
and clients
Employees
— Diversity, transparency,
gender pay in financial
services
— Employee engagement
— Supply chain workers –
action on modern
slavery
Social and
community
— Respect for human rights
— Volunteering, charitable
giving
— Support for community
initiatives
Governance and
stewardship
— Responsible investment
— Anti-corruption practices
— Remuneration
— Management structure
Environment
— Climate change, low
carbon investment
— Air pollution
— Waste
— Paper use/deforestation
— Water
Employees
Communities
Clients
Suppliers
rathbones.com
53
Corporate responsibility report continued
Looking forward
We recognise that acting on sustainability issues is not only
the right thing to do but that it is fundamentally beneficial
to the long-term success of the business and welfare of all
its stakeholders. Over the next 10 years, we anticipate that
our stakeholders will continually raise the bar on the
sustainability standards expected of high-profile
companies such as Rathbones.
Secondly, we recognise this increasing focus on sustainability
issues as one of several leading trends that will impact and
define businesses in every sector over the coming years.
Non-financial information statement
Reporting requirement
Environmental matters
Some of our relevant policies
Group sustainability policy
Employees
Human rights
Social matters
Anti-corruption and anti-bribery
Business model
Non-financial key performance
indicators
Code of conduct
Health and safety policy
Compliance framework policy
Anti-bribery policy
Modern slavery policy
Code of conduct
Code of conduct
Anti-bribery policy
Conflicts of interest policy
Our business model
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 clients 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 2019, we will further develop
our programme of action across the four pillars identified above
and, by 2022, we will produce a dedicated, standalone report
on our CSR performance.
Where to read more in the report about our impact
Responsible investing
Environmental reporting
Environmental impact
Carbon offsetting programme
Leadership and management
development
Diversity and inclusion
Gender pay reporting
Investing in brighter futures
Women in Finance Charter
Modern slavery
Carbon Smart
ClimateCare
Communities
Page
41
41
48
49
43
44
46
47
44
45
45
49
46
46
Our business model
Our market and opportunities
Our journey
Employee relations
Our 2018 carbon footprint
8-9
14-15
16
46
48
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 54 constitute the strategic report, which
was approved by the board and signed on its behalf by:
Philip Howell
Chief Executive
20 February 2019
Paul Stockton
Finance Director
54
Rathbone Brothers Plc Report and accounts 2018
Governance
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Governance
56 Corporate governance report
56 Introduction from the chairman
58 Governance at a glance
60 Board of Directors
62 Role of the board
64 Board and board committee evaluation
65 Risk management
65 Relations with shareholders
66 Group risk committee report
69 Audit committee report
74 Nomination committee report
76 Group executive committee report
78 Remuneration committee report
78 Remuneration committee chairman’s
annual statement
80 Remuneration outcomes for 2018
83 Annual report on remuneration
87 Implementation of remuneration policy in 2019
92 Directors’ report
95 Statement of directors’ responsibilities in respect
of the report and accounts
rathbones.com
55
Corporate governance report
Board and executive succession
The nomination committee regularly reviews the composition
of the board to ensure it has the appropriate skills, knowledge
and experience for the business. Such reviews help shape the
firm’s succession plans and led to a number of changes to our
board during the year.
After a rigorous recruitment process, we were delighted
to welcome Terri Duhon and Colin Clark to the board in
July and October 2018 respectively. A comprehensive
and tailored induction programme was arranged for them
to introduce them to the business and provide industry
context. More detail of the induction programme is provided
later in the report. Also, as indicated in my report last year,
the board recognises the importance of planning for the
future and ensuring that succession plans are in place. As
a result, Terri Duhon was appointed chair of the group risk
committee following Kathryn Matthews' retirement from
the board in September 2018. Kathryn had served nearly
nine years as a director.
In addition, the board discussed and approved the
recommendation from the nomination committee to begin
to implement our executive succession plans. Accordingly,
the firm announced the appointment of Paul Stockton as
managing director of Rathbone Investment Management
in May 2018. In November 2018, after careful assessment
of Paul's performance in this role by the nomination
committee it was agreed by the board that he would succeed
Philip Howell as chief executive by the 2019 AGM. Also, as
announced in October 2018, Jennifer Mathias was appointed
as finance director and will be joining the firm on 1 April 2019.
Mark Nicholls
Chairman
The board strongly believes that robust corporate
governance makes a significant contribution to the
long-term success of the firm and the achievement of
its strategy. A good governance framework creates a solid
foundation, which enables us to act in the best interests of
our clients, shareholders and other stakeholders. I am pleased
to introduce the corporate governance report for 2018, 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 UK
Corporate Governance Code1 ('the Code'). Further details of
the firm’s approach to corporate governance and how it
complies with the Code can be found later in the report.
Culture
Board meetings
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
are fundamental to achieving the best results for colleagues,
clients and shareholders over the long term.
Following a fundamental review of our culture that was
completed in 2017, the board has continued to monitor
the firm’s purpose and values during the year. The board
and the executive team devoted significant time and effort
to analysing the firm’s culture dashboard, which contains
data relating to clients, colleagues and other stakeholders. 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.
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 areas of
responsibility in greater depth.
Between board meetings, I maintain frequent contact with
the executive team and, in particular, the chief executive
and managing director of Rathbone Investment Management,
who keep me apprised of progress and key developments.
Philip, Paul 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 discuss with
him my thinking on significant board issues. Jim and I are also
in regular dialogue with our other non-executive director
colleagues to ensure that any areas of concern are aired.
1. The Code can be found at frc.org.uk
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Rathbone Brothers Plc Report and accounts 2018
Remuneration policy
Looking forward
Our revised remuneration policy was approved at the
2018 annual general meeting (AGM) and I was pleased
that it received such strong support from our shareholders.
The directors’ remuneration report, which includes further
detail on the application of the new policy, can be found
later in this section.
Shareholders and stakeholders
Engagement and dialogue with shareholders continue to
be very important to the board. Personally, I have been pleased
to meet with a number of our shareholders during the year
and found these meetings informative. They allowed me to
provide useful feedback to the board. Sarah Gentleman, the
chairman of the remuneration committee, has also been
proactively involved in discussions with shareholders.
The firm’s AGM, which will take place on 9 May 2019, is a
valuable opportunity for me and my fellow directors to meet
with shareholders, and for shareholders to raise questions
about the firm. I look forward to discussing our progress and
the work of the board with shareholders at this meeting.
The board has other important stakeholders including our
clients, employees, our regulators and the wider community.
Both I and my non-executive director colleagues use formal
and informal opportunities to talk with members of staff across
all offices and functions. The board spent considerable time
discussing the implications for the employees of both firms
when considering the acquisition of Speirs & Jeffrey. We have
set up a team visit programme for our non-executive directors.
We are also actively considering the provisions of the new
Corporate Governance Code on 'workforce engagement'.
This year saw a busy period for corporate governance reform
with the publication of the new Corporate Governance Code,
which will apply to the firm in 2019. The board has monitored
these developments closely including the provision on
workforce engagement, diversity and culture. Due to the
firm’s strong existing framework, we are well placed to
implement these new provisions during 2019. The board
and its committees have already spent time assessing the
implications for the firm and over the coming months will
consider the actions required to ensure compliance with
the new Code.
The nomination committee continues to take into
consideration the recommendations of the Davies report
and the McGregor-Smith review on board diversity. As a
board, we acknowledge the importance of board diversity
and, looking forward, particular 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.
G
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Mark Nicholls
Chairman
20 February 2019
rathbones.com
57
Corporate governance report continued
Governance at a glance
Corporate governance framework
n
a
Chair m
C
hief E
x
e
c
u
t
i
v
e
The board
Chaired by Mark Nicholls
Accountable to shareholders for the
long-term sustainable success of the
group. This is achieved through setting
out the strategy, monitoring objectives
and providing oversight of the
implementation of these objectives
by the management team.
S
e
n
i
o
r
I
n
d
e
p
e
n
d
e
nt Director
c
e
x
e
N o n -
u tive Directors
Remuneration committee
Responsible for the directors’
remuneration policy and oversight
of the group’s remuneration strategy.
Group risk committee
Provides oversight of the firm’s
risk appetite and framework.
Audit committee
Ensures there is confidence in
the integrity of internal financial
controls and corporate reporting.
Nomination committee
Responsible for recommending
changes to the composition
of the board and reviewing
succession planning.
Group executive committee
Implements the agreed strategy
and oversees the day-to-day
management of the group.
Read more
on page 78
Read more
on page 66
Read more
on page 69
Read more
on page 74
Read more
on page 76
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
Chief Executive
– 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 and stakeholders
Senior Independent Director
– Acts as a sounding board for the chairman and serves
as an intermediary for the other directors if required
– Holds meetings 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 reports the outcome
of such meetings to the board
Non-executive Directors
– Provide constructive challenge to management
performance and strategy
– Contribute to the firm’s strategy
– Provide independent judgement to the board
58
Rathbone Brothers Plc Report and accounts 2018
Board activities in 2018
Strategy
– Held strategy day with group executive team
to review and discuss progress
– Reviewed and analysed strategic acquisition
opportunities with considerable time spent
on the Speirs & Jeffrey transaction
– Focused on delivery of organic growth initiatives
Risk management
– Monitored the firm’s principal risks and compliance
programme
– Received detailed reports on significant regulatory
risks and management’s mitigating actions
– Reviewed the implications of Brexit for the
organisation
Performance review
– Provided oversight of the financial performance
of the group
– Reviewed and approved capital requirements
of the firm
– Approved 2019 budget
Operational
– Reviewed an update on the General Data Protection
Regulation (GDPR) implementation plan
– Reviewed an update on the IT transformation
programme including security enhancements
following the review of cyber security
– Held discussions to improve controls and
governance around MiFID II requirements
– Reviewed and approved Speirs & Jeffrey
work streams and client data migration
Strategy
Risk management
Performance review
Governance
Operational
Time spent
Board activities
on activity
discussed
discussions
G
o
v
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n
a
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c
e
30%
15%
15%
20%
20%
Governance
– Conducted an internal board evaluation
– Appointment of new board directors and
approval of chief executive transition
– Approved the firm’s Modern Slavery Act statement
– Assessed and oversaw the firm’s culture and how it
Board activities
discussed
was reported and monitored
Strategy
Risk management
Performance review
Governance
Operational
30%
15%
15%
20%
20%
Board structure
Board
tenure
0-2 years
3-6 years
Over 6 years
Board
tenure
0-2 years
3-6 years
Over 6 years
Chairman
Executive
Independent non-executive
50%
33%
17%
Board
composition
12%
25%
63%
Board
diversity
Male
Female
6
2
Chairman
Executive
Independent non-executive
50%
33%
17%
Board
composition
12%
25%
63%
Board
diversity
Male
Female
6
2
rathbones.com
59
Corporate governance report continued
Our leadership
Chairman
Mark Nicholls
Chairman
Executive directors
Philip Howell
Chief Executive
Paul Stockton
Finance Director and
Managing Director of
Rathbone Investment
Management
Non-executive directors
Jim Pettigrew
Non-executive Director
and Senior Independent
Director (Independent)
Appointment: 01/12/2010
Appointment: 01/12/2013
Appointment: 24/09/2008
Appointment: 06/03/2017
Age: 69
Age: 63
Age: 53
Age: 60
Board committees:
N, Re
Board committees:
E
Board committees:
E
Board committees:
A, N, Re, Ri
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
and managing director
of Rathbone Investment
Management in May 2018.
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 non-
executive director of
the Financial Services
Compensation Scheme.
Current external non-executive
director roles
None
Background and career
Jim was appointed as a
non-executive director
at our 2017 AGM and
was appointed as senior
independent director
in August 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 a 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
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.
Current external non-executive
director roles
West Bromwich Building
Society
Board committees
A Audit committee
E Executive committee
N Nomination committee
Re Remuneration committee
Ri Group risk committee
Bold in biographies indicates
committee chairman
60
Rathbone Brothers Plc Report and accounts 2018
James Dean
Non-executive Director
(Independent)
Sarah Gentleman
Non-executive Director
(Independent)
Terri Duhon
Non-executive Director
(Independent)
Colin Clark
Non-executive Director
(Independent)
G
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n
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c
e
Appointment: 1/11/2013
Appointment: 21/01/2015
Appointment: 2/07/2018
Appointment: 24/10/2018
Age: 61
Age: 48
Age: 46
Age: 59
Board committees:
A, N, Re, Ri
Board committees:
A, N, Re, Ri
Board committees:
A, N, Re, Ri
Board committees:
A, N, Re, Ri
Background and career
James was appointed as
a non-executive director
in 2013 and is chair 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
The Stafford Railway
Building Society
Background and career
Sarah was appointed as a
non-executive director in
2015 and is chair of our
remuneration committee.
She started her career as a
consultant at McKinsey &
Company and then worked
for several years in the
telecoms and digital sectors,
latterly as chief financial
officer of the LCR Telecom
Group. In 1999, she joined
the internet bank Egg, the
internet banking subsidiary
of Prudential, where she
was responsible for business
development and strategy.
In 2005, she joined Sanford
C. Bernstein & Co, the
institutional research and
trading arm of Alliance
Bernstein as a banking
analyst covering the
European banking sector.
Current external non-executive
director roles
None
Background and career
Terri was appointed as
a non-executive director
in July 2018 and chair
of the risk committee
in September 2018.
Terri is currently a non-
executive director on the
board of Morgan Stanley
International where she
chairs the risk committee
and is also chair of Morgan
Stanley Investment
Management. She is an
Associate Fellow at The Said
Business School at Oxford
University and on the MIT
Corporation Visiting
Committee. Previously, Terri
sat on the boards of CHAPS
Co, Operation Smile and
was a founding member
of the Women’s Leadership
Group for the Prince’s Trust.
As an executive, Terri held
a number of senior roles at
JP Morgan and ABN AMRO
before setting up her own
consultancy firm.
Current external and non-
executive director roles
Morgan Stanley
International
Morgan Stanley Investment
Management Ltd
Background and career
Colin was appointed as
a non-executive director
in October 2018.
He was at Mercury Asset
Management and Merrill
Lynch Investment
Managers for over 20 years
and then was appointed a
non-executive director at
Standard Life Investments
in 2004. In 2005, Colin took
on non-executive director
roles with Alpha Strategic
Plc, and with the Royal
Marsden NHS Foundation
Trust. Colin was appointed
an executive director of
Standard Life Investments
in 2010 and subsequently
appointed to the Standard
Life Plc board as executive
director with responsibility
for the Global Client Group.
He retired from this position
in 2017.
Current external and non-
executive roles
AXA Investment Managers
SA
AXA Investment Managers
UK
rathbones.com
61
Corporate governance report continued
The role of the board
The board provides the leadership and oversight to ensure
the long-term success of the company for its stakeholders.
To achieve this goal, the board requires a diverse and talented
membership with a range of skills and experiences 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 the firm’s current short- and long-term
strategic initiatives
– Scrutinised the benefits of and monitored progress on
the acquisition of Speirs & Jeffrey
– Oversight of the Speirs & Jeffrey integration programme
– 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
– Provided oversight of the firm’s investment management
processes, including suitability
– Scrutinised the firm’s approach to and compliance
with regulatory investment standards
– Assessed the firm’s change management processes
and project delivery
– Focused on management’s delivery of organic
growth initiatives
– Assessed and approved the firm’s regulatory returns
and annual budgets
– Monitored and assessed the firm’s culture
– Considered the firm’s approach to a cyber attack
and subsequent management actions
– Reviewed and implemented recommendations on
the board evaluation exercise
– Reviewed and approved executive management
succession plans, including the appointment of the
managing director for Rathbone Investment Management
and new chief executive
– Approved the appointment of new non-executive directors
– Approved interim and full-year financial statements,
interim dividend and recommended final dividend
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 a number of additional
formal and informal meetings. 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 any action required. As part of the annual
board evaluation process, board members provided input
on 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
J W Dean
S F Gentleman
J N Pettigrew
P L Howell
R P Stockton
T L Duhon1
C M Clark2
Former director
K A Matthews3
1. Terri Duhon joined the board on 2 July 2018
2. Colin Clark joined the board on 24 October 2018
3. Kathryn Matthews stepped down as a director on 12 September 2018
Meetings attended
(eligible to attend)
7(7)
5(7)
7(7)
7(7)
7(7)
7(7)
3(3)
1(1)
5(5)
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Rathbone Brothers Plc Report and accounts 2018
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 might 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 that 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.
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
G
o
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Terri Duhon
Non-executive Director
Board induction
While I joined the Rathbones board with a lot of financial
expertise around markets, asset management and risk,
I have had less direct exposure to the UK wealth
management sector. Thus, the company secretary
initially provided me with reading materials, which
included analyst reports, recent market analysis on the
sector, Rathbones investor reports and minutes of board
and committee meetings. This information was a great
overview for me of Rathbones and the broader industry.
At the same time, meetings were held primarily with
the executive team across different areas of the business.
The various induction meetings initially focused
on the big picture and slowly meetings became more
detailed. As a result, I've requested a number of follow-
up meetings with the same person on the same topic.
In particular, I have spent a lot of time understanding
the structure of the risk and compliance team which
included spending time in the Liverpool office.
Throughout the induction process, everyone at
Rathbones has been very open and has made
themselves available to enable me to understand the
inner workings of the firm, the people, processes and
the culture. My induction programme will continue
during 2019 and I don’t expect these meetings and
briefings to ever stop.
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. The knowledge and familiarity of non-
executive directors with the firm is enhanced by full access
to senior management and visits to teams in London and
offices across the country.
rathbones.com
63
Corporate governance report continued
The company secretary assists with the 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 GDPR, cyber security and regulatory investment
requirements including the associated change programmes
that will be required. Committee members also receive regular
updates on technical developments at scheduled meetings.
Governance of the company
In relation to compliance with the 2016 UK Corporate
Governance Code (‘the Code’), which applies to the firm,
this report together with the directors’ report states the
position as at 20 February 2019. 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
Diversity, including 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 contribute to 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 in the composition of the board, which will
comprise three female and five male members during 2019.
The board remains committed to improving diversity at all
levels across the firm. As such, it supports and is updated
on diversity initiatives in place below the executive level.
Board and board committee evaluation
Each year, the board undertakes an annual review of its
effectiveness. In 2017, an external review was undertaken by
an independent third party, Independent Audit Limited. This
involved their attendance at board meetings, one-to-one
interviews with directors, executive committee members
and the company secretary and a review of board and board
committee papers and minutes. The key points raised in the
2017 review and associated actions by the board were
disclosed in the last year’s report and accounts.
The 2018 board effectiveness review was devised
internally, as permitted by the Code, and supported by
Independent Audit Limited. The board was keen for the
evaluation to highlight learnings from the past and build
on these for the future.
The review consisted of a focused questionnaire on
key topics such as:
– board skills and dynamics
– quality of the board’s strategic and operational oversight
– quality of our risk assessment on major decisions
– oversight of culture
– our succession planning
– the effectiveness of the board committees.
Independent Audit Limited provided a report based on
responses to this questionnaire, which was discussed in
draft with the chairman and then presented in full to the
board. The chairman followed up with one-to-one meetings
with each director.
Overall, the board effectiveness review was positive about
the composition of the board and the way both the board
and the board committees operated. Suggestions for
improvement included:
– Clearer information on progress on strategic projects
and initiatives
– More information on succession and development
below board level
– The need for board reports to take a more holistic
approach to culture (looking beyond risk culture)
to build a better picture of the whole organisation
– The need for more focus on diversity (not just gender)
throughout the organisation
The board expects to conduct an internal review again
next year and an externally-facilitated evaluation in 2020.
In addition to the board evaluation process, the senior
independent director led a separate performance review
in respect of the chairman which involved a review with the
non-executive directors, excluding the chairman, and separate
consultation with the chief executive. The senior independent
director subsequently provided feedback to the chairman on
his appraisal, which confirmed his effectiveness.
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
report and accounts is set out at the end of this governance
section. Within this, the directors have included a statement
that the report and accounts present a fair, balanced and
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Rathbone Brothers Plc Report and accounts 2018
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 clear 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.
Risk management
In accordance with the Code, the board is required to monitor
the firm’s risk management and internal control systems on
an ongoing basis and 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 35 to 40, 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 control systems, it has
delegated oversight to the audit and group 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 group risk committee and chief risk officer on the key
risks facing the firm that 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 2018 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 the board considers
other sources that 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 investment risk 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 finance.
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 available to meet with
investors at any time including at the AGM.
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Investor relations activity in 2018 included the following:
– 2017 year-end results – UK investor roadshow
and analyst presentations
– Q1 trading update – analyst call
– AGM – 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 also
engaged with Institutional Shareholder Services (ISS)
and Institutional Voting Information Service (IVIS) of
the Investment Association and Pension & Investment
Research Consultants (PIRC) before the 2018 AGM. Also,
during 2019, the chairman of the remuneration committee
contacted our top 15 shareholders to update them on
the proposed adjustments to the 2018 EIP awards for
our executive directors. For more information, see
pages 78 to 79 of the directors' remuneration report.
During 2018, the key areas which the chief executive and
finance director have discussed with investors included:
– progress on strategic initiatives
– Speirs & Jeffrey transaction and share placing
– industry trends including consolidation and the
increased use of technology
– upcoming changes to regulation including MiFID II,
the FCA Asset Management Review and the GDPR.
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 2019 AGM in May this year.
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Group risk committee report
Membership and attendance
Director
T L Duhon (chairman)1
C M Clark2
J W Dean
S F Gentleman
J N Pettigrew
Former director
K A Matthews3
Meetings attended
(eligible to attend)
3(3)
1(1)
4(5)
5(5)
4(5)
4(4)
1. Terri Duhon joined the committee on 2 July 2018 and was appointed chairman on
13 September 2018
2. Colin Clark joined the committee on 24 October 2018
3. Kathryn Matthews retired from the committee on 12 September 2018
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 and discuss 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
– Receive focused reports on current business and
horizon risks
– 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
On behalf of the board, I am pleased to present my first group
risk committee report as chairman and would like to thank my
predecessor, Kathryn Matthews, for her support throughout
my transition to this role.
The identification, management and mitigation or acceptance
of risk is essential to the success of the firm. 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. The committee plays a
fundamental role in setting the tone and culture that promotes
effective risk awareness across the firm. The following sections
set out the committee’s responsibilities and the principal areas
of risk upon which we have focused during the year.
During the year, the macroeconomic environment, political
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
constantly assessing our skill sets to ensure that we are
upskilling or bringing in expertise as required given the
constantly changing risk landscape.
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.
As a result, details of management risk mitigation plans
are well understood and appropriate resource is provided.
Committee meetings
Our current members are the independent non-executive
directors, who met on five occasions in 2018 (2017: four).
I joined the committee in July 2018 and was appointed
chairman in September 2018, and Colin Clark joined the
committee in October 2018.
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 in a combination
of formal and informal sessions. I am still going through my
induction process, which has included a meeting with the
risk and compliance team in Liverpool and meetings with
senior management across all divisions of the group. I will
continue to meet with the chief risk officer and her team and
with senior management as a matter of course throughout the
year to discuss the business environment and to gather their
views of emerging risks.
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Rathbone Brothers Plc Report and accounts 2018
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.
On risk culture, the board and committee receive regular
updates via a dashboard that sources data and qualitative
commentary relating to clients, colleagues, conduct risk
and investors. The data for this dashboard is also reviewed
annually by the internal audit team. The committee uses
this dashboard to assess the firm’s risk culture to ensure it
is aligned with the values of the firm. The board has recently
asked for a broader piece of work around culture, which will
tie into the risk culture dashboard.
Our focus on cyber crime has accelerated during the year, as
the number of industry attacks continues to increase, which
reinforces the importance of strong cyber defences to protect
client data and assets. To that end, the firm completed its
General Data Protection Regulation programme on time
and ensured it met legislative requirements with training
provided to members of staff.
To ensure the firm is fully compliant with the ever-changing
regulatory landscape, we continue to engage effectively with
regulators and industry bodies to ensure that our compliance
framework remains relevant for the firm.
Finally, the links between culture, risk and remuneration are
fundamental. The risk committee and chief risk officer have
provided input to the remuneration committee to ensure
behaviours and the management of risk during the year
were considered in remuneration committee decisions.
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The committee has an agreed annual standing agenda to
cover key risk events in the year, which 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 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, suitability and anti-money
laundering matters, including any regulatory changes
impacting the firm.
Finally, the committee conducts ‘deep dive’ reviews on
key risk areas such as internal investment management
processes and the Internal Liquidity Adequacy Assessment
Process (ILAAP).
Committee effectiveness
An evaluation of the committee’s effectiveness was
undertaken during the year as part of the internal 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 2018
Further enhancements were made to the group’s risk
management framework in 2018, 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. In addition, the risk appetite framework
continues to be refreshed to include additional measures
in order to support the firm’s risk management activities.
Furthermore, the committee continues to review emerging
risks to ensure the firm’s readiness for external volatility.
Relative to other UK financial services businesses, the firm’s
potential exposure and disruption from the potential impact
of Brexit is considered low given the firm’s geographical
footprint, with no material dependencies on goods or services
from other EU countries and a predominantly UK client base.
However, the firm has continued to develop appropriate
contingency plans, which will be reviewed on a regular basis
by the committee.
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Looking ahead to 2019
In reviewing the committee’s priorities for the coming
year, consideration will be given to the following areas:
– Continued risk assessment of recent and upcoming
regulatory changes
– Further evolution of the firm’s cyber security strategy
– Further enhancement of the risk management framework
for external and internal emerging risks, especially the
impact of the UK’s exit from the EU
– Change risk, including the integration of Speirs & Jeffrey
– Continued assessment of the firm’s risk culture against
its core values
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 continue
on a number of projects currently underway that should
strengthen further the sustainability of good client outcomes.
Also, we will continue to invest in additional resource for
teams in the second line of defence.
Full details of our risk management framework are included
in the strategic report on pages 35 to 40.
Terri Duhon
Chairman of the group risk committee
20 February 2019
Group risk committee report continued
Committee activity in 2018
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 2018
– Review of ICAAP operational risk factors
– Review of risk register and emerging risks
– Review of the banking committee report
– Review of the recommendations from 2017
audit cycle
– Review of risk register and emerging risks
May 2018
– Approval of the annual Pillar 3 disclosures
– Review of the conflicts of interest policy
– Annual approval of the firm’s risk appetite
– Approval of ICAAP operational risk factors
– Review and consideration of the firm’s suitability
programme for the year
– Approval of the financial crime policy
– Review of banking committee report
– Review of risk register and emerging risks
July 2018
– Approval of ILAAP and liquidity contingency plan
– Approval of reverse stress testing disclosures
– Approval of recovery and resolution plan
September 2018
– Review of the risk management policy
– Review of risk register and emerging risks
– Review of the banking committee report
November 2018
– Approval of risk management policy statement
– Review of the banking committee report
– Review and consideration of the firm’s suitability
programme for the year with associated
management actions
– Provide oversight of the firm’s AML processes
and procedures
– Review of the firm’s risk culture dashboard
– 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
– Approval of the remuneration policy
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Rathbone Brothers Plc Report and accounts 2018
Audit committee report
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 2018, the committee has continued to provide
independent scrutiny of the processes in place to monitor
the company’s financial and non-financial reporting. This
included oversight of the viability statement process and
ensuring that this report and accounts meets the criteria
for fair, balanced and understandable reporting. We have
also overseen the firm’s systems of internal controls
management. 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 made 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 15
‘Revenue from Contracts with Customers’ and
IFRS 16 ‘Leases’
– Audit tender process
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Meetings attended
(eligible to attend)
6(7)
1(1)
3(3)
7(7)
6(7)
5(5)
Committee meetings
Membership and attendance
Director
J W Dean (chairman)
C M Clark1
T L Duhon2
S F Gentleman
J N Pettigrew
Former director
K A Matthews3
1. Colin Clark joined the committee on 24 October 2018
2. Terri Duhon joined the committee on 2 July 2018
3. Kathryn Matthews retired from the committee on 12 September 2018
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
ensure 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.
Our current members are the independent non-executive
directors who met on seven occasions in 2018 (2017: six).
The board is satisfied that at least one member of the
committee has recent and relevant financial experience.
I am a chartered accountant as is Jim Pettigrew, 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,
and 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.
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.
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Audit committee report continued
Committee effectiveness
The annual review of the effectiveness of the committee
was carried out internally during the year. The committee
members and executive directors were invited to respond
to questions on the content, management, quality and focus
of discussion during meetings. I am pleased that their
responses indicated that the committee is performing
well with no areas of concern.
Committee activity in 2018
Below is a summary of the key issues that the committee
considered at each of its meetings during the year.
January 2018
– Review of the report and accounts
– Review of key judgements for the annual report
– Assessment of going concern and the viability statement
– Annual review of audit fees
– Review of 2017 internal audit plan and 2018 internal
audit cycle
– Request for approval of 2018 non-audit services
February 2018
– Approval of the report and accounts
– Review the impact of IFRS 15
– Assessment of the report and accounts 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
April 2018
– Review and approval of the firm’s CASS submission
May 2018
– Review of audit tender process
– 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 2018 and completed
assessments across the firm
– Approval of the internal audit charter
– Assessment of conformity with International Literacy
Association standards and the financial services code
July 2018
– Approval of half-year report for 2018
– Assessment of the firm’s statement of going concern
– Review of audit fees for 2018
– 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
– Annual review of audit and non-audit fee policy
– Approval of recommendation of selection committee
on external audit appointment for 2019
– Review of internal audit plan for 2018 and completed
assessments across the firm
– Annual review of the whistleblowing reports for 2017
– Annual review of the whistleblowing policy
– Approval of committee’s terms of reference
October 2018
– Review and approval of the Q3 interim
management statement
– Review of internal audit plan for 2018 and completed
assessments across the firm
– Review of planning of internal audit plan for 2018
– Approval of the firm’s non-audit service policy
December 2018
– 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 2018 and approval
of the 2019 internal audit plan
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Rathbone Brothers Plc Report and accounts 2018
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 3 of the financial statements.
Fair, balanced and understandable statement
The committee considered whether the interim statement
and the 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 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 40) to the board for approval. The committee also
reviewed the going concern disclosure (as set out on page 93)
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 28 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 £11.8 million,
which have been summarised in note 26 to the financial
statements. The main areas of provisions relate to the Speirs &
Jeffrey acquisition, deferred payment for acquired business
and property dilapidation liabilities.
Brexit
Complementing the board's consideration of the potential
impact of Brexit on our business, the committee considered
the implications of Brexit uncertainties on those accounting
judgements that depend on assessments of the future
economic environment and the group's future prospects,
going concern and viability. This included an assessment
of the appropriateness of sensitivity analysis undertaken
for known adverse scenarios and the adequacy of disclosures
in the report and accounts.
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Acquisition of Speirs & Jeffrey
We considered the judgement and estimates made by
management in accounting for the acquisition of Speirs &
Jeffrey. In particular, we reviewed the estimated valuation and
accounting treatment of the deferred elements of consideration
payable for the business, the identification and valuation of the
client relationships and other intangibles acquired and the
valuation of goodwill arising from the acquisition.
New accounting standards
During the year, the committee reviewed two 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 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.
ii) 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.
For further information, please refer to note 1.3 to the
financial statements.
Audit tender process
As reported in last year’s committee report, the last audit
services tender process took place in 2009, which led to t
he appointment of KPMG LLP, and under the new EU audit
regulations, the firm was required to initiate another process.
Also, this timing coincided with the end of tenure of the lead
engagement partner who, having been the lead engagement
partner for five years, in accordance with audit regulations, is
required to rotate off the firm’s account in 2019.
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Audit committee report continued
The committee initiated an audit tender process, which it
delegated to a sub-committee composed of the following:
– Chairman of the audit committee
– Chairman of the remuneration committee
– Finance Director
– Head of Internal Audit
– Group Financial Controller
The process was designed to be transparent, effective and
efficient in order to provide participating firms an equal
opportunity to tender for the services. Prior to the tender,
the participating firms had been given equal opportunity
to meet with key members of staff to ensure they had a
good understanding of the business.
The main elements of planning for the tender began in
May 2018 when the proposed process was approved by the
committee. The sub-committee met regularly and received
and commented on the main materials prior to these being
issued to the participating firms.
As an initial step, a detailed desktop review process was
undertaken, which considered the credentials of six firms
against a range of criteria, including an assessment of the
depth of knowledge and expertise in the investment
management industry, the firms’ geographical reach,
analysis of the firms’ current and recent audit clients in
our sector, review of the Financial Reporting Council's
(FRC) June 2017 Audit Quality Inspection reports on each
firm and consideration of our experience of the firms in recent
engagements (audit and non-audit). Following the desktop
review, the sub-committee agreed that three firms should
be issued with a request for proposal (RFP).
In line with FRC guidance the evaluation criteria for the process
were agreed as:
Audit quality
– Measured by reference to recent FRC audit quality reports
– Independence and management of potential conflicts
Team competence
– Experience and expertise of the team
Commitment and proactivity
– Enthusiasm and commitment of the proposed audit team
Service approach
– Organisational and cultural fit of each firm and
the proposed audit team with our business
– Appropriate audit approach and issue resolution
processes for our business
Communication, messages and style
In order to evaluate each of the firms against the criteria, the
sub-committee oversaw a number of activities including:
– Analysis of the RFP responses
– Presentations to the sub-committee
– Assessment of performance on non-audit services
provided in the preceding 24 months
– Due diligence including reviewing Audit Quality Review
team Inspection reports published by the FRC, references
and media searches
The sub-committee produced a scorecard to appraise
each firm, which was presented to the audit committee for
consideration. In summary, the committee concluded that
Deloitte LLP had a strong team proposition, good knowledge
of the business' and sector’s key risks, had performed well
on non-audit engagements during the past 24 months
and through certain other actions demonstrated their
commitment to providing a high-quality focused audit.
Accordingly, the board agreed to recommend to shareholders
the appointment of Deloitte at the 2019 AGM. The committee
will oversee the implementation of a detailed transition plan
and an update will be provided in next year’s report.
Internal audit
Internal audit plan
The 2018 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 2018 plan. Reporting to the committee
focuses on any significant issues identified in the audits and
highlights any overdue items. 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.
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Rathbone Brothers Plc Report and accounts 2018
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
is well supported by Deloitte. Following the proposed change in
external auditor in 2019, the firm has initiated a tender process
for the internal audit co-source relationship. An update will be
provided in next year’s committee report.
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.
External audit
Audit work 2018
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 2018 (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 appointment
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. There are
no contractual or similar obligations restricting the firm’s
choice of external auditor.
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 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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Non-audit fees, excluding services required by national
legislation, payable to the auditor in 2018 were £179,000.
This represents 45% of the three-year average statutory
audit fee of £387,000. Other non-audit work undertaken
by the auditor in 2018 was largely in relation to the 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.
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 8 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.
Overview of priorities for 2019
As well as considering the standing items of business, the
committee will also focus on the following areas during 2019:
– Assessment and implementation of new
accounting standards
– Transition of external audit work from KPMG to Deloitte
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
20 February 2019
rathbones.com
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Nomination committee report
Membership and attendance
Director
M P Nicholls (chairman)
C M Clark1
J W Dean
T L Duhon2
S F Gentleman
J N Pettigrew
Former director
K A Matthews3
Meetings attended
(eligible to attend)
6(6)
1(1)
4(6)
2(2)
6(6)
4(6)
4(4)
1. Colin Clark joined the committee on 24 October 2018
2. Terri Duhon joined the committee on 2 July 2018
3. Kathryn Matthews retired from the committee on 12 September 2018
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.
There have been a number of board member changes during
the year that have ensured a busy period for the committee.
Succession planning – board and executive
management
As stated in last year’s report, the committee employed
independent search consultants to seek potential candidates
to succeed Kathryn Matthews as a non-executive director
and as chairman of the group risk committee. It was also
agreed to undertake a search for an additional non-executive
director with executive experience in the investment
management industry.
Following a rigorous search process, Terri Duhon was
appointed to the board in July 2018. In September 2018,
the committee recommended Terri’s appointment as chair
of the group risk committee. The committee appointed
Russell Reynolds Associates to undertake the search
process for an additional non-executive director and,
in October 2018, Colin Clark was appointed to the board.
I also referred in last year’s report to the committee’s review
of executive succession plans, which were seen as integral to
developing the next phase of our strategic plan. As a first step,
in April 2018, the committee approved the appointment of
Paul Stockton as managing director of Rathbone Investment
Management and, after a careful assessment by the committee
of Paul’s performance in his new role, it was agreed in
November 2018 that he would succeed Philip Howell as chief
executive by the 2019 AGM. In reaching its conclusion, the
committee met a number of times to assess Paul’s progress as
managing director of Rathbone Investment Management. The
committee was unanimous on his appointment. Paul has been
a key individual in the firm’s success and has played an integral
role in the growth of the business over the last 10 years.
Following Paul’s change in role in April 2018, the committee
approved a detailed specification for the role of group finance
director with input from the chief executive and engaged an
external search consultancy firm, Korn Ferry, to find appropriate
candidates. The firm is not connected to the company in any
way. The search process included consideration of both external
and internal candidates and, at all stages, the committee took
steps to ensure that external and internal candidates were
treated equally. A shortlist of external and internal candidates
was agreed and candidates were interviewed by members of
the board and executive team. Following these interviews and
assessments, the committee recommended the appointment
of Jennifer Mathias. The board then considered and approved
the recommendation. The PRA and FCA have each given their
approval to Jennifer’s appointment. Jennifer’s appointment as
a director will be proposed for approval by shareholders at the
AGM in May 2019. The committee believes that Paul and
Jennifer will make an excellent team.
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Rathbone Brothers Plc Report and accounts 2018
Non-executive directors’ skills
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 as required to deliver the strategy. During the
year, the committee considered and reaffirmed the skill set and
experience of the firm’s independent non-executive directors,
including their extensive experience in financial services.
Talent development
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 any conflicts of interest are
likely to be rare and will be handled appropriately by the
individual concerned. I have also been impressed by the
wholehearted 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.
recommendations of the Hampton-Alexander review
published in November 2016. However, the committee
recognises that, due to the relatively small size of the board,
the appointment or departure of a single director can have a
significant impact on its ability to achieve recommendations
in relation to the composition and diversity of the board as
a whole at a particular point in time.
For further information on our approach to diversity, please
refer to the corporate responsibility report on page 44.
Corporate governance reform
The committee has monitored the various reforms to
corporate governance in the UK that have been announced
during the year. These include the publication of the new
Corporate Governance Code ('the new Code'), which will
first apply to the company in the financial year ending 31
December 2019. The committee has received updates from
the company secretary on the new Code and its implications
for the firm. The committee will continue to discuss the
resulting actions required over the coming months to ensure
that the company complies with the new Code during 2019.
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Board effectiveness review
A formal and rigorous evaluation of the committee’s
effectiveness was undertaken during the year as part
of the internal board effectiveness review. The review
found that the committee operated well during the year.
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
and encourage greater diversity and challenge management
to develop the talent that exists in the firm.
Mark Nicholls
Chairman of the nomination committee
All non-executive directors will be standing for re-election
at the 2019 AGM.
20 February 2019
Board diversity
Diversity continues to be a key focus of the committee.
The committee embraces the benefits of diversity and it
has been a topic of discussion throughout the year, including
in the context of the board-level appointments considered
by the committee and as part of the committee’s review
of talent and executive management succession planning.
The committee considers that the board remains diverse,
drawing on the knowledge, skills and experience of
directors from a range of backgrounds, but will seek to take
opportunities to further improve the diversity of the board
where it is consistent with the skills, experience and expertise
required at a particular point in time. When Jennifer joins the
board in April, three of the company’s eight directors will be
women, meaning that the representation of women on the
board exceeds the minimum percentage set out in the
rathbones.com
75
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)
10(12)
12(12)
11(12)
11(12)
11(12)
12(12)
10(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.
Please see the chief executive's review on pages 11 to 13.
Biographies for the executive comittee members are
available on our website.
Executive committee chairman’s annual
statement
The executive committee's key role is day-to-day
management of Rathbones. The committee actively
reviews and assesses business performance supported
by a range of committees that operate across the group.
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 2018 were as follows:
– Implementation of planned enhancements to our
investment process
– Implementation of the strategic initiatives relating
to Rathbone Financial Planning
– Development of the intermediary distribution channel
– Implementation of an IT transformational programme
– Implementation of regulatory changes relating to the
General Data Protection Regulation and MiFID II
– Review of investment processes and development
of the client journey
– Review and assessment of the annual budget
– Integration of Speirs & Jeffrey
Our people are our main asset and so HR matters and
learning and development are important agenda items.
The maintenance of and improvement in our core IT and
operations infrastructure are key to the continuing success
of the business and are subject to close scrutiny.
The chief risk officer reports on the work of the risk and
compliance teams and updates us on risk and internal control
matters as well as on industry developments. 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.
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Rathbone Brothers Plc Report and accounts 2018
Overview of priorities for 2019
As well as considering the standing items of business, the
committee will also focus on the following areas during 2019:
– Implementation of our IT transformation programme
– Integration of Speirs & Jeffrey
– Formulation of the next five-year strategic plan
– The firm’s cybersecurity strategy
– Employee engagement
– Talent development
– Diversity and succession planning
Philip Howell
Chairman of the executive committee
20 February 2019
Executive committee members
Our current members and their responsibilities are below.
Philip Howell
Chief Executive
Paul Stockton
Finance Director and
Managing Director of Rathbone
Investment Management
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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
rathbones.com
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
77
Remuneration committee report
Membership and attendance
Director
S F Gentleman (chairman)
C M Clark1
J W Dean
T L Duhon2
M P Nicholls
J N Pettigrew
Former director
K A Matthews3
Meetings attended
(eligible to attend)
5(5)
1(1)
4(5)
2(2)
5(5)
4(5)
4(4)
1. Colin Clark joined the committee on 24 October 2018
2. Terri Duhon joined the committee on 2 July 2018
3. Kathryn Matthews retired from the committee on 12 September 2018
Roles and responsibilities
The committee’s responsibilities are to:
– Determine and set the firm’s remuneration
philosophy, ensuring that it is aligned with
the business plans 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 the directors’
remuneration report for the year ended 31 December 2018.
2018 has been a busy year for the remuneration committee,
which mainly focused on implementing the new remuneration
policy. We also welcomed two new non-executive directors
to the committee: Terri Duhon and Colin Clark. At the AGM
in May 2018, shareholders approved the new remuneration
policy, which was developed to ensure that remuneration
structures and performance measures:
– supported 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
– aligned the reward received by our executive directors
with the experience and interests of our shareholders
– continued to comply with regulations and industry
best practice.
2018 performance and remuneration outcomes
Our remuneration framework is closely aligned with the
financial performance of the group. While investment
markets have been weak, particularly in the fourth quarter, the
acquisition of Speirs & Jeffrey helped funds under management
and administration reach £44.1 billion at 31 December 2018.
Profit before tax grew by 4% to £61.3 million, while underlying
profit before tax increased from £87.5 million to £91.6 million,
which represents an underlying operating margin of 29.4%.
A significant milestone in 2018 was the completion of
the acquisition of Speirs & Jeffrey. Speirs & Jeffrey was
Scotland’s largest independent wealth manager with funds
under management and administration of £6.7 billion and
38 investment professionals. This acquisition completed
on 31 August 2018 and the committee discussed this
acquisition in detail and its impact on the Executive
Incentive Plan (EIP) award.
Speirs & Jeffery impact on EIP award
As announced at the time of the acquisition, the transaction
structure contained three elements. This design achieved the
most commerically-beneficial outcome for our shareholders,
and de-risked the transaction by ensuring all aspects of the
deferred consideration required the sellers to be in employment
at the date of vesting whilst linking significant elements of
the consideration to their continued service. However, the
accounting implications of de-risking the Speirs & Jeffrey
acquisition in this way means that the deferred consideration
is treated as an expense in the profit and loss accounts and is at
odds with the commercial substance of the transaction, causing
a material reduction in basic earnings per share (EPS) and return
on capital employed (ROCE). If management had not de-risked
the transaction, this amount would have been treated as capital.
The remuneration policy that was approved at the 2018 AGM,
allows for both long- and short-term metrics to be reviewed in
the case of a material acquisition or corporate transaction. The
2018 EIP was assessed against (a) one-year metrics based on
2018 performance and targets set at the start of the year; and
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Rathbone Brothers Plc Report and accounts 2018
(b) three-year metrics based on performance between 2016
and 2018. The acquisition of Speirs & Jeffrey has had an
impact on both sets of metrics, which was not envisaged
at the time that the targets were originally set. As a result,
the committee has decided to make an adjustment to
the financial measures of the 2018 EIP award so that the
commercial substance of the transaction is reflected and
management are not penalised for taking actions that are
in the interests of our shareholders.
The outcomes have therefore been adjusted to treat all of
the consideration as capital, notionally increasing the number
of shares in issue accordingly for the calculation of ROCE and
EPS outcomes. This ensures that the outcomes reflect the
associated higher capital requirement and balance the impact
of the proposed adjustments across all performance measures.
The committee made no adjustments to targets as related
acquisition costs offset the profits earned by Speirs & Jeffrey
from the date of completion to 31 December 2018.
Full detail on these adjustments and the EIP outcome for 2018
can be found on page 81. It is important to note that the EIP
award for 2018 will vest at a smaller amount on an adjusted
basis than if Rathbones had not completed the transaction.
The board took the opportunity to engage with shareholders
to explain this decision in the early part of 2019 and we were
pleased that the majority of shareholders understood the
rationale and the need to make these adjustments. The
committee is also aware that the firm may wish to make
other acquisitions in the future. The committee will continue
to ensure that management is incentivised to act in the best
interest of our shareholders for any possible future acquisitions.
EIP outcomes
Given the strong alignment between our remuneration
framework and the financial performance of the group,
the financial outcomes for 2018 are directly reflected in the
respective elements of the EIP, which, having considered
the impact of the Speirs & Jeffrey acquistion, delivered above
target performance in respect of three-year ROCE, annual profit
before tax and underlying operating margin. Above threshold
performance was reached in respect of EPS, but, at 3.1%, total
net organic growth of our Investment Management and Unit
Trusts businesses in 2018 was not enough to meet threshold.
Good progress was made during the year on most of
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 2018 on
page 81.
Board changes
We have announced that Philip Howell, our current chief
executive, will be retiring from the board by the next AGM
on 9 May 2019. Paul Stockton, currently finance director and
managing director of Rathbone Investment Management, is
being promoted to chief executive and Jennifer Mathias will
be joining Rathbones as finance director from 1 April 2019. All
remuneration arrangements for these three individuals are
fully in line with our approved remuneration policy and full
details are provided on pages 86 to 87.
I would also like to personally echo the board’s thanks to Philip
for his strong leadership of Rathbones during his tenure and to
congratulate Paul and Jennifer on their new roles.
Philip is being treated as a good leaver as a result of his
retirement and he will continue to receive pay and benefits
until his retirement date. All unvested EIP awards will vest
at their normal time. In line with our remuneration policy,
Philip is required to retain 200% of base salary in shares in
the first year post-cessation and 100% of his base salary in
the second year post-cessation.
Paul Stockton’s salary as chief executive has been set at
£477,000 and Jennifer Mathias’ salary as finance director
has been set at £320,000, both of which are comparable to
the salaries of the previous incumbents. In Paul’s case, his
base salary has been set at the same level as the previous
incumbent. The committee reviewed these base salaries
against those of other companies of similar size and
complexity in line with our policy. These salaries are broadly
at lower quartile market levels. The committee will review this
position as our executives develop in their respective roles.
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Both executive directors are eligible to participate in EIP
awards annually with a maximum opportunity of 300%
of base salary and receive pension benefits of 12% of base
salary, in line with our approved policy.
Fees and salaries
The 2019 budget for salary increases for employees across
the company is set at around 3.6%. In setting directors’
remuneration, the committee takes into account the
pay and employment conditions of all 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.
Chairman and non-executive director fees were also reviewed
and increased in the year for the first time since 1 January 2015.
Full detail on changes to these fees is on page 87.
Following their appointments as chief executive and
finance director and the associated base salary changes,
both executive directors will have their base salaries
reviewed on 1 January 2020.
Conclusion
I hope that you find the information in this letter and
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 remain
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 report.
Sarah Gentleman
Chairman of the remuneration committee
20 February 2019
rathbones.com
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Remuneration committee report continued
Remuneration outcomes for 2018
Our remuneration philosophy
Overview of our 2018
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
– Compliant with financial services rules and
regulations for both annual and long-term
components
– 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
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 200% 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 82.
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Rathbone Brothers Plc Report and accounts 2018
Executive Incentive Plan
Performance targets
Executive Incentive Plan
Achievement summary 2018
One-year financial (30% of award)
– Underlying profit before tax compared to
the budget
– Net organic growth in funds under management
and administration compared to the target
– Underlying operating profit margin compared
to target range
Three-year financial (50% of award)
– Compound annual growth in EPS over three years
– Average ROCE over three years
Non-financial metrics (20% of award)
– Performance relating to delivery of strategic
objectives
– Assessed and approved by remuneration
committee
Annual profit before tax
Total net organic growth
Underlying profit margin
Non-financial
strategic measures
% of award
Achieved
10%
10%
10%
9.5%
0%
10%
20%
12%
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One-year
measures
EPS growth
Underlying ROCE average
% of award
Achieved
25%
25%
8.4%
19.3%
Three-year
measures
Remuneration outcomes (£’000)
2,000
1,500
1,000
534
500
0
1,967
1,394
1,389
1,455
1,031
1,033
395
Philip Howell
Paul Stockton
Minimum
Target
Maximum
Actual
rathbones.com
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Remuneration committee report continued
Implementation of
remuneration policy in 2019
How the implementation of our policy in 2019 supports our strategic priorities
EIP measures
Financial – one-year
Financial – three-year
Non-financial strategic
– EPS growth
– Underlying ROCE
average
– Annual profit before tax
– Total net organic
growth in funds under
management and
administration (FUMA)
– Underlying operating
margin
Strategic target
Weighting
30%
50%
20%
Quality service
see page 19
Earnings growth
see page 20
Employee value
see page 21
How does the EIP work and how will performance be assessed for 2019?
We measure short- and long- term
historic performance...
… to determine
an award value.
We pay a portion
immediately in cash…
… and we defer the remaining portion in shares
over a five-year period.
2017
2018
2019
2020
2021
2022
2023
2024
EPS growth
25%
Underlying
ROCE average
25%
Annual PBT
10%
FUMA growth
10%
Profit margin
10%
Strategic
measures
20%
Non-deferred
EIP
Cash
40%
Restriction on sales over the whole
deferred EIP for five years
EIP
300%
maximum
of salary
Year 1
Year 2
Deferred
EIP
Shares
60%
Year 3
Year 4
Year 5
Rathbone Brothers Plc Report and accounts 2018
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Remuneration policy
Role of remuneration committee
The remuneration policy (‘Policy’) was approved at the AGM
in May 2018 and can be found on our website. No further
changes have been made to the remuneration policy since
its agreement in 2018.
Annual report on remuneration
This part of the directors' remuneration report explains how
we have implemented our remuneration policy during the year.
This annual report on remuneration is subject to an advisory
vote at the 2019 AGM, and the financial information in this part
of the remuneration report has been audited where indicated.
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 noted 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.
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Committee activity in 2018/19
Below is a summary of the key issues that the committee
considered at each of its meetings during the year.
January 2018
– Review and approve the remuneration policy
– Review regulatory developments on remuneration
and their implications for the firm
– Review remuneration landscape and implications
for executive remuneration
– Review progress against financial and non-financial
EIP targets for the current year
– Assess and approve the 2017 EIP award for executive
directors and members of the executive committee
October 2018
– Review and approve the remuneration package for
– Review and approve EIP performance measures for 2018
– Review and approve the directors' remuneration report
for shareholder approval
May 2018
– 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 staff equity plan 2018
– Review regulatory developments on remuneration
and their implications for the firm
September 2018
– Review of forecasted 2018 EIP performance assessment
and impact of Speirs & Jeffrey on 2018 awards
– Annual review of the remuneration policy statement
for the PRA
the incoming finance director
– Review impact of executive directors' succession plans
December 2018
– Review and approve executive director salaries for 2019
– Review progress against financial and non-financial EIP
targets for 2018
– Approval of chairman’s fee
– Approval of the committee’s terms of reference
– Re-appointment of the advisers to the committee
January 2019
– Review annual risk report on variable pay targets
to ensure alignment with the firm’s risk appetite
– Assess and approve the 2018 EIP award for executive
directors and members of the executive committee
– Approve EIP performance measures for 2018
– Annual fee and pay review for the board
– Review and approve the directors’ remuneration
report for shareholder approval
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Remuneration committee report continued
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 2018 and the prior year:
P L Howell
2018
2017
R P Stockton
2018
2017
Taxable
benefits and
allowances
£’000
EIP award
for the
year – cash
£’000
EIP award
for the year –
unvested
deferred shares
£’000
Pensions
£’000
SIP
£’000
SAYE
£’000
Total
£’000
2
2
6
13
339
238
251
151
509
356
376
226
57
40
42
25
5
4
5
5
–
–
–
3
1,389
1,104
1,033
718
Salary
£’000
477
464
353
295
Notes to the single total figure of remuneration for each director table
Paul Stockton became managing director of Rathbone Investment Management on 1 May 2018 in addition to his finance
director responsibilities. At this point, his base salary was increased to £375,000 per annum with a reduction in his contracted
travel expenses. His base salary in the above table is the salary received in the 12 months to 31 December 2018.
Taxable benefits
Taxable benefits and allowances represent the provision of private medical insurance for executive directors and their dependents
and contractual travel expenses for the executive directors.
Executive Incentive Plan (audited)
The EIP was approved by shareholders at the 2015 AGM and subsequently at the 2018 AGM. The overall maximum award
level achievable under the existing Policy is 300% 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 2018
Performance is assessed using a combination of measures that are detailed below:
One-year financial
Three-year financial
Non-financial strategic
Total
1) One-year financial
Weight %
30
50
20
100
% of base salary
90
150
60
300
The one-year financial performance measures are three key performance indicators actively used by the business, which
are closely aligned to strategy. The one-year financial measures and achievement levels are provided below:
Financial one-year
Annual profit before tax (£m)
Total net organic growth in
funds under management and
administration (%)
Underlying operating margin (%)
% of
base salary
Threshold
75% of
base salary
On target
180% of
base salary
Maximum
300%
of base salary
Actual
Speirs & Jeffrey
adjusted
Weighted payout
(% of base salary)
30.0
62.1
69.0
75.9
61.3
75.1
28.6
30.0
30.0
90.0
5.3
26.3
5.9
27.8
6.5
29.3
4.3
29.4
4.3
29.4
0.0
30.0
58.6
The organic growth in funds under management and administration 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:
% of
base salary
Threshold
75% of
base salary
On target
180% of
base salary
Maximum
300% of
base salary
Actual
Speirs & Jeffrey
adjusted
Weighted payout
(% of base salary)
Financial three-year
EPS growth (% CAGR)
ROCE average (%)
Total one- and three-year financial
75.0
75.0
150.0
240.0
4 .0
14.0
9.0
17.0
14.0
20.0
(3.0)
18.6
5.2
18.3
25.1
57.9
83.0
141.6
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
Objective
– Upgrade the governance
framework documentation,
supporting the suitability
processes and associated
management information
– Add quality financial planning
resources to key offices and
develop the Rathbone Private
Office proposition
– Deliver on key projects
supporting the continued
stability and security of data
and our IT infrastructure
Earnings
growth
In addition to the financial targets
set for 2018:
– Deliver on budgeted organic
growth targets
– Sub-let space at 1 Curzon
Street
Employee
value
– Continue to ensure good
engagement and development
of employees across the firm
Risk
conduct
and
compliance
– Maintain a proactive and
effective relationship with
regulators, committing to
maintaining high standards
in managing conduct and
prudential matters
Performance in 2018
– Improvements were made to suitability processes but the delivery
of some planned system enhancements was moved into 2019
– Growth in internal research team resources was as planned with
a number of improvements made to how research output is
disseminated
– Financial planning headcount grew to 20 during the year, largely
as planned, however progress on the private office was limited
prompting a revision of the approach
– Successful completion of over 120 IT projects and upgrades
– Net organic growth of 4.3% was achieved by consistent private
client inflows somewhat offset by higher outflows in respect
of departing investment managers, charities and Greenbank
mandates have grown strongly at 5.8% and 12.5% respectively
– The Unit Trusts business had a strong year with gross inflows of
£1.8 billion
– Vision delivered strong funds under management of £1.54 billion
– Inflows from our distribution team and networks of £177 million
– The Curzon Street office was sub-let in June 2018
– Greater employee shareholding across the firm
– Increased annual training investment per employee
– Signed the Women in Finance Charter and introduced significant
improvements to maternity and paternity leave terms
– Continuing to develop improvements to communication and
employee engagement initiatives
– Positive engagement with regulators, providing responses
to seven industry thematic questionnaires during the year
– Delivery of MiFID II and GDPR projects
– No material issues raised by the audit or risk committee during
the year
Extent to which
objective has
been met
Partially
achieved
Largely
achieved
Largely
achieved
Achieved
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Remuneration committee report continued
Total 2018 EIP award
In addition to the above specific measures, the committee also considered direct client feedback, investment performance and
other feedback from the risk and audit committees. After taking this into account, the committee concluded that an overall score
for this element of the EIP of 12% out of 20% was appropriate, which corresponds to 36% of base salary.
Target
Financial – one-year total
Financial – three-year trailing
Non-financial strategic measures
Total award
Director
P L Howell
R P Stockton
Pensions
Philip Howell and Paul Stockton are paid a cash allowance
of 12% 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. All 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 in 2018 (£’000)
1,967
1,394
1,455
1,031
534
395
Philip Howell
Paul Stockton
Minimum
Target
Maximum
2,000
1,500
1,000
500
0
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Weighting
30%
50%
20%
100%
Award achieved
19.5
27.7
12.0
59.2
Total award
(£)
848,589
627,226
Delivered in cash
(£)
339,435
250,890
Deferred in shares
(£)
509,154
376,336
Change of executive directors
Payments for loss of office (audited)
As announced on 27 November 2018, Philip Howell will
retire from the board and will leave the firm by 9 May 2019.
On cessation of his employment, he will be paid in lieu of
notice for the balance of his notice period (being six months).
In accordance with the directors’ remuneration policy, the
payment in lieu of notice will be confined to basic salary,
pension allowance and benefits. He will also receive payments
in relation to legal and other costs. The total payments for loss
of office are as follows:
Payment reason
Payment in lieu of notice
Legal and other costs
Total
£
268,680
67,500
336,180
The rules of the EIP required the remuneration committee
to determine Philip’s leaver status. As termination of his
employment is due to retirement, the committee deemed
him to be a 'good leaver' for the purposes of the EIP.
EIP awards are granted based on performance in the three
years prior to their grant. 40% of any grant is delivered
immediately in cash and 60% is deferred into shares,
which vest over five years. Under the rules of the EIP and
the remuneration policy all unvested share awards under the
EIP will remain subject to their original vesting and retention
schedules as well as the recovery provisions set out in the
remuneration policy table.
Rathbone Brothers Plc Report and accounts 2018
These share awards have already been disclosed in the single
figure table in the relevant year. The number of share awards
outstanding under each EIP grant are as follows:
Implementation of the remuneration policy
in 2019
Deferred shares*
2015 Executive Incentive Plan
2016 Executive Incentive Plan
2017 Executive Incentive Plan
2018 Executive Incentive Plan 1
Total
Number of shares
outstanding
19,491
12,718
13,947
21,740
67,896
* Subject to malus and clawback
1. Details on the 2018 EIP award are provided on page 81. Shares will be granted in March 2019
based on the share price at that time. The number of shares in this table is an estimate based
on the share price at 31 December 2018 of £23.42
These amounts have already been disclosed in the relevant
single figure and will continue to vest at their normal time.
The final tranche will vest in March 2024.
As the termination of his employment is due to retirement,
Philip is classified as an ‘automatic good leaver’, under which
he will be paid in line with the rules of the SAYE scheme and
the SIP. Following cessation of his employment, Philip is
entitled to exercise his SAYE options to the extent of the
savings in the related SAYE savings contract for a period
of six months and to receive his SIP shares.
Philip will be eligible for a pro rata award under the 2019
EIP, which will be disclosed in next years directors’
remuneration report.
Remuneration arrangements for Paul Stockton
Paul Stockton became managing director of Rathbone
Investment Management on 1 May 2018 in addition to
his finance director responsibilities. At this point, his base
salary was increased to £375,000 per annum with a reduction
in his contracted travel expenses. Upon promotion to chief
executive, Paul’s base salary will increase to £477,000 per
annum effective from 9 May 2019. No other changes have
been made to Paul’s remuneration.
Remuneration arrangements for Jennifer Mathias
Jennifer Mathias will be joining Rathbones as finance director
from 1 April 2019. Jennifer’s base salary will be £320,000. In
line with our approved remuneration policy, Jennifer will
receive pension benefits worth 12% of base salary and be
eligible to participate in the EIP, with maximum opportunity
of 300% of salary per annum.
Payments to past directors
There were no payments to past directors.
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In 2019, the remuneration policy will be applied in a similar
way to 2018. Salary, pensions and benefits were set for both
executive directors following their change in role as described
above. No further changes will be made in 2019.
EIP 2019 – forward-looking targets
The 2019 EIP (which will be awarded in 2020), subject to
performance, will be delivered in line with the remuneration
policy. While the committee is able to make awards up to the
new maximum award level of 300%, actual award levels will
continue to be determined by the committee based on a
robust assessment of performance measures.
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 2019 will take into account the amount
of expenditure and investment approved by the board in the
2019 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. Full disclosure
of targets and performance against these will be disclosed
retrospectively in 2020.
While recognising the potential volatility associated
with investment markets and its direct impact on the
financial outcomes for Rathbones, the committee believes
EPS and underlying ROCE measures continue to be
appropriate measures to use when assessing longer-term
performance targets.
Long-term targets for the 2019-21 award period have
accordingly been set as outlined in the table below:
Performance measure
Three-year CAGR EPS
Three-year underlying average
ROCE
Threshold
5%
Maximum
15%
14%
20%
Non-executive director fees
Chairman and non-executive director fees were reviewed in
the year for the first time since 1 January 2015. The following
increases were applied:
Chairman fee
Non-executive director base fee
Committee chair fee
Fee effective
1 January 2019
(£)
180,000
55,000
15,000
Fee effective
1 January 2018
(£)
160,000
50,000
10,000
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Remuneration committee report continued
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
35,420
67,614
103,034
SIP1
768
2,787
3,555
Total
36,188
70,401
106,589
EIP
38,360
24,285
62,645
SIP (not yet
beneficially
owned)1
421
582
1,003
SAYE
943
983
1,926
Total
39,724
25,850
65,574
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.
Share ownership versus Policy
R P Stockton
534%
P L Howell
115%
0%
100%
200%
300%
400%
500%
600%
700%
Beneficially owned
Conditional
Remuneration policy
Executive Incentive Plan
Executive directors Grant date
P L Howell
Type of security
At 1 January
2018
During 2018
At 31 December 2018
Face value
of award
at grant1
(£)
Number of
unvested
securities
Vested but
unexercised
(subject to
sales restriction
period)
Vested but
unexercised
(subject to
sales restriction
period)
Normal exercise
date (end
of sales
restriction
period)3
Unvested
securities
Securities
granted2
22/03/2016 Nil paid options
434,670 15,593
22/03/2017 Conditional shares 365,201 15,897
23/03/2018 Conditional shares 356,357
–
–
–
13,947
3,898
3,179
–
11,695
12,718
13,947
7,796 22/03/2021
3,179 21/03/2022
– 23/03/2023
R P Stockton
22/03/2016 Nil paid options
9,783
22/03/2017 Conditional shares 232,105 10,103
23/03/2018 Conditional shares 226,485
–
272,722
–
–
8,864
2,445
2,021
–
7,339
8,082
8,864
4,890 22/03/2021
2,021 21/03/2022
– 23/03/2023
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 £25.55
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
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Rathbone Brothers Plc Report and accounts 2018
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 2018
Vested in 2018
At 31 December
2018
–
12,434
12,434
–
7,477
7,477
19,911
–
12,434
12,434
–
7,477
7,477
19,911
–
–
–
–
–
–
–
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At 1 January 2018
During 2018
Total number of
SIP shares1
949
3,075
4,024
Partnership shares
acquired
81
81
162
Matching shares
acquired
81
81
162
Dividend shares
acquired
26
80
106
Free shares
received
52
52
104
At 31 December
2018
Total number of
SIP shares1
1,189
3,369
4,558
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
P L Howell
R P Stockton
Total
Grant date
At 1 January
2018
Granted in
2018
Exercised in
2018
Lapsed in
2018
At 31
December
2018
Earliest
exercise
date
Latest exercise
date
Market price
on grant
(p)
Exercise
price
(p)
28/03/13
01/05/14
28/04/15
28/04/16
28/04/17
1,356
578
365
273
710
3,282
–
–
–
–
–
–
1,356
–
–
–
–
1,356
–
–
–
–
–
–
– 01/05/18 01/11/18
578 01/06/19 01/12/19
365 01/06/20 01/12/20
273 01/06/19 01/12/19
710 01/06/20 01/12/20
1,926
1,397
1,945
2,051
2,059
2,373
1,106
1,556
1,641
1,648
1,899
Performance graph
The chart opposite shows the company’s total shareholder
return (TSR) against the FTSE All Share Index for the nine
years to 31 December 2018. TSR is calculated assuming that
dividends are reinvested on receipt. The FTSE All Share Index
has been selected as a comparator as it is a suitably broad
market index and has been used as a performance comparator
for long-term incentive plan (LTIP) cycles since 2005-07.
Performance graph (unaudited)
350
300
250
200
150
100
50
0
2008
2009
2011
2010
2012
Rathbone Brothers Plc – TSR
FTSE All Share Index – TSR
2013
2014
2015
2016
2017
2018
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Remuneration committee report continued
Chief executive officer single figure
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
C M Clark
J W Dean
T L Duhon
S F Gentleman
K A Matthews
J N Pettigrew
Total
Private shares
SIP
Total
3,000
749
3,749
–
1,000
–
–
1,242
–
5,242
–
–
–
–
–
–
749
–
1,000
–
–
1,242
–
5,991
Relative importance of spend on pay
The chart below shows the relationship between total
employee remuneration, profit after tax and dividend
distributions for 2018 and 2017. 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)
7%
151.1
141.1
150
100
50
0
1%
46.2
46.8
11%
32.7
29.4
Total staff costs
Profit after tax
Dividends paid
2018
2017
During the nine years to 31 December 2018, Andy Pomfret
was chief executive until 28 February 2014 when he was
succeeded by Philip Howell.
Year
2018
2017
2016
2015
2014
2014
2013
2012
2011
2010
Chief executive
Philip Howell
Philip Howell
Philip Howell
Philip Howell
Philip Howell
Andy Pomfret
Andy Pomfret
Andy Pomfret
Andy Pomfret
Andy Pomfret
Chief executive
single
figure of total
remuneration
£’000
1,389
1,104
1,398
1,608
999
342
1,204
1,046
678
736
EIP award
or short-term
bonus as % of
maximum
opportunity
59
64
66
78
89
n/a
59
38
46
52
Long-term
incentive
vesting as % of
maximum
opportunity
–
–
67
100
n/a
96
100
100
–
24
Percentage change in the remuneration of the
chief executive and employees
The table below shows the percentage year-on-year change
in salary, benefits and bonus in 2018 for the chief executive
compared with the average Rathbones employee.
Chief executive
Average pay based
on all Rathbones’
employees
Salary
3%
Benefits
–
Annual bonus
43%
(4%)
(22%)
(11%)
Chairman and non-executive directors’ fees
(audited)
Fees paid to the non-executive directors were not increased
in 2018 but will be increased for the 2019 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
T L Duhon
C M Clark
Total
2018
£’000
160
60
60
60
42
28
9
419
2017
£’000
160
60
45
56
60
–
–
381
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Rathbone Brothers Plc Report and accounts 2018
Statement of shareholder voting
At the 2018 AGM, shareholders approved the remuneration policy, to apply for three years from the date of the AGM. At the
2018 AGM, shareholders also approved the remuneration report that was published in the 2017 report and accounts and the
results are detailed below.
534%
Votes on remuneration
115%
Remuneration
policy
(2018 AGM)
Annual report
on remuneration
(2017 AGM)
Annual report
on remuneration
(2018 AGM)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90% 100%
Votes withheld
Votes cast against
Votes cast in favour
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Annual report on
remuneration
(2018 AGM)
86.91%
13.09%
79.20%
409,995
Annual report on
remuneration
(2017 AGM)
96.20%
3.80%
79.00%
1,268,045
Remuneration
policy
(2018 AGM)
85.10%
14.90%
79.20%
428,216
Advisers to the committee and their fees
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 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 fees for services to the remuneration committee were £98,550 in 2018. 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 internal evaluation process during
the year. The committee and senior management attendees were invited to respond to questions on the content, management,
and quality and focus of discussion during meetings. I am pleased that responses indicated that the committee is performing
well with no particular concerns.
Approval
The remuneration committee report, incorporating both the remuneration policy and annual report on remuneration, has
been approved by the board.
Signed on behalf of the board
Sarah Gentleman
Chairman of the remuneration committee
20 February 2019
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Directors’ report
Group results and company dividends
Purchase of own shares
The Rathbone Brothers Plc group profit after taxation
for the year ended 31 December 2018 was £46,169,000
(2017: £46,829,000).
The directors recommend the payment of a final dividend
of 42.0p (2018: 39.0p) on 14 May 2019 to shareholders on the
register on 23 April 2019. An interim dividend of 24.0p (2017:
22.0p) was paid on 2 October 2018 to shareholders on the
register on 7 September 2018. This results in total dividends
of 66.0p (2017: 61.0p) per ordinary share for the year. These
dividends amount to £35,204,000 (2017: £30,429,000) – see
note 13 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 2018, 55,206,957 shares
were in issue (2017: 51,302,074). No shares were held in
treasury. Details of the movements during the year are
set out in note 29 to the financial statements. The shares
carry no rights to fixed income and each share carries the
right to one vote at general meetings. All shares are fully paid.
There are no specific restrictions on the size of a
shareholding or on the transfer of shares, which are both
covered by the provisions of the Articles of Association and
prevailing legislation.
New issues of share capital
Under section 551 of the Companies Act 2006, the
board currently has the authority to allot 17,100,864
shares (approximately one third of the issued share capital at
31 March 2018). 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 issued 228,989 shares to satisfy
share awards and issued 269,372 shares to the company’s
employee benefit trust, to satisfy future awards under the
group’s share-based payment schemes.
Following the 2018 AGM, resolution to purchase own
shares, the board currently has the authority to buy back
up to 2,700,000 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 56 to 65 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
On 4 April 2017, Equiniti Trust (Jersey) Limited was 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 30 to the financial
statements. During the year, the number of shares
issued totaled 131,313 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.
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Directors
Share price
All those who served as directors at any time during the
year are listed on pages 60 to 61. The directors’ interests in
the share capital of the company at 31 December 2018 are set
out on pages 88 to 89 of the remuneration committee report.
The closing share price of the company on 31 December 2018
was £23.42 and the closing price range from the start of the
financial year to the year end was £25.82 to £23.42.
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 41 to 54.
Corporate responsibility
Information about greenhouse gas emissions and our
corporate social responsibility are set out in the corporate
responsibility report on pages 41 to 54.
Financial instruments and risk management
The risk management objectives and policies of the group
are set out in note 32 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 2018 and remain
in force at the date of this report.
Substantial shareholdings
As at 31 December 2018, the company had received
notifications in accordance with the Financial Conduct
Authority’s Disclosure and Transparency Rule 5 of the
following interests:
Holding at
20 Feb 2019
Shareholder
Lindsell Train Ltd.
7,761,974
Mawer Investment Management Ltd. 5,005,498
2,637,236
MFS Investment
1,775,682
Aviva Investors
Kabouter Management
1,764,247
Heronbridge Investment
Management
1,653,765
% held at
20 Feb 2019
14.06
9.07
4.78
3.22
3.20
3.00
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Auditor
The audit committee reviews the appointment of the
external auditor and its relationship with the group,
including monitoring the group’s use of the auditor for
non-audit services. Note 8 to the financial statements
sets out details of the auditor’s remuneration. KPMG LLP
was appointed as external auditor in 2009, and under the
Companies Act 2006, the company is required to hold a
competitive tender process for the external auditor not less
than every 10 years. The audit committee carried out a tender
process in 2018 which assessed the credentials and fit of the
three audit firms that were shortlisted for the tender. Having
reviewed the independence and effectiveness of the three
external audit firms, the audit committee has recommended
to the board that Deloitte LLP be appointed and a resolution
appointing them as auditor and authorising the directors to
set their remuneration will be proposed at the 2019 AGM.
The directors in office at the date of signing of this report
confirm that, so far as they are aware, there is no relevant audit
information of which the auditor is unaware and that each
director has taken all steps that he or she ought to have taken
to make him or herself aware of any relevant audit information
and to establish that the auditor is aware of that information.
Going concern
Details of the group’s business activities, results, cash
flows and resources, together with the risks it faces and other
factors likely to affect its future development, performance
and position are set out in the chairman’s statement, chief
executive’s review, strategic report and group risk committee
report. In addition, note 1.5 to the financial statements
provides further details.
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.
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.
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Directors’ report continued
Political donations
Annual General Meeting
No political donations were made during the year (2017: nil).
Post-balance sheet events
Details of post-balance sheet events are set out in note
39 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.
The 2019 AGM will be held on Thursday 9 May 2019 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
20 February 2019
Registered office: 8 Finsbury Circus, London EC2M 7AZ
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Statement of directors’ responsibilities in respect of the report and accounts
The directors are responsible for preparing the report and
accounts 2018, 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
Responsibility statement of the directors
in respect of the report and accounts
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
– the strategic report and directors’ report include
a fair review of the development and performance
of the business and the position of the issuer and the
undertakings included in the consolidation taken as a
whole, together with a description of the principal risks
and uncertainties that they face.
We consider the 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.
– make judgements and estimates that are reasonable,
By order of the board
relevant and reliable
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Philip Howell
Chief Executive
20 February 2019
– 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 controls as they
determine are 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.
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 comply with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
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Financial
statements
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Independent auditor’s report to the members of Rathbone Brothers Plc
1 Our opinion is unmodified
2 Key audit matters: including our assessment
We have audited the financial statements of Rathbone Brothers
Plc (“the company), and its subsidiaries (together “the Group”),
for the year ended 31 December 2018 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 notes 1 and 41.
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 2018 and of the Group’s profit for the year
then ended;
– the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs as
adopted by the EU);
– the company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the
Companies Act 2006; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
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 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
ten financial years ended 31 December 2018. 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.
of risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, 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 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.
(New) The impact of uncertainties due to UK exiting the
European Union on our audit
Refer to page 37 (risk management report) and page 71 (audit
committee report)
The risk – Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness of estimates,
in particular as described in the key audit matters below
including (i) accounting for acquisition of Speirs & Jeffrey Ltd and
(ii) considering the impairment of client relationship intangibles,
and related disclosures and the appropriateness of the going
concern basis of preparation of the financial statements. All
of these depend on assessments of the future economic
environment and the Group’s future prospects and performance.
In addition, we are required to consider the other information
presented in the Annual Report including the principal risks
disclosure and the viability statement and to consider the
directors’ statement 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.
Brexit is one of the most significant economic events for
the UK and at the date of this report its effects are subject
to unprecedented levels of uncertainty of outcomes, with
the full range of possible effects unknown.
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2 Key audit matters: including our assessment
of risks of material misstatement continued
Our response
In this area our procedures included:
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in
planning and performing our audits. Our procedures included:
– Our Brexit knowledge – We considered the directors’
assessment of Brexit-related sources of risk for the Group’s
business and financial resources compared with our own
assessment of the risks. We considered the directors’ plans
to take action to mitigate the risks.
– Sensitivity analysis – When addressing key audit matters
including accounting for acquisition of Speirs & Jeffrey Ltd
and considering the impairment of client relationship
intangibles, we compared the directors’ analysis to our
assessment of the full range of reasonably possible scenarios
resulting from Brexit uncertainty and, where forecast cash
flows are required to be discounted, considered adjustments
to discount rates for the level of remaining uncertainty.
– Assessing transparency – As well as assessing individual
disclosures as part of our procedures on key audit matters
including accounting for acquisition of Speirs & Jeffrey Ltd
and considering the impairment of client relationship
intangibles we considered all of the Brexit related disclosures
together, including those in the strategic report, comparing
the overall picture against our understanding of the risks.
Our results – As reported under key audit matters including
accounting for acquisition of Speirs & Jeffrey Ltd and considering
the impairment of client relationship intangibles, we found the
resulting estimates and related disclosures of these key audit
matters and disclosures in relation to going concern to be
acceptable. However, no audit should be expected to predict
the unknowable factors or all possible future implications for
a company and this is particularly the case in relation to Brexit.
(New) Accounting for acquisition of Speirs & Jeffrey Ltd
Refer to page 71 (audit committee report), page 109
(accounting policy) and page 162 (financial disclosures).
During the year ended 31 December 2018, the Group acquired
a 100% equity interest in Speirs & Jeffrey Ltd for a total
consideration of £89.4 million. The fair values of identifiable
net assets acquired on the date of acquisition amounted to
£61.3 million and goodwill arising from the acquisition
amounted to £28.1 million.
The risk – Accounting application in relation to the split of
total consideration between acquisition consideration and
remuneration for post-acquisition services
As part of the acquisition, payments are made to the owners of
Speirs & Jeffrey Ltd on completion date and future payments
based on certain operational targets and the continued
employment of owners by the Group.
The key areas our audit considered:
– The determination of whether payments made to the
shareholders of the acquired company are treated as
consideration or post acquisition remuneration. While there
is limited judgement in this determination, the decision has
a significant impact on the financial statements.
– For those payments regarded as post acquisition
remuneration, there is judgment in calculating the value
of the contingent and earn out awards including estimates
relating to the achievement of operating targets as set out
in the Sale and Purchase agreement.
– The effect of these matters is that, as part of our risk
assessment, we determined that contingent and earn-out
awards have a high degree of estimation uncertainty, with
a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole.
The risk – The fair value of client relationship intangibles
On acquisition of Speirs & Jeffrey Ltd, the Group recognised
client relationships as an identifiable intangible asset at fair value,
reflecting the future cash flows expected from the client
relationships acquired. The fair value of client relationship
intangibles recognised is £54.3 million.
– The valuation of the client relationship intangible depends
on a number of key judgemental assumptions and estimates
including the assumed useful economic life of acquired client
relationships, the growth rate used to forecast revenue
generated from these client relationships and the discount
rate used in the discounted cash flow model. An inappropriate
judgement, error or omission in valuing client relationship
intangibles can consequently impact the amount of goodwill
recognised during the year in relation to the related
acquisition.
– The effect of these matters is that, as part of our risk assessment,
we determined that valuation of client relationship intangibles
has a high degree of estimation uncertainty, with a potential
range of reasonable outcomes greater than our materiality for
the financial statements as a whole.
Our response
In this area our procedures included:
Accounting application in relation to the split of total consideration
between acquisition consideration and post-acquisition services
Accounting analysis: We obtained and examined the Sale and
Purchase agreement to gain an understanding of all elements
of consideration.
We evaluated the appropriateness of the treatment for each
element of consideration by considering the treatment against
the requirements set out in IFRS 3 “Business combinations”. We
tested the appropriateness of the amounts recorded by agreeing
these to the Sale and Purchase agreement and underlying
calculations supported by documentary evidence as appropriate.
We engaged our internal valuation specialists to evaluate the fair
value of the consideration and post-acquisition remuneration
involving share based payments.
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We challenged the basis and assumptions around the
achievement of operational and financial performance
targets used by the management in estimation and recording
of the contingent and earn out portion of the post-acquisition
remuneration in the year ended 31 December 2018 through
verification and recalculation.
Methodology choice: We considered the Group’s judgement
in selecting its assumptions and whether there were any
indicators of management bias.
Assessing transparency: We have evaluated the appropriateness
of the related disclosures in note 35 to the financial statements.
Fair value of client relationship intangibles
Assessment of fair value: We evaluated management’s
determination of the fair value of client relationship
intangibles by:
1. Engaging our internal valuation specialists to evaluate and
challenge the identification and valuation methodology used
by management. This included assessing the client relationship
intangibles identified and the basis of their valuation.
2. Challenge of the key assumptions used in the valuation
model including the discount rate and growth rate used.
Methodology choice: We considered the Group’s judgement in
selecting its assumptions and whether there were any indicators
of management bias.
Assessing transparency: We have evaluated the appropriateness
of the related disclosures in note 35 to the financial statements.
Our results – We found the accounting application in relation
to the split of total consideration between acquisition
consideration and post-acquisition services and the fair
value of client relationship intangibles acquired for the
acquisition of Speirs & Jeffrey Ltd to be acceptable.
Impairment of client relationship intangibles £134.6
million (2017: £88.5 million) of which £54.3 million
relates to the Speirs & Jeffery acquisition as described
on page 98 of our report
Risk vs 2017: ◄►
Refer to page 71 (audit committee report), page 113 (accounting
policy) and page 134 (financial disclosures).
The Group has capitalised significant amounts as client
relationship intangibles, including both those purchased
individually (initially recognised at cost) and those acquired as
part of a business combination (initially recognised at fair value).
The risk – Accounting application in relation to impairment
of client relationship intangibles
– For client relationship intangibles acquired as part of a
business combination, 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.
– For client relationship intangibles purchased individually, the
Group assesses whether there is an indication of impairment
by considering if the remaining economic benefits expected
to be received is greater than the 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.
– The effect of these matters is that, as part of our risk assessment,
we determined that impairment of client relationship
intangibles has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole.
Our response
In this area our procedures included:
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 review of the client relationship intangibles against
impairment triggers. We have assessed and re-performed the
Group’s impairment calculation and verified the data inputs
such as value of funds under management and number of
client accounts.
– 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. We inspected
client attrition rates and funds under management for
evidence of impairment.
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Independent auditor’s report to the members of Rathbone Brothers Plc continued
2 Key audit matters: including our assessment
of risks of material misstatement continued
Assessing transparency:
We have evaluated the appropriateness of the related disclosures
in note 22 to the financial statements.
Our results – We found the carrying value of client relationship
intangibles to be acceptable.
Following the implementation of IFRS 15, which introduces
guidance on capitalisation of contract costs, we have not
assessed recognition of client relationship intangibles as
one of the most significant risks in our current year audit
and, therefore, it is not included as part of this key audit
matter in this year’s report.
Valuation of defined benefit pension obligation £146.5
million (2017: £164.1 million)
Risk vs 2017: ◄►
Refer to page 71 (audit committee report), page 114 (accounting
policy) and page 138 (financial disclosures).
The risk – Subjective valuation
The Group and parent company have recognised a
defined benefit pension obligation of £146.5 million
as at 31 December 2018.
– The valuation of the defined benefit pension obligation
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 and the life
expectancy of pension scheme members. The valuation is an
important judgment as this balance is volatile and impacts the
parent company’s distributable reserves.
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 defined benefit pension obligation recognised
by the Group on the balance sheet might be significantly
different than the actual liability of the Group, since small
changes to the assumptions used in the calculation materially
affect the valuation.
The effect of these matters is that, as part of our risk
assessment, we determined that valuation of defined
benefit pension obligation has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes
greater than our materiality for the financial statements as
a whole.
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 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 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 defined benefit pension
deficit and the assumptions used which is set out in note
28 to the financial statements.
Our results – We found the valuation of the defined benefit
pension obligation to be acceptable.
We continue to perform procedures over measurement of
onerous lease provision. However, during the year Group
completed assignment of its leases on surplus property, hence
we have not assessed this as one of the significant risks in our
current year audit and, therefore, it is not separately identified
in our report this year.
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 £3.8 million (2017: £3.6 million), determined with reference to a
benchmark of Group profit before tax, normalised to exclude the
acquisition and integration related costs of £3.6 million (refer
note 9), the current year charge of the contingent and earn-out
consideration payable to vendors and employees of Speirs &
Jeffrey Ltd amounting to £14.7 million (refer note 9) and the
credit related to the assignment of the onerous lease £3.7 million
(refer note 10). These expenses do not form part of the normal,
continuing operations of the Group and are not considered to be
part of the normalised profit before tax. Materiality represents 5%
(2017: 5%) of the normalised Group profit before tax.
Materiality for the parent company financial statements as a whole
was set at £3.0 million (2017: £2.9 million). This is lower than the
materiality we would otherwise have determined by reference to
net assets, and represents 1.0% of the parent company’s net assets
(2017: 1.4%).
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We agreed to report to the audit committee any corrected or
uncorrected identified misstatements exceeding £190,000
(2017: £180,000), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group's nine (2017: eight) reporting components, we
subjected nine (2017: eight) to full scope audits for Group purposes.
The audit work for eight (2017: eight) was performed by the Group
team and one (2017: Nil) was performed by a component team to
materiality levels set individually for each entity which ranged
from £0.02 million to £3.0 million (2017: £0.03 million to £2.9
million), having regard to the mix of size and risk profile of the
Group across the components.
The Group team performed procedures on the items excluded
from normalised Group profit before tax.
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
£76.86m
(2017: £72.2m)
Normalised Group PBT
Group materiality
£3.8m
Group Materiality
(2017: £3.6m)
£3.0m
Range of materiality
at nine components
(£0.02m-£3.0m)
(2017: £0.3m to £2.9m)
£0.19m
Misstatements reported
to the audit commitee
(2017: £0.18m)
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the company or the
Group or to cease its operations, and as they have concluded that
the company’s and the Group’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable at
the time they were made, the absence of reference to a material
uncertainty in this auditor's report is not a guarantee that the
Group and company will continue in operation.
In our evaluation of the directors’ conclusions, we considered
the inherent risks to the Group’s and company’s business model,
including the impact of Brexit, and analysed how those risks might
affect the company’s financial resources or ability to continue
operations over the going concern period. We evaluated those
risks and concluded that they were not significant enough to
require us to perform additional audit procedures.
Based on this work, we are required to report to you if:
– we have anything material to add or draw attention to in
relation to the directors’ statement in note 1.5 to the financial
statements on the use of the going concern basis of
accounting with no material uncertainties that may cast
significant doubt over the 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 related statement under the Listing Rules set out on
page 93 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not
identify going concern as a key audit matter.
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.
Strategic report and directors’ report
Based solely on our work on the other information:
– 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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Independent auditor’s report to the members of Rathbone Brothers Plc continued
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
40 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.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgments that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the Group’s and company’s longer-term viability.
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.
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 95
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.
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.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
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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
20 February 2019
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Irregularities – ability to detect
We identified relevant areas of laws and regulations that could
have a material effect on the financial statements from our
general commercial and sector experience, through discussion
with the directors and other management (as required by
auditing standards), from inspection of the Group’s regulatory
correspondence and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations. We communicated identified laws
and regulations throughout our team and remained alert to
any indications of non-compliance throughout the audit. This
included communication from the Group to component audit
teams of relevant laws and regulations identified at Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation (including related companies legislation) and taxation
legislation and we assessed the extent of compliance with these
laws and regulations as part of our procedures on the related
financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation or the loss of
the Group’s licence to operate. We identified the following areas
as those most likely to have such an effect: 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. Auditing
standards limit the required audit procedures to identify non-
compliance with these laws and regulations to enquiry of the
directors and other management and inspection of regulatory
and legal correspondence, if any. These limited procedures did
not identify actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we
have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed non-
compliance with laws and regulations (irregularities) is from the
events and transactions reflected in the financial statements, the
less likely the inherently limited procedures required by auditing
standards would identify it. In addition, 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. We are
not responsible for preventing non-compliance and cannot be
expected to detect non-compliance with all laws and regulations.
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Consolidated statement of comprehensive income
for the year ended 31 December 2018
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
5
6
7
28
7
8
9
10
8
12
28
21
18
21
13
14
2018
£’000
20,968
(5,647)
15,321
314,013
(22,903)
291,110
3,405
–
2,127
311,963
(13,188)
(19,925)
2,861
(220,405)
(250,657)
61,306
(15,137)
46,169
46,169
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
1,219
(207)
17,288
(2,939)
–
–
–
–
1,012
163
(43)
120
(20)
14,449
47,181
61,278
66.0p
35,204
61.0p
30,429
88.7p
86.2p
92.7p
91.9p
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Rathbone Brothers Plc Report and accounts 2018
Consolidated statement of comprehensive income
for the year ended 31 December 2018
Consolidated statement of changes in equity
for the year ended 31 December 2018
Interest and similar income
Interest expense and similar charges
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net trading income
Other operating income
Operating income
Acquisition-related costs
Head office relocation costs
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit after tax
Gain on plan amendment of defined benefit pension schemes
Charges in relation to client relationships and goodwill
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
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:
company
– basic
– diluted
The accompanying notes form an integral part of the consolidated financial statements.
Note
5
6
7
28
7
8
9
10
2018
£’000
20,968
(5,647)
15,321
2017
£’000
13,501
(1,907)
11,594
314,013
292,034
(22,903)
(22,715)
291,110
269,319
3,405
–
2,127
3,071
5,523
2,065
311,963
291,572
(13,188)
(19,925)
(11,716)
(6,178)
2,861
(16,248)
(220,405)
(198,529)
8
(250,657)
(232,671)
61,306
58,901
12
(15,137)
(12,072)
46,169
46,169
46,829
46,829
28
21
1,219
(207)
17,288
(2,939)
18
21
13
14
–
–
–
–
163
(43)
120
(20)
1,012
14,449
47,181
61,278
66.0p
35,204
61.0p
30,429
88.7p
86.2p
92.7p
91.9p
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
– own shares sold
– tax on share-based payments
At 31 December 2017
Adjustment on initial application of IFRS 9
(net of tax)
Adjustment on initial application of IFRS
15 (net of tax)
Adjusted balance at 1 January 2018
Profit for the year
Net remeasurement of defined benefit
liability
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 2018
Note
28
18
21
13
29
30
30
30
28
21
13
29
30
30
Share
capital
£’000
Merger
reserve
£’000
2,535 139,991 31,835
Share
premium
£’000
–
–
–
31
3,098
Available for
sale reserve
£’000
150
163
(43)
(20)
100
2,566 143,089 31,835
250
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
(6,243) 156,545 324,813
46,829 46,829
17,288 17,288
163
(43)
(2,939)
(2,959)
– 14,349 14,449
(29,420)
(29,420)
3,129
3,591
(441)
1,820
3,591
(441)
–
–
328
(4,864) 190,402 363,278
(1,820)
328
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(250)
102
(148)
2,566 143,089 31,835
–
8,443
8,443
(4,864) 198,947 371,573
46,169 46,169
1,219
1,219
(207)
(207)
–
–
–
–
–
1,012
1,012
194 87,134
(32,691) (32,691)
87,328
2,760 230,223 31,835
–
(29,888)
2,015
20,279 20,279
(29,888)
–
358
(32,737) 232,059 464,140
(2,015)
358
The accompanying notes form an integral part of the consolidated financial statements.
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Consolidated balance sheet
as at 31 December 2018
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– fair value through profit or loss
– amortised cost
– 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
Net deferred tax liability
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
2018
£’000
2017
£’000
15 1,198,479 1,375,382
46,784
117,253
126,213
39,754
166,200
138,959
16
17
18
18
18
18
19
20
21
22
79,797
907,225
–
–
81,552
16,838
–
238,918
–
–
109,312
701,966
74,445
16,457
9,061
161,977
2,867,722 2,738,850
23
491
36,692
1,338
54,452
24 2,225,536 2,170,498
108,391
25
5,598
–
19,695
15,600
2,403,582 2,375,572
103,393
5,985
481
19,807
11,197
21
27
28
29
29
30
2,760
230,223
31,835
–
(32,737)
232,059
464,140
2,566
143,089
31,835
250
(4,864)
190,402
363,278
2,867,722 2,738,850
The financial statements were approved by the board of directors and authorised for issue on 20 February 2019 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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Consolidated balance sheet
as at 31 December 2018
Consolidated statement of cash flows
for the year ended 31 December 2018
Accruals, deferred income, provisions and other liabilities
Assets
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Investment securities:
– fair value through profit or loss
– amortised cost
– 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
Current tax liabilities
Net deferred tax liability
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
their behalf by:
Philip Howell
Chief Executive
Note
2018
£’000
2017
£’000
15 1,198,479 1,375,382
39,754
166,200
138,959
46,784
117,253
126,213
16
17
18
18
18
18
19
20
21
22
23
21
27
28
29
29
79,797
907,225
–
–
–
81,552
16,838
–
–
109,312
701,966
74,445
16,457
9,061
238,918
161,977
2,867,722 2,738,850
491
36,692
1,338
54,452
24 2,225,536 2,170,498
25
103,393
108,391
5,985
481
19,807
11,197
5,598
–
19,695
15,600
2,403,582 2,375,572
2,760
2,566
230,223
143,089
31,835
31,835
–
250
30
(32,737)
(4,864)
232,059
464,140
190,402
363,278
2,867,722 2,738,850
Cash flows from operating activities
Profit before tax
Net profit on disposal of available for sale investment securities
Change in fair value through profit or loss
Net interest income
Impairment losses on financial instruments
Net (credit)/charge for provisions
Loss/(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 in loans and advances to banks and customers
– net decrease/(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 (decrease)/increase in settlement balance creditors
– net (decrease)/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 generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the consolidated financial statements.
The financial statements were approved by the board of directors and authorised for issue on 20 February 2019 and were signed on
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
Paul Stockton
Finance Director
Note
2018
£’000
2017
£’000
32
26
18
28
28
61,306
–
185
(15,321)
44
(1,498)
1
21,673
(2,297)
491
(3,673)
19,838
(5,175)
21,362
96,936
(10,482)
7,030
(3,887)
54,191
(17,760)
(222)
125,806
(14,697)
111,109
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
(72,914)
(18,338)
–
18 (1,051,150)
847,323
18
(295,079)
–
(16,123)
–
(746,566)
742,581
(20,108)
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38
13
57,440
(32,691)
24,749
(159,221)
2,688
(29,420)
(26,732)
304,684
1,567,758 1,263,074
38 1,408,537 1,567,758
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Notes to the consolidated financial statements
1
Principal accounting policies
Rathbone Brothers Plc (‘the company’) is a public company
incorporated and domiciled in England and Wales under the
Companies Act 2006.
1.1 Basis of preparation
The consolidated and company financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU. The company financial
statements are presented on pages 169 to 189.
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
This is the first set of the group’s financial statements where IFRS
9 and IFRS 15 have been applied. These new standards were
adopted from 1 January 2018. Under the transition methods
chosen, comparative information is not restated. Changes to
significant accounting policies are described in note 2.
The following amendments to standards have also been adopted
in the current period, but have not had a significant impact on
the amounts reported in these financial statements:
– Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2).
Future new standards and interpretations
A number of new standards are effective for annual periods
beginning after 1 January 2018 and earlier application is
permitted; however, the group has not early adopted the
new or amended standards in preparing these consolidated
financial statements.
Of those standards that are not yet effective, IFRS 16 is expected
to have a material impact on the group’s financial statements in
the period of initial application.
IFRS 16 ‘Leases’
IFRS 16 is effective for periods commencing on or after 1 January
2019 and replaces existing lease guidance, including IAS 17
Leases, IFRIC 4 Determining whether an arrangement contains a
Lease, SIC-15 Operating Lease – Incentives and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a
Lease. 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 for lessees. 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
The group plans to apply IFRS 16 initially with effect from 1
January 2019, using the modified retrospective approach.
Therefore, the cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance sheet at
1 January 2019, with no restatement of comparative information.
The group plans to apply the practical expedient to grandfather
the definition of a lease on transition. This means that it will
apply IFRS 16 to all contracts entered into before 1 January 2019
and identified as leases in accordance with IAS 17.
Lessee accounting
The group has assessed the impact of adopting the new
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, which will be recognised in interest expense
and similar charges in the consolidated statement of
comprehensive income.
The most significant impact is in respect of its London head
office premises. Based on the information currently available,
the group estimates that it will recognise lease liabilities of
approximately £63 million to £67 million as at 1 January 2019
and related right-of-use assets with a value of approximately
£50 million to £55 million, reflecting the impact of accrued
rent free periods up to 31 December 2018. We do not expect
any impact on the group’s equity at the date of adoption.
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. Based on the work completed by the group, it expects
to reclassify one sub-lease as a finance lease. This results in
recognition of a finance lease receivable of approximately
£1 million to £2 million as at 1 January 2019.
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Notes to the consolidated financial statements
1
Principal accounting policies
IFRS 16 ‘Leases’
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 169 to 189.
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
This is the first set of the group’s financial statements where IFRS
9 and IFRS 15 have been applied. These new standards were
adopted from 1 January 2018. Under the transition methods
chosen, comparative information is not restated. Changes to
significant accounting policies are described in note 2.
The following amendments to standards have also been adopted
in the current period, but have not had a significant impact on
the amounts reported in these financial statements:
– Classification and Measurement of Share-based Payment
Transactions (Amendments to IFRS 2).
Future new standards and interpretations
A number of new standards are effective for annual periods
beginning after 1 January 2018 and earlier application is
permitted; however, the group has not early adopted the
new or amended standards in preparing these consolidated
financial statements.
Of those standards that are not yet effective, IFRS 16 is expected
to have a material impact on the group’s financial statements in
the period of initial application.
IFRS 16 is effective for periods commencing on or after 1 January
2019 and replaces existing lease guidance, including IAS 17
Leases, IFRIC 4 Determining whether an arrangement contains a
Lease, SIC-15 Operating Lease – Incentives and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a
Lease. 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 for lessees. 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
The group plans to apply IFRS 16 initially with effect from 1
January 2019, using the modified retrospective approach.
Therefore, the cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance sheet at
1 January 2019, with no restatement of comparative information.
The group plans to apply the practical expedient to grandfather
the definition of a lease on transition. This means that it will
apply IFRS 16 to all contracts entered into before 1 January 2019
and identified as leases in accordance with IAS 17.
Lessee accounting
The group has assessed the impact of adopting the new
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, which will be recognised in interest expense
and similar charges in the consolidated statement of
comprehensive income.
The most significant impact is in respect of its London head
office premises. Based on the information currently available,
the group estimates that it will recognise lease liabilities of
approximately £63 million to £67 million as at 1 January 2019
and related right-of-use assets with a value of approximately
£50 million to £55 million, reflecting the impact of accrued
rent free periods up to 31 December 2018. We do not expect
any impact on the group’s equity at the date of adoption.
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. Based on the work completed by the group, it expects
to reclassify one sub-lease as a finance lease. This results in
recognition of a finance lease receivable of approximately
£1 million to £2 million as at 1 January 2019.
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 acquired, liabilities 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
The group has initially applied IFRS 15 from 1 January 2018.
Net interest income
Interest income or expense are recognised within net interest
income using the effective interest method.
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 gross carrying amount of the financial asset; or
– the amortised cost of the financial liability.
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.
Dividends received from money market funds are included
in net interest income when received.
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.
Net trading income
Net trading income comprises net dealing profits on the sale and
redemption of units in the Unit Trusts business and is recognised
when received.
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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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 and measurement
Financial assets, excluding trade receivables, are initially
recognised when the group becomes party to the contractual
provisions of the asset. Trade receivables are recognised when
cash is advanced to the borrowers.
Financial assets are initially recognised at fair value plus
transaction costs that are directly attributable to its acquisition.
Trade receivables without a significant financing component
are initially measured at the transaction price.
Financial assets are not reclassified subsequent to their initial
recognition unless the group changes its business model for
managing financial assets, in which case all affected financial
assets are reclassified on the first day of the first reporting
period following the change in the business model.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
Deferred tax
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 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 and measurement
Financial assets, excluding trade receivables, are initially
recognised when the group becomes party to the contractual
provisions of the asset. Trade receivables are recognised when
cash is advanced to the borrowers.
Financial assets are initially recognised at fair value plus
transaction costs that are directly attributable to its acquisition.
Trade receivables without a significant financing component
are initially measured at the transaction price.
Financial assets are not reclassified subsequent to their initial
recognition unless the group changes its business model for
managing financial assets, in which case all affected financial
assets are reclassified on the first day of the first reporting
period following the change in the business model.
Classification and subsequent measurement
Financial assets are classified and measured in the
following categories:
– amortised cost
Financial assets are measured at amortised cost if its
contractual terms give rise to cash flows that are solely
payments of principal and interest on the principal amount
outstanding and it is held within a business model whose
objective is to hold assets to collect contractual cash flows.
Assets are measured at amortised cost using the effective
interest rate method (note 1.7), less any impairment losses.
Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or
loss on derecognition is recognised in profit or loss.
– at fair value through other comprehensive income (FVOCI)
Debt instruments are measured at FVOCI if its contractual
terms give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding
and it is held within a business model whose objective is
both to hold assets to collect contractual cash flows and
sell the assets.
For debt instruments, interest income is calculated using
the effective interest method. For equity instruments,
dividends are recognised as income in profit or loss unless
the dividend clearly represents a recovery of part of the cost
of the investment. All other gains and losses on assets at
FVOCI are recognised in OCI.
– at fair value through profit or loss (FVTPL)
All equity instruments are measured at FVTPL unless,
provided the instrument is not held for trading, the group
irrevocably elects to measure the instrument at FVOCI. This
election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL.
On initial recognition, the Group may irrevocably designate
a financial asset that otherwise meets the requirements to
be measured at amortised cost or FVOCI at FVTPL if doing
so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
Net gains and losses, including any interest or dividend
income, are recognised in profit or loss.
Business model assessment
The Group assesses the objective of the business model in
which a financial asset is held at a portfolio level. The information
considered includes:
– the objectives for the portfolio and how those tie in to
the current and future strategy of the group;
– how the performance of the portfolio is evaluated and
reported to the Group’s management;
– the risks that affect the performance of the business model
(and the financial assets held within that business model)
and how those risks are managed;
– how group employees are compensated e.g. whether
compensation is based on the fair value of the assets
managed or the contractual cash flows collected; and
– the frequency, volume and timing of sales of financial
assets in prior periods, the reasons for such sales and
expectations about future sales activity.
Payments of principal and interest criterion
In assessing whether the contractual cash flows are solely
payments of principal and interest, the Group considers:
– the contractual terms of the instrument, checking consistency
with a basic lending criteria;
– the impact of the time value of money;
– features that would change the amount or timing of
contractual cash flows;
– other factors, such as prepayment or extension features.
Derecognition
Financial assets are derecognised when the contractual rights
to receive cash flows have expired or the group has transferred
substantially all the risks and rewards of ownership.
Impairment of financial assets
The Group recognises loss allowances for expected credit losses
(ECLs) on financial assets measured at amortised cost and FVOCI
and loan commitments held off balance sheet.
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 maximum period considered when estimating ECLs is the
maximum contractual period over which the group is exposed
to credit risk.
The Group measures loss allowances at an amount equal
to lifetime ECLs, except for treasury book and investment
management loan book exposures for which credit risk has
not increased significantly since initial recognition, which are
measured at 12-month ECLs.
Loss allowances for trust and financial planning debtors are
always measured at an amount equal to lifetime ECLs.
When assessing whether the credit risk of a financial asset has
increased significantly between the reporting date and initial
recognition, quantitative and qualitative indicators are used.
More detail can be found at note 32.
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Notes to the consolidated financial statements continued
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Principal accounting policies continued
Measurement of ECLs
Treasury book and investment management loan book
The group has developed a detailed model for calculating
ECLs on its treasury book and investment management loan
book (which includes loan commitments held off balance sheet).
The group has applied considerable judgment in developing
three different economic scenarios: a base case, an upside and
a downside.
The base case is assigned a 60% probability of occurring
with the upside and downside each assigned a 20% probability
of occurring.
The economic scenarios 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.
Management adjust the projections for the economic variables
in arriving at the upside and downside scenarios.
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 has not rebutted the presumption that if an exposure
is more than 30 days past due, the associated credit risk has
significantly increased.
More detail on the group’s staging criteria is provided in note 32.
ECLs are discounted back to the balance sheet date at the
effective interest rate of the asset.
Trust and financial planning debtors
The group’s trust and financial planning debtors are generally
short term and do not contain significant financing components.
Therefore, the group has applied a practical expedient by using
a provision matrix to calculate lifetime expected credit losses
based on actual credit loss experience over the past four years.
Credit-impaired financial assets
At each reporting date, the group assesses whether financial
assets carried at amortised cost and FVOCI are credit-impaired.
A financial asset is ‘credit-impaired’ when one or more events
that have a detrimental impact on the estimated future cash
flows of the financial asset have occurred. The group’s definition
of default is given in note 32.
Presentation of impairment
Loss allowances for financial assets measured at amortised
cost and FVOCI are deducted from the gross carrying amount
of the assets.
Impairment losses related to the group’s treasury book and
investment management loan book are presented in ‘interest
expense and similar charges’ and those related to all other
financial assets (including trust and financial planning debtors)
are presented under ‘other operating expenses’. No losses are
presented separately on the statement of the comprehensive
income and there have been no reclassifications of amounts
previously recognised under IAS 39.
1.13 Property, plant and equipment
All property, plant and equipment is stated at historical cost,
which includes directly attributable acquisition costs, less
accumulated depreciation and impairment losses. Depreciation
is charged so as to write off the cost of assets to their estimated
residual value over their estimated useful lives, using the straight
line method, on the following bases:
– leasehold improvements: over the lease term
– plant, equipment and computer hardware:over three
to 10 years
The assets’ residual lives are reviewed, and adjusted if
appropriate, at each balance sheet date. Gains and losses
on disposals are determined by comparing proceeds with
the carrying amount and these are included in profit or loss.
1.14 Intangible assets
Goodwill
Goodwill arises through business combinations and represents
the excess of the cost of acquisition over the group’s interest in
the fair value of the identifiable assets, liabilities and contingent
liabilities of a business at the date of acquisition.
Goodwill is recognised as an asset and measured at cost less
accumulated impairment losses, It 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 and are no larger than the
group’s operating segments, as set in note 4.
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 3.1.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
Measurement of ECLs
Treasury book and investment management loan book
The group has developed a detailed model for calculating
ECLs on its treasury book and investment management loan
book (which includes loan commitments held off balance sheet).
The group has applied considerable judgment in developing
three different economic scenarios: a base case, an upside and
a downside.
of occurring.
The base case is assigned a 60% probability of occurring
with the upside and downside each assigned a 20% probability
The economic scenarios 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.
Impairment losses related to the group’s treasury book and
investment management loan book are presented in ‘interest
expense and similar charges’ and those related to all other
financial assets (including trust and financial planning debtors)
are presented under ‘other operating expenses’. No losses are
presented separately on the statement of the comprehensive
income and there have been no reclassifications of amounts
previously recognised under IAS 39.
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
Management adjust the projections for the economic variables
– plant, equipment and computer hardware:over three
in arriving at the upside and downside scenarios.
to 10 years
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 has not rebutted the presumption that if an exposure
is more than 30 days past due, the associated credit risk has
significantly increased.
More detail on the group’s staging criteria is provided in note 32.
ECLs are discounted back to the balance sheet date at the
effective interest rate of the asset.
Trust and financial planning debtors
The group’s trust and financial planning debtors are generally
short term and do not contain significant financing components.
Therefore, the group has applied a practical expedient by using
a provision matrix to calculate lifetime expected credit losses
based on actual credit loss experience over the past four years.
Credit-impaired financial assets
At each reporting date, the group assesses whether financial
assets carried at amortised cost and FVOCI are credit-impaired.
A financial asset is ‘credit-impaired’ when one or more events
that have a detrimental impact on the estimated future cash
flows of the financial asset have occurred. The group’s definition
of default is given in note 32.
Presentation of impairment
Loss allowances for financial assets measured at amortised
cost and FVOCI are deducted from the gross carrying amount
of the assets.
112
The assets’ residual lives are reviewed, and adjusted if
appropriate, at each balance sheet date. Gains and losses
on disposals are determined by comparing proceeds with
the carrying amount and these are included in profit or loss.
1.14 Intangible assets
Goodwill
Goodwill arises through business combinations and represents
the excess of the cost of acquisition over the group’s interest in
the fair value of the identifiable assets, liabilities and contingent
liabilities of a business at the date of acquisition.
Goodwill is recognised as an asset and measured at cost less
accumulated impairment losses, It 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 and are no larger than the
group’s operating segments, as set in note 4.
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 3.1.
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
3.1 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 goodwill allocated to that 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 and
administration 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 goodwill,
client relationships is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its
recoverable amount.
Any impairment loss is recognised immediately in profit or loss.
1.16 Financial liabilities
Initial recognition and measurement
Financial liabilities are initially recognised at fair value plus
transaction costs that are directly attributable to its issue.
Classification and subsequent measurement
Financial liabilities are classified as measured at amortised
cost or at fair value through profit or loss.
The group has not designated any liabilities as fair value through
profit or loss and holds no liabilities as held for trading. Financial
liabilities are measured at amortised cost using the effective
interest method (note 1.7). Amortised cost is calculated by taking
into account any issue costs and any discounts or premiums on
settlement. Interest expense and foreign exchange gains and
losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
Derecognition
The group derecognises financial liabilities when its contractual
obligations are discharged or cancelled, or expire.
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.
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Notes to the consolidated financial statements continued
1.20 Fiduciary activities
The group commonly acts as trustee and in other fiduciary
capacities that result in the holding or placing of assets on
behalf of individuals, trusts, retirement benefit plans and
other institutions. Such assets and income arising thereon
are excluded from these financial statements, as they are not
assets of the group. Largely as a result of cash and settlement
processing, the group holds money on behalf of some clients
in accordance with the Client Money Rules of the Financial
Conduct Authority, the Jersey Financial Services Commission
and the Solicitors’ Accounts Rules issued by the Solicitors
Regulation Authority, as applicable. Such monies and the
corresponding amounts due to clients are not shown on
the face of the balance sheet as the group is not beneficially
entitled to them.
1.21 Financial guarantees
The group provides a limited number of financial guarantees,
which are backed by assets in clients’ portfolios. Financial
guarantees are initially recognised in the balance sheet at fair
value. Guarantees are subsequently measured at the higher
of the best estimate of any amount to be paid to settle the
guarantee and the amount initially recognised less cumulative
amortisation, which is recognised over the life of the guarantee.
1.22 Fair value measurement
The fair values of quoted financial instruments in active markets
are based on current bid prices. If an active market for a financial
asset does not exist, the group establishes fair value by using
valuation techniques. These include the use of recent arm’s
length transactions, discounted cash flow analysis, option
pricing models and other valuation techniques commonly
used by market participants.
The group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
1
Principal accounting policies continued
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 4. 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.
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Notes to the consolidated financial statements continued
The group commonly acts as trustee and in other fiduciary
capacities that result in the holding or placing of assets on
behalf of individuals, trusts, retirement benefit plans and
other institutions. Such assets and income arising thereon
are excluded from these financial statements, as they are not
assets of the group. Largely as a result of cash and settlement
processing, the group holds money on behalf of some clients
in accordance with the Client Money Rules of the Financial
Conduct Authority, the Jersey Financial Services Commission
and the Solicitors’ Accounts Rules issued by the Solicitors
Regulation Authority, as applicable. Such monies and the
corresponding amounts due to clients are not shown on
the face of the balance sheet as the group is not beneficially
entitled to them.
1.21 Financial guarantees
The group provides a limited number of financial guarantees,
which are backed by assets in clients’ portfolios. Financial
guarantees are initially recognised in the balance sheet at fair
value. Guarantees are subsequently measured at the higher
of the best estimate of any amount to be paid to settle the
guarantee and the amount initially recognised less cumulative
amortisation, which is recognised over the life of the guarantee.
1.22 Fair value measurement
The fair values of quoted financial instruments in active markets
are based on current bid prices. If an active market for a financial
asset does not exist, the group establishes fair value by using
valuation techniques. These include the use of recent arm’s
length transactions, discounted cash flow analysis, option
pricing models and other valuation techniques commonly
used by market participants.
The group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
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 4. 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
Principal accounting policies continued
1.20 Fiduciary activities
2 Changes in significant accounting policies
The group has adopted IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ from 1 January 2018.
The effect of applying these standards is mainly attributed to the following:
– an increase in impairment losses recognised on financial assets (IFRS 9);
– an increase in client relationship intangibles in respect of the additional capitalisation of payments made to investment managers
(IFRS 15); and
– earlier recognition of revenue in Rathbone Trust Company Limited (IFRS 15).
IFRS 9 ‘Financial Instruments’
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.
Transition
The group has taken advantage of the exemption from restating comparative information for prior periods with respect to
classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets
and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018.
Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39.
Under the requirements of IFRS 9, the following assessments have been made on the basis of the facts and circumstances that existed
at the date of initial application.
– The nature of the business model under which a financial asset is managed.
– Whether the SPPI (solely payments of principal and interest) criterion is met.
– The designation of certain financial assets as measured at fair value through profit or loss.
– If an investment in a debt instrument had a low credit risk (e.g. ‘investment grade’ credit rating) at the date of initial application
of IFRS 9, then the group assumes that the credit risk on the asset has not increased significantly since its initial recognition.
The following table summarises the impact, net of tax, of transition to IFRS 9 on the opening balance of reserves and retained earnings:
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Recycle to retained earnings of available for sale reserve
Recognition of expected credit losses under IFRS 9
Impact at 1 January 2018
Impact of adopting IFRS 9 on opening balance
Available for sale reserve
£'000
(250)
–
(250)
Retained earnings
£'000
250
(148)
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The recognition of expected credit losses under IFRS 9 in opening retained earnings of £148,000 is split out by balance sheet line item
in the table below.
The hedge accounting requirements of IFRS 9 have not been applied, as the group was not party to any hedging relationships as at
1 January 2018.
Classification and measurement of financial assets and financial liabilities
The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are 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 require the group to document the business
models under which its assets are managed and review contractual terms and conditions.
All of the group’s financial assets as at 1 January 2018 were managed within business models whose objective is solely to collect
contractual cash flows, except equity securities and money market funds, which are equity instruments not held for trading and
were classified as fair value through profit or loss.
The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9
for each class of the group’s financial assets as at 1 January 2018.
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Notes to the consolidated financial statements continued
2 Changes in significant accounting policies continued
Financial assets
Note Original classification under IAS 39
Cash and balances with central banks 15 Loans and receivables
16 Loans and receivables
Loans and advances to banks
17 Loans and receivables
Loans and advances to customers
18 Available for sale
Equity securities
18 Available for sale
Money market funds
Debt securities
18 Held to maturity
Other financial assets
Total financial assets
Loans and receivables
Original carrying
amount under
IAS 39
£'000 New classification under IFRS 9
1,375,382 Amortised cost
117,253 Amortised cost
126,213 Amortised cost
2,565 Fair value through profit or loss
106,747 Fair value through profit or loss
701,966 Amortised cost
112,483 Amortised cost
2,542,609
New carrying amount
under IFRS 9
£'000
1,375,290
117,250
126,191
2,565
106,747
701,935
112,483
2,542,461
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new impairment
requirements, as described in note 1.12.
The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39. All financial liabilities continue
to be classified as amortised cost, with no financial liabilities designated at fair value through profit or loss. There was no change to
carrying value of financial liabilities at 1 January 2018.
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. See note 1.12 for more detail on the ECL model.
Impact of the new impairment model
The initial application of IFRS 9’s impairment requirements at 1 January 2018 resulted in an additional impairment provision as follows:
Loss provision at 31 December 2017 under IAS 39
Additional impairment recognised at 1 January 2018 on:
treasury book:
– cash and balances with central banks
– loans and advances to banks
– debt securities
loans and advances to customers:
– investment management loan book
– trust and financial planning debtors
Loss provision at 1 January 2018 under IFRS 9
£'000
66
92
3
31
1
21
148
214
Additional impairment recognised at 1 January 2018 relate to financial assets classified and measured at amortised cost.
IFRS 15 ‘Revenue from Contracts with Customers’
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. The standard replaces existing revenue recognition guidance, in
particular under IAS 18.
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Notes to the consolidated financial statements continued
2 Changes in significant accounting policies continued
Original carrying
amount under
IAS 39
Financial assets
Note Original classification under IAS 39
£'000 New classification under IFRS 9
Cash and balances with central banks 15 Loans and receivables
1,375,382 Amortised cost
Loans and advances to banks
16 Loans and receivables
117,253 Amortised cost
Loans and advances to customers
17 Loans and receivables
126,213 Amortised cost
Equity securities
Money market funds
Debt securities
Other financial assets
Total financial assets
18 Available for sale
18 Available for sale
18 Held to maturity
2,565 Fair value through profit or loss
106,747 Fair value through profit or loss
701,966 Amortised cost
Loans and receivables
112,483 Amortised cost
2,542,609
New carrying amount
under IFRS 9
£'000
1,375,290
117,250
126,191
2,565
106,747
701,935
112,483
2,542,461
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new impairment
requirements, as described in note 1.12.
The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39. All financial liabilities continue
to be classified as amortised cost, with no financial liabilities designated at fair value through profit or loss. There was no change to
carrying value of financial liabilities at 1 January 2018.
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. See note 1.12 for more detail on the ECL model.
Impact of the new impairment model
The initial application of IFRS 9’s impairment requirements at 1 January 2018 resulted in an additional impairment provision as follows:
Loss provision at 31 December 2017 under IAS 39
Additional impairment recognised at 1 January 2018 on:
treasury book:
– cash and balances with central banks
– loans and advances to banks
– debt securities
loans and advances to customers:
– investment management loan book
– trust and financial planning debtors
Loss provision at 1 January 2018 under IFRS 9
Additional impairment recognised at 1 January 2018 relate to financial assets classified and measured at amortised cost.
IFRS 15 ‘Revenue from Contracts with Customers’
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. The standard replaces existing revenue recognition guidance, in
particular under IAS 18.
£'000
66
92
3
31
1
21
148
214
Transition
The group has adopted IFRS 15 using the cumulative effect method, with the effect of applying the standard recognised at the date
of adoption, with no restatement of the comparative period. The following table summarises the impact, net of tax, of transition to
IFRS 15 on retained earnings at 1 January 2018.
Retained earnings
Net recognition of intangible assets under IFRS 15
Reduction in accruals
Recognition of provisions
Impact of changes to timing of recognition of certain time-based fees
Related tax
Impact at 1 January 2018
Impact of adopting IFRS 15 on opening balance
£'000
8,268
4,011
(4,075)
296
(57)
8,443
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The impact on transition is primarily due to a change in policy for capitalising contract costs under IFRS 15 (see below). Client
relationship intangible assets with a carrying value of £8,268,000 were recognised as a result of additional costs capitalised
under the new policy. There is also a reclassification between accruals and provisions for amounts payable as at 1 January 2018
under these contracts.
Impact on financial statements for the year ended 31 December 2018
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 has made 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 in which the services are provided.
The adoption of IFRS 15 has not had a significant impact on the group’s accounting policies for revenue recognition, as the application
of the new requirements does not change the treatment under previous guidance, in particular IAS 18, apart from a small change in
how we recognise certain fees in Rathbone Trust Company.
A breakdown of the timing of revenue recognition can be found in note 4.
Contract costs
Under the group’s previous policy under IAS 18 for capitalising contract costs, incremental payments that were made to secure
investment management contracts were capitalised as client relationship intangibles if they were separable, reliably measurable
and expected to be recovered. The period during which such payments are capitalised was typically the 12 months following the
end of any non-compete period.
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 has assessed its previous policy and has removed the 12 month limit on capitalisation of payments to newly recruited
investment managers under the new standard. The policy is unchanged in all other respects.
The group has also identified a number of other remuneration 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 has determined that the adoption of the
new standard has not resulted in any awards made under these schemes being capitalised. The costs of these awards continue to be
expensed through staff costs.
The following tables summarise the impacts of adopting IFRS 15 on the group’s consolidated statement of comprehensive income
for the year ended 31 December 2018 and its consolidated balance sheet as at that date for each of the line items affected. There was
no impact on the group’s consolidated statement of cash flows for the year ended 31 December 2018.
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2 Changes in significant accounting policies continued
Impact on the consolidated statement of comprehensive income (extract)
Operating income
Charges in relation to client relationships and goodwill
Other operating expenses
Operating expenses
Profit before tax
Taxation
Profit for the period attributable to equity holders of the company
Other comprehensive income net of tax
Total comprehensive income for the period net of tax attributable to equity holders
As reported
Year to
31 December 2018
£’000
311,963
(13,188)
(220,405)
(250,657)
61,306
(15,137)
46,169
1,012
Adjustments
£’000
579
836
(160)
676
1,255
(238)
1,017
–
Amounts without
adoption of IFRS 15
£’000
312,542
(12,352)
(220,565)
(249,981)
62,561
(15,375)
47,186
1,012
of the company
47,181
1,017
48,198
The adjustments to the consolidated statement of comprehensive income primarily relate to amortisation charged on the additional
client relationship intangibles recognised under the new policy for capitalising contract costs (see below) and decrease in revenue in
Rathbone Trust Company as a result of the revised treatment under IFRS 15.
Impact on the consolidated balance sheet (extract)
Assets
Prepayments, accrued income and other assets
Intangible assets
Total assets
Liabilities
Accruals, deferred income, provisions and other liabilities
Current tax liabilities
Total liabilities
Equity
Retained earnings
Total equity
Total liabilities and equity
As reported
31 December 2018
£’000
Adjustments
£’000
Amounts without
adoption of IFRS 15
£’000
81,552
238,918
2,867,722
103,393
5,985
2,403,582
232,059
464,140
2,867,722
81,835
283
(7,641)
231,277
(7,358) 2,860,364
103,383
(10)
181
6,166
171 2,403,753
224,530
(7,529)
(7,529)
456,611
(7,358) 2,860,364
The adjustments to the consolidated balance sheet reflect the initial and subsequent application of the new policy for capitalising
contract costs under IFRS 15.
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Notes to the consolidated financial statements continued
2 Changes in significant accounting policies continued
Impact on the consolidated statement of comprehensive income (extract)
Charges in relation to client relationships and goodwill
Operating income
Other operating expenses
Operating expenses
Profit before tax
Taxation
31 December 2018
Adjustments
adoption of IFRS 15
Amounts without
As reported
Year to
£’000
311,963
(13,188)
(220,405)
(250,657)
61,306
(15,137)
46,169
1,012
£’000
579
836
(160)
676
1,255
(238)
1,017
–
£’000
312,542
(12,352)
(220,565)
(249,981)
62,561
(15,375)
47,186
1,012
As reported
Amounts without
31 December 2018
Adjustments
adoption of IFRS 15
£’000
£’000
£’000
81,552
238,918
283
(7,641)
81,835
231,277
2,867,722
(7,358) 2,860,364
103,393
5,985
2,403,582
(10)
181
103,383
6,166
171 2,403,753
232,059
464,140
(7,529)
(7,529)
224,530
456,611
2,867,722
(7,358) 2,860,364
Profit for the period attributable to equity holders of the company
Other comprehensive income net of tax
Total comprehensive income for the period net of tax attributable to equity holders
of the company
47,181
1,017
48,198
The adjustments to the consolidated statement of comprehensive income primarily relate to amortisation charged on the additional
client relationship intangibles recognised under the new policy for capitalising contract costs (see below) and decrease in revenue in
Rathbone Trust Company as a result of the revised treatment under IFRS 15.
Impact on the consolidated balance sheet (extract)
Prepayments, accrued income and other assets
Accruals, deferred income, provisions and other liabilities
Assets
Intangible assets
Total assets
Liabilities
Current tax liabilities
Total liabilities
Equity
Retained earnings
Total equity
Total liabilities and equity
contract costs under IFRS 15.
The adjustments to the consolidated balance sheet reflect the initial and subsequent application of the new policy for capitalising
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 that these will continue in the future.
During the year, client relationship intangible assets were
amortised over a 10 to 15 year period. Amortisation of
£12,919,000 (2017: £11,433,000) was charged during the year,
which includes the amortisation on the recently acquired
Speirs & Jeffrey client relationship intangible. A reduction in
the average amortisation period of one year would increase
the amortisation charge by approximately £1,303,000 (2017:
£1,076,000). At 31 December 2018, the carrying value of client
relationship intangibles was £134,556,000 (2017: £88,511,000).
3.2 Retirement benefit obligations (note 28)
The group makes estimates about a range of long term trends
and market conditions to determine the value of the surplus or
deficit on its retirement benefit schemes, based on the group’s
expectations of the future and advice taken from qualified
actuaries. Long term forecasts and estimates are necessarily
highly judgemental and subject to risk that actual events may
be significantly different to those forecast. If actual events
deviate from the assumptions made by the group then the
reported surplus or deficit in respect of retirement benefit
obligations may be materially different.
The principal assumptions underlying the reported deficit
of £11,197,000 (2017: £15,600,000 deficit) and information on
the sensitivity of the retirement benefit obligations to changes
in underlying estimates are set out in note 28.
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sources of estimation and uncertainty
The group makes judgements and estimates that affect the
application of the group’s accounting policies and reported
amounts of assets, liabilities, income and expenses within
the next financial year. Estimates and assumptions 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.
Both judgements and estimates are made in the following
areas in applying accounting policies, and care has been
taken to distinguish between the two.
3.1 Client relationship intangibles (note 22)
Client relationship intangibles purchased through
corporate transactions
When the group purchases client relationships through
transactions with other corporate entities, a judgement is
made as to whether the transaction should be accounted for
as a business combination or as a separate purchase of intangible
assets. In making this judgement, the group assesses the assets,
liabilities, operations and processes that were the subject of the
transaction against the definition of a business combination in
IFRS 3. In particular, consideration is given to the scale of the
operations subject to the transaction and whether ownership
of a corporate entity has been acquired, 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
these payments are incremental costs of acquiring investment
management contracts and are deemed to be recoverable (i.e.
through future revenues earned from the funds that transfer),
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.
Under the broader scope requirements of IFRS 15, judgement
is no longer required over the suitable period during which
awards accruing to new investment managers are capitalised.
Instead, payments are capitalised for the duration of the
contractual agreement.
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3 Critical accounting judgements and key
sources of estimation and uncertainty
continued
3.3 Business combinations (note 35)
During the year, the group acquired the entire share capital
of Speirs & Jeffrey (“S&J”). The group has accounted for the
transaction as a business combination, as set out in note 35.
Treatment and fair value of consideration transferred
The purchase price payable in respect of the acquisition is split
into a number of different components. The payment of certain
elements has been deferred; the timing and value of these are
contingent on certain employment conditions and operational
and financial targets being met.
The proportion of the deferred payments that are contingent
on selling shareholders remaining employees of the group for
a specific period are accounted for as remuneration for ongoing
services in employment. The group’s estimate of the amounts
ultimately payable will be expensed over the deferral period.
Those deferred payments accounted for as additional
consideration were assessed against the operational targets
to which they are subject. Based on performance against the
operational targets to date, the group has made an assessment
of the amount and timing of these payments. A provision for
contingent consideration has been made for the amount
expected to be paid.
Identification of assets acquired and liabilities assumed
As at 31 August 2018, the date of acquisition, Speirs & Jeffrey’s
identifiable assets, liabilities and contingent liabilities have
been recognised at their fair value.
In accordance with the process described in note 3.1, the group
has recognised a client relationship intangible of £54,337,000,
arising from Speirs & Jeffrey’s relationship with clients whose
assets are managed by the business. Further detail on the
sources of estimation in the valuation is provided in note 35.
Goodwill of £28,087,000 has been recognised in accordance
with note 1.14.
Carrying value of assets acquired
As at 31 December 2018, the carrying value for the client
relationship intangible arising from Speirs & Jeffrey was
£53,129,000 (2017: £nil). Amortisation in the year ended 31
December 2018 in relation to the client relationship intangible
was £1,207,000 (2017: £nil). A reduction in the amortisation
period by 1 year would increase the amortisation charge for
the year by approximately £87,000 (2017: £nil).
The carrying value of £28,087,000 for goodwill remains
unchanged at 31 December 2018 compared to the acquisition date.
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Notes to the consolidated financial statements continued
3 Critical accounting judgements and key
sources of estimation and uncertainty
continued
3.3 Business combinations (note 35)
During the year, the group acquired the entire share capital
of Speirs & Jeffrey (“S&J”). The group has accounted for the
transaction as a business combination, as set out in note 35.
Treatment and fair value of consideration transferred
The purchase price payable in respect of the acquisition is split
into a number of different components. The payment of certain
elements has been deferred; the timing and value of these are
contingent on certain employment conditions and operational
and financial targets being met.
The proportion of the deferred payments that are contingent
on selling shareholders remaining employees of the group for
a specific period are accounted for as remuneration for ongoing
services in employment. The group’s estimate of the amounts
ultimately payable will be expensed over the deferral period.
Those deferred payments accounted for as additional
consideration were assessed against the operational targets
to which they are subject. Based on performance against the
operational targets to date, the group has made an assessment
of the amount and timing of these payments. A provision for
contingent consideration has been made for the amount
expected to be paid.
Identification of assets acquired and liabilities assumed
As at 31 August 2018, the date of acquisition, Speirs & Jeffrey’s
identifiable assets, liabilities and contingent liabilities have
been recognised at their fair value.
In accordance with the process described in note 3.1, the group
has recognised a client relationship intangible of £54,337,000,
arising from Speirs & Jeffrey’s relationship with clients whose
assets are managed by the business. Further detail on the
sources of estimation in the valuation is provided in note 35.
Goodwill of £28,087,000 has been recognised in accordance
with note 1.14.
Carrying value of assets acquired
As at 31 December 2018, the carrying value for the client
relationship intangible arising from Speirs & Jeffrey was
£53,129,000 (2017: £nil). Amortisation in the year ended 31
December 2018 in relation to the client relationship intangible
was £1,207,000 (2017: £nil). A reduction in the amortisation
period by 1 year would increase the amortisation charge for
the year by approximately £87,000 (2017: £nil).
The carrying value of £28,087,000 for goodwill remains
unchanged at 31 December 2018 compared to the acquisition date.
4
Segmental information
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 administration 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 2018
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs – fixed
Staff costs – variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Segment profit before tax
Head office relocation costs (note 10)
Profit before tax attributable to equity holders of the company
Taxation (note 12)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
200,530
41,439
15,321
18,019
275,309
(66,512)
(37,736)
(104,248)
(27,629)
(64,596)
(196,473)
78,836
(13,188)
(16,228)
49,420
Unit Trusts
£’000
32,865
–
–
3,789
36,654
Indirect expenses
£’000
–
–
–
–
–
(3,300)
(7,552)
(10,852)
(6,950)
(6,130)
(23,932)
12,722
–
–
12,722
(26,152)
(9,806)
(35,958)
(34,768)
70,726
–
–
–
(3,697)
(3,697)
Total
£’000
233,395
41,439
15,321
21,808
311,963
(95,964)
(55,094)
(151,058)
(69,347)
–
(220,405)
91,558
(13,188)
(19,925)
58,445
2,861
61,306
(15,137)
46,169
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Investment
Management
£’000
2,786,718
Unit Trusts
£’000
81,004
Total
£’000
2,867,722
–
2,867,722
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Notes to the consolidated financial statements continued
4
Segmental information continued
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 22)
Acquisition-related costs (note 9)
Segment profit before tax
Gain on plan amendment of defined benefit pension schemes (note 28)
Head office relocation costs (note 10)
Profit before tax attributable to equity holders of the company
Taxation (note 12)
Profit for the year attributable to equity holders of the company
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)
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
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
2,659,723
Unit Trusts
£’000
74,672
The following table reconciles underlying operating income to operating income:
Underlying operating income
Gain on plan amendment of defined benefit pension schemes (note 28)
Operating income
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Head office relocation costs (note 10)
Operating expenses
Total
£’000
2,734,395
4,455
2,738,850
2018
£’000
311,963
–
311,963
2018
£’000
220,405
13,188
19,925
(2,861)
250,657
2017
£’000
286,049
5,523
291,572
2017
£’000
198,529
11,716
6,178
16,248
232,671
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Notes to the consolidated financial statements continued
4
Segmental information continued
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
Acquisition-related costs (note 9)
Segment profit before tax
Charges in relation to client relationships and goodwill (note 22)
Gain on plan amendment of defined benefit pension schemes (note 28)
Head office relocation costs (note 10)
Profit before tax attributable to equity holders of the company
Taxation (note 12)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
The following table reconciles underlying operating income to operating income:
Gain on plan amendment of defined benefit pension schemes (note 28)
Underlying operating income
Operating income
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Head office relocation costs (note 10)
Operating expenses
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
Indirect expenses
£’000
£’000
28,020
–
–
3,410
31,430
(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)
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
Investment
Management
£’000
2,659,723
Unit Trusts
£’000
74,672
Total
£’000
2,734,395
4,455
2,738,850
2018
£’000
2017
£’000
311,963
286,049
–
5,523
311,963
291,572
2018
£’000
2017
£’000
220,405
198,529
13,188
19,925
(2,861)
11,716
6,178
16,248
250,657
232,671
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
2018
£’000
301,029
10,934
311,963
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
2018
£’000
251,429
4,327
255,756
2017
£’000
173,496
4,938
178,434
Timing of revenue recognition
The following table presents operating income analysed by the timing of revenue recognition of the operating segment providing
the service:
Products and services transferred at a point in time
Products and services transferred over time
Underlying operating income
2018
2017
Investment
Management
£’000
44,392
230,917
275,309
Unit Trusts
£’000
3,431
33,223
36,654
Investment
Management
£’000
42,036
212,583
254,619
Unit Trusts
£’000
3,104
28,326
31,430
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Major clients
The group is not reliant on any one client or group of connected clients for generation of revenues.
5 Net interest income
Interest income
Cash and balances with central banks
Fair value through profit or loss investment securities
Amortised cost investment securities
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 27)
Credit impairment charges
Net interest income
2018
£’000
2017
£’000
7,634
958
6,503
–
–
2,353
3,520
20,968
(4,323)
(1,283)
(41)
(5,647)
15,321
3,963
–
–
4,242
808
1,409
3,079
13,501
(631)
(1,276)
–
(1,907)
11,594
With the exception of credit impairment charges, which are calculated as described in note 32, all net interest income is calculated
using the effective interest method (note 1.7).
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Notes to the consolidated financial statements continued
6 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
2018
£’000
2017
£’000
272,700
41,313
314,013
256,476
35,558
292,034
(16,987)
(5,916)
(22,903)
291,110
(17,293)
(5,422)
(22,715)
269,319
7 Net trading and other operating income
Net trading income
Net trading income of £3,405,000 (2017: £3,071,000) comprises Unit Trust net dealing profits.
Other operating income
Other operating income of £2,127,000 (2017: £2,065,000) comprises dividend income from fair value through profit or loss equity
securities, rental income from sub-leases on certain properties leased by group companies and sundry income.
8 Operating expenses
Staff costs (note 11)
Depreciation of property, plant and equipment
Amortisation of internally generated intangible assets (note 22)
Amortisation of purchased software (note 22)
Auditor's remuneration (see below)
Impairment charges on loans and advances to customers (note 32)
Operating lease rentals
Other
Other operating expenses
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Head office relocation costs (note 10)
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
Of the above, audit-related services for the year totalled £731,000 (2017: £713,000).
2018
£’000
151,059
3,817
686
3,983
793
33
8,952
51,082
220,405
13,188
19,925
(2,861)
250,657
2018
£’000
118
314
299
23
39
793
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
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Notes to the consolidated financial statements continued
6 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
Net trading income
Other operating income
8 Operating expenses
7 Net trading and other operating income
Net trading income of £3,405,000 (2017: £3,071,000) comprises Unit Trust net dealing profits.
Other operating income of £2,127,000 (2017: £2,065,000) comprises dividend income from fair value through profit or loss equity
securities, rental income from sub-leases on certain properties leased by group companies and sundry income.
Staff costs (note 11)
Depreciation of property, plant and equipment
Amortisation of internally generated intangible assets (note 22)
Amortisation of purchased software (note 22)
Auditor's remuneration (see below)
Impairment charges on loans and advances to customers (note 32)
Operating lease rentals
Other
Other operating expenses
Acquisition-related costs (note 9)
Head office relocation costs (note 10)
Total operating expenses
Charges in relation to client relationships and goodwill (note 22)
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
Of the above, audit-related services for the year totalled £731,000 (2017: £713,000).
2018
£’000
2017
£’000
272,700
41,313
314,013
256,476
35,558
292,034
(16,987)
(5,916)
(22,903)
291,110
(17,293)
(5,422)
(22,715)
269,319
2018
£’000
2017
£’000
151,059
141,120
220,405
198,529
250,657
232,671
3,817
686
3,983
793
33
8,952
51,082
13,188
19,925
(2,861)
2018
£’000
118
314
299
23
39
793
3,619
492
2,809
857
1
8,221
41,410
11,716
6,178
16,248
2017
£’000
136
280
297
25
119
857
Fees payable for the audit of the company's annual financial statements include £19,000 (2017: £39,000) 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 (2017: £208,000). Fees for other services include advice in relation to the pension schemes, a qualified intermediary
compliance review and work related to the merger discussions.
9 Acquisition-related costs
Acquisition of Speirs & Jeffrey
Acquisition of Vision and Castle
Merger discussions with Smith & Williamson
Acquisition-related costs
2018
£’000
18,411
1,514
–
19,925
2017
£’000
–
1,273
4,905
6,178
Costs relating to the acquisition of Speirs & Jeffrey
On 31 August 2018, the group completed the acquisition of 100% of the share capital of Speirs & Jeffrey. The group incurred £18,411,000
for the year ended 31 December 2018 in relation to the acquisition, which is made up as follows.
Acquisition costs:
– Staff costs (note 35)
– Legal and advisory fees
– Stamp duty
Integration costs
2018
£’000
14,714
2,465
653
579
18,411
s
t
a
t
e
m
e
n
t
s
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
2018
£’000
1,074
440
–
1,514
2017
£’000
1,026
247
–
1,273
Amounts reported in staff costs relate to deferred payments to previous owners who remain in employment with the acquired
companies. The payment is due to be settled at the end of 2019 (see note 26) and the total cost is being charged to profit and loss
over the deferral period.
Costs relating to merger discussions with Smith & Williamson
In 2017, 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.
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Notes to the consolidated financial statements continued
10 Head office relocation
On 6 June 2018, the group completed the assignment of its leases on surplus property at 1 Curzon Street. The completion
of the deal triggered a release of £3,726,000 from the onerous lease provision held over the property (see note 26).
During the year ended 31 December 2018, a credit of £2,861,000 (2017: costs of £16,248,000 were incurred) was incurred. This
incremental credit was as follows:
Rental costs for 8 Finsbury Circus prior to occupancy
Accelerated depreciation charge for 1 Curzon Street
Provision for dilapidations
(Credit)/charge in relation to onerous lease provision (note 26)
Interest charge in relation to onerous lease provision
Release of rent free period and landlord contribution on recognition of the onerous lease provision
Professional and other costs
11 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Cash-settled share-based payments
Pension costs (note 28):
– defined benefit schemes
– defined contribution schemes
The average number of employees, on a full time equivalent basis, during the year was as follows:
Investment Management:
– investment management services
– advisory services
Unit Trusts
Shared services
12
Income tax expense
Current tax:
– charge for the year
– adjustments in respect of prior years
Deferred tax (note 21):
– credit for the year
– adjustments in respect of prior years
2018
£’000
–
–
492
(3,726)
75
–
298
(2,861)
2017
£’000
536
779
248
16,064
201
(2,148)
568
16,248
2018
£’000
120,241
15,446
6,886
–
2017
£’000
113,719
14,695
4,120
(249)
491
7,995
2,575
6,260
8,486
151,059
8,835
141,120
2018
2017
855
107
33
334
1,329
734
92
28
293
1,147
2018
£’000
2017
£’000
16,830
(1,599)
(1,049)
955
15,137
13,466
(303)
(1,034)
(57)
12,072
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.
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Notes to the consolidated financial statements continued
10 Head office relocation
On 6 June 2018, the group completed the assignment of its leases on surplus property at 1 Curzon Street. The completion
of the deal triggered a release of £3,726,000 from the onerous lease provision held over the property (see note 26).
During the year ended 31 December 2018, a credit of £2,861,000 (2017: costs of £16,248,000 were incurred) was incurred. This
incremental credit was as follows:
Rental costs for 8 Finsbury Circus prior to occupancy
Accelerated depreciation charge for 1 Curzon Street
Provision for dilapidations
(Credit)/charge in relation to onerous lease provision (note 26)
Interest charge in relation to onerous lease provision
Release of rent free period and landlord contribution on recognition of the onerous lease provision
The average number of employees, on a full time equivalent basis, during the year was as follows:
Professional and other costs
11 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Cash-settled share-based payments
Pension costs (note 28):
– defined benefit schemes
– defined contribution schemes
Investment Management:
– investment management services
– advisory services
Unit Trusts
Shared services
12
Income tax expense
– adjustments in respect of prior years
Current tax:
– charge for the year
Deferred tax (note 21):
– credit for the year
– adjustments in respect of prior years
2018
£’000
–
–
492
(3,726)
75
–
298
(2,861)
2018
£’000
120,241
15,446
6,886
–
491
7,995
8,486
2017
£’000
536
779
248
16,064
201
(2,148)
568
16,248
2017
£’000
113,719
14,695
4,120
(249)
2,575
6,260
8,835
151,059
141,120
2018
2017
855
107
33
334
1,329
734
92
28
293
1,147
2018
£’000
2017
£’000
16,830
(1,599)
(1,049)
955
15,137
13,466
(303)
(1,034)
(57)
12,072
The tax charge on profit for the year is higher (2017: higher) than the standard rate of corporation tax in the UK of 19.0% (2017: 19.2%).
The differences are explained below.
Tax on profit from ordinary activities at the standard rate of 19.0% (2017: 19.2%)
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 9)
– other
Effect of change in corporation tax rate on deferred tax
2018
£’000
11,650
1,210
211
(190)
(644)
2,904
(36)
32
15,137
2017
£’000
11,338
1,045
(79)
(230)
(360)
247
(28)
139
12,072
The effect of disallowable expenses relate to certain operating expenses, which are not deductible for tax purposes. The most
significant of these expenses relate to legal and professional fees associated with the acquisition of Speirs & Jeffrey (tax impact
of £575,000) and client entertaining (tax impact of £307,000).
13 Dividends
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2017 of 39.0p (2016: 36.0p) per share
– interim dividend for the year ended 31 December 2018 of 24.0p (2017: 22.0p) per share
Dividends paid in the year of 63.0p (2017: 58.0p) per share
Proposed final dividend for the year ended 31 December 2018 of 42.0p (2017: 39.0p) per share
2018
£’000
2017
£’000
19,858
12,833
32,691
22,371
18,236
11,184
29,420
19,245
s
t
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An interim dividend of 24.0p per share was paid on 2 October 2018 to shareholders on the register at the close of business on
7 September 2018 (2017: 22.0p).
A final dividend declared of 42.0p per share (2017: 39.0p) is payable on 14 May 2019 to shareholders on the register at the close of
business on 20 April 2019. The final dividend is subject to approval by shareholders at the Annual General Meeting on 9 May 2019
and has not been included as a liability in these financial statements.
14 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 28)
Charges in relation to client relationships and goodwill (note 22)
Acquisition-related costs (note 9)
Head office relocation costs (note 10)
Profit attributable to shareholders
2018
Taxation
£’000
Pre-tax
£’000
Pre-tax
£’000
91,558 (17,388) 74,170 87,520
Post-tax
£’000
–
–
–
(13,188)
(19,925)
2,861
5,523
2,506 (10,682) (11,716)
(6,178)
(16,248)
61,306 (15,137) 46,169 58,901
289 (19,636)
2,317
(544)
2017
Taxation
£’000
Post-tax
£’000
(17,426) 70,094
(1,063)
2,255
944
3,218
4,460
(9,461)
(5,234)
(13,030)
(12,072) 46,829
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.
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
Effect of contingently issuable shares under S&J contingent consideration (note 35)
Diluted ordinary shares
2018
2017
52,050,979 50,493,984
188,549
59,030
228,702
–
53,582,298 50,970,265
148,564
474
375,759
1,006,522
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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 52,050,979 (2017: 50,493,984).
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:
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Notes to the consolidated financial statements continued
14 Earnings per share continued
Earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
Underlying earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
15 Cash and balances with central banks
2018
2017
88.7p
86.2p
92.7p
91.9p
142.5p
138.4p
138.8p
137.5p
Cash in hand
Balances with central banks
Less impairment loss allowance
The fair value of balances with central banks is not materially different from their carrying amount.
Repayable:
– on demand
– 1 year or less but over 3 months
Less impairment loss allowance
Amounts include balances with:
– variable interest rates
– non-interest-bearing
Less impairment loss allowance
2018
£’000
1
2017
£’000
2
1,198,600 1,375,380
–
1,198,479 1,375,382
(122)
2018
£’000
2017
£’000
1,197,001 1,374,002
1,380
–
1,198,479 1,375,382
1,600
(122)
1,197,001 1,374,000
1,382
–
1,198,479 1,375,382
1,600
(122)
The group’s exposure to credit risk arising from cash and balances with central banks is described in note 32.
16 Loans and advances to banks
Current accounts
Fixed term deposits
Less impairment loss allowance
2018
£’000
126,203
40,000
(3)
166,200
2017
£’000
76,070
41,183
–
117,253
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Notes to the consolidated financial statements continued
14 Earnings per share continued
Earnings per share for the year attributable to equity holders of the company:
Underlying earnings per share for the year attributable to equity holders of the company:
– basic
– diluted
– basic
– diluted
15 Cash and balances with central banks
The fair value of balances with central banks is not materially different from their carrying amount.
Cash in hand
Balances with central banks
Less impairment loss allowance
Repayable:
– on demand
– 1 year or less but over 3 months
Less impairment loss allowance
Amounts include balances with:
– variable interest rates
– non-interest-bearing
Less impairment loss allowance
16 Loans and advances to banks
Current accounts
Fixed term deposits
Less impairment loss allowance
2018
2017
88.7p
86.2p
92.7p
91.9p
142.5p
138.4p
138.8p
137.5p
2018
£’000
1
(122)
1,198,600 1,375,380
1,198,479 1,375,382
2017
£’000
2
–
2018
£’000
2017
£’000
1,197,001 1,374,002
1,600
(122)
1,380
–
1,198,479 1,375,382
1,197,001 1,374,000
1,600
(122)
1,382
–
1,198,479 1,375,382
2018
£’000
126,203
40,000
(3)
2017
£’000
76,070
41,183
–
166,200
117,253
Repayable:
– on demand
– 3 months or less excluding on demand
– 1 year or less but over 3 months
Less impairment loss allowance
Amounts include loans and advances with:
– variable interest rates
– fixed interest rates
– non-interest-bearing
Less impairment loss allowance
2018
£’000
2017
£’000
126,072
10,131
30,000
(3)
166,200
125,855
40,000
348
(3)
166,200
75,826
11,183
30,244
–
117,253
75,734
41,183
336
–
117,253
The fair value of loans and advances is not materially different to their carrying amount. Fair value has been calculated as the
discounted amount of estimated future cash flows expected to be received using current market rates.
Loans and advances to banks included in cash and cash equivalents at 31 December 2018 were £136,203,000 (note 38)
(2017: £87,009,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 32.
17 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
Less impairment loss allowance
s
t
a
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t
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2018
£’000
6,096
131,741
1,196
29
(103)
138,959
2017
£’000
4,621
120,509
1,114
35
(66)
126,213
The group’s exposure to credit risk arising from cash and balances with central banks is described in note 32.
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.
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
Less impairment loss allowance
Amounts include loans and advances with:
– variable interest rates
– non-interest-bearing
Less impairment loss allowance
The group’s exposure to credit risk arising from loans and advances to customers is described in note 32.
2018
£’000
2017
£’000
6,796
21,587
50,232
60,447
(103)
138,959
137,812
1,250
(103)
138,959
4,732
13,312
42,519
65,716
(66)
126,213
125,112
1,167
(66)
126,213
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Notes to the consolidated financial statements continued
18
Investment securities
Fair value through profit or loss
Equity securities:
– listed
– unlisted
Money market funds:
– unlisted
* Fair value through profit or loss investments as at 31 December 2017 were classified under IAS 39 as available for sale securities
Amortised cost
Debt securities:
– unlisted
Less impairment loss allowance
2018
£’000
3,205
1,259
2017*
£’000
2,565
–
75,333
79,797
106,747
109,312
2018
£’000
2017*
£’000
907,259
(34)
907,225
701,966
–
701,966
* Amortised cost investments as at 31 December 2017 were classified under IAS 39 as held to maturity
All debt securities are due to mature within one year (2017: all).
Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities
comprises units in Rathbone Unit Trust Management managed funds and Euroclear shares. 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 38).
The fair value of debt securities is disclosed in note 32.
The change in the group's holdings of investment securities in the year is summarised below.
At 1 January 2017
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 1 January 2018
Additions
Acquired through business combination
Disposals (sales and redemptions)
Foreign exchange movements
Loss from changes in fair value
Less impairment loss allowance
At 31 December 2018
Fair value
through
profit or loss*
£’000
105,421
36,248
(27,416)
(5,104)
163
109,312
Amortised
Total
cost**
£’000
£’000
805,421
700,000
782,115
745,867
(769,837)
(742,421)
(6,584)
(1,480)
163
–
811,278
701,966
18,580 1,050,084 1,068,664
1,254
(897,923)
3,968
(185)
(34)
987,022
–
(847,088)
2,297
–
(34)
907,225
1,254
(50,835)
1,671
(185)
–
79,797
* Fair value through profit or loss investments as at 31 December 2017 were classified under IAS 39 as available for sale securities
** Amortised cost investments as at 31 December 2017 were classified under IAS 39 as held to maturity
Included within amortised cost are additions of £1,066,000 (2017: £699,000) and £235,000 (2017: £160,000) of disposals of financial
instruments that are not classified as cash and cash equivalents.
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Notes to the consolidated financial statements continued
* Fair value through profit or loss investments as at 31 December 2017 were classified under IAS 39 as available for sale securities
* Amortised cost investments as at 31 December 2017 were classified under IAS 39 as held to maturity
All debt securities are due to mature within one year (2017: all).
Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities
comprises units in Rathbone Unit Trust Management managed funds and Euroclear shares. 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 38).
The fair value of debt securities is disclosed in note 32.
The change in the group's holdings of investment securities in the year is summarised below.
18
Investment securities
Fair value through profit or loss
Equity securities:
– listed
– unlisted
– unlisted
Money market funds:
Amortised cost
Debt securities:
– unlisted
Less impairment loss allowance
At 1 January 2017
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
At 1 January 2018
Additions
Acquired through business combination
Disposals (sales and redemptions)
Foreign exchange movements
Loss from changes in fair value
Less impairment loss allowance
At 31 December 2018
2018
£’000
3,205
1,259
2017*
£’000
2,565
–
75,333
79,797
106,747
109,312
2018
£’000
2017*
£’000
907,259
701,966
(34)
–
907,225
701,966
Fair value
through
profit or loss*
£’000
105,421
36,248
Amortised
cost**
£’000
700,000
745,867
(5,104)
(1,480)
163
(27,416)
(742,421)
(769,837)
109,312
701,966
811,278
18,580 1,050,084 1,068,664
(50,835)
(847,088)
(897,923)
Total
£’000
805,421
782,115
(6,584)
163
1,254
3,968
(185)
(34)
–
–
–
2,297
(34)
1,254
1,671
(185)
–
79,797
907,225
987,022
* Fair value through profit or loss investments as at 31 December 2017 were classified under IAS 39 as available for sale securities
** Amortised cost investments as at 31 December 2017 were classified under IAS 39 as held to maturity
Included within amortised cost are additions of £1,066,000 (2017: £699,000) and £235,000 (2017: £160,000) of disposals of financial
instruments that are not classified as cash and cash equivalents.
19 Prepayments, accrued income and other assets
Work in progress
Prepayments and other assets
Accrued income
20 Property, plant and equipment
Cost
At 1 January 2017
Additions
Disposals
At 1 January 2018
Additions
Acquisitions through business combinations
Disposals
At 31 December 2018
Depreciation
At 1 January 2017
Charge for the year
Disposals
At 1 January 2018
Charge for the year
Acquisitions through business combinations
Disposals
At 31 December 2018
Carrying amount at 31 December 2018
Carrying amount at 31 December 2017
Carrying amount at 1 January 2017
2018
£’000
2,738
18,733
60,081
81,552
Plant and
equipment
£’000
17,361
2,325
(1,970)
17,716
1,879
2,162
(656)
21,101
13,675
1,962
(1,970)
13,667
2,127
1,949
(655)
17,088
4,013
4,049
3,686
2017
£’000
1,461
12,396
60,588
74,445
Total
£’000
40,126
4,265
(1,970)
42,421
3,255
3,604
(6,687)
42,593
23,536
4,398
(1,970)
25,964
3,817
2,660
(6,686)
25,755
16,838
16,457
16,590
s
t
a
t
e
m
e
n
t
s
Short term
leasehold
improvements
£’000
22,765
1,940
–
24,705
1,376
1,442
(6,031)
21,492
9,861
2,436
–
12,297
1,690
711
(6,031)
8,667
12,825
12,408
12,904
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21 Net deferred tax liability
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 2018
Recognised in profit or loss in respect of:
– current year
– prior year
– change in rate
Total
Recognised in other comprehensive
income in respect of:
– current year
– prior year
– change in rate
Total
Recognised in equity in respect of:
– current year
– prior year
– change in rate
Total
Acquisitions
– business combinations
Deferred
capital
allowances
£’000
1,284
121
(29)
(13)
79
–
–
–
–
–
–
–
–
(44)
Pensions
£’000
2,650
(605)
–
64
(541)
(231)
–
24
(207)
–
–
–
–
–
Share-based
payments
£’000
1,539
Staff-
related
costs
£’000
4,331
Fair value
through
profit or loss
£’000
(50)
400
(29)
–
371
807
(844)
(85)
(122)
33
(53)
12
(8)
Intangible
assets
£’000
(693)
325
–
(10)
315
–
–
–
–
80
(108)
–
(28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(96)
(9,261)
(9,401)
Total
£’000
9,061
1,081
(955)
(32)
94
(231)
–
24
(207)
80
(108)
–
(28)
As at 31 December 2018
1,319
1,902
1,882
4,209
(154)
(9,639)
(481)
Deferred tax assets
Deferred tax liabilities
As at 31 December 2018
Deferred
capital
allowances
£’000
1,319
–
1,319
Pensions
£’000
1,902
–
1,902
Share-based
payments
£’000
1,882
–
1,882
Staff-
related
costs
£’000
4,209
–
4,209
Fair value
through
profit or loss
£’000
–
(154)
(154)
Intangible
assets
£’000
–
(9,639)
(9,639)
Total
£’000
9,312
(9,793)
(481)
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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)
–
–
–
–
(23)
–
3
(20)
–
–
–
–
Intangible
assets
£’000
(780)
99
–
(12)
87
–
–
–
–
–
–
–
–
Total
£’000
10,601
1,174
57
(140)
1,091
(3,350)
–
391
(2,959)
318
10
–
328
s
t
a
t
e
m
e
n
t
s
Recognised in equity in respect of:
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
Notes to the consolidated financial statements continued
21 Net deferred tax liability
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:
Share-based
payments
£’000
1,539
400
(29)
–
371
Staff-
related
costs
£’000
4,331
807
(844)
(85)
(122)
Fair value
through
profit or loss
£’000
(50)
33
(53)
12
(8)
Intangible
assets
£’000
(693)
325
–
(10)
315
–
–
–
–
–
80
(108)
–
(28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(96)
(9,261)
(9,401)
Total
£’000
9,061
1,081
(955)
(32)
94
(231)
–
24
(207)
80
(108)
–
(28)
As at 1 January 2018
Recognised in profit or loss in respect of:
Recognised in other comprehensive
income in respect of:
– current year
– prior year
– change in rate
Total
– current year
– prior year
– change in rate
Total
– current year
– prior year
– change in rate
Total
Acquisitions
– business combinations
Deferred tax assets
Deferred tax liabilities
As at 31 December 2018
Pensions
£’000
2,650
(605)
–
64
(541)
(231)
–
24
(207)
–
–
–
–
–
Deferred
capital
allowances
£’000
1,284
121
(29)
(13)
79
–
–
–
–
–
–
–
–
(44)
Deferred
capital
allowances
£’000
1,319
–
As at 31 December 2018
1,319
1,902
1,882
4,209
(154)
(9,639)
(481)
Pensions
£’000
1,902
–
Share-based
payments
£’000
1,882
–
Staff-
related
costs
£’000
4,209
–
Fair value
through
profit or loss
£’000
–
(154)
(154)
Intangible
assets
£’000
–
(9,639)
(9,639)
Total
£’000
9,312
(9,793)
(481)
1,319
1,902
1,882
4,209
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Notes to the consolidated financial statements continued
22
Intangible assets
Goodwill
Other intangible assets
2018
£’000
91,000
147,918
238,918
2017
£’000
63,182
98,795
161,977
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 2017 and 1 January 2018
Acquired through business combinations (note 35)
At 31 December 2018
Impairment
At 1 January 2017
Charge in the year
At 1 January 2018
Charge in the year
At 31 December 2018
Carrying amount at 31 December 2018
Carrying amount at 31 December 2017
Carrying amount at 1 January 2017
Investment
management
£’000
62,091
28,087
90,178
–
–
–
–
–
90,178
62,091
62,091
Trust and
tax
£’000
1,954
–
1,954
807
283
1,090
269
1,359
595
864
1,147
Rooper &
Whately
£’000
227
–
227
–
–
–
–
–
227
227
227
Total
£’000
64,272
28,087
92,359
807
283
1,090
269
1,359
91,000
63,182
63,465
Goodwill acquired through business combinations in 2018 comprises goodwill arising on the acquisition of Speirs & Jeffrey. The
goodwill has been allocated to the investment management CGU (see note 35).
The recoverable amounts of the CGUs to which goodwill is allocated are assessed using value-in-use calculations. The group prepares
cash flow forecasts derived from the most recent financial budgets approved by the board, covering the forthcoming and future years.
The key assumptions underlying the budgets are that 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
2018
12.3%
5.0%
2017
11.1%
5.0%
Trust and tax
2018
14.3%
(1.0)%
2017
13.1%
(1.0)%
Rooper & Whately
2018
12.3%
0.0%
2017
11.1%
0.0%
At 30 June 2018, the group recognised an impairment charge of £269,000 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 2018 was £595,000, which was lower than the
carrying value of £864,000 at 31 December 2017. The recoverable amount was calculated based on forecast earnings for 2018,
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 15.0%. The impairment was recognised in the Investment Management segment in the segmental analysis. No
further impairment was recognised at 31 December 2018.
Based on the assumptions in the table above, the calculated recoverable amount of the trust and tax CGU at 31 December 2018 was
£1,729,000; this was higher than its carrying value of £595,000. 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, including management’s assessment of
the impact of Brexit, would result in an impairment of the goodwill allocated to it.
134
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Notes to the consolidated financial statements continued
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:
22
Intangible assets
Goodwill
Other intangible assets
Goodwill
Cost
At 1 January 2017 and 1 January 2018
Acquired through business combinations (note 35)
At 31 December 2018
Impairment
At 1 January 2017
Charge in the year
At 1 January 2018
Charge in the year
At 31 December 2018
Carrying amount at 31 December 2018
Carrying amount at 31 December 2017
Carrying amount at 1 January 2017
2018
£’000
91,000
147,918
238,918
2017
£’000
63,182
98,795
161,977
Investment
management
£’000
62,091
28,087
90,178
–
–
–
–
–
90,178
62,091
62,091
Trust and
tax
£’000
1,954
–
1,954
807
283
1,090
269
1,359
595
864
1,147
Rooper &
Whately
£’000
227
–
227
–
–
–
–
–
227
227
227
Total
£’000
64,272
28,087
92,359
807
283
1,090
269
1,359
91,000
63,182
63,465
Goodwill acquired through business combinations in 2018 comprises goodwill arising on the acquisition of Speirs & Jeffrey. The
goodwill has been allocated to the investment management CGU (see note 35).
The recoverable amounts of the CGUs to which goodwill is allocated are assessed using value-in-use calculations. The group prepares
cash flow forecasts derived from the most recent financial budgets approved by the board, covering the forthcoming and future years.
The key assumptions underlying the budgets are that 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
Trust and tax
Rooper & Whately
2018
12.3%
5.0%
2017
11.1%
5.0%
2018
14.3%
(1.0)%
2017
13.1%
(1.0)%
2018
12.3%
0.0%
2017
11.1%
0.0%
At 30 June 2018, the group recognised an impairment charge of £269,000 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 2018 was £595,000, which was lower than the
carrying value of £864,000 at 31 December 2017. The recoverable amount was calculated based on forecast earnings for 2018,
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 15.0%. The impairment was recognised in the Investment Management segment in the segmental analysis. No
further impairment was recognised at 31 December 2018.
Based on the assumptions in the table above, the calculated recoverable amount of the trust and tax CGU at 31 December 2018 was
£1,729,000; this was higher than its carrying value of £595,000. 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, including management’s assessment of
the impact of Brexit, would result in an impairment of the goodwill allocated to it.
Other intangible assets
Cost
At 1 January 2017
Internally developed in the year
Purchased in the year
Disposals
At 31 December 2017
Adjustment on initial application of IFRS 15 (note 2)
At 1 January 2018
Internally developed in the year
Acquired through business combinations (note 35)
Purchased in the year
Disposals
Revaluation of assets
At 31 December 2018
Amortisation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Adjustment on initial application of IFRS 15 (note 2)
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018
Carrying amount at 31 December 2018
Carrying amount at 31 December 2017
Carrying amount at 1 January 2017
Client
relationships
£’000
144,652
–
2,743
(1,983)
145,412
9,691
155,103
–
54,337
1,298
(2,182)
(4,939)
203,617
47,451
11,433
(1,983)
56,901
1,423
58,324
12,919
(2,182)
69,061
134,556
88,511
97,201
Software
development
costs
£’000
4,922
837
–
–
5,759
–
5,759
1,450
–
–
–
–
7,209
4,037
492
–
4,529
–
4,529
686
–
5,215
1,994
1,230
885
Purchased
software
£’000
24,368
–
6,222
–
30,590
–
30,590
–
–
6,297
–
–
36,887
18,727
2,809
–
21,536
–
21,536
3,983
–
25,519
11,368
9,054
5,641
Total
£’000
173,942
837
8,965
(1,983)
181,761
9,691
191,452
1,450
54,337
7,595
(2,182)
(4,939)
247,713
70,215
14,734
(1,983)
82,966
1,423
84,389
17,588
(2,182)
99,795
147,918
98,795
103,727
s
t
a
t
e
m
e
n
t
s
Client relationships acquired through business combinations in 2018 relate to the acquisition of Speirs & Jeffrey (note 35).
Purchases of client relationships in the year relate to payments made to investment managers and third parties for the introduction
of client relationships.
The total amount charged to profit or loss in the year, in relation to goodwill and client relationships, was £13,188,000 (2017: £11,716,000).
The value of certain awards related to client relationships were reduced by £4,939,000 during the year as not all performance
conditions were ultimately met.
Purchased software with a cost of £18,769,000 (2017: £18,069,000) has been fully amortised but is still in use.
23 Deposits by banks
On 31 December 2018, deposits by banks included overnight cash book overdraft balances of £491,000 (2017: £1,338,000).
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.
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Notes to the consolidated financial statements continued
24 Due to customers
Repayable:
– on demand
– 3 months or less excluding on demand
– 1 year or less but over 3 months
Amounts include balances with:
– variable interest rates
– fixed interest rates
– non-interest-bearing
2018
£’000
2017
£’000
2,065,029 2,081,788
83,425
5,285
2,225,536 2,170,498
153,127
7,380
2,064,814 2,060,565
83,908
26,025
2,225,536 2,170,498
131,327
29,395
The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value of deposits
with no stated maturity, which include non-interest-bearing deposits, is the amount at which deposits could be transferred to a third
party at the measurement date. The estimated fair value of fixed-interest-bearing deposits is based on discounted cash flows using
interest rates for new debts with similar remaining maturity.
25 Accruals, deferred income, provisions and other liabilities
Trade creditors
Other creditors
Accruals and deferred income
Other provisions (note 26)
26 Other provisions
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
Adjustment on initial application of IFRS 15 (note 2)
At 1 January 2018
Charged to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2018
Of which:
– Payable within 1 year
– Payable after 1 year
2018
£’000
2,513
20,395
68,701
11,784
103,393
2017
£’000
2,259
18,294
64,126
23,712
108,391
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
10,212
–
–
–
2,743
(4,883)
8,072
4,075
12,147
–
–
–
(3,641)
(7,445)
1,061
511
550
1,061
Deferred and
contingent
consideration
in business
combinations
£’000
1,136
–
–
–
84
–
1,220
–
1,220
–
–
–
3,158
(2,000)
2,378
2,378
–
2,378
Legal and
compensation
£’000
598
248
(54)
194
–
(115)
677
–
677
449
(57)
392
–
(260)
809
809
–
809
Property-
related
£’000
2,798
16,534
–
16,534
–
(5,589)
13,743
–
13,743
1,836
(3,726)
(1,890)
600
(4,917)
7,536
5,953
1,583
7,536
Total
£’000
14,744
16,782
(54)
16,728
2,827
(10,587)
23,712
4,075
27,787
2,285
(3,783)
(1,498)
117
(14,622)
11,784
9,651
2,133
11,784
136
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Notes to the consolidated financial statements continued
The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value of deposits
with no stated maturity, which include non-interest-bearing deposits, is the amount at which deposits could be transferred to a third
party at the measurement date. The estimated fair value of fixed-interest-bearing deposits is based on discounted cash flows using
interest rates for new debts with similar remaining maturity.
25 Accruals, deferred income, provisions and other liabilities
24 Due to customers
Repayable:
– on demand
– 3 months or less excluding on demand
– 1 year or less but over 3 months
Amounts include balances with:
– variable interest rates
– fixed interest rates
– non-interest-bearing
Trade creditors
Other creditors
Accruals and deferred income
Other provisions (note 26)
26 Other provisions
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
Adjustment on initial application of IFRS 15 (note 2)
At 1 January 2018
Charged to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2018
Of which:
– Payable within 1 year
– Payable after 1 year
2018
£’000
2017
£’000
2,065,029 2,081,788
153,127
7,380
83,425
5,285
2,225,536 2,170,498
2,064,814 2,060,565
131,327
29,395
83,908
26,025
2,225,536 2,170,498
2018
£’000
2,513
20,395
68,701
11,784
2017
£’000
2,259
18,294
64,126
23,712
103,393
108,391
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
10,212
Deferred and
contingent
consideration
in business
combinations
£’000
1,136
Legal and
compensation
–
–
–
–
–
–
2,743
(4,883)
8,072
4,075
12,147
(3,641)
(7,445)
1,061
511
550
1,061
84
1,220
1,220
–
–
–
–
–
–
–
–
3,158
(2,000)
2,378
2,378
–
2,378
£’000
598
248
(54)
194
(115)
677
–
–
677
449
(57)
392
–
(260)
809
809
–
809
Property-
related
£’000
2,798
16,534
16,534
(5,589)
13,743
–
–
–
13,743
1,836
(3,726)
(1,890)
600
(4,917)
7,536
5,953
1,583
7,536
Total
£’000
14,744
16,782
(54)
16,728
2,827
(10,587)
23,712
4,075
27,787
2,285
(3,783)
(1,498)
117
(14,622)
11,784
9,651
2,133
11,784
Deferred, variable costs to acquire client relationship intangibles
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year. In 2018, there was a net release of £3,641,000 (2017: net increase of £2,743,000)
in relation to the value of certain payments where not all performance conditions were ultimately met (note 22).
Deferred and contingent consideration in business combinations
Deferred and contingent consideration includes £1,050,000 (2017: £nil) payable to vendors following the acquisition of Speirs & Jeffrey.
The payment is contingent on certain operational targets being met (see note 35). It also includes £1,328,000 (2017: £1,220,000) which
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 £7,536,000 relate to dilapidation and onerous lease provisions expected to arise on leasehold premises
held by the group (2017: £13,743,000).
On 6 June 2018, the group completed assignment of its leases on surplus property at 1 Curzon Street, which triggered a release of
£3,726,000 from the onerous lease provision held over the property. The timing of cash flows from the group relating to monies
due under the contract with the assignee are subject to the level of rent paid by the assignee following the rent review that was
due in the third quarter of 2018 but remains outstanding.
Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2018, dilapidation
provisions increased by £1,449,000 (2017: decreased by £533,000). The group utilised £912,000 (2017: £802,000) of the dilapidations
provision held for the surplus property at 1 Curzon Street during the year. During the year, management have reviewed the potential
cost and timing of dilapidation provisions, which has resulted in an increase in provisions of £1,636,000 (2017: £nil). The impact of
discounting led to an additional £125,000 (2017: £82,000) being provided for over the year. The acquisition of Speirs & Jeffrey led
to £600,000 being added to the dilapidations provision during the year for floors leased in George House, Glasgow (note 35).
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Amounts payable after one year
Property-related provisions of £1,583,000 are expected to be settled within 15 years of the balance sheet date, which corresponds to
the longest lease for which a dilapidations provision is being held. Remaining provisions payable after one year are expected to be
settled within two years of the balance sheet date.
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27 Subordinated loan notes
Subordinated loan notes
– face value
– carrying value
2018
£’000
2017
£’000
20,000
19,807
20,000
19,695
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 £1,283,000 (2017: £1,276,000) was recognised in the year (see note 5).
28 Long-term employee benefits
Defined contribution pension scheme
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 £7,959,000
(2017: £6,213,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions
were £36,000 (2017: £47,000).
Defined benefit pension schemes
The group operates two defined benefit pension schemes that operate within the UK legal and regulatory framework; 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.
Following a recent high court ruling, the cost of equalising pension benefits for the impact of unequal Guaranteed Minimum Pensions
(GMP) has been recognised. Only the Laurence Keen Scheme is impacted. The Rathbone 1987 Scheme was never contracted out,
meaning there are no GMP benefits in this scheme. Ahead of a specific method for equalisation being agreed with the scheme
trustees, the cost has been estimated using a method consistent with that deemed by the high court to be the minimum necessary
requirements to achieve equality. This has resulted in a plan amendment loss of £125,000 being recognised in staff costs.
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 and to future accrual from 30 June 2017. 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 £913,000 of related insurance premiums were expensed to profit or loss in the
year (2017: £1,167,000). 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 2016
31 December 2016
The next triennial valuations of the two schemes will be carried out as at 31 December 2019, and are likely to result in changes to the
funding commitments.
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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Notes to the consolidated financial statements continued
27 Subordinated loan notes
Subordinated loan notes
– face value
– carrying value
28 Long-term employee benefits
Defined contribution pension scheme
were £36,000 (2017: £47,000).
Defined benefit pension schemes
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 £1,283,000 (2017: £1,276,000) was recognised in the year (see note 5).
2018
£’000
2017
£’000
20,000
19,807
20,000
19,695
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 £7,959,000
(2017: £6,213,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions
The group operates two defined benefit pension schemes that operate within the UK legal and regulatory framework; 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.
Following a recent high court ruling, the cost of equalising pension benefits for the impact of unequal Guaranteed Minimum Pensions
(GMP) has been recognised. Only the Laurence Keen Scheme is impacted. The Rathbone 1987 Scheme was never contracted out,
meaning there are no GMP benefits in this scheme. Ahead of a specific method for equalisation being agreed with the scheme
trustees, the cost has been estimated using a method consistent with that deemed by the high court to be the minimum necessary
requirements to achieve equality. This has resulted in a plan amendment loss of £125,000 being recognised in staff costs.
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 and to future accrual from 30 June 2017. 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 £913,000 of related insurance premiums were expensed to profit or loss in the
year (2017: £1,167,000). 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 2016
31 December 2016
The next triennial valuations of the two schemes will be carried out as at 31 December 2019, and are likely to result in changes to the
funding commitments.
The assumptions used by the actuaries, to estimate the schemes' liabilities, are the best estimates chosen from a range of possible
actuarial assumptions. Due to the timescale covered by the liability, these assumptions may not necessarily be borne out in practice.
The principal actuarial assumptions used, which reflect the different membership profiles of the schemes, were:
Rate of increase of salaries
Rate of increase of pensions in payment
Rate of increase of deferred pensions
Discount rate
Inflation*
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
2018
%
(unless stated)
n/a
3.60
3.40
2.85
3.40
3.00
52.5
2017
%
(unless stated)
n/a
3.60
3.50
2.65
3.50
3.00
52.5
2018
%
(unless stated)
n/a
3.30
3.40
2.85
3.40
3.00
52.5
2017
%
(unless stated)
n/a
3.40
3.50
2.65
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 increased by 0.2% to reflect an increase in the yields available on AA-rated Corporate Bonds;
2. the assumed rate of future inflation has decreased by 0.1% 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 have decreased by 0.1% for the 1987 Scheme and remained level
for the Laurence Keen Scheme, 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 2016 version to the 2017 version.
The assumed duration of the liabilities for the Laurence Keen Scheme is 17 years (2017: 16 years) and the assumed duration for the
Rathbone 1987 Scheme is 21 years (2016: 20 years).
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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 (2017: S2NA tables). The assumed life expectations on retirement were:
Retiring today:
Retiring in 20 years:
– aged 60
– aged 65
– aged 60
– aged 65
2018
2017
Males (Years)
28.4
23.6
30.3
25.3
Females (Years)
30.5
25.6
32.3
27.3
Males (Years)
28.5
23.7
30.4
25.4
Females (Years)
30.6
25.6
32.4
27.4
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
(12,383)
11,624
(759)
2018
Rathbone
1987 Scheme
£’000
(134,150)
123,712
(10,438)
Total
£’000
(146,533)
135,336
(11,197)
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)
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Notes to the consolidated financial statements continued
28 Long-term employee benefits continued
The amounts recognised in profit or loss, within operating expenses, are as follows:
Current service cost
Net interest on net liability
Loss/(gain) on plan amendment
Laurence Keen
Scheme
£’000
–
14
125
139
2018
Rathbone
1987 Scheme
£’000
–
352
–
352
Total
£’000
–
366
125
491
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)
Remeasurements of the net defined benefit liability have been reported in other comprehensive income. The actual return on
scheme assets was a fall in value of £280,000 (2017: £1,170,000 rise) for the Laurence Keen Scheme and a fall in value of £6,279,000
(2017: £13,558,000 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
Loss/(gain) on plan amendment
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
12,980
–
334
–
106
103
(487)
125
(778)
12,383
Movements in the fair value of scheme assets were as follows:
Laurence Keen
Scheme
£’000
12,278
2018
Rathbone
1987 Scheme
£’000
151,133
–
3,879
–
(5,446)
1,817
(7,720)
–
(9,513)
134,150
2018
Rathbone
1987 Scheme
£’000
136,235
Total
£’000
164,113
–
4,213
–
(5,340)
1,920
(8,207)
125
(10,291)
146,533
Laurence Keen
Scheme
£’000
16,203
–
412
–
(214)
(494)
369
(305)
(2,991)
12,980
Total
£’000
148,513
Laurence Keen
Scheme
£’000
14,099
2017
Rathbone
1987 Scheme
£’000
216,238
1,559
5,219
314
(4,489)
(7,786)
5,439
(5,218)
(60,143)
151,133
2017
Rathbone
1987 Scheme
£’000
178,887
Total
£’000
232,441
1,559
5,631
314
(4,703)
(8,280)
5,808
(5,523)
(63,134)
164,113
Total
£’000
192,986
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
320
3,527
3,847
(600)
(9,806)
(10,406)
353
817
4,262
4,615
9,296
10,113
404
–
(778)
11,624
3,269
–
(9,513)
123,712
3,673
–
(10,291)
135,336
–
–
(2,991)
12,278
3,619
314
(60,143)
136,235
3,619
314
(63,134)
148,513
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Notes to the consolidated financial statements continued
28 Long-term employee benefits continued
The amounts recognised in profit or loss, within operating expenses, are as follows:
Current service cost
Net interest on net liability
Loss/(gain) on plan amendment
Laurence Keen
Laurence Keen
2018
Rathbone
1987 Scheme
£’000
352
–
–
352
Scheme
£’000
–
14
125
139
Total
£’000
–
366
125
491
2017
Rathbone
1987 Scheme
£’000
1,559
957
(5,218)
(2,702)
Scheme
£’000
–
59
(305)
(246)
Total
£’000
1,559
1,016
(5,523)
(2,948)
Remeasurements of the net defined benefit liability have been reported in other comprehensive income. The actual return on
scheme assets was a fall in value of £280,000 (2017: £1,170,000 rise) for the Laurence Keen Scheme and a fall in value of £6,279,000
(2017: £13,558,000 rise) for the Rathbone 1987 Scheme.
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Interest cost
Service cost (employer’s part)
Contributions from members
Actuarial experience gains
Actuarial (gains)/losses arising from:
– demographic assumptions
– financial assumptions
Loss/(gain) on plan amendment
Benefits paid
At 31 December
Remeasurement of net defined benefit
At 1 January
liability:
– interest income
– return on scheme assets (excluding
amounts included in interest income)
Contributions from the sponsoring
Contributions from scheme members
companies
Benefits paid
At 31 December
12,980
151,133
164,113
16,203
216,238
232,441
Total
£’000
Laurence Keen
Scheme
£’000
–
–
412
–
–
2017
Rathbone
1987 Scheme
£’000
1,559
5,219
314
Total
£’000
1,559
5,631
314
3,879
4,213
106
(5,446)
(5,340)
(214)
(4,489)
(4,703)
Laurence Keen
Scheme
£’000
2018
Rathbone
1987 Scheme
£’000
334
–
–
103
(487)
125
(778)
–
–
–
1,817
(7,720)
(9,513)
12,383
134,150
1,920
(8,207)
125
(10,291)
146,533
(494)
369
(305)
(7,786)
5,439
(5,218)
(2,991)
12,980
(60,143)
151,133
(8,280)
5,808
(5,523)
(63,134)
164,113
Laurence Keen
Scheme
£’000
2018
Rathbone
1987 Scheme
£’000
Total
£’000
Laurence Keen
Scheme
£’000
2017
Rathbone
1987 Scheme
£’000
Total
£’000
12,278
136,235
148,513
14,099
178,887
192,986
320
3,527
3,847
4,262
4,615
(600)
(9,806)
(10,406)
9,296
10,113
404
–
(778)
3,269
–
(9,513)
11,624
123,712
3,673
–
(10,291)
135,336
3,619
314
3,619
314
(63,134)
148,513
(2,991)
12,278
(60,143)
136,235
353
817
–
–
Movements in the fair value of scheme assets were as follows:
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 growth 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 2018 as set out in the statements of investment principles are as follows:
Target asset allocation at 31 December 2018
Benchmark
Safer assets
Growth assets
Range
Safer 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
2018
Fair
value
£’000
3,007
377
588
734
4,706
4,475
1,993
6,468
84
366
11,624
2017
Fair
value
£’000
3,722
409
755
558
5,444
4,482
1,686
6,168
283
383
12,278
Laurence Keen
Scheme
Rathbone
1987 Scheme
52%
48%
40%
60%
46% – 58% 32% – 44%
42% – 54% 54% – 66%
2018
Current
allocation
%
2017
Current
allocation
%
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s
40
45
56
1
3
100
50
2
3
100
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28 Long-term employee benefits continued
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
2018
Fair
value
£’000
34,367
6,110
8,958
7,081
56,516
36,055
2,042
8,809
–
46,906
41,736
6,016
9,422
7,168
64,342
36,069
1,973
10,100
–
48,142
15,734
15,734
4,556
–
123,712
20,222
20,222
3,529
–
136,235
2017
Fair
value
£’000
2018
Current
allocation
%
2017
Current
allocation
%
45
47
38
35
13
4
–
100
15
3
–
100
During 2018, the Rathbone 1987 Scheme held shares in real time inflation-linked interest rate swap funds, which had a fair value
of £15,734,000 at the year end (2017: £20,222,000). 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
Reduce allowance for future transfers to nil
1 year increase to:
– longevity at 60
– average age of members at the time of transferring out
Combined impact on schemes' liabilities
(Decrease)/increase
£'000
(Decrease)/increase
%
(13,717)
8,603
1,289
5,645
642
(9.4)
5.9
0.9
3.9
0.4
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Notes to the consolidated financial statements continued
28 Long-term employee benefits continued
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
2018
Current
allocation
%
2017
Current
allocation
%
34,367
41,736
56,516
64,342
45
47
2018
Fair
value
£’000
6,110
8,958
7,081
36,055
2,042
8,809
–
15,734
15,734
4,556
–
6,016
9,422
7,168
36,069
1,973
10,100
–
20,222
20,222
3,529
–
46,906
48,142
38
35
123,712
136,235
13
4
–
100
15
3
–
100
During 2018, the Rathbone 1987 Scheme held shares in real time inflation-linked interest rate swap funds, which had a fair value
of £15,734,000 at the year end (2017: £20,222,000). 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 year increase to:
– longevity at 60
Reduce allowance for future transfers to nil
– average age of members at the time of transferring out
Combined impact on schemes' liabilities
(Decrease)/increase
(Decrease)/increase
£'000
%
(13,717)
8,603
1,289
5,645
642
(9.4)
5.9
0.9
3.9
0.4
The total contributions made by the group to the Rathbone 1987 Scheme during the year were £3,269,000 (2017: £3,694,000).
Regular contribution to the Rathbone 1987 Scheme ceased with effect from 30 June 2017; in that year, regular contributions of
£856,000 were made based on 20.3% of pensionable salaries and additional lump sum contributions of £2,838,000 were paid.
The group has committed to pay deficit reducing contributions of £1,750,000 by 28 February each year from 2019 to 2022 (inclusive)
and a further £1,000,000 by 31 August in each of those years, 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 £404,000 (2017: £nil). The group has
committed to pay deficit reducing contributions of £168,000 by 28 February each year from 2019 to 2021 (inclusive) and a further
£168,000 by 31 August in each of those years, so long as that scheme remains in deficit. Regular contributions to the Laurence Keen
Scheme stopped with effect from 1 January 2015.
No allowance has been made for a minimum funding requirement under IFRIC 14. The funding plans only require further
contributions if the schemes remain in deficit.
29 Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2017
Shares issued:
– to Share Incentive Plan
– to Save As You Earn scheme
– to Employee Benefit Trust
At 1 January 2018
Shares issued:
– in relation to business combinations (note 35)
– to Share Incentive Plan
– to Save As You Earn scheme
– to Employee Benefit Trust
– on placing
At 31 December 2018
Number of
shares
50,682,679
Exercise/
issue price
pence
86,671 1,784.0 – 2,611.0
984.0 – 1,648.0
95,041
437,683
5.0
51,302,074
1,006,522
2,484.0
79,649 2,354.0 – 2,488.0
149,340 1,106.0 – 1,648.0
5.0
269,372
2,500.0
2,400,000
55,206,957
Share
capital
£’000
2,535
4
5
22
2,566
50
4
7
13
120
2,760
Share
premium
£’000
139,991
1,725
1,373
–
143,089
24,950
1,945
2,050
–
58,189
230,223
Total
£’000
142,526
1,729
1,378
22
145,655
25,000
1,949
2,057
13
58,309
232,983
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t
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t
s
The total number of issued and fully paid up ordinary shares at 31 December 2018 was 55,206,957 (2017: 51,302,074) with a par value
of 5p per share.
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time, and are entitled to one vote per
share at meetings of the company. The ordinary shareholders are entitled to any residual assets on the winding up of the company.
On 18 June 2018, the company issued 2,400,000 shares by way of a placing for cash consideration at £25.00 per share, which
raised £58,309,000, net of £1,691,000 placing costs, offset against share premium arising on the issue.
On 31 August 2018, the company issued 1,006,522 shares in respect of the initial share consideration from the acquisition of Speirs &
Jeffrey (see note 35). These shares are being held in own shares (see note 30) until they vest on the third anniversary of issue.
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Notes to the consolidated financial statements continued
30 Own shares
The following movements in own shares occurred during the year:
At 1 January 2017
Acquired in the year
Released on vesting
At 1 January 2018
Acquired in the year
Released on vesting
At 31 December 2018
Number of
shares
336,987
461,067
(141,361)
656,693
1,465,828
(178,668)
1,943,853
£’000
6,243
441
(1,820)
4,864
29,888
(2,015)
32,737
Own shares represent the cost of the company's own shares, either purchased in the market or issued by the company, that are held
by the company or in an employee benefit trust to satisfy future awards under the group's share-based payment schemes (note 31).
664,071 shares were held in the Employee Benefit Trust at 31 December 2018 (2017: 382,751) and 273,260 (2017: 273,942) shares were
held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees. A further 1,006,552 (2017: nil) shares
were held in nominee in respect of the initial share consideration for the acquisition of Speirs & Jeffrey (see note 29).
31 Share-based payments
Share Incentive Plan
The group operates a Share Incentive Plan (SIP), which is available to all employees. Employees can contribute up to £150 per month
to acquire partnership shares, which are purchased or allotted twice a year at the end of six month accumulation periods. The group
currently matches employee contributions on a one-for-one basis to acquire matching shares.
The group also provides performance-related free shares, with eligible employees receiving shares valued at the rate of £100 per 1%
real increase in earnings per share up to a maximum of £3,000 per annum.
For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends are
paid in cash.
As at 31 December 2018, the trustees of the SIP held 1,086,261 (2017: 1,092,120) ordinary shares of 5p each in Rathbone Brothers Plc with
a total market value of £25,440,000 (2017: £28,330,000). Of the total number of shares held by the trustees, 261,253 (2017: 263,165) have
been conditionally gifted to employees and 12,007 (2017: 10,777) 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 £668,000, determined using a binomial valuation model including expected
dividends, were granted on 20 April 2018 to directors and staff under the SAYE plan. The inputs into the binomial model for
options granted during 2018, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2018
2,302
1,977
20%
1.0%
2.6%
2017
2,351
1,899
20%
0.2%
2.4%
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Notes to the consolidated financial statements continued
The following movements in own shares occurred during the year:
30 Own shares
At 1 January 2017
Acquired in the year
Released on vesting
At 1 January 2018
Acquired in the year
Released on vesting
At 31 December 2018
Own shares represent the cost of the company's own shares, either purchased in the market or issued by the company, that are held
by the company or in an employee benefit trust to satisfy future awards under the group's share-based payment schemes (note 31).
664,071 shares were held in the Employee Benefit Trust at 31 December 2018 (2017: 382,751) and 273,260 (2017: 273,942) shares were
held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees. A further 1,006,552 (2017: nil) shares
were held in nominee in respect of the initial share consideration for the acquisition of Speirs & Jeffrey (see note 29).
31 Share-based payments
Share Incentive Plan
The group operates a Share Incentive Plan (SIP), which is available to all employees. Employees can contribute up to £150 per month
to acquire partnership shares, which are purchased or allotted twice a year at the end of six month accumulation periods. The group
currently matches employee contributions on a one-for-one basis to acquire matching shares.
The group also provides performance-related free shares, with eligible employees receiving shares valued at the rate of £100 per 1%
real increase in earnings per share up to a maximum of £3,000 per annum.
For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends are
paid in cash.
waived by the trustees.
As at 31 December 2018, the trustees of the SIP held 1,086,261 (2017: 1,092,120) ordinary shares of 5p each in Rathbone Brothers Plc with
a total market value of £25,440,000 (2017: £28,330,000). Of the total number of shares held by the trustees, 261,253 (2017: 263,165) have
been conditionally gifted to employees and 12,007 (2017: 10,777) remain unallocated. Dividends on the unallocated shares have been
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 £668,000, determined using a binomial valuation model including expected
dividends, were granted on 20 April 2018 to directors and staff under the SAYE plan. The inputs into the binomial model for
options granted during 2018, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2018
2,302
1,977
20%
1.0%
2.6%
2017
2,351
1,899
20%
0.2%
2.4%
The number of share options outstanding for the SAYE plan at the end of the year, the period in which they were granted and the dates
on which they may be exercised are given below.
Number of
shares
336,987
461,067
(141,361)
656,693
1,465,828
(178,668)
1,943,853
£’000
6,243
441
(1,820)
4,864
29,888
(2,015)
32,737
Year of grant
2012
2013
2014
2015
2016
2017
2018
At 31 December
Exercise price
pence
984.0
1,106.0
1,556.0
1,641.0
1,648.0
1,899.0
1,977.0
Exercise
period
2017
2018
2019
2018 and 2020
2019 and 2021
2020 and 2022
2021 and 2023
2018
Number
of share
options
–
–
57,005
48,828
131,598
117,202
146,746
501,379
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
2018
2017
Number
of share
options
525,891
156,588
(31,240)
(149,860)
501,379
Weighted
average
exercise price
pence
1,620.0
1,977.0
1,800.0
1,379.0
1,800.0
Number
of share
options
507,714
130,745
(17,520)
(95,048)
525,891
2017
Number
of share
options
–
74,868
59,415
123,182
141,034
127,392
–
525,891
Weighted
average
exercise price
pence
1,518.0
1,899.0
1,684.0
1,450.0
1,620.0
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The weighted average share price at the dates of exercise for share options exercised during the year was £24.38 (2017: £25.72).
The options outstanding at 31 December 2018 had a weighted average contractual life of 2.4 years (2017: 2.3 years) and a weighted
average exercise price of £17.92 (2017: £16.20).
Executive Incentive Plan
Details of the general terms of this plan are set out in the remuneration committee report on pages 82 to 87.
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.
Staff Equity Plan
During 2018, the group launched a new remuneration scheme, Staff Equity Plan, for individuals within Rathbone Investment
Management and Rathbone Investment Management International. The aim of the scheme is to promote increased equity interest
in Rathbone Brothers Plc amongst employees.
Participants are granted awards under the plan in the form of an option with an exercise price of £nil. The option awards are subject to
certain service and performance conditions. Following the satisfaction of these performance conditions, the awards will vest (or lapse)
and become exercisable on the fifth anniversary of the grant date. The awards will be exercisable from the vesting date until the tenth
anniversary of the grant date.
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 £6,886,000 in relation to share-based payment transactions in 2018 (2017: £3,871,000)
(see note 11).
Speirs & Jeffrey share-based payments
Details of the general terms of share-based payments associated with the acquisition of Speirs & Jeffrey are set out in note 35.
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32 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies
and procedures to manage these items in accordance with its risk appetite, as described in the group risk committee report
on pages 66 to 68.
The group categorises its financial risks into the following primary areas:
liquidity risk;
credit risk (which includes counterparty default risk);
(i)
(ii)
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(iv) pension risk.
The group's exposures to pension risk are set out in note 28.
The group’s financial risk management policies are designed to identify and analyse the financial risks that the group faces, to set
appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means of reliable and
up-to-date information systems. The group regularly reviews its financial risk management policies and systems to reflect changes
in the business, counterparties, markets and the range of financial instruments that it utilises.
The treasury department, reporting through the banking committee, has principal responsibility for monitoring exposure to credit risk,
liquidity risk and market risk. Procedures and delegated authorities are documented in a group treasury manual and policy documents
prescribe the management and monitoring of each type of risk. The primary objective of the group’s treasury policy is to manage short
term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the group’s
risk appetite.
(i) Credit risk
The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due,
through its banking, treasury, trust and 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 15)
The group has exposure to central banks through its deposits held with the Bank of England.
Loans and advances to banks (note 16) and debt and other securities (note 18)
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.
Balances with central banks, loans and advances to banks and debt and other securities (excluding equity securities) are collectively
referred to as the group’s treasury book.
Treasury book
Balances with central banks
Loans and advances to banks – fixed deposits
Unlisted debt securities
Money market funds
Gross amount
2018
£’000
1,198,600
40,000
907,225
75,333
2,221,158
2017
£’000
1,375,380
41,427
701,966
106,747
2,225,520
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32 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies
and procedures to manage these items in accordance with its risk appetite, as described in the group risk committee report
The group categorises its financial risks into the following primary areas:
credit risk (which includes counterparty default risk);
The group’s policy requires that all such exposures are only taken with counterparties that have been awarded a minimum long term
rating of single A by Fitch or equivalent rating by Moody’s. Counterparty limits are also in place to limit exposure to an individual
counterparty or connected group of counterparties. Counterparty exposures are monitored on a daily basis by the treasury department
and reviewed by the banking committee on a monthly basis, or more frequently when necessary. The banking committee may
suspend dealing in a particular counterparty, or liquidate specific holdings, in the light of adverse market information.
Loans and advances to customers (note 17)
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.
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(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 (“IM 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 2018, the total lending exposure limit for the investment management loan book was £200,000,000 (2017:
£175,000,000), of which £131,071,000 had been advanced (2017: £120,433,000) and a further £32,854,000 had been committed
(2017: £30,025,000).
(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.
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(d) Other debtors
Other loans and advances to customers relate to management fees receivable.
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.
Notes to the consolidated financial statements continued
on pages 66 to 68.
(i)
(ii)
liquidity risk;
(iv) pension risk.
risk appetite.
(i) Credit risk
The group's exposures to pension risk are set out in note 28.
The group’s financial risk management policies are designed to identify and analyse the financial risks that the group faces, to set
appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means of reliable and
up-to-date information systems. The group regularly reviews its financial risk management policies and systems to reflect changes
in the business, counterparties, markets and the range of financial instruments that it utilises.
The treasury department, reporting through the banking committee, has principal responsibility for monitoring exposure to credit risk,
liquidity risk and market risk. Procedures and delegated authorities are documented in a group treasury manual and policy documents
prescribe the management and monitoring of each type of risk. The primary objective of the group’s treasury policy is to manage short
term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the group’s
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 15)
The group has exposure to central banks through its deposits held with the Bank of England.
Loans and advances to banks (note 16) and debt and other securities (note 18)
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.
Balances with central banks, loans and advances to banks and debt and other securities (excluding equity securities) are collectively
referred to as the group’s treasury book.
Treasury book
Balances with central banks
Loans and advances to banks – fixed deposits
Unlisted debt securities
Money market funds
Gross amount
2018
£’000
2017
£’000
1,198,600
1,375,380
40,000
907,225
75,333
41,427
701,966
106,747
2,221,158
2,225,520
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
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 (note 34)
2018
£’000
2017
£’000
1,198,602 1,375,380
46,784
117,253
39,754
166,203
6,096
131,741
1,196
29
4,621
120,509
1,114
35
982,595
74,990
808,713
71,562
32,854
117
30,025
117
2,634,177 2,576,113
The above table represents the group's gross credit risk exposure at 31 December 2018 and 2017, 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.
11.6% of the total maximum exposure is derived from loans and advances to banks and customers (2017: 9.5%) and 37.3% represents
investment securities (2017: 31.4%).
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).
Impairment of financial instruments
The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets
recognised in profit or loss were as follows.
Impairment losses/(reversals) arising from:
– treasury book
– investment management loan book
– trust and pension debtors
2018
£'000
33
10
23
66
2017
£'000
–
–
(25)
(25)
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
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:
Other financial assets
– unlisted debt securities and money market funds
Credit risk relating to off-balance sheet exposures:
Loan commitments
Financial guarantees (note 34)
gross carrying amounts.
investment securities (2017: 31.4%).
guarantees held on balance sheet (see note 1.21).
Impairment of financial instruments
recognised in profit or loss were as follows.
Impairment losses/(reversals) arising from:
– treasury book
– investment management loan book
– trust and pension debtors
The above table represents the group's gross credit risk exposure at 31 December 2018 and 2017, 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
11.6% of the total maximum exposure is derived from loans and advances to banks and customers (2017: 9.5%) and 37.3% represents
The credit risk relating to off-balance sheet exposures for financial guarantees reflects the group's gross potential exposure of
The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets
2018
£’000
2017
£’000
1,198,602 1,375,380
39,754
166,203
46,784
117,253
6,096
4,621
131,741
120,509
1,196
29
1,114
35
982,595
74,990
808,713
71,562
32,854
117
30,025
117
2,634,177 2,576,113
2018
£'000
33
10
23
66
2017
£'000
–
–
(25)
(25)
Expected credit loss assessment
At each reporting date, for both the treasury book and investment management loan book, the group assesses whether there has been
a significant increase in credit risk of exposures since initial recognition, by comparing the change in the risk of a default occurring over
the expected life of the instrument between the reporting date and the date of initial recognition. The following criteria are used to
identify significant increases in credit risk and are monitored and reviewed periodically for appropriateness by the treasury team.
Qualitative indicators
The group periodically monitors its exposures and uses a set of defined criteria to flag any counterparties that may be experiencing
financial difficulties. Such exposures are added to a watch list maintained by the treasury team. These are considered to have
experienced a significant increase in credit risk and are classified as ‘Stage 2’ on which a lifetime ECL is recognised.
Quantitative indicators
The lifetime probability of default at the reporting date is compared to the original lifetime probability of default at initial recognition
and if the difference exceeds a predefined threshold (for the current analysis this threshold is set at 50% of the value at initial
recognition) the exposure is moved to stage 2.
Probability of defaults used for identifying significant increases in credit risk for staging purposes are calculated using the same
methodology and data used for estimating probability of defaults for the purpose of measuring expected credit losses.
The 30 days past due backstop indicator has not been rebutted by the group, albeit it is not a significant driver of stage movements as
the opportunity for a counterparty to miss payment is low due to the fact that over the life of exposure, any interest and or principal
is directly debited from the counterparty’s investment balance and investment income which is in turn held as collateral under the
bank’s custody.
Materially all exposures in both the treasury book and IM loan book follow a bullet repayment structure; therefore, the exposure
at any point in time reflects the outstanding balance of the instrument at that point in time.
Definition of default
The group considers an investment management loan book exposure to be in default when a client fails to respond to three sets of
default notices (every 30 days for a period of 90 days). A treasury book exposure is deemed to be in default when a payment is past
due by more than one working day (grace period).
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Probability of default (PD)
The group uses a lifetime PD for each exposure, which is the probability-weighted result of considering three economic scenarios;
a base case, an upside and a downside scenario. These scenarios include the forecast of the macroeconomic factors that have been
identified as relevant to the Bank’s exposures, namely GDP and UK unemployment rates, are incorporated into the estimation of
lifetime PDs.
The methodology for estimating lifetime PDs and adjustments for macroeconomic scenarios used for identifying significant increases
in credit risk are as follows:
Treasury book assessment
The 12-month PD for each exposure is initially estimated as the historical 12-month PD sourced from Standard & Poors, by credit rating
and country of exposure. In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group applies its
expectations of future progression in point in time (“PiT”) default probabilities, which inherently revolves around expectations of
future development of macroeconomic factors relevant to treasury assets, namely UK GDP, UK unemployment rates, UK inflation
and UK interest rates.
Loss given default (LGD) for treasury book assets is dependent on the nature of the counterparty and the region in which the
instrument was issued. For Sovereign exposures, the group applies a flat LGD rate, which is externally sourced from Moody’s most
recent ‘Sovereign Default and Recovery Rates’ research statistics, by country of issuer. For unsecured Corporate exposures, a time
series of historical corporate recovery rates is sourced from Moody’s annual publication on ‘Corporate Defaults and Recovery’ rates.
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL (2017: held-to-
maturity, available-for-sale and loans and receivables). It indicates whether assets measured at amortised cost were subject to a 12-
month ECL or lifetime ECL allowance and, in the latter case, whether they were credit-impaired:
2018
2017
AAA
AA+ to AA-
A+ to A-
Gross carrying amounts
Loss allowance
Carrying amount
Fair value through
profit or loss
£'000
75,333
12-month ECL
£'000
–
– 1,655,155
490,704
–
75,333 2,145,859
(159)
75,333 2,145,700
At amortised cost
Lifetime ECL – not
credit-impaired
£'000
–
–
–
–
–
–
Loans and
receivables
£'000
Available-for-
sale
£'000
– 106,747
Lifetime ECL –
Held-to-
credit-impaired
maturity
£'000
£'000
–
–
– 1,375,380
– 264,569
–
– 437,397
41,183
– 1,416,563 106,747 701,966
–
–
– 1,416,563 106,747 701,966
–
–
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
Money market funds
Carrying amount
– 1,198,478
39,997
–
907,225
–
–
75,333
75,333 2,145,700
–
–
–
–
–
– 1,375,380
–
–
–
–
–
41,183
–
– 701,966
–
–
–
– 106,747
– 1,416,563 106,747 701,966
The movement in allowance for impairment for the treasury book during the year was as follows. Comparative amounts for 2017
represents the allowance for impairment losses under IAS 39.
Balance at 31 December
IFRS 9 opening adjustment
Balance at 1 January
Net remeasurement of loss allowance
Balance at 31 December
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
ECL provision
2018
12-month ECL
£'000
Lifetime ECL – not
credit-impaired
£'000
Lifetime ECL –
credit-impaired
£'000
126
33
159
122
3
34
159
–
–
–
–
–
–
–
–
–
–
–
–
Total ECL
£'000
–
126
126
33
159
122
3
34
159
2017
Impaired
£'000
–
–
–
The reason for the increase in the loss allowance during 2018 is that, despite the reduction in the gross amount held with the Bank
of England, the 12-month PD increased during the year, driven by small changes in macroeconomic factors.
IM loan book assessment
Due to the lack of historical defaults within the IM loan book, the model (see note 1.12) uses publicly available default data for
UK secured lending as a starting point in order to obtain an initial estimate for PD. The 12-month PD is estimated as the historical
long term default rate on lending in the UK as sourced from the Council of Mortgage Lending (“CML”).
In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group develops its expectations of future
progression in PiT default probabilities, which inherently revolves around expectations of future development of macroeconomic
factors relevant to the Bank’s Lending portfolio, namely UK GDP (“GDP”) and UK unemployment rates (“UR”).
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL (2017: held-to-
maturity, available-for-sale and loans and receivables). It indicates whether assets measured at amortised cost were subject to a 12-
month ECL or lifetime ECL allowance and, in the latter case, whether they were credit-impaired:
2018
At amortised cost
2017
Fair value through
Lifetime ECL – not
Lifetime ECL –
Loans and
Available-for-
profit or loss
12-month ECL
credit-impaired
credit-impaired
£'000
£'000
Gross carrying amounts
75,333 2,145,859
AAA
AA+ to AA-
A+ to A-
Loss allowance
Carrying amount
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
Money market funds
Carrying amount
£'000
75,333
£'000
–
– 1,655,155
–
490,704
(159)
75,333 2,145,700
– 1,198,478
–
–
39,997
907,225
75,333
–
75,333 2,145,700
–
–
–
–
–
–
–
–
–
–
–
receivables
£'000
sale
£'000
– 106,747
Held-to-
maturity
£'000
– 1,375,380
41,183
– 264,569
– 437,397
– 1,416,563 106,747 701,966
– 1,416,563 106,747 701,966
– 1,375,380
41,183
– 701,966
– 106,747
– 1,416,563 106,747 701,966
–
–
–
–
–
–
–
–
–
–
–
The movement in allowance for impairment for the treasury book during the year was as follows. Comparative amounts for 2017
represents the allowance for impairment losses under IAS 39.
Balance at 31 December
IFRS 9 opening adjustment
Balance at 1 January
Net remeasurement of loss allowance
Balance at 31 December
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
ECL provision
2018
Lifetime ECL – not
Lifetime ECL –
12-month ECL
credit-impaired
credit-impaired
£'000
£'000
£'000
Total ECL
£'000
2017
Impaired
£'000
126
33
159
122
3
34
159
–
–
–
–
–
–
–
126
126
33
159
122
3
34
159
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The reason for the increase in the loss allowance during 2018 is that, despite the reduction in the gross amount held with the Bank
of England, the 12-month PD increased during the year, driven by small changes in macroeconomic factors.
IM loan book assessment
Due to the lack of historical defaults within the IM loan book, the model (see note 1.12) uses publicly available default data for
UK secured lending as a starting point in order to obtain an initial estimate for PD. The 12-month PD is estimated as the historical
long term default rate on lending in the UK as sourced from the Council of Mortgage Lending (“CML”).
In order to estimate the PDs occurring over the lifetime of an underlying exposure, the group develops its expectations of future
progression in PiT default probabilities, which inherently revolves around expectations of future development of macroeconomic
factors relevant to the Bank’s Lending portfolio, namely UK GDP (“GDP”) and UK unemployment rates (“UR”).
In order to develop and apply such forward looking expectations, a historical relationship between PD, GDP and UR is estimated
statistically through a multi-factor regression analysis of past movements between these variables. The relationship resulting from
this analysis reflects the relative quantitative behaviour of the regressed macroeconomic factors against PD.
Using the calculated 12-month PiT PD as a starting point, conditional PDs for each future period within the period of exposure are
estimated by applying the GDP and UR coefficients to the group’s forecasts of UK GDP and UK UR respectively, as sourced from
International Monetary Fund (“IMF”) forecast data. This analysis forms the base case scenario for estimating lifetime PD’s. The
same methodology is applied for separate upside and downside scenarios as required by the standard.
The following table presents an analysis of the credit quality of IM loan book exposures at amortised cost (2017: loans and receivables).
It indicates whether assets measured at amortised cost were subject to a 12-month ECL or lifetime ECL allowance and, in the latter case,
whether they were credit-impaired.
Very low
Low
Medium
High
Gross carrying amounts
Loss allowance
Carrying amount
2018
At amortised cost
Lifetime ECL – not
credit-impaired
£'000
–
680
–
660
1,340
–
1,340
12-month ECL
£'000
16,730
92,215
20,743
40
129,728
(11)
129,717
Lifetime ECL –
credit-impaired
£'000
–
–
–
–
–
–
–
2017
Loans and
receivables
£'000
120,509
–
120,509
The movement in allowance for impairment for the IM loan book during the year was as follows. Comparative amounts for 2017
represents the allowance for impairment losses under IAS 39.
Balance at 31 December
IFRS 9 opening adjustment
Balance at 1 January
Net remeasurement of loss allowance
Balance at 31 December
12-month ECL
£'000
2018
Lifetime ECL – not
credit-impaired
£'000
Lifetime ECL –
credit-impaired
£'000
1
10
11
–
–
–
–
Total ECL
£'000
–
1
1
10
11
2017
Impaired
£'000
–
–
Trust and financial planning debtors assessment
The group uses a provision matrix to measure the ECLs of trust and financial planning debtors, which comprise a large number
of small balances. For such debts, a normal settlement period of up to 30 days is expected.
The following table provides information about the exposure to credit risk and ECLs for trust and financial planning debtors as at
31 December 2018:
Rathbone Trust Company
Rathbone Trust & Legal Services
Rathbone Financial Planning
Gross carrying amounts (2017: amortised cost before impairment)
Loss allowance
Carrying amount
2018
£’000
734
415
47
1,196
(92)
1,104
2017
£’000
804
245
65
1,114
(66)
1,048
s
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n
t
s
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
Rathbone Trust Company
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Rathbone Trust & Legal Services
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Weighted average loss
rate
0.1%
0.7%
1.3%
2.0%
29.0%
Gross carrying amount
£’000
485
60
71
67
51
734
Weighted average loss
rate
0.0%
0.0%
0.0%
0.0%
0.0%
Gross carrying amount
£’000
389
18
5
1
2
415
Not credit impaired
£’000
(1)
–
(1)
–
(10)
(12)
Not credit impaired
£’000
–
–
–
–
–
–
Loss allowance
Credit impaired
£’000
–
–
–
(62)
(17)
(79)
Loss allowance
Credit impaired
£’000
–
–
–
–
(1)
(1)
The movement in allowance for impairment in respect of trust and financial planning debtors during the year is set out below.
Comparative amounts for 2017 represents the allowance for impairment losses under IAS 39.
Movement in impairment provision during the year
At 31 December 2017
IFRS 9 opening adjustment
At 1 January 2018
Amounts written off
Credit to profit or loss
At 31 December 2018
Total
£’000)
(1)
–
(1)
(62)
(27)
(91)
Total
£’000)
–
–
–
–
(1)
(1)
Trust and
financial
planning
debtors
£’000
66
21
87
(18)
23
92
152
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Rathbone Brothers Plc Report and accounts 2018
Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
Rathbone Trust Company
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Rathbone Trust & Legal Services
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
Weighted average loss
Gross carrying amount
Not credit impaired
Credit impaired
Loss allowance
rate
0.1%
0.7%
1.3%
2.0%
29.0%
rate
0.0%
0.0%
0.0%
0.0%
0.0%
£’000
485
60
71
67
51
734
£’000
389
18
5
1
2
415
£’000
(1)
(1)
–
–
(10)
(12)
–
–
–
–
–
–
£’000
–
–
–
(62)
(17)
(79)
–
–
–
–
(1)
(1)
Weighted average loss
Gross carrying amount
Not credit impaired
Credit impaired
£’000
£’000
Loss allowance
The movement in allowance for impairment in respect of trust and financial planning debtors during the year is set out below.
Comparative amounts for 2017 represents the allowance for impairment losses under IAS 39.
Movement in impairment provision during the year
At 31 December 2017
IFRS 9 opening adjustment
At 1 January 2018
Amounts written off
Credit to profit or loss
At 31 December 2018
Total
£’000)
(1)
–
(1)
(62)
(27)
(91)
Total
£’000)
–
–
–
–
(1)
(1)
Trust and
financial
planning
debtors
£’000
66
21
87
(18)
23
92
Concentration of credit risk
The group has counterparty credit risk within its financial 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 2018
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 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
1,198,478
35,781
164,438
5,529
122,522
1,104
29
Eurozone
£’000
–
3,412
1,754
67
191
–
–
Rest of
the World
£’000
Total
£’000
– 1,198,478
39,754
166,200
561
8
500
9,017
–
–
6,096
131,730
1,104
29
159,991
65,463
1,753,335
358,172
2,058
365,654
464,395
2,977
982,558
70,498
477,458 2,596,447
s
t
a
t
e
m
e
n
t
s
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
–
Total
£’000
– 1,375,380
46,784
117,253
258
7,954
–
–
4,621
120,509
1,048
35
205,000
63,238
1,918,195
306,751
1,076
313,403
296,962
1,385
808,713
65,699
308,444 2,540,042
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s
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i
d
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a
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i
a
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At 31 December 2018, materially all eurozone exposures were to counterparties based in the Netherlands, France, Finland,
Ireland and Luxembourg (2017: Netherlands and France) and materially all rest of the world exposures were to counterparties
based in Switzerland, Sweden, Norway, Canada and Australia (2017: Switzerland, Sweden, Canada and Australia). At 31 December
2018, the group had no exposure to sovereign debt (2017: no exposure to sovereign debt).
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(i) Credit risk continued
Industry sectors
(b)
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 2018
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 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
Public
sector
£’000
1,198,477
–
–
Financial
institutions
£’000
1
39,674
166,200
Clients
and other
corporates
£’000
Total
£’000
– 1,198,478
39,754
166,200
80
–
–
–
–
–
–
–
–
–
6,096
131,730
1,104
29
6,096
131,730
1,104
29
–
295
982,558
4,781
1,198,772 1,193,214
–
65,422
982,558
70,498
204,461 2,596,447
Public
sector
£’000
1,375,380
–
–
Financial
institutions
£’000
–
46,784
117,253
Clients
and other
corporates
£’000
Total
£’000
– 1,375,380
46,784
–
117,253
–
–
–
–
–
–
–
–
–
4,621
120,509
1,048
35
4,621
120,509
1,048
35
–
1,138
1,376,518
808,713
2,578
975,328
–
61,983
808,713
65,699
188,196 2,540,042
(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.
154
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Notes to the consolidated financial statements continued
The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
32 Financial risk management continued
(i) Credit risk continued
(b)
Industry sectors
operate, were:
At 31 December 2018
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers:
– overdrafts
– investment management loan book
– trust and financial planning debtors
– other debtors
Investment securities:
Other financial assets
– unlisted debt securities and money market funds
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:
Other financial assets
– unlisted debt securities and money market funds
Public
sector
£’000
1,198,477
Financial
institutions
£’000
1
39,674
166,200
Clients
and other
corporates
£’000
Total
£’000
– 1,198,478
80
–
39,754
166,200
6,096
6,096
131,730
131,730
1,104
29
1,104
29
295
982,558
4,781
–
65,422
982,558
70,498
1,198,772 1,193,214
204,461 2,596,447
Public
sector
£’000
Financial
institutions
£’000
Clients
and other
corporates
£’000
1,375,380
46,784
117,253
Total
£’000
– 1,375,380
–
–
46,784
117,253
4,621
4,621
120,509
120,509
1,048
35
1,048
35
1,138
808,713
2,578
–
61,983
808,713
65,699
1,376,518
975,328
188,196 2,540,042
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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.
At 31 December 2018
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
On
demand
£’000
1,197,001
–
126,073
6,796
75,436
406
Not more
than
3 months
£’000
295
39,754
10,512
21,638
309,666
59,090
After 3
months
but not
more than
1 year
£’000
1,600
–
30,333
51,097
605,562
3,871
After 1
year but
not more
than
5 years
£’000
–
–
–
64,582
–
4,348
After 5
years
£’000
–
–
–
–
–
2,295
No fixed
maturity
date
£’000
Total
£’000
– 1,198,896
39,754
–
166,918
–
144,113
–
990,664
–
70,010
–
assets
1,405,712
440,955
692,463
68,930
2,295
– 2,610,355
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
491
–
2,065,029
–
139
–
36,692
153,229
586
47,199
–
–
7,422
586
7,803
–
–
–
21,171
28,682
–
–
–
–
6,799
491
–
–
36,692
– 2,225,680
22,343
–
90,622
–
2,065,659
(659,947)
(659,947)
237,706
203,249
(456,698)
15,811
676,652
219,954
49,853
19,077
239,031
6,799
(4,504)
234,527
– 2,375,828
234,527
–
234,527
s
t
a
t
e
m
e
n
t
s
At 31 December 2017
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
On
demand
£’000
1,374,002
–
75,826
4,733
106,816
110
Not more
than
3 months
£’000
1,138
46,785
11,490
13,407
263,385
60,859
After 3
months
but not
more than
1 year
£’000
1,380
–
30,577
43,304
442,503
640
After 1
year but
not more
than
5 years
£’000
–
–
–
70,450
–
3,435
After 5
years
£’000
–
–
–
–
–
2,819
No fixed
maturity
date
£’000
Total
£’000
– 1,376,520
46,785
–
117,893
–
131,894
–
812,704
–
67,863
–
assets
1,561,487
397,064
518,404
73,885
2,819
– 2,553,659
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
1,338
–
2,081,805
–
1,192
–
54,452
83,469
586
52,612
–
–
5,306
586
3,587
–
–
–
22,342
38,023
–
–
–
–
5,985
1,338
–
54,452
–
– 2,170,580
23,514
–
101,399
–
2,084,335
(522,848)
(522,848)
191,119
205,945
(316,903)
9,479
508,925
192,022
60,365
13,520
205,542
5,985
(3,166)
202,376
– 2,351,283
202,376
–
202,376
Included in ‘Other financial liabilities’ as at 31 December 2017 were cash flows for lease payments under the group’s agreement
for leased space at 1 Curzon Street. These contractual payments comprised part of the onerous lease provision for that property
(see note 26).
154
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155
155
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o
n
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o
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i
d
a
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e
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i
n
a
n
c
i
a
l
Notes to the consolidated financial statements continued
32 Financial risk management continued
(ii) Liquidity risk continued
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 £3,205,000 of equity investments (2017: £2,565,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as fair value through profit or loss securities and have no fixed maturity date; cash flows arise from receipt
of dividends or through sale of the assets.
(iii) Market risk
Off-balance sheet items
Cash flows arising from the group’s off-balance sheet financial liabilities (note 34) are summarised in the table below.
The contractual value of the group’s commitments to extend credit to clients and maximum potential value of financial guarantees
are analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are
reported by their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment.
At 31 December 2018
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2017
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2018
Cash flows arising from financial liabilities
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
On
demand
£’000
2,065,659
–
2,065,659
On
demand
£’000
2,084,335
–
2,084,335
Not more
than
3 months
£’000
32,854
–
2,037
603
35,494
Not more
than
3 months
£’000
30,025
–
712
48
30,785
Not more
than
3 months
£’000
237,706
35,494
273,200
Not more
than
3 months
£’000
191,119
30,785
221,904
After 3
months
but not
more than
1 year
£’000
–
–
6,216
–
6,216
After 3
months
but not
more than
1 year
£’000
–
–
3,817
–
3,817
After 3
months
but not
more than
1 year
£’000
15,811
6,216
22,027
After 3
months
but not
more than
1 year
£’000
9,479
3,817
13,296
After 1
year but
not more
than
5 years
£’000
–
117
29,958
–
30,075
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
49,853
30,075
79,928
After 1
year but
not more
than
5 years
£’000
60,365
28,897
89,262
After
5 years
£’000
–
–
52,337
–
52,337
After
5 years
£’000
–
–
57,293
–
57,293
Total
£’000
32,854
117
90,548
603
124,122
Total
£’000
30,025
117
90,602
48
120,792
After
5 years
£’000
Total
£’000
6,799 2,375,828
52,337
124,122
59,136 2,499,950
After
5 years
£’000
Total
£’000
5,985 2,351,283
57,293
120,792
63,278 2,472,075
156
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
Notes to the consolidated financial statements continued
32 Financial risk management continued
(ii) Liquidity risk continued
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 £3,205,000 of equity investments (2017: £2,565,000) which are subject to liquidity risk but are not included in the table
above. These assets are held as fair value through profit or loss securities and have no fixed maturity date; cash flows arise from receipt
of dividends or through sale of the assets.
(iii) Market risk
Off-balance sheet items
Cash flows arising from the group’s off-balance sheet financial liabilities (note 34) are summarised in the table below.
The contractual value of the group’s commitments to extend credit to clients and maximum potential value of financial guarantees
are analysed by the duration of the commitment. Future minimum lease payments under non-cancellable operating leases are
reported by their contractual payment dates. Capital commitments are summarised by the earliest expected date of payment.
At 31 December 2018
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
At 31 December 2017
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
At 31 December 2018
Cash flows arising from financial liabilities
2,065,659
Total off-balance sheet items
Total liquidity requirement
At 31 December 2017
Cash flows arising from financial liabilities
2,084,335
Total off-balance sheet items
Total liquidity requirement
On
demand
£’000
–
2,065,659
On
demand
£’000
–
2,084,335
6,216
52,337
6,216
30,075
52,337
124,122
3,817
57,293
30,785
3,817
28,897
57,293
120,792
Not more
than
3 months
£’000
32,854
–
2,037
603
35,494
Not more
than
3 months
£’000
30,025
–
712
48
Not more
than
3 months
£’000
237,706
35,494
273,200
Not more
than
3 months
£’000
191,119
30,785
221,904
After 3
months
but not
more than
1 year
£’000
After 3
months
but not
more than
1 year
£’000
–
–
–
–
–
–
After 3
months
but not
more than
1 year
£’000
15,811
6,216
22,027
After 3
months
but not
more than
1 year
£’000
9,479
3,817
13,296
After 1
year but
not more
than
5 years
£’000
117
29,958
After 1
year but
not more
than
5 years
£’000
117
28,780
–
–
–
–
After 1
year but
not more
than
5 years
£’000
49,853
30,075
79,928
After 1
year but
not more
than
5 years
£’000
60,365
28,897
89,262
After
5 years
£’000
–
–
–
–
–
–
After
5 years
£’000
Total
£’000
32,854
117
90,548
603
Total
£’000
30,025
117
90,602
48
After
5 years
£’000
Total
£’000
6,799 2,375,828
52,337
124,122
59,136 2,499,950
After
5 years
£’000
Total
£’000
5,985 2,351,283
57,293
120,792
63,278 2,472,075
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 2018
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
1,196,878
–
135,856
137,803
After 3
months
but not
more than
6 months
£’000
–
–
9,999
–
After 6
months
but not
more than
1 year
£’000
–
–
19,997
–
–
–
–
382,589
5,916
1,859,042
174,993
–
184,992
424,976
–
444,973
After 1
year but
not more
than
5 years
£’000
–
–
–
–
–
–
–
–
491
–
2,188,761
–
–
2,189,252
(330,210)
–
–
7,380
–
–
7,380
177,612
–
–
–
–
–
–
444,973
–
–
–
19,807
–
19,807
(19,807)
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,601 1,198,479
39,754
166,200
138,959
39,754
348
1,156
4,464
4,464
–
64,582
982,558
70,498
111,905 2,600,912
491
–
36,692
36,692
29,395 2,225,536
19,807
72,278
138,365 2,354,804
246,108
(26,460)
–
72,278
s
t
a
t
e
m
e
n
t
s
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Rathbone Brothers Plc Report and accounts 2018
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rathbones.com
157
157
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o
n
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o
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a
t
e
d
f
i
n
a
n
c
i
a
l
Notes to the consolidated financial statements continued
32 Financial risk management continued
(iii) Market risk continued
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
–
After 3
months
but not
more than
6 months
£’000
–
–
244
–
–
After 6
months
but not
more than
1 year
£’000
–
–
30,000
–
–
368,708
–
1,954,427
85,005
–
85,249
355,000
–
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
2,565
–
65,699
808,713
65,699
117,933 2,542,609
1,338
–
2,139,188
–
–
2,140,526
(186,099)
–
–
5,285
–
–
5,285
79,964
–
–
–
–
–
–
385,000
–
–
–
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
The banking committee has set an overall pre-tax interest rate exposure limit of £7,000,000 (2017: £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 2018, the Bank had a net present value sensitivity of £6,068,000 (2017: £4,310,000) for an upward 2% shift in rates. The
group held no forward rate agreements at 31 December 2018 (2017: none).
158
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Rathbone Brothers Plc Report and accounts 2018
Notes to the consolidated financial statements continued
32 Financial risk management continued
(iii) Market risk continued
At 31 December 2017
Assets
Cash and balances with central banks
1,374,000
Settlement balances
Loans and advances to banks
Loans and advances to customers
86,673
125,046
244
30,000
Not more
than
3 months
£’000
After 3
months
but not
more than
6 months
£’000
After 6
months
but not
more than
1 year
£’000
After 1
year but
not more
than
5 years
£’000
After
5 years
£’000
Non-
interest-
bearing
£’000
Total
£’000
368,708
85,005
355,000
1,954,427
85,249
385,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,338
2,139,188
5,285
2,140,526
5,285
54,452
26,025 2,170,498
–
–
1,338
54,452
19,695
81,736
42
42
81,694
162,171 2,327,719
19,695
19,695
1,382 1,375,382
46,784
336
1,167
46,784
117,253
126,213
2,565
2,565
–
808,713
65,699
65,699
117,933 2,542,609
–
–
–
–
–
–
–
–
–
–
–
–
– unlisted debt securities and money
Investment securities:
– equity securities
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
(186,099)
79,964
385,000
(19,695)
(42)
(44,238)
214,890
The banking committee has set an overall pre-tax interest rate exposure limit of £7,000,000 (2017: £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 2018, the Bank had a net present value sensitivity of £6,068,000 (2017: £4,310,000) for an upward 2% shift in rates. The
group held no forward rate agreements at 31 December 2018 (2017: 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.
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 2018. Included in the table are the group’s financial assets and liabilities,
at carrying amounts, categorised by currency.
At 31 December 2018
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 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
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
1,198,479
38,860
110,361
130,580
3,205
907,967
69,287
2,458,739
–
35,818
2,088,485
19,807
72,097
2,216,207
242,532
32,854
–
592
25,781
5,128
–
74,591
566
106,658
–
432
105,126
–
73
105,631
1,027
–
–
100
22,270
3,231
1,259
–
95
26,955
375
7
24,655
–
106
25,143
1,812
–
– 1,198,479
39,754
166,200
138,959
202
7,788
20
–
–
550
4,464
982,558
70,498
8,560 2,600,912
116
435
491
36,692
7,270 2,225,536
19,807
72,278
7,823 2,354,804
246,108
32,854
737
–
–
2
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Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’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
31,642
–
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
–
– 1,375,382
46,784
117,253
126,213
153
7,217
–
–
–
55
2,565
808,713
65,699
7,425 2,542,609
–
113
1,338
54,452
7,116 2,170,498
19,695
81,736
7,229 2,327,719
214,890
31,642
196
–
–
–
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A 10% weakening of the US dollar against sterling, occurring on 31 December 2018, would have reduced equity and profit after tax
by £83,000 (2017: reduced by £86,000). A 10% weakening of the euro against sterling, occurring on 31 December 2018, would have
increased equity and profit after tax by £147,000 (2017: reduced by £104,000). 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.
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Notes to the consolidated financial statements continued
32 Financial risk management continued
(iii) Market risk continued
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of
equity investment securities, which are reported at their fair value (note 18).
At 31 December 2018, the fair value of equity securities recognised on the balance sheet was £3,205,000 (2017: £2,565,000). A 10% fall
in global equity markets would, in isolation, result in a pre-tax decrease to net assets of £133,000 (2017: £133,000); 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 2018
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2017
Assets
Available for sale securities:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
3,205
–
3,205
Level 1
£’000
–
75,333
75,333
Level 2
£’000
1,259
–
1,259
Level 3
£’000
4,464
75,333
79,797
Total
£’000
2,565
–
2,565
–
106,747
106,747
–
–
–
2,565
106,747
109,312
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 (2017: 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:
– Investment debt securities measured at amortised cost (note 18) comprise bank and building society certificates of deposit, which
have fixed coupons. The fair value of debt securities at 31 December 2018 was £911,190,000 (2017: £704,002,000) and the carrying
value was £907,259,000 (2017: £701,966,000). Fair value of debt securities is based on market bid prices, and hence would be
categorised as level 1 within the fair value hierarchy.
– Subordinated loan notes (note 27) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2018 was £20,217,000
(2017: £20,478,000) and the carrying value was £19,807,000 (2017: £19,695,000). 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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Notes to the consolidated financial statements continued
32 Financial risk management continued
(iii) Market risk continued
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of
equity investment securities, which are reported at their fair value (note 18).
At 31 December 2018, the fair value of equity securities recognised on the balance sheet was £3,205,000 (2017: £2,565,000). A 10% fall
in global equity markets would, in isolation, result in a pre-tax decrease to net assets of £133,000 (2017: £133,000); 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
used to determine the fair value.
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique
– 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 2018
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2017
Assets
Available for sale securities:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
3,205
–
3,205
Level 1
£’000
–
75,333
75,333
Level 2
£’000
1,259
–
1,259
Level 3
£’000
4,464
75,333
79,797
Total
£’000
2,565
–
2,565
–
106,747
106,747
–
–
–
2,565
106,747
109,312
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 (2017: 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:
– Investment debt securities measured at amortised cost (note 18) comprise bank and building society certificates of deposit, which
have fixed coupons. The fair value of debt securities at 31 December 2018 was £911,190,000 (2017: £704,002,000) and the carrying
value was £907,259,000 (2017: £701,966,000). Fair value of debt securities is based on market bid prices, and hence would be
categorised as level 1 within the fair value hierarchy.
– Subordinated loan notes (note 27) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2018 was £20,217,000
(2017: £20,478,000) and the carrying value was £19,807,000 (2017: £19,695,000). 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.
Level 3 financial instruments
Fair value through profit or loss
As part of the acquisition of Speirs & Jeffrey, the group acquired 1,809 shares in Euroclear Holdings SA, which are classed as level 3
in the fair value hierarchy since no observable market data is available. The fair value of these shares is calculated by reference to
the last buy back event on 23 May 2017, when shares were sold at €774. The valuation at the balance sheet date has been adjusted for
movements in exchange rates since the acquisition date. A 10% weakening of the euro against sterling, occurring on 31 December 2018,
would have reduced equity and profit after tax by £102,000 (2017: £nil). A 10% strengthening of the euro against sterling would have
an equal and opposite effect.
Changes in the fair values of financial instruments categorised as level 3 within the fair value hierarchy were as follows:
At 1 January
Acquired in the year (note 35)
Total unrealised gains recognised in profit or loss
At 31 December
2018
£’000
–
1,254
5
1,259
2017
£’000
–
–
–
–
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t
s
The gain relating to the fair value through profit or loss equity securities is included within ‘other operating income’ in the consolidated
statement of comprehensive income.
There were no other gains or losses arising from changes in the fair value of financial instruments categorised as level 3 within the fair
value hierarchy.
33 Capital management
Rathbone Brothers Plc's capital is defined for accounting purposes as total equity. As at 31 December 2018 this totalled £464,140,000
(2017: £363,278,000).
Rathbone Investment Management has issued 10 year subordinated Tier 2 loan notes (note 27). As at 31 December 2018, the carrying
value of the notes was £19,675,000 (2017: £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 2018 the group’s regulatory capital resources, including retained earnings for 2018, were £251,329,000 (2017:
£216,838,000). The increase in reserves during 2018 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 2017 and 2018.
The group has not applied transitional relief in recognising expected credit losses (ECLs) in regulatory capital resources. As such,
there is no difference between accounting ECLs and regulatory capital ECLs.
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34 Contingent liabilities and commitments
(a) Capital expenditure authorised and contracted for at 31 December 2018 but not provided in the financial statements amounted to
£603,000 (2017: £48,000).
(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 (2017: £nil).
2018
£’000
117
26,803
6,051
32,971
2017
£’000
117
20,985
9,040
30,142
(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 2018, the group’s agreements to lease space at 8 Finsbury Circus had remaining lease
terms of 14 years; total payments due over this period are £74,134,000. 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
2018
£’000
8,253
29,958
52,337
90,548
2017
£’000
4,529
28,780
57,293
90,602
(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.
35 Business combinations
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share capital of Speirs & Jeffrey Limited (‘Speirs & Jeffrey’).
Speirs & Jeffrey has operated as an independent investment management firm for over a century and has established many long
term client relationships, with nearly three quarters of clients having been with the company for over 10 years. All of Speirs & Jeffrey's
current directors and investment managers have joined the group.
The acquisition of Speirs & Jeffrey will enable Rathbones to establish a much stronger presence in Scotland, with Glasgow becoming
the group’s largest office after London following the transaction. In turn, Speirs & Jeffrey’s clients will benefit from access to Rathbones’
broader product and service offering including lending, financial planning and dedicated specialist offerings such as Rathbones’
charities team and ethical investment capability.
The group expects to capture scale benefits from ongoing investment in technology and the management of regulatory change for
the benefit of its clients, staff and shareholders. Meaningful revenue synergies are expected to be achieved over time by leveraging
the strength of Rathbones’ brand and complementary product offering and aligning the Speirs & Jeffrey service proposition with that
of Rathbones.
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Notes to the consolidated financial statements continued
34 Contingent liabilities and commitments
(a) Capital expenditure authorised and contracted for at 31 December 2018 but not provided in the financial statements amounted to
£603,000 (2017: £48,000).
(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 (2017: £nil).
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
(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 2018, the group’s agreements to lease space at 8 Finsbury Circus had remaining lease
terms of 14 years; total payments due over this period are £74,134,000. The leases provide for rent reviews every 5 years.
2018
£’000
117
26,803
6,051
32,971
2017
£’000
117
20,985
9,040
30,142
2018
£’000
8,253
29,958
52,337
90,548
2017
£’000
4,529
28,780
57,293
90,602
(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.
35 Business combinations
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share capital of Speirs & Jeffrey Limited (‘Speirs & Jeffrey’).
Speirs & Jeffrey has operated as an independent investment management firm for over a century and has established many long
term client relationships, with nearly three quarters of clients having been with the company for over 10 years. All of Speirs & Jeffrey's
current directors and investment managers have joined the group.
The acquisition of Speirs & Jeffrey will enable Rathbones to establish a much stronger presence in Scotland, with Glasgow becoming
the group’s largest office after London following the transaction. In turn, Speirs & Jeffrey’s clients will benefit from access to Rathbones’
broader product and service offering including lending, financial planning and dedicated specialist offerings such as Rathbones’
charities team and ethical investment capability.
The group expects to capture scale benefits from ongoing investment in technology and the management of regulatory change for
the benefit of its clients, staff and shareholders. Meaningful revenue synergies are expected to be achieved over time by leveraging
the strength of Rathbones’ brand and complementary product offering and aligning the Speirs & Jeffrey service proposition with that
of Rathbones.
Consideration transferred
The following table summarises the acquisition date fair value of each class of consideration transferred:
Cash consideration
Contingent consideration (see below)
Total consideration
£'000
88,374
1,050
89,424
Cash consideration comprises an initial cash payment of £78,725,000, paid on 31 August 2018, and a payment for regulatory capital
surplus of £9,649,000, paid in two parts on 31 August 2018 and 25 October 2018.
Contingent consideration
Contingent consideration of £1,050,000 is payable during 2019 to vendors who are not required to remain in employment with the
group. The payment is subject to performance against certain operational targets, and is either payable in full or not at all, dependent
on whether the targets are met. The amount capitalised represents the maximum amount payable, as the group believe the targets will
be met.
As the payment is due within one year, the consideration has not been discounted. The contingent consideration payment will be
made 100% in shares.
Other deferred payments
The sale and purchase agreement details other deferred and contingent payments to be made to vendors for the sale of the shares of
Speirs and Jeffrey. However, these payments require the vendors to remain in employment with the group for the duration of the
respective deferral periods. Hence, they are being treated as remuneration for post-combination services and the cost charged to profit
and loss over the respective vesting periods. Details of each of these elements is as follows:
Initial share consideration
Contingent consideration
Earn Out consideration
Gross amount
£'000
Grant date
25,000 31 August 2018
13,950 31 August 2018
16,320 31 August 2018
Grant date fair value
Expected vesting date
£'000
31 August 2021
23,462
14,036
31 March 2019
16,570 31 December 2020/21
All of these payments are to be made 100% in shares and are being accounted for as equity-settled share-based payments under IFRS 2.
– Initial share consideration of £25,000,000 was payable on completion. However, although the shares were issued on the date of
acquisition, they do not vest until the third anniversary of the acquisition date, subject to the vendors remaining employed until
this date.
– Contingent consideration of £13,950,000 is payable subject to the performance against the same operational targets described
above, as well as the vendors remaining in employment with the group until the targets are met.
– Earn Out consideration of £16,320,000 is payable in two parts in the third and fourth years following the acquisition date. Payment
is subject to the delivery of certain operational and financial performance targets. The gross amount represents management’s best
estimate as to the extent to which these targets will be achieved. The maximum amount payable under this element, which
represents a considerable stretch against the targets, is £98,210,000.
Incentive plans are also in place for non-sellers, which are subject to the same operational and financial performance targets as the earn
out consideration for the vendors.
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Notes to the consolidated financial statements continued
35 Business combinations continued
The charge recognised in profit or loss for the year ended 31 December 2018 for the above elements is as follows:
Initial share consideration
Contingent consideration
Earn Out consideration and incentivisation awards
£'000
2,607
8,021
4,086
14,714
These costs are being reported as staff costs within acquisition-related costs (see note 9).
Acquisition-related costs
Costs of £2,465,000 for legal and advisory fees and £653,000 for stamp duty have been recognised in acquisition-related costs (note 9)
in the year in relation to this transaction.
Identifiable assets acquired and liabilities assumed
The acquired business' identifiable net assets at the acquisition date were as follows:
31 August 2018
Property, plant and equipment
Trade and other receivables
Intangible assets (note 22)
Loans and advances to banks
Loans and advances to customers
Investment securities – fair value through profit or loss
Trade and other payables
Accruals and other liabilities
Deferred tax liabilities (note 21)
Contingent liabilities
Total net assets acquired
Carrying amounts
£'000
943
3,318
–
15,462
2,274
1,254
–
(6,850)
(140)
–
16,261
Fair value
adjustments
£'000
–
–
54,337
–
–
–
–
–
(9,261)
–
45,076
Recognised values
£'000
943
3,318
54,337
15,462
2,274
1,254
–
(6,850)
(9,401)
–
61,337
The fair value of acquired trade and other receivables and loans and advances to banks is equal to the contractual amounts receivable,
all of which were expected to be collected at the acquisition date.
The fair value of Speirs & Jeffrey’s client relationship intangible assets has been measured using a multi-period excess earnings
method (note 22). The model uses estimates of client longevity, investment performance and the level of activity driving commission
income to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of the client
relationships acquired.
The fair value of all other net assets acquired were equal to their carrying value.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total consideration (see above)
Fair value of identifiable net assets acquired (see above)
£'000
89,424
(61,337)
28,087
Goodwill of £28,087,000 arises as a result of the acquired workforce, expected future growth as well as operational and revenue
synergies arising post integration. Any impairment of goodwill in future periods is not expected to be deductible for tax purposes.
During the 4 months to 31 December 2018, Speirs & Jeffrey contributed to the group’s operating income of £8,682,000 and profit
before tax of £2,846,000 to the group’s consolidated statement of comprehensive income for the year ended 31 December 2018.
If the group had made the acquisition on 1 January 2018, the group operating income and profit before tax would have been
£332,626,000 and £64,925,000 respectively.
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Notes to the consolidated financial statements continued
£'000
2,607
8,021
4,086
14,714
£'000
89,424
(61,337)
28,087
Identifiable assets acquired and liabilities assumed
The acquired business' identifiable net assets at the acquisition date were as follows:
31 August 2018
Property, plant and equipment
Trade and other receivables
Intangible assets (note 22)
Loans and advances to banks
Loans and advances to customers
Trade and other payables
Accruals and other liabilities
Deferred tax liabilities (note 21)
Contingent liabilities
Total net assets acquired
Investment securities – fair value through profit or loss
Carrying amounts
adjustments
Recognised values
Fair value
£'000
–
54,337
£'000
943
3,318
15,462
2,274
1,254
(6,850)
(140)
–
–
–
–
–
–
–
–
–
–
(9,261)
£'000
943
3,318
54,337
15,462
2,274
1,254
(6,850)
(9,401)
–
–
16,261
45,076
61,337
The fair value of acquired trade and other receivables and loans and advances to banks is equal to the contractual amounts receivable,
all of which were expected to be collected at the acquisition date.
The fair value of Speirs & Jeffrey’s client relationship intangible assets has been measured using a multi-period excess earnings
method (note 22). The model uses estimates of client longevity, investment performance and the level of activity driving commission
income to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of the client
relationships acquired.
The fair value of all other net assets acquired were equal to their carrying value.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total consideration (see above)
Fair value of identifiable net assets acquired (see above)
Goodwill of £28,087,000 arises as a result of the acquired workforce, expected future growth as well as operational and revenue
synergies arising post integration. Any impairment of goodwill in future periods is not expected to be deductible for tax purposes.
During the 4 months to 31 December 2018, Speirs & Jeffrey contributed to the group’s operating income of £8,682,000 and profit
before tax of £2,846,000 to the group’s consolidated statement of comprehensive income for the year ended 31 December 2018.
If the group had made the acquisition on 1 January 2018, the group operating income and profit before tax would have been
£332,626,000 and £64,925,000 respectively.
35 Business combinations continued
36 Related party transactions
The charge recognised in profit or loss for the year ended 31 December 2018 for the above elements is as follows:
Initial share consideration
Contingent consideration
Earn Out consideration and incentivisation awards
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.
Gains on options exercised by directors during the year totalled £19,000 (2017: £nil). Further information about the remuneration
of individual directors is provided in the audited part of the directors' remuneration report on page 84.
These costs are being reported as staff costs within acquisition-related costs (see note 9).
Acquisition-related costs
in the year in relation to this transaction.
Costs of £2,465,000 for legal and advisory fees and £653,000 for stamp duty have been recognised in acquisition-related costs (note 9)
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2018
£’000
12,434
184
2,934
5,640
21,192
2017
£’000
10,951
327
2,425
2,187
15,890
Dividends totalling £247,000 were paid in the year (2017: £408,000) in respect of ordinary shares held by key management personnel
and their close family members.
As at 31 December 2018, the group had outstanding interest-free season ticket loans of £nil (2017: £6,000) issued to key management
personnel.
At 31 December 2018, key management personnel and their close family members had gross outstanding deposits of £778,000 (2017:
£4,059,000) and gross outstanding banking loans of £nil (2017: £728,000), all of which (2017: all) were made on normal business terms.
A number of the group's key management personnel and their close family members make use of the services provided by companies
within the group. Charges for such services are made at various staff rates.
Other related party transactions
The group’s transactions with the pension funds are described in note 28. At 31 December 2018, no amounts were outstanding with
either the Laurence Keen Scheme or the Rathbone 1987 Scheme (2017: £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 2018, the group managed 27 unit trusts, Sociétés d'Investissement à Capital
Variable (SICAVs) and open-ended investment companies (OEICs) (together, 'collectives') (2017: 27 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.
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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 18)
2018
£’000
37,608
2017
£’000
35,525
2018
£’000
3,629
3,205
6,834
2017
£’000
3,266
2,565
5,831
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 'fair value
through profit or loss 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.
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Notes to the consolidated financial statements continued
37
Interest in unconsolidated structured entities
As described in note 36, at 31 December 2018, the group owned units in collectives managed by Rathbone Unit Trust Management
with a value of £3,205,000 (2017: £2,565,000), representing 0.06% (2017: 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.
38 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 15)
Loans and advances to banks (note 16)
Fair value through profit or loss investment securities (note 18)
At 31 December
2018
£’000
2017
£’000
1,197,001 1,374,002
87,009
106,747
1,408,537 1,567,758
136,203
75,333
Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand.
Cash flows arising from issuing ordinary shares comprise:
Share capital issued (note 29)
Share premium on shares issued (note 29)
Shares issued in relation to share-based schemes for which no cash consideration was received
A reconciliation of the movements of liabilities to cash flows arising from financing activities were as follows:
2018
£’000
194
87,134
(29,888)
57,440
2017
£’000
31
3,098
(441)
2,688
Retained
earnings
£’000
190,402
102
8,443
198,947
Total
£’000
382,973
(148)
8,443
391,268
–
(2,015)
(32,691)
(34,706)
–
–
87,328
(29,888)
(32,691)
24,749
–
–
Liabilities
Subordinated
loan notes
£’000
19,695
–
–
19,695
–
–
–
–
–
–
Share capital/
premium
£’000
145,655
–
–
145,655
87,328
–
–
87,328
–
–
Equity
Reserves
£’000
27,221
(250)
–
26,971
–
(27,873)
–
(27,873)
–
–
1,283
(1,171)
112
–
19,807
–
–
–
–
232,983
–
–
–
–
(902)
–
–
–
67,818
232,059
1,283
(1,171)
112
67,818
483,947
At 31 December 2017
Adjustment on initial application of IFRS 9 (net of tax)
Adjustment on initial application of IFRS 15 (net of tax)
At 1 January 2018
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 2018
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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
39 Events after the balance sheet date
Liabilities
Subordinated loan
notes
£’000
19,590
Share capital/
premium
£’000
142,526
Equity
Reserves
£’000
25,742
Retained
earnings
£’000
156,545
Total
£’000
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
–
–
–
–
145,655
–
–
–
100
27,221
–
–
–
65,097
190,402
1,276
(1,171)
105
65,197
382,973
There have been no material events occurring between the balance sheet date and the date of signing this report.
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Notes to the consolidated financial statements continued
37
Interest in unconsolidated structured entities
As described in note 36, at 31 December 2018, the group owned units in collectives managed by Rathbone Unit Trust Management
with a value of £3,205,000 (2017: £2,565,000), representing 0.06% (2017: 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.
38 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 15)
Loans and advances to banks (note 16)
Fair value through profit or loss investment securities (note 18)
At 31 December
Cash flows arising from issuing ordinary shares comprise:
Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand.
Share capital issued (note 29)
Share premium on shares issued (note 29)
Shares issued in relation to share-based schemes for which no cash consideration was received
A reconciliation of the movements of liabilities to cash flows arising from financing activities were as follows:
At 31 December 2017
Adjustment on initial application of IFRS 9 (net of tax)
Adjustment on initial application of IFRS 15 (net of tax)
Liabilities
Subordinated
loan notes
£’000
19,695
Share capital/
premium
£’000
145,655
Equity
Reserves
£’000
27,221
(250)
–
At 1 January 2018
19,695
145,655
26,971
198,947
391,268
2018
£’000
2017
£’000
1,197,001 1,374,002
136,203
75,333
87,009
106,747
1,408,537 1,567,758
2018
£’000
194
87,134
(29,888)
57,440
Retained
earnings
£’000
102
8,443
2017
£’000
31
3,098
(441)
2,688
Total
£’000
(148)
8,443
190,402
382,973
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 2018
–
–
–
–
–
–
–
–
1,283
(1,171)
112
–
87,328
(27,873)
87,328
(27,873)
(2,015)
(32,691)
(34,706)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
87,328
(29,888)
(32,691)
24,749
–
–
1,283
(1,171)
112
19,807
232,983
(902)
67,818
67,818
232,059
483,947
–
–
–
–
–
–
–
–
–
–
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Notes to the consolidated financial statements continued
40 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 2018.
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
pages 4 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 46.
Country
United Kingdom
Jersey
Sub-total
Intergroup eliminations and other entries arising on consolidation
Total
Turnover
£'000
304,870
11,081
315,951
(3,988)
311,963
Profit/(loss)
before
taxation
£'000
63,208
2,113
65,321
(4,015)
61,306
Tax paid
£'000
14,397
300
14,697
–
14,697
Number of
employees
1,311
18
1,329
–
1,329
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Notes to the consolidated financial statements continued
Company statement of changes in equity
for the year ended 31 December 2018
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
40 Country-by-country reporting
Introduction
basis, for the year ended 31 December 2018.
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
pages 4 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
Subsidiaries
A list of the subsidiaries of the group, including their main activity and country of incorporation,
are excluded.
is shown within note 46.
Country
United Kingdom
Jersey
Sub-total
Total
Intergroup eliminations and other entries arising on consolidation
Turnover
£'000
304,870
11,081
315,951
(3,988)
311,963
Profit/(loss)
before
taxation
£'000
63,208
2,113
65,321
(4,015)
61,306
Tax paid
£'000
14,397
300
14,697
–
14,697
Number of
employees
1,311
18
1,329
–
1,329
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
Adjustment on initial application of IFRS
9 (net of tax)
Adjustment on initial application of IFRS
15 (net of tax)
Adjusted balance at 1 January 2018
Profit for the year
Net remeasurement of defined benefit
liability
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 2018
Note
Share capital
£’000
2,535
Share premium
£’000
139,991
Available for sale
reserve
£’000
150
Own shares
£’000
(6,243)
Retained earnings
£’000
48,906
32,614
Total equity
£’000
185,339
32,614
17,288
17,288
163
(43)
(20)
100
163
(43)
(2,939)
14,349
(2,959)
14,449
–
–
–
31
3,098
(441)
1,820
2,566
143,089
250
(4,864)
(29,420)
3,591
(1,820)
328
68,548
(29,420)
3,129
3,591
(441)
–
328
209,589
(250)
250
–
2,566
143,089
–
(4,864)
–
–
–
–
–
68,798
45,883
–
209,589
45,883
1,219
1,219
(207)
1,012
(207)
1,012
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194
87,134
2,760
230,223
–
(32,691)
20,279
(29,888)
2,015
(2,015)
358
(32,737) 101,624
(32,691)
87,328
20,279
(29,888)
–
358
301,870
52
18
49
45
53
53
53
52
49
45
53
53
53
The accompanying notes form an integral part of the company financial statements.
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Company balance sheet
As at 31 December 2018
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
Current tax liability
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
46
47
49
48
2018
£’000
2017
£’000
273,055
13,205
4,067
290,327
180,503
12,565
4,455
197,523
102,440
–
5,386
107,826
114,597
1,616
7,400
123,613
398,153
321,136
50
51
(74,387)
(476)
(10,223)
(85,086)
(73,018)
–
(22,929)
(95,947)
22,740
27,666
52
(11,197)
(96,283)
(15,600)
(111,547)
301,870
209,589
53
53
53
2,760
230,223
–
(32,737)
101,624
301,870
2,566
143,089
250
(4,864)
68,548
209,589
The financial statements were approved by the board of directors and authorised for issue on 20 February 2019 and were signed on
their behalf by:
Philip Howell
Chief Executive
Paul Stockton
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the company financial statements.
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Company statement of cash flows
for the year ended 31 December 2018
Cash flows from operating activities
Profit before tax
Net profit on disposal of available for sale investment securities
Change in fair value through profit or loss
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 prepayments, accrued income and other assets
– net (decrease)/increase in accruals, deferred income, provisions and other liabilities
Cash generated from operations
Tax received
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Interest paid
Inter-company dividends received
Acquisition of subsidiaries
Disposal of subsidiary, net of cash transferred
Investment in subsidiaries
Purchase of other investments
Proceeds from sale of investments
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Issue of ordinary shares
Dividends paid
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the company financial statements.
Note
2018
£’000
2017
£’000
46,980
–
189
(58,818)
(1,936)
491
(3,673)
19,838
3,071
12,407
(9,297)
6,181
1,535
7,716
79
(182)
59,250
(92,552)
5,205
(5,205)
(1,065)
235
(34,235)
57,440
(32,691)
24,749
(1,770)
7,156
5,386
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
51
52
52
53
46
53
45
58
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Notes to the company financial statements
41 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
This is the first set of the Company’s financial statements where IFRS 9 and IFRS 15 have been applied. These new standards were
adopted from 1 January 2018. Under the transition methods chosen, comparative information is not restated. Changes to significant
accounting policies are described in note 43.
Other 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.
42 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. These are described in note 3 to the consolidated financial statements.
43 Changes in significant accounting policies
The Company has adopted IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ from 1 January 2018.
The effect of applying these standards is mainly attributed to the following:
– a change in classification and measurement of certain financial assets (IFRS 9); and
– an increase in provisions for payments to acquire client relationship intangible assets (IFRS 15).
IFRS 9 ‘Financial Instruments’
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.
Transition
The Company has taken advantage of the exemption from restating comparative information for prior periods with respect to
classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets
and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018.
Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 but rather those of IAS 39.
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Rathbone Brothers Plc Report and accounts 2018
Under the requirements of IFRS 9, the following assessments have been made on the basis of the facts and circumstances that existed
at the date of initial application.
– The nature of the business model under which a financial asset is managed.
– Whether the SPPI (solely payments of principal and interest) criterion is met.
– The designation of certain financial assets as measured at fair value through profit or loss.
– If an investment in a debt instrument had a low credit risk at the date of initial application of IFRS 9, then the company assumes
that the credit risk on the asset has not increased significantly since its initial recognition.
The following table summarises the impact, net of tax, of transition to IFRS 9 on the opening balance of reserves and retained earnings:
Recycle to retained earnings of available for sale reserve
Impact at 1 January 2018
Impact of adopting IFRS 9 on opening balance
Available for sale reserve
£'000
(250)
(250)
Retained earnings
£'000
250
250
The hedge accounting requirements of IFRS 9 have not been applied, as the company was not party to any hedging relationships as
at 1 January 2018.
Classification and measurement of financial assets and financial liabilities
The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are 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 require the company to document the
business models under which its assets are managed and review contractual terms and conditions.
All of the company’s financial assets as at 1 January 2018 were managed within business models whose objective is solely to collect
contractual cash flows, except money market funds, which are equity instruments not held for trading and were classified as fair
value through profit or loss.
The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9
for each class of the company’s financial assets as at 1 January 2018.
Original classification under IAS 39
Financial assets
Available for sale
Equity securities
Available for sale
Money market funds
Cash and cash equivalents
Loans and receivables
Amounts owed by group undertakings Loans and receivables
Other financial assets
Loans and receivables
Total financial assets
Original carrying
amount under IAS 39
£'000 New classification under IFRS 9
2,565 Fair value through profit or loss
10,000 Fair value through profit or loss
7,400 Amortised cost
110,194 Amortised cost
1,635 Amortised cost
131,794
New carrying amount
under IFRS 9
£'000
2,565
10,000
7,400
110,194
1,635
131,794
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The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39.
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.
No additional impairment has been recognised under the new standard as at 1 January 2018.
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Notes to the company financial statements continued
43 Changes in significant accounting policies continued
IFRS 15 ‘Revenue from Contracts with Customers’
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. The standard replaces existing revenue recognition guidance, in particular
under IAS 18.
Transition
The company has adopted IFRS 15 using the cumulative effect method, with the effect of applying the standard recognised at the date
of adoption, with no restatement of the comparative period. The following table summarises the impact, net of tax, of transition to IFRS
15 on retained earnings at 1 January 2018.
Retained earnings
Reduction in amounts owed to group undertakings
Recognition of provisions
Impact at 1 January 2018
Impact of adopting
IFRS 15 on opening
balance
£'000
(4,075)
4,075
–
The impact on transition is due to a change in the group’s accounting policy for capitalising contract costs under IFRS 15 (see note 2).
There is an increase in provisions for amounts payable as at 1 January 2018 in respect of additional contract costs capitalised for the
acquisition of client relationship intangible assets (recognised in a group undertaking to which the related costs of the earn out
contracts are recharged).
Impact on financial statements for the year ended 31 December 2018
The company has considered the impact of adopting the standard, in particular the group’s policy of capitalising the cost of obtaining
customer contracts, and expects provisions for costs to acquire client relationship intangible assets to increase as a result. Otherwise,
there is no impact of adopting IFRS 15.
44 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 2018 of £45,883,000
(2017: £32,614,000).
Auditor's remuneration for audit and other services to the company are set out in note 8 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
2018
2017
771
107
33
334
1,245
715
92
28
293
1,128
174
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
45 Dividends
Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 13 to the
consolidated financial statements.
The company's dividend policy is described in the directors’ report on page 92.
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
46 Investment in subsidiaries
At 1 January 2017
Additions
Disposals
At 1 January 2018
Additions
Disposals
At 31 December 2018
2018
£’000
301,870
2017
£’000
209,589
(2,760)
(230,223)
68,887
(2,566)
(143,089)
63,934
2018
£’000
63,934
45,883
1,012
–
(32,691)
(9,251)
68,887
Equities
£’000
140,503
40,000
–
180,503
97,757
(5,205)
273,055
2017
£’000
42,813
32,614
14,349
100
(29,420)
3,478
63,934
Total
£’000
140,503
40,000
–
180,503
97,757
(5,205)
273,055
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Notes to the company financial statements continued
46 Investment in subsidiaries continued
Equities
On 1 January 2018, 17,645 ordinary shares of 5p each in Vision Independent Financial Planning were issued to the company at a price
of £295 per share in exchange for the company’s equity holding in Castle Investment Solutions.
On 31 August 2018, the company acquired 100% of the share capital of Speirs & Jeffrey Limited, Speirs & Jeffrey Client Nominees
Limited, Speirs & Jeffrey Fund Management Limited and Speirs & Jeffrey Portfolio Management Limited.
The cost of the acquisition comprised the following:
Cash consideration
Directly attributable costs
Further details of the acquisition are provided in note 35 to the consolidated financial statements.
At 31 December 2018 the company's subsidiary undertakings were as follows:
£’000
89,424
3,128
92,552
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*
Speirs & Jeffrey 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*
Argus Nominee Limited
Speirs & Jeffrey Client Nominees Limited*
Speirs & Jeffrey Fund Management Limited*
Speirs & Jeffrey Portfolio Management 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
Investment management
Intermediate holding company
Corporate director services
Corporate secretarial services
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Non-trading
Non-trading
Non-trading
Non-trading
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Rathbone Brothers Plc Report and accounts 2018
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
Speirs & Jeffrey Limited
Speirs & Jeffrey Client Nominees Limited
Speirs & Jeffrey Fund Management Limited
Speirs & Jeffrey Portfolio Management 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
George House, 50 George Square, Glasgow, G2 1EH
George House, 50 George Square, Glasgow, G2 1EH
George House, 50 George Square, Glasgow, G2 1EH
George House, 50 George Square, Glasgow, G2 1EH
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
47 Other investments
Fair value through profit or loss securities
Equity securities:
– listed
Money market funds:
– unlisted
* Fair value through profit or loss investments as at 31 December 2017 were classified under IAS 39 as available for sale securities
48 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
2018
£’000
2017*
£’000
3,205
2,565
10,000
13,205
10,000
12,565
2018
£’000
11,833
90,607
102,440
102,440
–
102,440
2017
£’000
4,403
110,194
114,597
114,597
–
114,597
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Notes to the company financial statements continued
49 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 2018
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
2,650
(605)
–
64
(541)
(231)
–
24
(207)
–
–
–
–
Share-based
payments
£’000
1,539
400
(29)
–
371
–
–
–
–
80
(108)
–
(28)
Staff-
related
costs
£’000
316
(7)
(6)
1
(12)
–
–
–
–
–
–
–
–
Fair value
through
profit or loss
£’000
(50)
33
–
(4)
29
–
–
–
–
–
–
–
–
Total
£’000
4,455
(179)
(35)
61
(153)
(231)
–
24
(207)
80
(108)
–
(28)
As at 31 December 2018
1,902
1,882
304
(21)
4,067
Deferred tax assets
Deferred tax liabilities
As at 31 December 2018
Pensions
£’000
1,902
–
1,902
Share-based
payments
£’000
1,882
–
1,882
Staff-
related
costs
£’000
304
–
304
Fair value
through
profit or loss
£’000
–
(21)
(21)
Total
£’000
4,088
(21)
4,067
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Rathbone Brothers Plc Report and accounts 2018
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
As at 31 December 2017
2,650
1,539
Pensions
£’000
2,650
–
2,650
Share-based
payments
£’000
1,539
–
1,539
Deferred tax assets
Deferred tax liabilities
As at 31 December 2017
50 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
189
144
–
(17)
127
–
–
–
–
–
–
–
–
316
Staff-
related
costs
£’000
316
–
316
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
(50)
4,455
Available
for sale
securities
£’000
–
(50)
(50)
2018
£’000
211
66,633
99
7,444
74,387
Total
£’000
4,505
(50)
4,455
2017
£’000
355
64,672
230
7,761
73,018
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Notes to the company financial statements continued
51 Provisions for liabilities and charges
As at 1 January 2017
Charged to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2017
Adjustment on initial application of IFRS 15 (note 43)
At 1 January 2018
Charged to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2018
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
10,210
–
2,743
(4,883)
8,070
4,075
12,145
–
–
–
(3,641)
(7,445)
1,059
509
550
1,059
Deferred and
contingent
consideration
in business
combinations
£’000
1,136
–
84
–
1,220
–
1,220
–
–
–
3,158
(2,000)
2,378
2,378
–
2,378
Property-
related
£’000
2,705
16,523
–
(5,589)
13,639
–
13,639
1,790
(3,726)
(1,936)
–
(4,917)
6,786
5,954
832
6,786
Total
£’000
14,051
16,523
2,827
(10,472)
22,929
4,075
27,004
1,790
(3,726)
(1,936)
(483)
(14,362)
10,223
8,841
1,382
10,223
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year. The value of certain awards related to client relationships reduced during the
year as not all performance conditions were ultimately met. There was a net release of £3,641,000 (2017: net increase of £2,743,000)
in relation to other movements for deferred, variable costs to acquire client relationship intangibles
Deferred and contingent consideration includes £1,050,000 (2017: £nil) payable to vendors following the acquisition of Speirs & Jeffrey.
The payment is contingent on certain operational targets being met (see note 35). It also includes £1,328,000 (2017: £1,220,000) which
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 £6,786,000 relate to dilapidation and onerous lease provisions expected to arise on leasehold premises
held by the company (2017: £13,639,000).
On 6 June 2018, the group completed assignment of its leases on surplus property at 1 Curzon Street, which triggered a release
of £3,726,000 from the onerous lease provision held over the property. The timing of cash flows from the group relating to monies
due under the contract with the assignee are subject to the level of rent paid by the assignee following the rent review that was due
in the third quarter of 2018 but remains outstanding.
Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have increased by £803,000
(2017: decreased by £544,000). The group utilised £912,000 (2017: £802,000) of the dilapidations provision held for the surplus
property at 1 Curzon Street during the year. During the year, management have reviewed the potential cost and timing of dilapidation
provisions, which has resulted in an increase in provisions of £1,588,000 (2017: £nil). The impact of discounting led to an additional
£127,000 (2017: £71,000) being provided for over the year.
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2017: two years), except for the
property-related provisions of £6,786,000 (2017: £7,845,000). These are expected to be settled within 15 years of the balance sheet date
(2017: 19 years).
52 Long term employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 28 to the consolidated financial statements.
53 Share capital, own shares and share-based payments
Details of the share capital of the company and ordinary shares held by the company together with changes thereto are provided in
notes 29 and 30 to the consolidated financial statements. Details of options on the company's shares and share-based payments are set
out in note 31 to the consolidated financial statements.
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Rathbone Brothers Plc Report and accounts 2018
51 Provisions for liabilities and charges
54 Financial instruments
The company's risk management policies and procedures are integrated with the wider Rathbones group's risk management
process. The Rathbones group has identified the risks arising from all of its activities, including those of the company, and has
established policies and procedures to manage these items in accordance with its risk appetite. The company categorises its
financial risks into the following primary areas:
(i) credit risk;
(ii) liquidity risk;
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and
(iv) pension risk.
The company's exposures to pension risk are set out in note 28 to the consolidated financial statements.
The sections below outline the group risk appetite, as applicable to the company, and explain how the company defines and manages
each category of financial risk.
The company’s financial risk management policies are designed to identify and analyse the financial risks that the company faces, to
set appropriate risk tolerances, limits and controls and to monitor the financial risks and adherence to limits by means of reliable and
up-to-date information systems. The company regularly reviews its financial risk management policies and systems to reflect changes
in the business and the wider industry.
The company’s overall strategy and policies for monitoring and management of financial risk are set by the board of directors (the
board). The board has embedded risk management within the business through the executive committee and senior management.
(i) Credit risk
The company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due,
through its trading activities. The principal sources of credit risk arise from depositing funds with banks and through providing long
term and working capital financing for subsidiaries.
The company's financial assets are categorised as follows:
Trade and other receivables
Trade and other receivables relate to amounts placed with subsidiaries, amounts held in escrow following the assignment of leases
on 1 Curzon Street and staff advances.
The collection and ageing of trade and other receivables are reviewed on a periodic basis by management.
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.
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As at 1 January 2017
Charged to profit or loss
Other movements
Utilised/paid during the year
At 31 December 2017
Adjustment on initial application of IFRS 15 (note 43)
At 1 January 2018
Charged to profit or loss
Unused amount credited to profit or loss
Net credit to profit or loss
Other movements
Utilised/paid during the year
As at 31 December 2018
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
10,210
–
2,743
(4,883)
8,070
4,075
12,145
–
–
–
(3,641)
(7,445)
1,059
509
550
1,059
Deferred and
contingent
consideration
in business
combinations
£’000
1,136
–
84
–
1,220
1,220
–
–
–
–
3,158
(2,000)
2,378
2,378
–
2,378
Property-
related
£’000
2,705
16,523
(5,589)
13,639
–
–
13,639
1,790
(3,726)
(1,936)
–
(4,917)
6,786
5,954
832
6,786
Total
£’000
14,051
16,523
2,827
(10,472)
22,929
4,075
27,004
1,790
(3,726)
(1,936)
(483)
(14,362)
10,223
8,841
1,382
10,223
Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client
relationships, which have been capitalised in the year. The value of certain awards related to client relationships reduced during the
year as not all performance conditions were ultimately met. There was a net release of £3,641,000 (2017: net increase of £2,743,000)
in relation to other movements for deferred, variable costs to acquire client relationship intangibles
Deferred and contingent consideration includes £1,050,000 (2017: £nil) payable to vendors following the acquisition of Speirs & Jeffrey.
The payment is contingent on certain operational targets being met (see note 35). It also includes £1,328,000 (2017: £1,220,000) which
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.
held by the company (2017: £13,639,000).
Property-related provisions of £6,786,000 relate to dilapidation and onerous lease provisions expected to arise on leasehold premises
On 6 June 2018, the group completed assignment of its leases on surplus property at 1 Curzon Street, which triggered a release
of £3,726,000 from the onerous lease provision held over the property. The timing of cash flows from the group relating to monies
due under the contract with the assignee are subject to the level of rent paid by the assignee following the rent review that was due
in the third quarter of 2018 but remains outstanding.
Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have increased by £803,000
(2017: decreased by £544,000). The group utilised £912,000 (2017: £802,000) of the dilapidations provision held for the surplus
property at 1 Curzon Street during the year. During the year, management have reviewed the potential cost and timing of dilapidation
provisions, which has resulted in an increase in provisions of £1,588,000 (2017: £nil). The impact of discounting led to an additional
£127,000 (2017: £71,000) being provided for over the year.
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2017: two years), except for the
property-related provisions of £6,786,000 (2017: £7,845,000). These are expected to be settled within 15 years of the balance sheet date
(2017: 19 years).
52 Long term employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 28 to the consolidated financial statements.
53 Share capital, own shares and share-based payments
Details of the share capital of the company and ordinary shares held by the company together with changes thereto are provided in
notes 29 and 30 to the consolidated financial statements. Details of options on the company's shares and share-based payments are set
out in note 31 to the consolidated financial statements.
180
Rathbone Brothers Plc Report and accounts 2018
rathbones.com
rathbones.com
181
181
Notes to the company financial statements continued
54 Financial instruments continued
(i) Credit risk continued
Cash and cash equivalents (balances at banks)
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
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
2018
£’000
2017
£’000
10,005
10,002
90,607
12,570
5,386
118,568
110,194
7,500
7,400
135,096
The above table represents the gross credit risk exposure of the company at 31 December 2018 and 2017, without taking account of any
collateral held or other credit enhancements attached.
Other investments
The table below presents an analysis of other investments by rating agency designation, as at 31 December 2018, based on Fitch
or Moody’s long term rating designation.
AAA
2018
2017
Money
market
funds
£’000
10,000
Total
£’000
10,000
Money
market
funds
£’000
10,000
Total
£’000
10,000
Trade and other receivables
No trade and other receivables have been written off or are credit impaired at the reporting date.
Amounts owed by group undertakings do not have specific repayment dates and are paid down periodically as trading requires.
Balances at banks
The credit quality of balances at banks 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
2018
£’000
5,386
–
5,386
2017
£’000
5,733
1,667
7,400
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.
182
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
(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 2018
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2017
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
90,264
7,609
5,386
113,259
343
469
–
812
90,607
8,078
5,386
114,071
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
At 31 December 2018, all rest of the world exposures were to counterparties based in Jersey and the United States of America (2017:
Jersey and the United States of America). At 31 December 2018, the company had no exposure to sovereign debt (2017: none).
Industry sectors
(b)
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 2018
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
At 31 December 2017
Other investments:
– money market funds
Trade and other receivables:
– amounts owed by group undertakings
– other financial assets
Balances at banks
Financial
institutions
£'000
Clients and other
corporates
£'000
Total
£'000
10,000
–
10,000
50,214
5
5,386
65,605
40,393
8,073
–
48,466
90,607
8,078
5,386
114,071
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
Financial
institutions
£'000
Clients and other
corporates
£'000
Total
£'000
10,000
–
10,000
82,131
2
7,400
99,533
28,063
1,633
–
29,696
110,194
1,635
7,400
129,229
rathbones.com
rathbones.com
183
183
Notes to the company financial statements continued
54 Financial instruments continued
(ii) Liquidity risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset. The company places its funds in short term or demand facilities with financial
institutions to ensure liquidity. The company has no bank loans (2017: £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.
assets
105,877
2,177
3,871
4,348
2,295
At 31 December 2018
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
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
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
10,005
–
–
–
–
90,607
10
5,255
–
2,046
131
–
3,871
–
–
4,348
–
–
2,295
–
99
131
–
35,627
–
4,921
–
27,853
–
6,028
230
105,647
105,647
35,627
(33,450)
72,197
4,921
(1,050)
71,147
27,853
(23,505)
47,642
6,028
(3,733)
43,909
–
–
43,909
After 3
months
but not
more than
1 year
£’000
–
–
639
244
After 1
year but
not more
than
5 years
£’000
After 5
years
£’000
No fixed
maturity
date
£’000
–
–
–
3,435
–
–
2,819
–
On
demand
£’000
Not more
than
3 months
£’000
10,002
110,194
7
7,156
127,359
–
–
600
–
600
883
3,435
2,819
230
244
–
42,858
–
3,404
–
37,746
–
5,873
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
(3,054)
44,741
–
–
44,741
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
10,005
90,607
12,570
5,386
118,568
99
74,560
74,659
43,909
Total
£’000
10,002
110,194
7,500
7,400
135,096
230
90,125
90,355
44,741
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.
184
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
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 26).
The company holds £3,205,000 of equity investments (2017: £2,565,000) which are subject to liquidity risk but are not included in the
table above. These assets are held as fair value through profit or loss 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 56) 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 2018
At 31 December 2017
Total liquidity requirement
At 31 December 2018
Cash flows arising from financial liabilities
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
Not more
than
3 months
£’000
1,884
658
Not more
than
3 months
£’000
35,627
1,884
37,511
Not more
than
3 months
£’000
42,858
658
43,516
After 3
months
but not
more than
1 year
£’000
5,753
3,651
After 3
months
but not
more than
1 year
£’000
4,921
5,753
10,674
After 3
months
but not
more than
1 year
£’000
3,404
3,651
7,055
After 1
year but
not more
than
5 years
£’000
27,662
27,973
After 1
year but
not more
than
5 years
£’000
27,853
27,662
55,515
After 1
year but
not more
than
5 years
£’000
37,746
27,973
65,719
After 5
years
£’000
50,732
57,002
Total
£’000
86,031
89,284
After 5
years
£’000
6,028
50,732
56,760
After 5
years
£’000
5,873
57,002
62,875
Total
£’000
74,659
86,031
160,690
Total
£’000
90,355
89,284
179,639
On
demand
£’000
230
–
230
On
demand
£’000
474
–
474
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
rathbones.com
rathbones.com
185
185
Notes to the company financial statements continued
54 Financial instruments continued
(iii) Market risk
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market
interest rates.
The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets
and liabilities.
The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts,
categorised by the earlier of contractual repricing or maturity dates.
At 31 December 2018
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
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
–
5,916
5,381
21,297
–
–
–
21,297
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,205
–
3,205
10,000
90,607
2,162
5
95,979
90,607
8,078
5,386
117,276
99
56,325
56,424
39,555
99
56,325
56,424
60,852
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
A 1% parallel increase/decrease in the sterling yield curve would have no impact on profit after tax or equity (2017: no impact).
186
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Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
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 2018. Included in the table are the company’s financial
assets and liabilities, at carrying amounts, categorised by currency.
At 31 December 2018
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
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
3,205
10,000
90,607
7,794
5,386
116,992
99
56,325
56,424
60,568
–
–
–
284
–
284
–
–
–
284
–
–
–
–
–
–
–
–
–
–
3,205
10,000
90,607
8,078
5,386
117,276
99
56,325
56,424
60,852
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
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
A 10% weakening of the US dollar against sterling, occurring on 31 December 2018, would have reduced equity and profit after tax
by £23,000 (2017: £20,000). A 10% strengthening of the US dollar would have had an equal and opposite effect. This analysis assumes
that all other variables, in particular other exchange rates, remain constant.
Price risk
The group's exposure to price risk, all of which is through the company's holdings of equity investment securities, is described in
note 32.
rathbones.com
rathbones.com
187
187
Notes to the company financial statements continued
54 Financial instruments continued
(iii) Market risk continued
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 2018
Assets
Fair value through profit or loss:
– equity securities
– money market funds
At 31 December 2017
Assets
Available for sale securities:
– equity securities
– money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
3,205
–
3,205
–
10,000
10,000
–
–
–
3,205
10,000
13,205
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
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 (2017: none).
Details of the methods and assumptions used to determine the fair values of the financial assets in the above table, along with how
reasonably possible changes to the assumptions affect these fair values, are provided in note 32 to the consolidated financial statements.
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 46).
55 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 45). 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.
56 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 2018, 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 £74,134,000. 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
2018
£’000
7,637
27,662
50,732
86,031
2017
£’000
4,310
27,973
57,002
89,285
188
188
Rathbone Brothers Plc Report and accounts 2018
Rathbone Brothers Plc Report and accounts 2018
57 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the company, who are defined as the company’s directors and other members
of senior management who are responsible for planning, directing and controlling the activities of the company, is set out below.
Short term employee benefits
Post-employment benefits
Other long term benefits
Share-based payments
2018
£’000
1,777
–
56
1,017
2,850
2017
£’000
1,569
–
–
602
2,171
Dividends totalling £247,000 were paid in the year (2017: £408,000) in respect of ordinary shares held by key management personnel
and their close family members.
All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Interest
Charges for management services
Dividends received
2018
2017
Receivable
£'000
–
157,217
59,250
216,467
Payable
£'000
–
–
–
–
Receivable
£'000
–
152,708
48,000
200,708
Payable
£'000
–
–
–
–
The company's balances with fellow group companies at 31 December 2018 are set out in notes 48 and 50.
The company’s transactions with the pension funds are described in note 52. At 31 December 2018, no amounts were due from
the pension schemes (2017: £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.
58 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:
s
t
a
t
e
m
e
n
t
s
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
Cash at bank (excluding amounts held at employee benefit trust)
2018
£’000
5,386
2017
£’000
7,156
A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 38 to the consolidated
financial statements.
59 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.
rathbones.com
rathbones.com
189
189
Further
information
190
Rathbone Brothers Plc Report and accounts 2018
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 and administration
2018
£’000
311,963
91,558
61,306
46,169
35,204
88.7p
86.2p
142.5p
66.0p
464,140
£44.1bn
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
Corporate information
Principal trading names
Offices
Websites
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
Speirs & Jeffrey
16
rathbones.com
rathboneimi.com
rathbonegreenbank.com
speirsjeffrey.co.uk
Unit Trusts
Rathbone Unit Trust Management
1
rathbones.com
rathbonefunds.com
Company secretary and registered office
Registrars and transfer office
A Johnson
Rathbone Brothers Plc
8 Finsbury Circus
London
EC2M 7AZ
Company No. 01000403
rathbones.com
ali.johnson@rathbones.com
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
equiniti.com
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Our offices
Head office
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
Unit Trusts
8 Finsbury Circus
London
EC2M 7AZ
+44 (0)20 7399 0000
George House
50 George Square
Glasgow
G2 1EH
+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
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Rathbone Brothers Plc Report and accounts 2018
It is important to us that
all materials used in the
production of this document
are environmentally sustainable.
The paper is manufactured from
100% FSC certified recycled fibre.
Both the printer and paper
manufacturer are accredited to the
ISO 14001 environmental standard.
Once you have finished with
this report please recycle it.
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Rathbone Brothers Plc
8 Finsbury Circus, London, EC2M 7AZ
+44 (0)20 7399 0000
rathbones.com