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9
Rathbone Brothers Plc
Report and accounts 2019
Thinking,
acting and
investing
responsibly
Contents
Strategic report
A responsible business
Being responsible
A strategy for growth
Chairman’s statement
Our investment case
Rathbones at a glance
Our strategy
Future focused
Chief executive’s review
Our market and opportunities
Our business model
Enhanced performance
Key performance indicators
Financial performance
Segmental review
Financial position
Liquidity and cash flow
Risk management and control
Stakeholder engagement
Corporate responsibility report
Governance
Corporate governance report
Group risk committee report
Audit committee report
Nomination committee report
Group executive committee report
Remuneration committee report
Directors’ report
Statement of directors’ responsibilities
in respect of the report and accounts
Financial statements
Independent auditor’s report to the
members of Rathbone Brothers Plc
Consolidated financial statements
Notes to the consolidated financial
statements
Company financial statements
Notes to the company financial statements
Further information
Five year record
Corporate information
Our offices
1
2
5
7
8
10
13
18
20
23
26
30
35
39
40
46
48
68
80
83
88
90
92
108
112
114
124
128
187
190
207
207
208
About Rathbones
Rathbones provides individual investment and wealth
management services for private clients, charities,
trustees and professional partners. We have been trusted
for generations to manage and preserve our clients’ wealth.
Our tradition of investing and acting responsibly has been
with us from the beginning and continues to lead us forward.
Our ambition is to be recognised as the UK’s most responsible
wealth manager.
2019 financial highlights
Profit
before tax
£39.7m
(2018: £61.3m)
Underlying
profit before tax* 1
£88.7m
(2018: £91.6m)
Basic earnings
per share
50.3p
(2018: 88.7p)
Underlying
earnings per share* 1
132.8p
(2018: 142.5p)
Dividends paid and
proposed per share
Underlying return on capital
employed (ROCE)* 2
70p
(2018: 66.0p)
14.2%
(2018: 16.9%)
For a full five year record, please see page 207
* This measure is considered an Alternative Performance Measure (APM). Please refer to
pages 27 to 28 for more detail on APMs.
1. A reconciliation between underlying profit before tax and profit before tax is shown on
page 27 Underlying profit after tax as a percentage of average equity at each quarter end
Rathbone Brothers Plc Report and accounts 2019
A responsible business
At Rathbones, we have a clear understanding of who we are as a business, supported by a strong ambition for
our future. Our purpose represents our commitment as a business to all of our stakeholders and wider society,
while our ambition provides our long-term goal for the future. Underpinning both of these is our strategy.
Our purpose is to think, act and invest responsibly
We deliver on our purpose through our corporate values:
Responsible and
entrepreneurial
Courageous
and resilient
Collaborative
and empathetic
Professional and
high performing
in creating value
in leading change
in dealing with people
in all our actions
Our ambition is to be recognised as the UK’s
most responsible wealth manager
We are committed to growing and preserving wealth for our clients.
Institutional-quality
investments
whole of market
Relationship-led
tailored and
flexible
Multi-
generational
for clients of today
and tomorrow
Partnership
working together
to deliver the best
client outcomes
Our purpose and ambition are achieved
through a clear strategy
Enriching the
client and adviser
proposition and
experience
Supporting and
delivering growth
Inspiring our people
Operating
more efficiently
rathbones.com
1
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Being responsible
We see it as our
responsibility
to invest for
everyone’s
tomorrow.
Thinking, acting and
investing responsibly
That means doing the right thing for our clients and for others
too. Keeping the future in mind when we make decisions today.
Looking beyond the short term for the most sustainable outcome.
This is how we build enduring value for our clients, make a wider
contribution to society and create a lasting legacy.
2
Rathbone Brothers Plc Report and accounts 2019
Our corporate values ensure
we deliver on our purpose.
We are:
Responsible and entrepreneurial
in creating value
Courageous and resilient
in leading change
Collaborative and empathetic
in dealing with people
Professional and high performing
in all our actions
To read more on how these values benefit our business,
see page 16
p.28
p.53
p.64
p.75
3
rathbones.com
A strategy
for growth
“This year we took the opportunity
to refocus our strategic direction.
Our updated strategy both recognises
a need to invest in our business in
the shorter term and also builds upon
our strengths as we look to grow and
develop over the coming years.”
Mark Nicholls
Chairman
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Rathbone Brothers Plc Report and accounts 2019
Chairman’s statement
Our purpose
In any business, identifying a purpose that drives the right
behaviours and client outcomes is essential to long-term
value creation and the resilience of brand. This year we
have undertaken a firm-wide exercise to define our purpose — in
essence, why does Rathbones exist? This exercise has included
both one-on-one interviews and also group workshops involving
colleagues across a wide spread of teams, regions and ages
in a quest to define what Rathbones means to people within
and outside the business. The result enabled us to distil our
purpose to a theme of thinking, acting and investing responsibly.
This is backed by a set of four central corporate values that
we know resonate with our employees. These involve us being:
— responsible and entrepreneurial in creating value
— courageous and resilient in leading change
— collaborative and empathetic in dealing with people
— professional and high performing in all our actions.
In these turbulent times an agreed purpose of thinking,
acting and investing responsibly is a most refreshing
outcome. It chimes well with the long-standing traditions
of Rathbones. During 2020, we will continue to embed this
purpose throughout the business.
Governance and culture
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 stakeholders.
Our full governance report on this can be found on pages
68 to 79. We have also detailed how the board has ensured
effective engagement with our key stakeholders during the
year in our section 172 statement on pages 46 to 47.
As a board, we also attribute great importance to the firm’s
culture. This 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
over the long term. During 2019, the board has continued
to monitor a number of culture indicators, and further
information on this can be found on page 69. The results of
an extensive employee opinion survey, which had an 86%
engagement rate, confirmed that one of our strengths as a
business is a caring culture that is friendly and supportive.
We also believe it is in the best interests of our clients that
the companies in which we invest adopt best practices
in corporate governance. Mindful of our responsibilities
to our clients, we seek to be good, long-term stewards of the
investments we manage on their behalf, as expressed in our
stewardship policy. More details of how we have taken this
important agenda forward can be found in the corporate
responsibility report on pages 48 to 66 and a review of our
stewardship activities can be found on our website.
2019 also marked the 10th anniversary since we became a
signatory to the Principles of Responsible Investment (PRI).
In this time, we have seen our scoring on the PRI annual
Our year in review
2019 may well be remembered for political reasons more
than any other, but investment markets finished the end
of the year strongly. Our own funds under management
and administration increased 14.3% to £50.4 billion, up
from £44.1 billion on 31 December 2018, as we continued
to focus on providing a quality service to our clients and
worked hard to bring Speirs & Jeffrey fully into Rathbones.
Following the appointment of Paul Stockton as chief executive
in May, we took the opportunity to refocus our strategic direction.
Our updated strategy both recognises a need to invest in our
business in the shorter term and also builds upon our strengths
as we look to grow and develop over the coming years.
Profit before tax for the year totalled £39.7 million (2018:
£61.3 million) and reflects anticipated costs associated
with the acquisition of Speirs & Jeffrey. Consequently, basic
earnings per share decreased to 50.3p from 88.7p in 2018.
A full analysis of all non-underlying items impacting profit
before tax can be found on pages 27 to 28.
Underlying profit for the year totalled £88.7 million (2018:
£91.6m), resulting in an underlying operating margin
of 25.5% for the year (2018: 29.4%). Underlying earnings
per share in the period totalled 132.8p (2018: 142.5p). This
performance is discussed further in the chief executive’s
review and on page 26 of the financial review.
Reflecting our confidence in the future, strong capital
position and in line with our dividend policy, the board is
recommending a final dividend of 45p per share. This brings
the total dividend for the year to 70p per share, an increase
of 6.1% over last year. The record date for the dividend
is 24 April 2020, with the payment date on 12 May 2020.
Further information on our dividend policy can be
found on page 108.
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Chairman’s statement continued
benchmarking improve steadily and we now boast an A+
rating for our strategy and governance around responsible
investment. Our footprint is substantial in this area and
we are widely known for our active engagement on
environmental, social and governance (ESG) issues.
Inspiring our people
Our people are our greatest asset and proper engagement
with them is crucial to the ongoing success of Rathbones.
This year, the board discussed the results of our employee
opinion survey in detail and further surveys will be
undertaken in 2020, together with ongoing workforce
engagement, to ensure the initiatives we have taken
continue to address the feedback from our employees.
As I mentioned in my statement last year, the 2018
Corporate Governance Code requires a specific mechanism
for engagement with employees. After careful consideration
the board agreed that this was best undertaken by assigning
two non-executive directors to the task. We nominated
Colin Clark and Sarah Gentleman to be responsible for
gathering workforce feedback and the process has started
well. They have visited a number of offices, where employees
suggested ways to improve their working environment and
how the best interests of colleagues might be catered for.
We will take forward this initiative with enthusiasm.
Engaging with shareholders
I have been pleased to meet with a number of our
shareholders during the year and welcome discussions
with them on strategy and governance in particular.
The remuneration committee also conducted an investor
engagement programme in order to maintain open dialogue
on remuneration matters. All of these meetings have allowed
us to provide useful feedback to the board and we will
continue to hold an open and constructive dialogue
in analyst and investor meetings throughout 2020.
Risks
Our risk management processes continue to play an
important role in decision making and managing the
business. The report from the chairman of the group
risk committee, Terri Duhon, is set out on pages 80 to
82. In 2019, in addition to a particular focus on suitability,
we paid attention to the risks associated with cyber crime
and business resilience, the operational risks associated
with the integration of Speirs & Jeffrey and risks associated
with our strategic update. Non-executive members of
the board have also participated in a number of training
and operational exercises associated with key risk areas.
Finally, although Rathbones’ exposure to potential
disruption from the UK leaving the European Union
remains low, we will continue to monitor the outcome
of post-Brexit trade negotiations closely and continue
to develop appropriate contingency plans.
In any business, identifying a purpose
that drives the right behaviours and client
outcomes is essential to long-term value
creation and the resilience of brand.
This year we have undertaken a firm-wide
exercise to define our purpose — in essence
why does Rathbones exist? This exercise
has included both one-on-one interviews and
group workshops involving colleagues across
a wide spread of teams, regions and ages
in a quest to define what Rathbones means
to people within and outside the business.
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 saw the implementation of our succession plans, with
Jennifer Mathias being appointed to the group finance director
role on 1 April 2019. Paul Stockton, the former group finance
director, became chief executive on 9 May 2019. The transition
and handover process has gone smoothly and Paul and
Jennifer are working well together in their respective new roles.
I have served as a non-executive director for over nine
years, and as independent chairman since May 2011, which
exceeds the tenure requirements as outlined in the new 2018
UK corporate governance code. As a result, Jim Pettigrew,
our senior independent director, has started the process to
appoint my successor. I will however remain as chairman
during 2020, working with both Paul and Jennifer in their new
roles and will ensure an orderly handover to my successor in
due course. The nomination committee has assessed and
confirmed my continuing independence for 2020.
Looking forward
Rathbones has taken a number of positive steps forward
this year and, having outlined our strategic priorities in 2019,
we look forward to implementing them in 2020 and beyond.
Whilst investment markets will undoubtedly present a
number of unforeseen challenges this year, I am confident
that our renewed focus will stand us in good stead to drive
our business forward.
Mark Nicholls
Chairman
19 February 2020
6
Rathbone Brothers Plc Report and accounts 2019
Our investment case
d
Truste
elation s h i p s
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cture
Relev
solu
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a
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s
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D eep
p ertise
x
e
Relevant client solutions
Deep expertise
Owned infrastructure
Trusted relationships
Quality people
Providing a diverse range
of experience and skills
Leading brand
Established over decades
of providing quality service
An extensive client network
Creating connections
lasting generations
Deep investment skills
Supported by a highly
experienced in-house
research team
Acquisition experience
Proven by several successful
integrations of full entities
and individual teams
Range of propositions
Suitable for private clients,
charities, trustees and
professional partners
Strong ESG capability
Supported by an experienced
team, proactive on ethical
and sustainability issues
Growing funds business
Providing a wide range of
funds catering to differing
investment needs
These allow us to deliver consistent returns to shareholders
— A progressive dividend policy
— An underlying return on capital employed of 14.2% (2018: 16.9%)
— A commitment to high standards of corporate governance,
stewardship and transparency
52
55
57
66
70
61
Dividend per share (p)
70p
2014
2015
2016
2017
2018
2019
rathbones.com
7
Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Rathbones at a glance
Where we operate
What we do
We employ over
1,500
people
We operate from
15
UK locations1 and Jersey
We manage over
We are a
£50.4bn
FTSE 250
for our clients
company listed on the
London Stock Exchange
1.
Includes Vision Independent Financial Planning
Investment Management
Through Rathbone Investment Management, we provide
investment management solutions to a range of private
clients, charities, trustees and professional partners.
Clients of this service can expect a tailored investment
strategy that meets individual objectives backed by an
investment process that aims to provide risk-adjusted
returns to meet clients’ needs today and in the future.
Within Investment Management, we have several
specialist capabilities including:
Charities and not-for-profit organisations
We manage £6.1 billion of non-profit funds and are the
fourth-largest charity investment 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 clients and trustees.
Rathbone Greenbank Investments
As one of the pioneers in the field of ethically focused
investments, we manage over £1.6 billion in ethical and
socially responsible investment portfolios. The team is
highly proactive, engaging directly with companies and
government to improve business practices.
Personal injury and Court of Protection
Our specialist team works closely with deputies,
trustees and families, seeking to provide a consistent
and rigorous investment process sympathetic to
individual circumstances.
Rathbone Investment Management International
Based in Jersey, we cater for the investment needs of
individuals and families, charities and professional advisers
who are looking for offshore investment management.
Unit Trusts
Rathbone Unit Trust Management is a UK active fund
manager with £7.4 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.
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Rathbone Brothers Plc Report and accounts 2019
0-£250k
£250k-£500k
£500k-£750k
£750k-£1.5m
£1.5m-£5.0m
£5.0m-£10.0m
£10m+
Private clients
ISA
Charities
Pensions
Trusts
Other
7.2%
11.5%
9.7%
17.8%
24.7%
9.6%
19.5%
35.1%
18.3%
13.7%
11.9%
10.7%
10.3%
Size of
relationship
value
Client account
type by value
Total Unit
Trusts FUM
£7,438m
Rathbone Global
£1,858m
Opportunities Fund
Rathbone Ethical Bond Fund £1,495m
£1,134m
Rathbone Income Fund
Rathbone Multi-Asset Portfolios £1,078m
£517m
Offshore funds2
Rathbone Active Income
Fund for Charities
£210m
£207m
Rathbone Strategic Bond Fund
Rathbone High Quality Bond Fund £203m
Rathbone Core Investment
£121m
Fund for Charities
Rathbone UK Opportunities Fund £47m
£568m
Other funds
Complementary services3
Financial planning
Our in-house financial planning team provides whole-of-market
advice to clients. The planners work closely with investment
managers to help clients create a bespoke financial plan. We have
long-standing experience 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.
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 via an adviser
at a price that reflects the competitive nature of our sector, but
to a standard that clients have come to expect from Rathbones.
Rathbone Select Portfolio
An attractive and cost-effective investment solution for clients with
£15,000 or more to invest for at least three years. Providing access
to the Rathbone Multi-Asset Portfolio funds on a self-select basis,
this service is designed for clients who are comfortable choosing
an investment strategy to meet their investment objectives and
risk profile.
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.
We also provide services through these entities:
Rathbone Trust Company
Provides UK trust and specialist legal, estate and tax advice to
larger clients.
Vision Independent Financial Planning
An independent IFA network providing financial advisory solutions
to UK private clients. Acquired in 2015, it has grown from £845 million
of assets on its discretionary fund management panel and 81 advisers
to £1.9 billion and over 130 independent financial advisers.
2. Our Luxembourg-based feeder funds were converted to directly invested funds
3. All complementary services are reported as part of our Investment Management segment
in preparation for the potential loss of UCITS status post Brexit
rathbones.com
9
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Our strategy
During 2019, we carried out a strategic review and formally launched the next medium-term
strategy for the business in October 2019. Our strategy is set out below along with how we plan
to implement these priorities in the years ahead.
Our strategy
How we plan to achieve this
Enriching the
client and adviser
proposition and
experience
Supporting and
delivering growth
Enhancing valued services
Enhancing the experience for private clients and providing
a dedicated service for financial advisers.
Deepening investment skills
Fostering our investment expertise, broadening capability
and coverage, and investing responsibly.
Penetrating specialist markets
Focusing on specialisms, building on existing capabilities
and leveraging Rathbone Greenbank Investments.
Driving organic growth
Managing client-facing capacity, structuring distribution,
driving growth through financial planning and building our
funds business.
Inspiring our people
Our culture and corporate values
Becoming a more diverse and inclusive organisation,
continuing to listen to our people and improving our
commitments to them.
Operating more
efficiently
Driving productivity
Providing a quality client experience and making us
easy to do business with.
10
Rathbone Brothers Plc Report and accounts 2019
Our strategy finds new ways to develop content and
tailor the delivery of our services to both the direct-to-
client and direct-to-financial adviser markets to ensure
we serve all client segments appropriately. We continue
to focus on fostering our investment culture and
investing to broaden our capability and coverage to
drive positive investment outcomes. Our investment
process is supported by a continually evolving
environmental, social and governance focus.
Link to KPIs
Link to risk
— Number of Investment
Management clients
— Staff turnover
— Suitability and advice
— Business model
— Regulatory
— People
We intend to invest to improve our organic growth
rate. To do this, we will build up skills and resources
to access specialist markets including charities,
Rathbone Greenbank Investments and court of
protection, free up capacity in our investment teams,
add structure to our business development activity
and support the ongoing growth of our Rathbone
Funds and Rathbone Financial Planning businesses.
— Total funds under management
and administration
— Investment Management net
organic growth rates
— Underlying operating margin
— Underlying earnings per share
— Return on capital employed
— Suitability and advice
— Business model
— Regulatory
— Change
We are a people business so it is imperative that our
strategy sets a culture that drives performance and
builds long, rewarding careers for our colleagues.
Against a common set of corporate values and a
commitment to diversity and inclusion, we plan to
leverage the talent in our business as we develop
more career paths, build leadership skills and
manage succession.
— Percentage of shares held by
current employees
— Staff turnover
— Variable staff costs as a % of
underlying profit before tax and
before variable staff costs
— People
— Change
Leveraging the use of technology to streamline
processes and manage change is a significant
opportunity and embedding a productivity culture is
an important part of our future success. Productivity
will support growth, employee morale and create the
time and resources to help invest in future growth
initiatives. We will also embrace digital to work
alongside our face-to-face service, offering a set of more
holistic communication options for clients and advisers.
— Underlying operating margin
— Return on capital employed
— Common Equity Tier 1 ratio
— Information security and cyber
— People
— Change
Read more on our
KPIs on pages 23 to 25
Read more on our
risks on pages 40 to 45
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Future
focused
“Over recent years the industry’s focus has
been on responding to a rapidly changing
environment that has involved some
considerable regulatory change. Today,
in order to progress, we will now refocus
our attention to what we do best, which is
providing a personal service to our clients.”
Paul Stockton
Chief Executive
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Rathbone Brothers Plc Report and accounts 2019
Chief executive’s review
Profit before tax of £39.7 million (2018: £61.3 million)
reflected anticipated items including costs associated
with the acquisition of Speirs & Jeffrey, which were capital
in nature. The majority of these costs were in relation to
deferred consideration payments to former shareholders of
the business who remain in employment and have therefore
been treated as remuneration. Accordingly, earnings per
share totalled 50.3p (31 December 2018: 88.7p).
When reporting earlier in 2019, we flagged some expected
pressures on our underlying profit expectations for the year,
including the cessation of ‘risk-free’ managers’ box dealing
profits in our Unit Trusts business from mid-January (2019:
£0.2 million, 2018: £3.4 million) and the acceleration of some
deferred executive awards in relation to recent executive
retirements (2019: £1.1 million, 2018: £0.1 million). Underlying
profit before tax of £88.7 million (2018: £91.6 million) reflects
these items alongside the following factors.
A Financial Services Compensation Scheme (FSCS)
charge of £4.5 million for the year (2018: £2.8 million) was
considerable and, following recent announcements from
the FSCS, we can reasonably expect this charge to increase
further by up to 45% in 2020. Along with many in the
industry, we feel that the ongoing cost of this scheme
falls unfairly and is becoming a disproportionate burden
on participating firms. We will continue to work closely
with industry bodies on this important issue.
During the strategic review in 2019, we started looking
closely at our IT strategy to deliver on the goals we set out.
Refocusing our digital strategy towards on-boarding and
improving the client experience has meant that software
previously aimed at improving some internal workflows no
longer provides value for money and will no longer be put
into production. This has resulted in an impairment charge
of £3.1 million in 2019.
An underlying profit before tax of £88.7 million represents
an underlying operating margin of 25.5% for the year (2018:
29.4%), and provides an underlying earnings per share of
132.8p (2018: 142.5p).
As reported on page 35, our balance sheet remains
strong with a consolidated Common Equity Tier 1 ratio
at 31 December 2019 of 22.0% compared with 20.6% at
31 December 2018. We remain very lightly geared with
a consolidated leverage ratio at 31 December 2019 of 8.3%
compared with 8.9% at 31 December 2018. Our underlying
return on capital employed for the year equalled 14.2%
(2018: 16.9%). The decrease was a result of average equity
in 2018 being lower than that in 2019 due to the timing of
the £60 million share placing in relation to the acquisition of
Speirs & Jeffrey in 2018. A detailed analysis of our regulatory
capital position at 31 December 2019 can be found on page 35.
A look back
During 2019, we once again managed a very full agenda,
balancing the impact of acquisitions with projects to improve
our service to both clients and employees. In October, we set
out our strategic focus for the medium term, refocusing our
efforts to provide relevant investment and advice solutions
to our clients. We continued to grow our funds under
management and administration (FUMA), reaching
£50.4 billion at 31 December 2019 (2018: £44.1 billion).
Total funds in our Investment Management business
were £43.0 billion (2018: 38.5 billion), whilst our Unit
Trusts business reached £7.4 billion (2018: £5.6 billion).
Total net inflows across the group were £0.6 billion in
2019 (2018: £8.5 billion, largely reflecting the acquisition
of Speirs & Jeffrey). Gross organic inflows in Investment
Management remained resilient at £3.3 billion (2018:
£3.8 billion) in the face of weaker investor sentiment and
no reoccurrence of the larger short-term mandates won in
2018, but were offset by elevated outflows in Investment
Management of £3.9 billion (2018: £2.7 billion). This reflected
additional outflows as some pension and other institutional
mandates were repositioned by trustees, previously noted
investment manager departures and the exit of some
lower-margin mandates following the integration of
Speirs & Jeffrey, some of which is expected to continue
into 2020.
Net inflows in our Unit Trusts business totalled £943 million
in the year (2018: £543 million) representing 16.7% of opening
funds under management, an outstanding performance
against a difficult environment for asset managers.
Our strong performance in the year was reflected in
the February 2020 Pridham report on the industry which
ranked Rathbones as 9th for overall net retail sales in 2019.
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Chief executive’s review continued
Although I have been a member of the
Rathbones team for over a decade, I have
taken this opportunity to take a step back
and look at the business again.
A look forward
One of my key priorities when I took over as chief executive
was setting a strategic focus for the business that leveraged
our many strengths. Although I have been a member
of the Rathbones team for over a decade, I have taken
this opportunity to take a step back and look at the
business again.
Over recent years, the industry’s focus has been on
responding to a rapidly changing environment that has
involved some considerable regulatory change. Today, in
order to progress, we will now refocus our attention on what
we do best, which is providing a personal service to clients.
After dialogue with various stakeholders, in October 2019
we delivered a strategic update where we set six clear
priorities for the future:
— provide a refreshed discretionary service that gives clients
a tailored, whole-of-market investment choice, delivered
by an investment professional that is accountable for
results, and supported by a full digital experience
— deepen investment skills in the company, adding
expertise to invest across a wider range of asset classes,
giving clients more options to invest responsibly,
aligned with their values
— further penetrate specialist markets in the charity and
Environmental, Social and Governance (ESG) space
— drive organic growth by freeing up team capacity,
supporting business development while growing
Rathbone Unit Trust Management, Vision Independent
Financial Planning and the financial planning and advice
capability across our branch network
— establish a common culture and corporate values to
inspire our people
— drive productivity, whilst looking to take advantage of
inorganic growth opportunities that fit our culture to
accelerate our strategy and build market share.
Delivering client service
Client advocacy for our service has always been very positive
and this was reaffirmed through a recent independent study
into client experience in wealth management. Rathbones’
net promoter score (a measure of the willingness of clients
to recommend Rathbones to others) was 55% against an
industry benchmark of 46%.
Our strong standing in the industry was further
reinforced as we were awarded our sixth consecutive
Gold Standard Award for discretionary fund management
from Investment Week. Although we are proud of this high
degree of advocacy, we also see opportunities to improve.
Embracing digital to complement our face-to-face service
will be key to future success and we continue to update
and deliver our group-wide digital programme. We have
commenced a project to support the launch of a new client
and adviser portal as well as a new mobile app, due in 2020.
These important pieces of technology will upgrade our
existing service. As a firm, we are keen to provide more
holistic communication options to clients through the
medium most convenient to them at the time, whether
that be digitally or face to face.
Our long-standing credentials in ESG investing continue
to build on strong foundations. We now manage £1.6 billion
(2018: £1.2 billion) in Rathbone Greenbank Investments
and £1.5 billion (2018: £1.2 billion) in our Ethical Bond Fund.
We also continue to build our capability in the equity space
with our Rathbone Global Sustainability Fund. Our charities
business now manages £6.1 billion (2018: £5.3 billion) and
is the fourth largest charity investment manager in the UK,
with aspirations to move up further as it continues to grow.
This year also marked the 10th anniversary since we became
a signatory to the Principles for Responsible Investment
(PRI) and we are proud to have been an early mover in the
UK market. We will look to develop our proposition further
in 2020 and beyond.
14
Rathbone Brothers Plc Report and accounts 2019
Investment Management FUMA
£43.0 billion
2018: £38.5 billion
Unit Trusts FUM
£7.4 billion
2018: £5.6 billion
Total Rathbones FUMA
£50.4 billion
2018: £44.1 billion
Focusing on growth
Improving organic growth rates will remain a priority over
the next few years and increasing the number of experienced
client-facing individuals will be fundamental to this. Not
only will we focus on recruiting more investment managers,
but we will also continue to invest in our graduate and
apprenticeship programmes to identify and develop
future talent.
Our strategy also highlighted the importance of investment
in business development skills and resources. During 2019
we therefore established business development teams
focused on financial advisers and added to our client
development support team. These teams have already
been instrumental in winning some larger mandates
and helping our investment management teams grow.
We have also been looking carefully at new solutions
to help optimise the capacity of our current investment
management teams. During the year we worked to
develop the Rathbone Select Portfolio service, a cost-
effective investment solution for clients with £15,000 or
more to invest. The service accesses our in-house multi-
asset funds on a self-select basis and is designed for clients
who are comfortable choosing an investment strategy to
meet their investment objectives. The solution is efficient
whilst offering an effective choice for clients. A pilot
is already underway and the roll out will commence
during 2020.
Finally, although we remain investment led, we strongly
believe that the provision of financial planning and advice,
either on a one-off or ongoing basis, is an important part
of our future proposition. We now have over 30 financial
planners and paraplanners in our in-house financial planning
business, with recruitment expected to continue into 2020.
Our external financial planning business, Vision Independent
Financial Planning, will continue to collaborate across
Rathbone offices and with Rathbone Financial Planning to
service clients who are not covered by our in-house services.
The business continues to perform strongly and now advises
on £1.9 billion assets under administration and has over
130 external independent advisers, up from £1.5 billion and
125 external advisers a year earlier. We anticipate adviser
numbers will continue growing in 2020 as the regional
footprint expands.
The inorganic opportunity
Whilst much of our strategic focus is on organic growth,
part of our strategy has been, and will continue to be,
acquiring businesses that fit our culture.
We formally acquired Speirs & Jeffrey in 2018 and
transferred clients onto our platform during 2019,
completing the largest acquisition and client migration
project that Rathbones has undertaken to date. By
1 October 2019 we had transferred 98% of funds under
management and administration to Rathbones’ systems.
This was a significant operational exercise and confirmation
of our ability to successfully consolidate a sizeable business
onto our platform, which gives us confidence as we seek
further opportunities. The spirit of engagement we have
seen on all fronts has been very positive, with teams
learning a considerable amount from one another over
the past 18 months. During 2020 and 2021 we will focus
on realising the remaining potential synergy benefits of
the transaction.
Reinforcing our commitment to developing specialist
businesses, in November 2019 we announced the
acquisition of the Court of Protection (COP) and Personal
Injury (PI) business of Barclays Wealth. The business,
acquired through existing capital resources, comprises
approximately £500 million of funds managed on behalf
of approximately 600 clients and their deputies and
trustees. A team of 10 individuals will join Rathbones’
current specialist Court of Protection and personal
injury team at completion, which is expected in the
second quarter of 2020. We will continue to support our
specialist teams in order to afford them further growth.
rathbones.com
15
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Chief executive’s review continued
Thinking, acting and investing responsibly
This year we have expressed our purpose as a business.
During the year we engaged extensively with our employees
to help us to understand what Rathbones means to them.
Their feedback was critical to us in developing our purpose
and it has led us to four corporate values that resonate with
our people and are lived by them on a daily basis through
their work.
These four corporate values are the blueprint for achieving
our ambition, both as a business and as individuals. We have
therefore included some of our employees’ thoughts on
each of these, and how they support their work on a daily
basis, throughout the report (see pages 1 to 3 for more).
“Companies with positive
cultures tend to work well
together in difficult times,
which enables them to emerge
with a stronger business when
conditions improve.”
Paul Stockton
Chief Executive
16
Rathbone Brothers Plc Report and accounts 2019
Building on a successful culture
Investing in productivity
People are our most important asset in meeting our strategic
objectives and being a diverse and inclusive organisation
is a key element of our strategy. Companies with positive
cultures tend to work well together in difficult times,
which enables them to emerge with a stronger business
when conditions improve. I have seen a lot of this in our
own business over the past year as we navigated through
changes. The commitment to our clients that our teams
exhibit reaffirms my belief that a strong culture must
remain central to our purpose. To this end, we ran more than
10 workshops bringing together a cross-section of employees
across our regional network, ranging in age and background,
who helped to define our purpose and corporate values
to ensure that they resonate across the business. Thinking,
acting and investing responsibly is what we do.
Although there is still work to do, we have also taken
important steps forward on improving our commitments to
our people. We recognise the importance of an appropriate
work-life balance, both to the health and welfare of
employees and to the business. Whilst our engagement
survey results suggest the vast majority of colleagues feel
they strike the right balance between work and home life,
we have continued to grow our employee wellbeing offering.
In 2019, we increased the range and number of training
opportunities through one-to-one and drop-in sessions on
wellbeing-related topics, including: building resilience, using
mindfulness, managing stress, and protecting mental health.
During the year, we also appointed a diversity and inclusion
committee, improved our maternity, paternity and shared
parental leave policies, continued our roll out of unconscious
bias and inclusive leadership training programmes across the
business and achieved 20.3% of the Women in Finance target
to have senior management composed of 25% women by
2023. Our initiatives in this space will continue throughout
2020 and beyond.
During the last few years, a significant amount of process
has been added to meet the requirements of a number of
complex regulatory compliance projects with mandatory
deadlines. These external requirements have had to be
balanced with important internal projects. In 2019, we
adopted MiFID II costs and charges disclosure standards,
taking care to achieve as much commonality as possible
with other industry participants. We believe that being more
transparent about costs is a positive step for both our clients
and the wealth management industry generally. Alongside
this work, we also updated client documentation and
anti-money laundering documentation and standards.
With more of this mandatory work behind us, now is the
time to move forward and look at how we can increase
productivity. This includes new ways of working with
technology, workflow tools, and re-engineering processes
in order to ease client administration, improve client
on-boarding and enhance our digital capabilities to create
capacity for our investment managers so they can continue
to meet the growing needs of our current and future clients.
Ongoing risk management
Evidence points to an increased frequency of cyber
attacks on our industry, which reinforces the importance
of managing cyber risk to protect our client data and assets.
We continue to focus on this risk, implementing a number
of tangible improvements to operating processes in
the year and putting in place structures to support
our response capabilities and training for staff.
Managing through any uncertainties associated
with a disorderly Brexit will also remain a focus, as
will our relentless monitoring and assessment of
how unforeseen global events, economic and trading
conditions will impact our approach to investment.
Outlook
Rathbones has grown considerably in the past five
years, nearly doubling its funds under management and
administration during that time. Opportunities to build
our market share remain. Delivering on our strategy will be
our focus in the near term as we balance greater productivity
with an ongoing desire to invest and grow.
Paul Stockton
Chief Executive
19 February 2020
rathbones.com
17
Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Our market and opportunities
The UK wealth management industry continues to grow, with sector assets reaching close to
an estimated £1.7 trillion. The case for independent wealth managers providing discretionary
investment management through a personalised client relationship model continues to be
compelling. 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.
Rathbones’ target market is large and continues to grow
Industry trends
Adapting to
changing
client needs
Leveraging
technology
Taking
advantage
of scale
economies
UK wealth management
c. £1.7tn1
Financial advisers
Independent wealth managers
Global wealth managers
Self-directed
Vertically integrated firms
Retail banks
Private banks
24%
23%
14%
13%
12%
9%
5%
Rathbones accounts
for approximately:
2.5%
11.5%
of the UK wealth
management market
of the independent wealth
management market
1. Market and Oliver Wyman research
18
Rathbone Brothers Plc Report and accounts 2019
Certain elements will be key to
success for all players
How Rathbones will respond
We recognise that client expectations are
changing. Clients are focused on value for money,
transparency, digital augmentation of services and
social responsibility more than ever before. 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 and Rathbones continues to anticipate
these changing requirements.
— Ensure a quality service, competitive investment
outcomes and clear fee-based pricing
— Provide a wide range of services to cater to differing
investment requirements, including a greater focus
on our ESG credentials
— Employ a diverse set of individuals to ensure we
have an employee profile that reflects the differing
needs of clients
The industry continues to change, with all business
models looking for technological advancement.
Keeping pace with this change is fundamental
to sustaining a quality service.
— Enhance the digital client experience and provide
seamless multi-channel communication to clients
— Upgrade client relationship management tools and
risk management processes
— Invest in systems that will reduce time spent on
administrative tasks
— Enhance the use of data to reduce costs, improve
productivity and enable continual reinvestment
The market is fragmented and has several different
business models. Many businesses in the marketplace
are unable to keep up with the pace of regulatory and
technological change. This has led to an increased
pressure on the industry to consolidate.
— Support business development activity to improve
organic growth with direct clients, intermediaries
and advisers
— Continue to look for consolidation opportunities that
fit our culture but maintain strict acquisition criteria
— Continue to selectively recruit individuals and
teams to the business
rathbones.com
19
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Our business model
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 provider
of individual investment
and wealth management
services for private
clients, charities, trustees
and professional partners.
We have two main areas of operation as well
as several complementary services:
— Rathbone Investment Management
offers personal discretionary investment
management solutions
— Rathbone Unit Trust Management
provides single strategy and multi-asset
fund products
— Complementary services including:
— Financial planning
— Unitised Portfolio Service
— Managed Portfolio Service
— Rathbone Select Portfolio
— Banking and loan services
— UK trust, legal, estate and tax advice
— Vision Independent Financial Planning
A sound investment
case
— Relevant client solutions
— Deep expertise
— Owned infrastructure
— Trusted relationships
Working flexibly with
clients and advisers
Link to relevant
client solutions
Scale and expertise
— £50.4 billion of funds
under management
and administration
— An established brand
with local presence
— Accredited performance
reporting
Independent
ownership
— Listed on the London
Stock Exchange and
a constituent of the
FTSE 250
— High standards of
corporate governance
An informed
investment process
Link to deep
expertise
Supported by
in-house operations
Link to owned
infrastructure
Individual relationships
with clients and advisers
Link to trusted
relationships
Read more about our investment
case on page 7
20
Rathbone Brothers Plc Report and accounts 2019
— 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 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, ethical investors and Court of Protection clients
— Our internal quality assurance and performance
measurement capabilities provide a sound control framework
— We have dedicated in-house custody and settlement services
— Our operations team is highly experienced
— We outsource selected services, where it is cost-effective,
to reliable and carefully chosen partners
— 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
— An upgraded client digital portal will complement our
face-to-face service
How we create long-term value
For investors
— High operating margins compared to industry peers
— Successful acquisition capability for people and
firms that fit our culture
— Stable dividend growth
Dividends paid per share in 2019
70p
For clients
— Active management of portfolios through changing
market conditions
— A valued and quality service that builds trust
— Specialist mandate capabilities
— High-quality adviser services
Client numbers
60,000
For employees
— Empowered to make individual investment
decisions
— Performance-based remuneration
— Investment in training, support and development
— Share ownership
— Low staff turnover
Employee survey
engagement score
86%
rathbones.com
21
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Enhanced
performance
“Our next medium-term
strategy is focused on
leveraging the core strengths
of our business to continue to
provide a quality proposition
to our clients. We will invest in
the people and processes that
will enable us to support our
next phase of growth.”
Jennifer Mathias
Group Finance Director
22
Rathbone Brothers Plc Report and accounts 2019
Key performance indicators
The group considers the following financial and non-financial measures as key performance indicators (KPIs) of its overall performance.
Following a review of the KPIs, this year we have made some changes to ensure they remain relevant. ‘Capital expenditure excluding
property’ has been removed as it is no longer relevant for the business following our office move in 2017. ‘Average full-time equivalent
employees’ has also been removed as it is no longer deemed a relevant indicator of performance. ‘Number of participants with SIP
partnership shares’ has been replaced with ‘Percentage of shares held by current employees’ as this is felt to be a more relevant
measure. Finally, ‘Common Equity Tier 1 ratio’ has been added as an indicator of financial resilience.
Some measures that assess the performance of the group are not defined under IFRS so are termed ‘alternative performance
measures’ or APMs.
Each KPI is linked to at least one of our four strategic pillars and is used to measure both the progress and success of our
strategy implementation.
Link to our strategy
Total funds under management
and administration
Enhancing the client and adviser
proposition and experience
Supporting and delivering growth
Inspiring our people
Operating more efficiently
4
.
0
5
1
.
4
4
1
.
9
3
2017 2018 2019
£50.4bn
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
4
.
3
0
.
3
)
5
.
1
(
2017 2018 2019
(1.5)%
0
0
0
,
0
6
.
X
0
0
X
0
X
,
X
0
6
0
0
0
,
0
5
2017 2018 2019
60,000
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.
Definition
The number of clients who use our services.
Relevance
In an industry where scale is important,
the size of our client base helps to determine
market share.
rathbones.com
23
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Key performance indicators continued
Underlying operating margin 1
Underlying earnings per share 1
6
.
0
3
4
.
9
2
.
X
X
X
X
5
.
5
2
8
.
8
3
1
5
.
2
4
1
.
X
X
8
X
.
X
2
3
1
25.5%
132.8p
2017 2018 2019
2017 2018 2019
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.
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.
Variable staff costs as a % of underlying profit
before tax and before variable staff costs 1
Underlying return on capital employed 1
X
0
.
.
X
3
X
4
X
9
.
7
3
6
.
7
3
5
.
9
1
9
.
6
1
.
X
X
X
X
2
.
4
1
43.0%
14.2%
2017 2018 2019
2017 2018 2019
Definition
Variable staff costs divided by underlying profit
before tax and before variable staff costs.
Relevance
Shows the extent to which profits are shared
between employees and shareholders.
1. This measure is considered an APM. Please refer to page 27 for more detail on APMs
Definition
Underlying profit after tax as a percentage
of the quarterly average total of equity.
Relevance
A useful measure of financial efficiency as it
indicates profitability after factoring in the
amount of capital employed by the business.
24
Rathbone Brothers Plc Report and accounts 2019
Dividend per share
Staff turnover
6
6
1
6
.
0
X
7
X
X
X
1
X
.
7
.
X
X
X
0
.
6
0
.
6
70p
7.1%
2017 2018 2019
2017 2018 2019
Definition
Total annual dividend per share
(interim and final).
Relevance
Dividends represent an important part
of the returns to shareholders.
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.
Percentage of shares held
by current employees 2
Common Equity Tier 1 ratio
.
X
3
X
.
X
8
X
8
.
7
9
.
5
7
.
0
2
6
.
0
2
0
X
.
.
2
X
2
X
X
8.3%
22.0%
2017 2018 2019
2017 2018 2019
Definition
The percentage of outstanding shares held
by current employees of the firm.
Relevance
A direct link for employees in the future financial
success of the company as shareholders.
Definition
Common Equity Tier 1 capital as a proportion
of total risk exposure amount.
Relevance
As a bank, we must maintain certain levels
of capital. A higher ratio is an indicator of
financial resilience.
2. Includes some unvested employee share plans
Refer to page 35 for further detail
rathbones.com
25
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Financial performance
Overview of financial performance
The group’s financial performance for the year to
31 December 2019 was resilient during a year of significant
integration activity and economic and political uncertainty.
Statutory profit before tax of £39.7 million in 2019
(2018: £61.3 million) includes planned costs of £30.8 million
for the acquisition and integration of Speirs & Jeffrey.
Underlying profit before tax was £88.7 million (2018:
£91.6 million) reflecting the initiation of investment in
the strategic plans announced in October 2019 (see page 10)
and a number of other cost increases, as detailed below.
The underlying operating margin, which is calculated as the
ratio of underlying profit before tax to underlying operating
income, was 25.5% (2018: 29.4%).
The board primarily considers underlying measures of
income, expenditure and earnings when assessing the
performance of the group. These 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 also widely used by research analysts covering the group.
A full reconciliation between underlying results and the
closest IFRS equivalent is provided on page 27.
Table 1. Group’s overall performance
Operating income (and
underlying operating income1)
Underlying operating expenses1
Underlying profit before tax1
Underlying operating margin1
Profit before tax
Effective tax rate
Taxation
Profit after tax
Underlying earnings per share1
Earnings per share
Dividend per share2
Underlying return on
2019
£m
(unless stated)
2018
£m
(unless stated)
348.1
(259.4)
88.7
25.5%
39.7
32.2%
(12.8)
26.9
132.8p
50.3p
70.0p
312.0
(220.4)
91.6
29.4%
61.3
24.6%
(15.1)
46.2
142.5p
88.7p
66.0p
capital employed (ROCE)1
14.2%
16.9%
1. A reconciliation between the underlying measure and its closest IFRS equivalent
is shown in table 2
2. The total interim and final dividend proposed for the financial year
Underlying operating income
No adjustments have been made to operating income
as reported under IFRS for 2019 or 2018.
Operating income increased 11.6% in 2019 to £348.1 million.
This included a full year of income from Speirs & Jeffrey,
which represented a £17.2 million increase.
Fee income of £260.2 million in 2019 increased 11.5%
compared to £233.4 million in 2018. Fees represented 74.7%
of underlying operating income in 2019, which was in line
with 74.8% in 2018.
Net commission income increased 23.4% to £51.1 million in
2019 (2018: £41.4 million). Commission income was higher
in the second half of the year, reflecting elevated levels
of investment activity as investor sentiment improved,
notably following the general election in December.
Net interest income increased 7.2% to £16.4 million,
reflecting higher average levels of liquidity in client portfolios
— particularly in the second half of the year following the
migration of former Speirs & Jeffrey clients onto the group’s
banking terms.
Underlying operating expenses
Operating expenses increased from £250.7 million to
£308.4 million during the year. Operating expenses include
expenditure falling into the three categories explained on
page 27.
Underlying operating expenses increased by 17.7% to
£259.4 million. As well as the full-year impact of Speirs &
Jeffrey, which added £11.7 million to the cost base, this
reflects a number of specific areas of cost growth, described
below, in addition to underlying growth of the business.
Regulation continued to drive cost growth with additional
Financial Services Compensation Scheme levies and
regulatory change projects adding £2.5 million to costs
in 2019. Charges of £3.1 million were incurred in relation
to a review of our IT infrastructure and the write off of IT
developments which are no longer planned to be put into
use in the business. The group also incurred £0.4 million
on preparations for a no-deal Brexit.
Planned additions to headcount in 2018 and 2019 and
market-led salary increases increased fixed staff costs by
15.4% to £110.8 million. The full-year impact of Speirs &
Jeffrey contributed £6.8 million of this increase. In total,
average headcount increased by 13.5% to 1,509 in 2019
(see note 12). Planned reductions in headcount following
the successful integration of Speirs & Jeffrey into the group
will take effect in early 2020.
Total variable staff costs increased by 21.2% to £66.8 million,
reflecting improved performance-based reward levels and
the additional cost of share incentives to staff, including
a full-year charge for the Staff Equity Plan launched in
May 2018. The previously announced retirements of a
number of executives resulted in accelerated charges for
deferred executive awards of £1.1 million in 2019. Variable
staff costs in 2019 represented 19.2% of underlying operating
income (2018: 17.7%) and 43.0% of underlying profit before
variable staff costs and tax (2018: 37.6%).
26
26
Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
Financial performance
Overview of financial performance
The group’s financial performance for the year to
31 December 2019 was resilient during a year of significant
integration activity and economic and political uncertainty.
Statutory profit before tax of £39.7 million in 2019
(2018: £61.3 million) includes planned costs of £30.8 million
for the acquisition and integration of Speirs & Jeffrey.
Underlying profit before tax was £88.7 million (2018:
£91.6 million) reflecting the initiation of investment in
the strategic plans announced in October 2019 (see page 10)
and a number of other cost increases, as detailed below.
The underlying operating margin, which is calculated as the
ratio of underlying profit before tax to underlying operating
income, was 25.5% (2018: 29.4%).
The board primarily considers underlying measures of
income, expenditure and earnings when assessing the
performance of the group. These 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 also widely used by research analysts covering the group.
A full reconciliation between underlying results and the
closest IFRS equivalent is provided on page 27.
Table 1. Group’s overall performance
2019
£m
2018
£m
348.1
(259.4)
88.7
25.5%
39.7
32.2%
(12.8)
26.9
50.3p
70.0p
312.0
(220.4)
91.6
29.4%
61.3
24.6%
(15.1)
46.2
88.7p
66.0p
Operating income (and
underlying operating income1)
Underlying operating expenses1
Underlying profit before tax1
Underlying operating margin1
Profit before tax
Effective tax rate
Taxation
Profit after tax
Earnings per share
Dividend per share2
Underlying return on
Underlying earnings per share1
132.8p
142.5p
capital employed (ROCE)1
14.2%
16.9%
1. A reconciliation between the underlying measure and its closest IFRS equivalent
is shown in table 2
2. The total interim and final dividend proposed for the financial year
Underlying operating income
No adjustments have been made to operating income
as reported under IFRS for 2019 or 2018.
Operating income increased 11.6% in 2019 to £348.1 million.
This included a full year of income from Speirs & Jeffrey,
which represented a £17.2 million increase.
Fee income of £260.2 million in 2019 increased 11.5%
compared to £233.4 million in 2018. Fees represented 74.7%
of underlying operating income in 2019, which was in line
with 74.8% in 2018.
Net commission income increased 23.4% to £51.1 million in
2019 (2018: £41.4 million). Commission income was higher
in the second half of the year, reflecting elevated levels
of investment activity as investor sentiment improved,
notably following the general election in December.
Net interest income increased 7.2% to £16.4 million,
reflecting higher average levels of liquidity in client portfolios
— particularly in the second half of the year following the
migration of former Speirs & Jeffrey clients onto the group’s
banking terms.
Underlying operating expenses
Operating expenses increased from £250.7 million to
£308.4 million during the year. Operating expenses include
expenditure falling into the three categories explained on
page 27.
Underlying operating expenses increased by 17.7% to
£259.4 million. As well as the full-year impact of Speirs &
Jeffrey, which added £11.7 million to the cost base, this
reflects a number of specific areas of cost growth, described
below, in addition to underlying growth of the business.
Financial Services Compensation Scheme levies and
regulatory change projects adding £2.5 million to costs
in 2019. Charges of £3.1 million were incurred in relation
to a review of our IT infrastructure and the write off of IT
developments which are no longer planned to be put into
use in the business. The group also incurred £0.4 million
on preparations for a no-deal Brexit.
Planned additions to headcount in 2018 and 2019 and
market-led salary increases increased fixed staff costs by
15.4% to £110.8 million. The full-year impact of Speirs &
Jeffrey contributed £6.8 million of this increase. In total,
average headcount increased by 13.5% to 1,509 in 2019
(see note 12). Planned reductions in headcount following
the successful integration of Speirs & Jeffrey into the group
will take effect in early 2020.
Total variable staff costs increased by 21.2% to £66.8 million,
reflecting improved performance-based reward levels and
the additional cost of share incentives to staff, including
a full-year charge for the Staff Equity Plan launched in
May 2018. The previously announced retirements of a
number of executives resulted in accelerated charges for
deferred executive awards of £1.1 million in 2019. Variable
staff costs in 2019 represented 19.2% of underlying operating
income (2018: 17.7%) and 43.0% of underlying profit before
variable staff costs and tax (2018: 37.6%).
(unless stated)
(unless stated)
Regulation continued to drive cost growth with additional
Alternative performance measures
Table 2. Reconciliation of underlying performance
measures to closest equivalent IFRS measures
Operating income (and
underlying operating income)
Operating expenses
Charges in relation to client
relationships and goodwill
Acquisition-related costs
Head office relocation costs
Underlying operating expenses
Profit before tax
Underlying profit before tax1
Operating margin
Underlying operating margin2
Taxation
Tax on non-underlying expenses
Underlying taxation
Profit after tax
Underlying profit after tax3
Weighted average number
of shares in issue
Earnings per share
Underlying earnings per share4
Quarterly average total equity
Underlying ROCE5
2019
£m
(unless stated)
2018
£m
(unless stated)
348.1
(308.4)
312.0
(250.7)
15.9
33.1
–
(259.4)
39.7
88.7
11.4%
25.5%
(12.8)
(4.8)
(17.6)
26.9
71.1
53.6m
50.3p
132.8p
498.9
14.2%
13.2
19.9
(2.8)
(220.4)
61.3
91.6
19.6%
29.4%
(15.1)
(2.3)
(17.4)
46.2
74.2
52.1m
88.7p
142.5p
440.1
16.9%
1. Underlying operating income less underlying operating expenses
2. Underlying profit before tax as a % of underlying operating income
3. Underlying profit before tax less underlying taxation
4. Underlying profit after tax divided by the weighted average number of shares in issue
5. Underlying profit after tax as a percentage of quarterly average total equity
Charges in relation to client relationships
and goodwill (note 24)
As explained in notes 1.15 and 3.1, client relationship
intangible assets are recognised when we acquire
a business or hire a team of investment managers.
The charges associated with these assets represent
the proportion of acquisition costs which are charged to
profit or loss as amortisation each year over the estimated
duration of the client relationships. The quantum of the
accounting charge will vary depending on the terms of
each individual acquisition or team hire and represents
a significant non-cash profit and loss item. They have,
therefore, been excluded from underlying profit, which
represents largely cash-based earnings and more directly
relates to the financial reporting period.
Acquisition-related costs (note 10)
Acquisition-related costs are significant costs which arise
from strategic investments to grow the business rather than
its operating performance and are therefore excluded from
underlying results.
They primarily represent deferred acquisition
consideration and the costs of integrating acquired
businesses into the group.
Deferred acquisition costs are generally significant payments
that are capital in nature reflecting the transfer of ownership
of the business. However, in accordance with IFRS 3, any
deferred consideration payments to former shareholders of
the acquired business who remain in employment with the
group must be treated as remuneration. This distorts the
view of operational performance given by the statutory
measure of profit.
During 2019, £26.0 million of deferred consideration
payments for Speirs & Jeffrey (2018: £14.7 million) were
charged to the income statement and are considered
separately for executive remuneration purposes
(see page 93). A further £4.7 million of integration costs
and £0.1 million of legal fees were also incurred in 2019.
Deferred costs of £2.0 million (2018: £1.5 million) were
incurred in relation to the acquisitions of Vision Independent
Financial Planning and Castle Investment Solutions (‘Vision’)
which were completed on 31 December 2015. These amounts
represent the cost of payments to vendors of the business
who remained in employment with the group. The final
payment in respect of this acquisition of £7 million was
made to the vendors at the end of 2019.
As announced on 28 November 2019, acquisition costs of
£0.2 million were incurred in relation to the acquisition of the
Personal Injury and Court of Protection business of Barclays
Wealth, which is expected to complete in the second quarter
of 2020.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Financial performance continued
Responsible and entrepreneurial
in creating value
It’s through responsible entrepreneurship
that we achieve the best results for our clients.
Our people are trusted to pursue value. They
know when to change course to preserve it
too. Being responsible for today and tomorrow,
we are open to the new yet always guided by
the long view.
‘‘ It’s a huge responsibility to be
entrusted by our clients with
their money, with their life
savings, to keep them safe
and help them grow.’’
Sanjiv Tumkur
Head of Equity Research, London
Head office relocation costs (note 11)
During February 2017, we relocated our London head
office to new premises. On 6 June 2018, our legacy lease
was assigned, several months earlier than anticipated,
triggering a release of the unused element of a provision for
the cost of the surplus property. A credit of £2.8 million, net of
professional costs incurred in 2018, was therefore recognised
in the result for 2018. There has been no impact in 2019.
These items represent an investment to expand our
operating capacity in a key location and are not expected
to recur in the medium term; they have therefore been
excluded from underlying results.
Taxation
The corporation tax charge for 2019 was £12.7 million (2018:
£15.1 million). The effective tax rate of 32.1% (2018: 24.6%)
reflects the disallowable costs of deferred consideration
payments for the acquisition of Speirs & Jeffrey. The effective
tax rate in 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 13 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.
Although the Government has announced its intention
to delay these reductions, the legislation to effect this
amendment has not yet been passed. Deferred tax balances
have therefore been calculated based on these reduced
rates where timing differences are forecast to unwind in
future years.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2019
were 50.3p compared to 88.7p in 2018. This reflects the full
impact of non-underlying charges as well as the issue of
3.9 million shares in June 2018 to partially finance the
acquisition of Speirs & Jeffrey and to satisfy share-based
remuneration scheme awards. On an underlying basis,
earnings per share were 132.8p in 2019, compared to
142.5p in 2018 (see note 14 to the financial statements).
28
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
In 2019, underlying ROCE was 14.2%, a decrease of
2.7 percentage points on 2018. Quarterly average total
equity increased by £61.5 million in 2019 compared
to 2018, reflecting a full year’s impact of the issue of
£60 million of new share capital in June 2018 and growth
in retained earnings.
Outlook
The group’s profitability remains closely linked with the
performance of investment markets and interest rates.
Following the successful migration of clients from Speirs &
Jeffrey to Rathbones’ systems during 2019, cost synergies
of approximately £4.5 million are expected to be realised
in 2020 as planned. We also anticipate realising revenue
synergies during the deferred consideration period.
Staff costs in 2020 will reflect salary inflation, including
promotions, of approximately 3%, in addition to the full
impact of hiring activity in 2019.
As announced in October 2019, our medium-term strategy
is focused on leveraging the core strengths of our business
to continue to provide a quality proposition to our clients.
We will invest in the people and processes that will enable
us to support our next phase of growth. Consequently,
during the next two to three years, we believe it is
appropriate to operate the business closer to a mid-
twenties underlying operating margin.
However, announcements from the Financial Services
Compensation Scheme in December 2019 signal the
group’s share of levies could increase again in 2020, by
approximately £2 million.
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
Deferred consideration payments to former shareholders of
Speirs & Jeffrey will be made in 2021 and 2022. The ultimate
amounts payable are conditional on performance against
certain operational targets. We currently expect to recognise
a non-underlying charge of approximately £18 million in
2020 in relation to these deferred payments.
Dividends
We operate a generally progressive dividend policy, as set
out in the directors’ report on page 108.
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); and
— 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 2019 the company’s distributable reserves
were £72.0 million (2018: £68.9 million).
In light of the results for the year, the board has proposed
a final dividend for 2019 of 45.0p. This results in a full-
year dividend of 70.0p, an increase of 4.0p on 2018 (6.1%).
The proposed full-year dividend is covered 0.7 times by
basic earnings and 1.9 times by underlying earnings.
Capital expenditure
Overall, capital expenditure of £11.6 million in 2019 was
up £0.6 million compared to 2018, an increase of 5.5%,
as we commenced investment in the initiatives outlined
in our strategic plan. These activities are expected to
continue throughout 2020 and 2021, with a similar level
of capital expenditure.
Premises-related capital expenditure of £3.1 million was
slightly reduced from £3.3 million in 2018.
Underlying return on capital employed
The board monitors the underlying 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 95. For monitoring purposes, underlying
ROCE is defined as underlying profit after tax expressed as a
percentage of quarterly average total equity across the year.
Assessment of underlying return on capital is a key
consideration for all investment decisions, particularly
in relation to acquired growth.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Segmental review
The group is managed through two key operating segments, Investment Management and Unit Trusts.
Investment Management
The activities of the group are described in detail on
pages 7 to 9. The Investment Management segment
comprises those activities described under the headings
‘Investment Management’ and ‘complementary services’
on pages 8 and 9 respectively. The results of the Investment
Management segment described below include the trading
results of Speirs & Jeffrey for the full year in 2019, compared
with only four months of trading results in 2018 post
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.
some investment manager departures in recent years. The
total number of clients (or groups of closely related clients)
remained at approximately 60,000 throughout the year.
During 2019, the total number of investment managers
increased to 297 at the end of the year, from 295 at the
end of 2018.
Chart 1. Investment Management —
number of clients and investment managers
6
6
2
0
5
0
6
5
9
2
0
6
7
9
2
300
250
200
150
100
50
0
60
50
40
30
20
10
0
Table 3. Investment Management —
key performance indicators
2017
2018
2019
2019
2018
Number of investment managers
Number of Investment Management clients (’000)
Funds under management
and administration at
31 December1
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 (‘000)
Number of investment
managers3
£43.0bn
£38.5bn
-1.5%
3.4%
-0.9%
23.5%
68.2 bps
71.4bps
60
297
60
295
1. See table 4
2. See table 8
3. Comparatives have been restated to remove research analysts and other
non-client-facing investment professionals
Funds under management and administration
Investment Management funds under management
and administration increased by 11.7% to £43.0 billion at
31 December 2019 from £38.5 billion at the start of the year.
During 2019, Investment Management has continued to
attract new clients both organically and through acquisitions.
However, the level of client losses in 2019 increased following
Table 4. Investment Management —
funds under management and administration
2019
£bn
38.5
3.5
3.3
0.2
(3.9)
4.9
43.0
(0.6)
As at 1 January
Inflows
— organic1
— acquired2
Outflows1
Market adjustment3
As at 31 December
Net organic new business4
Underlying rate of
2018
£bn
33.8
10.6
3.8
6.8
(2.7)
(3.2)
38.5
1.1
net organic growth5
Underlying rate of
total net growth6
-1.5%
3.4%
-0.9%
23.5%
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
Gross organic inflows of £3.3 billion remained resilient
at 8.6% of opening funds under management and
administration, with approximately half coming from
existing client relationships. Organic inflows of £3.8 billion
in 2018 included £0.4 billion of short-term mandates.
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
The group is managed through two key operating segments, Investment Management and Unit Trusts.
some investment manager departures in recent years. The
total number of clients (or groups of closely related clients)
remained at approximately 60,000 throughout the year.
During 2019, the total number of investment managers
increased to 297 at the end of the year, from 295 at the
end of 2018.
Segmental review
Investment Management
The activities of the group are described in detail on
pages 7 to 9. The Investment Management segment
comprises those activities described under the headings
‘Investment Management’ and ‘complementary services’
on pages 8 and 9 respectively. The results of the Investment
Management segment described below include the trading
results of Speirs & Jeffrey for the full year in 2019, compared
with only four months of trading results in 2018 post
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
2019
2018
Funds under management
and administration at
31 December1
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 (‘000)
Number of investment
managers3
1. See table 4
2. See table 8
£43.0bn
£38.5bn
funds under management and administration
Table 4. Investment Management —
-1.5%
3.4%
As at 1 January
Inflows
— organic1
— acquired2
Outflows1
Market adjustment3
As at 31 December
-0.9%
23.5%
Net organic new business4
68.2 bps
71.4bps
60
297
60
295
Underlying rate of
net organic growth5
Underlying rate of
total net growth6
1. Value at the date of transfer in/(out)
2. Value at date of acquisition
2019
£bn
38.5
3.5
3.3
0.2
(3.9)
4.9
43.0
(0.6)
2018
£bn
33.8
10.6
3.8
6.8
(2.7)
(3.2)
38.5
1.1
-1.5%
3.4%
-0.9%
23.5%
3. Comparatives have been restated to remove research analysts and other
non-client-facing investment professionals
Funds under management and administration
Investment Management funds under management
and administration increased by 11.7% to £43.0 billion at
31 December 2019 from £38.5 billion at the start of the year.
During 2019, Investment Management has continued to
attract new clients both organically and through acquisitions.
However, the level of client losses in 2019 increased following
3. Represents the impact of market movements and investment performance
4. Organic inflows less outflows
and administration
5. Net organic new business as a % of opening funds under management
6. Net organic new business and acquired inflows as a % of opening funds under
management and administration
Gross organic inflows of £3.3 billion remained resilient
at 8.6% of opening funds under management and
administration, with approximately half coming from
existing client relationships. Organic inflows of £3.8 billion
in 2018 included £0.4 billion of short-term mandates.
Acquired inflows of £0.2 billion in 2019 represented funds
introduced by teams who recently joined the group. Acquired
inflows of £6.8 billion in 2018 included £6.7 billion from the
acquisition of Speirs & Jeffrey.
Charity funds under management and administration
continued to grow strongly and reached £6.1 billion at
31 December 2019, up 15.1% from £5.3 billion at the start
of the year.
Outflows of funds under management and administration
were 10.1% of the opening balance (2018: 8.0%). The
increase on 2018 reflects the repositioning of some pension
and other institutional mandates by their trustees, the impact
of investment manager departures in recent years and the
exit of some lower margin mandates following the
integration of Speirs & Jeffrey.
As a result, net organic new business in our Investment
Management business was negative £0.6 billion during 2019,
representing a decrease by 1.5% of opening funds under
management and administration (2018: net organic growth
of 3.4%).
Chart 2. Investment Management — funds under
management and administration five-year growth (£bn)
0
.
3
4
5
.
8
3
8
.
3
3
2
.
0
3
1
.
6
2
40
30
20
10
0
£43bn
2015
2016 2017 2018 2019
FTSE 100*
MSCI Balanced*
*
Index figures show how funds under management and administration would
have changed between 2015 and 2019 if they had tracked each index
Table 5. Investment Management —
service level breakdown
Direct
Financial adviser linked1
Total discretionary
Non-discretionary
investment management
Execution only
Gross Investment
Management FUMA
Discretionary wrapped funds2
Total Investment
Management FUMA
2019
£bn
31.0
8.7
39.7
2.6
2.4
44.7
(1.7)
2018
£bn
26.7
7.5
34.2
3.3
2.1
39.6
(1.1)
43.0
38.5
1. Comparative figure restated to exclude £0.3 billion held in execution only accounts
2. Holdings of the group’s mutual funds in Investment Management client portfolios and
mutual funds for which the management of the assets is undertaken by Investment
Management teams; the funds under management and administration of which is
reported within Unit Trusts
As at 31 December 2019, Vision advised on client assets
of £1.9 billion, up 26.7% from 2018.
Overall 2019 was another volatile year for equity and bond
markets, which fixated during the year on the potential
impacts of US and China trade negotiations, Brexit-related
concerns and general consumer confidence. Sentiment
improved markedly in the fourth quarter with the phase
one US/China trade deal and the UK election result allaying
many fears. Reflecting these factors, the MSCI PIMFA
Balanced index finished the year up +13.1%.
The average investment return across all Investment
Management client portfolios was +13.7%, which
outperformed the PIMFA index by +0.6%. This
outperformance was largely driven by UK equities;
boosted by the decisive UK election result and positive
advancements on Brexit, which drove expectations of
capital flows returning to the UK. Overall performance
against other competitor indices, such as the Private
Client Indices published by ARC, was again robust.
Financial performance
Table 6. Investment Management — financial performance
2018
£m
2019
£m
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
224.1
51.1
16.4
19.3
310.9
(232.5)
78.4
25.2%
200.5
41.4
15.3
18.1
275.3
(196.5)
78.8
28.6%
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 9
4. Underlying profit before tax as a percentage of underlying operating income
Net investment management fee income increased by
11.8% to £224.1 million in 2019, benefiting from a full year
of Speirs & Jeffrey income as well as positive markets
throughout the year.
Fees are applied to the value of funds on quarterly charging
dates. Average funds under management and administration
on these billing dates in 2019 were £42.3 billion, up 15.6%
from 2018 (see table 7).
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Rathbone Brothers Plc Report and accounts 2019
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Segmental review continued
Table 7. 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
2019
£bn
2018
£bn
41.4
42.5
42.2
43.0
42.3
7,456
32.4
34.1
41.3
38.5
36.6
7,269
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 2019, net commission income totalled £51.1 million;
an increase of 23.4% on 2018. Commission income from
Speirs & Jeffrey in 2019 totalled £11.0 million (2018:
£4.2 million, earned in the last four months of the year).
Excluding Speirs & Jeffrey, commission levels were
£2.9 million higher than 2018, reflecting more positive
investor sentiment in the latter half of the year.
Net interest income increased 7.2% to £16.4 million in 2019
as a result of an increase to the interest rate in August 2018.
Higher average levels of liquidity in client portfolios and the
full-year impact of Speirs & Jeffrey were partially offset by a
£3.6 million interest charge following the adoption of IFRS 16
on 1 January 2019.
The investment management loan book remained broadly
unchanged at £132.0 million at the end of the year and
contributed £4.0 million to net interest income in 2019
(2018: £3.5 million). Also included in net interest income
is £1.3 million (2018: £1.3 million) of interest payable on the
Tier 2 notes which are callable in August 2020.
Table 8. Investment Management — revenue margin
Basis point return1 from:
— fee income
— commission
— interest
Basis point return on funds under
management and
administration
2019
bps
52.9
12.1
3.2
2018
bps
56.5
11.7
3.2
68.2
71.4
1. Underlying operating income (see table 6), excluding interest on own reserves,
interest payable on Tier 2 notes issued, interest payable on lease assets, fees
from advisory services and other income, divided by the average funds under
management and administration on the quarterly billing dates (see table 7).
Speirs & Jeffrey funds under management and administration have been
included pro rata for the period of ownership in 2018
The average net operating basis point return on funds under
management and administration has decreased by 4.5 bps
to 68.2 bps in 2019, largely reflecting a full year of ownership
of Speirs & Jeffrey and the impact of tiered fee rates in higher
average market levels.
Fees from advisory services and other income increased
6.6% to £19.3 million. This largely reflects a higher level of
retained advisory fees earned by Vision and growth in trust
administration revenues.
Underlying operating expenses in Investment Management
for 2019 were £232.5 million, an increase of 18.3% compared
to 2018. This is highlighted in table 9.
Table 9. Investment Management —
underlying operating expenses
Staff costs1
— fixed
— variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio2
2019
£m
2018
£m
(re-presented)3
78.6
49.7
128.3
104.2
232.5
74.8%
66.5
40.7
107.2
89.3
196.5
71.4%
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)
In 2018, the cost of the Staff Equity Plan for Investment Management staff was
3.
reported within centrally allocated costs. In 2019 these costs are reported as variable
staff costs directly incurred by the segment. Accordingly, the 2018 comparative
figures have been represented to present the costs on a consistent basis
Fixed staff costs of £78.6 million increased by 18.2%
year-on-year, principally reflecting a 13.5% increase in average
headcount (largely the full year impact of Speirs & Jeffrey)
and salary inflation.
Variable staff costs totalled £49.7 million in 2019, an increase
of £9.0 million on 2018. This includes the impact of a full
year charge for the Staff Equity Plan, which was launched in
May 2018, as well as a full year charge for Speirs & Jeffrey and
higher Investment Management teams’ profitability during
the year.
Other operating expenses of £104.2 million include
property, depreciation, settlement, IT, finance and other
central support services costs. The year-to-year increase
of £14.9 million (16.7%) includes £3.1 million of impairment
charges for some IT developments, which are no longer
planned to be put into use in the business and £2.5 million
of increased levies for the Financial Services Compensation
Scheme and regulatory change projects. 2019 cost growth
also reflects increased investment in the business, recruitment
and higher variable awards in support departments in line
with overall business performance.
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Unit Trusts
Table 10. Unit Trusts — funds
Rathbone Global
Opportunities Fund
Rathbone Ethical Bond Fund
Rathbone Income Fund
Rathbone Multi-Asset Portfolios
Offshore funds1
Rathbone Active Income Fund
for Charities
Rathbone Strategic Bond Fund
Rathbone High Quality
Bond Fund
Rathbone Core Investment
Fund for Charities
Rathbone UK Opportunities
Fund
Other funds
2019
£m
2018
£m
1,858
1,495
1,134
1,078
517
210
207
203
121
47
568
7,438
1,351
1,236
1,091
965
–
179
145
52
95
48
480
5,642
1. During 2019, our range of Luxembourg-based feeder funds were converted to
directly invested funds in preparation for the potential loss of UCITS status of our
onshore funds post Brexit
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 11.
Table 11. Unit Trusts — key performance indicators
Funds under management at
31 December1
Underlying rate of net growth in
Unit Trusts funds under
management1
Underlying profit before tax2
1. See table 12
2. See table 14
2019
2018
7.4
5.6
16.7%
10.3
10.1%
12.7
Funds under management
Net retail sales in the asset management industry totalled
approximately £6.5 billion in 2019, as reported by the
Investment Association (IA), down around £0.5 billion on
2018. Industry-wide funds under management increased
12.1% to £1.29 trillion at the end of the year.
The sterling strategic bond and global equity sectors were
the two highest selling sectors in 2019. In total, the IA sectors
in which we manage funds saw net inflows of £7.71 billion,
up from £0.8 billion in 2018. Gross sales in those sectors
were up 7.6% at £138.2 billion in 2019.
Against this backdrop, the overall positive momentum in
sales of our funds increased in 2019, with gross sales up 21.0%
in the year to £2.3 billion. In contrast, redemptions remained
in line with 2018 at £1.4 billion, resulting in net inflows of
£0.9 billion for the year (2018: £0.5 billion). This level of net
retail sales ranked 9th highest in the UK for 2019, according
to the Pridham Sales Report.
Net inflows continued to be spread across the range of funds.
The Multi-Asset Portfolios, Global Opportunities Fund and
Ethical Bond Fund continued to attract particularly strong
net flows in the year.
Unit Trusts funds under management closed the year up
32.1% at £7.4 billion (see table 12).
Table 12. Unit Trusts — funds under management
As at 1 January
Net inflows
— inflows1
— outflows1
Market adjustments2
As at 31 December
Underlying rate of net growth3
2019
£bn
5.6
0.9
2.3
(1.4)
0.9
7.4
16.7%
2018
£bn
5.3
0.5
1.9
(1.4)
(0.2)
5.6
10.1%
1. Valued at the date of transfer in/(out)
Impact of market movements and relative performance
2.
3. Net inflows as a % of opening funds under management
Chart 3. Unit Trusts — annual net flows (£m)
3
8
8
3
4
9
4
5
5
3
4
5
1
7
3
1,000
900
800
700
600
500
400
300
200
100
0
£943m
2015 2016 2017 2018 2019
In line with market sentiment, performance of the UK equity
funds (Income and UK Opportunities) was volatile over the
period, but both funds ended the year reasonably well as
mid-cap stocks rose following the election. The Ethical Bond
and Global Opportunities funds maintained their excellent
track records and both finished in the first quartile for
performance, measured over one, three and five years.
The more defensively positioned Strategic Bond Fund saw
poorer short-term performance measured over the year.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Segmental review continued
The recently launched High Quality Bond Fund and Global
Sustainability Fund both posted good returns over the year.
The multi-asset funds all beat their benchmarks and did well
against their peers.
Long-term performance for our retail funds remains strong
and the funds are performing in line with expectations given
their investment mandates.
Table 13. Unit Trusts — performance1, 2
2019/(2018) Quartile ranking3 over
Rathbone Ethical Bond Fund
Rathbone Global Opportunities
1 year
1 (4)
3 years
1 (1)
5 years
1 (1)
Fund
Rathbone Income Fund
Rathbone UK Opportunities Fund
Rathbone Strategic Bond Fund
1 (1)
3 (2)
2 (4)
4 (1)
1 (1)
3 (3)
3 (4)
2 (1)
1 (1)
2 (1)
2 (4)
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),
High Quality Bond Fund, which has no relevant peer group against which to measure
quartile performance, non-publicly marketed funds and segregated mandates
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)
4. Funds included in the above table account for 64% of the total FUM of the Unit
Trusts business
As at 31 December 2019, 95% of holdings in Unit Trusts’ retail
funds were in institutional units (31 December 2018: 88%).
During the year, the total number of investment
professionals in Unit Trusts increased to 15 at
31 December 2019 from 14 at the end of 2018.
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 payable
to intermediaries.
Unit Trusts also earned net dealing profits (the bid-
offer spread from sales and redemptions of units) until
21 January 2019, on which date all funds were converted
to single-priced units and this income stream ceased.
Table 14. Unit Trusts — financial performance
2019
£m
36.1
0.2
0.9
37.2
(26.9)
10.3
27.7%
Net annual management charges
Net dealing profits
Interest and other income
Underlying operating income
Underlying operating expenses1
Underlying profit before tax
Operating % margin2
1. See table 15
2. Underlying profit before tax divided by underlying operating income
2018
£m
32.9
3.4
0.4
36.7
(24.0)
12.7
34.6%
Net annual management charges increased 9.7% to
£36.1 million in 2019, driven principally by the rise in average
funds under management. Net annual management charges
as a percentage of average funds under management fell to
56 bps (2018: 58 bps) reflecting the increased proportion of
holdings in institutional units and the continued growth in
the fixed income mandate funds.
Underlying operating income as a percentage of average
funds under management and administration fell to 56 bps
in 2019 from 65 bps in 2018 reflecting the lost dealing profits.
Table 15. Unit Trusts — underlying operating expenses
Staff costs
— Fixed
— Variable
Total staff costs
Other operating expenses
Underlying operating expenses
Underlying cost/income ratio1
2019
£m
2018
£m
3.8
8.7
12.5
14.4
26.9
72.3%
3.3
7.6
10.9
13.1
24.0
65.4%
1. Underlying operating expenses as a % of underlying operating income (see table 14)
Fixed staff costs of £3.8 million for the year ended
31 December 2019 were 15.2% higher than 2018. This reflects
salary inflation and growth in headcount in response to
regulatory changes, including £0.2 million of staff costs
supporting the Brexit readiness project.
Variable staff costs of £8.7 million were 14.5% higher than
2018 as growth in gross sales drove increases in sales
commissions. Charges for deferred profit share awards
made in prior years also contributed to growth in variable
staff costs.
Other operating expenses have increased by 9.9%
to £14.4 million, largely reflecting higher marketing,
distribution and facilities costs in the growing business
as well as increased charges for research. Project costs of
£0.2 million were also incurred in preparation for Brexit.
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
Financial position
Table 16. Group’s financial position
Table 17. Regulatory own funds
2019
£m
(unless stated)
2018
£m
(unless stated)
22.0%
23.3%
485.4
19.9
1,209.0
8.3%
20.6%
22.0%
464.1
19.8
1,141.8
8.9%
3,398.7
2,817.1
2,867.7
2,351.7
Share capital and share premium
Reserves
Less:
Own shares
Intangible assets1
Total Common Equity Tier 1
own funds
Tier 2 own funds
Total own funds
2019
£m
213.8
313.6
2018
£m
(restated –
note 1.3)
208.0
288.8
(42.0)
(218.9)
(32.7)
(229.3)
266.5
15.7
282.2
234.8
16.5
251.3
132.0
131.7
directly from own funds, less any related deferred tax
1. Net book value of goodwill, client relationship intangibles and software are deducted
Own funds:
— Common Equity Tier 1 ratio1
— Total Own Funds ratio2
— Total equity
— Tier 2 subordinated loan notes3
— Risk-weighted assets
— 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
214.9
28.4
225.6
30.2
2,668.6
2,225.5
8.0
11.2
1. Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 17) as a proportion of total risk exposure amount
3. Represents the carrying value of the Tier 2 loan notes (see note 30)
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 24)
8. Net book value of property, plant and equipment and computer software
(notes 21 and 24)
9. Total amounts of cash in client portfolios held by Rathbone Investment Management
as a bank (note 26)
Own funds
Rathbones is classified as a banking group for regulatory
capital purposes and is therefore required to operate within
the restrictions on capital resources and banking exposures
prescribed by the Capital Requirements Regulation,
as applied in the UK by the Prudential Regulation
Authority (PRA).
At 31 December 2019, the group’s regulatory own funds
(including verified profits for the year) were £282.2 million
(2018: £251.3 million).
Common Equity Tier 1 (CET1) own funds increased by
£31.7 million during 2019, due to the inclusion of verified
retained profits for the 2019 financial year and the issue of
603,913 shares in respect of the contingent consideration
from acquisition of Speirs & Jeffrey (note 32), net of dividends
paid in the year.
The CET1 ratio was 22.0%, an increase on the 20.6%
reported 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 8.3% at 31 December 2019, compared
to 8.9% at 31 December 2018. The leverage ratio represents
our CET1 capital as a percentage of our total assets, excluding
intangible assets, plus certain off-balance sheet exposures.
The ratio has fallen during the year due to the transition of
Speirs & Jeffrey clients to our banking terms of business,
which has increased the level of client deposits (see page 37).
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 30).
The consolidated balance sheet total equity was
£485.4 million at 31 December 2019, up 4.6% from
£464.1 million at the end of 2018, primarily reflecting
the issue of new share capital (note 32) and retained
profits for the year.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Financial position continued
Own funds and liquidity requirements
Pillar 2 — supervisory review process
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 18. Group’s own funds requirements1
Credit risk requirement
Market risk requirement
Operational risk requirement
Pillar 1 own funds requirement
Pillar 2A own funds requirement
Total Pillar 1 and 2A own funds
requirements
CRD IV buffers:
— capital conservation buffer
(CCB)
— countercyclical buffer (CCyB)
Total Pillar 1 and 2A own
funds requirements and
CRD IV buffers
2019
£m
46.5
0.4
49.8
96.7
39.8
2018
£m
44.6
0.4
46.3
91.3
48.4
136.5
139.7
30.2
11.3
28.5
8.9
178.0
177.1
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 — minimum requirement for capital
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 2019, the group’s total risk exposure amount
was £1,209.0 million (2018: £1,141.8 million).
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 the year.
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.
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 over four years
from 1 January 2016. On 1 January 2019, it increased to
2.5% of risk-weighted assets, which was the final increase
of this phasing.
Countercyclical capital buffer (CCyB)
The CCyB is designed to act as an incentive for banks to
constrain credit growth in times of heightened systemic
risk. The amount of the buffer is determined by reference
to rates set by the Bank of England’s Financial Policy
Committee (FPC) from time to time, depending on prevailing
market conditions, for individual countries where the group
has credit risk exposures.
The buffer rate is currently set at 1.0% for the UK. The group
also has some small, relevant credit exposures in Australia,
Finland and Switzerland, all of which have applicable buffer
rates of 0%, resulting in a weighted buffer rate of 0.94% of the
group’s total risk exposure amount as at 31 December 2019.
In December 2019, the FPC announced that, as a result
of a review of the stability of the UK financial system, it
intends to raise the UK CCyB rate to 2.0%, with effect from
December 2020. Based on the group’s balance sheet as at
31 December 2019, this change would add approximately
£10 million to the group’s CRD IV buffers.
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Rathbone Brothers Plc Report and accounts 2019
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 £104.2 million, up from £74.2 million
at the end of 2018.
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 2019 were £3.4 billion
(2018: £2.9 billion), of which £2.7 billion (2018: £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 £2.7 billion (2018: £2.2 billion)
represented 6.2% of total Investment Management funds
under management and administration at 31 December 2019,
compared to 5.8% at the end of 2018. Cash held in client
money accounts was £5.7 million (2018: £3.0 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 35
to the financial statements. It invests in a range of securities
issued by a relatively large number of counterparties. These
counterparties must be single ‘A’-rated or higher by Fitch and
are regularly reviewed by the banking committee.
During the year, we increased the share of treasury
assets held with the Bank of England to £1.9 billion from
£1.2 billion at 31 December 2018. During the year, £0.3 billion
from maturing certificates of deposit was invested with the
Bank of England due to unattractive rates offered elsewhere
in the market.
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
18 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 £132.0 million at the end
of 2019 (2018: £131.7 million).
Intangible assets
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 2019, the total carrying value of intangible
assets arising from acquired growth was £214.9 million (2018:
£225.6 million). During the year, client relationship intangible
assets of £5.3 million were capitalised (2018: £55.6 million,
including £54.3 million relating to the acquisition of Speirs &
Jeffrey). No goodwill was acquired in 2019 (2018: £28.1 million
relating to the acquisition of Speirs & Jeffrey).
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 2019, including
the impact of any lost relationships, was £15.4 million (2018:
£12.9 million).
Goodwill, which arises from business combinations, is
not amortised but is subject to a test for impairment at
least annually. During the year, the goodwill relating to
the trust and tax business was found to be impaired as
the growth forecasts for that business have not kept pace
with cost inflation. An impairment charge of £0.6 million
was recognised in relation to this element of goodwill
(2018: £0.3 million), which reduced its carrying value
to £nil. Further detail is provided in note 24 to the
financial statements.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Financial position continued
Capital expenditure
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.
At 31 December 2019 the combined schemes’ liabilities,
measured on an accounting basis, had increased to
£159.1 million, up 8.6% from £146.5 million at the end
of 2018, primarily reflecting the decrease in discount rate
during the year. The reported position of the schemes as at
31 December 2019 was a deficit of £8.0 million (2018: deficit
of £11.2 million).
Triennial funding valuations form the basis of the annual
contributions that we make into the schemes. Funding
valuations of the schemes as at 31 December 2019 will be
carried out by the scheme actuary during 2020.
During 2019, we have increased the level of investment
in the development of our systems and premises, with
capital expenditure for the year totalling £11.6 million
(2018: £11.0 million). Capital expenditure in 2018 included
property-related spend of £3.2 million including the cost
of moving to a new office in Birmingham and the fit out of
additional space in Liverpool. In 2019, property-related costs
of £3.0 million included further development of the Liverpool
office, integration of the Speirs & Jeffrey office in Glasgow and
refurbishment work on the Exeter and Winchester offices.
The level of spend on our systems and digital capabilities
has increased in 2019, as we continue to invest in our
infrastructure and client relationship management systems.
Total costs for the purchase and development of software
were £8.6 million in the year (2018: £7.7 million). New areas
of investment during the year included work towards the
launch of the new client online portal and mobile app.
Overall, new investment accounted for approximately
84% of total capital expenditure in 2019, compared with
77% in 2018, with the balance of total spend incurred for
the maintenance and replacement of existing software
and equipment. Of the £8.3 million of new investment,
£3.4 million was linked to strategic initiatives announced
in October 2019.
Following the strategic review undertaken at the end of
2019, we have looked closely at our IT infrastructure. This has
resulted in the decision to cease the development of certain
systems and write off the associated costs capitalised to date.
This has resulted in an impairment charge of £3.1 million
in 2019.
Right-of-use assets
Following the adoption of IFRS 16, the group is required to
recognise all leases with a term of more than 12 months as
right-of-use lease assets on its balance sheet, along with a
corresponding financial liability representing its obligation
to make future lease payments.
As at 1 January 2019, the group recognised right-of-use assets
of £53.9 million, largely representing the leases for premises
occupied by the group. During 2019, additions of £0.6 million
were made.
Right-of-use assets are generally depreciated over the lease
term (or the expected life of the asset, if shorter). The total
depreciation charge for right-of-use assets in 2019 was
£4.9 million.
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
Liquidity and cash flow
Table 19. Extracts from the consolidated statement
of cash flows
The most significant non-operating cash flows during
the year were as follows:
Cash and cash equivalents
at the end of the year
Net cash inflows from
operating activities
Net change in cash and
cash equivalents
2019
£m
2018
£m
outflows relating to the payment of dividends of
£36.0 million (2018: £32.7 million);
2,148.0
1,408.5
499.6
111.1
739.5
(159.2)
outflows relating to payments to acquire intangible
assets (other than as part of a business combination)
of £14.9 million (2018: £15.1 million);
net cash outflows of £4.3 million from a net repurchase of
shares during the year (2018: net issue of £57.4 million); and
£3.5 million of capital expenditure on property, plant and
equipment (2018: £3.2 million).
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 £1.9 billion at
31 December 2019 (2018: £1.2 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 40 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 reflect a
£442.6 million increase in banking client deposits (2018:
£54.2 million increase), as a result of the migration of
cash held in the portfolios of Speirs & Jeffrey clients onto
a banking basis and a slight increase in the proportion of
funds under management and administration held as cash.
Cash flows from investing activities also included a net
inflow of £303.9 million from the proceeds from the sale
and redemption of certificates of deposit (2018: purchase of
£203.8 million), as we increased the proportion of treasury
assets held with the Bank of England.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Risk management and control
During the year, we have continued to evolve and strengthen 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 risk management across the group considers both existing and emerging challenges to our purpose,
values and strategic objectives. Going forward into 2020, we will continue our approach and focus on managing
risk effectively in accordance with our risk appetite and over the long term for all of our stakeholders.
Risk culture
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
We define risk appetite as the amount and type of risk
the group is prepared to take or accept in pursuit of our
long-term strategic objectives.
Our appetite is subject to regular review and, at least
annually, the board, executive committee and group risk
committee formally review and approve the group’s risk
appetite statement, ensuring it remains consistent with our
strategy. In 2019, our appetite framework has developed in
line with the group’s overall prudential requirements for
financial and non-financial risk (conduct and operational).
Alongside this, specific appetite measures for each principal
risk continue to be set. Risks which have triggered key
risk indicators or risk appetite measures are reported
and escalated in accordance with our framework to the
executive committee, the group risk committee and
the board so that risk mitigation can be reviewed and
strengthened if appropriate.
Following the strategic update this year, and with
consideration to the evolving and future regulatory
landscape within the sector, the board remains
committed to having a relatively low overall appetite
for risk and ensuring that our internal controls mitigate
risk to appropriate levels. The board recognises that our
performance 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.
Managing risk
The board is ultimately accountable for risk management
and regularly considers the most significant risks and
emerging threats to the group’s strategy. In addition, the
audit and group risk committees exercise further oversight
and challenge of existing 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. Our executive risk
committee provides further challenge and oversight
of non-financial risk (conduct and operational risk)
complementing the banking committee that oversees
financial risk management. Both committees meet monthly,
reporting into both the executive committee and the group
risk committee.
Throughout the group, all employees have a responsibility
for managing risk and adhering to our control framework.
Three lines of defence
Our three lines of defence model operates across the group in
support of the risk management framework and outlines our
requirements across all employees, with responsibility and
accountability for risk management broken down as follows.
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 committee
and group risk
committee
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Rathbone Brothers Plc Report and accounts 2019
First line
Senior management, business operations and support
functions are responsible for managing risks, by developing
and maintaining effective internal controls to mitigate risk
in line with risk appetite.
Second line
Risk, compliance and anti-money laundering functions
maintain a level of independence from the first line and are
responsible for providing oversight of and challenge to the
first line’s day-to-day management, monitoring and reporting
of risks to both senior management and governing bodies.
Third line
Our internal audit function is responsible for providing
independent assurance to senior management, the board
and the board committees as to the effectiveness of the
group’s governance, risk management and internal controls.
Outside of our internal lines of defence, external
independent assurance is obtained, primarily the annual
statutory audit along with other ad hoc engagements
which may be required during the year.
Identification and profiling of principal risks
We undertake regular reviews to ensure we identify all
known material risks which have the potential to impact
future performance and delivery of our strategic objectives
and business priorities. These risks are classified using a
hierarchical approach with our highest level of risk (Level 1)
comprising financial, regulatory conduct and operational
risks. Our next level (Level 2) contains 17 risk categories,
which are allocated to a Level 1 risk and reflect the current
and future risk profile of the group. Detailed risks (Level 3)
are identified as sub-sets of Level 2 risks. Level 3 risks are
captured and maintained within our group risk register.
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 regularly
during the year.
As part of our approach, senior management also maintain
a watch list 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, senior management, group risk committee
and the board.
Risk assessment process
The board and senior management are actively involved
in a continuous risk assessment process as part of our risk
management framework, supported by the annual Internal
Capital Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment Process (ILAAP) work,
which assesses the principal risks facing the group.
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 Level 2 risk categories and
detailed Level 3 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.
Each Level 3 risk is assessed for the inherent likelihood of
its occurrence in a three-year period 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 and/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.
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 likelihood of the underlying
risks materialising.
The executive risk committee, executive committee, group
risk committee and other key risk-focused committees
consider the risk assessments and stress tests, providing
challenge on their appropriateness, which is reported
through the governance framework and ultimately
considered by the board.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Risk management and control continued
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. For 2019, the underlying risk profile and ratings for the
majority of Level 2 risks remained reasonably stable despite
the challenging year faced by the wealth management sector.
There were, however, 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 continuing focus on client suitability, the
ongoing cyber threat to the financial services sector, the
macroeconomic environment and continuing political
challenges for the UK. These were regular areas of focus for
the firm in 2019, together with the operational integration
of Speirs & Jeffrey. The board remains vigilant to the risks
associated with the pension schemes’ deficit. 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.
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.
We include in the tables the potential impacts (I) the firm
might face and our assessment of the likelihood (L) of each
principal risk crystallising. 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.
Emerging risks and threats
Emerging risks, including legislative and regulatory change,
which have the potential to impact the group and delivery
of our strategic objectives are monitored through our watch
list. During the year, the executive committee continued to
recognise and respond to a number of emerging risks and
threats to the financial services sector as a whole and to
our business.
Key changes to risk profile
Risk
Business model
(including Brexit)
Description of change
This risk, which includes the impacts arising from changing market conditions as a result of
political uncertainty and the global economy, has somewhat stabilised, however it remains
a key risk.
Risk
change in 2019
Although the firm’s potential exposure to Brexit remains low risk, business model continues
to be a principal risk, as any impact of a disorderly exit from the European Union on investment
markets will also affect the value of our funds under management and administration.
In 2018, our forward-looking risk assessment increased, largely reflecting regulatory drivers.
This year it has remained stable as process improvements have been implemented to simplify
the workflows involved for our clients and employees.
Following integration of Speirs & Jeffrey, we have reduced our risk assessment,
however it remains a principal risk as a reflection of the firm’s future change plans.
We have maintained our risk rating in this area, cognisant of the continued external threat
profile, however we recognise continuing investment and improvements in staff awareness,
preparedness and technology.
Having increased in 2018, reflecting industry wide trends, this risk has reduced in 2019
reflecting a number of management actions and our view of the external environment.
That said, we continue to 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.
Rathbone Brothers Plc Report and accounts 2019
Suitability and advice
Change
Information security
and cyber
People
Pension
42
The board and executive also recognise that actions will be
required to better understand longer-term climate change
risks, both physical and transitional, along with sustainability
risks associated with our strategy, business model and
operations. This will be an area of specific focus during 2020.
The group’s view is that we can reasonably expect current
market conditions and uncertainties to remain throughout
2020, given the implications of Brexit and the UK political
environment. Other evolving risks remain stable, however
they continue to include cyber threats, changing regulatory
expectations and further scenarios potentially arising from
geopolitical developments, along with continuing tensions
and uncertainty around global trade.
Brexit
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 continue to
be 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 with market
levels, which are expected to be impacted by Brexit and
other areas of political uncertainty.
Principal risks
The most significant risks which could impact the delivery of our strategy and annual business plans are detailed below. The potential
impacts (I) the firm might face and our assessment of the likelihood (L) of each principal risk crystallising are included in the table.
Principal risk
Financial
Credit
The risk that one or more
counterparties fail to fulfil
contractual obligations,
including stock settlement
Pension
The risk that the cost of
funding our defined benefit
pension schemes increases,
or their valuation affects
dividends, reserves
and capital
Regulatory conduct
How the risk arises
I
L
Control environment
Residual rating
High
Low
High Med
This risk can arise from
placing funds with other banks
and holding interest-bearing
securities. There is also
a limited level of lending
to clients
This risk can arise through 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
— 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
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
— 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
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Risk management and control continued
Principal risk
Regulatory conduct continued
How the risk arises
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
Residual rating
I
L
Control environment
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 independent
sampling
— Compliance monitoring
— Board and executive oversight
— Active involvement with industry bodies
— Compliance monitoring programme to examine the
control of key regulatory risks
— Separate anti-money laundering function with
specific responsibility
— Oversight of industry and regulatory developments
— Documented policies and procedures
— Staff training and development
High Med
This risk can arise from
failures by the business
to comply with existing
regulation or failure
to identify and react
to regulatory change
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
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
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
High Med
— Executive and board oversight of material change
High Med
High Med
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
— Information security policy, data protection policy
and associated 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
— Culture monitoring and reporting
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
Operational
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
Information security
and cyber
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 or
of 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
Further detailed discussion of the group’s exposures to financial risks is included in note 35 to the financial statements.
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Rathbone Brothers Plc Report and accounts 2019
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 potential crystallisation of the following
events were areas of focus for enhanced stress testing: an
equity market fall, a loss of business to a competitor, business
expansion, pension obligation and a combined market fall
and reputational event.
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. The business is almost wholly UK-situated and
it does not suffer from any material client, geographical or
counterparty concentrations.
While these stress tests do not consider all of the risks
that the group may face, the directors consider that these
stress testing-based assessments of the group’s prospects
are 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 provided a strategic update in October
covering a five-year period. The board also 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 recent and expected future changes
to the economic and regulatory landscape, along with
uncertainties associated with predicting the future impact
of investment markets on the business over a longer period,
the directors have determined that a three-year period to
31 December 2022 continues to constitute an appropriate and
prudent period over which to provide its viability statement.
This is also more closely aligned to its detailed stress testing
and capital planning activity.
Stress testing analysis shows that under scenarios such
as a 42% fall in FTSE 100 levels, the group would remain
profitable and is able to withstand the impact of such
scenarios. We see these scenarios as also incorporating the
potential adverse indirect impact of a disorderly Brexit on
the firm. An example of a mitigating action in such scenarios
would be a reduction in costs, specifically around change
initiatives, along with 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 2022.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Stakeholder engagement
Section 172 Statement
Our board promotes the success of the firm for the benefit of our members as well as a broad range of stakeholders that we recognise
are material to the long-term future of our business. We have detailed below how the board have ensured effective engagement with
our key stakeholders during the year.
Why they are important to our business
How we engage and consider their interests
Clients
Clients are the central focus of our business. The firm’s ongoing success
is built upon an ability to understand clients’ needs and respond with
bespoke solutions. This allows us to anticipate how these needs will
evolve and to provide portfolios and services that meet their financial
goals and build their future prosperity.
Read more on pages 8, 9, 18 and 19
We engage with our clients through a variety of
channels including:
— regular meetings with investment managers and
financial planners
— breakfast briefings
— private client investment conferences held across
the country
People
The board recognises that the firm’s culture and corporate values
underpin the effective delivery of its strategy. Our people are central
to the ongoing success of the firm and we are proud of our reputation
as an employer of choice. Our people strategy aims to develop an agile
workforce as we continue to attract, retain, develop and motivate the
right people for our current and future business needs.
Read more on pages 54, 78 and 79
We engage with our people through the following activities:
— annual employee opinion survey (further information
can be found on page 54)
— ‘town hall’ meetings across the country
— regular management briefings
— webcast, internal magazine and management blogs
— presentations by the executive team to discuss
performance and the firm’s new strategic plan
Shareholders
We rely on the support and engagement of our shareholders to deliver our
strategic objectives and grow the business. Our shareholder base supports
the long-term approach we take in the management of our business.
Read more on pages 7 and 21
Society and communities
We recognise the responsibility we have to wider society and other
key stakeholders. We believe that demanding high levels of corporate
responsibility is the right thing to do.
Read more on pages 50 and 59 to 66
We engage with our shareholders through the
following activities:
— regular meetings are held with our investors
throughout the year with both executive and
non-executive directors covering a range of topics
— an investor day was held in 2019 to give investors the
opportunity to hear our new strategy and engage with
senior management and board members
We engage with society and the communities in which
we operate through the following activities:
— we encourage high standards of governance as an
investment manager. We frequently engage with
companies on environmental, societal and corporate
governance concerns and have been a signatory to the
Principles for Responsible Investment (PRI) for over
ten years
Our partners and regulators
We seek to build positive relationships with our regulators. Regulators
provide key oversight of how we run our business. Our clients’ best
interests are served by our working constructively with regulators.
We recognise the importance of our various partners in delivering
services to clients and ensure we have shared values.
We engage with regulators and our partners through
the following activities:
— we hold regular meetings with all our regulators during
the year and have a proactive and transparent relationship
with them
— we ensure our payment terms with all suppliers are
fair and in compliance with payment practices
Read more on pages 58
46
Rathbone Brothers Plc Report and accounts 2019
— external client surveys
— invitation to the Rathbones Folio Prize
ceremony
— financial awareness courses for
all generations
— conferences for intermediaries and IFAs
— various other client functions and events.
Stakeholder considerations in the development of our new strategy
Enhancement of the client experience will be achieved through:
— providing seamless omni-channel communication with clients, including a new
mobile app
— utilising our liquidity, equity, and diversifying assets (LED) approach for clients
and advisers and fostering our investment culture and research capability
— developing our environmental, social, and governance (ESG) and responsible
investing capabilities
— enhancing our financial planning capabilities.
Link to strategic priority
— Colin Clark and Sarah Gentleman were
Developing our people through:
appointed as the designated non-executive
directors responsible for gathering
workforce feedback
— regular formal and informal board and
management visits to various teams
and offices .
— increased investment in developing the firm’s talent and knowledge pool
— creating an investment graduate academy and mentoring scheme
— developing diversity and inclusion initiatives across the firm
— embedding the firm’s purpose and values, and linked these into the firm
— ensuring ongoing engagement with staff through regular surveys
— continued development of the board’s workforce engagement initiatives.
Link to strategic priority
— we commissioned an independent investor
Continued focus on growth by:
perception study and the results were
presented to the Board
— engagement with retail investors at our
Annual General Meeting
— regular engagement and consultation with
investors and proxy voting agencies on
executive remuneration.
— driving organic growth through client development and our advisor channels
— continuing growth in our funds and financial planning teams
— increasing our brand awareness beyond our existing market segments
— penetrating specialist markets
— improving efficiency and productivity across the organisation
— inorganic opportunities that are aligned with our strategy.
Link to strategic priority
— we are proud to support the communities
Continued focus on growth by:
in which we operate and have a long history
of contributing through donations and
employee volunteering (in 2019 through
our GAYE, we raised £360,000)
— we have reduced our total carbon emissions
over the last three years, which has been
recognised by our improved CDP (formerly
Carbon Disclosure project) FTSE4Good rating.
— increased focus on responsible investment and stewardship
— development of ESG analysis and data to inform our research process
and investment manager decisions
— continued focus on reducing our impact on the environment and
climate change
— ongoing support for communities in which we operate.
Link to strategic priorities
— we request all suppliers to conform to
Align our outcomes with regulators and our partners by:
the Modern Slavery Act and conduct a risk
assessment of our supply chain. Our modern
slavery statement is reviewed and updated
by the board annually
— we maintain ongoing relations with our key
suppliers and partners during the year with
updates at each board meeting.
— Ensuring the strategic plan operates in line with regulatory
and capital requirements;
— Engaging with regulators on the preparation of the firm’s new
strategic plan.
Link to strategic priority
To read more on our new strategy, see pages 10-11
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate
responsibility report
Our 2019
highlights
In 2020 we know that every business must be responsive to the
expectations of its stakeholders, that every business will need to
demonstrate it is run responsibly and that every business will need to
make its contribution to society. Over the last few years, diversity and
inclusion, climate change, modern slavery, good governance, responsible
investment and resilience to risk have all risen up the corporate agenda.
At Rathbones, we take this responsibility seriously and in each of these
critical areas we are taking action to ensure that we have a positive and
lasting impact, both now and in the future.
As we reported last year, we concluded an in-depth review of our
corporate responsibility activities with the aim of developing a framework
for promoting responsible business across the firm and ensuring good
corporate citizenship. The framework has four pillars:
— consider corporate responsibility and governance issues in the
companies in which we invest on behalf of our clients
— develop, motivate and reward our people appropriately and
ensure diversity and inclusion are at the heart of our business
— engage with the communities in which we operate
— manage our environmental impact and reduce our carbon footprint
through the efficient use of resources.
Through consultation with key stakeholders, we considered these
material sustainability issues alongside key drivers for our business.
The review was an important first step towards the definition of
a longer-term roadmap for corporate responsibility and we have
summarised here a number of achievements for this year, with
additional commentary later in this report.
Responsible investing
We consider corporate responsibility and
governance issues in the companies in
which we invest on behalf of our clients.
PRI annual survey results
Strategy and governance score
A+ Median score: A
Listed equity — active ownership score
A Median score: B
Listed equity — incorporation score
B Median score: B
Fixed income — corporate financial
and non-financial score
B Median score: B
Direct ESG engagement with companies
0
7
1
3
2018 2019
70
companies engaged
48
Rathbone Brothers Plc Report and accounts 2019
People
We engage with our people and invest in their development.
2019 employee
engagement survey
86%
engagement
Number of
employees and
share scheme
participation
2
1
5
,
1
5
2
3
,
1
0
4
8
Number of employees
by length of service (years)
Number of employees
by age (years)
Nine points above financial sector
Two points below previous survey
Headcount at
31 December 2019
1,512
Number of employees
in SIP
1,325
Number of employees
in SAYE
840
0-15
16-30
31-45
1,232
236
44
16-20
21-35
36-50
51-65
66+
15
594
526
366
11
Society
Environmental impact
We take responsibility for our
supply chain, contributing to
communities and charities, and
ensure we uphold the highest
standards in our operations.
Volunteering days
80
2018: 25
Charitable donations
£360,000
2018: £355,000
We manage and reduce our environmental impact and carbon footprint through the efficient use
of resources.
Total emissions (tCO2e)
since baseline year
Our carbon offset programme
)
e
2
O
C
t
(
s
n
o
i
s
s
i
m
e
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
0
2
3
6
,
2
7
7
0
,
2
3
4
0
,
2
2013
(baseline)
2018
2019
Intensity (tCO2e/FUMA £bn)
I
n
t
e
n
s
i
t
y
(
t
C
O
2
e
/
F
U
M
A
£
b
n
)
175
150
125
100
75
50
25
0
We offset over 10% of our carbon emissions
by purchasing 2,553 tonnes of carbon credits.
This is equivalent to
the CO2 sequestered by
3,000
acres of forest
This carbon offset represents the equivalent
carbon output of more than 725 UK homes.
In turn, this offsetting supported community
projects around the world, such as renewable
energy generation, rainforest protection and
safe water initiatives.
rathbones.com
49
Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Corporate responsibility report continued
Responsible investing
Thinking, acting and investing responsibly
Our programme participation
Our purpose is intrinsic to our organisational culture as
well as to our investment process. We aim to lead the UK
wealth sector by taking an intelligent and active approach
to responsible investment through an holistic appraisal
of investment opportunity and risk. This incorporates a
thorough consideration of relevant environmental, social
and governance factors and ongoing engagement with the
companies in which we invest on behalf of our clients.
We are a member of the Carbon Disclosure Project
(CDP), as well as being a signatory to the CDP sister
programmes on water disclosure and forestry. In 2019,
we improved our score to a ‘B’ reflecting our continued
focus on environmental performance management and
climate-related issues. Rathbone Greenbank Investments
is also a leading member of the Institutional Investors
Group on Climate Change (IIGCC).
Whilst we have been a leader in responsible investing
for many years, 2019 saw several important milestones.
Firstly, our first formal responsible investment committee
was formed, and secondly, a group responsible investment
policy was adopted in late 2019.
We work with many other organisations which are
committed to ethical investment, sustainable
development and social justice. Whether through
membership, partnership or sponsorship, we are
pleased to be involved with the following:
Our responsible investment committee defines responsible
investment as:
“The purposeful integration of environmental, social
and corporate governance (ESG) considerations into
investment management processes and ownership
practices in the belief that these factors can have an
impact on financial performance.”
This important step recognises that ESG factors are
material to the performance of companies and sees our
group-wide approach take an significant step forward.
We retain sector-leading capacity in sustainable and
ethical investment through Rathbone Greenbank
Investments, and through our specialist sustainable
Rathbone Unit Trust Management funds.
Our PRI membership
2019 marks our tenth year of membership of the UN PRI
and the evolution of our rating is detailed below:
2009
9 September
2009 — PRI
membership
begins
2014
C rating for
listed equity
— active
ownership
2014
D rating
for listed equity
— incorporation
50
Rathbone Brothers Plc Report and accounts 2019
Our commitment to the UN-backed
Principles for Responsible Investment (PRI)
We play an active role in the PRI Collaboration Platform
and have made a commitment to and implemented its six
principles that are detailed below.
— We will incorporate ESG issues into investment analysis
Our core responsible investment principles
We have developed a core set of guiding principles which
apply to our stewardship and governance-related activities:
— Materiality
We recognise ESG risks can be material to the performance
and valuation of companies.
and decision-making processes.
— Active voting
— We will be active owners and incorporate ESG issues
We actively consider proxy votes for client holdings.
into our ownership policies and practices.
— Engagement
— We will seek appropriate disclosure on ESG issues by
the entities in which we invest.
— We will promote acceptance and implementation of
the principles within the investment industry.
— We will work together to enhance our effectiveness
in implementing the principles.
— We will each report on our activities and progress.
Active engagement with companies on governance issues
is an important adjunct to voting activities.
— Transparency
We report annually on our stewardship activities.
2016
A rating for
listed equity —
active ownership
This is a rating for
equity investment,
which includes
engagement activity
as well as strategy.
2017
A+ rating for
strategy and
governance
This is an overall
rating for PRI-related
policy and activities.
2019
A+ rating for
strategy and
governance
2014
B rating
for strategy
and governance
2016
B rating
for listed equity
— incorporation
2018
A+ rating
for strategy
and governance
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Corporate responsibility report continued
Voting
Votes against management
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 Principles for Responsible Investment
(PRI), and paying 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.
Active voting, informed by ESG risk awareness, is a core part
of our responsible investment policy. Our voting policy was
strengthened in several areas in 2019, notably in the area
of gender diversity on company boards and on company
approaches to reporting the risks of modern slavery in their
supply chain.
Details of our voting activity for the year is detailed below.
Out of 5,291 resolutions, we supported management on
4,759 items, and voted against management on 62 items.
We voted against management on resolutions that were
related to directors, executive pay and routine/business
issues such as approval of accounts and auditors.
Category
Number of items voted
Number of votes FOR
Number of votes AGAINST
Number of votes ABSTAIN
Number of votes WITHHOLD
Number of votes on
shareholder proposals
Number
4,817
4,759
62
70
0
Percentage
98.80%
1.29%
1.45%
0.00%
26
0.54%
Directors related
Executive pay
Routine/Business
Mergers, aquisitions
and takeovers
Environmental and social
Capitalisation and
shareholders rights
Antitakeover related
Other
46%
20.7%
16.2%
4.5%
8.1%
1.8%
1.8%
0.9%
The data provided are in summary form for general information about voting trends
and do not reflect the specific votes entered at a specific company. For example, given
our status as a private client asset manager with very close links to our clients, it is
entirely plausible (if not frequent) for us to enter three different votes for each votable
item, or some combination of for, against or abstain. Hence the percentages given of
items voted for, against and abstain as a proportion of items voted are given as an
indication of scale, and would not be expected to add up to 100%.
Voting against management is rare, but significant,
and we ensure any such vote is followed up by direct
engagement. As more attention has been paid to this area
in recent years, our proportion of votes against management
in 2019 increased.
Company engagement
It is important that we maintain a dialogue with the
companies in which we invest, as our clients expect us
to use our voice to influence companies towards better,
more sustainable long-term performance, which takes
account of all stakeholders.
In line with the requirements of the EU Shareholder
Rights Directive, a formal engagement policy was adopted
in June 2019. As owners of the companies in which we
invest on behalf of our clients, we undertake dialogue
with companies on a wide range of environmental, social
and governance issues. This includes issues of strategy,
performance, risk, capital structure, corporate governance
(including culture and remuneration), environmental
management and human capital management.
In doing so, we recognise that such engagements often
present themselves across a spectrum of severity. In
order to maximise the effect of our engagements and
deliver on our responsibilities to clients, we must be
selective and pragmatic. Whilst the specific approach taken
to engagement will be decided on an ad hoc, case-by-case
basis, the following principles guide the selection of an issue
for more active engagement:
1. Exposure: Across our portfolios we may hold stakes in
smaller companies which, whilst small in terms of value,
may be significant in terms of the proportion of voting
rights. We are more likely to engage directly where we
hold a material stake in the company, defined as holding
in excess of 3% of a company’s share capital.
52
Rathbone Brothers Plc Report and accounts 2019
Courageous and resilient
in leading change
Responsibility demands courage. We are
not afraid to ask difficult questions or make
changes that need to be made. We stand up
for what’s right, accepting that this can be
challenging sometimes. We know that investing
for tomorrow and leading the way can take time.
We have the discipline and resilience to see
things through.
“No matter how tough it gets,
you need to be able to bounce
back and deal with it.”
Naomi Morris
Investment Sales Consultant, London
2. Severity: We are more likely to engage on issues that
present an immediate or severe threat to the best
interests of our clients.
3. Location: We are more likely to engage with those
companies where we have a deeper understanding
of the local legal framework.
As signatories to the PRI, we make use of the organisation’s
Collaboration Platform to participate in engagement on
ESG topics with a number of global firms.
PRI engagements
September 2019 marks the 10th anniversary of our PRI
membership. In the last year we have been involved in a
number of ESG-themed engagement projects as part of
this initiative.
— Responsible sourcing of cobalt: Rathbones joined a new
engagement in 2019 which is focusing on engaging with
companies on their responsible sourcing practices around
cobalt in line with OECD Due Diligence Guidance. We have
taken a lead role with two companies.
— Transparency in Supply Chains provision of the
Modern Slavery Act: In September 2019 we filed a
submission to the 2019 UK Government Consultation on
the Transparency in Supply Chain provision of the 2015
Modern Slavery Act. Our submission was put on the
PRI Collaboration Platform and was supported by a
coalition of investors with a total of £2.4 trillion assets
under management. In addition, we integrated concerns
on this issue into our proxy voting activities.
— Tailings Dam Safety: We are part of the PRI’s Investor
Mining & Tailings Dam Safety engagement, which is made
up of a group of investors representing over $12.5 trillion
assets under management. This engagement was formed
following the Brumandihno tailings dam collapse in Brazil
in January 2019 which killed 19 people.
— Deforestation and forest fires in the Amazon: In
September 2019 we signed up to a global investor
statement calling on a list of companies in the food,
apparel and clothing industries to redouble their efforts
and demonstrate clear commitment to eliminating
deforestation within their operations and supply chains.
— Just Transition features in the Paris Agreement and is
particularly relevant in the UK after its inclusion in the
Government’s Green Finance strategy. It covers the social
impacts of a transition from fossil fuels to renewables
in the UK energy system. We commenced engagement
with a major UK power station, the UK’s largest single
point source of GHG emissions. This engagement seeks
an opportunity to discuss with the company its plans for
alignment with the UK ‘net zero’ target for 2050 (the UK
Green Finance strategy) in the context of the challenges
posed by a just transition and its response to trends in the
decentralisation of the grid.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate responsibility report continued
People
Our approach
People are our most important asset in achieving our
new five-year corporate strategy, delivering excellent
client experience and meeting our commitments to
all our stakeholders. To enable our people to do this,
during 2019 we made efforts to assess, understand and
actively shape our culture. In particular, we focused
on the areas of:
— engagement
— investing in our people
— diversity
— wellbeing.
To underpin and drive activities in these four areas of focus,
in 2019 we undertook an exercise to refresh our corporate
values. Our new values were developed through a series
of representative workshops with a large proportion of our
employees in multiple locations. We used this approach to
ensure the values are reflective of, and demonstrated by,
all our people across the firm.
Our new values will act as a yardstick for who we are,
what we do and how we act. Across 2020 and 2021 they
will be embedded in our core people processes, to ensure
we recruit the right people, and measure and reward the
right behaviours.
These are the values that guide our behaviour every day:
— Being responsible
— Working together
— Showing courage
— Always professional
Engagement with our people
We understand that critical to having an engaged
workforce is ensuring two-way dialogue across the
organisation. To achieve this, throughout 2019 we
utilised a variety of communications channels including:
— regular updates from leadership to the whole firm
— a daily ‘morning meeting’ free for all to join headlining
political, economic and market issues
— a weekly internal update focusing on issues affecting
our business
— management briefings and town-halls
— a workforce engagement with the board programme
— an engagement survey.
2019 survey highlights
Our 2019 engagement survey was completed by the
vast majority of our people, providing them with a
secure and anonymous mechanism to feed back on
the various elements of their employee experience.
Our overall engagement score was 86% which was
encouraging and is 9% higher than our financial
services comparator group. There were also no
pronounced differences when analysed by gender,
age, location or employment status.
The results identified that our employees care about
the organisation, they understand, feel supported
in and have the freedom to perform their roles,
they feel they can strike a balance between their
professional and personal lives, and they have access
to the training and development they need. The survey
also identified a few specific areas where we can seek
to increase engagement.
Overall experience
Positive
Neutral
Negative
86%
12%
2%
I am proud to say I work for Rathbones
Agree
Neutral
Disagree
86%
13%
1%
Autonomy
Positive
Neutral
Negative
71%
17%
12%
54
Rathbone Brothers Plc Report and accounts 2019
Workforce engagement with the board
Under the new 2018 Corporate Governance Code,
the board is required to agree a mechanism to ensure
ongoing engagement with the workforce. Following
a detailed review of this requirement by our board to
ensure there was effective two-way communication, it
was agreed that Colin Clark and Sarah Gentleman will
be the designated non-executive directors responsible
for gathering employee feedback.
The board’s workforce engagement programme has
enhanced and developed existing engagement structures
and processes to regularly engage with a broad representation
of the workforce. The following types of engagement initiatives
were conducted during the year:
— non-executive director drop-in sessions across the country
— branch and team visits
— ‘town hall’ meetings
— review of engagement survey results.
In addition, appropriate reporting frameworks have
been implemented to ensure that the feedback from these
initiatives is collated. The key themes that have arisen
from this exercise are discussed by the board and taken
into consideration during its decision-making process.
See page 45 for more detail.
Investing in our people
Learning
We actively prioritise the development of our employees by
building and delivering high-quality programmes that enable
participants to put relevant learning into practice, whichever
part of the business they work in. We do this by engaging
with line managers and other stakeholders across the
business to understand what skills are needed and ensure
that the opportunity and support are in place for employees
to deploy them. In 2019 we maintained a significant average
investment per person of £727 (compared to £710 in 2018).
These figures are a conservative estimate because there
is much more employee development that has no direct
cost and is conducted at the desk. We also delivered online
learning across the firm for key issues, including: anti-money
laundering, data security and information security.
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 supervision 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. For senior members of staff, a suite of management
and leadership courses is available which is designed to
enable the firm to support our high-potential employees
to ultimately grow into senior leadership roles. During 2019,
we also performed cross-functional succession planning
and talent mapping exercises to strengthen our bench-
strength and developed a new leadership framework.
For our junior members of staff, we provide opportunities
for personal and professional development which will help
the firm plan for the future. Our apprenticeship programme
continues to run successfully in our Liverpool office, and
in 2019 we continued an investment operations specialist
programme in London, through which participants can earn
their Investment Advice diploma. We also launched a new
graduate development programme in 2019, on which our
eight trainees will participate in a variety of placements
across the firm over 16 months, gaining a broad range
of experience. We will further develop our mentoring
programme in 2020.
Our diversity
Rathbones is an equal opportunities employer and it is
our policy to ensure that all job applicants and employees
are treated fairly and on merit, regardless of race, sex,
marital/civil partnership status, age, disability, religious
belief, pregnancy, maternity, gender reassignment or
sexual orientation.
Rathbones prides itself on being a ‘real Living Wage’
employer and pays Living Wage Foundation rates of
pay to internal employees and sub-contracted staff. In
addition, Rathbones sponsors Investment Week’s Women
in Investment Awards, which recognise the achievements
of women in the sector.
We have three female directors out of eight on the
main board and two of them are on the group executive
committee (GEC) and have thus exceeded our commitment
to meet the 33% of female board representation for
FTSE 350 companies.
Historically, women have been less well represented
at all levels in the investment management industry
and further addressing this imbalance is a key priority.
We continue to develop our plans to align with the
recommendations published in the Hampton-Alexander
review and are working hard to appoint more women in
graduate trainee positions. We 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. We are signatories to the Women in Finance
Charter and the firm is committed to achieving 25% female
senior management representation by 2023. As of 2019,
we have reached 20.3%.
rathbones.com
55
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate responsibility report continued
To support our employees who were parents in 2019,
we enhanced our shared parental leave offering so that
those with two years’ service can take the first 24 weeks
paid at 100% of their basic salary. Any remaining weeks
are paid at the standard rate.
Gender diversity at 31 December 2019
All employees
Female
Male
48%
52%
Senior managers1
Female
Male
20%
80%
Group executive members
Female
Male
22%
78%
1. Senior managers includes senior individuals who report directly into the group
executive committee
Gender pay gap reporting
The firm published its gender pay gap data in April 2019 and
will do so again before April 2020. 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 fewer women in the wealth
management sector and as a consequence we have found
it harder to hire experienced 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 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.
Our wellbeing
Rathbones recognises the importance of an appropriate
work-life balance, both to the health and welfare of
employees and to the business. Whilst our engagement
survey results suggest the vast majority of colleagues feel
they strike the right balance between work and home life,
we have continued to grow our employee wellbeing offering.
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. Employees continue to have access
to a free, independent employee assistance programme
(EAP) offering confidential advice and support to them and
their families. In 2019, we increased the range and number
of training, one-to-one and drop-in sessions available on
wellbeing-related topics, including: building resilience, using
mindfulness, managing stress, and protecting mental health.
We have also introduced trained mental health first aiders
in the firm who are go-to people for our employees, helping
those who feel stressed or anxious, or have mental health
concerns. We continue to provide support for working
parents through targeted seminars and training sessions,
such as helping new parents prepare for parenthood
and learn how to engage with children.
56
Rathbone Brothers Plc Report and accounts 2019
Diversity and inclusion activity
We have launched the Rathbones diversity and inclusion taskforce and the Rathbones Included network.
We have also rolled out unconscious bias training across the organisation and 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.
What we have done to date
Our next steps
— Held employee focus groups to identify
issues Established Rathbones Included —
a cross-departmental group to drive action
in all areas of diversity and inclusion
— Ran voluntary unconscious bias training
(outside London) and inclusive leadership
training (in all locations)
— Performed annual equal pay audits
— Improved our parental leave policies
— Signed the Women in Finance Charter,
committing to 25% female senior
management representation by 2023
— Development of culture and diversity
dashboards (reviewed by the board)
— Training in inclusive leadership to be rolled
out across the firm
— Mentoring of junior female high-performance
talent by senior leaders
— Asking questions in the 2020 Pulse survey
specifically focused on diversity and inclusion
— Redesigning of recruitment processes to help
to eliminate unconscious bias
We offer a comprehensive remuneration package, which
is regularly reviewed to ensure that our employees are
fairly rewarded, and a wide range of core benefits to our
employees, including:
— cycle to work scheme
— flexible holidays
— voluntary leave
— private medical cover
— sight tests and annual health medical
— income protection insurance
— life assurance
— discounted independent financial advice
— discounts on products and services through our
‘Reward Board’ benefits and wellbeing platform.
Employees can participate in the company’s pension
arrangement where employees are eligible to receive
at least a 9% contribution from the company (on an
employee non-contributory basis) to a group personal
pension arrangement, rising to 10% with employee
contributions. Further, they have the opportunity
to join the Share Incentive Plan (SIP), which enables
employees to benefit from share matching by the
company on a one-to-one basis and receive free shares
and dividend shares, as well as the opportunity to join
the Save As You Earn (SAYE) share option plan each year.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate responsibility report continued
Our partners and our regulators
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.
To further develop our approach, we set ourselves a set
of objectives. 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 now confirmed as 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 — 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
they matter the most. In the event our staff wish to procure
products or services from the above sectors, additional
checks must be performed. All new suppliers in the
above categories must share with us their modern slavery
statements. In addition to this, we have engaged with all our
current suppliers to understand the due diligence they have
in place to mitigate the risk of modern slavery in their
supply chains.
This year, our focus is on embedding the due diligence
checks. Our key staff will receive modern slavery training
to ensure that they understand how modern slavery may
manifest itself and what they can do to mitigate the risk
when engaging with suppliers. To raise awareness further,
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.
Anti-bribery policy
As a firm we value our reputation for ethical behaviour and
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 anti-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.
Our relationships with regulators
As a UK-based company, we aim to build positive
relationships with our regulators. Regulators provide
important oversight of how we run our business. Our clients’
interests are best served when we work constructively with
our regulators. We regularly engage with regulators to ensure
that our business understands and contributes to evolving
regulatory requirements. Senior management hold
regular meetings with regulators to foster healthy working
relationships. We also report regularly to the board and the
audit and risk committees on engagement with regulators
and how changes in regulatory regimes may impact our
business processes and procedures. In 2019, these reports
included the implementation of MiFID II and the impact
of Brexit.
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Rathbone Brothers Plc Report and accounts 2019
Society and communities
Donations and fundraising highlights
During the year, the group made total charitable donations
of £360,000 representing 0.9% of group pre-tax profits (2018:
£355,000, 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 2019, Rathbones employees made payments
totalling £195,000 (2018: £199,000) 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 2019, donated £158,000
(2018: £166,000) to causes chosen by employees through
this method.
During 2019, 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 are below:
— Members of staff from the Winchester office did
a charity cycle ride from Winchester office to the Vision
Independent Financial Planning office in Falmouth.
They were joined by employees from Vision and the
team raised over £3,500 for Winchester Hospice (which
is Rathbones Winchester’s charity of the year) and
Pancreatic Cancer Research.
— As part of the Rathbone Foundation regional donation
programme, the Edinburgh office supported people from
the Edinburgh area on the Outward Bound Trust’s flagship
three-week Skills for Life course. As part of this course each
young person works on their personal development with
an instructor/mentor. Outdoor activities and challenges
are used as a vehicle to teach skills such as teamwork,
resilience and overcoming fear.
— A team of eight employees from the Glasgow office
volunteered over two days at Move On’s FareShare
depot, which saves good-quality surplus food from going
to waste and distributes it to organisations working with
the most vulnerable people in the community. The aim
is to deliver a food service to those who need it most,
including homeless people, elderly people, children,
refugees and people suffering mental and physical
health problems.
— Rathbones employees from the London office hosted
a group of 30 students which 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.
The Outward Bound Trust
The Outward Bound Trust is an educational
charity that helps young people defy their limitations
through learning and adventures in the wild. Through
circumstances beyond their control, these young
people face multiple challenges in life and often do
not have the financial means to access the same
opportunities as their peers.
The Outward Bound Scotland’s Next Generation (SNG)
is a life-changing programme for disadvantaged young
people in Scotland. Selected participants between the
ages of 15-18 take part in the 19-day Outward Bound
Skills for Life Award at Loch Eil centre in the Highlands.
Participants have a unique opportunity to develop
the skills they need to be successful at school, work
and beyond. The programme helps to increase their
confidence, self-belief, resilience and ambition. The
SNG project has been running for over 10 years and
is growing stronger each year, helping an increasing
number of young people.
Through its Rathbone Foundation, the Edinburgh
office supported two young people from the local area,
Jennifer and Grant, to attend the Skills for Life program
in the summer of 2019. Jennifer and Grant were both
selected by their teachers as young people with huge
potential. They both completed the course and
benefited enormously from the project.
Jennifer said: “The hardest part of the course was definitely
learning to be more independent and to trust myself more.
There is no way I thought I’d be at the top of Ben Nevis or
jumping off cliffs into water but Outward Bound made me
realise that I can do these things if I put my mind to it.”
Grant said: “This experience has helped me gain confidence
in myself and confidence in trying new things, so I now feel
better pushing my boundaries and also I can now stand
up and speak in front of people, without feeling too nervous.”
We are continuing our partnership with Outward
Bound in 2020 by supporting another young person
on the Skills for Life programme.
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate responsibility report continued
Investing in brighter futures
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 and 2019, Rathbones also piloted a digital reading
programme in schools, in association with The Pigeonhole
(a digital book club) and HarperCollins publishers.
The Rathbones Financial Awareness programme is
another way in which we invest in the future of young
people. Investment managers deliver presentations for
16-to-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 the last six years, the programme
has been delivered to over 10,000 young people.
Rathbones Folio Prize Mentorships
The Folio Academy, over 250 strong, is the group of
outstanding writers and critics who form the Rathbones
Folio Prize’s unique, de facto governing body. With the
launch of the Mentorships programme in 2017, it began
to undertake a more dynamic and wide-ranging role —
and we’re delighted this is continuing into 2020, with
the third year of the Rathbones Folio Mentorships.
First Story, founded by former teacher Katie Waldegrave
and the writer William Fiennes, brings talented, professional
writers into over 70 secondary schools serving low-income
communities, to work with teachers and students to
foster creativity and communication skills.
The first Rathbones Folio Mentorships programme
was launched in September 2017. Four outstanding
First Story students were selected and paired with four
mentors, who are members of The Folio Academy —
AL Kennedy, Kamila Shamsie, Ross Raisin and Evie Wyld.
The four mentors and their mentees met face to face
throughout the 2017/18 academic year, in addition
to corresponding online. The mentees worked on
an agreed writing project, and there was a showcase
event for the public held at the British Library,
at the conclusion of the programme.
The second Rathbones Folio Mentorships
programme paired four more First Story students
with Francesca Beard, Joe Dunthorne, Louise Doughty,
and Adam Foulds. The mentors worked with their
mentees across the 2018/19 academic year on a portfolio
of creative writing, and the showcase event was held
at the British Library on 19 May 2019 with mentees
and mentors sharing the work they’d created with a
public audience.
The Rathbones Folio Mentorship scheme has been
made possible by the generous funding of Arts Council
England and Cockayne Foundation.
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Rathbone Brothers Plc Report and accounts 2019
Environmental impact
Key achievements in 2019
Rathbones completed several important initiatives in
2019, reflecting our continued focus on reducing our
environmental impacts.
Action on energy efficiency
— Energy Savings Opportunities Scheme (ESOS)
compliance: we met the legal requirements of ESOS
phase two in 2019, having assessed the total energy
consumption of our whole operational estate, company-
owned and employee-owned vehicles. We conducted site
audits and more detailed energy profiling of our Liverpool
and Bristol sites, which has helped us to understand the
current energy performance of these two sites in greater
depth and develop a list of energy-saving opportunities
for investment.
— Rolling replacement of LED lighting: where older lighting
systems require repair or upgrade, we are converting to
LED. This will reduce the carbon emissions associated
with electricity usage.
— Review and upgrade of desktop IT: we are rolling out more
energy-efficient hardware. This programme will continue
throughout 2020.
Our approach to taking responsibility
for our impact
Climate action dominated the news in 2019. With the
UK declaring a climate emergency there is growing
pressure for companies to act on this agenda. 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, acting to reduce them. Since 2007,
we have been publicly reporting our environmental
impacts and, since 2017, we have increased the frequency
of our assessments, producing quarterly internal reporting
on our greenhouse gas emissions. This has improved our
ability to monitor and manage year-on-year performance.
Our 2019 carbon footprint
In 2019, we reduced our carbon footprint by 2% with total
emissions down to 2,043 tCO2e (from 2,077 tCO2e) in 2018).
With our total funds under management increasing by 14%
to £50.4billion, our emissions intensity (tCO2e/£bn FUMA)
has correspondingly decreased by 14%. This reflects that,
whilst we are growing, we are doing so in a sustainable way.
With energy from our built estate accounting for nearly half
of our annual emissions, the emissions intensity reduction
is linked to the occupancy of more energy-efficient buildings,
reduced energy consumption across our portfolio and
the continued decarbonisation of UK electricity supplies.
Business travel and other building activities (such as paper,
water and waste activities) account for the remainder of
our emissions.
Total emissions (tCO2e) since baseline year
Emissions breakdown by resource type
)
e
2
O
C
t
(
s
n
o
i
s
s
i
m
e
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
0
2
3
6
,
2
7
7
0
,
2
3
4
0
,
2
2013
(baseline)
2018
2019
Intensity (tCO2e/FUMA £bn)
I
n
t
e
n
s
i
t
y
(
t
C
O
2
e
/
F
U
M
A
£
b
n
)
175
150
125
100
75
50
25
0
2,043
tCO2e
Energy
Travel
Other
987
827
229
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Corporate responsibility report continued
Carbon Disclosure Project (CDP) submission
CDP score
B-
2018: C
In 2019, we continued our policy of voluntary disclosure to
CDP. CDP has raised the standard of global climate disclosure,
encouraging companies to demonstrate transparency,
accountability, measurement and management of their
environmental impacts.
We are pleased to have received a ‘B-’ rating, reflecting our
continued efforts to address climate-related issues across
our business. This is higher than both the financial services
sector and European regional averages. We have improved
our scores for our risk management processes, governance
of climate related issues and reporting of our emissions
according to our CDP scorecard. We understand the
importance of this increased transparency to our investors,
employees and wider stakeholders and will continue
to improve both our action and disclosure surrounding
climate-related issues.
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.
This has delivered the following key benefits
to management:
— 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.
Carbon offsetting programme
While continuing to pursue efforts to reduce our carbon
footprint, we recognise that there is more that can be done
to take action for our residual emissions. Since 2011, we
have partnered with ClimateCare to compensate for our
emissions, through a process known as carbon offsetting.
This is an environmental best-practice mechanism that
enables Rathbones to invest in projects around the world.
These project investments ensure that for each tonne of
carbon we emit, there is one less tonne in the atmosphere
than there otherwise would have been. Offsetting by no
means solves the problem of carbon emissions, but it is a tool
which can be used effectively to act on emissions alongside
effective carbon measurement and reduction strategies.
We chose to partner with ClimateCare because, with over
20 years’ experience, ClimateCare has offset 34.8 million
tonnes of carbon worldwide and improved the lives of
36 million people through working with projects that
deliver value not only for the environment, but also
for communities. Throughout Rathbones’ eight-year
partnership with ClimateCare, we have offset over 21,600
tonnes of carbon emissions by supporting 14 projects that
have reduced global carbon emissions and improved lives.
These projects range from large-scale renewables projects
to the LifeStraw Water Filtration and Gyapa Cookstoves
projects that support health and development objectives
around the world.
To offset our 2019 carbon footprint, we have chosen to
support two high-impact projects which provide clean
energy and improve lives in India. Each of these exciting
projects were selected in line with our support of the
UN’s Sustainable Development goals and are certified
by internationally accredited bodies, including
The Gold Standard.
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Rathbone Brothers Plc Report and accounts 2019
Our solar offsetting programmes
Orb Solar Energy
ACME Solar Project
In rural areas of India, households traditionally use
kerosene as a fuel in the home, as grid supply can
be unreliable. Orb Energy manufactures, installs, and
services a range of high-quality solar energy systems
for commercial and residential customers in India.
The project has distributed over 160,000 reliable solar
power and water heating systems within India over
the past nine years.
When solar energy is used to heat water, typical
household electricity bills are halved. Saving
money on electricity enables individuals to invest
in a better quality of life, through schooling, medicine
and nutrition. Additionally, improved lighting allows
businesses to operate for longer and more consistently,
and lighting at home supports children in their studies.
Energy demand in India is rapidly increasing due to
population growth and rural communities seeking
electricity supply. Currently, this demand is being met
with coal power generation. However, the declining
price of photovoltaic technology places solar power in
prime position to become a leading technology in the
transition from fossil fuels to clean energy sources.
Rathbones’ carbon offset is helping to ensure that the
demand for energy is met with a zero-carbon energy
source. Delivering renewable energy at scale, the
project supports 11 grid-connected solar projects across
India that feed renewable electricity into the national
grid. This innovative programme is launching India’s
first battery swap station for electric vehicle owners
and is delivering 380MW of solar electricity generation
to the Indian grid. As well as delivering significant
carbon emission reductions each year, it is supporting
sustainable development for local communities.
Nearby residents are employed to construct, maintain
and run the large-scale grid solar farms. Additionally,
the resulting infrastructural development in the region
is promoting business and entrepreneurship through
encouraging other suppliers to initiate solar projects.
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate responsibility report continued
Collaborative and empathetic
in dealing with people
Managing wealth responsibly takes
collaboration: with each client, among
colleagues and with professional partners.
What matters is not who’s best but what’s
best for our clients. Empathy brings insight.
It’s important to know what wealth means for
our clients as individuals and for their families
too. It’s our responsibility to understand each
generation’s changing priorities.
“ Empathy helps to build
trust with clients and other
businesses and helps us to
become bigger and better
at what we do.”
Laura McNally
Operational Tax Reporting Administrator,
Liverpool
Compliance with regulations
We continue to work with Carbon Smart to meet and exceed
the greenhouse gas (GHG) emissions reporting requirements
of the Companies Act 2006 (Strategic and Directors’ Reports)
Regulations 2013. We are also aware of our forthcoming
obligations under the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018. In line with our policy of going beyond
compliance, we have prepared this report in accordance
with the requirements for quoted companies under these
new regulations by including our specific energy usage,
energy efficiency initiatives and have split out our global
and UK emissions. Rathbones continues to report all
material GHG emissions across our direct operations.
The methodology used to compile this disclosure is
in accordance with Defra’s Environmental Reporting
Guidelines: Including streamlined energy and carbon
reporting guidance (March 2019) and the World Resources
Institute Greenhouse Gas (WRI GHG) Protocol Corporate
Standard. Rathbones uses an operational control
approach and has included GHG emissions arising from
business activities in the reporting year 1 January 2019
to 31 December 2019.
In August 2018, we completed our acquisition of Speirs &
Jeffrey and in adding an additional office to our portfolio
have rebaselined all years to reflect this accordingly.
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.
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 2019 to 31 December 2019. 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 in its 2019 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 Defra’s
Environmental Reporting Guidelines: Including streamlined
energy and carbon reporting guidance (March 2019) and the
WRI GHG Protocol Corporate Standard principles of relevance,
completeness, consistency, transparency and accuracy.
64
Rathbone Brothers Plc Report and accounts 2019
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, or stated any updates made across
all years. In 2019, emissions were rebaselined to include
Speirs & Jeffrey.
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.
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
Business travel
Data centres2
Paper3
Waste
Electricity T&D4
Total location-based
UK emissions5
Global emissions (excl. UK)5
Total energy consumption (kWh)6
UK consumption (kWh)
Global consumption (excl. UK) (kWh)
Intensity ratio
FUMA (£bn)
Emissions intensity (tCO2e/FUMA £bn)
2013 (baseline)
306
276
30
0
1,424
1,424
902
496
150
117
9
130
2,632
2,609
23
2018
328
328
0
0
680
680
1,069
741
182
81
7
58
2,077
2,055
22
4,748,931 4,117,966
4,045,881
4,678,559
72,085
70,372
2019
322
322
–
–
657
657
1,064
827
135
87
7
8
2,043
2,024
19
4,320,690
4,247,556
73,134
22.0
120
44.1
47
50
41
% change
(2)
(2)
0
0
(3)
(3)
(1)
12
(26)
7
0
(87)
(2)
(2)
(14)
5
5
1
14
(14)
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. Total market-based emissions from 2019 are 2,505 tCO2e
2. Data centre emissions are reported as Scope 3, as per the WRI GHG Protocol
3. Paper emissions have been recalculated and restated for all years using Defra conversion factors to ensure comparability with 2019. This is due to a revision in the underlying
methodology in the conversion factors applied this year
4. Electricity transmission and distribution (T&D) reflects emissions from line losses associated with electricity transmission and distribution
5. Under the new regulation we are required to split our global and UK emissions. Our global emissions (excl. UK) and global consumption (excl. UK) reflect electricity emissions and
consumption (respectively) from our Jersey office. It is not possible to split out travel and allocate to our Jersey office
6. Total energy consumption (kWh) of our Scope 1 and Scope 2 emissions (electricity and natural gas)
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
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.
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.
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 66 constitute the strategic report, which was
approved by the board and signed on its behalf by:
Paul Stockton
Chief Executive
19 February 2020
Jennifer Mathias
Group Finance Director
Non-financial information statement
Reporting requirement
Environmental matters
Some of our relevant policies
Group sustainability policy
Where to read more in the report about our impact
Responsible investing
Employees
Code of conduct
Health and safety policy
Compliance framework policy
Anti-bribery policy
Human rights
Modern slavery policy
Social matters
Code of conduct
Code of conduct
Anti-corruption and anti-bribery
Anti-bribery policy
Conflicts of interest policy
Business model
Non-financial key performance
indicators
Environmental impact
Carbon offsetting programme
Environmental reporting
Leadership and management
development
Diversity and inclusion
Gender pay reporting
Investing in brighter futures
Women in Finance Charter
Modern slavery
Carbon Smart
ClimateCare
Communities
Our business model
Our market and opportunities
Employee relations
Our 2019 carbon footprint
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Rathbone Brothers Plc Report and accounts 2019
Governance
Governance
Corporate governance report
Introduction from the chairman
Governance at a glance
Board of directors
Role of the board
Board and board committee evaluation
Risk management
Relations with shareholders
Workforce engagement
Group risk committee report
Audit committee report
Nomination committee report
Group executive committee report
Remuneration committee report
Remuneration committee chairman’s
annual statement
Remuneration outcomes for 2019
Implementation of remuneration
policy in 2020
Annual report on remuneration
Directors’ report
Statement of directors’ responsibilities in
respect of the report and accounts
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108
112
Corporate governance report
The board strongly believes that robust
corporate governance is essential to
the long-term success of the firm and
the achievement of its strategy.
UK Corporate Governance Code
The board strongly believes that robust corporate
governance is essential 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. Our corporate governance report for
2019, which includes commentaries from me and the other
committee chairs, explains how we applied the principles
of good governance including the new principles and
provisions of the 2018 UK Corporate Governance Code1
(the ‘Code’). The Code places increased emphasis on culture,
purpose and values, which are vital to ensuring long-term
sustainable success.
In light of the introduction of the new Code, the board
has taken the opportunity to review and refresh existing
processes against the provisions of the Code. We have not
had to change our approach to any significant degree, the
emphasis being on articulating better what we do rather
than introducing fundamental change, and we continue
to believe that a strong corporate governance framework
is vital to good decision making and the continued success
of the company.
Nevertheless, we have expanded the responsibility and
scope of the nomination committee to take on greater
responsibility and oversight for the development of the
wider talent pipeline together with diversity and succession
below the group executive committee (GEC) level. These
changes and those for the remuneration committee are
reflected in revised terms of reference which are available
on our website. Also, the board has focused extensively on
the firm’s purpose during the year.
Culture
As a board, we place 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 clients,
colleagues and shareholders over the long term. As a board,
we are responsible for setting the tone and for championing
a healthy, responsible culture that will promote long-term
sustainable success for all of our stakeholders.
1. The Code can be found at frc.org.uk
One of the key responsibilities of the board is to ensure
effective leadership, long-term sustainability of the firm and
creation of value for our stakeholders. The board recognises
that sustainable business success is not possible without a
clear purpose and that good governance is about more than
complying with rules and compliance; it is also about culture,
behaviours and how we service our clients. The board is
therefore committed to ensuring that the firm’s purpose,
values and culture are set by the whole board and
embedded throughout the firm. The executive directors
and management team play an integral role in this, ensuring
that our people understand the firm’s culture and what is
expected of them to achieve our purpose. I believe that this,
together with our strong governance framework, allows the
board to ensure that the whole firm is moving in the right
direction as we develop and execute our new strategy.
An engaged board
With the launch of a new strategy that looks to ensure
long-term and sustainable success for the firm, it is essential
for us to be engaged with all our stakeholders and able to
support and challenge senior management. We also continue
to fulfil our other core duties to oversee the firm’s culture,
governance, financial controls, risk and change management.
This year saw the completion of the board’s executive
director succession plans with Paul Stockton and Jennifer
Mathias being appointed as chief executive and finance
director respectively. The leadership transition and the
handover process went well.
The board has long championed the benefits of diversity
across the firm as well as in the composition of the board.
I am pleased that as at the date of this report, female directors
comprise over 30% of our board membership. As discussed
in the corporate social responsibility report, the firm is taking
steps to continue improving diversity across the organisation
through a variety of initiatives.
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Rathbone Brothers Plc Report and accounts 2019
In order to achieve this goal, the board has continued
to monitor and analyse the firm’s risk culture dashboard
which contains data from clients, employees and other
stakeholders. In addition, non-executives assess the firm’s
culture through informal engagement, branch visits to
teams as well as workforce engagement initiatives that
are discussed on page 78.
Board and committee meetings
During the year, the board held seven scheduled
meetings and met formally and informally on many
occasions. Prior to each scheduled board meeting, I meet
with the non-executive directors to discuss any significant
matters arising from the board papers and focus on 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
who keeps me apprised of progress and key developments.
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.
The board’s five committees continue to play an important
role in the governance of the group and in helping the board
operate effectively and efficiently. Reports from each of
the committees, describing their activities during the year,
are set out later in this report.
Engagement with our employees
In addition to the requirements of the new Code, the board
recognises its obligations under section 172 of the Companies
Act and details of how the board has engaged with its various
stakeholders are provided in the strategic report. With regards
to workforce engagement, the board reviewed the various
mechanisms that could be used to engage with members
of staff and concluded that this was best carried out by two
non-executive directors. Accordingly, Colin Clark and Sarah
Gentleman were appointed as the designated non-executive
directors responsible for workforce engagement. This role will
ensure the views of members of staff are collected and presented
to the board on a regular basis. To ensure this is achieved, a
number of engagement initiatives were put in place across the
firm and details can be found on page 78. In addition, both I and
my non-executive director colleagues use formal and informal
opportunities to talk to members of staff across all offices
and functions which includes regular team visit programmes.
Executive remuneration
Engagement with our shareholders
The board and the remuneration committee continue
to recognise that executive remuneration remains an
important topic and I was pleased that the firm’s Directors’
Remuneration Report (DRR), was approved by 84% at
the AGM last year. Nevertheless, recognising that the
level of opposition to the firm’s DRR had increased, the
remuneration committee agreed to conduct an investor
engagement programme during the year to understand
the concerns of investors. Further details can be found in
the remuneration report.
Board evaluation
This year, in line with the Code, the board conducted an
internal review of its effectiveness and performance. The
review concluded that the board is strong and effective
but some areas can be improved. We will work to consider
opportunities for incremental improvements during the
year ahead. Further details of the evaluation can be found
on page 76.
I and other non-executive director colleagues have been
pleased to meet with a number of our shareholders during
the year and we found these meetings to be most constructive.
They allowed us to provide useful feedback to the whole board.
Looking forward
Following the launch of the firm’s new strategy and purpose,
the board’s focus will be on embedding these initiatives
during 2020. In addition, the board and the remuneration
committee will need to analyse the implications of capital
conservation measures (CRD V) on the firm and the impact
these will have on our remuneration policy going forward.
Finally, the nomination committee will continue to focus
on talent management and succession planning.
This report, in its entirety, has been approved by the board
of directors and signed on its behalf by:
Mark Nicholls
Chairman
19 February 2020
rathbones.com
69
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate governance report continued
Governance at a glance
Corporate governance framework
C hairman
The board
Chaired by Mark Nicholls
C
h
i
e
f
E
x
e
c
u
t
i
v
e
ent Director
d
n
e
p
e
d
n
I
r
o
i
n
e
S
Accountable to shareholders for the
long-term sustainable success of the group.
This is achieved through setting the strategy,
monitoring objectives and providing
oversight of the implementation of these
objectives by the management team.
N
o
n
-
e
x
e
c
u
tive Directors
a n ce Director
G r o u p F i n
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.
Remuneration committee
Responsible for the directors’
remuneration policy and oversight
of the firm’s remuneration strategy.
Group executive committee
Implements the agreed strategy
and oversees the day-to-day
management of the group.
Read more
on page 80
Read more
on page 83
Read more
on page 88
Read more
on page 92
Read more
on page 90
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
— Maintains strong relationships with the chairman,
the board and key shareholders and stakeholders
Group Finance Director
— Oversees the financial position of the group
— Together with the chief executive, leads discussions
with investors
— Responsible for the management of the capital
structure of the company
— Contributes to the management of group’s operation
Non-executive Directors
— Provide constructive challenge to management
performance and strategy
— Contribute to the firm’s strategy
— Provide independent judgement to the board
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
— 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
— Leads the board in the ongoing monitoring and annual
performance evaluation of the chairman
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Rathbone Brothers Plc Report and accounts 2019
Governance
— Implemented the new UK Corporate Governance Code
— Discussed the various workforce engagement
mechanisms and approved the appointment of
two designated non-executive directors
— Approval of new auditors following tender process
— Assessed and oversaw the firm’s culture and how it
was monitored
— Conducted an internal board evaluation
Operational
— Reviewed executive management succession and
transition plans
— Oversight of client data migration from Speirs & Jeffrey
— Assessed the firm’s change management processes and
project delivery
— Assessed and approved 2020 budget and firm’s
regulatory returns
Strategy
Risk management
Performance review
Governance
Operational
40%
10%
20%
20%
10%
Board
activities
discussed
Board activities in 2019
Strategy
— Reviewed and approved the new strategy including
the financial and communication plan
— Reviewed and approved the firm’s purpose statement
and values
— Held strategy day with group executive team to
discuss implementation of the new strategic plan
— Focused on delivery of organic growth initiatives
— Oversight of integrating Speirs & Jeffrey
Risk management
— Approved the firm’s risk framework and appetite
— 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
— Oversight and review of the firm’s whistleblowing
report
Performance review
— Oversaw financial performance against the plan
and market expectations
— Reviewed and approved capital requirements
of the firm
— Approved interim and full-year financial statements,
interim dividend and recommended final dividend
Board structure
Board
tenure
Board
composition
Board
diversity
0-2 years
3-5 years
6-8 years
9+ years
50%
17%
17%
17%
Chairman
Executive directors
Independent non-executive directors
12%
25%
63%
Male
Female
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3
71
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate governance report continued
Our leadership
Chairman
Mark Nicholls
Chairman
Executive directors
Paul Stockton
Chief Executive
Jennifer Mathias
Group Finance Director
Non-executive directors
Jim Pettigrew
Non-executive Director and
Senior Independent Director
(Independent)
Appointment:
01/12/2010
Appointment:
09/05/2019
Appointment:
01/04/2019
Appointment:
06/03/2017
Board committees:
N, Re
Board committees:
E
Board committees:
E
Board committees:
A, N, Re, Ri
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
Audit committee
A
N Nomination committee
E
Re Remuneration committee
Ri
Group risk committee
Executive committee
Bold in biographies indicates
committee chairman
Background and career
Paul was appointed chief
executive in May 2019, having
served as managing director
of Rathbone Investment
Management from May 2018.
He was previously group
finance director from 2008
to April 2019.
Paul qualified as a
chartered accountant with
PriceWaterhouse in 1992,
subsequently taking up a
position in New York before
returning to London in
1996. In 1999 he joined Old
Mutual Plc as group financial
controller, becoming director
of finance of Gerrard Limited
in 2001. In 2005, two years
after the sale of Gerrard,
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
Jennifer Mathias was
appointed to the board
on 1 April 2019.
She began her career on
the Lloyds TSB Finance
graduate scheme following
her graduation in 1995,
and qualified as chartered
management accountant in
1999. At Lloyds, Jennifer held a
number of senior management
roles and worked closely with
the board-level team of the
Lloyds TSB Group, and was
a member of the Corporate
Banking and Wholesale
Finance Executive
Committees. In addition to her
position as a finance director
of Corporate Banking, Jennifer
spent three years as head
of Credit Risk & Compliance
for the Commercial Banking
division of Lloyds TSB. In
2012, she joined Coutts as
the global chief finance officer,
and in 2015, she moved to EFG
Private Bank (UK), where she
was chief finance officer and
deputy chief executive officer.
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, 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
chairman of Miton Group Plc
and RBC Europe Ltd. Jim
was also a non-executive
director of Scottish Financial
Enterprise, 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
Virgin Money UK Plc
(name changed from
CYBG Plc)
72
Rathbone Brothers Plc Report and accounts 2019
James Dean
Non-executive Director
(Independent)
Sarah Gentleman
Non-executive Director
(Independent)
Terri Duhon
Non-executive Director
(Independent)
Colin Clark
Non-executive Director
(Independent)
Appointment:
01/11/2013
Appointment:
21/01/2015
Appointment:
02/07/2018
Appointment:
24/10/2018
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
rathbones.com
Background and career
Sarah was appointed as
a non-executive director
in 2015 and is chair of our
remuneration committee.
She was appointed as a
designated non-executive
director for our workforce
engagement in 2019 along
with Colin Clark.
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. Sarah is also
an adviser to early-stage
technology companies.
Current external non-executive
director roles
None
Background and career
Terri was appointed as
a non-executive director
in July 2018 and is chair
of the risk committee.
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
Limited. She is an Associate
Fellow at The Saïd Business
School at Oxford University
and on the MIT Corporation
Visiting Committee.
Previously, Terri sat on
the boards of CHAPS Co
and UK 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 non-executive
director roles
Morgan Stanley
International Ltd
Morgan Stanley Investment
Management Ltd
Background and career
Colin was appointed as a non-
executive director in October 2018
and a designated non-executive
director for our workforce
engagement programme in 2019.
He is currently chairman of
Merchants Trust Plc and a
non-executive director of AXA
Investment Management SA,
and AXA Investment Managers
UK. Previously, Colin worked
at Mercury Asset Management
and Merrill Lynch Investment
Managers for over 20 years.
In 2004, he was appointed
a non-executive director at
Standard Life Investments, and
in 2010, he was appointed as an
executive director of Standard
Life Investments. He was
appointed to the Standard Life
Plc board as an executive director
with responsibility for the Global
Wealth Group and retired from
this position in 2017. He was
previously a non-executive
director of Alpha Strategic Plc,
and the Royal Marsden NHS
Foundation Trust.
Current external non-executive roles
Merchants Trust Plc
AXA Investment Managers SA
AXA Investment Managers UK
73
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate governance report continued
The role of the board and its committees
The board has collective responsibility for the management,
direction and performance of the company. It is accountable
to shareholders for the creation and delivery of strong,
sustainable financial performance and long-term shareholder
value. In discharging its responsibilities, the board takes
appropriate account of the interests of our wider stakeholders
including clients, employees, regulators and society as a whole.
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 membership, which
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 the 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 group 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.
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
J M Mathias1
R P Stockton
T L Duhon
C M Clark3
Former director
P L Howell2
Meetings attended
(eligible to attend)
7(7)
7(7)
7(7)
7(7)
4(4)
7(7)
7(7)
6(7)
4(4)
1. Jennifer Mathias joined the board on 1 April 2019
2. Philip Howell retired as a director on 9 May 2019
3. Colin Clark was unable to attend one meeting due to prior commitments agreed
ahead of his appointment as non-executive director
Independence
The board, on the recommendation of the nomination
committee, considers that all of the non-executive directors are
independent, including the chairman. 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 executive and 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
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Rathbone Brothers Plc Report and accounts 2019
Professional and high performing
in all our actions
We take our professional responsibilities
seriously. We are accountable for what we do:
to our clients, to each other and to the future.
Investment in our people and the fabric of our
firm renews our culture of high performance.
Never compromising on quality because we
have a responsibility to be here tomorrow.
“ We act with integrity and do the
best that we can in every situation.”
Susie Dingley
Assistant Investment Manager, Lymington
Performance and market positioning
— Review of financial and market performance
— Recent analyst and media coverage
— Budget review
— Analysis of shareholder base and investor perception
— Shareholder engagement
Regulatory environment
— Overview of the group’s key compliance and
regulatory policies
— Recent changes in regulatory landscape and impact
of upcoming regulatory developments
— Hot topics and key priorities
People, culture and values
— Discussion of corporate values 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.
The company secretary assists with the professional development
requirements of the board. In addition, the board receives
mandatory annual training on the following areas:
— Client Assets and Money (CASS)
— Securities and Exchange Commission (SEC) obligations
— Internal capital adequacy assessment process (ICAAP) and
internal liquidity adequacy assessment process (ILAAP)
During the year, the board received presentations on the
impact of the Capital Requirement Directive V (CRD V) 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.
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 comprises 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 with regular reporting to the
nomination committee.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Corporate governance report continued
Board and board committee evaluation
Each year, the board undertakes an annual review of its
effectiveness with an external review taking place every
three years.
The 2019 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
composition, diversity and how effectively members work
together to achieve objectives, as well as key topics such as:
— requirements of the new UK Corporate Governance Code
— oversight of culture
— executive management transitioning
— stakeholder engagement
— long-term succession planning
— effectiveness of the board committees.
Independent Audit Limited provided a report, based on
responses to this questionnaire, which was presented to the
board. The chairman followed up with one-to-one meetings
with each director. Overall, the board effectiveness review
was positive on the following areas:
— board composition and skills
— clarity on the firm’s strategy and purpose
— oversight of the firm’s culture
— positive engagement with the firm’s employees and
other stakeholders
— strong board committees.
Suggestions for improvement included:
— greater focus on development of our people, diversity and
potential talent in the firm, including succession planning
for executives and senior management
— additional focus on the competitive landscape and the
future of the industry
— continuing to focus on the various requirements of
our stakeholders.
The board will conduct 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 discussion 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.
The chairman also conducted a performance review of each
individual director, holding one-to-one meetings to discuss
contribution in and outside the boardroom and any training
and development needs.
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
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, including any
emerging risks, faced by the firm are contained in the risk
management section on pages 40 to 45, 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
76
Rathbone Brothers Plc Report and accounts 2019
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 2019 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.
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.
Investor relations activity in 2019 included the following:
— 2018 year-end results — UK investor roadshow and
analyst presentations
— Q1 trading update — analyst call
— AGM — all directors were available for questions
— 2019 interim results — UK investor roadshow and
analyst presentations
— launch of the firm’s new strategic plan.
During the year, 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. Also, following our 2019 AGM,
a shareholder engagement exercise was conducted to
understand the reasons why a small number of investors
had voted against the Directors’ Remuneration Report.
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 2020 AGM in May this year.
Compliance with the 2018 UK Corporate
Governance Code
In relation to compliance with the 2018 UK Corporate
Governance Code (the ‘Code’), which applies to the
firm, this report together with the directors’ report
states the position as at 19 February 2020. 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 with the
exception of provision 19 relating to the tenure of
Mark Nicholls . The board has reviewed and considered
this new requirement under the Code and believe that
it was important for there to be an orderly succession
following the recent appointments of Paul Stockton
as chief executive in May 2019 and Jennifer Mathias
as group finance director in April 2019. The nomination
committee has started the process to identify and
appoint a successor to the chairman.
Details of how we have applied the main principles of the
Code and further information can be found as follows:
Leadership and purpose
Company’s purpose, corporate values,
culture and strategy
Relations with our stakeholders
Engagement with shareholders
Workforce engagement
The role of the board and its committees
Division of responsibilities
The chairman
Non-executive directors
Operations of the board
Composition, succession and evaluation
Composition of the board
Appointments to the board
Independence
Board development
Board evaluation
Board diversity
Succession planning
Audit, risk and internal control
Financial reporting
Risk management and internal controls
Audit committee and auditors
Remuneration
1 to 20
46 to 47
77
54 and 78
70 to 71
70 to 71
70 to 71
74
74 to 76
74 to 76
74 to 76
74 to 76
74 to 76
74 to 76
74 to 76
85 to 86
40 to 45
83 to 87
Remuneration policy (available on our website)
2019 performance and remuneration outcomes
Annual report on remuneration
92 and 94
92 to 107
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Corporate governance report continued
Workforce engagement with the board
Under the new 2018 Corporate Governance Code, the board is required to agree a mechanism to ensure
ongoing engagement with the workforce. Following a detailed review of this requirement and to ensure
there was effective two-way communication, the board agreed that this would be best carried out by two
non-executive directors and that Colin Clark and Sarah Gentleman be the designated non-executive directors
responsible for gathering employee feedback. The board approved the framework below for this initiative,
which will ensure there is effective ongoing communication with the workforce.
Board
— Listen to the views and
feedback of employees
— Analyse the information
and take into consideration
inputs during its decision-
making process
— Communicate key messages
and actions across the firm
Designated non-executive
directors (NEDs)
— Be identified and accessible
to the workforce
— Communicate the board’s
messages to the workforce
— Ongoing and regular dialogue
with group executive
committee/chief executive on
workforce themes and
challenges from these initiatives
Workforce
engagement
structure
Workforce
— Contribute to engagement
initiatives and provide
feedback to the board
— Collaborate with the
board and NEDs on
implementing initiatives
— Able to influence new
working practices and
processes across the firm
Management of workforce
programme
— Review and analyse workforce
feedback from various initiatives
— Prepare and discuss findings
with designated NEDs and agree
recommendations for the board
— Support in delivering the annual
engagement programme
Employee engagement schedule 2019–2020
2019
2020
2021
Employee
survey
NED branch
visits
NED
drop-in
session
Town hall on
strategy
RIM
Managing
Director’s
blog
Launch
Pulse survey
NED
drop-in
sessions
NED branch
visits
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Q&A with Sarah Gentleman and Colin Clark
Q
A
Q
A
Why has the board decided to appoint two designated
NEDs to better understand the views of employees?
SG: The board decided that appointing two designated
NEDs with differing management experiences gained
across various financial organisations was the best
way to engage with the employees. Colin and I between
us have a strong grasp of board matters and a very good
understanding of the financial industry and the people
who work within it, which has enabled us to reflect the
views of the workforce effectively in the boardroom.
Why is it important to give those outside
the boardroom a stronger voice?
CC: Having worked in a number of financial
companies, my experience has taught me that
listening to people and having an understanding of
their interests and their experience helps the board
make informed decisions. Regular engagement with
the workforce encourages employees to participate
in delivering our strategy and they add value to our
decision-making process.
Q
A
Q
A
How did the workforce respond to the dialogue
sessions held in 2019 ?
SG: The feedback we received was helpful —
employees were open, forthcoming and cared about
the future of the group. A wide range of areas were
discussed, including strategy, culture, leadership,
rewards, training and development. We will continue
to hold a two-way dialogue with our workforce
to improve how we operate and engage with
wider stakeholders.
How will you ensure that employee views are
integrated into board’s decision-making process?
CC: During the year, we have been directly involved in
a range of workforce engagement initiatives, as detailed
above, which have allowed us to ensure the views and
feedback from a range of employees have been reflected
during the board’s decision-making process. We thank all
members of staff who took part in these initiatives, which
will continue in 2020.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Group risk committee report
Group risk committee chairman’s
annual statement
On behalf of the board, I am pleased to present the group
risk committee report as its chairman.
The identification, management and mitigation or
acceptance of risk is essential to the success of the firm.
The group risk committee recognises it has a vital role
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.
Similar to last year, the macroeconomic environment,
political challenges and heavy regulatory agenda
coupled with firm-specific risks have kept the committee
fully occupied.
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 appropriately resourced.
The following sections set out the committee’s responsibilities
and the principal areas of risk upon which we have focused
during the year.
Committee meetings
Our current members are the independent non-executive
directors who met formally on five occasions during the
year and informally once to review some of the inputs to
key regulatory reports.
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 frequently meet with the chief risk officer in a combination
of formal and informal sessions throughout the year. I also
meet with senior management across all divisions of the
group including the risk and compliance division throughout
the year to discuss the business environment and to gather
their views of emerging risks.
The committee has an agreed annual standing agenda to
cover key risk items 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,
which either become ad hoc agenda items or standing
agenda items depending on the issue.
Membership and attendance
Director
T L Duhon (chairman)
C M Clark
J W Dean
S F Gentleman
J N Pettigrew
Meetings attended
(eligible to attend)
5(5)
4(5)
5(5)
5(5)
4(5)
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 significant loss events, complaints 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.
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Rathbone Brothers Plc Report and accounts 2019
We have spent some time this year focusing on the
material that is produced for the committee and the order
of the agenda. While this is still a work in progress, we now
have a standard agenda which starts with the chief risk
officer report which provides an overview of the key risks
impacting the firm and reports on the management actions
and timelines required to address higher-rated risk items.
Next, the committee receives regular reports and presentations
from management on key risk issues like suitability, liquidity
and investment management process. This gives the committee
the perspective of the first line. Finally, the committee looks
at the financial risks that the firm manages such as capital
and liquidity ratios and credit risk. The committee receives a
regular report from the banking committee and also reviews
the inputs, outputs and the process followed to produce key
regulatory reports such as:
— Internal Liquidity Adequacy Assessment Process (ILAAP)
— Internal Capital Adequacy Assessment Process (ICAAP)
— Pillar 3
— Resolution and Recovery
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 2019
This year, given the new strategy, we performed a more
in-depth review of the risk management and risk appetite
frameworks also taking into account lessons learned
from using the frameworks over the past few years.
We reviewed the activities and skillsets of the risk
organisation with the help of an external third party to
provide us with benchmarking and make sure we are
adopting best practice. We will continue to work on
some process enhancements throughout 2020.
During the year, the committee regularly reviewed the firm’s
suitability risks and mitigating actions to ensure progress
and improvement. At each meeting, a progress report was
presented by management that would be reviewed and
challenged by the committee. In addition, the committee
requested a third-party review of the firm’s suitability
programme and monitored at each meeting the areas of
improvement which were implemented by management.
Relative to other UK financial services businesses,
the firm’s potential exposure to 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, with the committee being updated on status and any
changes at each meeting.
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 biannual
updates via a dashboard that sources data and qualitative
commentary relating to clients, colleagues, conduct risk
and investors. 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 in to 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. As a result, the firm
implemented a number of tangible standard operating
processes, developed key structures to support the firm’s
response to a cyber attack and organised regular specialist
training for members of staff. In addition, the committee
receives regular updates from the head of cyber security
about the implementation of the firm’s cyber strategy to
ensure this important risk is managed appropriately.
The committee reviewed the outcomes of the following
spotlight reviews during the year:
— change risk
— operational resilience
— cyber risk.
In relation to the integration of Speirs & Jeffrey, the
committee monitored the key risks of the plan at each
meeting during the year.
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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Committee activity in 2019
In addition to reviewing the risk register and emerging risks at each meeting, the list below summarises
the key issues that the committee considered at each of its meetings during the year in addition to any
other standing reports.
February 2019
— Review of ICAAP operational risk factors
— Monitor progress on suitability and review results
of third party suitability review
— Review the firm’s contingency plans for Brexit
— Monitor anti-money laundering (AML) progress
on a major review project
April 2019
— Discussion and approval of the ILAAP
— Monitor progress on Speirs & Jeffrey integration plans
— Review and consider the firm’s suitability programme
— Review the risks and mitigation plans
— Review of the firm’s change portfolio for the year
— Review the firm’s contingency plans for Brexit
June 2019
— Monitor progress on suitability and
Speirs & Jeffrey integration plans
— Review investment risk procedures
— Review of the firm’s risk culture dashboard
— Review the firm’s contingency plans for Brexit
— Discussion and approval of the ICAAP
— Review cyber plans and progress for the year
and plans for 2020
Looking ahead to 2020
In reviewing the committee’s priorities for the coming year,
consideration will be given to the following areas:
— focus and monitoring of the firm’s liquidity policy for
investment portfolios across the firm
— continued oversight of the firm’s investment processes
and suitability
— continued assessment of the firm’s risk culture and
conduct against the firm’s purpose and values
— continued focus on the development of operational
resilience and continued oversight of the firm’s change
and cyber risks
— increased focus on climate change risk to the firm.
We are committed to the continuing development of
our approach to risk management across the three lines
of defence.
September 2019
— Monitor progress on suitability and
Speirs & Jeffrey integration plans
— Review of the risk management policy
— Review the firm’s contingency plans for Brexit
— Review the recovery plan and triggers
— Discuss and review liquidity risk profiles
November 2019
— Monitor progress on suitability and
Speirs & Jeffrey integration plans
— Approval of risk management policy statement
— Review and consider the firm’s suitability programme
— Review the firm’s contingency plans for Brexit
— Review of the firm’s risk culture dashboard
— Review of remuneration policy and associated
risks with executive remuneration
— Annual approval of the firm’s risk appetite
— Approval of 2019 ICAAP and ILAAP stress
testing proposals
— 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 work through
the results of the third-party review of the second
line activities and organisation.
— Full details of our risk management framework are
included in the strategic report on pages 40 to 45.
Terri Duhon
Chairman of the group risk committee
19 February 2020
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Rathbone Brothers Plc Report and accounts 2019
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 2019, 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 effectiveness of the firm’s systems of internal
controls and have placed particular focus on the transition
to a new external auditor following the tender process
in 2018. 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 judgements 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 16 ‘Leases’
— new audit transition.
Committee meetings
Our current members are the independent non-executive
directors who met on seven occasions in 2019 (2018: seven).
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, group
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 2019,
the audit committee met with the external auditor and
head of internal audit without management present.
These meetings provided an opportunity for any matters
to be raised confidentially.
Membership and attendance
Director
J W Dean (chairman)
C M Clark
T L Duhon
S F Gentleman
J N Pettigrew
Meetings attended
(eligible to attend)
7(7)
6(7)
7(7)
7(7)
6(7)
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 effectiveness of the firm’s internal
controls and of the internal audit function
— Oversee the appointment, performance and
remuneration of the external auditor, including
the provision of non-audit services to the firm
Full terms of reference for the committee are reviewed
annually and are available on the company’s website.
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During the year, I have regular meetings with the group
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 group finance
director and the company secretary.
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 2019
Below is a summary of the key issues that the committee considered at each of its meetings during the year.
February 2019
— Approval of the report and accounts
— Assessment of the report and accounts being fair,
balanced and understandable
— Review of the firm’s distributable reserves and
dividend policy for 2019
— Year-end external audit report and audit opinion
— Review and approval of representation letter
— Review of external auditor’s letter of independence
— Annual review of audit and non-audit fee policy
— Review of internal audit plan for 2019 and completed
assessments across the firm
— Annual review of the whistleblowing report
— Annual review of the whistleblowing policy
— Approval of committee’s terms of reference
October 2019
— Review and approval of the Q3 interim management
statement
May 2019
— Review and approval of the firm’s CASS submission
— Review of internal audit plan for 2019 and completed
assessments across the firm
— Review and approval of the Q1 interim
management statement
— Adoption of IFRS 19 and accounting for
Speirs & Jeffrey
— Ongoing review of auditor transitional arrangements
— Review and approval of the external auditor’s
letter of engagement and audit fee
— Review of internal audit plan for 2019 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 2019
— Approval of half-year report for 2019
— Assessment of the firm’s statement of going concern
— Review of proposed restatement of results
— Review of audit fees for 2019
— External auditor’s half-year review
— Review and approval of representation letter
— Review of external auditor’s letter of independence
— Proposed audit plan for the year end
— Review of the FRC audit quality inspection report
— Review of and input to the development of the
internal audit plan for 2020
— Review of the firm’s ISAE3402 report
November 2019
— Review of key judgements and provisioning for
the year end
— Review of audit and non-audit fees for the year
— Review of internal audit plan for 2019 and approval
of the 2020 internal audit plan
— Review of corporate governance changes for the year
January 2020
— 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 2019 internal audit plan and 2020 internal
audit cycle
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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
to the financial statements.
Fair, balanced and understandable statement
A key focus of the committee is its work in assisting the
board in ensuring that the annual report and accounts,
when taken as a whole, is fair, balanced and understandable
and assessing whether it provides the information necessary
for various stakeholders to assess the firm’s position and
performance, business model and strategy. The committee
considered the key messages in the interim statement
and the report and accounts. 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 viability statement (as set out on page 45) to the
board for approval. The committee also reviewed the going
concern disclosure (as set out on page 110) 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.
Defining cash generating units (CGUs)
for goodwill impairment testing
The committee acknowledged the review of CGUs across
the firm and the conclusion that they should be defined
at a service level rather than a segment level. Although
the group will continue to test goodwill for impairment
at a similar level to which it has done so historically, the
accounting policies make clear that impairment testing
is carried out at the level of a group of CGUs rather than
at subsidiary level.
Review of capitalised software
Following a review of the firm’s IT infrastructure during
the year, it was decided that the development of a number
of IT systems was no longer required. This has resulted in
an impairment charge of £3.1 million being recognised in
profit and loss. The committee has reviewed this impairment
charge and was satisfied that it reflected the reduced value
in use of the systems.
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 31 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 £8.7 million,
which have been summarised in note 28 to the financial
statements. The main areas of provisions relate to the
Speirs & Jeffrey acquisition, deferred payment for acquired
business and client compensation.
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Speirs & Jeffrey consideration
We considered the judgement and estimates made by
management in accounting for the earn-out consideration
payable for Speirs & Jeffrey. In particular, we reviewed and
challenged the estimated level of qualifying funds under
management transfer to the firm as this was a significant
judgement area for management that would lead to a wide
range of potential payouts. The committee regularly reviewed
management estimates of the expected payouts and the profit
and loss charge.
Also, the committee reviewed the restatement relating to
the treatment of the premium recognised on issuance of
the Speirs & Jeffrey initial consideration.
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.
New accounting standard
During the year, the committee reviewed the below
accounting standard that was implemented during the
year and impacted on the financial statements.
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 the committee reviewed the discount rate
which would need to be applied to the future cash flows
and an appropriate borrowing cost was assessed and agreed.
For further information, please refer to note 29 to the
financial statements.
Internal audit
Internal audit function
The internal audit function is an independent and
objective team designed to add value and improve the
firm’s operations by bringing a systematic and 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.
As noted in last year’s report, a tender process was initiated
for a new co-source partner and EY was appointed during
the year. Its role is to assist with audits which require
specialist knowledge and provide support to the internal
audit planning process.
Reporting and performance review of
internal audit
The committee reviews the firm’s combined assurance
map which links the significant risks to first line controls,
second line monitoring and oversight and internal audit
work. The committee has authority to appoint or remove
the head of internal audit, who reports directly to the
chairman of the committee. The chairman of the committee
sets the objectives of the head of internal audit, appraising
her performance against those objectives and recommending
her remuneration to the remuneration committee, with
advice from the chief executive.
Internal audit effectiveness
The committee instructed EY to review the effectiveness of
the internal audit function during the year and assess whether
the function continued to meet key stakeholder objectives.
The review assessed the internal audit function against three
separate standards: the International IIA standards, the UK
Financial Services Certified Institute of Internal Audit Code
and the EY comparison with standards at peer functions
across the wealth management sector. The outcome of
this review indicated that the internal audit function generally
met these professional standards and continued to be effective.
The team is well respected across the firm and has direct
access to the executive team. EY did recommend a small
number of enhancements to the team and its approach that
the committee have discussed with the head of internal audit.
In addition, the committee ensures the internal audit
function has appropriate resources and it provides effective
assurance to the firm.
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.
Internal audit plan
The 2019 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.
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Rathbone Brothers Plc Report and accounts 2019
At each meeting, the committee reviewed the internal
audit reports presented by the head of internal audit and
monitored progress against the 2019 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.
External audit
Audit work 2019
As outlined in my report last year, the committee conducted
an audit tender in 2018 and Deloitte LLP was subsequently
appointed at the 2019 AGM with Manbhinder Rana as the
firm’s lead audit partner. The committee has spent significant
time with management overseeing the transition from KPMG
to Deloitte during the year. In particular, the committee reviewed
the audit plan which outlines Deloitte’s risk assessment
including its proposed materiality level for the performance
of the annual audit. The committee also had the opportunity
to discuss the new auditor’s initial assessment of the firm and
its control environment.
The committee confirms that the company has complied
with the provisions of the Statutory Audit Services Order
2014 relating to the UK audit market for large companies
throughout the year under review and as at the date of
this report.
External audit effectiveness and appointment
The committee will assess the independence, qualification
and effectiveness of Deloitte after the completion of its first
audit. The committee did review the annual FRC Audit
Quality Inspection report prepared on Deloitte and
discussed this report with the audit partner.
Auditor independence and non-audit services
We discussed the independence of the external auditor,
the nature of non-audit services supplied by it 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 2022 following the appointment
of a new auditor. 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.
Non-audit fees, excluding services required by national
legislation, payable to the auditor in 2019 were £224,000.
This represents 45% of the three-year average statutory
audit fee of £495,000.
Prior to undertaking any non-audit service, Deloitte 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 Deloitte 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
Under the new Code, responsibility for whistleblowing sits
with the full board but the committee provides oversight
of the firm’s whistleblowing policy. It is reviewed annually
and the committee approves any changes to the document.
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.
Looking forward
As well as considering the standing items of business, the
committee will also focus on the following areas during 2020:
— continued monitoring of the new internal audit
co-source partner
— Speirs & Jeffrey earn-out consideration.
Approval
In light of its work, the committee was content with the
effectiveness of the group’s processes governing financial
and regulatory reporting and internal controls, its ethical
standards and its relationships with regulators.
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
19 February 2020
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Nomination committee report
Nomination committee chairman’s
annual statement
This report sets out an overview of the Committee’s roles
and responsibilities and its key activities during the year.
The nomination committee’s primary focus this year has
been on implementing the changes required by the new
UK Corporate Governance Code, succession planning, taking
an active role in overseeing talent management and various
diversity initiatives. The committee will play an increasing
role in ensuring the effective operation and development
of the board, executive team and the wider workforce,
which will be important in the delivery of our strategy.
UK Corporate Governance Code
The new 2018 UK Corporate Governance Code (the
‘Code’) introduced a number of significant changes to
the responsibilities of the nomination committee as well
as expanding the reporting requirements to include our
approach to succession planning for both board and senior
management positions and overseeing a diverse pipeline
of talent across the firm. In line with the recommendations
from the Hampton-Alexander review, the nomination
committee will review the gender balance of senior
management and their direct reports. This increased focus
will lead to more consistency in the data reported and
consequently more balanced assessments on whether
the attempts to improve gender equality are succeeding.
The committee terms of reference have been updated to
ensure they are fully compliant with the new Code.
In addition, the new Code has introduced a new provision
relating to the independence of the chair and that their
tenure should not exceed nine years from the date of first
appointment to the board. Thus, in this aspect, the firm is
not in compliance with the Code. I have now served as a
director for more than nine years and, in recognition of this
requirement, Jim Pettigrew, senior independent director,
has started the process to identify and appoint my successor.
Subject thereto, and taking into account the guidance in the
new Code, the nomination committee have assessed and
confirmed my independence and concluded that I shall
remain as chairman to ensure the smooth transition of the
new chief executive and group finance director during 2020
and a orderly handover to my successor in due course.
Succession planning
The committee spent time during the year reviewing
our talent pipeline and considering the firm’s succession
planning at board and senior management level. This
included a formal review by the committee of senior
management succession planning, looking at the capability
and potential of incumbents in key roles and the succession
pipeline, emergency cover arrangements and external
market for those roles.
Membership and attendance
Director
M P Nicholls (chairman)
C M Clark
J W Dean
T L Duhon
S F Gentleman
J N Pettigrew
Meetings attended
(eligible to attend)
2(2)
2(2)
2(2)
2(2)
2(2)
2(2)
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.
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Rathbone Brothers Plc Report and accounts 2019
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 was satisfied by the skillset 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 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
positions. 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.
All non-executive directors will be standing for re-election
at the 2020 AGM.
Board diversity
We aim to have a board that represents a wide range
of skills and experiences and we value a diversity of
outlook, approach and style. A balanced board is better
equipped to consider matters from a broader perspective,
understanding the views of our shareholders as well as
other stakeholders and therefore makes decisions that fully
take into consideration a wide range of issues. A board needs
a range of skills and experience including knowledge of
industry, culture of the firm, challenges of change and
the regulatory environment we operate in. It needs some
members with a long corporate memory and others who
bring fresh insights from other fields and background.
There needs to be both support and challenge on the board
as well as a balance of gender and commercial experience.
When selecting new board members, we take these
factors into account as well as professional background.
A new board member needs to work well with their fellow
colleagues but also be able to provide constructive challenge.
Throughout 2019, over 33% of our Board was female which
ensures that we have exceeded the minimum requirements
of the Hampton-Alexander review. 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.
During the year, the committee has ensured that the firm’s
diversity and inclusion framework was a key element of the
people section of the new strategy. For further information
on our diversity initiatives, please refer to the corporate
responsibility report on pages 55 to 57.
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. Please see
page 76 for more detail.
Looking forward
We will continue to keep under review a succession
timetable for the chairman, executives and non-executives.
We will also monitor the development of management talent
below group executive committee level, encourage greater
diversity and challenge management to develop the talent
that exists in the firm.
Mark Nicholls
Chairman of the nomination committee
19 February 2020
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Group executive committee report
Executive committee
chairman’s annual statement
The group executive committee’s (GEC) 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.
Following the retirement of Mike Bolsover (head of
strategy and organisation development) in December 2019,
and the upcoming retirement of Andrew Butcher (chief
operating officer) later this year, the firm will be welcoming
Andy Brodie as our new chief operating officer (subject
to regulatory approval) in the second quarter of 2020.
On behalf of Rathbones, I would like to thank Mike and
Andrew for their valuable contribution to the firm and
wish them well in their retirements.
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 and prioritise key issues and themes 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 2019 were as follows:
— preparation and approval of the firm’s strategic plan and
purpose statement
— implementation of planned enhancements to our
investment process and development of relevant policies
— review and analysis of the employee survey results
— review and development of distribution channels
— contingency plans for Brexit
— ongoing review of the firm’s change programme
— review of investment processes and development of
the client journey
— approval of the firm’s diversity champion and initiatives
— review and approval of the firm’s regulatory documents
— review and approval of the firm’s responsibility map
Membership and attendance
Director
R P Stockton (chairman)
R N K Baron
M T Bolsover
J A Butcher
I D Darnley
J E Mathias1
A T Morris
S Owen-Jones
R I Smeeton
M M Webb
Former member
P L Howell
1. Jennifer Mathias joined the GEC on 1 April 2019
Roles and responsibilities
Meetings attended
(eligible to attend)
12(12)
11(12)
11(12)
12(12)
11(12)
9(9)
11(12)
11(12)
10(12)
10(12)
3(4)
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 12
to 17. Biographies for the group executive committee
members are available on our website.
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Rathbone Brothers Plc Report and accounts 2019
Executive committee members
Our current members and their responsibilities are below.
Paul Stockton
Chief Executive
Jennifer Mathias
Finance Director
Rupert Baron
Head of Investment
Management in London
Andrew Butcher
Chief Operating Officer
Ivo Darnley
Head of Specialist
and Charity Business
Andrew Morris
Head of Investment
Management outside London
Sarah Owen-Jones
Chief Risk Officer
Richard Smeeton
Head of Investment
Management Special
Projects and Recruitment
Mike Webb
Chief Executive Unit Trusts
and Head of Group Marketing
and Distribution
— review and assessment of the annual budget
— monitor the integration of Speirs & Jeffrey and client
migration process.
Our people are our main asset and HR matters as well as
learning and development are important agenda items
that are discussed at each meeting. 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 by the GEC.
In managing and minimising our risk, 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,
business continuity and investor relations.
Overview of priorities for 2020
As well as considering the standing items of business, the
committee will also focus on the following areas during 2020:
— implementing the firm’s strategic plan
— leveraging the Speirs & Jeffrey acquisition
— continuing to engage with employees
— developing our diversity initiatives and succession
planning across the firm
— seeking inorganic opportunities for growth that fit
our culture
Paul Stockton
Chairman of the executive committee
19 February 2020
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Remuneration committee report
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 2019.
During 2019, we welcomed Jennifer Mathias to the board
as group finance director (appointed in April 2019) and
Paul Stockton was promoted to chief executive (appointed
in May 2019), following the retirement of Philip Howell. The
remuneration arrangements for all three individuals were fully
disclosed in last year’s remuneration report and there have
been no further material changes to their remuneration in 2019.
2019 performance and remuneration outcomes
Our remuneration framework for our executive directors
is closely aligned with the financial performance of the
firm and in 2019 we saw the first full year in which the
acquisition of Speirs & Jeffrey (S&J) has been reflected
in the firm’s results. The integration of the S&J business
is on track and we have provided a progress update
in the chief executive’s report. The firm’s funds under
management and administration reached £50.4 billion
at 31 December 2019 and profit before tax was £39.7 million
with underlying profit before tax of £88.7 million which
represents an underlying operating margin of 25.5%.
As noted above, the firm’s results were impacted by an
unplanned increase of 66% in the FSCS charge for 2019 and
also a software impairment charge. These items have been
included in the financial outcomes for the 2019 EIP award.
For further details on the financial performance of the firm,
please see page 26.
Executive Incentive Plan (EIP) outcomes
The EIP performance metrics are chosen by the committee
as key indicators of performance used by the firm and
investors. The committee reviews the specific metrics on
an annual basis at the beginning of each financial year to
ensure the nature and weightings are appropriate to ensure
alignment between the interests of our executive directors,
our strategy and the interests of our stakeholders. These
targets are set to encourage stretching levels of performance
and to align with the firm’s annual budget. We indicated to
the market a year ago that following a number of successful
acquisitions over the last few years, a number of investments
relating to our IT infrastructure were required for the
long-term benefit of the firm. The board considered these
factors when setting and approving the final budget for 2019,
resulting in the remuneration committee approving slightly
lower targets for the one-year financial elements of the EIP
than in 2018. The committee was comfortable that these
targets were equally as stretching as those in previous years
and ensured the three-year financial targets, which account
for half of the overall award, remained unchanged and
will also be unchanged for the 2020-2022 EIP cycle. In
addition, good progress was made during the year on the
non-financial objectives which address the firm’s critical
projects, stakeholder measures and client experience.
Membership and attendance
Director
S F Gentleman (chairman)
C M Clark
J W Dean
T L Duhon
M P Nicholls
J N Pettigrew
Meetings attended
(eligible to attend)
4(4)
4(4)
4(4)
4(4)
4(4)
3(4)
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.
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Rathbone Brothers Plc Report and accounts 2019
Given the strong alignment between our remuneration
framework and the financial performance of the firm,
the financial outcomes for 2019 are directly reflected in
the respective elements of the EIP. As reported in last year’s
directors’ remuneration report, we explained how we had
to make some adjustments to our statutory results for
EIP purposes in order to fairly reflect the S&J transaction.
In summary, the board approved that the acquisition
be de-risked by ensuring a substantial proportion of the
consideration paid for S&J was deferred and subject to
the sellers remaining in employment. This meant that
the deferred consideration was treated as an expense in the
profit and loss accounts rather than as a capital payment and
was therefore at odds with the commercial substance of the
transaction. As a result, the basic earnings per share (EPS)
and return on capital employed (ROCE) figures have been
adjusted to fairly reflect this situation, exactly as outlined
last year. There have been no further adjustments to the EIP.
The EIP vesting outcome for 2019 was 47% and the overall
pay out level was lower than in 2018, which reflects the
financial measures and overall business performance for
the year. We have set out in more detail the EIP results
for 2019 on page 100.
Jennifer Mathias’ EIP award for 2019 has been pro-rated to reflect
the fact that she joined the firm part way through the year.
Shareholder engagement in 2019
Our 2019 directors’ remuneration report was supported
by 84.3% of our investors. The committee remains keen
to understand the concerns of shareholders who voted
against the remuneration report and how the committee
could address these concerns in the future. Following
my meetings with our major shareholders who voted
against the remuneration report I would like to thank them
personally for their time and engagement. I was pleased to
be able to explain further the rationale for the decisions the
remuneration committee made last year in order to address
their concerns and I was encouraged by the response of
those shareholders I spoke to.
Fees and salaries
The 2020 budget for salary increases for employees
across the firm was set at around 3.3%. In setting directors’
remuneration, the committee takes into account workforce
pay and policies as per the Code, the firm’s performance and
the views of shareholders. Also, the remuneration arrangements
of other firms of similar size and complexity are reviewed
for guidance. However, due to both Paul Stockton and
Jennifer Mathias’ short time in their respective roles, the
committee decided not to award an increase in base salary.
Both executive directors remain 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. Full details of remuneration
arrangements are provided on page 98. The non-executive
directors’ fee was reviewed and increased in the year. Full
details of the change to this fee can be found on page 101.
Workforce engagement 2020
Following my appointment in 2019, Colin Clark and I, as the
designated non-executive directors for the firm’s workforce
engagement, are looking forward to engaging with our
workforce further and seeking to understand their views
on remuneration. Further details are set out on page 78.
Looking forward
During the year, the Capital Requirements Directive V (CRD V)
regulations were being finalised and may have a significant
impact on remuneration at the firm from 2021 onwards. Based
on our current understanding the most significant change
is likely to be the introduction of a cap on variable remuneration
of 100% of fixed pay or 200% with shareholder approval. This
would have an impact on both our executive directors, where
the maximum EIP is 300% of salary, as well as many other
key employees who participate in a variety of incentive plans.
The committee has therefore been considering the impact
that CRD V may have on the remuneration of all our staff.
For executive directors significant changes may be needed
to our next remuneration policy in 2021. The committee has
begun to assess what changes may be appropriate and we
will consult with shareholders on this topic during 2020.
The committee will of course be reviewing the remuneration
policy in full, but we are pleased that in many ways our
current remuneration policy is already in line with investors’
expectations and the UK Corporate Governance Code. There
are, however, some areas where our current policy is not fully
aligned with the latest investor guidelines. For example, we
introduced a post-cessation shareholding requirement policy at
the start of 2018, being one of the first FTSE350 companies to do
so. However this policy is not in line with the latest guidelines to
hold 100% of the in-role shareholding requirement for two years
post departure. Similarly, our maximum pension contribution
for executives is 12% of salary, which is already one of the lowest
in the FTSE350, however this is slightly higher than the rate
offered to the majority of the workforce. As such the committee
will be reviewing all of these factors and the latest investor
guidance as we commence our policy review in 2020.
Conclusion
I hope that you find the information in my annual
statement 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
19 February 2020
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Remuneration committee report continued
Remuneration outcomes for 2019
Through a personalised approach to investment management, we offer a compelling and attractive way to build value.
Our remuneration
philosophy
Overview of our 2019
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
Executive Incentive Plan
— 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 97
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Rathbone Brothers Plc Report and accounts 2019
Executive Incentive Plan
performance targets
Executive Incentive Plan
achievement summary 2019
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%
6.1%
0%
4.1%
20% 14.4%
One-year
measures
EPS growth
Underlying ROCE average
% of award
Achieved
25%
25%
9.2%
13.1%
Three-year
measures
Remuneration outcomes (£’000)
.
8
1
X
8
X
,
1
X
X
8
8
2
,
1
5
2
1
,
1
4
9
4
9
3
0
,
1
1
5
7
8
5
6
9
1
3
Paul Stockton
Jennifer Mathias
Minimum
Target
Maximum
Actual
Minimum, target and maximum figures for Jennifer Mathias are based
on the pro-rated amounts for 2019 and do not represent her annual
opportunity going forward
rathbones.com
95
Strategic reportGovernanceCompany financial statementsConsolidated financial statements Remuneration committee report continued
Implementation of remuneration
policy in 2020
How the implementation of our policy in 2020 supports our strategic priorities
Financial — one-year
Financial — three-year
Non-financial strategic
— Annual profit before tax
— Total net organic growth
— EPS growth
— Underlying ROCE
in funds under
management and
administration (FUMA)
— Underlying operating
margin
average
Executive Incentive
Plan (EIP) measures
Strategic target
Weighting
30%
50%
20%
Enhancing the client and adviser proposition
and experience
Supporting and delivering growth
Inspiring our people
Operating more efficiently
For more detail, see pages 10 to 11
How does the EIP work and how will performance be assessed for 2020?
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.
2018
2019
2020
2021
2022
2023
2024
2025
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
F
i
%
0
8
-
n
o
N
l
a
i
c
n
a
n
i
f
s
e
r
u
s
a
e
m
%
0
2
96
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 2019
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 2020 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.
Committee activity in 2019/20
Below is a summary of the key issues that the committee considered at each of its meetings during the year.
January 2019
— Assess and approve the 2018 EIP award for executive
directors and members of the executive committee
December 2019
— Review and approve executive director and GEC
members’ salaries for 2019
— Review and approve EIP performance measures
— Review progress against financial and non-financial
for 2019
EIP targets for 2019
— Review and approve the directors’ remuneration
— Review and approve the company secretary’s salary
report for shareholder approval
for 2020
April 2019
— 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 regulatory developments on remuneration
and their implications for the firm
September 2019
— Annual review of the remuneration policy statement
for the PRA
— Review regulatory developments on remuneration
and their implications for the firm, including
CRD V implications
— Review and approve the committee’s terms
of reference
— Re-appointment of the advisers to the committee
February 2020
— Review annual risk report on variable pay targets
to ensure alignment with the firm’s risk appetite
— Review information on wider workforce pay
including salary budgets and forecast incentive
outcomes for 2019
— Assess and approve the 2019 EIP award for executive
directors and members of the executive committee
— Approve EIP performance measures for 2020
— Review and approve the firm’s CEO to employee
pay ratio
— Review remuneration landscape and implications
— Review and approve the directors’ remuneration
for executive remuneration
— Initiate a shareholder consultation on executive
remuneration
— Review progress against financial and non-financial
EIP targets for the current year
report for shareholder approval
C
o
m
p
a
n
y
f
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
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 2019 and the prior year:
Taxable
benefits and
allowances
£’000
Salary £’000
R P Stockton
2019
2018
J E Mathias1
2019
P L Howell
2019
2018
441
353
240
172
477
2
6
1
1
2
EIP award
for the year
– cash
£’000
EIP award
for the year
– unvested
deferred shares
£’000
248
251
373
376
Other
£’000
–
–
50
135
203
-
–
108
339
163
509
Pensions
£’000
SIP £’000
SAYE £’000
Total £’000
53
42
29
21
57
4
5
–
2
5
4
–
–
–
–
1,125
1,033
658
467
1,389
1. Jennifer Mathias received a £50,000 award as part of her recent appointment in lieu of forfeiting a cash bonus from her previous employer on joining the firm. She received
no further buy-outs as part of her appointment
Notes to the single total figure of remuneration for each director table (audited)
Paul Stockton was appointed chief executive on 9 May 2019 and, at this point, his base salary was increased to
£477,000 per annum. His base salary in the above table is the salary received in the 12 months to 31 December 2019.
Jennifer Mathias joined as group finance director on 1 April 2019. Her base salary in the above table is the salary received
in the nine months to 31 December 2019. Her annual salary is £320,000 per annum. Philip Howell retired on 9 May 2019
as chief executive of the firm. His base salary is the salary received during January 2019 to May 2019.
Taxable benefits
Taxable benefits and allowances represent the provision of private medical insurance for executive directors and their
dependants and contractual travel expenses for the executive directors.
Executive Incentive Plan
The Executive Incentive Plan (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 2019
Performance is assessed using a combination of measures that are detailed below:
One-year financial
Three-year financial
Non-financial strategic
Total
Weight %
30
50
20
100
% of base salary
90
150
60
300
1) One-year financial
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:
% 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 one-year
Annual profit before tax (£m)
Total net organic growth in
funds under management
and administration (%)
Underlying operating
margin (%)
30.0
57.3
63.7
70.1
39.7
63.8
18.3
30.0
30.0
90.0
2.5
24.8
5.0
26.3
6.5
27.8
0.8
0.8
25.5
25.5
0.0
12.3
30.6
98
Rathbone Brothers Plc Report and accounts 2019
The organic growth in funds under management and administration covers both our Investment Management
and Unit Trusts businesses.
2) Three-year financial
The three-year financial performance measures and achievement levels are provided below:
% of base salary
Threshold 75%
of base salary
On target 180%
of base salary
Maximum 300%
of base salary
Actual
Speirs & Jeffrey
adjusted1
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
(13.9)
16.6
5.7
16.3
27.6
39.3
66.9
97.5
1. The adjustments for Speirs & Jeffrey are disclosed on page 93, and in further detail in last year’s directors’ remuneration report. The key adjustment impacting the EIP outcomes
for 2019 is the costs in relation to deferred consideration payable to the sellers of Speirs & Jeffrey. As a means of de-risking the transaction, these payments are subject to the
sellers remaining in employment until the end of the deferral period and are therefore treated as an expense under accounting standards. For the purposes of assessing the EIP,
costs of £24.1million have been reclassified as a capital item (as if paid upon completion of the transaction), to more fully reflect the commercial substance of the transaction
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:
Objective
— Complete industry standard
Performance in 2019
— Client survey results received from an
Extent to which objective
has been met
Largely achieved
Strategic
objective
Quality
service
client survey
— Integrate Speirs & Jeffrey and
ensure successful migration
of clients to Rathbones
— Upgrade systems to support
the firm’s suitability programme
— Continue to build the firm’s
financial planning capabilities
Earnings
growth
In addition to the financial targets
set for 2019:
— Launch the Rathbones
Select product
— Deliver growth in Rathbone Unit
Trust Management, distribution
and Vision Independent Financial
Planning (‘Vision’)
— Continue to ensure engagement
and development of employees
across the firm
Employee
value
Risk
conduct and
compliance
— Maintain a proactive and
effective relationship with
regulators, committing to
maintaining high standards
in managing conduct and
prudential matters
independent third party indicated the firm
scored above the industry average in all KPIs
— Successful Speirs & Jeffrey integration process
with all clients migrated to Rathbones’ systems
— Some challenges with implementing a system
to support the firm’s suitability programme
— Financial planning capability grew as planned.
Client service delivery times have materially
improved over the last three years
— Progress made on the Rathbone Select
project with the design complete
— The Unit Trusts business had an exceptional
year with gross inflows of £2.3 billion
— Vision delivered strong funds under
management of £1.9 billion
— Inflows from our distribution team and
IFA networks increased to £255 million
Largely achieved
— A positive engagement score of 86%
Achieved
in the employee survey
— High-quality training for employees
— Low levels of staff turnover with voluntary
attrition levels below the EIP threshold of 7%
— Level of employee share ownership increased
to 8% of total holding
— High levels of staff engagement at the firm’s
strategy ‘town hall’ meetings
— Positive relationship with regulators with
numerous responses to industry thematic
questionnaires
— Operational risk issues were managed
effectively during the year
Achieved
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Remuneration committee report continued
Total 2019 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 14.4% out of 20% was appropriate, which corresponds to 43.2% of base salary.
Target
Financial — one-year total
Financial — three-year trailing
Non-financial strategic measures
Total award
Director
R P Stockton
J E Mathias
P L Howell
Weighting
30%
50%
20%
100%
Award achieved
10.2%
22.3%
14.4%
46.9%
Total award
(£)
620,700
337,700
270,900
Delivered in cash
(£)
248,300
135,100
108,400
Deferred in shares
(£)
372,400
202,600
162,500
Pensions
Paul Stockton and Jennifer Mathias 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 2019 (£’000)
8
1
8
,
1
8
8
2
,
1
4
9
4
1
2
1
,
1
9
3
0
,
1
1
5
7
9
1
3
8
0
6
Paul Stockton
Jennifer Mathias
Minimum
Target
Maximum
Minimum, target and maximum figures for Jennifer Mathias are based
on the pro-rated amounts for 2019 and do not represent her annual
opportunity going forward
100
Rathbone Brothers Plc Report and accounts 2019
Payments for loss of office (audited)
There were no payments made to directors for loss of office during the year except as disclosed in last year’s annual report.
Payments to past directors (audited)
As announced on 27 November 2018, Philip Howell retired from the board on 9 May 2019 and details of his outstanding
EIP awards were disclosed in last year’s annual report and will continue to vest at their normal time. These awards have
been fully disclosed in the single total figure of remuneration tables in the relevant years. There have been no other
payments to past directors.
Implementation of the remuneration policy in 2020
In 2020, the remuneration policy will be applied in a similar way to 2019.
EIP 2020 — forward-looking targets
The 2020 EIP (which will be awarded in 2021), 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 2020 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 2021.
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 2020-22 award period have accordingly been set as outlined in the table below:
Performance measure
Three-year CAGR EPS
Three-year underlying average ROCE
Non-executive director fees
Threshold
5%
14%
Maximum
15%
20%
The non-executive director fees were reviewed in the year and it was agreed to increase the base fee from £55,000 to £60,000
from 1 January 2020. It was agreed to maintain the chairman’s fee and committee chair fees.
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements 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:
Beneficially owned shares
Subject to relevant holding period
Executive directors
R P Stockton
J E Mathias
P L Howell
Total
Private shares
74,126
–
47,437
121,563
SIP1
3,070
–
–
3,070
Total
77,196
–
47,437
124,633
EIP
34,422
–
50,650
85,072
SIP (not yet
beneficially
owned)1
563
–
–
563
SAYE
958
–
–
958
Total
35,943
–
50,650
86,593
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.
Share ownership versus policy
J E Mathias
R P Stockton
115%
534%
0%
200%
400%
600%
Beneficially owned
Conditional
Remuneration policy
Executive Incentive Plan
At
1 January
2019
During 2019
At 31 December 2019
Face value of
award at
grant1
(£)
Number of
securities
originally
granted
Number of
unvested
securities
Securities
granted2
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
272,722 12,229
7,339
232,105 10,103
8,082
226,485
8,864
8,864
–
–
–
2,445
4,894
7,335 22/03/2021
2,021
6,061
4,042 21/03/2022
1,773
7,091
1,773 23/03/2023
376,157 16,376
–
16,376
–
16,376
– 22/03/2024
434,670 19,491 11,695
365,201 15,897 12,718
356,357 13,947 13,947
–
–
–
3,898
7,797
11,694 22/03/2021
3,179
9,539
6,358 21/03/2022
2,789
11,158
2,789 23/03/2023
508,923 22,156
–
22,156
–
22,156
– 22/03/2024
Executive directors /
Grant date
R P Stockton
22/03/2016
22/03/2017
23/03/2018
22/03/2019
P L Howell
22/03/2016
22/03/2017
23/03/2018
22/03/2019
Type of security
Nil paid
options
Conditional
shares
Conditional
shares
Conditional
shares
Nil paid
options
Conditional
shares
Conditional
shares
Conditional
shares
1. Exercise price is nil
2. The number of shares awarded is calculated based on the 20-day average share price on the day prior to grant. Share price on award was £22.97
3. Awards vest in five equal tranches (1, 2, 3, 4 and 5 years from grant). All shares must be held until the fifth anniversary of the grant (the normal exercise date).
There are no further performance conditions on these shares
102
Rathbone Brothers Plc Report and accounts 2019
Share Incentive Plan
R P Stockton
J E Mathias
P L Howell
Total
At 1 January 2019
During 2019
Total number of
SIP shares1
3,369
–
1,189
4,558
Partnership
shares acquired
81
–
32
113
Matching shares
acquired
81
–
32
113
Dividend shares
acquired
102
–
22
124
At 31 December
2019
Total number of
SIP shares1
3,633
–
–
3,633
Free shares
received
–
–
–
–
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
Executive directors
R P Stockton
J E Mathias
P L Howell
Total
Grant date
28/04/16
28/04/17
18/04/19
01/05/14
28/04/15
At 1
January
2019
273
710
–
–
578
365
1,926
Number of shares
Granted
in 2019
–
–
248
–
–
–
248
Exercised
in 2019
273
–
–
–
578
298
1,149
Lapsed
in 2019
–
–
–
–
–
67
67
Scheme interest awarded in the year
At 31
December
2019
Earliest
exercise date
Latest exercise
date
– 01/06/19 01/12/19
710 01/06/20 01/12/20
248 01/06/22 01/12/22
–
– 01/06/19 01/12/19
– 01/06/20 01/12/20
958
Market price
on grant (p)
2,059
2,373
2,266
Exercise price
(p)
1,648
1,899
1,813
1,945
2,051
1,556
1,641
The table below details the grant of share awards without performance conditions that were made to Jennifer Mathias on
10 May 2019 as part of her appointment, in relation to remuneration she would have forfeited from her previous employer.
Subsequently, Jennifer waived her rights to this award on 5 August 2019 and will not benefit from this plan in the future.
Executive director
J E Mathias
Total
Type of award
Nil cost options
Grant date
10/05/19
10/05/19
10/05/19
Number of
ordinary shares
granted1
Lapsed award
Awards waived
by Jennifer
Mathias
389
2,223
1,719
4,331
389 05/08/19
2,223 05/08/19
1,719 05/08/19
4,331
1. Ordinary shares of 5p each were granted. The share price on the grant date, 10 May 2019, was £23.35, which has been used to calculate the face value above
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Remuneration committee report continued
Performance graph
The chart below shows the company’s total shareholder return (TSR) against the FTSE All Share Index for the 10 years to
31 December 2019. 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)
200
150
100
50
0
-50
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Rathbone Brothers Plc — TSR
FTSE All Share Index — TSR
Chief executive officer single figure
During the 10 years to 31 December 2019, Andy Pomfret was chief executive until 28 February 2014. Philip Howell was
chief executive until 9 May 2019 when he was succeeded by Paul Stockton.
Year
2019
2019
2018
2017
2016
2015
2014
2014
2013
2012
2011
2010
Chief executive
Paul Stockton
Philip Howell
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
1,125
467
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
47
52
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 2019 for the chief executive
compared with the average Rathbones employee.
Chief executive1
Average pay based on all Rathbones employees
1. Chief executive salary excludes Philip Howell’s payment in lieu of notice of £293,631
Salary
(0%)
(4%)
Benefits
18%
3%
Annual bonus
(16%)
7%
104
Rathbone Brothers Plc Report and accounts 2019
Chief executive and employee pay ratio
Year
1 January to 31 December 2019
Method
B
25th percentile pay ratio
42:1
Median (50th percentile) pay ratio
23:1
75th percentile pay ratio
13:1
The chief executive pay ratio provides a comparison of total remuneration paid to the chief executive in the year ended
31 December 2019 with total remuneration paid to the three employees whose pay is at the 25th, 50th and 75th percentile
of the group’s UK workforce (P25, P50 and P75 respectively). Where multiple employees are at these percentiles we have
selected the most representative job role from across the group.
The pay data for the chief executive is taken from the total single figure of remuneration on page 98 of this report for both
Paul Stockton and Philip Howell for the year ended 31 December 2019, apportioned as appropriate. The three employees
have been identified from our 2019 gender pay gap data under ‘Option B’ of the three methodologies provided under the
regulations, as the equivalent figures to the single figure table for each of the group’s UK employees (‘Option A’) are not
available at the time of producing this report.
Total pay for P25, P50 and P75 has been based on actual earnings for the nine months to 30 September 2019, projected
forward for the remainder of the financial year. Variable remuneration has been calculated using the group’s forecast
financial performance. Total pay and benefits for the three employees includes the following: base salary, employer
pension contributions, taxable benefits, bonuses, share-based payment awards and profit share. The total pay and
benefits for these individuals is as follows:
— P25 42:1 (£30,161)
— P50 23:1 (£52,142)
— P75 13:1 (£110,100)
The group believes the median pay ratio for the year to be consistent with the group’s pay, reward and progression policies
for its UK workforce.
The committee will review these ratios on an annual basis.
Chairman and non-executive directors’ fees (audited)
Fees paid to the non-executive directors were 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
T L Duhon
C M Clark
Total
2019
£’000
180
70
70
70
70
55
515
2018
£’000
160
60
60
60
28
9
377
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Remuneration committee report continued
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
J N Pettigrew
Total
Private shares
SIP
Total
3,000
–
1,000
–
–
–
4,000
749
–
–
–
–
–
749
3,749
–
1,000
–
–
–
4,749
Relative importance of spend on pay
The chart below shows the relationship between total employee remuneration, profit after tax and dividend distributions for
2019 and 2018. 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)
18%
6
.
7
7
1
1
.
1
5
1
.
X
X
X
X
180
150
120
90
60
30
0
42%
2
.
6
4
9
.
6
2
10%
0
.
6
3
7
.
2
3
Total staff
costs
Profit after
tax
Dividends
paid
2019
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
2019 AGM, shareholders also approved the remuneration report that was published in the 2018 report and accounts and the
results are detailed on the opposite page.
106
Rathbone Brothers Plc Report and accounts 2019
534%
Votes on remuneration
Remuneration
policy
(2018 AGM)
115%
Annual report
on remuneration
(2018 AGM)
Annual report
on remuneration
(2019 AGM)
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
(2019 AGM)
84.33%
15.67%
82.41%
348,910
Annual report on
remuneration
(2018 AGM)
86.91%
13.09%
79.20%
409,995
Remuneration
policy
(2018 AGM)
85.07%
14.93%
79.17%
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 £82,450 in 2019. 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
19 February 2020
rathbones.com
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements
Directors’ report
The directors present their report for the year ended 31 December 2019.
The directors’ report includes the following sections of the annual report and accounts which forms part of the
directors’ report:
Section
Strategic report
Financial statements
Responsibility statements
Corporate governance statements
DTR Rule
DTR 4.1.5R
DTR 4.1.5R
DTR 4.1.5R
DTR 7.2
Page
1 to 66
114 to 190
112
68
Statement by the directors under section 172 Companies Act 2006
in performance of their statutory duties
Directors consider that they have acted in the way they consider, in good faith, would be most likely to promote the success
of the company for the benefit of its members as a whole, and in doing so having regard to the stakeholders and matters set
out in section 172(1)(a-f) of the Act in the decisions taken during the year ended 31 December 2019. This is demonstrated in
the strategic report on pages 45 to 46.
Annual General Meeting (AGM)
The 2020 AGM will be held on Thursday 7 May 2020 at 2pm at 8 Finsbury Circus, London EC2M 7AZ. Full details of all
resolutions and notes are set out in the separate notice of AGM.
Group results and company dividends
The Rathbone Brothers Plc group profit after taxation for the year ended 31 December 2019 was £26,923,000
(2018: £46,169,000).
The directors recommend the payment of a final dividend of 45.0p per share, if approved by shareholders at 2020 AGM,
be paid on 12 May 2020 to shareholders on the register on 24 April 2020.
Interim dividend
Final dividend
Total
* Subject to shareholder approval at the AGM on 7 May 2020
See note 14 to the financial statements.
2019
Pence
25.0
45.0*
70.0*
£m
13.5
24.2*
37.7*
2018
Pence
24.0
42.0
66.0
£m
13.1
22.4
35.5
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.
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Substantial shareholdings
As at 31 December 2019, the company had received notifications in accordance with the Financial Conduct Authority’s
Disclosure and Transparency Rule 5 of the following interests:
Shareholder
Lindsell Train Ltd.
Mawer Investment Management Ltd.
Heronbridge Investment Management
MFS Investment
Aviva Investors
Kabouter Management
Baillie Gifford & Co
Share capital
Holding at
19 Feb 2020
7,844,197
5,111,142
2,830,266
2,811,874
1,885,852
1,847,260
1,823,853
% held at
19 Feb 2020
14.92
9.07
5.02
4.99
3.35
3.28
3.24
The company’s share capital comprises one class of ordinary shares of 5p each. At 31 December 2019, 55,361,986 shares were
in issue (2018: 55,206,957). No shares were held in treasury. Details of the movements during the year are set out in note 32
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 18,413,870 shares
(approximately one third of the issued share capital at 31 March 2019). The existing authorities given to the company
at the last AGM to allot shares will expire at the conclusion of the forthcoming AGM. Details of the resolutions renewing
these authorities are included in the notice of AGM.
Awards under the company’s employee share plans are 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 294,268 shares to satisfy
share awards and issued 256,848 shares to the company’s employee benefit trust, to satisfy future awards under the
group’s share-based payment schemes.
Purchase of own shares
Following the 2019 AGM, resolution to purchase own shares, the board currently has the authority to buy back up to
2,800,000 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.
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 33 to the financial statements. During the year, the number of shares issued by
trust totalled 19,963 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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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Directors’ report continued
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.
Directors
All those who served as directors at any time during the year are listed on page 74. The directors’ interests in the share capital
of the company at 31 December 2019 are set out on pages 102 to 103 of the remuneration committee report.
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 2019 and remain in force at the
date of this report.
Employees
Details of the company’s employment practices, its policy regarding the employment of disabled persons and its employee
involvement practices can be found in the corporate responsibility report on pages 54 to 57.
Corporate responsibility
Information about greenhouse gas emissions and our corporate social responsibility are set out in the corporate responsibility
report on pages 61 to 65.
Financial instruments and risk management
The risk management objectives and policies of the group are set out in note 35 to the financial statements.
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. Deloitte LLP was appointed as external auditor at the 2019 AGM. Having reviewed the independence
and effectiveness of the external auditor, the audit committee has recommended to the board that the existing auditor,
Deloitte LLP, be reappointed and a resolution appointing them as auditor and authorising the directors to set their
remuneration will be proposed at the 2020 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, financial performance and segmental review. In addition, note 1.6 to the financial statements provides
further details.
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Rathbone Brothers Plc Report and accounts 2019
The group companies are regulated by the Prudential Regulation Authority (PRA) and/or the Financial Conduct Authority
(FCA) and perform annual capital adequacy assessments, which include the modelling of certain extreme stress scenarios.
The company publishes Pillar 3 disclosures annually on its website, which provide detail about its regulatory capital resources
and requirements. In July 2015, Rathbone Investment Management issued £20 million of 10-year subordinated loan notes to
finance future growth. The group has no other external borrowings.
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.
Charitable donations
As at 31 December 2019, the group made total charitable donations of £360,000 representing 0.9% of group pre-tax
profits (2018: £355,000, 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 2019, Rathbones employees made
payments totalling £195,000 (2018: £199,000) 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 2019, donated £158,000
(2018: £166,000) to causes chosen by employees through this method.
Political donations
No political donations were made during the year (2018: nil).
Post-balance sheet events
Details of post-balance sheet events are set out in note 41 to the financial statements.
On behalf of the board of directors
Ali Johnson
Company Secretary
19 February 2020
Registered office: 8 Finsbury Circus, London EC2M 7AZ
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Strategic reportGovernanceCompany financial statementsConsolidated financial statements Statement of directors’ responsibilities
in respect of the report and accounts
The directors are responsible for preparing the report and accounts 2019, and the group and parent company financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year.
Under that law they are required to prepare the group financial statements in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS as adopted by the EU) and applicable law and have elected
to prepare the parent company financial statements on the same basis.
Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing
each of the group and parent company financial statements, the directors are required to:
— select suitable accounting policies and then apply them consistently
— make judgements and estimates that are reasonable, relevant and reliable
— state whether they have been prepared in accordance with IFRS as adopted by the EU
— assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern
— use the going concern basis of accounting unless they either intend to liquidate the group or the parent company
or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company
and enable them to ensure that its financial statements comply with the Companies Act 2006.
They are responsible for such internal 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.
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.
By order of the board
Paul Stockton
Chief Executive
19 February 2020
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Rathbone Brothers Plc Report and accounts 2019
Financial
statements
Financial statements
Independent auditor’s report to the members
of Rathbone Brothers Plc
Consolidated financial statements
Notes to the consolidated financial statements
Company financial statements
Notes to the company financial statements
114
124
128
187
190
Independent auditor’s report to the
members of Rathbone Brothers Plc
Report on the audit of the financial statements
Opinion
In our opinion:
— the financial statements of Rathbone Brothers Plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of
the state of the group’s and of the parent company’s affairs as at 31 December 2019 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 (IFRSs)
as adopted by the European Union;
— the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
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.
We have audited the financial statements which comprise:
— the consolidated statement of comprehensive income;
— the consolidated and parent company statements of changes in equity;
— the consolidated and parent company balance sheets;
— the consolidated and parent company cash flow statements; and
— the related notes 1 to 63.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit
services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Materiality
Scoping
— impairment of client relationship intangibles and goodwill;
— defined benefit pension scheme liability;
— investment management fee revenue; and
— Speirs & Jeffrey deferred consideration.
The materiality that we used for the group financial statements was £3,580,000 which was
determined on the basis of 5% of normalised profit before tax.
The scope of our audit covered substantially the entire group, with both the investment
management and unit trust business segments being subject to a full scope audit.
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Rathbone Brothers Plc Report and accounts 2019
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in the directors’ report about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them and their identification
of any material uncertainties to the group’s and company’s ability to continue to do so over a period
of at least 12 months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial
reporting framework and the system of internal control. We evaluated the directors’ assessment of
the group’s ability to continue as a going concern, including challenging the underlying data and key
assumptions used to make the assessment, and evaluated the directors’ plans for future actions in
relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to
that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent
with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in the
evaluation of the directors’ assessment of the group’s and the company’s ability to continue as a going
concern, we are required to state whether we have anything material to add or draw attention to in
relation to:
— the disclosures on pages 43 to 44 that describe the principal risks, procedures to identify emerging
risks, and explain how they are being managed or mitigated;
— the directors’ confirmation on page 45 that they have carried out a robust assessment of the principal
and emerging risks facing the group, including those that would threaten its business model, future
performance, solvency or liquidity; or
— the directors’ explanation on page 45 as to how they have assessed the prospects of the group,
over what period they have done so and why they consider 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.
We are also required to report whether the directors’ statement relating to the prospects of the group
required by Listing Rule 9.8.6R (3) is materially inconsistent with our knowledge obtained in the audit.
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Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included 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.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Impairment of client relationship intangibles and goodwill
Key audit matter description
The group holds client relationship intangibles of £124.5 million (2018: £134.6 million) and goodwill of £90.4 million (2018: £91.0 million),
comprising both relationships acquired through business combinations and those through acquisition of individual investment managers
and their client portfolios.
As detailed in the summary of principal accounting policies in note 1 and note 24, client relationships are reviewed for indicators of
impairment at each balance sheet date and, if an indicator of impairment exists, an impairment test is performed. Goodwill is tested
for impairment at least annually, whether or not indicators of impairment exist. These judgements have also been considered by the
Audit Committee as set out on page 85.
For client relationship intangibles, in determining the appropriate impairment triggers for each portfolio, there is a degree of significant
management judgement. This assessment is based on movements in the value of funds under management and the loss of client
relationships in advance of the amortisation period.
For goodwill, the impairment assessment is performed by comparing the carrying amount of each cash generating unit (‘CGU’) to
its recoverable amount from its value-in-use, calculated using a discounted cash flow method. In determining the value-in-use for
the CGUs management is required to make assumptions in relation to an appropriate income growth rate, expenditure growth rate
and the discount rate. Management must also make a judgement on the CGUs that are appropriate to recognise.
How the scope of our audit responded to the key audit matter
We evaluated the design and implementation of the key controls in relation to the impairment review process for client relationship
intangibles for both acquired portfolios and individual relationships and for goodwill. We assessed the design and implementation
and tested the operating effectiveness of the controls in place over FUM values which form the basis of the impairment assessment.
For client relationship intangibles, we specifically tested the calculations prepared by management as part of the impairment
review exercise to assess whether they meet the requirements of IAS 36 ‘Impairment of Assets’ and that the relevant assumptions
and judgements made were appropriate. We agreed a sample of FUM for capitalised client relationships through to third party sources.
We challenged the completeness and appropriateness of the impairment trigger thresholds used by management and independently
considered whether there is indication of an impairment event as at the year-end.
For goodwill, we challenged the completeness of the CGU’s identified by management through independently assessing what CGUs
should be recognised, in line with IAS 36. In order to challenge the appropriateness of the income and expenditure growth assumptions
used in the value-in-use calculation, we have back-tested the assumptions used by management against historical performance and
challenged the appropriateness of forward looking assumptions, checking consistency with forecasts used elsewhere in the business.
We independently challenged the determination of the discount rate applied by benchmarking to appropriate market rates of interest.
We have also performed sensitivity analysis to assess the risk that reasonably possible changes in assumptions used by management
could give rise to an impairment and if relevant, ensured that appropriate disclosures are provided in the notes to the financial statements.
Furthermore, we have performed a review of the disclosures included within the financial statements to determine whether all required
information has been included for client relationship intangibles and goodwill.
Key observations
For client relationship intangibles, through our testing, we concluded that no impairment was required.
As set out in note 24 to the financial statements, based on our challenge, management updated their methodology for defining a
CGU during the year. Following this update, through our testing, we concluded that no impairment of goodwill was required given
the amount of headroom available against the carrying value.
We observed that the underlying assumptions applied by management in determining whether any impairment of client relationship
intangibles or goodwill should be recognised are conservative.
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Defined benefit pension scheme liability
Key audit matter description
The group has recognised a net defined benefit pension scheme liability of £8.0 million (2018: £11.2 million). The net liability comprises
assets of £151.1 million (2018: £135.3 million) and liabilities of £159.1 million (2018: £146.5 million).
The calculation of the liability is sensitive to changes in underlying assumptions and is considered to be a key source of estimation
uncertainty for the group as detailed in note 3, disclosed in note 31 to the financial statements, and has been considered by the
Audit Committee on page 85.
The key assumptions are in respect of the discount rate, inflation rate and mortality rate where small changes to these assumptions
could result in a material change to the valuation of the pension scheme liability.
How the scope of our audit responded to the key audit matter
In order to evaluate the appropriateness of the assumptions used by management, we assessed the design and implementation
of controls over the appropriate determination of assumptions and the calculation of the liability to be recognised in the
financial statements.
With the involvement of our in-house actuarial specialists, we made direct enquiries of the group’s actuary to review and challenge
each of the key assumptions used in the IAS 19 (‘Employee Benefits’) pension valuation. In particular, we compared each assumption
used by management against independently determined benchmarks derived using market and other data.
Key observations
We concluded that each of the assumptions used by management to estimate the defined benefit pension scheme liability are consistent
with the requirements of IAS 19 and fall within the middle of a reasonable range when compared to our internal benchmarks.
Investment management (‘IM’) fee revenue
Key audit matter description
As detailed in the summary of principal accounting policies in note 1 and in note 4, total operating income comprises net investment
management fee income of £260.2 million (2018: £233.4 million), net commission income of £51.1 million (2018: £41.4 million), net interest
income of £16.4 million (2018: £15.3 million) and fees from advisory services and other income of £20.3 million (2018: £21.8 million).
Investment management fees from the IM segment account for approximately 64% of total operating income and are based on a
percentage of an individual client’s funds under management (‘FUM’). Due to its many long standing client relationships and history
of acquisitions, the number of fee schedules managed by the group is high. This means that fee amendments can require a degree of
manual intervention.
During the year ended 31 December 2018, the group acquired a new subsidiary, Speirs & Jeffrey Limited, also an investment
management company. The clients of Speirs & Jeffrey Limited have been migrated onto Rathbones’ core platform.
As a result, we identified a key audit matter relating to the risk that, whether due to error or fraud, incorrect rates could be used to calculate
management fees, or that manual amendments are inaccurate, incomplete or invalid.
How the scope of our audit responded to the key audit matter
We evaluated the design and implementation and tested the operating effectiveness of controls over the calculation of investment
management fees. This included controls relating to the set-up of client fee rates, rate card amendments, the valuation of FUM and the
system generated investment management fees, including associated IT controls.
We used data analytics to recalculate the system generated amount for the total fee population. We agreed a sample of client fee rates
through to client contracts and the value of FUM to third party sources.
We inspected evidence of authority and rationale for a sample of manual amendments made to system generated fees.
We also performed specific testing on the migration of Speirs & Jeffrey Limited clients onto Rathbones’ core platform, to check that their
fees were calculated in line with their contractual terms.
Key observations
We concluded that the investment management fee revenue is appropriately recognised for the year ended 31 December 2019.
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Speirs & Jeffrey deferred consideration
Key audit matter description
On 31 August 2018, the group acquired a 100% equity interest in Speirs & Jeffrey Limited (‘Speirs & Jeffrey’).
The consideration includes a variable element which is dependent on certain operational and financial targets linked to the value of
Speirs & Jeffrey FUM which is determined to be ‘qualifying’ under the terms of the sale and purchase agreement. The determination
of the total deferred consideration will be set based on the qualifying FUM as at 31 December 2020 and 31 December 2021. If qualifying
FUM does not exceed £4.5 billion no deferred consideration is payable.
The estimate of what the level of qualifying FUM will be requires significant management judgement. The assumptions underpinning
this estimate are considered to be a key source of estimation uncertainty for the group, as detailed in note 3, disclosed in note 9 to the
financial statements and considered by the audit committee on page 86.
The expected pay-out of the consideration is accrued over the period from acquisition up until pay-out in 2022, therefore spreading
the P&L charge over this period.
At each reporting date, management update their estimate of the expected pay-out of the consideration and prospectively adjust
the P&L charge. As a result, we identified a key audit matter relating to the risk that, whether due to error or fraud, management’s
estimate of the expected pay-out of the consideration at each financial reporting date may be materially misstated.
How the scope of our audit responded to the key audit matter
We evaluated the design and implementation of key controls over the determination of the key assumptions in the FUM
conversion model.
We held targeted meetings with management and key personnel within the business, including a sample of Investment Managers,
to challenge the appropriateness of the qualifying FUM estimate.
We challenged the consistency and validity of management’s estimate by checking it was consistent with forecasts used elsewhere
in the business.
We have also performed focused benchmarking against the investment management market, in order to challenge the potential impact
of external factors on achieving management’s estimate of qualifying FUM.
We independently re-performed the calculation of the estimate for deferred consideration and we assessed the appropriateness
of the related disclosures including the sensitivity assumptions for the range of estimates included in the disclosure.
Key observations
The determination of the deferred consideration that could be payable is a critical accounting estimate. We concluded that the
assumptions used by management to estimate the expected level of qualifying FUM as at 31 December 2020 and 2021 are reasonable
as at the current reporting date.
As more experience and empirical data becomes available during 2020, these assumptions may need to be updated. The disclosure
in respect of this critical accounting estimate for deferred consideration payable, as set out in note 3.3, shows the sensitivity, for each
£100 million movement in qualifying FUM, to the eventual amount that could be payable.
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Our application of materiality
Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and
in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for determining materiality
Rationale for the benchmark applied
Parent company financial statements
£1,754,000
Parent company materiality equates
to 1% of net assets, which is capped
at 70% of group materiality.
The parent company primarily holds
the investments in group entities and,
therefore, net assets is considered
to be the key focus for users of the
financial statements.
Group financial statements
£3,580,000
5% of normalised pre-tax profit.
Pre-tax profit has been normalised to
exclude the non-recurring acquisition-
related costs of £33.1 million.
Normalised profit before tax (PBT)
was used as the basis for determining
materiality as this is the key metric used
by members of the parent company and
other relevant stakeholders in assessing
financial performance. In determining
normalised profit before tax, we have
removed from statutory profit before
tax, the acquisition-related costs on
the basis that they are non-recurring
and provides a consistent basis for
determining materiality year on year.
Group materiality
£3.58m
Component materiality range
£2.00m to £0.18m
Audit Committee reporting threshold
£0.18m
Normalised PBT
£72.71m
Normalised PBT
Group materiality
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Strategic reportCompany financial statementsConsolidated financial statementsGovernance Independent auditor’s report to the members of Rathbone Brothers Plc continued
Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality has been set at £2.5 million
for the year ended 31 December 2019, 70% of group materiality. In determining performance materiality, we considered the following factors:
— our risk assessment, including our assessment of the group’s overall control environment and that we consider it appropriate to rely on
controls over a number of business processes; and
— our review of the work performed by our predecessor auditor, which indicated a low number of corrected and uncorrected
misstatements identified in prior periods.
Error reporting threshold
We agreed with the audit committee that we would report to the committee all audit differences in excess of £180,000, as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the audit committee
on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls and assessing
the risks of material misstatement at the group level.
The group consists of the main trading subsidiary Rathbone Investment Management Limited along with the following entities that we
have identified to be significant for the group audit: Rathbone Brothers Plc, Speirs & Jeffrey Limited, Rathbone Unit Trust Management
Limited and Rathbone Investment Management International Limited. All such entities were subject to a full scope audit.
Our full scope audits and audits of specified balances covered 96% of the group’s revenue and profit before tax. Our audit of Rathbone
Investment Management Limited, the main trading subsidiary, used a component materiality of £2.73 million.
We have nothing to report
in respect of these matters.
All audit work was performed by the group engagement team.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
— Fair, balanced and understandable — the statement given by the directors that they consider 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, is materially inconsistent with our knowledge obtained in the audit; or
— Audit committee reporting — the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
— Directors’ statement of compliance with the UK Corporate Governance Code — the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from
a relevant provision of the UK Corporate Governance Code.
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Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the 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 the
directors 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 for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
— the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
— results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of the
risks of irregularities;
— any matters we identified having obtained and reviewed the group’s documentation, concerning the group’s policies and procedures
relating to:
— identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
— detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
— the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
— the matters discussed among the audit engagement team and involving relevant internal specialists, including tax, valuations, pensions,
IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: investment management (‘IM’) fee revenue and the determination of the
Speirs & Jeffrey deferred consideration. In common with all audits under ISAs (UK), we are also required to perform specific procedures
to respond to the risk of management override of controls.
We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws
and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the group.
The key laws and regulations we considered in this context included the Prudential Regulation Authority’s and Financial Conduct
Authority’s regulations, the UK Companies Act, Listing Rules, relevant pensions legislation and relevant tax legislation. In addition,
we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the group’s regulatory
solvency requirements.
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Audit response to risks identified
As a result of performing the above, we identified investment management (‘IM’) fee revenue recognition and Speirs & Jeffrey deferred
consideration as a key audit matter. The key audit matters section of our report explains the matter in more detail and also describes
the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
— reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations described as having a direct effect on the financial statements;
— enquiring of management, the audit committee and in-house and external legal counsel concerning actual and potential litigation
and claims;
— performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
— reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, the Prudential Regulation Authority and the Financial Conduct Authority; and
— in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
— the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
— the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
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Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
— we have not received all the information and explanations we require for our audit; or
— 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 are not in agreement with the accounting records
and returns.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the directors’ remuneration report to
be audited is not in agreement with the accounting records and returns.
We have nothing to report
in respect of these matters.
We have nothing to report
in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders on 9 May 2019 to audit the financial
statements for the year ended 31 December 2019 and therefore this is the first period of our appointment as external auditor.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
Use of our report
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.
Manbhinder Rana FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
19 February 2020
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Strategic reportCompany financial statementsConsolidated financial statementsGovernance Consolidated statement
of comprehensive income
Consolidated statement
of changes in equity
for the year ended 31 December 2019
for the year ended 31 December 2019
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
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
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
7
8
10
11
8
13
31
23
14
15
2019
£’000
28,553
(12,141)
16,412
352,519
(23,547)
328,972
170
2,517
348,071
(15,964)
(33,057)
–
(259,398)
(308,419)
39,652
(12,729)
26,923
26,923
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
310
(53)
1,219
(207)
257
1,012
27,180
47,181
70.0p
37,714
66.0p
35,204
50.3p
48.7p
88.7p
86.2p
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
Prior period adjustment (note 1.3)
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 (restated)
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 2019
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
Note
2,566 143,089
31,835
(4,864) 198,947 371,573
–
–
–
–
194
87,134
(24,950) 24,950
20,279
20,279
(29,888)
(29,888)
2,015
(2,015)
358
–
358
2,760 205,273
56,785
(32,737) 232,059 464,140
46,169
46,169
1,219
1,219
(207)
1,012
(207)
1,012
(32,691)
(32,691)
87,328
–
26,923
26,923
310
310
(53)
257
(53)
257
(35,959)
(35,959)
20,695
19,387
19,387
(10,033)
–
(17)
(799)
(17)
–
–
–
–
58
5,666
14,971
(10,033)
799
31
23
14
32
33
33
31
23
14
32
33
33
The accompanying notes form an integral part of the consolidated financial statements.
2,818 210,939
71,756
(41,971) 241,851 485,393
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Rathbone Brothers Plc Report and accounts 2019
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125
Consolidated statement
of changes in equity
for the year ended 31 December 2019
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
Prior period adjustment (note 1.3)
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 (restated)
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 2019
Note
Share
capital
£’000
Share
premium
£’000
2,566 143,089
Merger
reserve
£’000
31,835
Own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
(4,864) 198,947 371,573
46,169
46,169
1,219
1,219
31
23
14
32
33
33
31
23
14
32
33
33
–
–
–
–
194
87,134
(24,950) 24,950
(207)
1,012
(207)
1,012
(32,691)
(32,691)
87,328
–
2,760 205,273
56,785
20,279
(29,888)
2,015
20,279
(29,888)
–
358
(32,737) 232,059 464,140
26,923
26,923
310
310
(2,015)
358
–
–
–
–
58
5,666
14,971
(53)
257
(53)
257
(35,959)
(35,959)
20,695
19,387
(10,033)
799
19,387
(10,033)
–
(17)
(41,971) 241,851 485,393
(799)
(17)
2,818 210,939
71,756
The accompanying notes form an integral part of the consolidated financial statements.
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Strategic reportCompany financial statementsConsolidated financial statementsGovernance
Consolidated balance sheet
Consolidated statement of cash flows
as at 31 December 2019
for the year ended 31 December 2019
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
Prepayments, accrued income and other assets
Property, plant and equipment
Right-of-use assets
Net deferred tax asset
Intangible assets
Total assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Accruals, provisions and other liabilities
Lease liabilities
Current tax liabilities
Net deferred tax liability
Subordinated loan notes
Retirement benefit obligations
Total liabilities
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Total equity
Total liabilities and equity
16
17
18
19
19
20
21
22
23
24
25
26
27
29
23
30
31
32
32
32
33
Note
2019
£’000
2018
£’000
(restated –
note 1.3)
1,198,479
39,754
166,200
138,959
79,797
907,225
81,552
16,838
–
–
238,918
2,867,722
491
36,692
2,225,536
103,393
–
5,985
481
19,807
11,197
2,403,582
1,932,997
52,520
177,832
138,412
105,967
600,261
95,390
15,432
49,480
2,636
227,807
3,398,734
28
57,694
2,668,645
93,263
61,004
4,766
–
19,927
8,014
2,913,341
2,818
210,939
71,756
(41,971)
241,851
485,393
3,398,734
2,760
205,273
56,785
(32,737)
232,059
464,140
2,867,722
The financial statements were approved by the board of directors and authorised for issue on 19 February 2020 and were signed on their
behalf by:
Paul Stockton
Chief Executive
Jennifer Mathias
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
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127
Cash flows from operating activities
Profit before tax
Change in fair value through profit or loss
Net interest income
Impairment losses on financial instruments
Net charge/(credit) for provisions
Loss 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 (increase)/decrease in settlement balance debtors
— net increase in prepayments, accrued income and other assets
— net increase in amounts due to customers and deposits by banks
— net increase/(decrease) in settlement balance creditors
— net increase/(decrease) 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 generated from/(used in) investing activities
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares
Dividends paid
Payment of lease liabilities
Interest paid
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the consolidated financial statements.
Note
2019
£’000
2018
£’000
(16,412)
(15,321)
35
28
19
31
31
19
19
40
14
39,652
(410)
103
3,572
428
33,799
2,152
255
(3,128)
31,012
(11,421)
28,264
107,866
(31,076)
(12,765)
(13,725)
442,646
21,002
2,802
516,750
(17,133)
499,617
–
(17,705)
(239)
(4,340)
(35,959)
(4,623)
(1,171)
(46,093)
739,496
61,306
185
(1,498)
44
1
21,673
(2,297)
491
(3,673)
19,838
(3,892)
21,362
98,219
(10,482)
7,030
(3,887)
54,191
(17,760)
(222)
127,089
(14,697)
112,392
(72,914)
(18,338)
–
57,440
(32,691)
–
(1,283)
23,466
(159,221)
1,567,758
1,408,537
(754,958)
(1,051,150)
1,058,874
285,972
847,323
(295,079)
1,408,537
40
2,148,033
Consolidated balance sheet
Consolidated statement of cash flows
as at 31 December 2019
for the year ended 31 December 2019
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
Prepayments, accrued income and other assets
Property, plant and equipment
Right-of-use assets
Net deferred tax asset
Intangible assets
Total assets
Liabilities
Deposits by banks
Settlement balances
Due to customers
Accruals, provisions and other liabilities
Lease liabilities
Current tax liabilities
Net deferred tax liability
Subordinated loan notes
Retirement benefit obligations
Total liabilities
Equity
Share capital
Share premium
Merger reserve
Own shares
Retained earnings
Total equity
behalf by:
Paul Stockton
Chief Executive
Total liabilities and equity
3,398,734
2,867,722
The financial statements were approved by the board of directors and authorised for issue on 19 February 2020 and were signed on their
Company registered number: 01000403
The accompanying notes form an integral part of the consolidated financial statements.
Jennifer Mathias
Finance Director
Note
2019
£’000
16
1,932,997
1,198,479
2018
£’000
(restated –
note 1.3)
39,754
166,200
138,959
79,797
907,225
81,552
16,838
–
–
491
36,692
103,393
–
5,985
481
19,807
11,197
2,760
205,273
56,785
(32,737)
232,059
464,140
52,520
177,832
138,412
105,967
600,261
95,390
15,432
49,480
2,636
28
57,694
93,263
61,004
4,766
–
19,927
8,014
2,818
210,939
71,756
(41,971)
241,851
485,393
227,807
238,918
3,398,734
2,867,722
2,668,645
2,225,536
2,913,341
2,403,582
17
18
19
19
20
21
22
23
24
25
26
27
29
23
30
31
32
32
32
33
Cash flows from operating activities
Profit before tax
Change in fair value through profit or loss
Net interest income
Impairment losses on financial instruments
Net charge/(credit) for provisions
Loss 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 (increase)/decrease in settlement balance debtors
— net increase in prepayments, accrued income and other assets
— net increase in amounts due to customers and deposits by banks
— net increase/(decrease) in settlement balance creditors
— net increase/(decrease) 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 generated from/(used in) investing activities
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares
Dividends paid
Payment of lease liabilities
Interest paid
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the consolidated financial statements.
Note
2019
£’000
2018
£’000
35
28
19
31
31
39,652
(410)
(16,412)
103
3,572
428
33,799
2,152
255
(3,128)
31,012
(11,421)
28,264
107,866
(31,076)
(12,765)
(13,725)
442,646
21,002
2,802
516,750
(17,133)
499,617
61,306
185
(15,321)
44
(1,498)
1
21,673
(2,297)
491
(3,673)
19,838
(3,892)
21,362
98,219
(10,482)
7,030
(3,887)
54,191
(17,760)
(222)
127,089
(14,697)
112,392
–
(17,705)
(239)
(754,958)
1,058,874
285,972
(72,914)
(18,338)
–
(1,051,150)
847,323
(295,079)
(4,340)
(35,959)
(4,623)
(1,171)
(46,093)
739,496
1,408,537
2,148,033
57,440
(32,691)
–
(1,283)
23,466
(159,221)
1,567,758
1,408,537
19
19
40
14
40
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Notes to the consolidated
financial statements
1
Principal accounting policies
Rathbone Brothers Plc (‘the company’) is a public company limited by shares 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 187 to 206.
The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair
value (notes 1.13 and 1.17). The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied
consistently to all periods presented in the consolidated financial statements.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company
(its subsidiaries), 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 Prior period adjustment
Following the issue of contingent consideration shares to the vendors of Speirs & Jeffrey, the group revisited the terms attaching to the
initial consideration shares issued in the prior year (note 9). Having concluded that both share issuances were, in fact, in pursuance of
the arrangement to acquire the shares in Speirs & Jeffrey, any premiums on the issuance of these shares should be recognised within
the merger reserve. Premiums on issuance of the initial consideration shares were previously reported as share premium. The group has
restated comparative information as at 31 December 2018 to report this amount within merger reserve. As at 31 December 2018, merger
reserve has increased by £24,950,000 and share premium has decreased by the same amount. There is no impact on total equity as at
that date and no impact on profit before tax or earnings per share for the period then ended.
1.4 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 16 has been applied. This new standard was adopted from 1 January 2019.
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:
— IFRIC 23 Uncertainty over Income Tax Treatments
— Prepayment Features with Negative Compensation (Amendments to IFRS 9)
— Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
— Annual Improvements to IFRS Standards 2015–2017 Cycle.
Future new standards and interpretations
A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however,
the group has not early adopted the new or amended standards in preparing these consolidated financial statements.
The below standards are not yet effective and have not yet been endorsed by the EU. None of these are expected to have a material impact
on the group’s financial statements:
— Amendments to References to Conceptual Framework in IFRS Standards
— Definition of a Business (Amendments to IFRS 3)
— Definition of Material (Amendments to IAS 1 and IAS 8)
— IFRS 17 Insurance Contracts
— Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
— IFRS 14 Regulatory Deferral Accounts
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1.5 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.
1.6 Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the company and the group have
adequate resources to continue in operational existence. In forming this view, the directors have considered the company’s and the
group’s prospects for a period of at least 12 months. Thus they continue to adopt the going concern basis of accounting in preparing
the financial statements.
1.7 Foreign currencies
The functional and presentational currency of the company and its subsidiaries is sterling.
Transactions in currencies other than the relevant group entity’s functional currency are recorded at the rates of exchange prevailing
on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in profit or loss
for the year.
1.8
Income
Net interest income
Interest income or expense 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.
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.
A breakdown of the timing of revenue recognition can be found in note 4.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
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.
1.9 Leases
The group has applied IFRS 16 with effect from 1 January 2019, using the modified retrospective approach. Comparative information has
not been restated. More details on the approach to transition are provided in note 2.
Policy applicable from 1 January 2019
The group has applied the practical expedient to grandfather the definition of a lease at the date of transition. Therefore, this policy applies
to all contracts entered into on or after 1 January 2019.
At inception of a contract, the group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the group uses the definition of a lease in IFRS 16.
The group recognises a right-of-use asset and a lease liability at the inception date of the lease. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The ROU assets are subsequently depreciated on a straight line basis over the shorter of the expected life of the asset and the lease term,
adjusted for any remeasurements of the lease liability. At the end of each reporting period, the ROU assets are assessed for indicators of
impairment in accordance with IAS 36.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental borrowing rate. The group
uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
— fixed payments, including in-substance fixed payments
— variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
— amounts expected to be payable under a residual value guarantee and
— the exercise price under a purchase option that the group is reasonably certain to exercise, lease payments in an optional renewal
period if the group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the group
is reasonably certain not to terminate early.
The group’s incremental borrowing rate is derived with reference to the group’s subordinated loan notes (note 30), which is the only
external financing on the consolidated balance sheet.
The lease liability is subsequently measured by adjusting the carrying amount to reflect the interest charge, the lease payments made and
any reassessment or lease modifications. The lease liability is remeasured if the group changes its assessment of whether it will exercise
a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Where the group is an intermediate lessor in a sub-lease, it accounts for its interests in the head lease and the sub-lease separately.
It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference
to the underlying asset.
Policy applicable before 1 January 2019
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.
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1.10 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.
1.11 Taxation
Current tax
Current tax is the expected tax payable or receivable on net taxable income for the year. Current tax is calculated using tax rates enacted
or substantively enacted by the balance sheet date, together with any adjustment to tax payable or receivable in respect of previous years.
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.
Current and deferred tax are recognised, in the same or a different period:
— in other comprehensive income if they relate to items recognised in other comprehensive income
— directly in retained earnings if they relate to items recognised directly in retained earnings.
1.12 Cash and cash equivalents
Cash comprises cash in hand.
Cash equivalents comprise money market funds which are realisable on demand and loans and advances to banks with a maturity of less
than three months from the date of acquisition.
For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
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Principal accounting policies continued
1.13 Financial assets
Initial recognition and measurement
Financial assets, excluding trade debtors, are initially recognised when the group becomes party to the contractual provisions of the asset.
Trade debtors 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 their acquisition (except those
assets classified at fair value through profit or loss). Trade debtors 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 their contractual terms give rise to cash flows that are solely payments of principal
and interest on the principal amount outstanding and they are 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 1.8), 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 their contractual terms give rise to cash flows that are solely payments of principal and
interest on the principal amount outstanding and they are held within a business model whose objective is both to hold assets to collect
contractual cash flows and to 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 could 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.
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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 in note 35.
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 Prudential Regulation Authority (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 35.
ECLs are discounted back to the balance sheet date at the effective interest rate of the asset.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
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 35.
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.
1.14 Property, plant and equipment
All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less accumulated
depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual value over
their estimated useful lives, using the straight line method, on the following bases:
— Leasehold improvements: over the lease term
— Plant, equipment and computer hardware: over three to 10 years
The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined
by comparing proceeds with the carrying amount and these are included in profit or loss.
1.15
Intangible assets
Goodwill
Goodwill arises through business combinations and represents the excess of the cost of acquisition over the group’s interest in the fair
value of the identifiable assets, liabilities and contingent liabilities of a business at the date of acquisition.
Goodwill is recognised as an asset and measured at cost less accumulated impairment losses. It is allocated to groups of cash generating
units, which represent the lowest level at which goodwill is monitored for internal management purposes. A cash generating unit is
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 out 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 1.5). 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).
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Computer software and software development costs
Costs incurred to acquire and bring to use computer software licences are capitalised and amortised through profit or loss over their
expected useful lives (three to four years).
Costs that are directly associated with the production of identifiable and unique software products controlled by the group are recognised
as intangible assets when the group is expected to benefit from future use of the software and the costs are reliably measurable. Other costs
of producing software are charged to profit or loss as incurred. Computer software development costs recognised as assets are amortised
using the straight line method over their useful lives (not exceeding four years).
1.16 Impairment of goodwill and intangible assets
At each balance sheet date, the group reviews the carrying amounts of its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount is
the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.
Goodwill is tested for impairment at least annually. For the purposes of impairment testing, goodwill is allocated to groups of cash
generating units. The carrying amount of each group of cash generating units is compared to its value-in-use, calculated using a discounted
cash flow method. If the recoverable amount of the group of cash generating units is less than the carrying amount of the group of units,
the impairment loss is allocated first to reduce the carrying amount of the goodwill allocated to that group of units and then to the other
assets of the group of units pro rata on the basis of the carrying amount of each asset in the group of units.
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.
1.17 Financial liabilities
Initial recognition and measurement
Financial liabilities are initially recognised at fair value plus transaction costs that are directly attributable to their 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 1.8). 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.
1.18 Provisions and contingent liabilities
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event and it is probable
that an outflow of economic benefits, that can be reliably estimated, will occur. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation, discounted using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the obligation.
Contingent liabilities are possible obligations that depend on the outcome of uncertain future events or those present obligations where
the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements
but are disclosed unless the likelihood of crystallisation is judged to be remote.
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Notes to the consolidated financial statements continued
1
Principal accounting policies continued
1.19 Retirement benefit obligations on retirement benefit schemes
The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine
its present value, and the fair value of any plan assets (at bid price) is deducted. Any asset resulting from this calculation is limited to the
present value of available refunds and reductions in future contributions to the plan.
The cost of providing benefits under defined benefit plans is determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Net remeasurements of the defined benefit liability are recognised in full in the period in
which they occur in other comprehensive income.
Past service 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.
1.20 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.
1.21 Fiduciary activities
The group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of
individuals, trusts, retirement benefit plans and other institutions. Such assets and income arising thereon are excluded from these
financial statements, as they are not assets of the group. Largely as a result of cash and settlement processing, the group holds money
on behalf of some clients in accordance with the Client Money Rules of the Financial Conduct Authority, the Jersey Financial Services
Commission and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, as applicable. Such monies and the
corresponding amounts due to clients are not shown on the face of the balance sheet as the group is not beneficially entitled to them.
1.22 Financial guarantees
The group provides a limited number of financial guarantees, which are backed by assets in clients’ portfolios. Financial guarantees are
initially recognised in the balance sheet at fair value. Guarantees are subsequently measured at the higher of the best estimate of any
amount to be paid to settle the guarantee and the amount initially recognised less cumulative amortisation, which is recognised over
the life of the guarantee.
1.23 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.
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2
Changes in significant accounting policies
The group has adopted IFRS 16 ‘Leases’ with effect from 1 January 2019.
IFRS 16 ‘Leases’
IFRS 16 removes the classification of leases as either operating leases or finance leases for lessees. The standard introduces a single,
on-balance sheet accounting model, which requires:
— recognition of a right-of-use asset and corresponding lease liability with respect to all lease arrangements in which the group is the lessee,
except for short-term leases and leases of low-value assets
— recognition of a depreciation charge on the right-of-use asset on a straight line basis over the shorter of the expected life of the asset and
the lease term
— recognition of an interest charge arising from the unwinding of the discounted lease liability over the lease term and
— recognition of a finance lease in respect of the group acting as an intermediate lessor in a sub-lease agreement.
Transition
On transition to IFRS 16, the group was permitted to choose from the following transition approaches:
— full retrospective transition method, whereby IFRS 16 is applied to all of its contracts as if it had always applied; or
— a modified retrospective approach with optional practical expedients.
The group has chosen to apply IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application
is recognised as an adjustment to the opening balance sheet. There is no restatement of the comparative information which continues to
be reported under IAS 17 and IFRIC 4.
On adoption, lease agreements have given rise to both a right-of-use (‘ROU’) asset and a lease liability. For leases previously classified
as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at
the group’s incremental borrowing rate as at 1 January 2019. The group’s weighted average lessee’s incremental borrowing rate as at
1 January 2019 was 5.86%. ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments on the group balance sheet at the date of transition. There were no onerous lease contracts that would have
required an adjustment to the ROU assets at the date of initial application.
The group has identified the leases for which it holds an option to terminate the contract early. The group has assessed the likelihood
of exercising these options and has concluded that it is reasonably certain to exercise this option on one of these leases. The group has
reflected these revised lease terms in its calculation of the lease liabilities.
The lease liability and the ROU asset are subsequently measured in accordance with the accounting policy described in note 1.9.
The group has used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17:
— applied the practical expedient to grandfather the assessment of which contracts are leases and applied IFRS 16 only to those that
were previously identified as leases. Contracts not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there
is a lease. The identification of a lease under IFRS 16 was therefore only applied to contracts entered into (or modified) on or after
1 January 2019;
— applied a single discount rate to a portfolio of leases with similar characteristics; and
— applied the exemption not to recognise right-of-use assets and liabilities for leases with less than a 12-month lease term and leases of
low-value assets. The group recognises the lease payments associated with these leases as an expense on a straight line basis over the
lease term.
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Notes to the consolidated financial statements continued
2
Changes in significant accounting policies continued
As a lessor
Accounting requirements for lessors are largely unchanged from IAS 17 ‘Leases’. The group is not required to make any adjustments
on transition to IFRS 16 for leases in which it acts as a lessor, except for instances in which it acts as a sub-lessor. The group sub-leases
a property in Jersey.
At the date of application to IFRS 16 the group is required to assess the classification of a sub-lease with reference to the ROU asset.
As the sub-lease is for the whole of the remaining term of the head lease, the group reassessed the classification of its sub-lease contract,
previously classified as an operating lease under IAS 17, to a finance lease under IFRS 16 from the date of initial application.
The tables below show the impact on each financial statement line item affected by the application of IFRS 16 at the date of transition.
Impact on the consolidated balance sheet as at 1 January 2019
Assets
Prepayments, accrued income and other assets
Right-of-use assets
Total assets
Liabilities
Accruals, deferred income, provisions and other liabilities
Lease liabilities
Total liabilities
Equity
Retained earnings
Total equity
Total liabilities and equity
As reported
31 December 2018
£’000
Adjustments
£’000
As restated
1 January 2019
£’000
81,552
–
2,867,722
103,393
–
2,403,582
232,059
464,140
2,867,722
(174)
53,846
53,672
81,378
53,846
2,921,394
(11,486)
65,158
53,672
91,907
65,158
2,457,254
–
–
53,672
232,059
464,140
2,921,394
The adjustments to the consolidated balance sheet reflect the initial application of IFRS 16.
An analysis of ROU assets is presented in note 22. The group makes fixed payments and variable payments depending on the usage of the
asset during the contract period.
The below table presents the impact of IFRS 16 on profit and on one of our key performance indicators during the year.
Impact on profit for the year
Increase in finance costs
Increase in depreciation
Expenses relating to short-term leases and low-value assets
Increase in finance income
Decrease in other expenses
Impact on earnings per share
Decrease in earnings per share
basic
diluted
£’000
3,640
4,895
371
75
7,124
3.2p
3.2p
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Lease liabilities
The group is required to identify the difference between the present value of its operating lease commitments disclosed at
31 December 2018 under IAS 17, discounted by using the group’s incremental borrowing rate, and its lease liabilities recognised
at the date of initial application to IFRS 16. This reconciliation has been presented below:
Operating lease commitment at 31 December 2018 as disclosed in the group’s consolidated financial statements
Impact of discounting at the incremental borrowing rate
Discounted using the incremental borrowing rate at 1 January 2019
Recognition exemption for:
— Leases of low-value assets
— Extension options reasonably certain to be exercised
Lease liabilities at 1 January 2019
£’000
90,548
(27,027)
63,521
(18)
1,655
65,158
3
Critical accounting judgements and key 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.
The following key accounting policies involve critical judgements made in applying the accounting policy and involve estimations; care
has been taken to distinguish between the two.
3.1 Client relationship intangibles (note 24)
Critical judgements
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 (note 24). 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.
Estimation uncertainty
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 £15,369,000 (2018: £12,919,000) was charged during the year. At 31 December 2019, the carrying value of client relationship
intangibles was £124,456,000 (2018: £134,556,000).
A reduction of three years in the amortisation period of those client relationship intangible assets currently amortised over 15 years would
increase the annual amortisation charge by £4.5 million.
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Notes to the consolidated financial statements continued
3
Critical accounting judgements and key sources of estimation and uncertainty continued
3.2 Retirement benefit obligations (note 31)
Estimation uncertainty
The principal assumptions underlying the reported deficit of £8,014,000 (2018: £11,197,000 deficit) are set out in note 31.
In setting these assumptions, 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 subjective 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 sensitivity of the retirement benefit obligations to changes in all of the underlying estimates are set out in note 31. Of these, the most
sensitive assumption is the discount rate used to measure the defined benefit obligation. Increasing the discount rate by 1.0% would
decrease the schemes’ liabilities by £28,701,000 (2018: £25,610,000). A 1.0% decrease would have an equal and opposite effect.
3.3 Business combinations (note 9)
Critical judgement
Treatment and fair value of consideration transferred
On 31 August 2018, the group acquired the entire share capital of Speirs & Jeffrey (“S&J“). The group accounted for the transaction as a
business combination.
As described in note 9 to the financial statements, the purchase price payable for the acquisition is split into a number of different parts.
The payment of certain elements has been deferred. At 31 December 2019, two elements of deferred consideration remained unvested
and subject to ongoing vesting conditions.
Vesting of the £25,000,000 initial share consideration is contingent on continued employment of the vendors and this amount is being
charged to profit or loss as a share-based payment for employee services over the vesting period.
Vesting of earn out consideration is also payable in shares and conditional on achieving certain operational and financial targets and the
continued employment of the vendors.
Estimation uncertainty
Valuation of the earn-out consideration and incentivisation awards
The value of earn-out consideration, as well as related incentivisation awards to other staff, is variable, dependent on performance by
the acquired business against certain operational and financial targets by 31 December 2020 and 31 December 2021. The estimated value
of earn-out consideration and incentivisation awards that will be payable at these dates is £26.4 million, based on projections of growth
in qualifying funds under management over that period. As a result, accumulated charges of £12.9 million have been recognised since
acquisition with a corresponding credit to equity, based on forecast qualifying funds under management of £4.8 billion at the end of 2020;
with an associated charge to profit or loss during 2019 of £9.7 million (note 9).
If qualifying funds under management do not exceed £4.5 billion then no earn-out consideration or incentivisation awards are payable.
If qualifying funds under management at 31 December 2020 are £100 million higher or lower than management’s estimate then the
accumulated charges as at 31 December 2019 for earn-out consideration and incentivisation awards would be £1.5 million higher or
lower and the charge to profit or loss in 2019 would be £1.5 million higher or lower.
Under the terms of the agreements, the maximum possible payment under the earn-out and incentivisation awards is capped at
£128,750,000; which represents qualifying funds under management of approximately £10 billion at the end of 2021.
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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 2019
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 24)
Acquisition-related costs (note 10)
Segment profit before tax
Profit before tax attributable to equity holders of the company
Taxation (note 13)
Profit for the year attributable to equity holders of the company
Segment total assets
Unallocated assets
Total assets
Investment
Management
£’000
224,135
51,132
16,412
19,247
310,926
(78,562)
(49,711)
(128,273)
(40,392)
(63,842)
(232,507)
78,419
(15,964)
(28,246)
34,209
Unit Trusts
£’000
36,073
–
–
1,072
37,145
(3,783)
(8,710)
(12,493)
(7,299)
(7,099)
(26,891)
10,254
–
–
10,254
Indirect
expenses
£’000
–
–
–
–
–
(28,477)
(8,353)
(36,830)
(34,111)
70,941
–
–
–
(4,811)
(4,811)
Investment
Management
£’000
3,303,691
Unit Trusts
£’000
89,937
Total
£’000
260,208
51,132
16,412
20,319
348,071
(110,822)
(66,774)
(177,596)
(81,802)
–
(259,398)
88,673
(15,964)
(33,057)
39,652
39,652
(12,729)
26,923
Total
£’000
3,393,628
5,106
3,398,734
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Notes to the consolidated financial statements continued
4
Segmental information continued
31 December 2018 (re-presented*)
Net investment management fee income
Net commission income
Net interest income
Fees from advisory services and other income
Underlying operating income
Staff costs — fixed
Staff costs — variable
Total staff costs
Other direct expenses
Allocation of indirect expenses
Underlying operating expenses
Underlying profit before tax
Charges in relation to client relationships and goodwill (note 24)
Acquisition-related costs (note 10)
Segment profit before tax
Head office relocation costs (note 11)
Profit before tax attributable to equity holders of the company
Taxation (note 13)
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)
(40,656)
(107,168)
(27,629)
(61,676)
(196,473)
78,836
(13,188)
(16,228)
49,420
Unit Trusts
£’000
32,865
–
–
3,789
36,654
(3,300)
(7,552)
(10,852)
(6,950)
(6,130)
(23,932)
12,722
–
–
12,722
Indirect
expenses
£’000
–
–
–
–
–
(26,152)
(6,886)
(33,038)
(34,768)
67,806
–
–
–
(3,697)
(3,697)
Investment
Management
£’000
2,786,718
Unit Trusts
£’000
81,004
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
Total
£’000
2,867,722
–
2,867,722
*
In 2018, the cost of the Staff Equity Plan (note 34) for Investment Management staff was originally reported within the allocation of indirect expenses. In 2019, these costs are reported as variable staff
costs directly incurred by the segment. Accordingly, the 2018 comparative figures have been re-presented to show the costs on a consistent basis
Underlying operating income is equal to operating income for the year ended 31 December 2019 (2018: equal).
The following table reconciles underlying operating expenses to operating expenses:
Underlying operating expenses
Charges in relation to client relationships and goodwill (note 24)
Acquisition-related costs (note 10)
Head office relocation costs (note 11)
Operating expenses
2019
£’000
259,398
15,964
33,057
–
308,419
2018
£’000
220,405
13,188
19,925
(2,861)
250,657
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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
2019
£’000
335,732
12,339
348,071
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
2019
£’000
239,056
4,183
243,239
2018
£’000
301,029
10,934
311,963
2018
£’000
251,429
4,327
255,756
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
2019
2018
Investment
Management
£’000
53,599
257,327
310,926
Unit Trusts
£’000
172
36,973
37,145
Investment
Management
£’000
44,392
230,917
275,309
Unit Trusts
£’000
3,431
33,223
36,654
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
Loans and advances to banks
Loans and advances to customers
Interest expense
Banks and customers
Lease liabilities
Subordinated loan notes (note 30)
Credit impairment charges
Net interest income
2019
£’000
2018
£’000
11,383
1,299
8,557
3,328
3,986
28,553
(7,122)
(3,640)
(1,290)
(89)
(12,141)
16,412
7,634
1,102
6,503
2,209
3,520
20,968
(4,323)
–
(1,283)
(41)
(5,647)
15,321
With the exception of credit impairment charges, which are calculated as described in note 35, all net interest income is calculated using the
effective interest method (note 1.8).
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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
2019
£’000
2018
£’000
308,119
44,400
352,519
272,700
41,313
314,013
(18,258)
(5,289)
(23,547)
328,972
(16,987)
(5,916)
(22,903)
291,110
7 Net trading and other operating income
Net trading income
Net trading income of £170,000 (2018: £3,405,000) comprised Unit Trusts net dealing profits, which ceased from mid-January 2019.
Other operating income
Other operating income of £2,517,000 (2018: £2,127,000) 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 12)
Depreciation of property, plant and equipment (note 21)
Depreciation of right-of-use assets (note 22)
Amortisation of internally generated intangible assets (note 24)
Amortisation and impairment of purchased software (note 24)
Auditor’s remuneration (see below)
Impairment charges on loans and advances to customers (note 35)
Rental charge
Other
Other operating expenses
Charges in relation to client relationships and goodwill (note 24)
Acquisition-related costs (note 10)
Head office relocation costs (note 11)
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 its 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
2019
£’000
177,596
4,036
4,895
919
7,985
968
4
2,147
60,848
259,398
15,964
33,057
–
308,419
2019
£’000
100
395
469
–
4
968
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
Of the above, audit-related services for the year incurred by the prevailing statutory auditor totalled £899,000 (2018: £731,000).
Fees payable for the audit of the company’s annual financial statements include £91,000 (2018: £19,000) relating to prior year audit work
undertaken by the previous statutory auditor.
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9
Business combinations
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share capital of Speirs & Jeffrey Limited (‘Speirs & Jeffrey’).
Contingent consideration
Contingent consideration of £15,000,000 was paid in May 2019, following the satisfaction of certain operational targets. Of this, £1,050,000
was treated as consideration in the acquisition accounting, as it was paid to vendors who were not required to remain in employment with
the group (note 28). The amount paid was equal to what was provided for as at the date of acquisition; therefore, no measurement period
adjustment has been reflected against the cost of acquisition. The remaining £13,950,000 was paid to vendors required to remain in
employment with the group until the targets were met. Hence, it has been treated as remuneration for post-combination services and
the grant date fair value charged to profit and loss. The contingent consideration payment was made 100% in shares (note 33).
Other deferred payments
The group continues to provide for the cost of other deferred and contingent payments to be made to vendors for the sale of the shares
of Speirs & Jeffrey, as well as related incentivisation awards for other staff. 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 grant date fair value charged to profit and loss over the respective vesting periods.
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 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.
— Earn-out consideration and related incentivisation awards are 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.
— Further details of each of these elements is as follows:
Initial share consideration
Earn-out consideration and incentivisation awards
Gross amount
£’000
25,000
26,400
Grant date
31 August 2018
31 August 2018
Grant date
fair value
Expected vesting date
£’000
23,462
31 August 2021
26,790 31 December 2020/21
The gross amount in respect of the earn-out consideration and incentivisation awards represents management’s best estimate as to
the extent to which the performance targets will be achieved. The maximum amount payable under this element, which represents a
considerable stretch against the targets, is £128,750,000 (note 3.3).
The charge recognised in profit or loss for the year ended 31 December 2019 for the above elements is as follows:
Initial share consideration
Contingent consideration
Earn-out consideration and incentivisation awards
Other deferred awards
Other deferred awards represent cash amounts paid one year following the acquisition date.
These costs are being reported as staff costs within acquisition-related costs (see note 10).
2019
£’000
8,402
6,015
9,724
1,885
26,026
2018
£’000
2,607
8,021
3,144
942
14,714
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Notes to the consolidated financial statements continued
10 Acquisition-related costs
Acquisition of Speirs & Jeffrey
Acquisition of Vision and Castle
Acquisition of Barclays Wealth’s personal injury and Court of Protection business
Acquisition-related costs
2019
£’000
30,837
2,041
179
33,057
2018
£’000
18,411
1,514
–
19,925
Costs relating to the acquisition of Speirs & Jeffrey
The group has incurred the following costs in relation to the 2018 acquisition of Speirs & Jeffrey, summarised by the classification within
the income statement:
Acquisition costs:
— Staff costs (note 9)
— Legal and advisory fees
— Stamp duty
Integration costs
2019
£’000
2018
£’000
26,026
103
–
4,708
30,837
14,714
2,465
653
579
18,411
Non-staff acquisition costs of £103,000 (2018: £3,118,000) and integration costs of £4,708,000 (2018: £579,000) have not been allocated to a
specific operating segment (note 4).
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
2019
£’000
1,375
666
2,041
2018
£’000
1,074
440
1,514
Amounts reported in staff costs relate to deferred payments to previous owners who were required to remain in employment with the
acquired companies until payment. The payment was settled at the end of 2019 (see note 28).
Costs relating to the acquisition of Barclays Wealth’s personal injury and Court of Protection business
On 27 November 2019, the group announced that it had agreed to acquire the Personal Injury and Court of Protection business of Barclays
Wealth, subject to regulatory approvals. The group incurred professional services costs of £179,000 (2018: £nil) in relation to the acquisition
in the year ended 31 December 2019.
11 Head office relocation
During 2018, the group completed the assignment of its leases on surplus property at 1 Curzon Street. This triggered a release of £3,726,000
from the onerous lease provision held over the property (see note 28).
During the year ended 31 December 2019, no further incremental costs have been incurred in relation to the head office relocation
(2018: credit of £2,861,000 was incurred).
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12 Staff costs
Wages and salaries
Social security costs
Equity-settled share-based payments
Acquisition-related staff costs (note 10)
Pension costs (note 31):
— defined benefit schemes
— defined contribution schemes
Total staff costs
Acquisition-related staff costs
Underlying staff costs (note 4)
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
13
Income tax expense
Current tax:
— charge for the year
— adjustments in respect of prior years
Deferred tax (note 23):
— credit for the year
— adjustments in respect of prior years
2019
£’000
139,577
18,652
9,328
26,026
255
9,784
10,039
203,622
(26,026)
177,596
2018
£’000
120,241
15,446
6,886
14,714
491
7,995
8,486
165,773
(14,714)
151,059
2019
2018
979
118
35
377
1,509
855
107
33
334
1,329
2019
£’000
2018
£’000
16,809
(893)
(3,767)
580
12,729
16,830
(1,599)
(1,049)
955
15,137
The tax charge is calculated based on our best estimate of the amount payable as at the balance sheet date. Any subsequent differences
between these estimates and the actual amounts paid are recorded as adjustments in respect of prior years.
The tax charge on profit for the year is higher (2018: higher) than the standard rate of corporation tax in the UK of 19.0% (2018: 19.0%).
The differences are explained below:
Tax on profit from ordinary activities at the standard rate of 19.0% (2018: 19.0%)
Effects of:
— disallowable expenses
— share-based payments
— tax on overseas earnings
— adjustments in respect of prior year
— deferred payments to previous owners of acquired companies (note 10)
— other
— change in corporation tax rate on deferred tax
2019
£’000
7,534
537
410
(233)
(313)
4,508
22
264
12,729
2018
£’000
11,650
1,210
211
(190)
(644)
2,904
(36)
32
15,137
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Notes to the consolidated financial statements continued
14 Dividends
Amounts recognised as distributions to equity holders in the year:
— final dividend for the year ended 31 December 2018 of 42.0p (2017: 39.0p) per share
— interim dividend for the year ended 31 December 2019 of 25.0p (2018: 24.0p) per share
Dividends paid in the year of 67.0p (2018: 63.0p) per share
Proposed final dividend for the year ended 31 December 2019 of 45.0p (2018: 42.0p) per share
2019
£’000
2018
£’000
22,433
13,526
35,959
24,188
19,858
12,833
32,691
22,371
An interim dividend of 25.0p per share was paid on 1 October 2019 to shareholders on the register at the close of business on
6 September 2019 (2018: 24.0p).
A final dividend declared of 45.0p per share (2018: 42.0p) is payable on 12 May 2020 to shareholders on the register at the close of
business on 24 April 2020. The final dividend is subject to approval by shareholders at the annual general meeting on 7 May 2020
and therefore has not been included as a liability in these financial statements.
15 Earnings per share
Earnings used to calculate earnings per share on the bases reported in these financial statements were:
Underlying profit attributable to shareholders
Charges in relation to client relationships and
goodwill (note 24)
Acquisition-related costs (note 10)
Head office relocation costs (note 11)
Profit attributable to shareholders
Pre-tax
£’000
88,673
(15,964)
(33,057)
–
39,652
2019
Taxation
£’000
(17,535)
3,033
1,773
–
(12,729)
Post-tax
£’000
71,138
(12,931)
(31,284)
–
26,923
Pre-tax
£’000
91,558
(13,188)
(19,925)
2,861
61,306
2018
Taxation
£’000
(17,388)
2,506
289
(544)
(15,137)
Post-tax
£’000
74,170
(10,682)
(19,636)
2,317
46,169
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 53,566,271 (2018: 52,050,979).
Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Speirs & Jeffrey
(S&J) initial share consideration and Executive Incentive Plan, employee share options remaining capable of exercise and any dilutive
shares to be issued under the Share Incentive Plan, all weighted for the relevant period:
Weighted average number of ordinary shares in issue during the year — basic
Effect of ordinary share options/Save As You Earn
Effect of dilutive shares issuable under the Share Incentive Plan
Effect of contingently issuable shares under the Executive Incentive Plan
Effect of contingently issuable shares under S&J initial share consideration (note 9)
Diluted ordinary shares
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
2019
2018
53,566,271 52,050,979
148,564
474
375,759
1,006,522
55,245,251 53,582,298
97,495
570
574,393
1,006,522
2019
2018
50.3p
48.7p
132.8p
128.8p
88.7p
86.2p
142.5p
138.4p
Underlying earnings per share is calculated in the same way as earnings per share, but by reference to underlying profit attributable
to shareholders.
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Rathbone Brothers Plc Report and accounts 2019
16 Cash and balances with central banks
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
The group’s exposure to credit risk arising from cash and balances with central banks is described in note 35.
17 Loans and advances to banks
Current accounts
Fixed term deposits
Less impairment loss allowance
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
2019
£’000
1
1,933,218
(222)
1,932,997
2018
£’000
1
1,198,600
(122)
1,198,479
2019
£’000
2018
£’000
1,930,000
3,219
(222)
1,932,997
1,197,001
1,600
(122)
1,198,479
1,930,000
3,219
(222)
1,932,997
1,197,001
1,600
(122)
1,198,479
2019
£’000
107,839
70,000
(7)
177,832
2018
£’000
126,203
40,000
(3)
166,200
2019
£’000
2018
£’000
107,839
10,000
60,000
(7)
177,832
107,556
70,000
283
(7)
177,832
126,072
10,131
30,000
(3)
166,200
125,855
40,000
348
(3)
166,200
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 2019 were £117,839,000 (note 40) (2018: £136,203,000).
The group’s exposure to credit risk arising from loans and advances to banks is described in note 35.
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Notes to the consolidated financial statements continued
18 Loans and advances to customers
Overdrafts
Investment management loan book
Trust and financial planning debtors
Other debtors
Less impairment loss allowance
2019
£’000
5,148
132,034
1,273
60
(103)
138,412
2018
£’000
6,096
131,741
1,196
29
(103)
138,959
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 35.
19
Investment securities
Fair value through profit or loss
Equity securities:
— listed
— unlisted
Money market funds:
— unlisted
Amortised cost
Debt securities:
— unlisted
Less impairment loss allowance
2019
£’000
2018
£’000
5,393
20,692
54,389
58,041
(103)
138,412
136,680
1,835
(103)
138,412
6,796
21,587
50,232
60,447
(103)
138,959
137,812
1,250
(103)
138,959
2019
£’000
4,587
1,186
2018
£’000
3,205
1,259
100,194
105,967
75,333
79,797
2019
£’000
2018
£’000
600,291
(30)
600,261
907,259
(34)
907,225
Debt securities comprise certificates of deposit and are all due to mature within one year (2018: all).
Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities comprise
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 40).
The fair value of debt securities is disclosed in note 35.
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Rathbone Brothers Plc Report and accounts 2019
The change in the group’s holdings of investment securities in the year is summarised below.
At 1 January 2018
Additions
Acquired through business combination
Disposals (sales and redemptions)
Foreign exchange movements
Loss from changes in fair value
Increase in impairment loss allowance
At 1 January 2019
Additions
Disposals (sales and redemptions)
Foreign exchange movements
Gain from changes in fair value
Decrease in impairment loss allowance
At 31 December 2019
Fair value
Amortised
through
cost
profit or loss
£’000
£’000
701,966
109,312
1,050,084
18,580
–
1,254
(847,088)
(50,835)
2,297
1,671
–
(185)
(34)
–
907,225
79,797
62,255
754,058
(35,276) (1,058,874)
(2,152)
–
4
600,261
(1,219)
410
–
105,967
Total
£’000
811,278
1,068,664
1,254
(897,923)
3,968
(185)
(34)
987,022
816,313
(1,094,150)
(3,371)
410
4
706,228
Included within amortised cost are additions of £ 900,000 (2018: £1,066,000) and £nil (2018: £1,066,000) of disposals of financial
instruments that are not classified as cash and cash equivalents.
20 Prepayments, accrued income and other assets
Work in progress
Prepayments and other assets
Accrued income
2019
£’000
3,608
21,531
70,251
95,390
2018
£’000
2,738
18,733
60,081
81,552
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Notes to the consolidated financial statements continued
21 Property, plant and equipment
Cost
At 1 January 2018
Additions
Acquisitions through business combinations
Disposals
At 1 January 2019
Additions
Disposals
At 31 December 2019
Depreciation
At 1 January 2018
Charge for the year
Acquisitions through business combinations
Disposals
At 1 January 2019
Charge for the year
Disposals
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 31 December 2018
Carrying amount at 1 January 2018
22 Right-of-use assets
Cost
1 January 2019
Additions
Disposals
Other movements
At 31 December 2019
Depreciation and impairment
1 January 2019
Charge for the year
Disposals
Other movements
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
Short-term
leasehold
improvements
£’000
24,705
1,376
1,442
(6,031)
21,492
1,294
(1,077)
21,709
12,297
1,690
711
(6,031)
8,667
2,012
(848)
9,831
11,878
12,825
12,408
Plant and
equipment
£’000
17,716
1,879
2,162
(656)
21,101
1,761
(1,250)
21,612
13,667
2,127
1,949
(655)
17,088
2,211
(1,241)
18,058
3,554
4,013
4,049
Property
£’000
Motor vehicles
and equipment
£’000
53,806
603
–
(134)
54,275
–
4,841
–
(19)
4,822
49,453
53,806
40
17
(40)
24
41
–
54
(40)
–
14
27
40
Total
£’000
42,421
3,255
3,604
(6,687)
42,593
3,055
(2,327)
43,321
25,964
3,817
2,660
(6,686)
25,755
4,223
(2,089)
27,889
15,432
16,838
16,457
Total
£’000
53,846
620
(40)
(110)
54,316
–
4,895
(40)
(19)
4,836
49,480
53,846
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Rathbone Brothers Plc Report and accounts 2019
23 Net deferred tax asset/(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 2019
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
1,319
584
123
(62)
645
–
–
–
–
–
–
–
–
Pensions
£’000
1,902
Share-based
payments
£’000
1,882
Staff-related
costs
£’000
4,209
Fair value
through
profit or loss
£’000
(154)
Intangible
assets
£’000
(9,639)
(546)
–
57
(489)
(59)
–
6
(53)
–
–
–
–
1,586
94
–
1,680
1,770
(797)
(186)
787
(160)
–
10
(150)
798
–
(84)
714
–
–
–
–
(17)
–
–
(17)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
(481)
4,032
(580)
(265)
3,187
(59)
–
6
(53)
(17)
–
–
(17)
As at 31 December 2019
1,964
1,360
3,545
4,996
(304)
(8,925)
2,636
Deferred tax assets
Deferred tax liabilities
As at 31 December 2019
Deferred
capital
allowances
£’000
1,964
–
1,964
Pensions
£’000
1,360
–
1,360
Share-based
payments
£’000
3,545
–
3,545
Staff-related
costs
£’000
4,996
–
4,996
Fair value
through
profit or loss
£’000
–
(304)
(304)
Intangible
assets
£’000
–
(8,925)
(8,925)
Total
£’000
11,865
(9,229)
2,636
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Notes to the consolidated financial statements continued
23 Net deferred tax asset/(liability) continued
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
Deferred
capital
allowances
£’000
1,284
121
(29)
(13)
79
–
–
–
–
–
–
–
–
Acquisitions
— business combinations
(44)
Pensions
£’000
2,650
Share-based
payments
£’000
1,539
Staff-related
costs
£’000
4,331
Fair value
through
profit or loss
£’000
(50)
Intangible
assets
£’000
(693)
(605)
–
64
(541)
(231)
–
24
(207)
–
–
–
–
–
400
(29)
–
371
–
–
–
–
80
(108)
–
(28)
–
807
(844)
(85)
(122)
33
(53)
12
(8)
325
–
(10)
315
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
9,061
1,081
(955)
(32)
94
(231)
–
24
(207)
80
(108)
–
(28)
(96)
(9,261)
(9,401)
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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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
24
Intangible assets
Goodwill
Other intangible assets
2019
£’000
90,405
137,402
227,807
2018
£’000
91,000
147,918
238,918
Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to the groups of cash generating units (CGUs) that are expected
to benefit from that business combination. During the year, the group revised its methodology by which it defines its CGUs and how
it allocates goodwill to groups of CGUs. This resulted in goodwill of £227,000 previously allocated to the Rooper & Whately CGU being
reallocated to the investment management group of CGUs. Under this revised methodology, the carrying amount of goodwill has been
allocated as follows:
Cost
At 1 January 2018
Acquired through business combinations
At 1 January 2019 and 31 December 2019
Impairment
At 1 January 2018
Charge in the year
At 1 January 2019
Charge in the year
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 31 December 2018
Carrying amount at 1 January 2018
Investment
management
£’000
62,318
28,087
90,405
–
–
–
–
–
90,405
90,405
62,318
Trust
£’000
1,954
–
1,954
1,090
269
1,359
595
1,954
–
595
864
Total
£’000
64,272
28,087
92,359
1,090
269
1,359
595
1,954
90,405
91,000
63,182
Goodwill acquired through business combinations in 2018 comprised goodwill arising on the acquisition of Speirs & Jeffrey. The goodwill
was allocated to the investment management group of CGUs. The group does not believe there are any key assumptions where reasonable
changes could occur which could give rise to a material adjustment in the carrying value.
The recoverable amounts of the groups of 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 five years
based on annual revenue and cost growth for each group of CGUs (see table below), as well as the group’s expectation of future industry
growth rates. A five-year extrapolation period is chosen as this aligns with the period covered by the group’s ICAAP modelling. A terminal
growth rate is applied to year-five cash flows, which takes into account the net growth forecasts over the extrapolation period and the
long-term average growth rate for the industry. 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 group of CGUs.
The pre-tax rate used to discount the forecast cash flows for each group of CGUs 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
groups of CGUs operate and, in particular, the relatively small size of the trust group of CGUs.
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Notes to the consolidated financial statements continued
24
Intangible assets continued
At 31 December
Discount rate
Annual revenue growth rate
Terminal growth rate
Investment management
Trust
2019
8.7%
3.0%
(2.0)%
2018
12.3%
5.0%
n/a
2019
10.7%
(1.0)%
(3.0)%
2018
14.3%
(1.0)%
n/a
During the year ended 31 December 2019, the group recognised an impairment charge of £595,000 in relation to goodwill allocated to the
trust group of CGUs. The recoverable amount of the group of CGUs was lower than the carrying value, which reflected the fact that the
business associated with this goodwill is contracting. This reduced the carrying value of the goodwill allocated to the trust group of CGUs
to £nil. The impairment was recognised in the Investment Management segment in the segmental analysis.
No reasonably foreseeable changes to the assumptions used in the value-in-use calculation for the investment management group of
CGUs, 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 2018
Internally developed in the year
Acquired through business combinations
Purchased in the year
Disposals
Revaluation of assets
At 1 January 2019
Internally developed in the year
Purchased in the year
Disposals
At 31 December 2019
Amortisation and impairment
At 1 January 2018
Amortisation charge
Disposals
At 1 January 2019
Impairment charge
Amortisation charge
Disposals
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 31 December 2018
Carrying amount at 1 January 2018
Client
relationships
£’000
155,103
–
54,337
1,298
(2,182)
(4,939)
203,617
–
5,269
(1,750)
207,136
58,324
12,919
(2,182)
69,061
–
15,369
(1,750)
82,680
124,456
134,556
96,779
Software
development
costs
£’000
5,759
1,450
–
–
–
–
7,209
1,485
–
(512)
8,182
4,529
686
–
5,215
415
919
(512)
6,037
2,145
1,994
1,230
Purchased
software
£’000
30,590
–
–
6,297
–
–
36,887
–
7,012
(2,751)
41,148
21,536
3,983
–
25,519
2,727
4,843
(2,742)
30,347
10,801
11,368
9,054
Total
£’000
191,452
1,450
54,337
7,595
(2,182)
(4,939)
247,713
1,485
12,281
(5,013)
256,466
84,389
17,588
(2,182)
99,795
3,142
21,131
(5,004)
119,064
137,402
147,918
107,063
Client relationships acquired through business combinations in 2018 relate to the acquisition of Speirs & Jeffrey (note 9).
Purchases of client relationships of £5,269,000 (2018: £1,298,000) 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 £15,369,000 (2018: £13,188,000).
In 2018 the value of certain awards related to client relationships were reduced by £4,939,000 as not all performance conditions were
ultimately met.
Purchased software with a cost of £20,373,000 (2018: £18,769,000) has been fully amortised but is still in use.
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25 Deposits by banks
On 31 December 2019, deposits by banks included overnight cash book overdraft balances of £28,000 (2018: £491,000).
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.
26 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
2019
£’000
2018
£’000
2,500,578
160,098
7,969
2,668,645
2,500,378
91,639
76,628
2,668,645
2,065,029
153,127
7,380
2,225,536
2,064,814
131,327
29,395
2,225,536
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.
27 Accruals, deferred income, provisions and other liabilities
Trade creditors
Other creditors
Accruals
Other provisions (note 28)
2019
£’000
4,001
7,680
72,850
8,732
93,263
2018
£’000
2,513
20,395
68,701
11,784
103,393
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Notes to the consolidated financial statements continued
28 Other provisions
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 1 January 2019
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 2019
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
12,147
–
–
–
(3,641)
(7,445)
1,061
–
–
–
5,269
(5,011)
1,319
590
729
1,319
Deferred and
contingent
consideration
in business
combinations
£’000
1,220
–
–
–
3,158
(2,000)
2,378
–
–
–
179
(2,557)
–
Legal and
compensation
£’000
677
449
(57)
392
–
(260)
809
2,852
(320)
2,532
–
(1,166)
2,175
–
–
–
2,175
–
2,175
Property-
related
£’000
13,743
1,836
(3,726)
(1,890)
600
(4,917)
7,536
1,350
(310)
1,040
–
(3,338)
5,238
845
4,393
5,238
Total
£’000
27,787
2,285
(3,783)
(1,498)
117
(14,622)
11,784
4,202
(630)
3,572
5,448
(12,072)
8,732
3,610
5,122
8,732
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 in relation to the value of certain
payments where not all performance conditions were ultimately met.
Deferred and contingent consideration in business combinations
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey
in May 2019 (see note 9). In addition, contingent consideration of £1,507,000 was paid in October 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 £5,238,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group
and to monies due under the contract with the assignee of leases on the group’s former property at 1 Curzon Street (2018: £7,536,000).
Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2019, dilapidation
provisions increased by £677,000 (2018: increased by £1,449,000). The group utilised £3,338,000 (2018: £912,000) of the dilapidations
provision held for the surplus property at 1 Curzon Street during the year. The impact of discounting led to an additional £1,364,000
(2018: £125,000) being provided for over the year.
Amounts payable after one year
Property-related provisions of £4,393,000 are expected to be settled within 14 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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29 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Lease liabilities at 31 December
Current
Non-current
30 Subordinated loan notes
Subordinated loan notes
— face value
— carrying value
2019
£’000
5,126
19,193
36,685
61,004
5,126
55,878
61,004
2019
£’000
2018
£’000
20,000
19,927
20,000
19,807
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 six-month
LIBOR thereafter. An interest expense of £1,290,000 (2018: £1,283,000) was recognised in the year (see note 5).
31 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 £9,726,000
(2018: £7,959,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions
were £58,000 (2018: £36,000).
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 High Court ruling in 2018, the cost of equalising pension benefits for the impact of unequal Guaranteed Minimum Pensions
(GMP) has been recognised. Only the Laurence Keen Scheme was 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.
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Notes to the consolidated financial statements continued
31
Long-term employee benefits continued
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.
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 may 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
2019 %
(unless stated)
n/a
3.40
3.10
2.05
3.10
3.00
52.5
2018 %
(unless stated)
n/a
3.60
3.40
2.85
3.40
3.00
52.5
2019 %
(unless stated)
n/a
3.10
3.10
2.05
3.10
3.00
52.5
2018 %
(unless stated)
n/a
3.30
3.40
2.85
3.40
3.00
52.5
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Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically:
1. the discount rate has been decreased by 0.8% to reflect a decrease in the yields available on AA-rated Corporate Bonds;
2. the assumed rate of future inflation has decreased by 0.3% and reflects expectations of long-term inflation as implied by changes in the
fixed-interest and index-linked gilts market; and
3. the assumed rates of future increases to pensions in payment have decreased by 0.2% for both schemes, 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 2017 version to the 2018 version.
The assumed duration of the liabilities for the Laurence Keen Scheme is 19 years (2018: 17 years) and the assumed duration for the
Rathbone 1987 Scheme is 22 years (2018: 21 years).
The normal retirement age for members of the Laurence Keen Scheme is 65 (60 for certain former directors). The normal retirement age
for members of the Rathbone 1987 Scheme is 60 for service prior to 1 July 2009 and 65 thereafter, following the introduction of pension
benefits based on Career Average Revalued Earnings (CARE) from that date. The assumed life expectancy for the membership of both
schemes is based on the S2NA actuarial tables (2018: S2NA tables). The assumed life expectancies on retirement were:
Retiring today:
Retiring in 20 years:
aged 60
aged 65
aged 60
aged 65
2019
2018
Males
27.9
23.1
29.7
24.7
Females
30.0
25.1
31.9
26.9
Males
28.4
23.6
30.3
25.3
Females
30.5
25.6
32.3
27.3
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
(12,726)
12,178
(548)
2019
Rathbone
1987 Scheme
£’000
(146,398)
138,932
(7,466)
Total
£’000
(159,124)
151,110
(8,014)
Laurence Keen
Scheme
£’000
(12,383)
11,624
(759)
The amounts recognised in profit or loss, within operating expenses, are as follows:
Net interest on net liability
Past service cost
Laurence Keen
Scheme
£’000
15
–
15
2019
Rathbone
1987 Scheme
£’000
240
–
240
Total
£’000
255
–
255
Laurence Keen
Scheme
£’000
14
125
139
2018
Rathbone
1987 Scheme
£’000
(134,150)
123,712
(10,438)
2018
Rathbone
1987 Scheme
£’000
352
–
352
Total
£’000
(146,533)
135,336
(11,197)
Total
£’000
366
125
491
Remeasurements of the net defined benefit liability have been reported in other comprehensive income. The actual return on
scheme assets was a rise in value of £1,380,000 (2018: £280,000 fall) for the Laurence Keen Scheme and a rise in value of £18,357,000
(2018: £6,279,000 fall) for the Rathbone 1987 Scheme.
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Notes to the consolidated financial statements continued
31
Long-term employee benefits continued
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Service cost (employer’s part)
Interest cost
Contributions from members
Actuarial experience gains
Actuarial (gains)/losses arising from:
— demographic assumptions
— financial assumptions
Past service cost
Benefits paid
At 31 December
Laurence Keen
Scheme
£’000
12,383
–
336
–
10
(293)
1,452
–
(1,162)
12,726
Movements in the fair value of scheme assets were as follows:
Laurence Keen
Scheme
£’000
11,624
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
2019
Rathbone
1987 Scheme
£’000
134,150
–
3,739
–
121
(3,243)
17,560
–
(5,929)
146,398
2019
Rathbone
1987 Scheme
£’000
123,712
Total
£’000
146,533
–
4,075
–
131
(3,536)
19,012
–
(7,091)
159,124
Laurence Keen
Scheme
£’000
12,980
–
334
–
106
103
(487)
125
(778)
12,383
Total
£’000
135,336
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
Total
£’000
148,513
321
3,499
3,820
320
3,527
3,847
1,059
336
–
(1,162)
12,178
14,858
2,792
–
(5,929)
138,932
15,917
3,128
–
(7,091)
151,110
(600)
404
–
(778)
11,624
(9,806)
3,269
–
(9,513)
123,712
(10,406)
3,673
–
(10,291)
135,336
The statements of investment principles set by the trustees of both schemes were revised in 2015. They require that the assets of the
schemes be 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 2019 as set out in the statements of investment principles are as follows:
Target asset allocation at 31 December 2019
Benchmark
Safer assets
Growth assets
Range
Safer assets
Growth assets
Laurence Keen
Scheme
Rathbone
1987 Scheme
58%
42%
46%
54%
52%–64% 40%–52%
36%–48% 48%–60%
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Rathbone Brothers Plc Report and accounts 2019
The analysis of the scheme assets, measured at bid prices, at the balance sheet date was as follows:
Laurence Keen Scheme
Equity instruments:
— United Kingdom
— Eurozone
— North America
— Other
Debt instruments:
— United Kingdom government bonds
— Overseas corporate bonds
— United Kingdom corporate bonds
Cash
Other
At 31 December
Rathbone 1987 Scheme
Equity instruments:
— United Kingdom
— Eurozone
— North America
— Other
Debt instruments:
— United Kingdom government bonds
— Overseas government bonds
— United Kingdom corporate bonds
— Overseas corporate bonds
Derivatives:
— Interest rate swap funds
Cash
Other
At 31 December
2019
Fair
value
£’000
3,320
408
696
704
5,128
4,693
158
1,847
6,698
79
273
12,178
2019
Fair
value
£’000
42,518
6,769
9,492
8,887
67,666
37,184
1,324
11,198
–
49,706
2018
Fair
value
£’000
3,007
377
588
734
4,706
4,475
–
1,993
6,468
84
366
11,624
2018
Fair
value
£’000
34,367
6,110
8,958
7,081
56,516
36,055
2,042
8,809
–
46,906
14,615
14,615
6,945
–
138,932
15,734
15,734
4,556
–
123,712
2019
Current
allocation
%
2018
Current
allocation
%
42
40
55
1
2
100
56
1
3
100
2019
Current
allocation
%
2018
Current
allocation
%
48
45
36
38
11
5
–
100
13
4
–
100
During 2019, the Rathbone 1987 Scheme held shares in real-time inflation-linked interest rate swap funds, which had a fair value of
£14,615,000 at the year end (2018: £15,734,000). 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 the 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 as at the balance sheet date. Other scheme assets comprise commodities and property funds, both
of which also have quoted prices in active markets.
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Notes to the consolidated financial statements continued
31
Long-term employee benefits continued
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 1.0% higher (and lower) 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. As a result of the
change in the discount rate during the year, the sensitivity analysis demonstrates the impact of a 1.0% change in discount rate, compared
to a 0.5% change in the disclosures in the 2018 report and accounts.
1.0% increase in:
— discount rate
0.5% increase in:
— 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
%
(Decrease)/
increase
£’000
(28,701)
(18.0%)
10,015
1,417
7,167
708
6.3%
0.9%
4.5%
0.4%
The total contributions made by the group to the Rathbone 1987 Scheme during the year were £2,792,000 (2018: £3,269,000). The group
has committed to pay deficit-reducing contributions of £1,750,000 by 28 February each year from 2020 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 £336,000 (2018: £404,000). The group
has a commitment to pay deficit-reducing contributions of £168,000 by 28 February each year from 2020 to 2021 (inclusive) and a further
£168,000 by 31 August in each of those years, so long as that scheme remains in deficit.
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.
32 Share capital and share premium
The following movements in share capital occurred during the year:
At 1 January 2018
Shares issued:
— in relation to business combinations (note 9)
Prior period adjustment (note 1.3)
— to Share Incentive Plan
— to Save As You Earn scheme
— to Employee Benefit Trust
— on placing
At 1 January 2019 (restated)
Shares issued:
— in relation to business combinations (note 9)
— to Share Incentive Plan
— to Save As You Earn scheme
— to Employee Benefit Trust
At 31 December 2019
Number of
shares
51,302,074
Exercise/
issue price
pence
Share
capital
£’000
2,566
Share
premium
£’000
143,089
Merger reserve
£’000
31,835
1,006,522
2,484.0
50
79,649
149,340
269,372
2,400,000
55,206,957
603,913
150,766
143,502
256,848
56,361,986
2,354.0–2,488.0
1,106.0–1,648.0
5.0
2,500.0
2,484.0
2,085.0–2,540.0
1,556.0–1,648.0
5.0
4
7
13
120
2,760
30
8
7
13
2,818
24,950
(24,950)
1,945
2,050
–
58,189
205,273
–
3,364
2,302
–
210,939
–
24,950
–
–
–
–
56,785
14,971
–
–
–
71,756
Total
£’000
177,490
–
25,000
–
1,949
2,057
13
58,309
264,818
15,001
3,372
2,309
13
285,513
The total number of issued and fully paid up ordinary shares at 31 December 2019 was 56,361,986 (2018: 55,206,957) with a par value of
5p per share.
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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 9). These shares are being held in own shares (see note 33) until they vest on the third anniversary of issue.
On 28 May 2019, the company issued 603,913 shares in respect of the contingent consideration from the acquisition of Speirs & Jeffery
(see note 9), following the satisfaction of certain operational targets.
33 Own shares
The following movements in own shares occurred during the year:
At 1 January 2018
Acquired in the year
Released on vesting
At 1 January 2019
Acquired in the year
Released on vesting
At 31 December 2019
Number of
shares
656,693
1,465,828
(178,668)
1,943,853
694,152
(26,563)
2,611,442
£’000
4,864
29,888
(2,015)
32,737
10,033
(799)
41,971
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 34).
1,292,627 shares were held in the Employee Benefit Trust at 31 December 2019 (2018: 664,071) and 312,293 (2018: 273,260) shares were
held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees. A further 1,006,552 (2018: 1,006,552)
shares were held in nominee in respect of the initial share consideration for the acquisition of Speirs & Jeffrey (see note 32). For those
shares acquired during the year, 317,281 shares were acquired through share buybacks (2018: 77,481).
34 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 in monthly 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 2019, the trustees of the SIP held 1,065,917 (2018: 1,086,261) ordinary shares of 5p each in Rathbone Brothers Plc with
a total market value of £22,704,000 (2018: £25,440,000). Of the total number of shares held by the trustees, 311,972 (2018: 261,253) have
been conditionally gifted to employees and 321 (2018: 12,007) remain unallocated. Dividends on the unallocated shares have been waived
by the trustees.
The group recognised a charge of £1,324,000 in relation to this scheme in 2019 (2018: £1,337,000).
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.
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Notes to the consolidated financial statements continued
34 Share-based payments continued
Options with an aggregate estimated fair value of £1,244,000, determined using a binomial valuation model including expected dividends,
were granted on 18 April 2019 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during
2019, as at the date of issue, were as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Risk-free rate
Expected dividend yield
2019
2,400
1,813
24%
0.8%
2.8%
2018
2,302
1,977
20%
1.0%
2.6%
The number of share options outstanding for the SAYE plan at the end of the year, the period in which they were granted and the dates on
which they may be exercised are given below.
Year of grant
2014
2015
2016
2017
2018
2019
At 31 December
Exercise price
pence
1,556.0
1,641.0
1,648.0
1,899.0
1,977.0
1,813.0
Exercise
period
2019
2020
2019 and 2021
2020 and 2022
2021 and 2023
2022 and 2024
2019
Number
of share
options
964
43,456
44,972
109,285
127,363
194,564
520,604
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
2019
2018
Number
of share
options
501,379
201,406
(38,679)
(143,502)
520,604
Weighted
average
exercise price
pence
1,800.0
1,813.0
1,893.0
1,612.0
1,842.0
Number
of share
options
525,891
156,588
(31,240)
(149,860)
501,379
2018
Number
of share
options
57,005
48,828
131,598
117,202
146,746
–
501,379
Weighted
average
exercise price
pence
1,620.0
1,977.0
1,800.0
1,379.0
1,800.0
The weighted average share price at the dates of exercise for share options exercised during the year was £23.11 (2018: £24.38). The options
outstanding at 31 December 2019 had a weighted average contractual life of 2.5 years (2018: 2.4 years) and a weighted average exercise price
of £18.42 (2018: £17.92).
Executive Incentive Plan
Details of the general terms of this plan are set out in the remuneration committee report on pages 96 to 101.
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.
The group recognised a charge of £3,104,000 in relation to the equity-settled share-based payment element of this scheme in 2019
(2018: £2,033,000).
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Rathbone Brothers Plc Report and accounts 2019
Staff Equity Plan
During 2018, the group launched a new remuneration scheme, the 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.
The group recognised a charge of £3,647,000 in relation to this scheme in 2019 (2018: £2,572,000).
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 charges of £9,328,000 in relation to share-based payment transactions in 2019 (2018: £6,886,000) (see note 12).
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 9.
35 Financial risk management
The group has identified the financial, business and operational risks arising from its activities and has established policies and procedures
to manage these items in accordance with its risk appetite, as described in the group risk committee report on pages 80 to 82.
The group categorises its financial risks into the following primary areas:
credit risk (which includes counterparty default risk)
liquidity risk
(i)
(ii)
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) and
(iv) pension risk.
The group’s exposures to pension risk are set out in note 31.
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 sources of credit risk arise 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.
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(i) Credit risk continued
The group’s financial assets are categorised as follows:
Balances with central banks (note 16)
The group has exposure to central banks through its deposits held with the Bank of England.
Loans and advances to banks (note 17) and debt and other securities (note 19)
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
2019
£’000
1,933,218
70,000
600,261
100,194
2,703,673
2018
£’000
1,198,600
40,000
907,225
75,333
2,221,158
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 18)
The group provides loans to clients through its investment management operations (‘the investment management loan book’). The
group is also exposed to credit risk on overdrafts on clients’ investment management accounts, trade debtors arising from the trust, tax
and financial planning businesses (‘trust and financial planning debtors’) and other debtors.
(a) Overdrafts
Overdrafts on clients’ investment management accounts arise from time to time due to short-term timing differences between
the purchase and sale of assets on a client’s behalf. Overdrafts are actively monitored and reported to the banking committee on
a monthly basis.
(b)
Investment management loan book (’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 2019, the total lending exposure limit for the investment management loan book was £200,000,000 (2018:
£200,000,000), of which £131,848,000 had been advanced (2018: £131,071,000) and a further £31,284,000 had been committed
(2018: £32,854,000).
(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.
(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.
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Rathbone Brothers Plc Report and accounts 2019
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.
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 37)
2019
£’000
2018
£’000
1,933,218
52,520
177,832
1,198,602
39,754
166,203
5,148
132,033
1,272
60
6,096
131,741
1,196
29
700,492
88,149
982,595
74,990
31,284
117
3,122,125
32,854
117
2,634,177
The above table represents the group’s gross credit risk exposure at 31 December 2019 and 2018, without taking account of any
associated collateral held or other credit enhancements. For on-balance sheet assets, the exposures set out above are based on gross
carrying amounts.
10.1% of the total maximum exposure is derived from loans and advances to banks and customers (2018: 11.6%) and 22.4% represents
investment securities (2018: 37.3%).
The credit risk relating to off-balance sheet exposures for financial guarantees reflects the group’s gross potential exposure of guarantees
held on balance sheet (see note 1.22).
Impairment of financial instruments
The group’s accounting policy governing impairment of financial assets is given in note 1.13. Impairment losses on financial assets
recognised in profit or loss were as follows. The main class of asset these impairment losses have arisen against are cash and balances
held with central banks.
Impairment losses/(reversals) arising from:
— treasury book
— investment management loan book
— trust and financial planning debtors
2019
£’000
99
(11)
15
103
2018
£’000
33
10
23
66
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.
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(i) Credit risk continued
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 is 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. This is 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).
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. 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, and 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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The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL. 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:
2019
At amortised cost
2018
At amortised cost
Fair value
through
profit or loss
£’000
100,194
12-month
ECL
£’000
–
– 2,138,435
465,074
–
100,194 2,603,509
(259)
100,194 2,603,250
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
–
–
–
Lifetime ECL –
credit-
impaired
£’000
–
–
–
–
–
–
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
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
–
–
–
Lifetime ECL –
credit-
impaired
£’000
–
–
–
–
–
–
– 1,932,996
–
69,993
600,261
–
100,194
–
100,194 2,603,250
–
–
–
–
–
–
–
–
–
–
– 1,198,478
–
39,997
–
907,225
75,333
–
75,333 2,145,700
–
–
–
–
–
–
–
–
–
–
AAA
AA+ to AA-
A+ to A-
Gross carrying amounts
Loss allowance
Carrying amount
Cash and balances with
central banks
Loans and advances to banks
Unlisted debt securities
Money market funds
Carrying amount
The movement in allowance for impairment for the treasury book during the year was as follows.
Balance at 1 January 2019
Net remeasurement of loss allowance
Balance at 31 December 2019
Cash and balances with central banks
Loans and advances to banks
Unlisted debt securities
ECL provision
12-month
ECL
£’000
159
100
259
222
7
30
259
Lifetime ECL –
not credit-
impaired
£’000
–
Lifetime ECL –
credit-
impaired
£’000
–
–
–
–
–
–
–
–
–
–
–
Total ECL
£’000
159
100
259
222
7
30
259
The increase in the loss allowance during 2019 is due to an increase in the gross amount held with the Bank of England, against which the
group holds the largest ECL provision.
IM loan book assessment
Due to the lack of historical defaults within the IM loan book, the model 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 PDs. The same
methodology is applied for separate upside and downside scenarios as required by the standard.
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(i) Credit risk continued
The following table presents an analysis of the credit quality of IM loan book exposures at amortised cost. 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
2019
Lifetime ECL –
not credit-
impaired
£’000
–
–
–
353
353
–
353
At amortised cost
Lifetime ECL –
credit-
impaired
£’000
–
–
–
–
–
–
–
12-month ECL
£’000
16,730
92,215
20,743
40
129,728
(11)
129,717
2018
Lifetime ECL –
not credit-
impaired
£’000
–
680
–
660
1,340
–
1,340
12-month
ECL
£’000
28,718
84,452
18,471
40
131,681
–
131,681
The movement in allowance for impairment for the IM loan book during the year was as follows.
Balance at 1 January 2019
Net remeasurement of loss allowance
Balance at 31 December 2019
12-month
ECL
£’000
11
(11)
–
Lifetime ECL –
not credit-
impaired
£’000
–
Lifetime ECL –
credit-
impaired
£’000
–
–
–
Lifetime ECL –
credit-
impaired
£’000
–
–
–
–
–
–
–
Total ECL
£’000
11
(11)
–
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 2019:
Rathbone Trust Company
Rathbone Trust & Legal Services
Rathbone Financial Planning
Gross carrying amounts
Loss allowance
Carrying amount
Rathbone Trust Company
<90 days overdue
90-180 days overdue
180-270 days overdue
270-365 days overdue
>365 days overdue
2019
£’000
808
221
244
1,273
(103)
1,170
Weighted average
loss rate
£’000
0.4%
1.8%
2.9%
6.0%
31.2%
Gross carrying
amount
£’000
519
112
49
11
117
808
Not credit-
impaired
£’000
(2)
(2)
(1)
(1)
(9)
(15)
Loss allowance
Credit-
impaired
£’000
–
(1)
(2)
–
(84)
(87)
2018
£’000
734
415
47
1,196
(92)
1,104
Total
£’000
(2)
(3)
(3)
(1)
(93)
(102)
172
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Rathbone Brothers Plc Report and accounts 2019
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
£’000
0.0%
0.0%
0.0%
0.0%
0.0%
Gross carrying
amount
£’000
170
14
17
–
20
221
Not credit-
impaired
£’000
–
–
–
–
–
–
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.
Movement in impairment provision during the year
At 1 January
Amounts written off
Credit to profit or loss
At 31 December 2019
Total
£’000
–
–
–
–
(1)
(1)
Trust and
financial
planning
debtors
£’000
92
(4)
15
103
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 2019
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
1,932,996
50,503
176,032
4,868
120,046
1,170
60
Eurozone
£’000
–
397
–
Rest of the World
£’000
–
1,620
1,800
Total
£’000
1,932,996
52,520
177,832
37
508
–
–
243
11,480
–
–
5,148
132,034
1,170
60
189,984
77,794
2,553,453
280,283
1,732
282,957
230,188
4,052
249,383
700,455
83,578
3,085,793
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(i) Credit risk continued
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
United Kingdom
£’000
1,198,478
35,781
164,438
5,529
122,522
1,104
29
Eurozone
£’000
–
3,412
1,754
Rest of the World
£’000
–
561
8
Total
£’000
1,198,478
39,754
166,200
67
191
–
–
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
477,458
982,558
70,498
2,596,447
At 31 December 2019, materially all Eurozone exposures were to counterparties based in the Netherlands, France, Finland, Ireland
and Luxembourg (2018: Netherlands, France, Finland, Ireland and Luxembourg) and materially all rest of the world exposures were
to counterparties based in Switzerland, Sweden, Norway, Canada and Australia (2018: Switzerland, Sweden, Norway, Canada and
Australia). At 31 December 2019, the group had no exposure to sovereign debt (2018: no exposure to sovereign debt).
(b)
Industry sectors
The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
operate, were:
At 31 December 2019
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
1,932,996
–
–
Financial
institutions
£’000
–
52,520
177,832
–
–
–
–
–
–
–
–
Clients
and other
corporates
£’000
–
–
–
5,148
132,034
1,170
60
Total
£’000
1,932,996
52,520
177,832
5,148
132,034
1,170
60
–
500
1,933,496
700,455
5,974
936,781
–
77,104
215,516
700,455
83,578
3,085,793
174
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
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
Public
sector
£’000
1,198,477
–
–
Financial
institutions
£’000
1
39,674
166,200
Clients
and other
corporates
£’000
–
80
–
Total
£’000
1,198,478
39,754
166,200
–
–
–
–
–
–
–
–
6,096
131,730
1,104
29
6,096
131,730
1,104
29
–
295
1,198,772
982,558
4,781
1,193,214
–
65,422
204,461
982,558
70,498
2,596,447
(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.
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(ii) Liquidity risk continued
At 31 December 2019
Cash and balances with central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities and money market funds
Other financial assets
Cash flows arising from financial assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from financial
liabilities
Net liquidity gap
Cumulative net liquidity gap
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 assets
Deposits by banks
Settlement balances
Due to customers
Subordinated loan notes
Other financial liabilities
Cash flows arising from financial
liabilities
Net liquidity gap
Cumulative net liquidity gap
On
demand
£’000
1,930,001
–
107,835
5,393
100,282
1,857
2,145,368
28
–
2,500,578
–
148
Not more than
3 months
£’000
500
52,521
10,125
20,743
277,971
74,783
436,643
–
57,694
160,178
586
59,961
After 3 months
but not more
than 1 year
£’000
3,218
–
60,756
55,251
328,298
1,026
448,549
–
–
8,019
20,586
7,859
After 1 year
but not more
than 5 years
£’000
–
–
–
61,864
–
3,954
65,818
–
–
–
–
49,083
After
5 years
£’000
–
–
–
–
–
1,585
1,585
–
–
–
–
59,263
No fixed
maturity date
£’000
Total
£’000
– 1,933,719
52,521
–
178,716
–
143,251
–
706,551
–
–
83,205
– 3,097,963
28
–
–
57,694
– 2,668,775
21,172
–
176,314
–
2,500,754
(355,386)
(355,386)
278,419
158,224
(197,162)
36,464
412,085
214,923
49,083
16,735
231,658
59,263
(57,678)
173,980
– 2,923,983
173,980
–
173,980
On
demand
£’000
1,197,001
–
126,073
6,796
75,436
406
1,405,712
491
–
2,065,029
–
139
Not more than
3 months
£’000
295
39,754
10,512
21,638
309,666
59,090
440,955
–
36,692
153,229
586
47,199
After 3 months
but not more
than 1 year
£’000
1,600
–
30,333
51,097
605,562
3,871
692,463
–
–
7,422
586
7,803
After 1 year
but not more
than 5 years
£’000
–
–
–
64,582
–
4,348
68,930
–
–
–
21,171
28,682
After
5 years
£’000
–
–
–
–
–
2,295
2,295
–
–
–
–
6,799
No fixed
maturity date
£’000
Total
£’000
– 1,198,896
39,754
–
166,918
–
144,113
–
990,664
–
–
70,010
– 2,610,355
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
Liabilities which do not have a contractual maturity date are categorised as ‘on demand’. Included within the amounts due to customers on
demand are balances which historical experience shows are unlikely to be called in the short term. A prudent level of highly liquid assets is
retained to cover reasonably foreseeable short-term changes in client deposits. All debt securities are readily marketable and can be realised
through disposals.
The group holds £4,587,000 of equity investments (2018: £3,205,000) 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.
176
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Rathbone Brothers Plc Report and accounts 2019
(iii) Market risk
Off-balance sheet items
Cash flows arising from the group’s off-balance sheet financial liabilities (note 37) 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 2019
Loan commitments
Financial guarantees
Capital commitments
Total off-balance sheet items
At 31 December 2018
Loan commitments
Financial guarantees
Operating lease commitments
Capital commitments
Total off-balance sheet items
Total liquidity requirement
Not more than
3 months
£’000
31,284
–
787
32,071
Not more than
3 months
£’000
32,854
–
2,037
603
35,494
At 31 December 2019
Cash flows arising from financial liabilities
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
On
demand
£’000
2,500,754
–
2,500,754
Not more than
3 months
£’000
278,419
32,071
310,490
On
demand
£’000
2,065,659
–
2,065,659
Not more than
3 months
£’000
237,706
35,494
273,200
After 3 months
but not more
than 1 year
£’000
–
–
–
–
After 3 months
but not more
than 1 year
£’000
–
–
6,216
–
6,216
After 3 months
but not more
than 1 year
£’000
36,464
–
36,464
After 3 months
but not more
than 1 year
£’000
15,811
6,216
22,027
After 1 year
but not more
than 5 years
£’000
–
117
–
117
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
49,083
117
49,200
After 1 year
but not more
than 5 years
£’000
49,853
30,075
79,928
After
5 years
£’000
–
–
–
–
After
5 years
£’000
–
–
52,337
–
52,337
After
5 years
£’000
59,263
–
59,263
After
5 years
£’000
6,799
52,337
59,136
Total
£’000
31,284
117
787
32,188
Total
£’000
32,854
117
90,548
603
124,122
Total
£’000
2,923,983
32,188
2,956,171
Total
£’000
2,375,828
124,122
2,499,950
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Notes to the consolidated financial statements continued
35 Financial risk management continued
(iii) Market risk continued
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 2019
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
After 3 months
but not more
than 6 months
£’000
After 6 months
but not more
than 1 year
£’000
After 1 year
but not more
than 5 years
£’000
After
5 years
£’000
Non-interest-
bearing
£’000
Total
£’000
1,929,779
–
117,555
136,680
–
375,483
1,565
2,561,062
28
–
2,584,048
–
–
2,584,076
(23,014)
–
–
29,998
–
–
29,996
–
–
204,989
–
234,987
–
–
7,969
–
–
7,969
227,018
–
–
119,983
–
149,979
–
–
–
19,927
–
19,927
130,052
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,218
52,520
283
1,932,997
52,520
177,832
1,732
138,412
5,773
5,773
–
82,013
145,539
700,455
83,578
3,091,567
–
–
–
–
469
469
(469)
–
57,694
76,628
–
133,633
267,955
(122,416)
28
57,694
2,668,645
19,927
134,102
2,880,396
211,171
178
178
Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
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
After 3 months
but not more
than 6 months
£’000
After 6 months
but not more
than 1 year
£’000
After 1 year
but not more
than 5 years
£’000
After
5 years
£’000
Non-interest-
bearing
£’000
Total
£’000
1,196,878
–
135,856
137,803
–
382,589
5,916
1,859,042
491
–
2,188,761
–
–
2,189,252
(330,210)
–
–
9,999
–
–
19,997
–
–
174,993
–
184,992
–
–
7,380
–
–
7,380
177,612
–
–
424,976
–
444,973
–
–
–
–
–
–
444,973
–
–
–
–
–
–
–
–
–
–
–
19,807
–
19,807
(19,807)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,601
39,754
348
1,198,479
39,754
166,200
1,156
138,959
4,464
4,464
–
64,582
111,905
982,558
70,498
2,600,912
–
36,692
29,395
–
72,278
138,365
(26,460)
491
36,692
2,225,536
19,807
72,278
2,354,804
246,108
The banking committee has set an overall pre-tax interest rate exposure limit of £7,000,000 (2018: £7,000,000) 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 2019, the Bank had a net present value sensitivity of £3,035,000 (2018: £6,068,000) for an upward 2% shift in rates.
The group held no forward rate agreements at 31 December 2019 (2018: none).
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Strategic reportCompany financial statementsConsolidated financial statementsGovernance
Notes to the consolidated financial statements continued
35 Financial risk management continued
(iii) Market risk continued
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 2019. Included in the table are the group’s financial assets and liabilities, at carrying
amounts, categorised by currency.
At 31 December 2019
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 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
Sterling
£’000
US dollar
£’000
Euro
£’000
Other
£’000
Total
£’000
1,932,997
51,918
130,462
131,263
4,587
624,969
82,881
2,959,077
28
45,084
2,552,287
19,927
134,030
2,751,356
207,721
31,284
–
376
22,029
3,543
–
75,486
440
101,874
–
12,274
88,668
–
70
101,012
862
–
–
90
17,026
3,606
1,186
–
185
22,093
–
113
19,726
–
2
19,841
2,252
–
Sterling
£’000
US dollar
£’000
Euro
£’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
–
–
136
8,315
–
–
–
72
8,523
–
223
7,964
–
–
8,187
336
–
Other
£’000
–
202
7,788
20
–
–
550
8,560
116
435
7,270
–
2
7,823
737
–
1,932,997
52,520
177,832
138,412
5,773
700,455
83,578
3,091,567
28
57,694
2,668,645
19,927
134,102
2,880,396
211,171
31,284
Total
£’000
1,198,479
39,754
166,200
138,959
4,464
982,558
70,498
2,600,912
491
36,692
2,225,536
19,807
72,278
2,354,804
246,108
32,854
180
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Rathbone Brothers Plc Report and accounts 2019
Rathbone Brothers Plc Report and accounts 2019
A 10% weakening of the US dollar against sterling, occurring on 31 December 2019, would have reduced equity and profit after tax by
£70,000 (2018: reduced by £83,000). A 10% weakening of the euro against sterling, occurring on 31 December 2019, would have increased
equity and profit after tax by £182,000 (2018: increased by £147,000). A 10% strengthening of the US dollar or euro would have had an equal
and opposite effect. This analysis assumes that all other variables, in particular other exchange rates, remain constant.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices
(other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of equity
investment securities, which are reported at their fair value (note 19).
At 31 December 2019, the fair value of listed equity securities recognised on the balance sheet was £4,587,000 (2018: £3,205,000). A 10%
fall in global equity markets would, in isolation, result in a pre-tax decrease to net assets of £348,000 (2018: £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 2019
Assets
Fair value through profit or loss:
— equity securities
— money market funds
At 31 December 2018
Assets
Fair value through profit or loss:
— equity securities
— money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
4,587
–
4,587
Level 1
£’000
3,205
–
3,205
–
100,194
100,194
Level 2
£’000
–
75,333
75,333
1,186
–
1,186
Level 3
£’000
1,259
–
1,259
5,773
100,194
105,967
Total
£’000
4,464
75,333
79,797
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 (2018: 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 19) comprise bank and building society certificates of deposit, which have
fixed coupons. The fair value of debt securities at 31 December 2019 was £604,462,000 (2018: £911,190,000) and the carrying value was
£600,291,000 (2018: £907,259,000). 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 30) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2019 was £21,302,000
(2018: £20,217,000) and the carrying value was £19,927,000 (2018: £19,807,000). 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
35 Financial risk management continued
(iii) Market risk continued
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 most
recently documented transaction for a holding in Euroclear shares of a comparable size (in May 2017). 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 2019, would have reduced equity and profit after tax by £96,000 (2018: £102,000). 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
Total unrealised (losses)/gains recognised in profit or loss
At 31 December
2019
1,259
–
(73)
1,186
2018
–
1,254
5
1,259
The gains or losses 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.
36 Capital management
Rathbone Brothers Plc’s capital is defined for accounting purposes as total equity. As at 31 December 2019 this totalled £485,393,000
(2018: £464,140,000).
Rathbone Investment Management has issued 10-year subordinated Tier 2 loan notes (note 30). As at 31 December 2019, the carrying
value of the notes was £19,927,000 (2018: £19,675,000). 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 2019 the group’s regulatory capital resources, including retained earnings for 2019, were £282,087,000 (2018: £251,329,000).
The increase in reserves during 2019 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.
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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 2018 and 2019.
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.
37 Contingent liabilities and commitments
(a)
Capital expenditure authorised and contracted for at 31 December 2019 but not provided in the financial statements amounted
to £787,000 (2018: £603,000). This related to expenditure on leasehold improvements and fixtures and fittings.
(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 (2018: £nil).
2019
£’000
117
23,344
7,940
31,401
2018
£’000
117
26,803
6,051
32,971
(c)
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.
38 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the group, who are defined as the company’s directors and other members
of senior management who are responsible for planning, directing and controlling the activities of the group, is set out below.
Gains on options exercised by directors during the year totalled £7,000 (2018: £19,000). Further information about the remuneration
of individual directors is provided in the audited part of the directors’ remuneration report on page 98.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
2019
£’000
14,176
296
2,695
3,408
20,575
2018
£’000
12,434
184
2,934
5,640
21,192
Dividends totalling £95,000 were paid in the year (2018: £247,000) in respect of ordinary shares held by key management personnel and
their close family members.
As at 31 December 2019, the group had outstanding interest-free season ticket loans of £nil (2018: £nil) issued to key management personnel.
At 31 December 2019, key management personnel and their close family members had gross outstanding deposits of £636,000 (2018:
£778,000) and gross outstanding banking loans of £nil (2018: £nil), all of which (2018: all) were made on normal business terms. A number
of the group’s key management personnel and their close family members make use of the services provided by companies within the
group. Charges for such services are made at various staff rates.
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Notes to the consolidated financial statements continued
38 Related party transactions continued
Other related party transactions
The group’s transactions with the pension funds are described in note 31. At 31 December 2019, no amounts were outstanding with
either the Laurence Keen Scheme or the Rathbone 1987 Scheme (2018: £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 2019, the group managed 27 unit trusts, Sociétés d’Investissement à Capital
Variable (SICAVs) and open-ended investment companies (OEICs) (together, ‘collectives’) (2018: 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.
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 19)
2019
£’000
40,111
2019
£’000
3,904
4,587
8,491
2018
£’000
37,608
2018
£’000
3,629
3,205
6,834
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 expected credit loss provisions have been made in respect of the amounts owed by related parties.
39
Interest in unconsolidated structured entities
As described in note 38, at 31 December 2019, the group owned units in collectives managed by Rathbone Unit Trust Management with
a value of £4,587,000 (2018: £3,205,000), representing 0.08% (2018: 0.06%) 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.
40 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 16)
Loans and advances to banks (note 17)
Fair value through profit or loss investment securities (note 19)
At 31 December
2019
£’000
1,930,000
117,839
100,194
2,148,033
2018
£’000
1,197,001
136,203
75,333
1,408,537
Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand.
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Cash flows arising from the (repurchase)/issue of ordinary shares comprise:
Share capital issued (note 32)
Share premium on shares issued (note 32)
Merger reserve on shares issued (note 32)
Shares issued in relation to share-based schemes for which no cash consideration was received
Shares issued in relation to share buybacks
A reconciliation of the movements of liabilities to cash flows arising from financing activities were as follows:
2019
£’000
58
5,666
14,971
(15,001)
(10,034)
(4,340)
2018
£’000
(restated –
note 1.3)
194
62,184
24,950
(25,000)
(4,888)
57,440
At 1 January 2019 (restated)
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 2019
At 1 January 2018
Changes from financing cash flows
Proceeds from issue of share capital (restated — note 1.3)
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 (restated)
Liabilities
Subordinated
loan notes
£’000
19,807
Share capital/
premium
£’000
208,033
Equity
Reserves
£’000
24,048
Retained
earnings
£’000
232,059
Total
£’000
483,947
–
–
–
–
–
–
5,694
–
–
5,694
–
–
1,291
(1,171)
120
–
19,927
–
–
–
30
213,757
Liabilities
Subordinated
loan notes
£’000
19,695
Share capital/
premium
£’000
145,655
–
–
–
–
–
–
62,378
–
–
62,378
–
–
1,283
(1,171)
112
–
19,807
–
–
–
–
208,033
(9,234)
–
(9,234)
–
–
–
–
–
14,971
29,785
Equity
Reserves
£’000
26,971
24,950
(27,873)
–
(2,923)
–
–
–
–
–
24,048
–
(799)
(35,959)
(36,758)
–
–
–
–
–
46,550
241,851
5,694
(10,033)
(35,959)
(40,298)
–
–
1,291
(1,171)
120
61,551
505,320
Retained
earnings
£’000
198,947
Total
£’000
391,268
–
(2,015)
(32,691)
(34,706)
–
–
–
–
–
67,818
232,059
87,328
(29,888)
(32,691)
24,749
–
–
1,283
(1,171)
112
67,818
483,947
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Notes to the consolidated financial statements continued
41 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.
42 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 2019.
Basis of preparation:
Country
Nature of activities
Turnover
In most cases, we have determined the country by reference to the country of tax residence. Where
an entity is not subject to tax (e.g. a partnership) we have considered the location of management or
the jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a
different country to the one in which profits are reported.
The nature of activities within the United Kingdom are described within our services on pages 8
and 9. Discretionary investment management is the sole activity which occurs in Jersey.
Turnover is defined as operating income. As the consolidated results are split by country, there is
an element of double counting when inter-jurisdictional transactions (for example, the payment
of dividends) occur. The entries to eliminate this double counting are included at the bottom of the
table to enable the disclosed figures to agree to the published consolidated accounts of the group.
Profit/(loss) before taxation
These are accounting profits. As with turnover some double counting may arise and again this has
been eliminated at the bottom of the table. The majority of the total relates to the elimination of
inter-jurisdictional dividends which are reflected as profits in the United Kingdom.
Tax paid
This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any
given year relates directly to the profits earned in the same period.
Public subsidies received
The group received no public subsidies in the year.
Number of employees
The number of employees reported is the average number of full-time employees who were
permanently employed by the group, or one of its subsidiaries, during the year. Contractors
are excluded.
Subsidiaries
A list of the subsidiaries of the group, including their main activity and country of incorporation,
is shown in note 48.
Country
United Kingdom
Jersey
Sub-total
Intergroup eliminations and other entries arising on consolidation
Total
Turnover
£’000
339,618
12,442
352,060
(3,989)
348,071
Profit/(loss)
before
taxation
£’000
70,021
2,688
72,709
(33,057)
39,652
Tax paid
£’000
16,865
268
17,133
–
17,133
Number of
employees
1,486
23
1,509
–
1,509
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Company statement of changes in equity
for the year ended 31 December 2019
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
Prior period adjustment (note 1.3)
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 (restated)
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 2019
Note
Share capital
£’000
2,566
Share premium
£’000
143,089
Merger reserve
£’000
–
Own shares
£’000
(4,864)
56
52
47
57
57
57
56
52
47
57
57
57
–
–
–
–
194
87,134
(24,950)
24,950
(29,888)
2,015
2,760
205,273
24,950
(32,737)
–
–
–
–
58
5,666
14,971
(10,033)
799
2,818
210,939
39,921
(41,971)
Retained
earnings
£’000
68,798
45,883
Total equity
£’000
209,589
45,883
1,219
1,219
(207)
1,012
(207)
1,012
(32,691)
20,279
(2,015)
358
101,624
29,451
(32,691)
87,328
–
–
20,279
(29,888)
–
358
301,870
29,451
310
(53)
257
310
(53)
257
(35,959)
19,387
(799)
(17)
113,944
(35,959)
20,695
19,387
(10,033)
–
(17)
325,651
The accompanying notes form an integral part of the company financial statements.
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Company balance sheet
as at 31 December 2019
Non-current assets
Investment in subsidiaries
Other investments
Right-of-use assets
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
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
Merger reserve
Own shares
Retained earnings
Equity shareholders’ funds
Note
48
49
51
52
50
2019
£’000
273,055
14,587
48,540
5,106
341,288
2018
£’000
(restated –
note 1.3)
273,055
13,205
–
4,067
290,327
124,722
4,204
128,926
102,440
5,386
107,826
470,214
398,153
53
55
(69,990)
(60,026)
(647)
(5,886)
(136,549)
(74,387)
–
(476)
(10,223)
(85,086)
(7,623)
22,740
56
(8,014)
(144,563)
(11,197)
(96,283)
325,651
301,870
57
57
57
57
2,818
210,939
39,921
(41,971)
113,944
325,651
2,760
205,273
24,950
(32,737)
101,624
301,870
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 2019 of £29,451,000
(2018: £45,883,000).
The financial statements were approved by the board of directors and authorised for issue on 19 February 2020 and were signed on their
behalf by:
Paul Stockton
Chief Executive
Jennifer Mathias
Finance Director
Company registered number: 01000403
The accompanying notes form an integral part of the company financial statements.
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Company balance sheet
Company statement of cash flows
as at 31 December 2019
for the year ended 31 December 2019
Note
48
49
51
52
2019
£’000
273,055
14,587
48,540
5,106
2018
£’000
(restated –
note 1.3)
273,055
13,205
–
4,067
341,288
290,327
50
124,722
4,204
128,926
102,440
5,386
107,826
470,214
398,153
53
55
(69,990)
(60,026)
(647)
(5,886)
(136,549)
(74,387)
–
(476)
(10,223)
(85,086)
(7,623)
22,740
56
(8,014)
(144,563)
(11,197)
(96,283)
325,651
301,870
57
57
57
57
2,818
210,939
39,921
(41,971)
113,944
325,651
2,760
205,273
24,950
(32,737)
101,624
301,870
Cash flows from operating activities
Profit before tax
Change in fair value through profit or loss
Net interest and dividends receivable
Net charge for provisions
Depreciation and amortisation
Defined benefit pension scheme charges
Defined benefit pension scheme contributions paid
Share-based payment charges
Changes in operating assets and liabilities:
— net (increase)/decrease in prepayments, accrued income and other assets
— net increase/(decrease) in accruals, deferred income, provisions and other liabilities
Cash (used in)/generated from operations
Tax (paid)/received
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Interest received
Interest paid
Inter-company dividends received
Acquisition of subsidiaries
Liquidation of subsidiary, net of cash transferred
Investment in subsidiaries
Purchase of other investments
Proceeds from sale of investments
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares
Dividends paid
Payment of lease liabilities
Net cash (used in)/generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of the company financial statements.
Note
2019
£’000
2018
£’000
29,327
(482)
(53,980)
1,590
4,499
255
(3,128)
31,012
9,093
(22,177)
4,309
(8,775)
(814)
(9,589)
107
(4,127)
58,000
–
–
–
(899)
–
53,081
(4,340)
(35,959)
(4,375)
(44,674)
(1,182)
5,386
4,204
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
55
56
56
57
48
57
47
62
Non-current assets
Investment in subsidiaries
Other investments
Right-of-use assets
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Lease liabilities
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
Merger reserve
Own shares
Retained earnings
Equity shareholders’ funds
(2018: £45,883,000).
behalf by:
Paul Stockton
Chief Executive
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 2019 of £29,451,000
The financial statements were approved by the board of directors and authorised for issue on 19 February 2020 and were signed on their
Company registered number: 01000403
The accompanying notes form an integral part of the company financial statements.
Jennifer Mathias
Finance Director
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Notes to the company
financial statements
43 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 16 has been applied. This new standard was adopted from
1 January 2019. Under the transition methods chosen, comparative information is not restated. Changes to significant accounting
policies are described in note 45.
Other developments in reporting standards and interpretations are set out in note 1.4 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.
44 Critical accounting judgements and key sources of estimation and uncertainty
The critical accounting judgements and key sources of estimation and uncertainty arise from the company’s defined benefit
pension schemes and valuation of the provision for the Speirs & Jeffrey earn-out consideration. These are described in note 3 to the
consolidated financial statements.
45 Changes in significant accounting policies
As a lessor
The company has adopted IFRS 16 ‘Leases’ with effect from 1 January 2019 (see note 1.9).
Accounting requirements for lessors are largely unchanged from IAS 17 ‘Leases’. The company is not required to make any adjustments
on transition to IFRS 16 for leases in which it acts as a lessor, except for instances in which it acts as a sub-lessor. The company sub-leases
a property in Jersey.
At the date of application of IFRS 16 the company is required to assess the classification of a sub-lease with reference to the right-of-use
(ROU) asset. As the sub-lease is for the whole of the remaining term of the head lease, the company reassessed the classification of its sub-
lease contract, previously classified as an operating lease under IAS 17, to a finance lease under IFRS 16 from the date of initial application.
The tables below show the impact on each financial statement line item affected by the application of IFRS 16 at the date of transition.
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Notes to the company
financial statements
43 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 16 has been applied. This new standard was adopted from
1 January 2019. Under the transition methods chosen, comparative information is not restated. Changes to significant accounting
Other developments in reporting standards and interpretations are set out in note 1.4 to the consolidated financial statements.
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.
policies are described in note 45.
Principal accounting policies
Investments in subsidiaries
Management charges
Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment.
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.
44 Critical accounting judgements and key sources of estimation and uncertainty
The critical accounting judgements and key sources of estimation and uncertainty arise from the company’s defined benefit
pension schemes and valuation of the provision for the Speirs & Jeffrey earn-out consideration. These are described in note 3 to the
consolidated financial statements.
45 Changes in significant accounting policies
As a lessor
The company has adopted IFRS 16 ‘Leases’ with effect from 1 January 2019 (see note 1.9).
Accounting requirements for lessors are largely unchanged from IAS 17 ‘Leases’. The company is not required to make any adjustments
on transition to IFRS 16 for leases in which it acts as a lessor, except for instances in which it acts as a sub-lessor. The company sub-leases
a property in Jersey.
At the date of application of IFRS 16 the company is required to assess the classification of a sub-lease with reference to the right-of-use
(ROU) asset. As the sub-lease is for the whole of the remaining term of the head lease, the company reassessed the classification of its sub-
lease contract, previously classified as an operating lease under IAS 17, to a finance lease under IFRS 16 from the date of initial application.
The tables below show the impact on each financial statement line item affected by the application of IFRS 16 at the date of transition.
Impact on the balance sheet as at 1 January 2019
Assets
Trade and other receivables
Right-of-use assets
Total assets
Liabilities
Trade and other payables
Lease liabilities
Total liabilities
Net assets
Retained earnings
Total equity
As reported
31 December 2018
£’000
Adjustments
£’000
As restated
1 January 2019
£’000
102,440
–
398,153
74,387
–
96,283
301,870
101,624
301,870
(64)
50,186
50,122
(11,181)
61,303
50,122
–
–
–
102,376
50,186
448,275
63,206
61,303
146,405
301,870
101,624
301,870
The adjustments to the company balance sheet reflect the initial application of IFRS 16.
An analysis of ROU assets is presented in note 51. The company makes fixed payments and variable payments depending on the usage of
the asset during the contract period.
The table below presents the impact of IFRS 16 on profit during the year.
Impact on profit or loss for the year
Increase in finance costs
Increase in depreciation
Expenses relating to short-term leases and low-value assets
Increase in finance income
Decrease in other expenses
£’000
3,500
4,499
370
75
6,743
Lease liabilities
The group is required to identify the difference between the present value of its operating lease commitments disclosed at
31 December 2018 under IAS 17, discounted by using the company’s incremental borrowing rate, and its lease liabilities recognised
at the date of initial application of IFRS 16. This reconciliation has been presented below:
Operating lease commitment at 31 December 2018 as disclosed in the company’s financial statements
Impact of discounting at the incremental borrowing rate
Discounted using the incremental borrowing rate at 1 January 2019
Recognition exemption for:
Termination options reasonably certain to be exercised
Lease liabilities at 1 January 2019
£’000
86,030
(26,230)
59,800
1,503
61,303
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Notes to the company financial statements continued
46 Expenses for the year
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
47 Dividends
2019
2018
956
118
35
377
1,486
771
107
33
334
1,245
Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 14 to the consolidated
financial statements.
The company’s dividend policy is described in the directors’ report on page 108.
Reserves available for distribution as at 31 December were comprised as follows:
Net assets
Less:
— share capital
— share premium
— merger reserve
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
Dividends paid
Other movements
As at 31 December
48
Investment in subsidiaries
At 1 January 2018
Additions
Disposals
At 1 January 2019
Additions
Disposals
At 31 December 2019
2019
£’000
325,651
2018
£’000
(restated –
note 1.3)
301,870
(2,818)
(210,939)
(39,921)
71,973
(2,760)
(205,273)
(24,950)
68,887
2019
£’000
68,887
29,451
257
(35,959)
9,337
71,973
Equities
£’000
180,503
97,757
(5,205)
273,055
92,552
(92,552)
273,055
2018
£’000
63,934
45,883
1,012
(32,691)
(9,251)
68,887
Total
£’000
180,503
97,757
(5,205)
273,055
92,552
(92,552)
273,055
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Notes to the company financial statements continued
46 Expenses for the year
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:
The company’s dividend policy is described in the directors’ report on page 108.
Reserves available for distribution as at 31 December were comprised as follows:
Investment Management:
— investment management services
— advisory services
Unit Trusts
Shared services
47 Dividends
financial statements.
Net assets
Less:
— share capital
— share premium
— merger reserve
Distributable reserves
As at 1 January
Profit for the year
Dividends paid
Other movements
As at 31 December
At 1 January 2018
Additions
Disposals
Additions
Disposals
At 1 January 2019
At 31 December 2019
Net remeasurement of defined benefit liability
48
Investment in subsidiaries
Movements in reserves available for distribution were as follows:
2019
2018
956
118
35
377
771
107
33
334
1,486
1,245
2019
£’000
325,651
2018
£’000
(restated –
note 1.3)
301,870
(2,818)
(2,760)
(210,939)
(205,273)
(39,921)
71,973
(24,950)
68,887
2019
£’000
68,887
29,451
257
(35,959)
9,337
71,973
Equities
£’000
180,503
97,757
(5,205)
273,055
92,552
(92,552)
273,055
2018
£’000
63,934
45,883
1,012
(32,691)
(9,251)
68,887
Total
£’000
180,503
97,757
(5,205)
273,055
92,552
(92,552)
273,055
Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 14 to the consolidated
At 31 December 2019 the company’s subsidiary undertakings were as follows:
On 1 July 2019, 1,028,357 ordinary shares of 5p in Rathbones Investment Management Limited were issued to the company at a price of
£90 per share in exchange for the company’s equity holding in Speirs & Jeffrey Limited.
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
£’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*
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
Rathbone Pension & Advisory Services Limited
Rathbone Stockbrokers Limited*
Dean River Asset Management Limited*
R.M. Walkden & Co. Limited*
Rathbone Funds Advisers Unipessoal LDA*
Speirs & Jeffrey Limited*
Speirs & Jeffrey Client Nominees Limited*
Speirs & Jeffrey Portfolio Management Limited*
Speirs & Jeffrey Fund Management Limited*
* Held by subsidiary undertaking
Activity and operation
Investment management and banking services
Investment management
Trust and tax services
Unit trust management
Introducer of private clients
Financial planning services
Investment support services
Trust and legal services
Intermediate holding company
Corporate director services
Corporate secretarial services
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Corporate nominee
Non-trading
Non-trading
Non-trading
Non-trading
European fund marketing
Investment management
Corporate nominee
Corporate nominee
Corporate nominee
The registered office for all subsidiary undertakings is 8 Finsbury Circus, London, EC2M 7AZ except for the following:
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Notes to the company financial statements continued
48
Investment in subsidiaries continued
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 Portfolio Management Limited
Speirs & Jeffrey Fund Management Limited
Rathbone Funds Advisers Unipessoal LDA
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
R Tierno Galvan 10 Torre 3, Piso 6 Sala 602,
1070-274, Campo Ourique Lisbon, Lisbon, Portugal
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
49 Other investments
Fair value through profit or loss securities
Equity securities:
— listed
Money market funds:
— unlisted
50 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
51 Right-of-use assets
Cost
1 January 2019
Additions
Acquisitions
Disposals
Other movements
At 31 December 2019
Depreciation and impairment
1 January 2019
Charge for the year
Acquisitions
Disposals
Other movements
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
2019
£’000
2018*
£’000
4,587
3,205
10,000
14,587
10,000
13,205
2019
£’000
7,989
116,733
124,722
124,722
–
124,722
2018
£’000
11,833
90,607
102,440
102,440
–
102,440
Property
£’000
Total
£’000
50,186
601
2,506
–
(134)
53,159
–
4,499
139
–
(19)
4,619
48,540
50,186
50,186
601
2,506
–
(134)
53,159
–
4,499
139
–
(19)
4,619
48,540
50,186
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Notes to the company financial statements continued
48
Investment in subsidiaries continued
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 Portfolio Management Limited
Speirs & Jeffrey Fund Management Limited
Rathbone Funds Advisers Unipessoal LDA
Port of Liverpool Building, Pier Head, Liverpool, L3 1NW
Registered office
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
R Tierno Galvan 10 Torre 3, Piso 6 Sala 602,
1070-274, Campo Ourique Lisbon, Lisbon, Portugal
The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings.
49 Other investments
Fair value through profit or loss securities
Equity securities:
— listed
Money market funds:
— unlisted
50 Trade and other receivables
Prepayments and other receivables
Amounts owed by group undertakings
Current
Non-current
51 Right-of-use assets
Cost
1 January 2019
Additions
Acquisitions
Disposals
Other movements
At 31 December 2019
Depreciation and impairment
1 January 2019
Charge for the year
Acquisitions
Disposals
Other movements
At 31 December 2019
Carrying amount at 31 December 2019
Carrying amount at 1 January 2019
2019
£’000
2018*
£’000
4,587
3,205
10,000
14,587
10,000
13,205
2019
£’000
7,989
116,733
124,722
2018
£’000
11,833
90,607
102,440
124,722
102,440
124,722
102,440
–
–
–
–
–
–
–
–
Property
£’000
50,186
601
2,506
Total
£’000
50,186
601
2,506
(134)
53,159
(134)
53,159
4,499
139
(19)
4,619
48,540
50,186
4,499
139
(19)
4,619
48,540
50,186
52 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 2019
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
1,902
(546)
–
57
(489)
(59)
–
6
(53)
–
–
–
–
Share-based
payments
£’000
1,882
Staff-related
costs
£’000
304
1,586
94
–
1,680
–
–
–
–
(17)
–
–
(17)
–
–
–
–
–
–
–
–
–
–
–
–
Fair value
through
profit or loss
£’000
(21)
(92)
–
10
(82)
–
–
–
–
–
–
–
–
Total
£’000
4,067
948
94
67
1,109
(59)
–
6
(53)
(17)
–
–
(17)
As at 31 December 2019
1,360
3,545
304
(103)
5,106
Deferred tax assets
Deferred tax liabilities
As at 31 December 2019
Pensions
£’000
1,360
–
1,360
Share-based
payments
£’000
3,545
–
3,545
Staff-related
costs
£’000
304
–
304
Fair value
through
profit or loss
£’000
–
(103)
(103)
Total
£’000
5,209
(103)
5,106
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Notes to the company financial statements continued
52 Deferred tax continued
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
Staff-related
costs
£’000
316
400
(29)
–
371
–
–
–
–
80
(108)
–
(28)
(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
Pensions
£’000
1,902
–
1,902
Share-based
payments
£’000
1,882
–
1,882
Staff-related
costs
£’000
304
–
304
Deferred tax assets
Deferred tax liabilities
As at 31 December 2018
53 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.
54 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Lease liabilities at 31 December
Current
Non-current
Fair value
through
profit or loss
£’000
–
(21)
(21)
2019
£’000
629
61,799
–
7,562
69,990
Total
£’000
4,088
(21)
4,067
2018
£’000
211
66,633
99
7,444
74,387
2019
£’000
4,901
18,556
36,569
60,026
4,901
55,125
60,026
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Notes to the company financial statements continued
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
As at 31 December 2018
Pensions
£’000
2,650
(605)
–
64
(541)
(231)
–
24
(207)
–
–
–
–
Share-based
payments
£’000
1,539
400
(29)
–
371
–
–
–
–
80
(108)
–
(28)
Deferred tax assets
Deferred tax liabilities
As at 31 December 2018
53 Trade and other payables
Trade creditors
Accruals, deferred income and other creditors
Amounts owed to group undertakings
Other taxes and social security costs
54 Lease liabilities
Maturity analysis
Less than one year
One to five years
More than five years
Current
Non-current
Lease liabilities at 31 December
1,902
1,882
304
(21)
4,067
Pensions
£’000
1,902
–
1,902
Share-based
payments
£’000
1,882
–
1,882
Staff-related
costs
£’000
304
–
304
Staff-related
costs
£’000
316
(7)
(6)
1
(12)
Fair value
through
profit or loss
£’000
(50)
33
–
(4)
29
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fair value
through
profit or loss
£’000
–
(21)
(21)
2019
£’000
629
61,799
–
7,562
69,990
Total
£’000
4,455
(179)
(35)
61
(153)
(231)
–
24
(207)
80
(108)
–
(28)
Total
£’000
4,088
(21)
4,067
2018
£’000
211
66,633
99
7,444
74,387
2019
£’000
4,901
18,556
36,569
60,026
4,901
55,125
60,026
52 Deferred tax continued
55 Provisions for liabilities and charges
As 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
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
As at 31 December 2019
Payable within 1 year
Payable after 1 year
Deferred,
variable costs
to acquire client
relationship
intangibles
£’000
12,145
–
–
–
(3,641)
(7,445)
1,059
–
–
–
4,770
(4,981)
848
590
258
848
Deferred and
contingent
consideration
in business
combinations
£’000
1,220
–
–
–
3,158
(2,000)
2,378
–
–
–
179
(2,557)
–
–
–
–
Property-
related
£’000
13,639
1,790
(3,726)
(1,936)
–
(4,917)
6,786
1,300
290
1,590
–
(3,338)
5,038
847
4,191
5,038
Total
£’000
27,004
1,790
(3,726)
(1,936)
(483)
(14,362)
10,223
1,300
290
1,590
4,949
(10,876)
5,886
1,437
4,449
5,886
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 in relation to the value of certain
payments where not all performance conditions were ultimately met.
Following the satisfaction of certain operational targets, contingent consideration of £1,050,000 was paid to vendors of Speirs & Jeffrey in
May 2019 (see note 9). In addition, contingent consideration of £1,507,000 was paid in October 2019 in respect of the acquisition of Vision
Independent Financial Planning and Castle Investment Solutions.
Property-related provisions of £5,038,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group;
and monies due under the contract with the assignee of leases on the group’s former property at 1 Curzon Street (2018: £6,786,000).
Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have increased by £1,228,000
(2018: increased by £803,000). The group utilised £3,338,000 (2018: £912,000) of the dilapidations provision held for the surplus property
at 1 Curzon Street during the year. The impact of discounting le d to an additional £1,669,000 (2018: £127,000) being provided for over
the year.
Provisions payable after one year are expected to be settled within two years of the balance sheet date (2018: two years), except for the
property-related provisions of £4,191,000 (2018: £832,000), which are expected to be settled within 14 years of the balance sheet date
(2018: 15 years).
The fair value of trade and other payables is not materially different from their carrying amount.
56 Long-term employee benefits
Details of the defined benefit pension schemes operated by the company are provided in note 31 to the consolidated financial statements.
57 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
32 and 33 to the consolidated financial statements. Details of options on the company’s shares and share-based payments are set out in
note 34 to the consolidated financial statements.
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Notes to the company financial statements continued
58 Financial instruments
The company’s risk management policies and procedures are integrated with the wider Rathbones group’s risk management process.
The Rathbones group has identified the risks arising from all of its activities, including those of the company, and has established policies
and procedures to manage these items in accordance with its risk appetite. The company categorises its financial risks into the following
primary areas:
credit risk
liquidity risk
(i)
(ii)
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) and
(iv) pension risk.
The company’s exposures to pension risk are set out in note 31 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 be placed with a range of high-quality financial institutions. Investments are spread to avoid excessive
exposure to any individual counterparty.
For the purposes of financial reporting the company categorises its exposures based on the long-term ratings awarded to counterparties by
Fitch or Moody’s.
Cash and cash equivalents (balances at banks)
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
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
2019
£’000
2018
£’000
10,006
10,005
116,733
8,429
4,204
139,372
90,607
12,570
5,386
118,568
The above table represents the gross credit risk exposure of the company at 31 December 2019 and 2018, without taking account of any
collateral held or other credit enhancements attached.
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Notes to the company financial statements continued
58 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)
(ii)
credit risk
liquidity risk
(iv) pension risk.
(iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) and
The company’s exposures to pension risk are set out in note 31 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
1 Curzon Street and staff advances.
Trade and other receivables relate to amounts placed with subsidiaries, amounts held in escrow following the assignment of leases on
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 be placed with a range of high-quality financial institutions. Investments are spread to avoid excessive
For the purposes of financial reporting the company categorises its exposures based on the long-term ratings awarded to counterparties by
The company has exposure to financial institutions through its bank deposits (reported within cash equivalents).
exposure to any individual counterparty.
Fitch or Moody’s.
Cash and cash equivalents (balances at banks)
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
2019
£’000
2018
£’000
10,006
10,005
116,733
8,429
4,204
90,607
12,570
5,386
139,372
118,568
The above table represents the gross credit risk exposure of the company at 31 December 2019 and 2018, 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 2019, based on Fitch or Moody’s
long-term rating designation.
AAA
2019
2018
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
2019
£’000
4,204
4,204
2018
£’000
5,386
5,386
Concentration of credit risk
The company has counterparty credit risk within its balances at banks in that the principal exposure is to its banking subsidiary. The board
sets and monitors the group policy for the management of group funds, which includes the placement of funds with a range of high-quality
financial institutions.
(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 2019
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2018
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
116,334
3,408
4,204
133,946
399
450
–
849
116,733
3,858
4,204
134,795
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
At 31 December 2019, all rest of the world exposures were to counterparties based in Jersey and the United States of America
(2018: Jersey and the United States of America). At 31 December 2019, the company had no exposure to sovereign debt (2018: none).
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Notes to the company financial statements continued
58 Financial instruments continued
(i) Credit risk continued
(b)
Industry sectors
The company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
operate, were:
At 31 December 2019
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2018
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
79,271
6
4,204
93,481
Financial
institutions
£’000
37,462
3,852
–
41,314
Clients and
other
corporates
£’000
116,733
3,858
4,204
134,795
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
(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 (2018: £nil) and does not rely on external funding for its activities.
Non-derivative cash flows
The table below presents the undiscounted cash flows receivable and payable by the company on its non-derivative financial assets and
liabilities by remaining contractual maturities at the balance sheet date.
At 31 December 2019
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
Total
£’000
10,006
–
116,733
115
4,204
131,058
–
1,911
–
1,911
–
–
903
–
903
–
–
–
3,915
–
3,915
–
1,585
–
1,585
–
143
–
46,978
–
7,060
–
47,980
–
59,092
–
–
–
–
–
–
–
10,006
116,733
8,429
4,204
139,372
–
161,253
143
130,915
130,915
46,978
(45,067)
85,848
7,060
(6,157)
79,691
47,980
(44,065)
35,626
59,092
(57,507)
(21,881)
–
–
(21,881)
161,253
(21,881)
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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 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
105,877
–
2,046
131
2,177
99
131
–
35,627
–
3,871
–
3,871
–
4,921
–
4,348
–
4,348
–
27,853
–
2,295
–
2,295
–
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
Total
£’000
10,005
90,607
12,570
5,386
118,568
99
74,560
74,659
43,909
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 suggests are unlikely to be called in the short term.
The company holds £4,587,000 of equity investments (2018: £3,205,000) 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
In 2018, cash flows arising from the company’s off-balance sheet financial liabilities arose solely from operating leases (note 60) and are
summarised in the table below. Since the adoption of IFRS 16, the company has no off-balance sheet financial liabilities.
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 (2018: £nil) and does not rely on external funding for its activities.
Operating lease commitments
At 31 December 2019
At 31 December 2018
Not more than
3 months
£’000
–
1,884
After 3 months
but not more
than 1 year
£’000
–
5,753
After 1 year
but not more
than 5 years
£’000
–
27,662
After 5 years
£’000
–
50,732
Total
£’000
–
86,031
Notes to the company financial statements continued
58 Financial instruments continued
(i) Credit risk continued
(b)
Industry sectors
operate, were:
At 31 December 2019
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
At 31 December 2018
Other investments:
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
(ii) Liquidity risk
Non-derivative cash flows
The company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties
Financial
institutions
£’000
10,000
79,271
6
4,204
93,481
Financial
institutions
£’000
10,000
50,214
5
5,386
65,605
41,314
134,795
Clients and
other
corporates
£’000
–
–
–
–
37,462
3,852
Clients and
other
corporates
£’000
40,393
8,073
Total
£’000
10,000
116,733
3,858
4,204
Total
£’000
10,000
90,607
8,078
5,386
48,466
114,071
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.
Not more than
but not more
After 3 months
On demand
£’000
3 months
£’000
than 1 year
£’000
After 1 year
but not more
than 5 years
£’000
No fixed
After 5 years
maturity date
£’000
£’000
Total
£’000
Cash flows arising from financial assets
131,058
1,911
3,915
1,585
— amounts owed by group undertakings
116,733
At 31 December 2019
Other investments:
— money market funds
Trade and other receivables:
— other financial assets
Balances at banks
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
10,006
115
4,204
–
143
143
130,915
130,915
1,911
3,915
1,585
–
–
–
–
–
–
–
–
903
903
–
–
–
–
–
–
–
–
46,978
7,060
47,980
59,092
46,978
(45,067)
85,848
7,060
(6,157)
79,691
47,980
(44,065)
35,626
59,092
(57,507)
(21,881)
(21,881)
–
–
–
–
–
–
–
–
–
10,006
116,733
8,429
4,204
139,372
–
161,253
161,253
(21,881)
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Notes to the company financial statements continued
58 Financial instruments continued
(ii) Liquidity risk continued
Total liquidity requirement
At 31 December 2019
Cash flows arising from financial liabilities
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
(iii) Market risk
On demand
£’000
143
–
143
Not more than
3 months
£’000
46,978
–
46,978
On demand
£’000
230
–
230
Not more than
3 months
£’000
35,627
1,884
37,511
After 3 months
but not more
than 1 year
£’000
7,060
–
7,060
After 3 months
but not more
than 1 year
£’000
4,921
5,753
10,674
After 1 year
but not more
than 5 years
£’000
47,980
–
47,980
After 1 year
but not more
than 5 years
£’000
27,853
27,662
55,515
After 5 years
£’000
59,092
–
59,092
Total
£’000
161,253
–
161,253
After 5 years
£’000
6,028
50,732
56,760
Total
£’000
74,659
86,031
160,690
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 2019
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
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
–
10,000
–
1,565
4,199
15,764
–
–
–
15,764
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,587
–
4,587
10,000
116,733
2,293
5
123,618
116,733
3,858
4,204
139,382
–
119,101
119,101
4,517
–
119,101
119,101
20,281
202
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Rathbone Brothers Plc Report and accounts 2019
Notes to the company financial statements continued
58 Financial instruments continued
(ii) Liquidity risk continued
Total liquidity requirement
At 31 December 2019
Cash flows arising from financial liabilities
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
(iii) Market risk
Interest rate risk
interest rates.
and liabilities.
Not more than
but not more
After 3 months
3 months
£’000
46,978
–
than 1 year
£’000
7,060
–
After 1 year
but not more
than 5 years
£’000
After 5 years
£’000
47,980
59,092
161,253
–
–
Total
£’000
–
46,978
7,060
47,980
59,092
161,253
On demand
£’000
143
–
143
On demand
£’000
230
–
230
Not more than
3 months
£’000
35,627
1,884
37,511
After 3 months
but not more
than 1 year
£’000
4,921
5,753
10,674
After 1 year
but not more
than 5 years
£’000
27,853
27,662
55,515
After 5 years
£’000
6,028
50,732
56,760
Total
£’000
74,659
86,031
160,690
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
The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets
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.
After 3 months
After 6 months
Not more than
but not more
but not more
3 months
than 6 months
than 1 year
£’000
£’000
£’000
After 1 year
but not more
than 5 years
£’000
After 5 years
£’000
Non-interest-
bearing
£’000
Total
£’000
At 31 December 2019
Assets
Other investments:
— equity securities
— money market funds
Trade and other receivables:
— amounts owed by group undertakings
— other financial assets
Balances at banks
Total financial assets
Liabilities
Trade and other payables:
— other financial liabilities
Total financial liabilities
Interest rate repricing gap
— amounts owed to group undertakings
10,000
1,565
4,199
15,764
–
–
–
–
–
15,764
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
4,587
4,587
10,000
116,733
116,733
2,293
3,858
4,204
123,618
139,382
119,101
119,101
4,517
–
119,101
119,101
20,281
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
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
–
10,000
–
5,961
5,381
21,297
–
–
–
21,297
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
A 1% parallel increase/decrease in the sterling yield curve would have no impact on profit after tax or equity (2018: no impact).
Foreign exchange risk
The company does not have any material exposure to transactional foreign exchange risk. The table below summarises the company’s
exposure to foreign currency translation risk at 31 December 2019. Included in the table are the company’s financial assets and liabilities,
at carrying amounts, categorised by currency.
At 31 December 2019
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
4,587
10,000
116,733
3,593
4,204
139,117
–
119,101
119,101
20,016
–
–
–
265
–
265
–
–
–
265
–
–
–
–
–
–
–
–
–
–
4,587
10,000
116,733
3,858
4,204
139,382
–
119,101
119,101
20,281
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Notes to the company financial statements continued
58 Financial instruments continued
(iii) Market risk continued
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
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
A 10% weakening of the US dollar against sterling, occurring on 31 December 2019, would have reduced equity and profit after tax by
£21,000 (2018: £23,000). 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 35.
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 2019
Assets
Fair value through profit or loss:
— equity securities
— money market funds
At 31 December 2018
Assets
Fair value through profit or loss:
— equity securities
— money market funds
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
4,587
–
4,587
Level 1
£’000
3,205
–
3,205
–
10,000
10,000
–
–
–
4,587
10,000
14,587
Level 2
£’000
Level 3
£’000
Total
£’000
–
10,000
10,000
–
–
–
3,205
10,000
13,205
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 (2018: 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 35 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 48).
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Notes to the company financial statements continued
58 Financial instruments continued
(iii) Market risk continued
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
Price risk
Fair values
to determine the fair value.
At 31 December 2019
Assets
Fair value through profit or loss:
— equity securities
— money market funds
At 31 December 2018
Assets
Fair value through profit or loss:
— equity securities
— money market funds
A 10% weakening of the US dollar against sterling, occurring on 31 December 2019, would have reduced equity and profit after tax by
£21,000 (2018: £23,000). 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.
The group’s exposure to price risk, all of which is through the company’s holdings of equity investment securities, is described in note 35.
The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used
— 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.
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
4,587
10,000
14,587
3,205
10,000
13,205
4,587
–
4,587
Level 1
£’000
3,205
–
3,205
–
10,000
10,000
–
10,000
10,000
Level 2
£’000
Level 3
£’000
Total
£’000
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 (2018: 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 35 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 48).
59 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 47). 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.
60 Contingent liabilities and commitments
The group leases various offices and other assets under non-cancellable lease agreements. Prior to the adoption of IFRS 16, these were
classified as operating lease agreements. Since the adoption of IFRS 16, the liabilities in respect of these leases have been recognised on
the company’s balance sheet (note 54).
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
2019
£’000
–
–
–
–
2018
£’000
7,637
27,662
50,732
86,031
61 Related party transactions
Rathbone Brothers Plc is considered to be the ultimate controlling party.
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.
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Short-term employee benefits
Other long-term benefits
Share-based payments
2019
£’000
1,854
52
648
2,554
2018
£’000
1,777
56
1,017
2,850
Dividends totalling £95,000 were paid in the year (2018: £247,000) 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.
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Notes to the company financial statements continued
61 Related party transactions continued
Other related party transactions
During the year, the company entered into the following transactions with its subsidiaries:
Charges for management services
Dividends received
2019
2018
Receivable
£’000
192,188
58,000
250,188
Payable
£’000
–
–
–
Receivable
£’000
157,217
59,250
216,467
Payable
£’000
–
–
–
The company‘s balances with fellow group companies at 31 December 2019 are set out in notes 50 and 53.
The company’s transactions with the pension funds are described in note 56. At 31 December 2019, no amounts were due from the pension
schemes (2018: £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.
62 Cash and cash equivalents
For the purposes of the company statement of cash flows, cash and cash equivalents comprise the following balances with less than three
months until maturity from the date of acquisition:
Cash at bank (excluding amounts held at employee benefit trust)
2019
£’000
4,204
2018
£’000
5,386
A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 40 to the consolidated
financial statements.
63 Events after the balance sheet date
There have been no material events occurring between the balance sheet date and the date of signing this report.
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Further information
Five year record
Operating income (and underlying operating income)1
Underlying profit before tax1
Profit before tax
Profit after tax
Equity dividends paid and proposed
Basic earnings per share
Diluted earnings per share
Underlying earnings per share1
Dividends per ordinary share
Equity shareholders' funds
Total funds under management and administration
2019
£’000
348,071
88,673
39,652
26,923
37,714
50.3p
48.7p
132.8p
70.0p
485,393
£50.4bn
2018
£’000
311,963
91,558
61,306
46,169
35,204
88.7p
86.2p
142.5p
66.0p
325,550
£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
1. A reconciliation between the underlying measure and its closest IFRS equivalent for the current year and the prior year is shown in table 2 on page 27
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
15
www.rathbones.com
www.rathboneimi.com
www.rathbonegreenbank.com
www.speirsjeffrey.co.uk
Unit trusts
Rathbone Unit Trust Management
2
www.rathbones.com
www.rutm.com
Company secretary and registered office
Registrars and transfer office
A Johnson
Rathbone Brothers Plc
8 Finsbury Circus
London
EC2M 7AZ
Company No. 01000403
www.rathbones.com
ali.johnson@rathbones.com
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.equiniti.com
rathbones.com
rathbones.com
207
207
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GovernanceStrategic report
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
The Colmore Building
20 Colmore Circus
Queensway
Birmingham
B4 6AT
+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
208
Rathbone Brothers Plc Report and accounts 2019
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Rathbone Brothers Plc
8 Finsbury Circus, London, EC2M 7AZ
+44 (0)20 7399 0000
rathbones.com