Rathbones Group Annual Report 2021

Plain-text annual report

R a t h b o n e s G r o u p P l c R e p o r t a n d a c c o u n t s 2 0 2 1 Shaping our future Rathbones Group Plc Report and accounts 2021 About Rathbones Contents 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 drive us forward. Our ambition is to be recognised as the UK’s most responsible wealth manager. Profit before tax £95.0m (2020: £43.8m) Basic earnings per share 133.5p (2020: 49.6p) Underlying profit before tax* 1 Underlying earnings per share* 1 £120.7m (2020: £92.5m) 172.2p (2020: 133.3p) Dividends paid and proposed per share 81p (2020: 72.0p) Return on capital employed (ROCE) 13.0% (2020: 5.3%) Underlying return on capital employed (ROCE)* 2 For a full five-year record, please see page 215 16.1% (2020: 13.6%) * This measure is considered an alternative performance measure (APM). Please refer to page 34 for more detail on APMs 1. A reconciliation between underlying profit before tax and profit before tax is shown on page 34 2. Underlying profit after tax as a percentage of underlying quarterly average equity at each quarter end Strategic report Shaping our future Our purpose A responsible business Chair’s statement Rathbones at a glance Our investment case Our business model Stakeholder engagement Group chief executive’s review Our market and opportunities Our strategy Key performance indicators Financial performance Segmental review Financial position Liquidity and cash flow Risk management and control Responsible business review Governance Corporate governance report Group risk committee report Audit committee report Nomination committee report Remuneration committee report Annual report on remuneration Directors’ report Statement of directors’ responsibilities in respect of the report and accounts Financial statements Independent auditor’s report to the members of Rathbones Group 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 3 4 6 7 8 10 18 23 24 26 29 36 42 45 46 54 66 86 90 95 99 102 112 115 117 130 134 193 196 215 215 216 Evolving our digital solutions 16 Enriching our proposition 22 Enabling our people 28 Shaping our future Rathbones’ future success is founded on our commitment to deliver a personal service that brings an empathy and reassurance that builds trust with clients and advisers. We are committed to a responsible business agenda that reflects our brand values and resonates strongly with stakeholders and the next generation holders of wealth. Our approach aims to blend a human and digital experience, ensuring that it operates seamlessly across Rathbones, improving the quality of our services as well as our employees’ experience. Our ambition is to be recognised as the UK’s most responsible wealth manager and we are committed to growing and preserving wealth for our clients. Strategic report Our purpose Committed TO INVESTING FOR EVERYONE’S TOMORROW It is our responsibility to invest and advise for everyone’s tomorrow. This means keeping the future in mind when we make decisions today. Looking beyond the short term for the most sustainable outcome. Our focus on the long term enables us to build enduring value for our clients, make a wider contribution to society and create a lasting legacy. We believe that our actions add up to what we stand for. Our responsible business framework enables us to deliver on our initiatives, including our responsible investment agenda, diversity, equality and inclusion, community investment and reducing our environmental impact. More information can be found on pages 54-64 2 Rathbones Group Plc Report and accounts 2021 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 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. High-quality investment & advice Relationship-led access to whole of market tailored and flexible advice Multi-generational Partnership philosophy for clients of today and tomorrow 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 Delivered through the four pillars of our responsible business programme Responsible investment Our people Society and communities Our environmental impact Our ambition Read more on page 1 Our strategy Read more on pages 24-25 Operating responsibly Read more on pages 54-64 Our stakeholders Engaging with our stakeholders Read more on pages 10-15 Our key performance indicators How we measure progress Read more on pages 26-27 Remuneration Read more on pages 99-111 rathbones.com 3 Chair’s statement Chair’s statement Clive C R Bannister Chair 4 Rathbones Group Plc Report and accounts 2021 Dear Shareholder In my first year as chair of Rathbones, I have spent time getting to know the various teams that comprise this special business, as well as having the pleasure of speaking to some of our shareholders and other key stakeholders about Rathbones and the wider UK wealth market. This has been informative, and I look forward to continuing this dialogue during 2022 and beyond. These discussions have confirmed that the work we do on behalf of our clients and advisers is of real importance. It is our responsibility to be good, long-term stewards of the £68.2 billion of wealth entrusted to Rathbones. Our commitment to be a leader in responsible business stems from our sense of purpose to society. It is woven throughout our business strategy, and embedded in our day-to-day decision-making. This focus on the long term is how we will not only create value for our clients, but also make a wider contribution to the society where we live. 2021 was a year of good progress as we delivered against our strategic ambitions. We generated very strong financial results and took another major step forward in the expansion of our financial planning proposition with the acquisition of Saunderson House. The board reviewed the merits of the transaction and concluded that Saunderson House would accelerate group growth and enable us to reach new clients across the wealth sector. The acquisition brings £4.9 billion of FUMA (at 31 December 2021) and reinforces Rathbones’ position as one of the largest independent UK wealth managers. Their 51 financial planners will strengthen our existing financial planning capabilities and enhance the wider wealth proposition we provide to our existing clients. The transaction is earnings accretive, underpinned by revenue and cost synergies, with a target return on invested capital of approximately 12% by the end of 2024. Strategic reportDividend In line with a progressive dividend policy of over 25 years, positive financial results and a strong capital position, the board has recommended a final dividend of 54p per share. This brings the total dividend for the year to 81p per share, 12.5% ahead of 2020. Five-year dividend growth 2021 2020 2019 2018 2017 2727 25 25 24 22 5454 8181 47 72 45 70 42 66 39 61 Interim dividend (p) Final dividend (p) Environmental, social and governance (ESG) Rathbones has long been at the forefront of responsible investing through Rathbone Greenbank Investments who have created bespoke, ethical, and sustainable portfolios for our clients for over 20 years. Our approach to responsible investment was recognised by the FT & Investors’ Chronicle Investment Awards 2021, where Rathbones was named ESG Champion of the Year, and ESG Champion for Governance. We intend to further integrate ESG into our investment processes across the Group, including the launch of four new Rathbone Greenbank Multi-Asset Funds announced earlier this year. In keeping with our ESG responsibilities, I am delighted that Rathbones is committed to achieving net zero emissions by 2050 or earlier. More information on our commitment and our near-term targets is set out on page 59 of this report. Outside of our own group, we have always recognised the importance of maintaining a dialogue with the companies in which we invest, and remain eager to help them towards better, more sustainable long-term performance. Our highly regarded stewardship team directly engaged with 705 companies in 2021 to discuss ESG issues. More information on our progress can be found in our responsible business review on pages 54-64. “I would like to thank our colleagues for their remarkable resilience, supporting both Rathbones and each other throughout the pandemic. I am confident that together, we are building a stronger, better business.” The board is conscious that good governance is not simply a matter of regulatory compliance but encompasses the firm’s culture, behaviours and how we serve our clients. We recognise the crucial link between culture, governance and leadership. As a result, the board closely monitors and analyses the firm’s culture. This is supported by my own engagement with employees and our workforce engagement programme. It is gratifying to see the firm’s strong and distinctive culture in action. This is evident by the way our employees work to provide positive outcomes for our clients and partners. Further information can be found in the full corporate governance report on pages 66-85. During the year the board held strategy days with the group executive team to focus on strategic issues including emerging trends, client needs and their future expectations. Commitment to fulfilling client needs remains paramount, supported by a digital approach to enhance that interaction. Our new portal and app, MyRathbones, was launched in 2021 and during 2022, we will continue our digital investment through the roll out of a more seamless, personalised, and interactive experience resulting in reduced documentation for clients and advisers. Board composition and succession This has been a year of change for the board. I succeeded Mark Nicholls as chair at the AGM in May 2021. Mark’s decade of commitment to Rathbones and his competence as chair were very clear and we wish him well in his retirement. Jim Pettigrew also retired at the AGM in May 2021. As part of the board’s succession plans, Colin Clark succeeded Jim as our senior independent director. I thank Jim for his tireless work over his four years at Rathbones and am delighted that Colin has taken on these important responsibilities. James Dean has indicated that he will not seek re-election at the 2022 AGM as he has served nine years on the board. James has made a huge contribution to the board, both as a non-executive director and chair of the audit committee. As part of the board’s succession plans, I am pleased that Iain Cummings will succeed James as chair of the audit committee. As part of our nomination committee review of board effectiveness and succession planning, we monitor the diversity, depth of knowledge and industry experience within the board; to assess what new skills are necessary to continue constructive challenge and guidance to the executive team. As a result, in October, we appointed Iain Cummings and Dharmash Mistry as independent non-executive directors. Their experience in industry within and beyond the financial sector will be of great value to Rathbones in the years ahead. Looking ahead This has been a very strong financial year for Rathbones. In 2022 there is a continued commitment to increase the firm’s organic growth, accelerate the digital transformation agenda, and successfully integrate Saunderson House. Finally, on behalf of the board, I would like to thank our colleagues for their remarkable resilience. They have supported both Rathbones and each other throughout the pandemic. I would also like to thank our clients, shareholders, and wider stakeholders for their continued commitment to our success. I am confident that together, we are building a stronger, better business. Clive C R Bannister Chair 23 February 2022 rathbones.com 5 Strategic report At a glance Rathbones at a glance Our purpose, which is to think, act and invest responsibly, is delivered through our corporate values – responsible and entrepreneurial in creating value, collaborative and empathetic in dealing with people, courageous and resilient in leading change, professional and high- performing in all our actions. 15 UK locations1 and Jersey 1,967 employees £68.2bn managed by us for our clients FTSE250 company listed on the London Stock Exchange 6 Rathbones Group Plc Report and accounts 2021 Wealth Management Investment Management Rathbone Investment Management provides investment management solutions to a range of private clients, charities, trustees and professional partners. Clients of this discretionary 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 — Rathbone Greenbank Investments — Personal Injury and Court of Protection — Rathbone Investment Management International Advice Through Rathbone Financial Planning, Saunderson House Limited and Vision Independent Financial Planning, we provide financial planning and advisory services. We also offer UK trust, tax and legal services through the Rathbone Trust Company. Funds Rathbone Unit Trust Management is a UK active fund manager, providing a range of single strategy 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. Our funds business also manages a range of multi- asset products that provide wealth solutions to the UK adviser market. Our funds can also be accessed by international clients through our Rathbone Luxembourg Funds SICAV2 (Société d’Investissement à Capital Variable) which allows access to a similar range of actively managed funds. Complementary services3 As a bank, Rathbone Investment Management offers a loan service to existing clients. Includes Vision Independent Financial Planning 1. 2. Our Luxembourg-based feeder funds were converted to directly invested funds in preparation for the potential loss of Undertakings for the Collective Investment in Transferable Securities (UCITS) status post Brexit 3. All complementary services are reported as part of our Investment Management segment Strategic reportOur investment case A strong track record in a growing market UK Wealth Management Market estimates (£trn) 2024F 2020 £2.1trn1 £2.1trn1 £1.6trn1 £1.6trn1 Relevant investment solutions Range of investment, financial planning and advisory solutions managing £68.2bn 4th largest charity fund manager in the UK Deep expertise Access to over 500 investment managers and financial planners Annuity value Client retention rate 93% Growing ESG capability with over 20 years of experience through Rathbone Greenbank Investments A single strategy and multi-asset Funds business managing £13.0bn Robust investment skills with a research team of over 30 individuals Long-term client and family relationships Track record of delivering M&A and integration 2021 2020 2018 2015 2014 440m440m 925m925m 1.9bn 1.9bn 4.7bn 4.7bn 6.7bn 6.7bn Speirs & Jeffrey (FUMA) Saunderson House (FUMA) Vision Independent Financial Planning (FUMA) Barclays Court of Protection team Jupiter private client business AUM at time of acquiring. 1. Sources: PAM Directory and Oliver Wyman estimates Attractive financials leading to returns to shareholders Underlying EPS 172.2p 2021 2020 2019 2018 2017 172.2 172.2 133.3 133.3 132.8 132.8 142.5 142.5 138.8 138.8 Underlying return on capital employed 16.1% 2021 2020 2019 2018 2017 16.116.1 13.613.6 14.214.2 16.916.9 19.519.5 Dividend per share 81p 2021 2020 2019 2018 2017 8181 7272 7070 6666 6161 rathbones.com 7 Our business model Creating long-term value What we do How we do it We are a leading provider of individual investment and wealth management services for private clients, charities, trustees and professional partners. Product and service optionality How Rathbones delivers wealth solutions today A balanced business model that delivers... Wealth planning Point-in-time advice/ planning Other advisory By leveraging capability across the firm through... Blended investment/advice solutions Providing investment optionality, both directly to clients and indirectly to advisers with access to: — Discretionary and managed portfolios — Multi-asset funds — Non-discretionary investment management — Single-strategy funds — Execution-only and banking 8 Rathbones Group Plc Report and accounts 2021 An informed investment process Supported by in-house operations Individual relationships with clients and advisers Strategic report — Clients have the option to join Rathbones either directly or through their own financial intermediary — Our dedicated intermediary sales team provides Rathbones services and products to UK and International financial advisers, including from full bespoke discretionary services to fund-based solutions — 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 — Rathbone Financial Planning together with Saunderson House will provide whole-of-market advice to clients, working closely with investment managers to create bespoke financial plans — We have a bespoke approach to portfolio construction supported by a central research team and a growing ESG capability — 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 this is cost-effective, to reliable and carefully chosen partners — We are leveraging technology solutions to deliver a stronger digital service to clients and make Rathbones much easier to do business with — Our service is delivered directly through investment managers who make portfolio decisions — Our aim is to build lasting and trusted relationships — We access investments across the whole market, with no bias towards in-house funds, but have a suite of fund solutions through Rathbone Unit Trust Management for clients who do not require a fully bespoke investment service — Our Jersey office can cater for offshore investment needs — Our upgraded client digital portal, MyRathbones, complements our face-to-face service To create long-term value For investors — Strong operating margin compared to industry peers — Successful acquisition capability of people and firms that fit our culture — Progressive dividend policy Dividends per share in 2021 81p 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 Retention rate 93.3% For employees — Empowered to make individual investment decisions — Performance-based remuneration — Investment in training, support and development — Share ownership — Low staff turnover Employee share ownership 8.6% rathbones.com 9 Stakeholder engagement 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 a clear understanding of who we are as a business, supported by our culture and values. 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. Our board understands how important it is to maintain a reputation for high standards of business conduct. We consider the long-term consequences of our decisions, taking into account the impact on both the communities in which we operate and our environment. Approach to stakeholder engagement The firm’s stakeholders are our clients, our people, our shareholders, our communities, regulators and partners with an interest or concern in our purpose and strategy. Our aim is to maintain an open and transparent approach to stakeholder engagement based on building constructive relationships with our key stakeholders and ensure there is a two-way dialogue. Across the firm, there are many examples of stakeholder engagement influencing both day-to-day and strategics. The key strategic developments set out on page 70 illustrate some of our significant stakeholder considerations which informed the board’s decision-making during the year and this approach is designed to be consistent with section 172 of the Companies Act and the overall expectations set by the board. Details of the framework through which this is governed are set out on page 68. Our stakeholder relationships The firm has identified the following key stakeholder groups and by considering their perspectives, insights and opinions, the board seeks to ensure outcomes of operational, investment or business decisions that are more robust and sustainable. In doing so our board has regard (amongst other matters) to the: — likely consequences of any decisions in the long term — interests of our people — need to foster the company’s business relationships with suppliers, customers and other key stakeholders — impact of the company’s operations on communities and the environment — desirability of the company maintaining a reputation for high standards of business conduct — need to act fairly as between members of the company. Input from engagement with stakeholders Rathbones’ outputs from engagement Stakeholder framework People Engagement helps us attract, retain and develop our sustainable pool of talent. Input into the future employee model Shareholders Engagement is designed to ensure confidence in the long term success of the firm. Provide insight into the firm’s strategic and investment direction Provide inclusive and talented workforce to service client needs Deliver bespoke and relevant products Ensure sustainable long term shareholder returns Implemented and refined initiatives for our responsible business agenda Contribute to evolving regulatory requirements Clients Client engagement allows us to anticipate their needs and to evolve our proposition to meet their expectations. Client insight and feedback on service, technology and products Society and communities We recognise our responsibility to wider society and communities we operate within. Obtain specific environmental and social perspectives Our partners and regulators Engagement with regulators and our partners are fundamental to the running of the firm and servicing of clients. Provide feedback to ensure ongoing collaboration and anticipate any regulatory changes 10 Rathbones Group Plc Report and accounts 2021 Strategic reportMeasuring our engagement Rathbones provides a service that meets our clients’ needs Strongly agree Slightly agree Other 81.1% 14.3% 4.6% Satisfaction with their investment manager 73.5% rated top two boxes (9/10 out of 10) 10 9 8 1-7 On a scale of 1-10 where 10 is very satisfied and 1 is very dissatisfied 44.9% 28.6% 17.9% 8.6% Overall satisfaction with Rathbones 63.1% rated top two boxes (9/10 out of 10) 10 9 8 7 1-6 On a scale of 1-10 where 10 is very satisfied and 1 is very dissatisfied 34.1% 29.0% 22.7% 8.5% 5.7% Clients Link to enriching the client and adviser proposition How the firm engaged We engaged with our clients through a variety of channels including: — client satisfaction survey focused on Charity and Greenbank clients — regular meetings held with investment managers and financial planners — continued use of video technology to enable virtual engagement with clients — virtual and in-person conferences held for private clients, intermediaries and IFAs — regular CEO letter and research notes issued to clients to update them on the firm and our investment proposition How the firm responded — financial awareness courses for all generations held in person and virtually — development of new products and services to meet current and future client needs, for example the launch of the Rathbone Greenbank Multi-Asset Portfolios (RGMAPs) and the pilot of our Reliance on Adviser programme — launched and continued development of MyRathbones featuring enhanced two-factor and biometric authentication and full availability on smart mobile devices and secure messaging. MyRathbones has achieved over 40% take up by clients since launch in the first half of 2021 — introduced digitised event management e.g. our financial awareness programme — increased electronic delivery of client reporting and implemented encrypted email technology — continued to develop our ability to deliver our proposition digitally (client servicing, thought leadership, events programmes, etc.) in order to serve clients remotely with careful consideration of the risk associated with digital (data protection, fraud, etc.) Measuring our engagement In 2021, we undertook a survey which focused on our Charity and Greenbank Charity clients. The results of this survey (shown on the right) indicated high levels of client satisfaction. Greenbank results were comparable: — overall satisfaction score of 8.92/10 — overall satisfaction with their investment manager 8.97/10 — meeting the client’s needs 76% Feedback from these surveys and our broader client base helped to enhance our clients’ digital experience through our Client Lifecycle Management programme including MyRathbones app, client portal and online reporting. In 2022, we will undertake the Aon UK client experience survey Further links to: Stakeholder interests and engagement Enriching our proposition page 70 page 22 rathbones.com 11 Stakeholder engagement continued People Link to inspiring our people strategic priority How the firm engaged We engaged with our people through the following activities: — regular colleague opinion surveys to measure engagement, wellbeing and opinions, e.g. our approach to hybrid working, change programme, etc — ongoing and regular virtual management briefings — webcast, internal magazine and management blogs — virtual presentations by the executive team to discuss performance and the firm’s progress on the strategic plan — workforce engagement sessions held with the NEDs How the firm responded — working with the cross industry network Inclusive Companies to broaden our reach and appeal as part of our commitment to improve employee diversity, e.g. Rathbones featuring on the Inclusive Jobs portal and employee access to inclusive webinars — shared our hybrid working principles see pages 28 and 58 — supported employee wellbeing through the provision of ongoing physical and mental health support. During the pandemic this was offered through virtual sessions — continued to develop and expand Rathbones mentoring Measuring our engagement Employee response rate 83% Lorem Lorem Lorem Lorem Overall engagement Lorem Lorem Lorem Lorem 8.1/10 Lorem Lorem 2021 Lorem Lorem XX% XX% XX% XX% XX% XX% XX% XX% XX% XX% XX% 8.18.1 XX% programme Benchmark 7.77.7 — inclusive leadership training — invested in virtual training and developing our employees Measuring our engagement 2021 colleague engagement survey: 2020 2021 83% 82% 91% 8.1/10* Financial Services Benchmark 7.7/10 Employee response rate Overall engagement Employee Net Promoter Score (eNPS) I am able to work effectively 8.4/10 2021 Benchmark 8.48.4 7.57.5 44* 18 I feel well communicated with * In 2021 we used a new engagement system; this means direct comparisons to previous years was not possible. 7.8/10 2021 Benchmark 7.87.8 7.37.3 Further links to: Responsible business review Workforce engagement Enabling our people Culture My manager cares about me as a person page 54 page 84 page 28 page 83 8.4/10 2021 Benchmark 8.48.4 8.38.3 12 Rathbones Group Plc Report and accounts 2021 Strategic reportShareholders Link to supporting and delivering growth strategic priority How the firm engaged We engaged with our shareholders through the following activities: — executives held regular meetings with our investors throughout the year — chair met with the firm’s shareholders via his Induction programme during 2021 and provided feedback to the board — in light of ongoing COVID-19 restrictions, the firm continued with a hybrid model AGM via a webinar and ensured effective shareholder engagement — held numerous meetings with investors as part of the acquisition of Saunderson House — continued to expand sell-side analyst research coverage of the company — we commissioned an independent investor perception study and the results were presented to the board How the firm responded — provided regular updates on the company’s financial and strategic performance — the progressive dividend policy was maintained throughout the year — an update on the firm’s strategic plan and acquisition of Saunderson House was provided during the year — took on board investor feedback for the firm’s remuneration policy — responded to several ESG related questionnaires during the year — maintained a strong dialogue with the sell-side analyst community Measuring our engagement Number of investor meetings held in 2021 96 2021 2020 2019 9696 8282 9090 Number of new investors in 2021* 73 2021 2020 73 87 * Number of new investors includes both retail shareholders and institutional investors Further links to: Stakeholder interests and engagement Group chief executive’s review Enriching our proposition page 70 page 18 page 22 rathbones.com 13 Stakeholder engagement continued Society and communities Link to enriching the client and adviser proposition and experience, and inspiring our people strategic priorities Measuring our engagement Direct engagement with investee companies How the firm engaged We engaged with society and the communities in which we operate through the following activities: 705 — we encouraged high standards of governance as an investment manager and frequently engaged with companies on environmental, societal, and corporate governance concerns. We have been a signatory to the Principles for Responsible Investment (PRI) for over 10 years. Each year we produce a responsible investment report sharing our activity and progress — we are proud to support the communities in which we operate and have a long history of contributing through the Rathbones Group Foundation, corporate donations and employee volunteering. In 2021 we gave over £418,000 (2020: £467,000) — used our community investment network to support discussion around regional charity projects — growing stakeholder expectation around management of climate risk and emission exposure How the firm responded — expanded our stewardship team to include greater ESG resource — introduced our first group-wide exclusions, for thermal coal and cluster munition manufacturers — increased the number of direct company engagements — transitioned several of our local community investment programmes, supported by our Foundation, to longer-term strategic partnerships — initiated a partnership with Social Shifters to support young entrepreneurs tackling environmental and social challenges — reviewed our approach to managing climate risk and expanded the data included in our carbon reporting, to cover our supply chain and operational footprint and the impact of our investment portfolios. See our TCFD report for more information — agreed to publish our first standalone responsible business report, where we share more detail on our responsible business programme and progress made, alongside existing reporting such as our CDP disclosure. Our CDP score decreased in 2021 as the submission was based on 2020 activities and therefore did not incorporate the targets we set in 2021 Further links to: Responsible business review Chair’s statement page 54 page 4 14 Rathbones Group Plc Report and accounts 2021 2021 2020 2019 226226 7070 705705 Total amount donated £418,000 2021 2020 £418,000 £418,000 £467,000 £467,000 CDP score C 2021 B 2020 B- DATA TBU 2019 XXX Lorem Lorem Lorem Lorem Lorem Lorem Lorem Lorem Lorem Lorem Lorem Lorem XX% XX% XX% XX% XX% XX% XX% XX% XX% XX% XX% XX% Strategic reportOur partners and regulators Link to operating more efficiently strategic priority How the firm engaged We engaged with regulators and our partners through the following activities: — we held regular meetings with our regulators during the year and continue to have a proactive and transparent relationship with them — we ensured our payment terms with all suppliers were fair and in compliance with payment practices — we engaged our suppliers to understand both their exposure to environmental, social and governance (ESG) risk (including modern slavery risk) and their management of these matters. Our modern slavery statement is updated annually and reviewed by our board — we maintained ongoing relations with our key suppliers and partners during the year with regular board updates — engaged with our existing lenders to refinance our debt facility How the firm responded — worked in close collaboration with the firm’s regulators and responded on a timely basis — maintain a constructive relationship with HMRC to help ensure alignment with the relevant regulatory frameworks — reviewed our preferred, strategic and critical suppliers for alignment to our ESG policies and processes. See page 57 — regularly interacted with the industry bodies and associations we are affiliated with to ensure we were engaged with issues impacting our industry — refinanced and increased our debt facility with our existing lending partner, M&G Measuring our engagement % of suppliers paid within 30 days 94% 2021 2020 2019 Lorem Lorem Lorem Lorem Lorem 94% 90% 92% XX% XX% XX% XX% XX% Lorem % of payments to suppliers made Lorem in agreed timeframe Lorem Lorem XX% XX% XX% XX% 70% 2021 2020 2019 Lorem Lorem Lorem Lorem Lorem Lorem Response to regulators Lorem 70% 63% 65% XX% XX% XX% XX% XX% XX% XX% Lorem All responses to regulators have been Lorem made in line with the agreed deadline XX% XX% Further links to: Stakeholder interests and engagement Risk management and control Responsible business review page 70 page 46 page 54 rathbones.com 15 Evolving OUR DIGITAL SOLUTIONS MyRathbones is just one of several solutions that will be rolled-out as part of the CLM programme. Over the next two years, we will digitally transform our client prospecting, onboarding and servicing capability as well as enhancing our client reporting and further improving our private client investment management tools. In addition, we will be providing a new investment management system to support our Funds business’ equity, fixed income and multi-asset portfolio management. These improvements will make it easier to do business with us and delight clients along the way. To do this we will partnering with three key organisations: Objectway, InvestCloud and Charles River. In addition, we have delivered improvements to our technology infrastructure across the firm by embracing a cloud-based hosting model for several of our systems and applications. We are also utilising video capabilities like Microsoft Teams to speak with clients and operate more efficiently across our many office locations, supporting hybrid working. Finally, it is worth highlighting our focus on data management within the organisation. Over the last year we have hired a new team of people to focus on gaining greater insight into our data and leveraging best in class data capabilities. Our vision is to build a personalised digital experience for clients, advisers and colleagues that truly enhances the value of our services. By embracing modern digital solutions we will be able to manage the full private client and adviser lifecycle experience for clients of Rathbones today, but also for the Rathbones clients of tomorrow. A key focus over the next few years is to ensure that, as our offering evolves and grows, the Rathbones experience for our clients, advisers and people remains efficient and enriching. That is why at Rathbones, we are focussing on creating a blended human and digital experience by investing further in digital technology through our ‘Client Lifecycle Management’ or ‘CLM’ programme. Designed around the client and the adviser and based on feedback received from speaking directly with a number of our clients and advisers, we are aiming to introduce new digital capabilities across our services and solutions. The first part of our digital ambitions, partnering with Objectway, was the launch of ‘MyRathbones’, our client-facing portal and app, which was launched in the first half of 2021. Today, c.43% of clients and advisers are actively using MyRathbones and this will continue to grow in 2022 as we implement further improvements and new features through regular upgrades based on client, adviser and colleague feedback. It is clear this has begun to enhance the efficiency and the experience we plan to achieve for our clients, with: over 640,000 logins to the portal and app over 72,000 documents downloaded more than 8,500 secure messages sent between clients and investment managers 16 Rathbones Group Plc Report and accounts 2021 Strategic report“Our vision is to build a personalised digital experience for clients, advisers and colleagues that truly enhances the value of our services.” Andy Brodie Chief Operating Officer rathbones.com 17 Group chief executive’s review Group chief executive’s review Paul Stockton Group Chief Executive Officer 18 Rathbones Group Plc Report and accounts 2021 Introduction It is difficult to report on 2021 without mentioning the pandemic which has impacted so much. For Rathbones, it has presented both challenges and opportunities that have changed the way in which we have invested and improved the way in which we deliver services to clients. We end the year in a very strong position having taken advantage of opportunities to improve client service quality, deliver strong investment returns, and build a robust change management and delivery capability. Our approach to supporting our employees has focussed on well-being, thereby improving productivity and securing a high level of staff engagement throughout the year. As a result, we have made considerable progress in delivering on a strategic change agenda that will not only improve our services, but also build greater affinity with a wider range of client groups and make us significantly easier to do business with. We have succeeded in balancing cost and revenue growth during this period, culminating in a very strong year financially. Total funds under management and administration (FUMA) grew 24.7% to reach £68.2 billion at 31 December 2021 (2020: £54.7 billion), while profit before tax grew 116.9% to £95.0 million (2020: £43.8 million. Underlying profit before tax totalled £120.7 million, 30.5% ahead of the Total FUMA up 24.7% Statutory profit before tax up 116.9% Basic earnings per share up 169.2% Strategic report£92.5 million reported in 2020. This resulted in an underlying operating profit margin of 27.7% (2020: 25.3%). Further information on our financial performance can be found on pages 29-45. After a decade of significant growth, the Rathbones of today is a business offering a holistic range of wealth management and advice services, complemented by a high-quality fund management business; our December 2021 announcement to rename the company to Rathbones Group Plc reflects this. Growth and fund flows By the end of the year and before the rotation to value we saw in early 2022, global investment markets largely looked to a future beyond the pandemic as key indices recovered well, comparing favourably to the considerable nervousness in the period leading up to the end of 2020. In the year, the FTSE 100 was up 14.3% and the WMA Balanced Index up 10.3%. This relatively strong performance combined with our own organic and acquired growth increased FUMA by 24.7% in the year (2020: 8.6%). Against relevant indices, our investment performance was also strong over one, three and five years. In 2021 we enhanced our reporting capability, which is reflected in the improved disclosure found on pages 30-32. Discretionary service net inflows totalled £1.3 billion in the year, up 30% on £1.0 billion in 2020. External inflows of £0.5 billion into our risk targeted multi- asset fund range were up considerably from £0.2 billion in 2020. This fund range is a central part of our offering to the adviser market and also underpins our offering for those clients wishing to invest smaller values. Total discretionary and managed net inflows were £1.8 billion in 2021 representing an annualised growth rate of 4.1%. This compares to growth of 1.4% in 2019 (net inflow of £0.5 billion) and 2.9% in 2020 (net inflow of £1.2 billion) demonstrating a growing momentum in both direct to client business and the indirect financial adviser market. “We made some considerable headway in delivering on a strategic change agenda that will continue over the next two years and will not only improve our services, but also build greater affinity with a wider range of client groups, and make us significantly easier to do business with.” Our growth plans continue to focus on improving services to existing clients and establishing relationships with new clients and advisers. Our dedicated client development team has provided a welcome point of focus in the direct market, encouraging a ‘One Rathbones’ approach to deliver a more holistic client service where we bring together the best of our skills and knowledge to support focused growth campaigns. Our specialist intermediary sales team is also well positioned to grow, and has seen momentum build in 2021 with indirect net flows from IFAs into our discretionary services at £0.7 billion in 2021 (2020: £0.2 billion) reflecting the investment we have made in the team. Our Funds business had another very strong year with funds under management (FUM) reaching £13.0 billion at 31 December 2021 (2020: £9.8 billion). Net flows into our single strategy fund range grew by 20.0% year on year to £1.2 billion (2020: £1.0 billion). In total, Rathbone Funds generated net inflows of £2.1 billion (2020: £1.5 billion), a growth rate of 21.1% (2020: 20.1%). Rathbones was ranked in 5th position for total net retail sales in the UK in 2021 (source: Pridham Report), ahead of its 9th place position in 2020. Our strategy in action Rathbones’ future success is founded on our commitment to deliver a personal service that brings empathy and reassurance and builds trust with clients and advisers. We are committed to a responsible business agenda that fits our brand values and resonates strongly with both stakeholders and the next generation holders of wealth. Our strategy aims to establish a blended human and digital experience that transitions seamlessly across Rathbones and continually improves the quality of our investment and advice processes that stand up to scrutiny and deliver value. To achieve this, our objective is driven by four main pillars: enriching the client and adviser proposition and experience, supporting and delivering growth, inspiring our people, and operating more efficiently. Our focus on delivering against this strategy has driven considerable and positive changes within the business that have helped deliver strong financial outcomes in 2021. Building our financial advice capability The completion of the Saunderson House Limited acquisition in October 2021 added the largest specialist professional services- focused financial planning business in the UK to Rathbones Group. With £4.9 billion (as at 31 December 2021) of FUMA and 51 certified advisers, Saunderson House presents a valuable opportunity to expand our proposition and accelerate the growth of our financial advice capability. Work since acquisition has reaffirmed the opportunities we anticipated: to be able to provide a deeper and more flexible investment service to Saunderson House clients and grow its presence in the sectors it operates in. Integration work is on track to deliver against expectations. The cultural fit with our existing Rathbones Financial Planning team is strong, with both management teams working well together. Vision Independent Financial Planning (Vision) grew FUMA to £2.7 billion at 31 December 2021, up 22.7% from £2.2 billion in 2020, and now has 131 financial planners. The network is actively seeking to recruit further in 2022. rathbones.com 19 Group chief executive’s review continued Looking across the group, Rathbones can now provide clients with access to over 200 financial planners and paraplanners and over 300 investment professionals that together can provide any combination of advice or investment services. Our strategy recognises that external advisers demand quality investment services directly, and we have continued to invest to enhance our direct to adviser proposition to deliver value and breadth of proposition to advisers and networks. As at 31 December 2021, the amount of adviser linked FUMA was £11.4 billion (31 December 2020: £9.7 billion). Responsible investing A critical part of the development of our proposition is to deliver a leading approach to responsible investing across the group. In our wealth business, we have over 20 years of experience in ethical investing and our specialist ethical, sustainable and impact team Rathbone Greenbank Investments had £2.3 billion of funds under management at 31 December 2021 (2020: £1.9 billion). We are leveraging the expertise and experience of Rathbone Greenbank Investments more widely across Rathbones as well as adding capability to develop its proposition in a rapidly changing environment to facilitate further growth. All of our investment managers and their support staff have now completed the CISI Professional Assessment on Sustainability and Responsible Investment or the CFA equivalent. In 2022 we will also integrate an expanded ESG research data set into the investment process across the group and improve ESG reporting to clients with support from research and our award-winning stewardship team who during 2021, completed 705 company engagements. Our Funds business also supports the responsible investment approach by delivering fund-based solutions for clients and advisers. Our highly successful Ethical Bond Fund continues to deliver strong investment performance, growing to reach £2.8 billion at 31 December 2021 (2020: £2.1 billion) while the Rathbone Greenbank Global Sustainability Fund now manages £116 million (2020: £44 million). In March, we added to our sustainability fund offering by launching the Rathbone Greenbank Multi-Asset Portfolios (RGMAPs) fund range. The RGMAPs funds are managed by Rathbones’ acclaimed multi-asset team and supported by Rathbone Greenbank Investments and though nascent, now manage £105 million. Total ethical and sustainable funds managed by Rathbones Group now equate to £5.3 billion and continue to grow. We will continue to place responsible investing at our core, and enhance our capability through recruitment and skills development across investment and advice teams. Our charity proposition also continues to gain prominence with Rathbones ranked the 4th largest charity manager in the UK by Charity Finance with funds managed under a charitable mandate totalling £7.1 billion (2020: £6.5 billion). In a recent charity survey, respondents gave their Rathbones investment manager a mean satisfaction score of 9/10,. There were also a number of insights that we will use to improve our service. We are committed to responding to our own fiduciary duty as a business to help build a better world for future generations as well as being stewards and allocators of capital. The establishment of a responsible business committee is critical to this ambition. Chaired by me, this committee oversees not only our responsible investment agenda, but also how we deliver on our responsibilities to our employees, our own environmental impact, and our social agenda. More information on our work in these areas will be published in our first standalone responsible business report in April 2022. The success of Speirs & Jeffrey The acquisition of Speirs & Jeffrey in 2018 added considerable skills and capabilities to Rathbones as well as creating a leading market presence in Scotland. The transaction has established us as one of the largest independent wealth managers in Scotland with FUMA of £11.0 billion at 31 December 2021 (2020: £10.3 billion). At the time of the acquisition in 2018, we outlined the following financial targets for 2021: expected underlying EPS accretion from the acquisition of at least 8%, and an underlying return on investment of approximately 13%. As at 31 December 2021, we exceeded both of the targets we originally laid out despite an uncertain and challenging backdrop through much of 2020 and 2021. Importantly, we have now largely worked through the short-term impact from the acquisition on basic earnings per share (EPS), which is now up 169.2% to 133.5p (2020: 49.6p) and more closely reflecting underlying EPS. Further information on financials related to the acquisition can be found in the business review. My thanks go to the Glasgow and transition teams that have worked so hard to make the deal such a success. Current and future digital plans Our strategy sets out the need for a resolute focus on leveraging technology and people as part of a holistic digital experience that differentiates by quality, demonstrates value to clients, advisers and colleagues and harnesses efficiency opportunities. There is little doubt that the pandemic has greatly emphasised the importance of this direction of travel as well as being a significant facilitator of change as to how we work and interact with each other and our clients. The first part of our digital strategy was the launch of our ‘MyRathbones’ web portal and app. Today, c.43% of clients are actively using the portal and app and this will continue to grow in 2022. It is also clear that the level of engagement with ‘MyRathbones’ has increased significantly versus our legacy platform. Alongside this development, we have also built in a continual improvement (‘agile’) capability that delivers regular upgrades that can keep the platform current and continue to respond to client-led improvements. MyRathbones will grow to be the digital doorway into Rathbones, providing clients and advisers with a straightforward, flexible, and safe experience for everyday tasks. During 2021 we took our digital strategy further, in partnership with Objectway, by upgrading our custody and settlement system that provides the fundamental support for all aspects of the business. This significant work was completed on time and budget and has now established 20 Rathbones Group Plc Report and accounts 2021 Strategic report“Our strategy sets out the need for a resolute focus on delivering an integral digital service to clients and the leveraging of technology solutions to improve our own productivity.” an up-to-date platform for operating our day-to-day books and records. It is a solid foundation upon which to build more client-centric systems, supporting an interim redesign of client and adviser reporting. In 2021 we also mobilised a significant change team to support the delivery of a Client Lifecycle Management capability that will transform how Rathbones engages with clients and advisers. Our ambition is that clients and advisers will see a seamless, personalised and interactive experience that significantly reduces unnecessary documentation and data processes that materially improves efficiency and client centricity across the business. When achieved, our investment managers and financial advisers will be equipped with leading data and client management tools that will promote rather than inhibit service delivery and make Rathbones much easier to do business with. It will also enable more time to focus on performance and growth within the client facing teams. To make this important step change, we have partnered with InvestCloud, a global company which specialises in digital transformation in the financial industry. It brings leading expertise in digital design, innovative technology and data capabilities to enable us to deliver leading Client Lifecycle Management capabilities to deliver a holistic digital experience. This will also enable us to keep pace with the rapid changes in client preferences and industry standards we expect to see over the medium term. In addition to our partnership with InvestCloud, we have signed a partnership agreement with Charles River. It is a leading provider of portfolio management solutions that will help to take our Funds business to the next level, adding more institutional fund management capability to support investment performance and the next phase of growth. The programme of delivery for all our digital plans will be phased to enable prioritisation and re-investment of early benefits. The phase of investment is expected to be concentrated over the next two years at a total operating expenditure cost of £40 million. At market levels consistent with conditions at 31 December 2021, we plan to manage this investment within existing underlying operating margin guidance of mid-20s with a view to returning to upper-20s operating margins of 27-30% from 2024 onwards. People I have always maintained that, aside from our clients, our people are our most important asset and it has been truly heartening to witness the resilience and focus of our employees over the past two years. Like many businesses, having learnt from remote working, we will incorporate what we have learned into our future hybrid working approach. Employees will have greater autonomy in how they use their time and the ways in which they work. Rathbones will facilitate this activity to ensure that we can drive productivity, support flexibility, and compete for talent. Rathbones recognises that capturing the full value and impact of our people at work can only be achieved by having an inclusive and diverse workforce who feel that they belong to the Rathbones Group. As a predominantly client-facing business this is critical to us being able to serve our clients and deliver on goals we have set. We took some important strides in 2021 to promote our Diversity, Equality & Inclusion (DE&I) agenda by adding resources, capturing helpful data for nearly 65% of our employees and taking part in several workforce programmes. More information on these important initiatives can be found on page 28 and in our responsible business review on pages 54-64. An engaged workforce is essential to delivery of our purpose and strategy. Our 2021 employee survey received an 83% response rate and our overall engagement score is notably higher than our industry benchmark. We are committed to continually improving our employees’ experience at work and will continue to run and respond to surveys throughout the year. Risk management Risk management practices are embedded across the firm and will continue to develop as we upgrade risk management systems and consider control self-assessment processes in 2022. We remain conscious of the impact of the changing risk landscape to our firm and industry, particularly as the world emerges from the pandemic. Risks associated with ESG, including climate change, anti-money laundering and the potential for further supply chain risks arising from Brexit are considered and assessed regularly. We will also remain diligent to mitigate risks in respect of potential cyber threats, business change, and greater investment in digital solutions. Outlook The business ends 2021 in good health and is showing strong momentum having posted strong financial returns and delivered on some important initiatives in the year. The post pandemic environment, together with inflationary and macro- economic pressures, as well as the current tensions in Ukraine will continue to be digested by investment markets, but Rathbones is in a strong position to implement critical client lifecycle and investment systems capabilities in 2022, secure the delivery of ambitions for Saunderson House, and explore further opportunities to drive growth. Paul Stockton Group Chief Executive 23 February 2022 rathbones.com 21 Enriching OUR PROPOSITION Rathbones is client led: as our clients’ needs evolve, so too does our proposition. This way we can continue to offer a holistic service. In enriching the client and adviser experience, our strategy has created targeted propositions to both the wealth management and asset management sectors. Rathbones remains a high-quality brand and we will continue to invest in our brand proposition to support the next generation. Saunderson House adds FUMA of RGMAPs have over £4.9bn £100m invested in their first year In recent years, our proposition has advanced through: — The acquisition of Saunderson House, the UK’s largest professional services focused financial planner — The launch of the Rathbone Greenbank Multi-Asset Portfolios (RGMAPs), a sustainable investment fund suite that leverages the expertise of our Rathbone Funds and Rathbone Greenbank businesses — Leveraging of the funds capability of the group to offer considerable choice to direct clients and the intermediary market, allowing both have access to discretionary and fund-based solutions that provide optionality — Deliberate investment in skills and systems to make our investment process stronger Rathbones Group now has over 300 investment managers, and over 200 financial planners, serving 66,500 clients “Keeping our propositions relevant and of value to a wide range of client preferences has always been our goal.” Mike Webb CEO of Rathbone Funds 22 Rathbones Group Plc Report and accounts 2021 Strategic reportOur market and opportunities Our market and opportunities The UK wealth sector is attractive and long-term secular growth opportunities remain as the industry continues to evolve to deliver returns for a wide range of clients. Sector assets are estimated to be nearing £2.1 trillion by 2024. As we begin to emerge from the COVID-19 pandemic, many themes of the market have amplified, and our response will be critical. Industry trends Changing profiles and expectations of clients Increased focus on responsible investment What this means for the industry There is growing demand for holistic advice, new products and services and digital propositions. Intergenerational wealth transfer and the changing gender and ethnic profile of wealth will continue to drive proposition changes. How Rathbones is responding — Provide a wide range of services that caters to differing investment and financial planning requirements — Engage with different client groups as well as the younger generation in preparation for intergenerational wealth transfer — Promote our Diversity, Equality & Inclusion agenda by adding resources and taking part in several workforce programmes What this means for the industry The role of the industry continues to expand, extending to broader issues. This wider role is expected to become even more important in future years as part of the focus on responsible and sustainable investment. Social and environmental issues will be more important than ever before. How Rathbones is responding — Broaden our existing ESG proposition and investment range, ensuring they remain relevant for the clients of tomorrow — Maintain dialogue with companies we invest in to support more sustainable long-term performance — Commit to achieving net zero emissions by 2050 or earlier Demand for technology solutions Continued consolidation opportunities What this means for the industry The wealth management sector remains highly fragmented and benefits of scale remain strong both in terms of operating leverage and service diversification. There remains a long tail of sub-scale wealth managers who have felt greater operational strain through the pandemic while the majority of larger-scale peers are committed to growing. How Rathbones is responding — Continue to look for inorganic growth opportunities that fit our culture but maintain strict acquisition criteria — Continue to selectively recruit individuals and teams to the business What this means for the industry Clients are becoming more and more accustomed to using technology to communicate and manage their financial affairs, particularly following the COVID-19 pandemic. Keeping pace with this change is fundamental to remaining competitive and sustaining a quality service, particularly as inter-generational wealth transfer accelerates and inheritors have different investment and digital service expectations than donors. How Rathbones is responding — 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 — Build relationships with the next generation of clients using relevant technology to facilitate future retention of investment portfolios rathbones.com 23 Our strategy Our strategy We launched our medium-term strategy for the business in October 2019, to support our purpose of thinking, acting and investing responsibly. Our four strategic priorities are set out here. Supporting and delivering growth How we plan to achieve this 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. We are investing to improve our organic growth rate. To do this, we are building up skills and resources to access specialist markets including charities, Rathbone Greenbank Investments and Court of Protection. We are also freeing up capacity in our investment teams, adding structure to our business development activity and supporting the ongoing growth of our Rathbone Funds and Rathbone Financial Planning businesses. s I P K s k s i R Link to KPIs and risks — Total funds under management and administration — Investment Management net organic growth rates — Underlying operating margin — Underlying earnings per share — Return on capital employed — Suitability — Advice — Sustainability — Regulatory compliance and legal — Change Enriching the client and adviser proposition and experience How we plan to achieve this 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. We are developing content and tailoring the delivery of our services for both the direct-to-client and direct-to-financial- adviser markets to ensure we serve all client segments appropriately. We continue to develop our investment culture and are investing to broaden our capability and coverage to drive positive client outcomes. Our investment process is supported by our focus on environmental, social and governance issues. s I P K s k s i R Link to KPIs and risks — Number of investment managers and Investment Management clients — Staff turnover — Suitability — Advice — Sustainability — Regulatory compliance and legal — People 24 Rathbones Group Plc Report and accounts 2021 Strategic reportInspiring our people How we plan to achieve this Our culture and corporate values Becoming a more diverse and inclusive organisation, continuing to listen to our people and improving our commitments to them. 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, equality and inclusion, we plan to leverage the talent in our business as we develop more career paths, build leadership skills and manage succession. s I P K Link to KPIs and risks — Percentage of shares held by current employees — Staff turnover — Variable staff costs as a % of underlying profit before tax and before variable staff costs s k s i R — People — Change Operating more efficiently How we plan to achieve this Driving productivity Providing a quality client experience and making us easy to do business with. 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, boost employee morale and create the time and resources to invest in future growth initiatives. We will also embrace digital to work alongside our face-to-face service, offering a broader set of communication options for clients and advisers. s I P K s k s i R Link to KPIs and risks — Underlying operating margin — Return on capital employed — Common Equity Tier 1 ratio — Headcount — Information security and cyber — Technology — People — Processing — Change Read more on our KPIs and risks on pages 26-27 and 46-53 rathbones.com 25 Key performance indicators Key performance indicators The group considers the following financial and non-financial measures as key performance indicators (KPIs) of its overall performance. 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. Total funds under management and administration £68.2bn Underlying operating margin1 27.7% 2021 2020 2019 68.268.2 54.7 50.4 2021 2020 2019 Underlying earnings per share1 172.2p 27.727.7 25.3 25.5 2021 2020 2019 172.2 172.2 133.3 132.8 Definition Total funds under management and administration at the end of the year. Definition Underlying profit before tax as a percentage of operating income. Relevance The amount of funds that we manage directly impacts the level of income we receive. 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. Underlying return on capital employed1 16.1% 2021 2020 2019 16.116.1 13.6 14.2 Definition Underlying profit after tax as a percentage of the underlying 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. 1. This measure is considered an APM. Please refer to page 33 for more detail on APMs. Dividend per share Staff turnover 81p 2021 2020 2019 8.2% 818181 72 70 2021 2020 2019 8.28.2 8.3 10.1 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. 26 Rathbones Group Plc Report and accounts 2021 Strategic reportEnriching the client and adviser proposition and experience Inspiring our people Supporting and delivering growth Operating more efficiently Investment Management net organic growth rate 1.8% 2021 2020 0.1 2019 Rathbone Funds net organic growth rate 21.1% Number of Investment Management clients 66.5 1.81.8 1.5 2021 2020 2019 21.121.1 20.1 16.7 2021 2020 2019 66.566.5 63.7 63.0 Definition The value of annual net inflows from Investment Management as a percentage of opening funds under management and administration in that segment. Definition The value of annual net inflows from Rathbone Funds as a percentage of opening funds under management in that segment. Relevance Measures the ability of the Investment Management business to grow in the absence of acquisitions. Relevance Measures the ability of the Funds business to grow. 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. Performance-related variable staff costs1,2 41.6% 2021 2020 2019 Percentage of shares held by current employees1 8.6% Common Equity Tier 1 ratio 18.7% 41.641.6 43.7 42.3 2021 2020 2019 8.68.6 8.3 10.1 2021 2020 2019 18.718.7 23.5 14.2 Definition Performance-related variable staff costs divided by underlying profit before tax and before performance-related variable staff costs. Relevance Shows the extent to which profits are shared between employees and shareholders. 1. As a % of underlying profit before tax and before performance-related variable staff costs 2. This measure is considered an APM. Please refer to page 33 for more detail on APMs Definition The percentage of outstanding shares held by current employees of the firm. Definition Common Equity Tier 1 capital as a proportion of total risk exposure amount. Relevance A direct link for employees to the future financial success of the company as shareholders. 1. Includes some unvested employee share plans Relevance As a bank, we must maintain certain levels of capital. A higher ratio is an indicator of financial resilience. Refer to page 42 for further detail rathbones.com 27 Enabling OUR PEOPLE Rathbones strives to invest ‘for everyone’s tomorrow’. ‘Everyone’ includes our people. We are committed to investing in our most powerful asset, our people, as catalysts for growth. Investing in support, tools and a positive working environment enhances engagement, wellbeing and career development. In 2021, COVID continued to impact our employees. Following the move to remote working in 2020, 2021 saw us design and pilot our approach to hybrid working. The response from our people demonstrates that digitisation and remote working can positively impact client service and group performance and so we will roll out our permanent hybrid-working model in 2022. While the CLM system will deliver a blended personal / digital client experience, the reconfiguration of office space to support hybrid-working will continue to enhance our employee proposition and provide a fit for the future working environment. In addition to the Saunderson House acquisition, we continued to grow organically and, with the roll-out of our more targeted diversity, equality and inclusion initiatives, we are becoming a more diverse business as we grow. Our People Plan, focused around the four areas of: asking, listening and doing, investing in our people, being an employer of choice and using data to support decisions. To find out more about our people read p58 Our priority areas — Asking and listening through regular and targets surveys and feedback workshops. — Provide the tools and opportunity for everyone to own their own career pathway. — Accelerate the pace in building a diverse equitable and inclusive workplace. — To make our employees work more meaningful – sponsoring ambition and challenge and recognising success through contribution. The changing employee environment 38.5% >64% of our senior managers are female. An increase of 13.5% on our 2020 position. of our employees have submitted their diversity characteristics. “ We are at a very exciting stage of growth and change, we are dedicated to releasing the full potential of all our people and continuing to build on our strong Rathbones culture and values.” Gaynor Gillespie Chief People Officer 28 Rathbones Group Plc Report and accounts 2021 Strategic reportFinancial performance Financial performance Jennifer Mathias Group Chief Financial Officer Overview of financial performance The group delivered a very strong set of results for the year to 31 December 2021, driven by growth in all areas of the business and the realisation of benefits of our acquisition strategy. Underlying profit before tax grew 31% to £120.7 million (2020: £92.5 million) reflecting strong operating income growth, balanced with the continuation of investment in the strategic plans announced in October 2019. The underlying operating margin, which is calculated as the ratio of underlying profit before tax to operating income, was 27.7% (2020: 25.3%). Statutory profit before tax for 2021 was £95.0 million (2020: £43.8 million). This included planned deferred acquisition and integration costs of £6.4 million relating to Speirs & Jeffrey (2020: £32.3 million). We also incurred costs of £3.7 million in 2021 relating to the acquisition of Saunderson House. The board primarily considers underlying measures of income, expenditure and earnings when assessing the performance of the group. These are considered 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 34. “The group delivered a very strong set of results for the year, driven by growth in our core service lines and the realisation of benefits of our acquisition strategy.” rathbones.com rathbones.com 29 29 Financial performance continued Funds under management and administration In 2021 we enhanced our FUMA flow reporting capability to provide additional analysis of FUMA by service level. Table 1 presents separately the FUMA, and associated movements, in those services and products which support our wealth management solutions from asset management products and other services. Wealth management FUMA incorporates our bespoke discretionary portfolio and managed portfolio services. It also includes direct sales into our range of risk-targeted multi-asset funds, which are designed to be used as wealth management solutions for clients of investment platforms and financial advisers. Asset management FUMA includes our focused range of specialist ‘single strategy’ funds, which are designed to act as individual holdings within investment portfolios. Including the acquisition of Saunderson House, group FUMA increased 24.7% in the year to £68.2 billion. Saunderson House FUMA totalled £4.9 billion at 31 December 2021. Net inflows of discretionary and managed FUMA in Investment Management totalled £1.3 billion in 2021, up 30% from £1.0 billion in 2020 (2019: £0.3 billion). Direct net flows into our multi-asset fund range totalled £0.5 billion in the year (2020 and 2019: £0.2 billion). Taken together, this represents a growth rate of 4.1% in discretionary and managed FUMA (2020: 2.9%; 2019: 1.4%). In addition to the above, FUMA on Vision Financial Planning’s discretionary wealth management platform that was not managed by the group totalled £0.8 billion at 31 December 2021 (2020: £0.7 billion). In 2022 we will continue to enhance this disclosure to incorporate FUMA in our financial planning businesses. Operating income Operating income increased 19% in 2021 to £435.9 million, reflecting growth in all areas of the business and a full year of Speirs & Jeffrey operating on standard tariffs post transition in the fourth quarter of 2020. This also includes £6.1 million of post-acquisition income in Saunderson House. Fee income of £349.4 million in 2021 increased 27.4% compared to £274.2 million in 2020. Fees represented 80.2% of operating income in 2021, up from 74.9% in 2020. Net commission income decreased 14.0% to £53.6 million in 2021 (2020: £62.3 million). Commission income was elevated in 2020 as investment managers monitored and responded to the market impacts of the pandemic. The transition of Speirs & Jeffrey clients to fee-only tariffs in 2020 also impacted in 2021. Net interest income decreased 53.6% to 3.9 million, reflecting a full year with the UK base rate at 0.1%, following the cut in March 2020. Underlying operating expenses Operating expenses increased from £322.3 million to £340.9 million during the year. Operating expenses are adjusted to exclude expenditure falling into the two categories explained on page 33. Underlying operating expenses increased by £41.6 million (15.2%) to £315.2 million, reflecting ongoing investment in our strategic objectives, continued growth momentum across the business and the acquisition of Saunderson House. Advancing the strategic plans to invest in our digital capability, ESG proposition and IT infrastructure added £9.2 million to our non- staff cost base in the year. Business growth and inflation added a further £6.0 million. Excluding Saunderson House, planned additions to headcount in 2020 and 2021 and market-led salary increases increased fixed staff costs by £9.3 million to £126.8 million. Average headcount increased by 10% to 1,694 in 2021 (see note 10), driven largely by increases in client facing and change delivery teams. Variable staff costs increased by £12.0 million to £89.7 million, reflecting higher profitability and strong performance of client portfolios. Post-acquisition costs in Saunderson House totalled £5.0 million, of which £3.4 million related to staff costs. 30 30 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Financial performance continued Funds under management and administration In 2021 we enhanced our FUMA flow reporting capability to provide additional analysis of FUMA by service level. Table 1 presents separately the FUMA, and associated movements, in those services and products which support our wealth management solutions from asset management products and other services. Wealth management FUMA incorporates our bespoke discretionary portfolio and managed portfolio services. It also includes direct sales into our range of risk-targeted multi-asset funds, which are designed to be used as wealth management solutions for clients of investment platforms and financial advisers. Asset management FUMA includes our focused range of specialist ‘single strategy’ funds, which are designed to act as individual holdings within investment portfolios. Including the acquisition of Saunderson House, group FUMA increased 24.7% in the year to £68.2 billion. Saunderson House FUMA totalled £4.9 billion at 31 December 2021. Net inflows of discretionary and managed FUMA in Investment Management totalled £1.3 billion in 2021, up 30% from £1.0 billion in 2020 (2019: £0.3 billion). Direct net flows into our multi-asset fund range totalled £0.5 billion in the year (2020 and 2019: £0.2 billion). Taken together, this represents a growth rate of 4.1% in discretionary and managed FUMA (2020: 2.9%; 2019: 1.4%). In addition to the above, FUMA on Vision Financial Planning’s discretionary wealth management platform that was not managed by the group totalled £0.8 billion at 31 December 2021 (2020: £0.7 billion). In 2022 we will continue to enhance this disclosure to incorporate FUMA in our financial planning businesses. Operating income increased 19% in 2021 to Operating expenses increased from £435.9 million, reflecting growth in all areas £322.3 million to £340.9 million during the of the business and a full year of Speirs & year. Operating expenses are adjusted to Jeffrey operating on standard tariffs post exclude expenditure falling into the two transition in the fourth quarter of 2020. This categories explained on page 33. also includes £6.1 million of post-acquisition income in Saunderson House. Fee income of £349.4 million in 2021 increased 27.4% compared to Underlying operating expenses increased by £41.6 million (15.2%) to £315.2 million, reflecting ongoing investment in our strategic objectives, continued growth £274.2 million in 2020. Fees represented momentum across the business and the 80.2% of operating income in 2021, up from acquisition of Saunderson House. 74.9% in 2020. Net commission income decreased 14.0% our digital capability, ESG proposition and IT to £53.6 million in 2021 (2020: £62.3 million). infrastructure added £9.2 million to our non- Commission income was elevated in 2020 staff cost base in the year. Business growth as investment managers monitored and and inflation added a further £6.0 million. Advancing the strategic plans to invest in responded to the market impacts of the pandemic. The transition of Speirs & Jeffrey clients to fee-only tariffs in 2020 also impacted in 2021. Excluding Saunderson House, planned additions to headcount in 2020 and 2021 and market-led salary increases increased fixed staff costs by £9.3 million to £126.8 Net interest income decreased 53.6% to million. Average headcount increased by 3.9 million, reflecting a full year with the 10% to 1,694 in 2021 (see note 10), driven UK base rate at 0.1%, following the cut in largely by increases in client facing and March 2020. change delivery teams. Variable staff costs increased by £12.0 million to £89.7 million, reflecting higher profitability and strong performance of client portfolios. Post-acquisition costs in Saunderson House totalled £5.0 million, of which £3.4 million related to staff costs. Operating income Underlying operating expenses Table 1. Group FUMA and flows by service level Year ended 31 December 2021 Discretionary service Bespoke portfolios Managed via in-house funds Multi-asset funds Total discretionary & managed Non-discretionary service Total wealth management Single-strategy funds Execution only & banking Total group (pre acquisitions) Saunderson House Total group Year ended 31 December 2020 Discretionary service Bespoke portfolios Managed via in-house funds Multi-asset funds Total discretionary & managed Non-discretionary service Total wealth management Single-strategy funds Execution only & banking Total group Year ended 31 December 2019 Discretionary service Bespoke portfolios Managed via in-house funds Multi-asset funds Total discretionary & managed Non-discretionary service Total wealth management Single-strategy funds Execution only & banking Total group Opening FUMA £bn 43.4 42.5 0.9 1.3 44.7 1.4 46.1 6.3 2.3 54.7 Opening FUMA £bn 39.9 39.3 0.6 1.0 40.9 2.6 43.5 4.7 2.2 50.4 Opening FUMA £bn 34.2 33.8 0.4 0.7 35.0 3.4 38.3 3.7 2.1 44.1 Net flows £bn 1.3 1.1 0.2 0.5 1.8 (0.1) 1.7 1.2 (0.2) 2.7 Net flows £bn 1.0 0.9 0.1 0.2 1.2 (0.1) 1.1 1.0 (0.2) 1.8 Net flows £bn 0.3 0.2 0.1 0.2 0.5 (0.1) 0.4 0.4 (0.5) 0.3 Net service level transfers £bn – (0.1) 0.1 – – (0.3) (0.3) – 0.3 – Net service level transfers £bn 0.8 0.7 0.1 – 0.8 (1.0) (0.2) – 0.2 – Net service level transfers £bn 0.2 0.2 – – 0.3 (0.4) (0.1) – 0.1 – Market & investment performance £bn 4.6 4.5 0.1 0.2 4.8 – 4.8 0.8 0.3 5.9 Market & investment performance £bn 1.8 1.7 0.1 0.1 1.8 (0.1) 1.7 0.7 0.1 2.5 Market & investment performance £bn 5.2 5.1 0.1 – 5.2 (0.3) 4.9 0.6 0.5 6.1 Closing FUMA £bn 49.3 48.0 1.3 2.0 51.3 1.0 52.3 8.3 2.7 63.3 4.9 68.2 Closing FUMA £bn 43.4 42.5 0.9 1.3 44.7 1.4 46.1 6.3 2.3 54.7 Closing FUMA £bn 39.9 39.3 0.6 1.0 40.9 2.6 43.5 4.7 2.2 50.4 Net growth (flows) % 3.0% 2.6% 19.9% 40.3% 4.1% (11.4%) 3.6% 18.9% (8.9%) 4.9% Net growth (flows) % 2.5% 2.2% 15.5% 24.4% 2.9% (3.8%) 2.5% 20.4% (10.4%) 3.6% Net growth (flows) % 0.9% 0.5% 20.0% 31.3% 1.4% (2.1%) 1.1% 10.0% (25.5%) 0.6% 30 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 31 31 Financial performance continued Table 2. Reconciliation of service levels to segmental presentation Discretionary service Bespoke portfolios Managed via in-house funds Multi-asset funds Total discretionary & managed Non-discretionary service Total wealth management Single-strategy funds Execution only & banking Total group (pre acquisitions) Saunderson House Total group Investment Management FUMA (including intra-group holdings) £bn 49.3 48.0 1.3 – 49.3 1.0 50.3 – 2.7 53.0 4.9 57.9 Intra-group holdings1 £bn (2.7) (1.5) (1.2) – (2.7) – (2.7) – – (2.7) – (2.7) Investment Management FUMA £bn 46.6 46.5 0.1 – 46.6 1.0 47.6 – 2.7 50.3 4.9 55.2 Funds FUMA £bn 2.7 1.5 1.2 2.0 4.7 – 4.7 8.3 – 13.0 – 13.0 Group FUMA £bn 49.3 48.0 1.3 2.0 51.3 1.0 52.3 8.3 2.7 63.3 4.9 68.2 1. Intra-group holdings represent in-house funds held within an investment management portfolio. Table 3. Group’s overall performance Operating income 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 Return on capital employed (ROCE) Underlying return on capital employed1 1. A reconciliation between the underlying measure and its closest IFRS equivalent is shown in table 4 2. The total interim and final dividend proposed for the financial year 2021 £m (unless stated) 435.9 (315.2) 120.7 27.7% 95.0 20.8% (19.8) 75.2 172.2p 133.5p 81.0p 13.0% 16.1% 2020 £m (unless stated) 366.1 (273.6) 92.5 25.3% 43.8 39.0% (17.1) 26.7 133.3p 49.6p 72.0p 5.3% 13.6% 32 32 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Table 2. Reconciliation of service levels to segmental presentation Investment Management FUMA (including intra-group holdings) Intra-group holdings1 Investment Management Funds FUMA Group FUMA Financial performance continued Discretionary service Bespoke portfolios Managed via in-house funds Multi-asset funds Total discretionary & managed Non-discretionary service Total wealth management Single-strategy funds Execution only & banking Total group (pre acquisitions) Saunderson House Total group Operating income 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 Return on capital employed (ROCE) Underlying return on capital employed1 1. Intra-group holdings represent in-house funds held within an investment management portfolio. Table 3. Group’s overall performance 1. A reconciliation between the underlying measure and its closest IFRS equivalent is shown in table 4 2. The total interim and final dividend proposed for the financial year £bn 49.3 48.0 1.3 49.3 1.0 50.3 – – 2.7 53.0 4.9 57.9 £bn (2.7) (1.5) (1.2) (2.7) (2.7) (2.7) (2.7) – – – – – FUMA £bn 46.6 46.5 0.1 – 46.6 1.0 47.6 – 2.7 50.3 4.9 55.2 £bn 2.7 1.5 1.2 2.0 4.7 4.7 8.3 – – – 13.0 13.0 2021 £m 435.9 (315.2) 120.7 27.7% 95.0 20.8% (19.8) 75.2 172.2p 133.5p 81.0p 13.0% 16.1% £bn 49.3 48.0 1.3 2.0 51.3 1.0 52.3 8.3 2.7 63.3 4.9 68.2 2020 £m 366.1 (273.6) 92.5 25.3% 43.8 39.0% (17.1) 26.7 133.3p 49.6p 72.0p 5.3% 13.6% (unless stated) (unless stated) Alternative performance measures Charges in relation to client relationships and goodwill (note 22) As explained in notes 1.14 and 2.1, 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 the cost of securing client contracts that is 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. Research analysts commonly exclude these costs when comparing the performance of firms in the wealth management industry. Acquisition-related costs (note 9) 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. 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 are required to 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 2021, £6.0 million of deferred consideration payments for Speirs & Jeffrey (2020: £32.3 million), and £1.4 million of costs for Saunderson House (2020: £nil) were charged to the income statement. Taxation The corporation tax charge for 2021 was £19.8 million (2020: £17.1 million) (see note 11). The effective tax rate was 20.8% (2020: 39.0%). The prior year rate reflects the significant amount of disallowable costs of deferred consideration payments for the acquisition of Speirs & Jeffrey. The effective tax rate is now expected to remain closer to the statutory rate of tax, as the level of disallowable costs for deferred consideration payments for Saunderson House is expected to be much lower (see note 2.3). Thereafter, the group expects it to return to 2-4 percentage points above the statutory rate. The UK Government legislated in the Finance Act 2021 to increase the UK corporation tax rate to 25.0% in 2023. We have reflected this rate in the deferred tax calculations. Basic earnings per share Basic earnings per share for the year ended 31 December 2021 was 133.5p compared to 49.6p in 2020. The increase in the year reflects the significantly lower amount of non-underlying charges in relation to the acquisition of Speirs & Jeffrey compared to the prior year. On an underlying basis, earnings per share were 172.2p in 2021, compared to 133.3p in 2020 (see note 13). The increase in the year relates to the much higher growth in underlying profit since 2020 than the number of ordinary shares in issue. Dividends We operate a generally progressive dividend policy, as set out in the directors’ report on page 112. 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 to pay the dividend; and — regulatory capital requirements, which require the group to maintain at least a minimum level of own funds (for further detail, see page 42). The company’s distributable reserves are primarily dependent on: — 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 2021 the company’s distributable reserves were £106.8 million (2020: £93.7 million). See Note 44 for a reconciliation of net assets to distributable reserves. In setting the proposed dividend for 2021, the board has considered the group’s performance in 2021 and the strong balance sheet position, balanced with the need to continue our investment programme and the ongoing uncertainty in the economic outlook. As a result, the board is proposing a final dividend for 2021 of 54p; resulting in a full year dividend of 81p (an increase of 9p on 2020). The proposed full year dividend is covered 1.6 times by basic earnings and 2.1 times by underlying earnings. 32 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 33 33 Financial performance continued Table 4. Reconciliation of underlying performance measures to closest equivalent IFRS measures Operating income Operating expenses Charges in relation to client relationships and goodwill Acquisition-related 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 Underlying quarterly average total equity ROCE Underlying ROCE5 1. Operating income less underlying operating expenses 2. Underlying profit before tax as a percentage of 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 underlying quarterly average total equity 2021 £m (unless stated) 435.9 (340.9) 15.6 10.1 (315.2) 95.0 120.7 21.8% 27.7% (19.8) (3.9) (23.7) 75.2 97.0 56.3m 133.5 172.2 599.1 13.0% 16.1% 2020 £m (unless stated) 366.1 (322.3) 14.3 34.4 (273.6) 43.8 92.5 12.0% 25.3% (17.1) (3.8) (20.9) 26.7 71.6 53.7m 49.6 133.3 520.5 5.3% 13.6% 34 34 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Table 4. Reconciliation of underlying performance measures to closest equivalent IFRS measures Financial performance continued Charges in relation to client relationships and goodwill Operating income Operating expenses Acquisition-related 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 Underlying quarterly average total equity ROCE Underlying ROCE5 1. Operating income less underlying operating expenses 2. Underlying profit before tax as a percentage of 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 underlying quarterly average total equity (unless stated) (unless stated) 2021 £m 435.9 (340.9) 15.6 10.1 (315.2) 95.0 120.7 21.8% 27.7% (19.8) (3.9) (23.7) 75.2 97.0 56.3m 133.5 172.2 599.1 13.0% 16.1% 2020 £m 366.1 (322.3) 14.3 34.4 (273.6) 43.8 92.5 12.0% 25.3% (17.1) (3.8) (20.9) 26.7 71.6 53.7m 49.6 133.3 520.5 5.3% 13.6% Capital expenditure Overall, capital expenditure of £8.8 million in 2021 was £2.9 million below 2020. Spend on regulatory driven projects and property improvements reduced by a total of £1.2 million. Capitalised spend on technology and other change projects fell by £1.7 million as the focus on the development of cloud- based solutions has increased the proportion of strategic project spend that is charged to operating expenses. Underlying return on capital employed The board monitors the underlying return on capital employed (ROCE) as a key performance measure. 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. In 2021, underlying ROCE was 16.1% (2020: 13.6%). Quarterly average total equity increased by £78.6 million in 2021 compared to 2020, reflecting growth in retained earnings. “We will continue to maintain our cost discipline, investing as market conditions allow to support our growth strategy. We expect the operating margin to remain in the mid-20s, in line with previous guidance, for the next two years and will then return to a high-20s level.” Deferred acquisition costs for Speirs & Jeffrey are now substantially complete. Costs of some £2.5 million are expected to be incurred each year in 2022 and 2023, after which no further material costs relating to the acquisition will arise. Staff costs in 2022 will reflect salary inflation of approximately 5% and national insurance increases, in addition to the full impact of hiring activity in 2021 and further joiners planned in 2022 in support of the strategic initiatives. Alongside the investment in our strategic initiatives, we will continue to maintain our focus on cost discipline. Based on market conditions at 31 December 2021, we plan to manage this investment within existing underlying operating margin guidance of mid-20s for the next two years. The underlying operating margin is expected to return to a high-20s level from 2024 onwards. Outlook The business enters 2022 in a robust financial position and with encouraging growth momentum. External factors will continue to have a significant impact on the group’s profitability in 2022. We expect global investment markets to remain volatile during the year, with both the domestic and global political environments adding considerable uncertainty. Inflationary pressures continue, but these are likely to lead to higher interest rates, which will benefit net interest income. As noted in the Group Chief Executive’s Review on page 21, investment in our medium-term strategy will continue in 2022 and 2023. In total, we expect to invest operating expenditure of £40 million in delivery of our digital plans over the next two years. The increasing use of modern cloud-based software solutions will have a lasting impact on the mix of capital and operating expenditure, with fewer projects generating material fixed assets and related depreciation costs consequently falling over time. We anticipate that integration and deferred acquisition costs relating to the acquisition of Saunderson House will total approximately £10 million in 2022. Synergies from the integration are expected to start to bring material benefit in 2023. 34 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 35 35 Segmental review Segmental review Segmental review Segmental review The group is managed through two key operating segments, Investment Management and Funds. The group is managed through two key operating segments, Investment Management and Funds. Investment Management Investment Management The activities of the group are described The activities of the group are described in detail on pages 6 to 9. The Investment in detail on pages 6 to 9. The Investment Management segment comprises those Management segment comprises those activities described under the headings activities described under the headings ‘Investment Management’, ‘Advice’ and ‘Investment Management’, ‘Advice’ and ‘Complementary services’ on page 6. The ‘Complementary services’ on page 6. The results of the Investment Management results of the Investment Management segment described below include the segment described below include the trading results of Rathbone Trust Company, trading results of Rathbone Trust Company, Vision Independent Financial Planning and Vision Independent Financial Planning and Saunderson House, post-acquisition. Saunderson House, post-acquisition. Investment Management income is Investment Management income is largely driven by revenue margins earned from largely driven by revenue margins earned from funds under management and administration. funds under management and administration. Revenue margins are expressed as a basis Revenue margins are expressed as a basis point return, which depends on a mix of point return, which depends on a mix of tiered fee rates, commissions charged for tiered fee rates, commissions charged for transactions undertaken on behalf of clients transactions undertaken on behalf of clients and the interest margin earned on cash in and the interest margin earned on cash in client portfolios and client loans. client portfolios and client loans. Year-on-year changes in the key Year-on-year changes in the key performance indicators for Investment performance indicators for Investment Management are shown in table 5. Management are shown in table 5. Funds under management Funds under management and administration and administration Investment Management funds under Investment Management funds under management and administration increased management and administration increased by 22.9% to £55.2 billion at 31 December 2021, by 22.9% to £55.2 billion at 31 December 2021, driven by strong growth, investment driven by strong growth, investment performance and markets. performance and markets. Gross organic inflows of £4.5 billion Gross organic inflows of £4.5 billion represented 10.0% of opening funds under represented 10.0% of opening funds under management and administration, up from management and administration, up from 9.1% in 2020. Outflows of funds under 9.1% in 2020. Outflows of funds under management and administration were 8.0% management and administration were 8.0% of the opening balance (2020: 7.7%). Of this, of the opening balance (2020: 7.7%). Of this, approximately 38% related to accounts approximately 38% related to accounts that were closed with the remainder being that were closed with the remainder being drawings from capital to supplement income drawings from capital to supplement income or for inter-generational transfers. or for inter-generational transfers. Total Investment Management new Total Investment Management new business was £0.8 billion during 2021, business was £0.8 billion during 2021, representing 2.0% of opening funds under representing 2.0% of opening funds under management and administration (2020: management and administration (2020: net total increase of 1.4%). net total increase of 1.4%). Chart 1. Investment Management – number of clients and investment managers 2021 2020 2019 332332 6666 304304 6464 297297 6363 Number of investment managers Number of Investment Management clients (’000) In addition to the above, the acquisition In addition to the above, the acquisition of Saunderson House added £4.9 billion of Saunderson House added £4.9 billion to funds under management and advice to funds under management and advice in 2021. in 2021. Table 5. Investment Management – key performance indicators Table 5. Investment Management – key performance indicators Funds under management and Funds under management and administration at 31 December administration at 31 December Rate of net organic growth in Rate of net organic growth in Investment Management funds Investment Management funds under management and under management and administration1 administration1 Rate of total net growth in Investment Rate of total net growth in Investment Management funds under Management funds under management and administration1 management and administration1 Average net operating basis Average net operating basis Number of Investment Management Number of Investment Management point return2 point return2 clients (’000)3 clients (’000)3 2021 2021 2020 2020 £55.2bn £55.2bn £44.9bn £44.9bn 1.8% 1.8% 2.1% 2.1% 0.1% 0.1% 1.4% 1.4% 71.4 bps 71.4 bps 72.7 bps 72.7 bps 66 66 332 332 64 64 304 304 Number of investment managers Number of investment managers 1. See table 6 (percentages calculated on unrounded figures) 1. See table 6 (percentages calculated on unrounded figures) 2. See table 10 2. See table 10 3. The comparative figure has been restated to align calculation of the number of 3. The comparative figure has been restated to align calculation of the number of Speirs & Jeffrey clients with Rathbones accounting policies, which reflects a lower Speirs & Jeffrey clients with Rathbones accounting policies, which reflects a lower level of aggregation of underlying funds. level of aggregation of underlying funds. Table 6. Investment Management – funds under management Table 6. Investment Management – funds under management and administration and administration Year ended Year ended 31 December 31 December 2020 2020 £bn £bn 43.0 43.0 3.9 3.9 3.3 3.3 0.6 0.6 (3.3) (3.3) 1.3 1.3 44.9 44.9 – – 44.9 44.9 – – 0.1% 0.1% 1.4% 1.4% Year ended Year ended 31 December 31 December 2021 2021 £bn £bn 44.9 44.9 4.5 4.5 4.4 4.4 0.1 0.1 (3.6) (3.6) 4.5 4.5 50.4 50.4 4.9 4.9 55.3 55.3 0.8 0.8 1.8% 1.8% 2.1% 2.1% As at 1 January As at 1 January Inflows Inflows – organic1 – organic1 – acquired2 – acquired2 Outflows Outflows Market adjustment3 Market adjustment3 Total (pre acquisitions) Total (pre acquisitions) Saunderson House Saunderson House Total Total Net organic new business4 Net organic new business4 Rate of net organic growth5 Rate of net organic growth5 Rate of total net growth6 Rate of total net growth6 1. Value at the date of transfer in/(out) 1. Value at the date of transfer in/(out) 2. Value at date of acquisition 2. Value at date of acquisition 3. Represents the impact of market movements and investment performance 3. Represents the impact of market movements and investment performance 4. Organic inflows less outflows 4. Organic inflows less outflows 5. Net organic new business (excluding Saunderson House) as a percentage of opening funds 5. Net organic new business (excluding Saunderson House) as a percentage of opening funds 6. Net organic new business and acquired inflows (excluding Saunderson House) as a percentage 6. Net organic new business and acquired inflows (excluding Saunderson House) as a percentage under management and administration under management and administration of opening funds under management and administration of opening funds under management and administration 36 36 36 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Segmental review Segmental review Segmental review Segmental review The group is managed through two key operating segments, Investment Management and Funds. The group is managed through two key operating segments, Investment Management and Funds. Investment Management Investment Management The activities of the group are described The activities of the group are described in detail on pages 6 to 9. The Investment in detail on pages 6 to 9. The Investment Management segment comprises those Management segment comprises those activities described under the headings activities described under the headings ‘Investment Management’, ‘Advice’ and ‘Investment Management’, ‘Advice’ and ‘Complementary services’ on page 6. The ‘Complementary services’ on page 6. The results of the Investment Management results of the Investment Management segment described below include the segment described below include the trading results of Rathbone Trust Company, trading results of Rathbone Trust Company, Vision Independent Financial Planning and Vision Independent Financial Planning and Saunderson House, post-acquisition. Saunderson House, post-acquisition. Investment Management income is Investment Management income is largely driven by revenue margins earned from largely driven by revenue margins earned from funds under management and administration. funds under management and administration. Revenue margins are expressed as a basis Revenue margins are expressed as a basis point return, which depends on a mix of point return, which depends on a mix of tiered fee rates, commissions charged for tiered fee rates, commissions charged for transactions undertaken on behalf of clients transactions undertaken on behalf of clients and the interest margin earned on cash in and the interest margin earned on cash in client portfolios and client loans. client portfolios and client loans. Year-on-year changes in the key Year-on-year changes in the key performance indicators for Investment performance indicators for Investment Management are shown in table 5. Management are shown in table 5. Funds under management Funds under management and administration and administration Investment Management funds under Investment Management funds under management and administration increased management and administration increased by 22.9% to £55.2 billion at 31 December 2021, by 22.9% to £55.2 billion at 31 December 2021, driven by strong growth, investment driven by strong growth, investment performance and markets. performance and markets. Gross organic inflows of £4.5 billion Gross organic inflows of £4.5 billion represented 10.0% of opening funds under represented 10.0% of opening funds under management and administration, up from management and administration, up from 9.1% in 2020. Outflows of funds under 9.1% in 2020. Outflows of funds under management and administration were 8.0% management and administration were 8.0% of the opening balance (2020: 7.7%). Of this, of the opening balance (2020: 7.7%). Of this, approximately 38% related to accounts approximately 38% related to accounts that were closed with the remainder being that were closed with the remainder being drawings from capital to supplement income drawings from capital to supplement income or for inter-generational transfers. or for inter-generational transfers. Total Investment Management new Total Investment Management new business was £0.8 billion during 2021, business was £0.8 billion during 2021, representing 2.0% of opening funds under representing 2.0% of opening funds under management and administration (2020: management and administration (2020: net total increase of 1.4%). net total increase of 1.4%). In addition to the above, the acquisition In addition to the above, the acquisition of Saunderson House added £4.9 billion of Saunderson House added £4.9 billion to funds under management and advice to funds under management and advice in 2021. in 2021. Table 5. Investment Management – key performance indicators Table 5. Investment Management – key performance indicators Table 6. Investment Management – funds under management Table 6. Investment Management – funds under management 2021 2021 2020 2020 and administration and administration Funds under management and Funds under management and administration at 31 December administration at 31 December Rate of net organic growth in Rate of net organic growth in Investment Management funds Investment Management funds under management and under management and administration1 administration1 Rate of total net growth in Investment Rate of total net growth in Investment Management funds under Management funds under management and administration1 management and administration1 Average net operating basis Average net operating basis Number of Investment Management Number of Investment Management point return2 point return2 clients (’000)3 clients (’000)3 £55.2bn £55.2bn £44.9bn £44.9bn 1.8% 1.8% 2.1% 2.1% 66 66 332 332 0.1% 0.1% 1.4% 1.4% 64 64 304 304 71.4 bps 71.4 bps 72.7 bps 72.7 bps Number of investment managers Number of investment managers 1. See table 6 (percentages calculated on unrounded figures) 1. See table 6 (percentages calculated on unrounded figures) 2. See table 10 2. See table 10 3. The comparative figure has been restated to align calculation of the number of 3. The comparative figure has been restated to align calculation of the number of Speirs & Jeffrey clients with Rathbones accounting policies, which reflects a lower Speirs & Jeffrey clients with Rathbones accounting policies, which reflects a lower level of aggregation of underlying funds. level of aggregation of underlying funds. As at 1 January As at 1 January Inflows Inflows – organic1 – organic1 – acquired2 – acquired2 Outflows Outflows Market adjustment3 Market adjustment3 Total (pre acquisitions) Total (pre acquisitions) Saunderson House Saunderson House Total Total Net organic new business4 Net organic new business4 Rate of net organic growth5 Rate of net organic growth5 Rate of total net growth6 Rate of total net growth6 1. Value at the date of transfer in/(out) 1. Value at the date of transfer in/(out) 2. Value at date of acquisition Year ended 31 December Year ended 31 December 2021 Year ended 31 December Year ended 31 December 2020 2021 £bn £bn 44.9 44.9 4.5 4.5 4.4 4.4 0.1 0.1 (3.6) (3.6) 4.5 4.5 50.4 50.4 4.9 4.9 55.3 55.3 0.8 0.8 1.8% 1.8% 2.1% 2.1% 2020 £bn £bn 43.0 43.0 3.9 3.9 3.3 3.3 0.6 0.6 (3.3) (3.3) 1.3 1.3 44.9 44.9 44.9 44.9 – – – – 0.1% 0.1% 1.4% 1.4% 2. Value at date of acquisition 3. Represents the impact of market movements and investment performance 3. Represents the impact of market movements and investment performance 4. Organic inflows less outflows 4. Organic inflows less outflows 5. Net organic new business (excluding Saunderson House) as a percentage of opening funds 5. Net organic new business (excluding Saunderson House) as a percentage of opening funds under management and administration under management and administration 6. Net organic new business and acquired inflows (excluding Saunderson House) as a percentage 6. Net organic new business and acquired inflows (excluding Saunderson House) as a percentage of opening funds under management and administration of opening funds under management and administration Growth in discretionary and managed Growth in discretionary and managed FUMA of £1.3 billion in 2021 has come equally FUMA of £1.3 billion in 2021 has come equally from direct contact with clients and through from direct contact with clients and through financial adviser networks. Our specialist financial adviser networks. Our specialist intermediary sales team continued to build intermediary sales team continued to build momentum in the year, with indirect net momentum in the year, with indirect net flows from IFAs into our discretionary and flows from IFAs into our discretionary and managed services of £0.7 billion (2020: managed services of £0.7 billion (2020: £0.2 billion). £0.2 billion). The group saw net outflows from non- The group saw net outflows from non- discretionary investment management, discretionary investment management, and execution-only and banking mandates and execution-only and banking mandates totalling £0.4 billion in the year. totalling £0.4 billion in the year. During the year, our clients continued to During the year, our clients continued to migrate into discretionary services from non- migrate into discretionary services from non- discretionary. Switches into execution only discretionary. Switches into execution only services largely reflect the transfer of funds services largely reflect the transfer of funds into probate following death of a client. into probate following death of a client. The global recovery from lockdown-ridden The global recovery from lockdown-ridden 2020 drove stock markets higher in 2021, 2020 drove stock markets higher in 2021, however returns were more volatile than however returns were more volatile than the headline indices suggest. Many investors the headline indices suggest. Many investors switched from ‘growth’ stocks to ‘value’ and switched from ‘growth’ stocks to ‘value’ and back again during the year as the impacts back again during the year as the impacts of COVID-19 ebbed and flowed, inflation of COVID-19 ebbed and flowed, inflation rose, central banks shifted guidance and rose, central banks shifted guidance and companies reported. companies reported. A significant concern for investors in 2021 A significant concern for investors in 2021 was inflation, which hit multi-decade highs was inflation, which hit multi-decade highs in many large nations. Initial belief that in many large nations. Initial belief that higher prices would be a passing phase higher prices would be a passing phase gave way to longer term concerns later gave way to longer term concerns later in the year, which drove steep rises in the in the year, which drove steep rises in the yield on government bonds and the prices yield on government bonds and the prices of value stocks whilst weighing on the of value stocks whilst weighing on the value of growth stocks. These trends have value of growth stocks. These trends have accelerated into the early months of 2022. accelerated into the early months of 2022. The outperformance was largely driven The outperformance was largely driven by our tactical asset allocation decisions by our tactical asset allocation decisions in worldwide equities, fixed income in worldwide equities, fixed income and alternatives. Company valuations, and alternatives. Company valuations, particularly in the developed nations, particularly in the developed nations, were supported by stronger earnings were supported by stronger earnings whilst being underweight fixed income whilst being underweight fixed income also added positively with rising real also added positively with rising real yields. Lastly, overweight property and yields. Lastly, overweight property and underweight gold related holdings were also underweight gold related holdings were also helpful. Overall, the company performance helpful. Overall, the company performance against other competitors’ indices, such as against other competitors’ indices, such as the Private Client indices publish by ARC the Private Client indices publish by ARC was robust. was robust. Chart 2. Investment Management – funds under management and administration five year growth (£bn) 55.2 2021 2020 2019 2018 2017 55.255.2 44.9 43.0 38.5 33.8 FTSE 100* MSCI Balanced* * * Index figures show how funds under management and Index figures show how funds under management and administration would have changed between 2017 and 2021 administration would have changed between 2017 and 2021 if they had tracked each index if they had tracked each index Table 7. Investment Management – new business by channel Table 7. Investment Management – new business by channel Bespoke portfolios Bespoke portfolios Managed via in-house funds Managed via in-house funds Total direct Total direct Bespoke portfolios Bespoke portfolios Managed via in-house funds Managed via in-house funds Total financial adviser linked Total financial adviser linked Total discretionary & managed Total discretionary & managed Non-discretionary service Non-discretionary service Total wealth management Total wealth management Execution only & banking Execution only & banking Saunderson House Saunderson House Total Investment Management Total Investment Management 2021 2021 Net flows Net flows £bn £bn 0.5 0.5 0.1 0.1 0.6 0.6 0.6 0.6 0.1 0.1 0.7 0.7 1.3 1.3 (0.2) (0.2) 1.1 1.1 (0.2) (0.2) 2021 2021 Service level Service level transfers transfers £bn £bn (0.1) (0.1) 0.1 0.1 – – – – – – – – – – (0.3) (0.3) (0.3) (0.3) 0.3 0.3 2021 2021 Market and Market and investment investment performance performance £bn £bn 3.5 3.5 0.1 0.1 3.6 3.6 1.0 1.0 – – 1.0 1.0 4.6 4.6 0.1 0.1 4.7 4.7 0.3 0.3 2021 2021 Opening Opening £bn £bn 33.3 33.3 0.4 0.4 33.7 33.7 9.2 9.2 0.5 0.5 9.7 9.7 43.4 43.4 1.4 1.4 44.8 44.8 2.3 2.3 47.1 47.1 0.9 0.9 – – 5.0 5.0 2021 2021 Gross Gross £bn £bn 37.2 37.2 0.7 0.7 37.9 37.9 10.8 10.8 0.6 0.6 11.4 11.4 49.3 49.3 1.0 1.0 50.3 50.3 2.7 2.7 4.9 4.9 57.9 57.9 2021 2021 Intra-group Intra-group holdings1 holdings1 £bn £bn 2021 2021 Net Net £bn £bn 2020 2020 Net Net £bn £bn (2.7) (2.7) – – (2.7) (2.7) – – (2.7) (2.7) 46.6 46.6 1.0 1.0 47.6 47.6 2.7 2.7 4.9 4.9 55.2 55.2 41.2 41.2 1.4 1.4 42.6 42.6 2.3 2.3 44.9 44.9 1. Holdings of the group’s in-house funds in Investment Management client portfolios and in-house funds for which the management of the assets is undertaken by 1. Holdings of the group’s in-house funds in Investment Management client portfolios and in-house funds for which the management of the assets is undertaken by Investment Management teams; the corresponding funds under management and administration is reported within Funds. Investment Management teams; the corresponding funds under management and administration is reported within Funds. 36 36 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com rathbones.com 37 37 37 Segmental review continued Segmental review continued Overall, 2021 was a strong year for our specialist teams. Rathbone Greenbank Overall, 2021 was a strong year for our Investments continued to grow strongly specialist teams. Rathbone Greenbank and reached funds under management Investments continued to grow strongly and administration of £2.2 billion at and reached funds under management 31 December 2021, up 20% on 2020. and administration of £2.2 billion at Charity funds under management and 31 December 2021, up 20% on 2020. administration grew 9.2% to £7.1 billion at Charity funds under management and 31 December 2021. The Personal Injury and administration grew 9.2% to £7.1 billion at Court of Protection business ended 2021 31 December 2021. The Personal Injury and with £1.0 billion of funds under management Court of Protection business ended 2021 and administration. with £1.0 billion of funds under management and administration. As at 31 December 2021, Vision Independent Financial Planning advised on client assets As at 31 December 2021, Vision Independent of £2.7 billion, up 23% from 2020. Financial Planning advised on client assets of £2.7 billion, up 23% from 2020. Financial performance Underlying profit before tax in Investment Financial performance Management grew 23.9% in the year to Underlying profit before tax in Investment £98.4 million, reflecting an underlying Management grew 23.9% in the year to operating margin of 26.4%. This was driven £98.4 million, reflecting an underlying by strong growth in fee income and the post- operating margin of 26.4%. This was driven acquisition impact of Saunderson House. by strong growth in fee income and the post- acquisition impact of Saunderson House. Higher average funds under management and administration levels on our principal Higher average funds under management charging dates during 2021 (see table 9) and administration levels on our principal boosted net investment management fee charging dates during 2021 (see table 9) income, which rose 25.1% to £288.1 million. boosted net investment management fee This was driven by stronger markets and income, which rose 25.1% to £288.1 million. investment performance, as well as the This was driven by stronger markets and adoption of fee-only tariffs in the fourth investment performance, as well as the quarter of 2020 for clients of Speirs & Jeffrey. adoption of fee-only tariffs in the fourth quarter of 2020 for clients of Speirs & Jeffrey. Net commission income fell 14.0% to £53.6 million, as the elevated levels of Net commission income fell 14.0% to transactional activity seen in 2020 reduced, £53.6 million, as the elevated levels of along with market volatility, in 2021 and transactional activity seen in 2020 reduced, following the switch to fee-only tariffs for along with market volatility, in 2021 and Speirs & Jeffrey clients. following the switch to fee-only tariffs for Speirs & Jeffrey clients. The cut in the Bank of England base rate to 0.1% in March 2020 was maintained The cut in the Bank of England base rate throughout 2021, reducing the margin to 0.1% in March 2020 was maintained available on our treasury book. Net interest throughout 2021, reducing the margin income consequently decreased 53.6% to available on our treasury book. Net interest £3.9 million in the year. income consequently decreased 53.6% to £3.9 million in the year. As a result of the factors described above, the average net operating basis point As a result of the factors described above, return on funds under management the average net operating basis point and administration fell slightly by 1.3 bps return on funds under management to 71.4 bps in 2021. and administration fell slightly by 1.3 bps to 71.4 bps in 2021. Fees from advisory services and other income increased 39.3% to £27.3 million, Fees from advisory services and other reflecting growth in our advisory income increased 39.3% to £27.3 million, businesses and the post-acquisition results reflecting growth in our advisory of Saunderson House, which contributed businesses and the post-acquisition results £6.1 million of additional revenue. of Saunderson House, which contributed £6.1 million of additional revenue. The issue of an additional £20 million of Tier 2 loan notes, bringing the total notes issued The issue of an additional £20 million of Tier to £40 million in October 2021, is expected to 2 loan notes, bringing the total notes issued increase the annual interest charge on these to £40 million in October 2021, is expected to notes by approximately £1 million compared increase the annual interest charge on these to 2021. notes by approximately £1 million compared to 2021. Underlying operating expenses in Investment Management for 2021 were Underlying operating expenses in £274.5 million, an increase of 13.8% compared Investment Management for 2021 were to 2020. This is highlighted in table 11. £274.5 million, an increase of 13.8% compared to 2020. This is highlighted in table 11. 2020 £m 2020 £m 230.3 62.3 230.3 8.4 62.3 8.4 19.6 320.6 19.6 (241.2) 320.6 79.4 (241.2) 24.8% 79.4 24.8% Table 8. Investment Management – financial performance Table 8. Investment Management – financial performance 2021 £m 2021 £m 288.1 53.6 288.1 3.9 53.6 3.9 27.3 372.9 27.3 (274.5) 372.9 98.4 (274.5) 26.4% 98.4 26.4% Net investment management fee income1 fee income1 Net investment management Net commission income Net interest income Net commission income Fees from advisory services2 Net interest income and other income Fees from advisory services2 Operating income Underlying operating expenses3 Operating income Underlying profit before tax Underlying operating expenses3 Underlying operating margin4 Underlying profit before tax Underlying operating margin4 1. Net investment management fee income is stated after deducting fees and commission and other income expenses paid to introducers 1. Net investment management fee income is stated after deducting fees and commission 2. Fees from advisory services includes income from trust, tax and financial planning services expenses paid to introducers (including Vision) (including Vision) 2. Fees from advisory services includes income from trust, tax and financial planning services 3. See table 11 4. Underlying profit before tax as a percentage of operating income 3. See table 11 4. Underlying profit before tax as a percentage of operating income 38 38 38 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Table 9. Investment Management – average funds under management and administration (pre acquisitions) Table 9. Investment Management – average funds under management and administration (pre acquisitions) Valuation dates for billing – 5 April Valuation dates for billing – 30 June – 5 April – 30 September – 30 June – 31 December – 30 September Average – 31 December Average FTSE 100 level1 Average Average FTSE 100 level1 1. Based on the corresponding valuation dates for billing 1. Based on the corresponding valuation dates for billing Table 10. Investment Management – revenue margin Table 10. Investment Management – revenue margin Basis point return1 from: – fee income Basis point return1 from: – commission – fee income – interest – commission Basis point return on funds under – interest Basis point return on funds under management and administration 72.7 1. Operating income (see table 8), excluding interest on own reserves, interest payable on Tier 2 notes issued, interest payable on lease assets, fees from advisory services and other income, 1. Operating income (see table 8), excluding interest on own reserves, interest payable on Tier 2 divided by the average funds under management and administration on the quarterly billing notes issued, interest payable on lease assets, fees from advisory services and other income, dates (see table 9) divided by the average funds under management and administration on the quarterly billing dates (see table 9) management and administration 71.4 2021 £bn 2021 £bn 45.5 47.8 45.5 48.8 47.8 50.3 48.8 48.1 50.3 7,066 48.1 7,066 2021 bps 2021 bps 59.9 11.1 59.9 0.4 11.1 0.4 71.4 2020 £bn 2020 £bn 35.9 41.3 35.9 41.8 41.3 44.9 41.8 41.0 44.9 5,978 41.0 5,978 2020 bps 2020 bps 56.2 15.2 56.2 1.3 15.2 1.3 72.7 Strategic report Segmental review continued Segmental review continued Overall, 2021 was a strong year for our Higher average funds under management As a result of the factors described above, specialist teams. Rathbone Greenbank Overall, 2021 was a strong year for our Investments continued to grow strongly specialist teams. Rathbone Greenbank and reached funds under management Investments continued to grow strongly and administration of £2.2 billion at and reached funds under management 31 December 2021, up 20% on 2020. and administration of £2.2 billion at Charity funds under management and 31 December 2021, up 20% on 2020. administration grew 9.2% to £7.1 billion at Charity funds under management and 31 December 2021. The Personal Injury and administration grew 9.2% to £7.1 billion at Court of Protection business ended 2021 31 December 2021. The Personal Injury and with £1.0 billion of funds under management Court of Protection business ended 2021 and administration. with £1.0 billion of funds under management and administration. As at 31 December 2021, Vision Independent Financial Planning advised on client assets As at 31 December 2021, Vision Independent of £2.7 billion, up 23% from 2020. Financial Planning advised on client assets of £2.7 billion, up 23% from 2020. Financial performance Underlying profit before tax in Investment Financial performance Management grew 23.9% in the year to Underlying profit before tax in Investment £98.4 million, reflecting an underlying Management grew 23.9% in the year to operating margin of 26.4%. This was driven £98.4 million, reflecting an underlying by strong growth in fee income and the post- operating margin of 26.4%. This was driven acquisition impact of Saunderson House. by strong growth in fee income and the post- acquisition impact of Saunderson House. and administration levels on our principal Higher average funds under management charging dates during 2021 (see table 9) and administration levels on our principal boosted net investment management fee charging dates during 2021 (see table 9) income, which rose 25.1% to £288.1 million. boosted net investment management fee This was driven by stronger markets and income, which rose 25.1% to £288.1 million. investment performance, as well as the This was driven by stronger markets and adoption of fee-only tariffs in the fourth investment performance, as well as the quarter of 2020 for clients of Speirs & Jeffrey. adoption of fee-only tariffs in the fourth quarter of 2020 for clients of Speirs & Jeffrey. Net commission income fell 14.0% to £53.6 million, as the elevated levels of Net commission income fell 14.0% to transactional activity seen in 2020 reduced, £53.6 million, as the elevated levels of along with market volatility, in 2021 and transactional activity seen in 2020 reduced, following the switch to fee-only tariffs for along with market volatility, in 2021 and Speirs & Jeffrey clients. following the switch to fee-only tariffs for Speirs & Jeffrey clients. The cut in the Bank of England base rate to 0.1% in March 2020 was maintained The cut in the Bank of England base rate throughout 2021, reducing the margin to 0.1% in March 2020 was maintained available on our treasury book. Net interest throughout 2021, reducing the margin income consequently decreased 53.6% to available on our treasury book. Net interest £3.9 million in the year. income consequently decreased 53.6% to £3.9 million in the year. the average net operating basis point As a result of the factors described above, return on funds under management the average net operating basis point and administration fell slightly by 1.3 bps return on funds under management to 71.4 bps in 2021. and administration fell slightly by 1.3 bps to 71.4 bps in 2021. Fees from advisory services and other income increased 39.3% to £27.3 million, Fees from advisory services and other reflecting growth in our advisory income increased 39.3% to £27.3 million, businesses and the post-acquisition results reflecting growth in our advisory of Saunderson House, which contributed businesses and the post-acquisition results £6.1 million of additional revenue. of Saunderson House, which contributed £6.1 million of additional revenue. The issue of an additional £20 million of Tier 2 loan notes, bringing the total notes issued The issue of an additional £20 million of Tier to £40 million in October 2021, is expected to 2 loan notes, bringing the total notes issued increase the annual interest charge on these to £40 million in October 2021, is expected to notes by approximately £1 million compared increase the annual interest charge on these notes by approximately £1 million compared to 2021. to 2021. Underlying operating expenses in Investment Management for 2021 were Underlying operating expenses in £274.5 million, an increase of 13.8% compared Investment Management for 2021 were to 2020. This is highlighted in table 11. £274.5 million, an increase of 13.8% compared to 2020. This is highlighted in table 11. Table 8. Investment Management – financial performance Table 8. Investment Management – financial performance Table 9. Investment Management – average funds under management and administration (pre acquisitions) Table 9. Investment Management – average funds under management and administration (pre acquisitions) Net investment management fee income1 Net investment management Net commission income fee income1 Net interest income Net commission income Fees from advisory services2 Net interest income and other income Fees from advisory services2 Operating income and other income Underlying operating expenses3 Operating income Underlying profit before tax Underlying operating expenses3 Underlying operating margin4 Underlying profit before tax 2021 £m 2021 £m 288.1 53.6 288.1 3.9 53.6 3.9 27.3 372.9 27.3 (274.5) 372.9 98.4 (274.5) 26.4% 98.4 2020 £m 2020 £m 230.3 62.3 230.3 8.4 62.3 8.4 19.6 320.6 19.6 (241.2) 320.6 79.4 (241.2) 24.8% 79.4 1. Net investment management fee income is stated after deducting fees and commission Underlying operating margin4 26.4% 24.8% 1. Net investment management fee income is stated after deducting fees and commission 2. Fees from advisory services includes income from trust, tax and financial planning services 2. Fees from advisory services includes income from trust, tax and financial planning services 4. Underlying profit before tax as a percentage of operating income expenses paid to introducers expenses paid to introducers (including Vision) 3. See table 11 (including Vision) 3. See table 11 4. Underlying profit before tax as a percentage of operating income Valuation dates for billing – 5 April Valuation dates for billing – 30 June – 5 April – 30 September – 30 June – 31 December – 30 September Average – 31 December 2021 £bn 2021 £bn 45.5 47.8 45.5 48.8 47.8 50.3 48.8 48.1 50.3 7,066 48.1 7,066 2021 bps 2021 bps 59.9 11.1 59.9 0.4 11.1 0.4 71.4 2020 £bn 2020 £bn 35.9 41.3 35.9 41.8 41.3 44.9 41.8 41.0 44.9 5,978 41.0 5,978 2020 bps 2020 bps 56.2 15.2 56.2 1.3 15.2 1.3 72.7 Average FTSE 100 level1 Average 1. Based on the corresponding valuation dates for billing Average FTSE 100 level1 1. Based on the corresponding valuation dates for billing Table 10. Investment Management – revenue margin Table 10. Investment Management – revenue margin Basis point return1 from: – fee income Basis point return1 from: – commission – fee income – interest – commission Basis point return on funds under – interest management and administration Basis point return on funds under 1. Operating income (see table 8), excluding interest on own reserves, interest payable on Tier 2 management and administration 71.4 notes issued, interest payable on lease assets, fees from advisory services and other income, 72.7 1. Operating income (see table 8), excluding interest on own reserves, interest payable on Tier 2 divided by the average funds under management and administration on the quarterly billing notes issued, interest payable on lease assets, fees from advisory services and other income, dates (see table 9) divided by the average funds under management and administration on the quarterly billing dates (see table 9) Fixed staff costs of £89.3 million increased by 6.7% year-on-year, reflecting the growth Fixed staff costs of £89.3 million increased in headcount Variable staff costs totalled by 6.7% year-on-year, reflecting the growth £61.9 million in 2021, an increase of in headcount Variable staff costs totalled £5.5 million on 2020. This principally reflects £61.9 million in 2021, an increase of growth in profit share awards, driven by £5.5 million on 2020. This principally reflects segmental profitability. growth in profit share awards, driven by segmental profitability. Other operating expenses of £123.3 million include property, depreciation, settlement, Other operating expenses of £123.3 million IT, finance and other central support include property, depreciation, settlement, services costs. IT, finance and other central support services costs. Incremental spend on our strategic initiatives to develop systems and enhance Incremental spend on our strategic the client experience totalled £8.7 million initiatives to develop systems and enhance in 2021. the client experience totalled £8.7 million in 2021. Savings arising from the impact of the pandemic on entertaining, travel, events Savings arising from the impact of the and subsistence spend, as well as reduced pandemic on entertaining, travel, events use of the group’s office space persisted for and subsistence spend, as well as reduced most of 2021. use of the group’s office space persisted for most of 2021. Post-acquisition costs in Saunderson House totalled £5.0 million. Post-acquisition costs in Saunderson House totalled £5.0 million. Funds Funds Funds’ financial performance is principally driven by the value and growth of funds Funds’ financial performance is principally under management. Year-on-year changes driven by the value and growth of funds in the key performance indicators for Funds under management. Year-on-year changes are shown in table 12. in the key performance indicators for Funds are shown in table 12. Funds under management Funds under management Net retail sales in the asset management industry totalled Net retail sales in the asset approximately £43.4 billion in 2021, as management industry totalled reported by the Investment Association approximately £43.4 billion in 2021, as (IA), up from around £30.8 billion in 2020. reported by the Investment Association Industry-wide funds under management (IA), up from around £30.8 billion in 2020. increased 10.4% to £1.6 trillion at the end of Industry-wide funds under management the year. increased 10.4% to £1.6 trillion at the end of the year. Equities was again the top seller in 2021 at £14.8 billion, up 42% compared to 2020. Equities was again the top seller in 2021 Consistent sales to responsible investment at £14.8 billion, up 42% compared to 2020. funds, where equities make up over 50% Consistent sales to responsible investment of sales, helped to maintain consistent funds, where equities make up over 50% inflows to equities, even during periods of sales, helped to maintain consistent of market turbulence. inflows to equities, even during periods of market turbulence. The IA Global sector (containing Rathbone Global Opportunities Fund and Rathbone The IA Global sector (containing Rathbone Global Sustainability Fund) was the highest Global Opportunities Fund and Rathbone selling equity sector for the fourth year Global Sustainability Fund) was the highest in a row with inflows of £12.0 billion. Over selling equity sector for the fourth year £4.8 billion also went to the IA Volatility in a row with inflows of £12.0 billion. Over Managed sector, which includes our six-fund £4.8 billion also went to the IA Volatility multi-asset range and the four-fund ESG Managed sector, which includes our six-fund range launched in 2021 called Rathbone multi-asset range and the four-fund ESG Greenbank Multi-Asset Portfolios. range launched in 2021 called Rathbone Greenbank Multi-Asset Portfolios. The positive momentum in sales continued through 2021, with gross sales up 22% in the The positive momentum in sales continued year to £4.4 billion. Redemptions increased through 2021, with gross sales up 22% in the more modestly, rising 9.5% to £2.3 billion for year to £4.4 billion. Redemptions increased the year. As a result, net inflows of £2.1 billion more modestly, rising 9.5% to £2.3 billion for for the year were up 40% on £1.5 billion in the year. As a result, net inflows of £2.1 billion 2020. Rathbone Unit Trust Management for the year were up 40% on £1.5 billion in consistently ranked in the top 10 for net UK 2020. Rathbone Unit Trust Management sales throughout the year according to the consistently ranked in the top 10 for net UK quarterly Pridham Sales Reports. sales throughout the year according to the quarterly Pridham Sales Reports. Table 13. Funds – funds under management by product Table 13. Funds – funds under management by product Table 11. Investment Management – underlying operating expenses Table 11. Investment Management – underlying operating expenses Staff costs1 – fixed Staff costs1 – variable – fixed Total staff costs – variable Other operating expenses Total staff costs Underlying operating expenses Other operating expenses Underlying cost/income ratio2 Underlying operating expenses Underlying cost/income ratio2 1. Represents the costs of investment managers and teams directly involved in 2021 £m 2021 £m 89.3 61.9 89.3 151.2 61.9 123.3 151.2 274.5 123.3 73.6% 274.5 73.6% 1. Represents the costs of investment managers and teams directly involved in 2. Underlying operating expenses as a percentage of operating income (see table 8) client-facing activities client-facing activities 2. Underlying operating expenses as a percentage of operating income (see table 8) Table 12. Funds – key performance indicators Table 12. Funds – key performance indicators Funds under management at 2021 31 December1 Funds under management at Rate of net growth in Unit Trusts funds 31 December1 under management1 Rate of net growth in Unit Trusts funds Underlying profit before tax2 under management1 Underlying profit before tax2 1. See table 14 2. See table 16 1. See table 14 2. See table 16 2021 £13.0bn £13.0bn 21.1% £22.4m 21.1% £22.4m £9.8bn 20.1% £13.1m 20.1% £13.1m 2020 £m 2020 £m 83.7 56.4 83.7 140.1 56.4 101.1 140.1 241.2 101.1 75.2% 241.2 75.2% 2020 2020 £9.8bn for Charities Rathbone Global Opportunities Fund Rathbone Ethical Bond Fund Rathbone Global Opportunities Fund Rathbone Multi-Asset Portfolios Rathbone Ethical Bond Fund Rathbone Income Fund Rathbone Multi-Asset Portfolios Offshore funds Rathbone Income Fund Rathbone High Quality Bond Fund Offshore funds Rathbone Active Income Fund Rathbone High Quality Bond Fund Rathbone Active Income Fund Rathbone Strategic Bond Fund Rathbone Core Investment Fund Rathbone Strategic Bond Fund Rathbone Core Investment Fund Rathbone UK Opportunities Fund Rathbone Global Sustainability Fund Rathbone UK Opportunities Fund Other funds Rathbone Global Sustainability Fund Greenbank Multi-Asset Portfolios Other funds Greenbank Multi-Asset Portfolios for Charities for Charities for Charities 2021 £m 2021 4,334 £m 2,802 4,334 2,679 2,802 825 2,679 661 825 291 661 291 245 200 245 200 156 76 156 116 76 500 116 105 500 12,990 105 12,990 2020 £m 2020 3,202 £m 2,088 3,202 1,714 2,088 811 1,714 578 811 283 578 283 227 204 227 204 129 49 129 44 49 491 44 – 491 9,820 – 9,820 38 38 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com rathbones.com 39 39 39 Segmental review continued Segmental review continued Chart 3. Funds – annual net flows (£m) 2,076 2,076 2,076 1,498 2021 2020 2019 2018 2017 543 943 883 The strong net inflows for the year The strong net inflows for the year were principally into the Ethical Bond were principally into the Ethical Bond Fund (£0.8 billion), multi-asset funds Fund (£0.8 billion), multi-asset funds (£0.8 billion), including £0.1 billion into the (£0.8 billion), including £0.1 billion into the new Greenbank multi-asset offering, and new Greenbank multi-asset offering, and Global Opportunities Fund (£0.5 billion). Global Opportunities Fund (£0.5 billion). The Ethical Bond Fund, in particular, bucked The Ethical Bond Fund, in particular, bucked the trend for other bond funds in the sector, the trend for other bond funds in the sector, which generally saw more muted inflows. which generally saw more muted inflows. Total net inflows, combined with positive Total net inflows, combined with positive investment performance and market investment performance and market movements, raised total funds under movements, raised total funds under management to £13.0 billion at the end of management to £13.0 billion at the end of the year, an increase of 32% during the year the year, an increase of 32% during the year (see table 14). (see table 14). Long-term performance for our retail Long-term performance for our retail funds remains strong and the funds are funds remains strong and the funds are performing in line with expectations and performing in line with expectations and their benchmarks. their benchmarks. The Ethical Bond and Global Opportunities The Ethical Bond and Global Opportunities funds maintained their excellent long-term funds maintained their excellent long-term track records and both finished in the first track records and both finished in the first quartile for performance, measured over quartile for performance, measured over three and five years. The UK Opportunities three and five years. The UK Opportunities Fund maintained its top quartile performance Fund maintained its top quartile performance during 2021, which has resulted in a much during 2021, which has resulted in a much improved long-term track record. improved long-term track record. The growth focused multi-asset funds, The growth focused multi-asset funds, which have risk targeted mandates, beat which have risk targeted mandates, beat their benchmarks over one, three and five their benchmarks over one, three and five years (or since launch) and remained within years (or since launch) and remained within volatility targets over the same periods. volatility targets over the same periods. Performance of the UK Income fund was Performance of the UK Income fund was impacted by the large cuts in dividends by impacted by the large cuts in dividends by UK stocks in 2020. During 2021, the fund’s UK stocks in 2020. During 2021, the fund’s longer-term performance recovered and longer-term performance recovered and it is now above median for one, three and it is now above median for one, three and five years. five years. The High Quality Bond Fund posted good The High Quality Bond Fund posted good returns over the year, performing well returns over the year, performing well against its cash-plus based benchmark. against its cash-plus based benchmark. The Strategic Bond Fund remains more The Strategic Bond Fund remains more defensively positioned, which has continued defensively positioned, which has continued to weigh on short-term performance. to weigh on short-term performance. As at 31 December 2021, 97% of holdings in As at 31 December 2021, 97% of holdings in Funds’ retail funds were in institutional units Funds’ retail funds were in institutional units (31 December 2020: 97%). (31 December 2020: 97%). During the year, the total number of During the year, the total number of investment professionals in Funds investment professionals in Funds increased to 21 at 31 December 2021 from increased to 21 at 31 December 2021 from 18 at the end of 2020. 18 at the end of 2020. Table 14. Funds – funds under management Table 14. Funds – funds under management As at 1 January As at 1 January Net inflows Net inflows – inflows1 – inflows1 – outflows1 – outflows1 Market adjustments2 Market adjustments2 As at 31 December As at 31 December Rate of net growth3 Rate of net growth3 2021 2021 £bn £bn 9.8 9.8 2.1 2.1 4.4 4.4 (2.3) (2.3) 1.1 1.1 13.0 13.0 21.1% 21.1% 2020 2020 £bn £bn 7.4 7.4 1.5 1.5 3.6 3.6 (2.1) (2.1) 0.9 0.9 9.8 9.8 20.1% 20.1% 1. Valued at the date of transfer in/(out) 1. Valued at the date of transfer in/(out) 2. 2. 3. Net inflows as a percentage of opening funds under management 3. Net inflows as a percentage of opening funds under management Impact of market movements and relative performance Impact of market movements and relative performance Table 15. Funds – performance1,2 Table 15. Funds – performance1,2 2021/(2020) Quartile ranking1 over 2021/(2020) Quartile ranking1 over Rathbone Ethical Bond Fund Rathbone Ethical Bond Fund Rathbone Global Opportunities Fund Rathbone Global Opportunities Fund Rathbone Income Fund Rathbone Income Fund Rathbone Strategic Bond Fund Rathbone Strategic Bond Fund Rathbone UK Opportunities Fund Rathbone UK Opportunities Fund 1 year 1 year 1 (2) 1 (2) 2 (1) 2 (1) 2 (2) 2 (2) 3 (2) 3 (2) 1 (1) 1 (1) 3 years 3 years 1 (1) 1 (1) 1 (1) 1 (1) 2 (2) 2 (2) 3 (2) 3 (2) 1 (2) 1 (2) 5 years 5 years 1 (1) 1 (1) 1 (1) 1 (1) 2 (3) 2 (3) 2 (2) 2 (2) 1 (2) 1 (2) 1. Quartile ranking data is sourced from FE Trustnet 1. Quartile ranking data is sourced from FE Trustnet 2. Excludes multi-asset funds (for which quartile rankings are prohibited by the Investment 2. Excludes multi-asset funds (for which quartile rankings are prohibited by the Investment Association (IA)), High Quality Bond Fund, which has no relevant peer group against which to Association (IA)), High Quality Bond Fund, which has no relevant peer group against which to measure quartile performance, non-publicly marketed funds and segregated mandates measure quartile performance, non-publicly marketed funds and segregated mandates 3. Ranking of institutional share classes at 31 December 2021 and 2020 against other funds in the 3. Ranking of institutional share classes at 31 December 2021 and 2020 against other funds in the same IA sector, based on total return performance, net of fees (consistent with investment same IA sector, based on total return performance, net of fees (consistent with investment performance information reported in the funds’ monthly factsheets) performance information reported in the funds’ monthly factsheets) 4. Funds included in the above table account for 64% of the total FUM of the funds business 4. Funds included in the above table account for 64% of the total FUM of the funds business 40 40 40 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Segmental review continued Segmental review continued The strong net inflows for the year The strong net inflows for the year The growth focused multi-asset funds, The growth focused multi-asset funds, were principally into the Ethical Bond were principally into the Ethical Bond which have risk targeted mandates, beat which have risk targeted mandates, beat Fund (£0.8 billion), multi-asset funds Fund (£0.8 billion), multi-asset funds their benchmarks over one, three and five their benchmarks over one, three and five (£0.8 billion), including £0.1 billion into the (£0.8 billion), including £0.1 billion into the years (or since launch) and remained within years (or since launch) and remained within new Greenbank multi-asset offering, and new Greenbank multi-asset offering, and volatility targets over the same periods. volatility targets over the same periods. Global Opportunities Fund (£0.5 billion). Global Opportunities Fund (£0.5 billion). The Ethical Bond Fund, in particular, bucked The Ethical Bond Fund, in particular, bucked the trend for other bond funds in the sector, the trend for other bond funds in the sector, which generally saw more muted inflows. which generally saw more muted inflows. Performance of the UK Income fund was Performance of the UK Income fund was impacted by the large cuts in dividends by impacted by the large cuts in dividends by UK stocks in 2020. During 2021, the fund’s UK stocks in 2020. During 2021, the fund’s longer-term performance recovered and longer-term performance recovered and Total net inflows, combined with positive Total net inflows, combined with positive it is now above median for one, three and it is now above median for one, three and investment performance and market investment performance and market movements, raised total funds under movements, raised total funds under management to £13.0 billion at the end of management to £13.0 billion at the end of the year, an increase of 32% during the year the year, an increase of 32% during the year (see table 14). (see table 14). Long-term performance for our retail Long-term performance for our retail funds remains strong and the funds are funds remains strong and the funds are performing in line with expectations and performing in line with expectations and their benchmarks. their benchmarks. The Ethical Bond and Global Opportunities The Ethical Bond and Global Opportunities funds maintained their excellent long-term funds maintained their excellent long-term five years. five years. The High Quality Bond Fund posted good The High Quality Bond Fund posted good returns over the year, performing well returns over the year, performing well against its cash-plus based benchmark. against its cash-plus based benchmark. The Strategic Bond Fund remains more The Strategic Bond Fund remains more defensively positioned, which has continued defensively positioned, which has continued to weigh on short-term performance. to weigh on short-term performance. As at 31 December 2021, 97% of holdings in As at 31 December 2021, 97% of holdings in Funds’ retail funds were in institutional units Funds’ retail funds were in institutional units (31 December 2020: 97%). (31 December 2020: 97%). track records and both finished in the first track records and both finished in the first During the year, the total number of During the year, the total number of quartile for performance, measured over quartile for performance, measured over investment professionals in Funds investment professionals in Funds three and five years. The UK Opportunities three and five years. The UK Opportunities increased to 21 at 31 December 2021 from increased to 21 at 31 December 2021 from Fund maintained its top quartile performance Fund maintained its top quartile performance 18 at the end of 2020. 18 at the end of 2020. during 2021, which has resulted in a much during 2021, which has resulted in a much improved long-term track record. improved long-term track record. Financial performance Financial performance Funds’ income is primarily derived from Funds’ income is primarily derived from annual management charges, which are annual management charges, which are calculated on the daily value of funds calculated on the daily value of funds under management, net of rebates payable under management, net of rebates payable to intermediaries. to intermediaries. Net annual management charges Net annual management charges increased 40% to £61.3 million in 2021, driven increased 40% to £61.3 million in 2021, driven principally by the rise in average funds under principally by the rise in average funds under management. Net annual management management. Net annual management charges as a percentage of average funds charges as a percentage of average funds under management fell to 55.0 bps (2020: under management fell to 55.0 bps (2020: 55.5 bps) reflecting the continued growth in 55.5 bps) reflecting the continued growth in the fixed income mandate funds. the fixed income mandate funds. Operating income as a percentage of Operating income as a percentage of average funds under management fell average funds under management fell slightly to 55.6 bps in 2021 from 55.9 bps slightly to 55.6 bps in 2021 from 55.9 bps in 2020 for the same reasons. in 2020 for the same reasons. Fixed staff costs of £5.2 million for the year Fixed staff costs of £5.2 million for the year ended 31 December 2021 were 27% higher ended 31 December 2021 were 27% higher than 2020. This reflects salary inflation and than 2020. This reflects salary inflation and growth in headcount in response to growth growth in headcount in response to growth in the business. in the business. Variable staff costs of £16.8 million were Variable staff costs of £16.8 million were 40% higher than 2020 as a result of growth 40% higher than 2020 as a result of growth in profit and the higher value of gross sales, in profit and the higher value of gross sales, which drove increases in sales commissions. which drove increases in sales commissions. Other operating expenses have increased Other operating expenses have increased by 15% to £18.7 million in 2021. Administration by 15% to £18.7 million in 2021. Administration costs of £5.7 million were up £0.9 million on costs of £5.7 million were up £0.9 million on 2020, driven by higher levels of funds under 2020, driven by higher levels of funds under management and sales. 2021 saw a full year’s management and sales. 2021 saw a full year’s benefit of improved rate cards with third- benefit of improved rate cards with third- party service providers which were negotiated party service providers which were negotiated and implemented in 2020. Incremental and implemented in 2020. Incremental spend on development of systems spend on development of systems totalled approximately £0.5 million in 2021. totalled approximately £0.5 million in 2021. Regulatory costs also grew by £0.1 million, Regulatory costs also grew by £0.1 million, reflecting the growth in levies for the reflecting the growth in levies for the Financial Services Compensation Scheme. Financial Services Compensation Scheme. Table 14. Funds – funds under management Table 14. Funds – funds under management As at 1 January As at 1 January Net inflows Net inflows – inflows1 – inflows1 – outflows1 – outflows1 Market adjustments2 Market adjustments2 As at 31 December As at 31 December Rate of net growth3 Rate of net growth3 1. Valued at the date of transfer in/(out) 1. Valued at the date of transfer in/(out) 2. 2. Impact of market movements and relative performance Impact of market movements and relative performance 3. Net inflows as a percentage of opening funds under management 3. Net inflows as a percentage of opening funds under management 2021 2021 £bn £bn 9.8 9.8 2.1 2.1 4.4 4.4 (2.3) (2.3) 1.1 1.1 13.0 13.0 Table 15. Funds – performance1,2 Table 15. Funds – performance1,2 2021/(2020) Quartile ranking1 over 2021/(2020) Quartile ranking1 over Rathbone Ethical Bond Fund Rathbone Ethical Bond Fund Rathbone Global Opportunities Fund Rathbone Global Opportunities Fund Rathbone Income Fund Rathbone Income Fund Rathbone Strategic Bond Fund Rathbone Strategic Bond Fund Rathbone UK Opportunities Fund Rathbone UK Opportunities Fund 1. Quartile ranking data is sourced from FE Trustnet 1. Quartile ranking data is sourced from FE Trustnet 2020 2020 £bn £bn 7.4 7.4 1.5 1.5 3.6 3.6 (2.1) (2.1) 0.9 0.9 9.8 9.8 21.1% 21.1% 20.1% 20.1% 1 year 1 year 1 (2) 1 (2) 2 (1) 2 (1) 2 (2) 2 (2) 3 (2) 3 (2) 1 (1) 1 (1) 3 years 3 years 1 (1) 1 (1) 1 (1) 1 (1) 2 (2) 2 (2) 3 (2) 3 (2) 1 (2) 1 (2) 5 years 5 years 1 (1) 1 (1) 1 (1) 1 (1) 2 (3) 2 (3) 2 (2) 2 (2) 1 (2) 1 (2) 2. Excludes multi-asset funds (for which quartile rankings are prohibited by the Investment 2. Excludes multi-asset funds (for which quartile rankings are prohibited by the Investment Association (IA)), High Quality Bond Fund, which has no relevant peer group against which to Association (IA)), High Quality Bond Fund, which has no relevant peer group against which to measure quartile performance, non-publicly marketed funds and segregated mandates measure quartile performance, non-publicly marketed funds and segregated mandates 3. Ranking of institutional share classes at 31 December 2021 and 2020 against other funds in the 3. Ranking of institutional share classes at 31 December 2021 and 2020 against other funds in the same IA sector, based on total return performance, net of fees (consistent with investment same IA sector, based on total return performance, net of fees (consistent with investment performance information reported in the funds’ monthly factsheets) performance information reported in the funds’ monthly factsheets) 4. Funds included in the above table account for 64% of the total FUM of the funds business 4. Funds included in the above table account for 64% of the total FUM of the funds business Table 16. Funds – financial performance Table 16. Funds – financial performance Net annual management charges Net annual management charges Net dealing profits Net dealing profits Interest and other income Interest and other income Operating income Operating income Underlying operating expenses1 Underlying operating expenses1 Underlying profit before tax Underlying profit before tax Operating % margin2 Operating % margin2 1. See table 17 1. See table 17 2. Underlying profit before tax divided by operating income 2. Underlying profit before tax divided by operating income 2021 2021 £m £m 61.3 61.3 0.0 0.0 1.8 1.8 63.1 63.1 (40.7) (40.7) 22.4 22.4 35.5% 35.5% 2020 2020 £m £m 43.9 43.9 0.0 0.0 1.5 1.5 45.4 45.4 (32.3) (32.3) 13.1 13.1 28.9% 28.9% Table 17. Funds – underlying operating expenses Table 17. Funds – underlying operating expenses 2021 2021 £m £m Staff costs Staff costs – Fixed – Fixed – Variable – Variable Total staff costs Total staff costs Other operating expenses Other operating expenses Underlying operating expenses Underlying operating expenses Underlying cost/income ratio1 Underlying cost/income ratio1 1. Underlying operating expenses as a percentage of operating income 1. Underlying operating expenses as a percentage of operating income 5.2 5.2 16.8 16.8 22.0 22.0 18.7 18.7 40.7 40.7 64.5% 64.5% (see table 16) (see table 16) 2020 2020 £m £m 4.1 4.1 12.0 12.0 16.1 16.1 16.2 16.2 32.3 32.3 71.1% 71.1% 40 40 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com rathbones.com 41 41 41 Financial position Financial position Financial position Financial position Own funds Own funds Rathbones is classified as a banking group for Rathbones is classified as a banking group for regulatory capital purposes and is required regulatory capital purposes and is required to operate within the restrictions on capital to operate within the restrictions on capital resources and banking exposures prescribed resources and banking exposures prescribed by the Capital Requirements Regulation, by the Capital Requirements Regulation, as applied in the UK by the Prudential as applied in the UK by the Prudential Regulation Authority (PRA). Regulation Authority (PRA). At 31 December 2021, the group’s regulatory At 31 December 2021, the group’s regulatory own funds (including verified profits for the own funds (including verified profits for the year) were £305 million (2020: £304 million). year) were £305 million (2020: £304 million). Common Equity Tier 1 (CET1) own funds Common Equity Tier 1 (CET1) own funds decreased by £27.0 million during 2021 decreased by £27.0 million during 2021 to £266.2 million. This was primarily due to £266.2 million. This was primarily due to the acquisition of Saunderson House, to the acquisition of Saunderson House, partly offset by an increase in Tier 1 capital partly offset by an increase in Tier 1 capital following the placing of £50 million of fresh following the placing of £50 million of fresh share capital during the year. The CET1 ratio share capital during the year. The CET1 ratio was 18.7%, a decrease on the 23.5% reported was 18.7%, a decrease on the 23.5% reported at the previous year end. at the previous year end. The leverage ratio was 9.1% at 31 December The leverage ratio was 9.1% at 31 December 2021, down from 9.2% at 31 December 2020 2021, down from 9.2% at 31 December 2020 The leverage ratio represents our Tier 1 The leverage ratio represents our Tier 1 capital as a percentage of our total assets, capital as a percentage of our total assets, excluding intangible assets, plus certain off excluding intangible assets, plus certain off balance sheet exposures. The reduction is in balance sheet exposures. The reduction is in line with the decrease in CET1 capital. line with the decrease in CET1 capital. The business is primarily funded by equity, The business is primarily funded by equity, but also supported by £40 million of ten-year but also supported by £40 million of ten-year Tier 2 subordinated loan notes, which were Tier 2 subordinated loan notes, which were issued in October 2021. The notes introduce issued in October 2021. The notes introduce a small amount of gearing into our balance a small amount of gearing into our balance sheet as a way of financing future growth in sheet as a way of financing future growth in a cost-effective and capital-efficient manner. a cost-effective and capital-efficient manner. They are repayable in October 2031, with a They are repayable in October 2031, with a call option for the issuer annually from 2026. call option for the issuer annually from 2026. Interest is payable at a fixed rate of 5.642% Interest is payable at a fixed rate of 5.642% (note 28). (note 28). Total equity was £623 million at 31 December Total equity was £623 million at 31 December 2021, up 21.2% from £514 million at the end of 2021, up 21.2% from £514 million at the end of 2020, reflecting the share placing in the year. 2020, reflecting the share placing in the year. Own funds and liquidity Own funds and liquidity requirements requirements As required under PRA rules, we perform As required under PRA rules, we perform an Internal Capital Adequacy Assessment an Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) Adequacy Assessment Process (ILAAP) annually, which include performing a range annually, which include performing a range of stress tests to determine the appropriate of stress tests to determine the appropriate level of regulatory capital and liquidity that level of regulatory capital and liquidity that we need to hold. In addition, we monitor a we need to hold. In addition, we monitor a wide range of capital and liquidity statistics wide range of capital and liquidity statistics on a daily, monthly or less frequent basis as on a daily, monthly or less frequent basis as required. Surplus capital levels are forecast required. Surplus capital levels are forecast on a monthly basis, taking account of on a monthly basis, taking account of proposed dividends and investment proposed dividends and investment requirements, to ensure that appropriate requirements, to ensure that appropriate buffers are maintained. Investment of buffers are maintained. Investment of proprietary funds is controlled by our proprietary funds is controlled by our treasury department. treasury department. We are required to hold capital to cover a We are required to hold capital to cover a range of own funds requirements. range of own funds requirements. Table 18. Group’s financial position Table 18. Group’s financial position Own funds: Own funds: – Common Equity Tier 1 ratio1 – Common Equity Tier 1 ratio1 – Total own funds ratio2 – Total own funds ratio2 – Total equity – Total equity – Tier 2 subordinated loan notes3 – Tier 2 subordinated loan notes3 – Total risk exposure amount – Total risk exposure amount – Leverage ratio4 – Leverage ratio4 Other resources: Other resources: – Total assets – Total assets – Treasury assets5 – Treasury assets5 – Investment Management loan book6 – Investment Management loan book6 – Intangible assets from – Intangible assets from acquired growth7 acquired growth7 – Tangible assets and software8 – Tangible assets and software8 – Liabilities: – Liabilities: – Due to customers9 – Due to customers9 – Net defined benefit pension – Net defined benefit pension 2021 2021 £m £m (unless stated) (unless stated) 2020 2020 £m £m (unless stated) (unless stated) 18.7% 18.7% 21.4% 21.4% 288.8 288.8 39.9 39.9 1,424.5 1,424.5 9.1% 9.1% 3,271.8 3,271.8 2,458.5 2,458.5 168.0 168.0 195.5 195.5 28.0 28.0 23.5% 23.5% 24.3% 24.3% 513.8 513.8 19.8 19.8 1,247.8 1,247.8 9.2% 9.2% 3,370.6 3,370.6 2,721.1 2,721.1 158.0 158.0 218.0 218.0 28.0 28.0 2,333.0 2,333.0 2,561.8 2,561.8 asset/(liability) asset/(liability) Common Equity Tier 1 capital as a proportion of total risk exposure amount 1. 1. Common Equity Tier 1 capital as a proportion of total risk exposure amount 2. Total own funds (see table 19) as a proportion of total risk exposure amount 2. Total own funds (see table 19) as a proportion of total risk exposure amount 3. Represents the carrying value of the Tier 2 loan notes (see note 28) 3. Represents the carrying value of the Tier 2 loan notes (see note 28) 4. Tier 1 capital as a percentage of total assets, excluding intangible assets, plus certain off 4. Tier 1 capital as a percentage of total assets, excluding intangible assets, plus certain off 12.3 12.3 (9.8) (9.8) balance sheet exposures balance sheet exposures 5. Balances with central banks, loans and advances to banks and investment securities 5. Balances with central banks, loans and advances to banks and investment securities 6. See note 16 to the financial statements 6. See note 16 to the financial statements 7. Net book value of acquired client relationships and goodwill (note 22) 7. Net book value of acquired client relationships and goodwill (note 22) 8. Net book value of property, plant and equipment and computer software (notes 19 and 22) 8. Net book value of property, plant and equipment and computer software (notes 19 and 22) 9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a bank 9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a bank (note 24) (note 24) 42 42 42 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Table 19. Regulatory own funds Table 19. Regulatory own funds 2021 2021 £m £m 294.1 294.1 365.8 365.8 2020 2020 £m £m 218.0 218.0 342.6 342.6 Share capital and share premium Share capital and share premium Reserves Reserves Less: Less: Own shares Own shares Intangible assets1 Intangible assets1 Retirement benefit asset2 Retirement benefit asset2 Common Equity Tier 1 own funds Common Equity Tier 1 own funds Tier 2 own funds Tier 2 own funds Total own funds Total own funds 1. Net book value of goodwill, client relationship intangibles and software is deducted 1. Net book value of goodwill, client relationship intangibles and software is deducted (36.6) (36.6) (344.8) (344.8) (12.3) (12.3) 266.2 266.2 38.5 38.5 304.7 304.7 (46.7) (46.7) (220.7) (220.7) 0.0 0.0 293.2 293.2 10.7 10.7 303.9 303.9 directly from own funds, less any related deferred tax. directly from own funds, less any related deferred tax. 2. The retirement benefit asset is deducted directly from own funds. 2. The retirement benefit asset is deducted directly from own funds. Table 20. Group’s own funds requirements1 Table 20. Group’s own funds requirements1 Credit risk requirement Credit risk requirement Market risk requirement Market risk requirement Operational risk requirement Operational risk requirement Pillar 1 own funds requirement Pillar 1 own funds requirement Pillar 2A own funds requirement Pillar 2A own funds requirement Total Capital Requirement (‘TCR’) Total Capital Requirement (‘TCR’) Combined buffer: Combined buffer: – capital conservation buffer (CCB) – capital conservation buffer (CCB) – countercyclical capital buffer (CCyB) – countercyclical capital buffer (CCyB) Total Capital Requirement (‘TCR’) Total Capital Requirement (‘TCR’) 2021 2021 £m £m 50.9 50.9 0.8 0.8 62.3 62.3 114.0 114.0 40.1 40.1 154.1 154.1 35.6 35.6 – – 2020 2020 £m £m 46.9 46.9 0.6 0.6 52.4 52.4 99.9 99.9 40.0 40.0 139.9 139.9 31.1 31.1 0.1 0.1 and Combined buffer and Combined buffer 171.1 171.1 1. Own funds requirements stated above include the impact of trading results and changes 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 to requirements and buffers that were known as at 31 December and which became effective prior to the publication of the preliminary results effective prior to the publication of the preliminary results 189.7 189.7 Strategic report Financial position Financial position Financial position Financial position Own funds Own funds Rathbones is classified as a banking group for Rathbones is classified as a banking group for regulatory capital purposes and is required regulatory capital purposes and is required to operate within the restrictions on capital to operate within the restrictions on capital resources and banking exposures prescribed resources and banking exposures prescribed by the Capital Requirements Regulation, by the Capital Requirements Regulation, as applied in the UK by the Prudential as applied in the UK by the Prudential Regulation Authority (PRA). Regulation Authority (PRA). At 31 December 2021, the group’s regulatory At 31 December 2021, the group’s regulatory own funds (including verified profits for the own funds (including verified profits for the year) were £305 million (2020: £304 million). year) were £305 million (2020: £304 million). Common Equity Tier 1 (CET1) own funds Common Equity Tier 1 (CET1) own funds decreased by £27.0 million during 2021 decreased by £27.0 million during 2021 to £266.2 million. This was primarily due to £266.2 million. This was primarily due to the acquisition of Saunderson House, to the acquisition of Saunderson House, partly offset by an increase in Tier 1 capital partly offset by an increase in Tier 1 capital following the placing of £50 million of fresh following the placing of £50 million of fresh share capital during the year. The CET1 ratio share capital during the year. The CET1 ratio was 18.7%, a decrease on the 23.5% reported was 18.7%, a decrease on the 23.5% reported at the previous year end. at the previous year end. The leverage ratio was 9.1% at 31 December The leverage ratio was 9.1% at 31 December 2021, down from 9.2% at 31 December 2020 2021, down from 9.2% at 31 December 2020 The leverage ratio represents our Tier 1 The leverage ratio represents our Tier 1 capital as a percentage of our total assets, capital as a percentage of our total assets, excluding intangible assets, plus certain off excluding intangible assets, plus certain off balance sheet exposures. The reduction is in balance sheet exposures. The reduction is in line with the decrease in CET1 capital. line with the decrease in CET1 capital. The business is primarily funded by equity, The business is primarily funded by equity, but also supported by £40 million of ten-year but also supported by £40 million of ten-year Tier 2 subordinated loan notes, which were Tier 2 subordinated loan notes, which were issued in October 2021. The notes introduce issued in October 2021. The notes introduce a small amount of gearing into our balance a small amount of gearing into our balance sheet as a way of financing future growth in sheet as a way of financing future growth in a cost-effective and capital-efficient manner. a cost-effective and capital-efficient manner. They are repayable in October 2031, with a They are repayable in October 2031, with a call option for the issuer annually from 2026. call option for the issuer annually from 2026. Interest is payable at a fixed rate of 5.642% Interest is payable at a fixed rate of 5.642% (note 28). (note 28). Total equity was £623 million at 31 December Total equity was £623 million at 31 December 2021, up 21.2% from £514 million at the end of 2021, up 21.2% from £514 million at the end of 2020, reflecting the share placing in the year. 2020, reflecting the share placing in the year. Own funds and liquidity Own funds and liquidity requirements requirements As required under PRA rules, we perform As required under PRA rules, we perform an Internal Capital Adequacy Assessment an Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) Adequacy Assessment Process (ILAAP) annually, which include performing a range annually, which include performing a range of stress tests to determine the appropriate of stress tests to determine the appropriate level of regulatory capital and liquidity that level of regulatory capital and liquidity that we need to hold. In addition, we monitor a we need to hold. In addition, we monitor a wide range of capital and liquidity statistics wide range of capital and liquidity statistics on a daily, monthly or less frequent basis as on a daily, monthly or less frequent basis as required. Surplus capital levels are forecast required. Surplus capital levels are forecast on a monthly basis, taking account of on a monthly basis, taking account of proposed dividends and investment proposed dividends and investment requirements, to ensure that appropriate requirements, to ensure that appropriate buffers are maintained. Investment of buffers are maintained. Investment of proprietary funds is controlled by our proprietary funds is controlled by our treasury department. treasury department. We are required to hold capital to cover a We are required to hold capital to cover a range of own funds requirements. range of own funds requirements. Table 18. Group’s financial position Table 18. Group’s financial position Table 19. Regulatory own funds Table 19. Regulatory own funds Own funds: Own funds: – Common Equity Tier 1 ratio1 – Common Equity Tier 1 ratio1 – Total own funds ratio2 – Total own funds ratio2 – Total equity – Total equity – Tier 2 subordinated loan notes3 – Tier 2 subordinated loan notes3 – Total risk exposure amount – Total risk exposure amount – Leverage ratio4 – Leverage ratio4 Other resources: Other resources: – Total assets – Total assets – Treasury assets5 – Treasury assets5 – Investment Management loan book6 – Investment Management loan book6 – Intangible assets from – Intangible assets from acquired growth7 acquired growth7 – Tangible assets and software8 – Tangible assets and software8 – Liabilities: – Liabilities: – Due to customers9 – Due to customers9 – Net defined benefit pension – Net defined benefit pension asset/(liability) asset/(liability) 2021 2021 £m £m 2020 2020 £m (unless stated) (unless stated) (unless stated) (unless stated) £m 18.7% 18.7% 21.4% 21.4% 288.8 288.8 39.9 39.9 1,424.5 1,424.5 9.1% 9.1% 3,271.8 3,271.8 2,458.5 2,458.5 168.0 168.0 195.5 195.5 28.0 28.0 23.5% 23.5% 24.3% 24.3% 513.8 513.8 19.8 19.8 1,247.8 1,247.8 9.2% 9.2% 3,370.6 3,370.6 2,721.1 2,721.1 158.0 158.0 218.0 218.0 28.0 28.0 2,333.0 2,333.0 2,561.8 2,561.8 12.3 12.3 (9.8) (9.8) 1. 1. Common Equity Tier 1 capital as a proportion of total risk exposure amount Common Equity Tier 1 capital as a proportion of total risk exposure amount 2. Total own funds (see table 19) as a proportion of total risk exposure amount 2. Total own funds (see table 19) as a proportion of total risk exposure amount 3. Represents the carrying value of the Tier 2 loan notes (see note 28) 3. Represents the carrying value of the Tier 2 loan notes (see note 28) 4. Tier 1 capital as a percentage of total assets, excluding intangible assets, plus certain off 4. Tier 1 capital as a percentage of total assets, excluding intangible assets, plus certain off balance sheet exposures balance sheet exposures 5. Balances with central banks, loans and advances to banks and investment securities 5. Balances with central banks, loans and advances to banks and investment securities 6. See note 16 to the financial statements 6. See note 16 to the financial statements 7. Net book value of acquired client relationships and goodwill (note 22) 7. Net book value of acquired client relationships and goodwill (note 22) 8. Net book value of property, plant and equipment and computer software (notes 19 and 22) 8. Net book value of property, plant and equipment and computer software (notes 19 and 22) 9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a bank 9. Total amounts of cash in client portfolios held by Rathbone Investment Management as a bank (note 24) (note 24) Share capital and share premium Share capital and share premium Reserves Reserves Less: Less: Own shares Own shares Intangible assets1 Intangible assets1 Retirement benefit asset2 Retirement benefit asset2 Common Equity Tier 1 own funds Common Equity Tier 1 own funds Tier 2 own funds Tier 2 own funds Total own funds Total own funds 1. Net book value of goodwill, client relationship intangibles and software is deducted 1. Net book value of goodwill, client relationship intangibles and software is deducted directly from own funds, less any related deferred tax. directly from own funds, less any related deferred tax. 2. The retirement benefit asset is deducted directly from own funds. 2. The retirement benefit asset is deducted directly from own funds. Table 20. Group’s own funds requirements1 Table 20. Group’s own funds requirements1 Credit risk requirement Credit risk requirement Market risk requirement Market risk requirement Operational risk requirement Operational risk requirement Pillar 1 own funds requirement Pillar 1 own funds requirement Pillar 2A own funds requirement Pillar 2A own funds requirement Total Capital Requirement (‘TCR’) Total Capital Requirement (‘TCR’) Combined buffer: Combined buffer: – capital conservation buffer (CCB) – capital conservation buffer (CCB) – countercyclical capital buffer (CCyB) – countercyclical capital buffer (CCyB) Total Capital Requirement (‘TCR’) Total Capital Requirement (‘TCR’) and Combined buffer and Combined buffer 1. Own funds requirements stated above include the impact of trading results and changes 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 to requirements and buffers that were known as at 31 December and which became effective prior to the publication of the preliminary results effective prior to the publication of the preliminary results 2021 2021 £m £m 294.1 294.1 365.8 365.8 (36.6) (36.6) (344.8) (344.8) (12.3) (12.3) 266.2 266.2 38.5 38.5 304.7 304.7 2021 2021 £m £m 50.9 50.9 0.8 0.8 62.3 62.3 114.0 114.0 40.1 40.1 154.1 154.1 35.6 35.6 – – 189.7 189.7 2020 2020 £m £m 218.0 218.0 342.6 342.6 (46.7) (46.7) (220.7) (220.7) 0.0 0.0 293.2 293.2 10.7 10.7 303.9 303.9 2020 2020 £m £m 46.9 46.9 0.6 0.6 52.4 52.4 99.9 99.9 40.0 40.0 139.9 139.9 31.1 31.1 0.1 0.1 171.1 171.1 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 2021, the group’s total risk exposure amount was £1,425 million (2020: £1,248 million). Pillar 2 – supervisory review process Pillar 2 supplements the Pillar 1 minimum requirement with firm-specific Pillar 2A requirements and a framework of regulatory capital buffers. The Pillar 2A own funds requirement (which is set by the PRA and the calculation of which remains confidential with the PRA) reflects those risks, specific to the firm, which are not fully captured under the Pillar 1 own funds requirement. 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 SONIA. 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 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 represents 2.5% of the group’s total risk exposure amount as at 31 December 2021. 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 FPC (for UK exposures) and other jurisdictions for our exposures to their locations 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 0% for the UK. The group also has some small, relevant credit exposures in other jurisdictions, resulting in a weighted buffer rate of 0% of the group’s total risk exposure amount as at 31 December 2021. An increased UK rate of 1% will come into effect from December 2022, which has been built into our forecasts. The surplus of own funds (including verified profits for the full year) over Total Capital Requirement and Combined buffer was £115 million, down from £133 million at the end of 2020, owing to additional deductions in the year for the Saunderson House intangibles and retirement benefit asset. Pillar 2B PRA buffer The PRA also determines whether any incremental firm-specific buffer is required. The PRA requires any such buffer to remain confidential between the group and the PRA. 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; and — regulatory developments; — the demands of future acquisitions which generate intangible assets and, therefore, directly reduce CET1 resources; and — expected additional increases in the UK countercyclical capital buffer rate. 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 2021 were £3.3 billion (2020: £3.4 billion), of which £2.3 billion (2020: £2.6 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 £2.3 billion (2020: £2.6 billion) represented 4.2% of total Investment Management funds under management and administration at 31 December 2021, compared to 5.7% at the end of 2020. Cash held in client money accounts was £13.9 million (2020: £5.5 million). The treasury department of Rathbone Investment Management, reporting through the banking committee to the board, operates in accordance with procedures set out in a board-approved treasury manual and monitors exposure to market, credit and liquidity risk as described in note 33 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 at the time of investment and are regularly reviewed by the banking committee. During the year, the share of treasury assets held with the Bank of England reduced to £1.5 billion from £1.8 billion at 31 December 2020. Client balances fell at the beginning of the year and started to recover from August as settlement activity reduced. 42 42 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 43 43 Financial position continued 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 five years (see note 16 to the financial statements). In addition, charges may be taken on property held by the client to meet security cover requirements. Our ability to provide such loans is a valuable additional service, for example, to clients who require bridging finance when buying and selling their homes. Loans advanced to clients increased to £168 million at end of 2021 (2020: £158 million) as clients’ demand for bridging finance increased in favour of drawing down from investment portfolios at a time of market volatility. 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 2021, the total carrying value of intangible assets arising from acquired growth was £361.3 million (2020: £218.0 million). During the year, client relationship intangible assets of £88.0 million were capitalised (2020: £11.0 million), including £79.4 million in relation to Saunderson House (2020: £6.9 million in relation to the Personal Injury and Court of Protection business of Barclays). Goodwill of £70.8 million was acquired during the year in relation to the Saunderson House acquisition (2020: £6.5 million in relation to the Personal Injury and Court of Protection business of Barclays). 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 2021, including the impact of any lost relationships, was £13.9 million (2020: £12.4 million). Goodwill, which arises from business combinations, is not amortised but is subject to a test for impairment at least annually. No goodwill was identified as impaired during the year. Further detail is provided in note 24 to the financial statements. Capital expenditure Capex spend of £8.8 million in 2021 is down £2.9 million on 2020. Capital expenditure on regulatory driven projects and our premises fell by £1.2 million in the year as certain projects came to an end. Capex spend on the development of our systems fell by £1.7 million to £8.1 million in the year. The proportion of spend on the development of our systems that is capitalised has reduced in line with the increasing adoption of cloud-based, strategic technology solutions. The costs of cloud- based solutions are largely charged to profit or loss, with a consequent reduction in the level of depreciation cost in future years. We expect property expenditure to increase in 2022 as we continue to develop our hybrid working capability and relocate our premises in Edinburgh following the conclusion of the current lease. 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 2021 the combined schemes’ liabilities, measured on an accounting basis, had increased to £155.6 million, down 5.9% from £165.4 million at the end of 2020, primarily reflecting the increase in interest rates used to discount the liabilities during the year, and an increase in the assumed future rate of inflation. The reported position of the schemes as at 31 December 2021 was a surplus of £12.3 million (2020: deficit of £9.8 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 were completed during the prior year. Having reviewed the long-term plan for the schemes, we agreed with the trustees a target to fund the schemes to a self-sufficient basis over the medium term. This targets a level of assets in the scheme sufficient to fund future cash flows from interest and maturities of the scheme assets, reducing the reliance on equity returns to meet the schemes’ requirements. This will significantly reduce the volatility of the schemes and the future burden on the group. Reflecting this, we agreed a schedule of contributions totalling £25 million over the next six years. This schedule will be reviewed at the next triennial valuations, as at 31 December 2022. 44 44 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Strategic report Loans to clients Client relationship intangibles are Defined benefit pension schemes Financial position continued 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 five years (see note 16 to the financial statements). In addition, charges may be taken on property held by the client to meet security cover requirements. Our ability to provide such loans is a valuable additional service, for example, to clients who require bridging finance when buying and selling their homes. Loans advanced to clients increased to £168 million at end of 2021 (2020: £158 million) as clients’ demand for at a time of market volatility. 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 2021, the total carrying value of intangible assets arising from acquired growth was £361.3 million (2020: £218.0 million). During the year, client relationship intangible assets of £88.0 million were capitalised (2020: £11.0 million), including £79.4 million in relation to Saunderson House (2020: £6.9 million in relation to the Personal Injury and Court of Protection business of Barclays). Goodwill of £70.8 million was acquired during the year in relation to the Saunderson House acquisition (2020: £6.5 million in relation to the Personal Injury and Court of Protection business of Barclays). bridging finance increased in favour of fell by £1.2 million in the year as certain of the annual contributions that we make regulatory driven projects and our premises Triennial funding valuations form the basis drawing down from investment portfolios projects came to an end. 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 2021, including the impact of any lost relationships, was £13.9 million (2020: £12.4 million). Goodwill, which arises from business combinations, is not amortised but is subject to a test for impairment at least annually. No goodwill was identified as impaired during the year. Further detail is provided in note 24 to the financial statements. Capital expenditure 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 2021 the combined schemes’ liabilities, measured on an accounting basis, had increased to £155.6 million, down 5.9% from £165.4 million at the end of 2020, primarily reflecting the increase in interest rates used to discount the liabilities during the year, and an increase in the assumed future rate of inflation. The reported position of the schemes as at 31 December 2021 was a surplus of £12.3 million (2020: deficit of Capex spend of £8.8 million in 2021 is down £2.9 million on 2020. Capital expenditure on £9.8 million). Capex spend on the development of our systems fell by £1.7 million to £8.1 million in the year. The proportion of spend on the development of our systems that is capitalised has reduced in line with the increasing adoption of cloud-based, strategic technology solutions. The costs of cloud- based solutions are largely charged to profit or loss, with a consequent reduction in the level of depreciation cost in future years. into the schemes. Funding valuations of the schemes as at 31 December 2019 were completed during the prior year. Having reviewed the long-term plan for the schemes, we agreed with the trustees a target to fund the schemes to a self-sufficient basis over the medium term. This targets a level of assets in the scheme sufficient to fund future cash flows from interest and maturities of the scheme assets, reducing the reliance on equity returns to meet the schemes’ requirements. This will We expect property expenditure to increase significantly reduce the volatility of the in 2022 as we continue to develop our hybrid schemes and the future burden on the working capability and relocate our premises group. Reflecting this, we agreed a schedule in Edinburgh following the conclusion of the of contributions totalling £25 million over current lease. the next six years. This schedule will be reviewed at the next triennial valuations, as at 31 December 2022. Liquidity and cash flow Fees and commissions are largely collected directly from client portfolios and a significant proportion of expenses 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 £1.5 billion at 31 December 2021 (2020: £1.8 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 33 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 £227.4 million decrease in banking client deposits (2020: £106.0 million decrease), as a result of asset allocation decisions to reduce the proportion of funds under management and administration held as cash in clients’ portfolios, reflecting market conditions at the year end. Cash flows from investing activities also included a net outflow of £110.6 million from the purchase of certificates of deposit (2020: net outflow of £53.1 million), as we reduced the proportion of treasury assets held with the Bank of England. The most significant non-operating cash flows during the year were as follows: — outflows relating to the payment of dividends of £44.0 million (2020: £37.8 million); — payments made (net of cash acquired) in business combinations of £79.7 million (2020: £12.0 million); — net proceeds from the repayment and issuance of subordinated loan notes of £19.8 million (2020: £nil); — outflows relating to payments to acquire intangible assets (other than as part of a business combination) of £10.7 million (2020: £9.5 million); and — £2.0 million of capital expenditure (other than as part of a business combination) on tangible property, plant and equipment (2020: £3.8 million). Table 21. Extracts from the consolidated statement of cash flows Cash and cash equivalents at the end of the year Net cash inflows from operating activities Net change in cash and cash equivalents 2021 £m 1,653.6 (214.2) (403.1) 2020 £m 2,056.7 32.0 (91.3) 44 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 45 45 Risk management and control Risk management and control We have a well-established approach to risk management, which has continued to evolve in response to the firm’s growth and external developments. Our risk governance, processes and infrastructure are designed to ensure that appropriate risk management is applied to existing and emerging challenges to the firm’s day-to- day activities and strategic objectives. Our priority for 2022 is to continue managing risk effectively in accordance with our risk appetite, to support the long-term future of the firm. Managing risk The board is ultimately accountable for risk management across the group. It regularly assesses the most significant risks and emerging threats to the group’s strategy. Oversight of risk management activities is also undertaken through the group risk and audit committees. Our risk management approach and governance framework support the chief executive and executive committee members with their risk management responsibilities, underpinned by the executive risk and banking committees. Day-to-day responsibility for managing risk is delegated to the chief executive and executive committee members. Risk culture The risk culture embedded across the group continues to enhance the effectiveness of risk management and decision-making. The board sets a constructive tone in support of a strong risk culture and, supported by our executive and senior management team, encourages appropriate behaviours and collaboration on risk management across the group. Risk management is therefore an integral 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. We aim to create an open and transparent working environment, encouraging employees to engage positively in risk management in support of the achievement of our strategic objectives. Risk appetite The board, group risk committee and executive committee regularly review and, at least annually, formally approve the group’s risk appetite statement, ensuring it remains consistent with our strategy and objectives. We define risk appetite as the amount and type of risk the board is prepared to take or accept in pursuit of our long-term strategic objectives. Our appetite framework is aligned with the group’s overall prudential requirements for strategic, financial and non-financial (conduct and operational) risk. Specific appetite statements are set and measures established for each principal risk. The risk appetite framework is used to support strategic decision making, as well as providing a mechanism to monitor risk exposure. The position against our risk appetite measures is assessed and reported on a regular basis to the executive committee, group risk committee and the board, so that risk mitigation can be reviewed and strengthened if needed. In line with our strategy, the current economic outlook and the evolving 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 our performance is susceptible to fluctuations in investment markets and has the potential to bear losses from financial and non-financial risks from time to time, either as reductions in income or increases in operating costs. Risk categories Risk appetite statement Example of measures Business and strategic risk Financial risk Non-financial risk (conduct and operational) The board expects business and strategic risks to be understood and managed to limit the impact on delivering sustainable growth and change initiatives required to meet longer term client, stakeholder, and societal expectations. The board requires financial risks to be actively monitored and prudently managed to protect company assets, maintain liquidity and regulatory own funds, limit credit and market risk exposures, and respond to our pension obligations. The board accepts that non-financial risks and losses can arise from failures in processes, people, systems or external events however expects appropriate conduct and behaviours to minimise the impact on clients, stakeholders and our reputation. — Underlying dividend cover — Net zero and diversity targets — Prudential ratios (e.g. CET Tier 1, Total Capital) — Significant operational loss — Pass rate of assurance checks 46 Rathbones Group Plc Report and accounts 2021 Strategic reportThree lines of defence We operate a three lines of defence model across the group to support governance and risk management: 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 risk management, including 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 audit committee on the effectiveness of the group’s governance, risk management and internal controls. Throughout the group, everyone has responsibility for managing risk and adhering to our control framework in line with their roles and our conduct expectations. Identification of risks Our risks are classified hierarchically in a three-level register, to reflect our current and anticipated future risk profile. Our highest level of risk (Level 1) comprises business and strategic, financial, conduct and operational risks. We continue to separate conduct and operational risk, rather than combine them into a non- financial risk category, to ensure that both elements receive appropriate focus. Our next level (Level 2) contains 20 risk categories, which are each allocated to a Level 1 risk. Detailed risks (Level 3) are identified as sub-sets of Level 2 risks. There are 52 Level 3 risks in our 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, which is facilitated through a process of primary and secondary considerations. The risks in the register are reviewed with risk owners, senior management, and business units leaders to identify the principal risks which have the potential to impact future performance and the delivery of our strategic objectives and business priorities. All risks in the register are monitored through top down and bottom up reviews which consider the potential impact, existing internal controls and management actions required to mitigate the impact and likelihood of emerging issues and potential future events. Risk assessment process The board, executive and senior management are actively involved in a continuous risk assessment process as part of our risk management framework, supported by the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) work, which assesses the principal risks facing the group. Our process considers both the impact and likelihood of risks materialising which could affect the delivery of strategic objectives and annual business plans and 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 other committees to support this assessment. We have a consistent approach to identifying and assessing our Level 3 risks. We consider risk on both an inherent and residual basis over a three-year period 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, which includes consideration of the internal control environment and/or insurance mitigation. The assessment of our control environment includes contributions from first, second and third line colleagues, data, and monitoring and assurance activity. We maintain a watch list as part of our approach to identify and evaluate any current, emerging or future issues, threats, business developments and regulatory or legislative changes, which could have the potential to impact the firm’s current or longer term risk profile. Any material changes may require active risk management, usually through process changes or systems development. Stress tests are also undertaken to include consideration of the impact of a number of severe but plausible events that could impact the business. This work 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 group’s risk profile, risk register, watch list and stress tests are regularly reviewed and challenged by the executive, senior management, group risk committee and the board. rathbones.com 47 Risk management and control continued Three lines of defence Overview External independent assurance Third line: Internal independent assurance Second line: Oversight and challenge functions First line: Business operations and support Executive risk committee Executive committee Audit and group risk committee Profile and mitigation of principal risks The group’s underlying risk profile has improved over the last 12 months, despite another year of mostly remote working. Although the risk ratings for many Level 2 risks are unchanged , there have been improvements in the management of some principal risks as opportunities were taken to invest further in people, processes and technology to improve risk mitigation, including against cyber threats. We have remained focused on service to clients, the reliability of business operations and the wellbeing of our colleagues and we believe this approach has been effective. Based upon our risk assessment processes, 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 risks reflect our strategic initiatives and change programme, changes to the group’s business model following the acquisition of Saunderson House, environmental and societal challenges, the cyber threat landscape, operational resilience in relation to our suppliers, and the political environment. The board remains vigilant to potential risks that could arise from the longer-term impact of COVID-19 on our business and suppliers, society and the economy, and also to regulatory risks that, in turn, may arise from the continuing development of law, regulation and standards in our sector. Further information about the principal risks is set out below. We include 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 ours where the outcome of a risk event can be influenced by market conditions as well as internal control factors. We use ratings of high, medium, low and very low in our 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 group. Likelihood is similarly based on a qualitative assessment. 48 Rathbones Group Plc Report and accounts 2021 Strategic reportKey principal risk profile trends Risk Change Sustainability Suitability Information security and cyber People Third-party supplier Description Risk trend in 2021 In 2021, we have remained agile and adapted to the continuing effects of COVID-19, while delivering growth opportunities through the Saunderson House acquisition and digital enhancements for clients. We continue to monitor external market conditions, including environmental and social factors, which could adversely affect sustainable growth, market share or profitability. We broadened the risk appetite measures for this risk for 2021, which now include diversity and our climate risk indicators. We continue to refine our processes and improve investment risk oversight, focusing on both client suitability and portfolio construction. Further technology enhancements are expected in 2022. We have continued to invest in improving our security posture, including staff awareness, preparedness and technology developments to ensure we progress and are prepared for the evolving threat landscape. People risk fluctuated during 2021 as a result of the pandemic, with turnover increasing against last year and labour market challenges impacting some areas. Management action has been taken to address the concerns raised by our colleagues. Our new employee survey tool is well established and employee engagement is positive. This was a key area of focus in 2021, with framework improvements and increased supplier oversight introduced. Together with our suppliers, we have improved the management of risks associated with their activities, including potential service disruption and other client impacts. Work will continue in 2022, in line with our change agenda. 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. Some of these risks increased in 2021, although they have since stabilised. Risk owner(s) Level 2 risk How the risk arises I L Control environment Residual rating Group Chief Financial Officer Group Chief Financial Officer Credit The risk that one or more counterparties fail to fulfil contractual obligations, including stock settlement This risk can arise from placing funds with other banks and holding interest- bearing securities. There is also a limited level of lending to clients Pension The risk that the cost of funding our defined benefit pension schemes increases, or their valuation affects dividends, reserves and regulatory own funds 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 and senior management oversight — Counterparty limits and credit reviews — Treasury policy and procedures — Client lending policy and procedures — Active monitoring of exposures — 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 Very High High Medium Low rathbones.com 49 Risk management and control continued Risk owner(s) Level 2 risk How the risk arises I L Control environment Residual rating Chief Operating Officer Change The risk that the change portfolio does not support delivery of the group’s strategy 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 Group Chief Executive Officer Sustainability The risk that the business model does not respond in an optimal manner to changing market conditions, including environmental and social factors, 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, our stakeholders’ expectations, or can be influenced by external factors such as environmental and social factors Group Chief Executive Officer and Chief Risk Officer This risk can arise from failures by the business to comply with existing regulation or failure to identify and react to regulatory change Regulatory compliance and legal The risk of failure by the group or a subsidiary to fulfil its regulatory or legal requirements and comply with the introduction of new or updated regulations and laws — Executive and board oversight of material change programmes — Transformation Office Programme Board oversight and delivery-focused operating model — Differentiated governance approach to strategic change programmes and business projects — Dedicated change delivery function and use of internal and, where required, external subject matter experts — Two-stage assessment, challenge and approval of project plans — Documented project and change procedures — Board, executive and responsible business committee oversight — A documented strategy, including responsible investment policy — Monitoring of strategic risks — 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 — Monitoring of strategic risks — Commitment to diversity and inclusion themes — Board and executive oversight — Management oversight and 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 50 Rathbones Group Plc Report and accounts 2021 Strategic reportRisk owner(s) Level 2 risk How the risk arises I L Control environment Residual rating Managing Director Rathbone Investment Management Suitability The risk of an unsuitable client outcome either through service, investment mandate, investment decisions taken, investment recommendations made or portfolio or fund construction 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 Chief Operating Officer Information security and cyber The risk of inappropriate access to, manipulation, or disclosure of, client or company-sensitive information Chief People Officer Chief Operating Officer and Chief Executive Officer, Rathbone Unit Trust Management People The risk of loss of key staff, lack of skilled resources or 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, litigation or regulatory action Third-party supplier The risk of one or more third party suppliers failing to provide or perform authorised and/or outsourced services to standards expected by the group, impacting the ability to deliver core services. This includes intra-group outsourcing activity 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 This risk can arise when the firm does not have appropriate governance and oversight of its supplier relationships, in particular those considered key and material to the operational resilience of business services provided to clients or investors — Board, executive and general managers committee oversight — Investment governance and structured committee oversight — Management oversight and segregated quality assurance and performance teams — Performance measurement and attribution analysis — ‘Know your client’ (KYC) suitability processes — Weekly investment management meetings — Investment manager reviews through supervisor sampling — Compliance monitoring — Board and executive oversight — Data governance 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 — Board and 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 — Board and executive oversight — Senior dedicated relationship managers — Supplier contracts and defined service level agreements/KPIs — New supplier due diligence and approval process — Close liaison and regular service review meetings — Documented procedures Further detailed discussion of the group’s exposures to financial risks is included in note 33 to the financial statements. Very High High Medium Low rathbones.com 51 Risk management and control continued 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. In addition, throughout 2021 we have continued to develop and maintain our approach to monitoring strategic risks and horizon threats. Key emerging risks and threats are: Near-term Medium-term Cyber threats and supply chain resilience UK specific and global political tensions Longer-term Generational wealth change Climate change transition risk ESG acceleration Sector consolidation Changing regulatory expectations Social care financing Post pandemic UK and global economic challenges Digital currencies Open finance More extreme pandemics Our view for 2022 is that we can reasonably expect current market conditions and uncertainties to remain, given the implications of COVID-19 variants and the wide range of global economic and political scenarios which could emerge. Assessment of the company’s prospects The board reviews its strategic plan annually. This, alongside the ICAAP and ILAAP, forms the basis for capital planning which is discussed periodically 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 (defined as credit, market and operational risks, including conduct) to the required regulatory standards. In addition, the crystallisation of the following events were considered for enhanced stress testing: an equity market fall, a loss of business/competitive threat, business expansion, pension obligation and a combined market fall and reputational event. The economic and commercial impacts of the global pandemic on the prospects of the company were also factored into the assessment. The group considers the possible impacts of serious business interruption as part of its operational risk assessment process and remains mindful of the importance of maintaining its reputation. Although the business is almost wholly UK-situated, it does not suffer from any other material client, geographical or counterparty concentrations. While this stress test does not consider all of the risks that the group may face, the directors consider that this stress testing based assessment of the group’s prospects is reasonable in the circumstances of the inherent uncertainty involved. 52 Rathbones Group Plc Report and accounts 2021 Strategic reportScenarios modelled include: — Market wide stress (capital & liquidity): a 30% fall in all market levels for a prolonged 18-month period and FX illiquidity. — Idiosyncratic stress (capital & liquidity): a reputation-affecting cyber event causing outflow of 20% of FUMA with associated compensation and rectification costs. — Combined stress (capital & liquidity): aggregation of the above stresses, together with negative interest rates and additional FUMA outflow to fund personal lifestyle changes. 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 2024. Viability statement In accordance with the UK Corporate Governance Code, the board has assessed the prospects and viability of the group over a three-year period considering the risk assessments identified above. The directors have considered 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, and its future performance, solvency or liquidity. The board regularly reviews business performance and at least annually its current strategic plan through to 2024, alongside a strategic risk assessment. The board also considers five-year projections as part of its annual regulatory reporting cycle, including strategic and investment plans. However, the directors have determined and continue to believe that a three-year period to 31 December 2024 constitutes an appropriate and prudent period over which to provide its viability statement given the uncertainties associated with the global pandemic, as well as economic and political factors and their potential impact on investment markets over a longer period. This three- year view is also more aligned to the firm’s detailed stress testing and capital planning activity. There is no reason to believe the five year view would be different but as always, there is more uncertainty over a longer time horizon particularly in relation to external factors. Stress testing and scenario analysis shows that the group would remain profitable in excess of our risk appetite tolerances for capital and liquidity, and able to withstand the impact of such scenarios. 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. rathbones.com 53 Strategic report Responsible business review Being a responsible business Our commitment to being a leader in responsible business stems from our purpose in society. Thinking, acting and investing responsibly not only shapes what we do but how we do it. It is woven throughout our business strategy and core to our day-to-day decision-making. Longer-term, this focus is how we will both create value for our clients and make a wider contribution to society. Our 2021 highlights — Introduced a group-wide exclusions policy for manufacturers of cluster munitions and anti-personnel landmines, and thermal coal — Developed Rathbones’ approach to hybrid working as part of our return to work programme — Integrated ESG factors into our supplier management framework — Set science-based emission reduction targets. Responsible investment PRI strategy and governance score A+ (score carried over from 2020. PRI had not released 2021 scores at time of publication) Number of companies directly engaged with 705 (2020: 226) Society and communities Community investment £418,000 (2020: £467,000) Number of charities supported >55 Our people Number of employees participating in share schemes 1,624 SIP (2020: 1,316) 1,127 SAYE (2020: 1,040) 2021 employee engagement score 8.1 /10 (FS benchmark 7.7/10) Our environmental impact Carbon intensity (tCO2e/FUMA £bn) 18.51 (2020: 23.16 (tCO2e/FUMA £bn)) Total emissions (tCO2e) 1,170 (2020: 1,267 (tCO2e)) 54 Rathbones Group Plc Report and accounts 2021 Our approach to responsibility We continue to manage our responsible business programme through the four pillars of responsible investment, people, society and communities, and our environmental impact. Understanding the issues that impact our stakeholders most allows us to focus our initiatives to respond to the most material risks and opportunities across the pillars. 2021 saw us build on the programmes we had in place and identify a few key initiatives that would support us in delivering value to our stakeholders which include the integration of further ESG data into our investment approach, working with the team at Included to support development of a diversity and inclusion approach, integrating ESG factors into our supplier management framework and the creation of a net zero working group to support calculation and delivery of our net zero emissions targets. This year we have produced our first standalone responsible business report, in which we share more information on our 2021 activities, progress and our future plans. Responsible business governance The responsible business committee, co-chaired by Paul Stockton, our group chief executive officer, and Ivo Darnley, Rathbones Investment Management Managing Director, met four times in 2021 and reported to the board twice. At each meeting an update is given on our pillar plans, and in addition strategic discussions are held on specific themes e.g. climate risk or our diversity, equality and inclusion programmes. Responsible investment Rathbones has 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 will continue to lead us forward. In 2021, we continued to deliver against the four pillars of our responsible investment (RI) policy. ESG integration – we source ESG data from a number of vendors to support analysis, assessment and reporting. Our research team has created a bespoke approach to responsible investment data comprising vendor data, engagement and voting information, materiality information, To find more information on our responsible business activities please see: — Responsible business report — Responsible investment report — Gender pay gap report — Modern slavery statement — Task Force on Climate-related Financial Disclosure — Rathbones website financial analysis and other specialised analysis which allows us to form an in– depth view of a security. Engagement – as stewards of our clients’ wealth, we actively engage with the management teams and boards of the companies and securities we invest in. This gives us the opportunity to directly raise issues that are important to our clients or might impact portfolio performance. We participated in 705 direct engagements in 2021, with the aim of driving operational improvements by pressing companies to address their ESG risks. Key themes considered at the committee meetings: 2021 meeting March June Attendance Discussion Decision 10/10 — Net zero emissions strategy — Investment exclusions 10/10 — Community investment approach — Operational environmental initiatives — Agreement to set targets in alignment with limiting warming to 1.5oC — Approved the introduction of thermal coal and cluster munitions exclusions — Strategic community investment themes and initial partners identified — Investment in operational initiatives, including energy contracts and infrastructure selection agreed September December 9/10 8/10 — Near-term net zero emission targets — 2025/2030 emission targets — Risk and regulatory changes — Reporting and communication approved — Approved project to propose our carbon removal strategy — Market review of RB policy approaches agreed. rathbones.com 55 Responsible business review continued Voting – we stand by our beliefs and vote against management where necessary. Our voting approach sees us vote on 95% of our votable equity assets in RIM and 100% in RUTM. Our voting policy can be found on our website. Transparency – transparency about our responsible investing approach and activities provides assurance that these efforts are genuine and are deeply rooted. There are a number of ways we ensure our transparency including our responsible investment reports, our PRI submission, TCFD report and our vote disclosure website. We are proud of the achievements we have made to date. By setting ourselves ambitious targets we recognise the work that needs to be done, not only within our organisation but across the industry and in the private client wealth management space in particular. We will work with our industry partners to promote responsible investment not only within financial services but across all the sectors and within all the asset classes within which we invest in our bespoke products, and will continue to integrate ESG factors throughout our research and investment decision-making to ensure the best outcomes for our clients. To find out more about our RI activities see our standalone responsible business report and our responsible investment report. Our people Rathbones employees faced another challenging year and our priority continued to be ensuring their safety and wellbeing. Over the past 18 months our employees have shown great resilience and the ability to adapt. Like many businesses, having learnt from our remote working experience, we are now adopting a hybrid working approach as we return to our office spaces. Our management team and the board continued to engage through a variety of channels, ensuring open discussion across our workforce with additional details included in our s172 report and our responsible business report. The business continued to focus on creating an equitable and inclusive work environment. With 64.7% of our employees sharing their diversity data we can tailor our programmes to impact the areas in which the most opportunities exist. A key highlight for the year was our employee engagement survey which was completed by 83% of our people; we achieved an engagement score of 8.1/10 which was above the financial services benchmark of 7.7. To find out more about our people activities see page 58 and our standalone responsible business report. “We will work with our industry partners to promote responsible investment not only within financial services but across all the sectors and all the asset classes within which we invest in our bespoke products, and will continue to integrate ESG factors throughout our research and investment decision-making to ensure the best outcomes for our clients.” Society and communities Through our business we aim to add value not only to our clients but also to the societies and communities in which we operate. During the pandemic, many of our stakeholders, from small businesses to the charities we support, experienced challenges. Similar to 2020, our responsibility to these stakeholders has continued and we have achieved the following: Partners and regulators – we see our role as an active participant and work alongside partners and regulators to ensure we and other businesses operate with integrity. Operating in compliance with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority’s (FCA) clients’ best interests rule we maintain constructive relationships, regularly engaging to ensure our business understands and contributes to the evolving regulatory requirements. In 2021, we engaged on both climate risk requirements and diversity and inclusion matters. Human rights – 2021 saw the business join the United Nations Global Compact to further support our commitment across the ten principles, including human rights. This sits alongside our support for the International Labour Organization’s standards and the Universal Declaration of Human Rights. We will not tolerate child or forced labour and support the right to freedom of association and collective bargaining. Rathbones has a zero-tolerance policy to bribery and corruption, and we ensure all our employees are adequately trained. We reviewed our whistleblowing process in 2021 and saw 99% of employees complete our anti-bribery and corruption training The continued requirement to interact virtually means the risks of fraud and cyber exploitation remain increased. Our board took part in a cyber incident scenario simulation in March; more information on this can be found on page 80. 56 Rathbones Group Plc Report and accounts 2021 Strategic report Our environmental impact At Rathbones, as stewards and allocators of capital, we recognise that we have a business responsibility to contribute to the transition to a net zero economy. At the heart of our approach is a target to align to the Paris Agreement goal to limit global warming to well below 2°C, and preferably 1.5°C. We seek to do this by becoming a net zero emissions business by 2050 or sooner. In support of our environmental initiatives we became a signatory to both the Net Zero Asset Managers Initiative and the Business Ambition for 1.5oC and we report for the second year in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures. More information on our environmental activities and 2021 data disclosure can be found on pages 59-60 and in our standalone responsible business report. Standards and frameworks Supply chain – as a UK-based financial services business, Rathbones has a relatively low risk of human rights risk within its direct supply chain. Indirect suppliers further down our supply chain however present a potential elevated risk. In 2021, our supplier management framework was updated to include consideration of ESG factors as both part of the selection and onboarding of suppliers, as well as part of the regular supplier reviews that are undertaken. By year-end 66% of our critical, strategic and preferred suppliers had been reviewed. Read more in our modern slavery statement. Community investment – the requirement for support continued to grow in 2021 as society began to return to normality. Rathbones recognises our role in the communities in which we operate and was pleased to invest £418,000 (2020: £467,000) in community projects. One initiative with Social Shifters supported young entrepreneurs who were creating businesses in response to environment and social challenges faced in their local communities. To find out more about our society and communities activities see our standalone responsible business report. We recognise that we cannot achieve our aims alone. Through selected partnerships we will work to deliver action and continually challenge ourselves around the issues that we can materially impact. To find out about other standards, frameworks and ratings which we align to please see our website. 2022 focus At Rathbones, we are committed to operating in a way that best serves our clients’ interests and contributes towards building a better world for future generations. Requirements for disclosure and transparency are evolving as regulators seek to enhance the quality and quantity of information provided by companies to the public. We will continue to strengthen our reporting by being transparent and detailed about our approach to operating responsibly. In 2021, we initiated several programmes, including the setting of our net zero emissions targets. In 2022, our work will focus on the operationalisation of these initiatives. You can find out more about how we will do this in our responsible business report. We will continue to engage and report transparently, updating stakeholders on our progress in our standalone report, our annual report and accounts and supplementary thematic disclosures such as our PRI report, climate statement, CDP disclosure and gender pay gap report. If you would like to talk to us about our responsible business programme, please contact us at responsiblebusiness@ rathbones.com. * The FTSE4Good Index – we are pleased to have been included in the FTSE4Good Index for over 10 years. As a business we will continually develop our approaches to maintain our listing. FTSE Russell (the trading name of FTSE International Limited and Frank Russell Company) confirms that Rathbone Brothers Plc has been independently assessed according to the FTSE4Good criteria, and has satisfied the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index provider FTSE Russell, the FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong environmental, social and governance (ESG) practices. The FTSE4Good indices are used by a wide variety of market participants to create and assess responsible investment funds and other products. rathbones.com 57 Responsible business review continued Our people Our approach People are a crucial element of our corporate strategy. Having faced a second unsettled year, our priority continues to be ensuring our employees’ safety and wellbeing. The work undertaken in 2021 aligns to our strategy and furthering our growth, proposition and efficiency ambitions. To support this, we are developing our people plan incorporating the core elements of: — asking, listening, doing – employee engagement — investing in our people – mentoring, talent programmes and inclusive leadership training — employer of choice – diverse candidate lists and supporting processes to support a diverse and inclusive workforce — data-driven decisions – using our employee data to support informed decisions. Underpinning this will be our HR information system, supporting efficient engagement and keeping us all connected. Employee wellbeing 2021 like 2020 was an extraordinary year for our employees and ensuring the wellbeing of our people remained our utmost priority. Through the introduction of a new employee engagement platform we could capture snapshots of employee feedback at key points throughout the year. This allowed us to respond to any specific needs raised and fed into reviews of our physical and mental wellness offerings ensuring continued support to employees. Return to the office The impact of COVID-19 means the world of work is never going back to how it was. Over the past 18 months Rathbones employees have shown great resilience and the ability to adapt. Having learnt from remote working we are now incorporating it with making more use of our office spaces again. Employees will have greater autonomy in how they shape their time and the ways in which they deliver their work. Like many businesses the hybrid model is new for Rathbones so we will work together to support flexibility as we move to a world in which COVID is not the driver of more flexible working. Diversity, equality and inclusion At Rathbones, we recognise the value and impact that our people bring to our work. It is only by having a diverse workforce who feel included that we can serve our clients and deliver on the targets we have set. In 2021, we have taken a tactical approach on how we can do this. We have been working to build a five-year strategy to lead us into 2022, supported by the 64.7% of employees who have shared their diversity data. This plan will help us expand and embed diversity and inclusion throughout the business, making everyone feel they belong. We will use this strategy to take an umbrella method of thinking and identify the different areas of diversity we need to tackle. Until now, we have primarily been focusing on gender and ethnicity, we are in the process of defining our focus areas for 2022 but plan to expand on our existing approach. Gender diversity at 31 December 2021 All employees (%) 2021 2020 2019 53%53% 47%47% 52%52% 48%48% 52%52% 48%48% Gender diversity at 31 December 2021 Senior managers* (%) Female Male 61.5%61.5% 38.5%38.5% 2021 2020 2019 25%25% 20%20% 75%75% 80%80% Gender diversity at 31 December 2021 Female Group executive members (%) Male 70%70% 70%70% 2021 2020 2019 30%30% 30%30% 22%22% Male Female 58 Rathbones Group Plc Report and accounts 2021 * Senior managers includes senior individuals who report directly into the group executive committee 2022 focus We are committed to continually improving our employee experience. Next year, in addition to our existing processes we will share our updated people plan which will be focused on the four areas of: — asking, listening and doing — investing in our people — being an employer of choice — using data to support decisions. To read more on our people programme, visit our standalone responsible business report. Our board has three female directors out of nine, which means we meet our commitment of 33% female board representation for FTSE 350 companies. We also have three on the group executive committee. We also meet the requirements of the Parker Review, which encourages the improvement of ethnic and cultural diversity on boards. We see this as a good foundation on which to build, but not an end point. 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 end 2021, we have reached 38.5% (2020: 24.6%). Employee engagement An engaged workforce is essential to delivery of our purpose and strategy. Our summer 2021 survey received an 83% response rate and our overall engagement score is higher than our industry benchmark. In 2021 we used a new engagement system; this means direct comparisons to previous years is not possible. We can see that in 2021, as in the previous two years, our overall levels of engagement have been above the financial services benchmark. The survey also identified areas in which we improved and others where we can build engagement. Find out more: 78%78% — Enabling our people p28 — Culture p83 — Workforce engagement p84-85 — Responsible business report — Gender pay gap report — Rathbones website Strategic reportOur environmental impact Our approach The world is at a critical point. Global temperatures continue to rise dramatically; taking decisive action to limit this is a global necessity. The Intergovernmental Panel on Climate Change (IPCC) has warned that to limit global warming to 1.5°C above pre-industrial levels, the world’s carbon emissions need to halve by 2030 and reach net zero by 2050. This goal requires collective ambition and action across sectors. At Rathbones we believe it is our fiduciary duty and business responsibility to build a better world for future generations. As stewards and allocators of capital, we recognise that we have a business responsibility to contribute to the transition to a net zero economy. At the heart of our approach is a target to align to the Paris Agreement goal to limit global warming to well below 2°C, and preferably 1.5°C. We seek to do this by becoming a net zero emissions business by 2050 or sooner. To achieve this ambition, we have set science-based targets in line with a 1.5°C temperature pathway: By 2030 reduce our operational footprint (Scope 1, Scope 2 and Scope 3 categories 1-8) by 42% By 2030 we will reach 57% portfolio coverage across our investment portfolios (Scope 3, category 15). The above targets have been set at a group level, using the methodology of the Science Based Targets initiative (SBTi). In addition to the group targets, Rathbone Greenbank Investments has set investment targets in alignment with the Net Zero Investment Framework (NZIF). Delivering on this will see the group build on its 81% reduction in operational carbon intensity per full-time employee since 2013 by completing the transition of our offices to renewable energy sources by the end of 2025. This will aid us in meeting the 2025 internal target of a 21% reduction across our overall Scope 1, Scope 2 and operational Scope 3 emissions. We support the work of the TCFD and have produced our second response in alignment with its recommendations. A summary is included in this report pages 61-63 and to ensure we meet the new listing requirement, we have produced a standalone disclosure. 2021 progress Our scope 1 emissions in 2021 saw an increase due to the increase in both natural gas usage, driven by the need for increased ventilation, and a top up in refrigerants at our London site. We continued to decrease our use of energy and ran a print consolidation project in 2021 the impact of which we should see more completely in our 2022 figures. With the announced move of our Edinburgh office into a BREEAM rated very good building, due to take place in the summer of 2022, this evidences our continued commitment to not only transitioning our energy contracts to green energy sources but also reviewing the impact of our infrastructure. Carbon removal We continue to purchase carbon removal credits or offsets to cover our operational footprint. This year we have purchased and retired credits to cover our expanded operational footprint, for more information see our responsible business report. Over the last ten years we have purchased just over 26,000 tonnes of carbon in projects supporting clean water, geothermal, wind, solar and cookstoves. Last year we began the transition of our offsets to nature based solutions and supported a forestry project in Chile. In 2021, we expanded our data collection to include more of our scope 3 emissions categories. The table on the opposite page shows a year-on-year comparison complying with the SECR requirements. For more information on our expanded footprint including the impact of our supply chain exposure please see our responsible business report. Looking forward Following the outcomes of the climate talks in Glasgow, and the continued strengthening of commitments from governments and regulators supporting the transition to a net zero emissions economy, the need for business to understand and act with regard to our climate impact will continue to grow. The focus of our environmental programme in 2022 will be the operationalisation of our net zero emissions plan, including the engagement of our suppliers. We will work to integrate Saunderson House in to our data processes and expand reporting on the financial implications of climate change to include a broader client population. To read more on how we manage our environmental impact and our approach to net zero, visit our standalone responsible business report. — TCFD report p61-63 — Risk management and control p46-53 — Financial statement p210 — Responsible business report rathbones.com 59 Responsible business review continued Compliance with regulations We continue to meet the greenhouse gas (GHG) emissions reporting requirements of the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013 and our obligations under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. We have prepared this report in accordance with the requirements for quoted companies under these regulations by including our specific energy usage and 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 2021 to 31 December 2021. 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. We will work to integrate the impact of Saunderson House on our footprint throughout 2022. To see the 2021 Avieco opinion statement see our standalone responsible business report. Carbon footprint by scope (tCO2e) Rathbones’ reporting period for greenhouse gas emissions is 1 January to 31 December 2021, aligned to our financial year. Location-based emissions (tCO2e)1 Scope 1 UK-based3 scope 1 emissions Global2 scope 1 emissions Natural gas Refrigerants Scope 2 UK-based3 scope 2 emissions Global3 scope 2 emissions Purchased electricity Scope 3 Business travel Data centres4 Paper Waste Electricity transmission and distribution5 Total location-based6 UK emissions Global emissions (excl. UK) Total energy consumption (kWh)7 UK consumption (kWh) Global consumption (excl. UK) (kWh) Intensity ratio FUMA (£bn) Emissions intensity (tCO2e/FUMA £bn) Emissions intensity (tCO2e/FTE) 2013 (baseline) 306 306 – 276 30 1,424 1,401 23 1,424 902 496 150 117 9 130 2,632 2,609 23 4,748,931 4,678,559 70,372 2019 322 322 – 322 – 657 638 19 657 1,112 827 135 87 7 56 2,091 2,072 19 4,320,690 4,247,556 73,134 2020 344 344 – 344 – 461 444 17 461 462 259 108 51 4 40 1,267 1,249 18 4,387,481 4,316,661 70,820 20212 411 411 – 348 63 368 356 12 368 391 194 99 61 4 33 1,170 1,157 13 4,083,324 4,028,768 54,556 22.0 120 3.5 50.4 41.5 1.38 54.7 23.16 0.80 63.2 18.51 0.65 % change 19.48% 19.48% – 1.16% 100.00% -20.17% -19.82% -29.41% -20.17% -15.37% -25.10% -8.33% 19.61% 0.00% -17.50% -7.66% -7.37% -27.78% -6.93% -6.67% -22.97% 15.54% -0.20% -0.18% 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. Scope 2 market-based emissions for 2021 are 34 tCO2e (2020: 46 tCO2e) 2. Our 2021 figures do not include Saunderson House data. We will work through 2022 to integrate their data into our footprint going forward 3. Under SECR 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 at this stage 4. Data centre emissions are reported as Scope 3, as per the WRI GHG Protocol 5. Electricity transmission and distribution (T&D) reflects emissions from line losses associated with electricity transmission and distribution 6. Total emissions reported in 2020 have been restated from 1,123 to 1,267tCO2e due to increased availability of actual data for the reporting year. This has increased our accuracy of reporting. In most cases the change is small, but for natural gas it is substantial. This is related to natural gas usage at our London office where the ventilation system was used continually throughout 2020 with heating used to compensate. As a result the figures are significantly higher than estimates used. This figure also impacts kWh consumption figures at the bottom of the table 7. Total energy consumption (kWh) of our Scope 1 and Scope 2 emissions (electricity), and scope 3 (employee cars) 60 Rathbones Group Plc Report and accounts 2021 Strategic reportTask Force on Climate-related Financial Disclosures Our approach As wealth managers, we have a fiduciary duty on behalf of our clients to consider all long-term risks that may impact their investments. We are committed to helping our clients safeguard their portfolios against physical and transitional risk as the world moves to a low-carbon economy. At Rathbones,we recognise that this is a collaborative exercise that spans industries and as such we are continuously engaging with our stakeholders, including our clients, investors, regulators, and industry organisations’, to improve our collective climate reporting and help smooth the transition to a net zero economy. We are committed to improving our climate-related reporting. During the financial year ended 31 December 2021, the board has complied with the requirements of LR 9.8.6. This page shares a summary of our how we applied the 11 principles of the TCFD recommendations. We have chosen to publish our 2021 TCFD disclosure as a standalone statement, allowing us to report in more detail and link from that report to applicable content across our reporting suite. Our standalone report will be available as a PDF on the reports and disclosures page of our website. Governance Strategy 1. Board oversight 2. Management oversight We believe that everyone in our company has a role to play in reducing risks, from our board and executive team, down to each of our employees. If an entire workforce can operate with accountability, this in turn enhances the effectiveness of risk management and decision-making across the group. Our approach to risk governance, processes and infrastructure ensures that we are constantly considering both existing and emerging risks to our purpose, values and strategic objectives. Ultimate responsibility for climate risk, like all risks identified and managed by Rathbones, sits with our board. The board is supported by several committees and maintains responsibility for the consideration and integration of climate risk. Our audit committee has oversight of our reporting of climate risk including our TCFD report and our group risk committee is responsible for the management of climate risk and its associated consequences. These board level committees are supported by our group executive committee and our responsible business committee and responsible investment (RI) committees. Our group chief executive officer has responsibility for bringing climate matters to the board and is supported in this by our responsible business committee which he co-chairs. Our chief risk officer is our senior management function responsible for climate-related financial risk. For more information on the governance around climate-related risks and opportunities see our standalone TCFD report, available on our website 3. Identification of climate risks and opportunities 4. Impact of climate risks and opportunities 5. Scenario analysis At Rathbones, we believe that we have a fiduciary duty to act on climate change. That means doing the right things for our client’s – and for others too. Alongside the management of our operational impact, our responsible investment approach is based on four core principles that are at the heart of the way we do business: ESG integration, engagement with consequences, voting with purpose and transparency. Rathbones recognises the potential impacts for our business, including those associated with the transition to a greener economy (transitional risks) and the physical effects of climate change. As wealth managers, we have the unique ability alongside other financial services actors to provide capital to organisations that are positioned to provide solutions to the problems caused by climate change. Transitioning to a low-carbon economy requires large funding support from the private sector as well as the public sector. We believe that our ability to identify and allocate to these types of investments is in the best interest not only in terms of outcomes for our clients, but for broader society. Our focus on responsible investment, coupled with the close relationships we foster with our clients, means we believe we can support clients in their own decarbonisation journeys and plan for their long-term future. “Rathbones recognises the potential impacts for our business, including those associated with the transition to a greener economy (transitional risks) and the physical effects of climate change. As wealth managers we have the unique ability alongside other financial service sector participants to provide capital to organisations that are positioned to provide solutions to the problems caused by climate change.” rathbones.com 61 Responsible business review continued Voting with purpose — We actively vote across over 95% of the value of our votable equity holdings in line with our RI commitments. This may involve voting against management to help drive positive change. — In 2021, we voted on over 15,000 resolutions across RIM and RUTM — Voting is undertaken on our most widely held holdings and on any company if requested by a client who is a shareholder of that company — We are increasingly integrating ESG factors in our voting process Transparency — As a prominent participant in the financial markets, we are committed to being transparent about our approach to RI. We will actively report on the progress of our RI activities to our clients, shareholders and other stakeholders. — In 2020 we achieved an A+ rating for strategy and governance. UN PRI, 2021 scores have not been announced at time of release due to PRI undertaking a review of their approach — Our annual report and accounts and specific responsible investment report reflects our efforts made in this area — We regularly publish thought leadership and host events about RI themes. For more information on how we identify, assess and manage climate-related risk please see our standalone TCFD report, available on our website. Our attention to date has been ensuring the full identification of climate-related risks and ensuring we have climate risk formally integrated into our risk management framework. In addition to the financial stress testing (pages 52-53) we undertake as a business we have explored the use of scenario analysis, to aid our decision-making process. This year we have considered a few scenarios including a 2oc or lower scenario. More information about our approach, the scenarios we use and what they show us, can be found in our standalone disclosure. Looking forward, we will be turning our attention to focus on the identification and actioning of climate opportunities. At this time, we have identified a variety of opportunities that fall across the short, medium, and long term, which we reference in more detail in our full TCFD disclosure. For more information on the climate-related risks and opportunities that impact our business see our standalone TCFD report, available on our website Risk management 6. Identifying and assessing climate risks 7. Managing climate related risks 8. Integration into our risk management processes Along with robust management of our own risks (see pages 45-53), we also believe it is in our clients’ best interests for the companies in which we invest to adopt best practice in managing and reporting on ESG risks. We see this as part of our duty as a good, long-term steward of the investments we manage on our clients’ behalf. This is expressed in full in our responsible investment policy, which outlines our responsible investment principles and how they are being integrated into our stewardship process. Our approach provides a framework for each company we engage with to be managed according to the long-term interests of its shareholders. Given the significant impact that climate change represents, we are committed to playing a positive role in the transition to a net zero economy. This will involve increasing our exposure to businesses aiding or benefiting from the transition, while also decreasing our exposure to high-carbon businesses that are unable to demonstrate transition plans in alignment with the Paris Agreement. Our overarching approach comprises the following pillars: ESG integration — We will consider environmental, social and governance (ESG) factors in the evaluation of investments to help identify ESG opportunities and risks — Our research team and investment committees are actively working to integrate ESG factors into the investment process across all asset classes — Material ESG risks, where identified, are incorporated into the process on a case-by-case basis — We review data from a range of sources to inform our analysis Engagement with consequences — We prioritise engagement where we can make a difference in addressing the systemic environmental and social challenges. We are prepared to reduce our holdings in companies who continue to present an ESG risk over time. — Topics included climate change, employment practices, inequality, the composition of board of directors, remuneration — In 2021, we held conversations with 705 of our the companies in which we invest. We continue to invest to challenge and support change that delivers real change — For example, we acted as lead investor for the Climate Action 100+ engagement with SSE 62 Rathbones Group Plc Report and accounts 2021 Strategic report Metrics and targets 9. Alignment with our strategy and risk management 10. Our footprint 11. Our targets We are using several metrics to measure the progress of our net zero journey, including our carbon emissions and GHG intensity indicators. We continue to assess our environmental impact, focusing not only on our operations but also on our investments. In 2021, we expand our footprint to include more scope 3 categories and this can be found in our responsible business report. We recognise that we have a business responsibility to contribute to the transition to a low-carbon economy and align our strategy to the Paris Agreement goal. In October 2021, Rathbone Greenbank Investments (Greenbank) and Rathbones Group Plc (group) announced our commitment to reach net zero emissions by 2040 and by 2050 or sooner respectively (see page 59) and our standalone responsible business report) for more information on our targets. In addition to our SECR disclosure which can be found on page 60, the business also calculates several investment metrics and other business indicators to help us assess, track and manage our impact, see below and our responsible business report for a selection. For more information on the metrics and targets used to assess and manage relevant climate-related risks and opportunities, see our standalone TCFD report, available on our website. Looking forward Having taken robust steps in 2021 to address our impact through the setting of targets and integration of increased ESG factors into our investment decision-making approach, we see 2022 as a year to update our processes to ensure they will support us in delivery of our net zero commitment. To read more about the steps we will take please see our standalone responsible business report, TCFD document and our responsible investment report. — Risk management and control p46-53 — Our environmental impact p59-60 — TCFD report — Responsible business report — Responsible investment report — Climate statement Alternative investment metrics Climate resilient FUM1 Number of investment managers and investment directors who have completed the CISI Sustainable and Responsible Investment Professional Assessment Investment stewardship team size Total investment stewardship engagements Climate-related voting action taken Other business indicators1 CDP score 2 PRI strategy and governance score3 2021 £2.3bn 2020 £1.9bn 2019 £1.6bn 221 4 705 14 2021 C1 A+2 – 3 201 5 2020 B A+ – 2 83 0 2019 B- A= 1. Climate resilient investments: includes the FUMA from Rathbone Greenbank Investments where we can be most confident climate risk is fully integrated 2. Our CDP score is based on 2020 activity; it therefore does not reflect the setting of our net zero emissions aligned targets 3. PRI are reviewing their process and scoring and have therefore not releasing their 2021 scores at this time. We have therefore, reported our 2020 score and will share our final 2021 score when released rathbones.com 63 Responsible business review continued Non-financial information statement Reporting requirement Some of our relevant policies and standards Where to read more in the report about our impact Environmental matters Responsible investment policy Risk management and control Group Climate Statement Our approach to responsibility Net zero emissions commitment Employees Code of conduct Responsible investment Our environmental impact Our TCFD disclosure Risk management and control Human rights Social matters Anti-corruption and anti-bribery Business model Non-financial key performance indicators Equal opportunities policy Enabling our people Health and safety policy Our approach to responsibility Compliance framework policy Our people Anti-bribery policy Code of conduct Workforce engagement with the board Human rights Modern slavery statement Code of conduct Modern slavery Our approach to responsibility Anti-bribery policy Community investment Risk management and control Conflicts of interest policy Human rights Whistleblowing policy Whistleblowing Our business model Our market and opportunities Our approach to responsibility Our people Our environmental impact Our TCFD disclosure Page 45-53 55-57 55-56 59-60 61-63 45-53 28 55-57 58 84-85 56 57 55-57 57 45-53 56 93 8-9 23 54-64 58 59-60 61-63 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 Rathbones Group Plc to provide information to its shareholders and should not be relied upon for any other purpose. Pages 1 to 64 constitute the strategic report, which was approved by the board and signed on its behalf by: Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer 23 February 2022 64 Rathbones Group Plc Report and accounts 2021 Strategic reportGovernance Corporate governance report Introduction from the chair Governance at a glance Board of directors Group executive committee Role of the board Board and board committee evaluation Risk management Engagement with shareholders Workforce engagement Group risk committee report Audit committee report Nomination committee report Remuneration committee report Remuneration committee chair’s annual statement Remuneration outcomes for 2021 Annual report on remuneration Directors’ report Statement of directors’ responsibilities in respect of the report and accounts 66 66 68 72 75 76 80 81 82 84 86 90 95 99 99 99 102 112 115 rathbones.com 65 Corporate governance report Corporate governance report On behalf of the board, it is my pleasure to present the first corporate governance report as chair for the year ended 31 December 2021. It summarises the role of the board in providing effective leadership to promote the long-term success of the firm. set of values which collectively anchor our priorities, decision-making and actions. These were evident in the very challenging circumstances, experienced during the outbreak of the COVID-19 pandemic. Our robust and efficient governance processes, at board level and throughout the firm, made a critical contribution to the firm’s ability to protect our people, serve our clients and create long-term value for shareholders. 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 and we are in line with the recommendations of the Parker Review. As discussed in the responsible business review, the firm is taking steps to continue improving diversity across the organisation through a variety of initiatives. Purpose and culture The board plays a critical role in setting the firm’s strategy, purpose, business model and culture. The board spent time on each of these areas throughout the year. Each director recognises the role we have to play in setting the “tone from the top” and in monitoring how the firm’s culture and values are communicated and embedded. We acknowledge the crucial link between culture, governance and leadership, and how decision-making is a key driver of culture. To be successful, the board has developed a culture dashboard which is used to monitor and analyse the firm’s culture. This dashboard contains eight core drivers that help to shape the firm’s culture and address a variety of areas including leadership, clients, employees and other stakeholders, as well as the firm’s attitude to change. The dashboard contains both quantitative and qualitative data and each core driver has specific KPIs with a red-amber- green (RAG)-based trend rating. The culture dashboard is updated every six months and presented to the board for review and monitoring. In addition, through my own engagement with employees and through our workforce engagement programme, I have been pleased to see the firm’s strong and distinctive culture in action, as shown by the continuing commitment on the part of our employees to support our clients and the community. The board plays a critical role in ensuring that the firm operates in a manner which is consistent with the highest standards of corporate governance. We take our legal and regulatory requirements seriously and seek to demonstrate this through consistent compliance with those requirements, and through evolving our processes to reflect the latest best practice. We are very conscious that good governance is not simply a matter of regulatory compliance, but must encompass multiple issues including: transparency in reporting and accounting, and fair remuneration. These enable better decision-making through inclusion and diversity, operating with integrity and honesty, and working closely with our suppliers and partners. We take the view that, together with our responsible business agenda which includes our commitment to net zero, we will contribute to the communities in which we operate. Maintaining our focus on sustainability and other ESG issues is not only entirely consistent with our values, but will enhance our ability to recruit the best talent, retain the confidence of our clients and the communities in which we operate. To achieve this, it is important to the board that we build and reinforce trust consistently amongst all our stakeholders; conscious of and giving consideration to their specific needs. Rathbones has a strong and long-established purpose, culture and 66 Rathbones Group Plc Report and accounts 2021 GovernanceBoard succession As mentioned in last year’s report, Mark Nicholls retired as chair in March 2021 and Jim Pettigrew retired at the AGM in May. I would like to thank Mark and Jim for their service to the firm and for ensuring that there was a smooth leadership transition during the COVID-19 pandemic. The board takes a proactive approach to succession planning and is mindful of potential changes that will naturally occur as directors reach the end of their term. Therefore, James Dean will not be seeking re-election as a director at the 2022 AGM as he will have served nine years on the board. Following a comprehensive search process, the nomination committee recommended the appointments of Iain Cummings, who will be appointed chair of the audit committee, and Dharmash Mistry as new non-executive directors. Rathbones will benefit from their breadth and depth of experience in industry and the financial sector. Iain has over 35 years of experience working in the financial sector and Dharmash is an experienced technology venture capitalist, entrepreneur and non-executive director. We thank James for his significant contribution to the board and as chair of audit committee during his tenure. Board evaluation This year, in line with the UK Corporate Governance Code, the board appointed an external evaluator to review its effectiveness and performance. The review concluded that the board remains strong and effective, and that it has responded well to the challenges arising from the pandemic. The board welcomed the findings and will work to consider opportunities for incremental improvements during the year ahead. Further detail on the evaluation can be found on page 80. Executive remuneration Executive remuneration is an important area of focus and debate. As reported in last year’s report, we introduced changes to our directors’ remuneration policy following the introduction of the new CRD V directive. Our revised remuneration policy was approved at the 2021 Annual General Meeting (AGM) and I was pleased that it received such strong support from our shareholders. The directors’ remuneration report, which includes further detail on the application of the new policy, can be found later in this section. During the year, we have continued to engage with our shareholders on executive remuneration. Stakeholder engagement Stakeholder engagement remains a priority for the board. During the year, the board has used formal meetings and other opportunities to discuss the firm’s performance. These discussions included consideration of their interests, as well as risks arising from the wider regulatory, economic and political environment. As part of the board’s regular meetings and in sessions specifically focusing on strategy, the directors have spent considerable time assessing and having regard to the impact of individual decisions and the firm’s operations on different stakeholder groups. This has included extensive discussion of points arising from engagement with shareholders, customers, employees, regulators and other groups. You can find our formal statement in relation to section 172 of the Companies Act 2006, together with further detail about how the directors have engaged with, and had regard to the interests of, stakeholders in the strategic report on page 10. The board gains a direct understanding of employees’ views through employee survey results, townhalls and branch visits. As a result, the board has had good insight into the impact of home working and also the state of mental health of our people during the pandemic. This feedback was used to target measures to improve the safety and wellbeing of our colleagues. Separately, the board’s workforce engagement programme, led by Colin Clark and Sarah Gentleman, continued during the year with ongoing engagement with our employees. Details of this initiative can be found on page 84. In addition, both my non-executive director colleagues and I used formal and informal opportunities to talk to employees across all offices through virtual events during the year. Our shareholders are key. We managed a comprehensive engagement programme with them throughout the year. We undertook a number of investor meetings, either in person or virtually. The group finance director continues to report to the board regularly on shareholders’ views regarding the firm, and the firm’s corporate brokers present regularly to the board on market developments and shareholder perceptions. This helps to ensure that the board is fully briefed on the views and aspirations of shareholders. Also, as part of my induction programme, I met and spoke with a number of our shareholders during the year and I found these meetings to be most constructive. Unfortunately, because of the COVID-19 pandemic, the firm’s 2020 and 2021 AGM had to be held remotely due to compulsory government measures restricting public gatherings and non-essential travel. This meant that shareholders could not attend the meetings in person. We are very aware that the AGM provides an important forum for shareholders to meet the board and raise questions and we look forward to meeting you in person at our 2022 AGM. This report, in its entirety, has been approved by the board of directors and signed on its behalf by: Clive C R Bannister Chair 23 February 2022 rathbones.com 67 Corporate governance report continued Governance at a glance Corporate governance framework and division of responsibilities Oversight and challenge Board of Directors Chair — Leads the board and sets the agenda for board discussions — Ensures the board’s effectiveness — Agrees and sets the firm’s business strategy and management objectives — Encourages the presentation of accurate, clear and timely information — Promotes effective and constructive discussion — Chairs the nomination committee, which considers the composition of the board and its succession plans — Evaluates the performance of the board, its committees and individual directors on an annual basis 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) — 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 Non-executive Directors — Provide constructive challenge to management performance and strategy — Contribute to the firm’s strategy — Provide independent judgement to the board — Review group financial information and ensure the system of internal control and risk management framework are appropriate and effective — Engage with key stakeholders — Review succession plans for the board and key senior management Nomination committee See page 95 Leadership Group risk committee See page 86 Audit committee See page 90 Remuneration committee See page 99 Group Chief Executive Officer — Provides executive leadership and management to the business — Responsible for the effectiveness of the executive committee — Delivers on strategic objectives set by the board in line with the group’s risk appetite — Maintains strong relationships with the chairman, the board and key shareholders and stakeholders Group Chief Financial Officer — 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 the group’s operation Group Executive Committee — Implements the agreed strategy and the day-to-day management of the firm — Reviews and discusses the annual business plan and budget — Implements investment process and client proposition — Approves the expenditure and other financial commitments within its authority levels and discussing, formulating and approving proposals to be considered by the board 68 Rathbones Group Plc Report and accounts 2021 GovernanceBoard activities in 2021 Details of the main areas of focus of the board and its committees during the year are summarised below: Stakeholder consideration and impact Link to strategic pillars Clients Society Regulators & Partners Shareholders Employees Enriching the client and adviser proposition and experience Inspiring our people Supporting and delivering growth Operating more efficiently For further information on our stakeholder engagement, please see page 10 Strategy and Performance People Governance — Held two strategy days with group executive team focus on strategic matters including emerging trends, client expectations and future expectations — Monitored the firm’s strategic performance — Focused on delivery of organic growth initiatives through new products — Reviewed and approved the acquisition of Saunderson House as well as the associated share placing — 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 — Assessed and approved the firm’s 2022 budget and regulatory returns — Assessed the firm’s change management processes and project delivery — Reviewed and approved the firm’s new digital strategy — Appointed InvestCloud and Charles River as the firm’s key technology providers to deliver the firm’s digital strategy — Oversight and approval of remuneration arrangements for executive directors and the wider workforce — Approved a “return to office” plan and endorsed a new hybrid working model — Continually monitored morale across the firm with oversight of employee survey results and associated management actions — Monitored the firm’s D,E&I programme and approved new initiatives — Oversight and review of the firm’s whistleblowing report — Discussed the various workforce engagement mechanisms — Assessed and oversaw the firm’s culture and implementation of its culture dashboard — Conducted an external board evaluation — Approved the appointment of two new non-executive directors — Reviewed and approved the firm’s responsible business agenda including responsible investing and our net zero commitment 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 — Discussed the firm’s suitability programme rathbones.com 69 Corporate governance report continued Board decisions Stakeholder interests and engagement Link to stakeholders considered Clients Society Regulators & Partners Shareholders People The board acknowledges that the above areas of focus take into account the firm’s various stakeholder interests which are aligned with the section 172 duties that are set out on page 10. By considering the company’s purpose and values together with its strategic priorities, the board ensures that its approach to decisions and consideration of stakeholder interests is consistently applied. The examples provided illustrate how the board did this in practice during the year: 70 Rathbones Group Plc Report and accounts 2021 Continuation of a progressive dividend policy During the year, the board took the decision to recommend to shareholders an increase in dividends in respect of the 2021 financial year, following the group’s resilient performance. This reflected the board’s confidence in the business model and strong financial position. The board had many factors to consider when making this decision, balancing the views of all stakeholders alongside their assessment of the group’s financial performance for the year and their confidence in the company’s business model in an uncertain external environment. Ensuring that the company had sufficient resources to continue to support clients, employees and partners, whilst maximising opportunities; was of paramount concern. In line with the requirements of section 172(1), the board had regard to the different interests of stakeholders, but with an overarching focus on acting in the way that would be most likely to promote the long term success of the company for the benefit of its members as a whole. Acquisition of Saunderson House The board believes that, in line with strategy, investing for growth is in the best interest of all stakeholders and has continued to examine potential acquisitions as one method to achieve this goal. As a result, the board considered the acquisition of Saunderson House as part of the strategy to increase its financial planning capability. It was agreed that this acquisition would address a strategic gap and allow the firm to provide financial advice to existing and new clients which would help its organic growth in years to come. Approval of new digital engagement and data strategy As part of the firm’s strategy, a new digital strategy was developed and presented to the board in 2021 which will result in a fundamental change in our technological solutions, affecting all of our stakeholders. This solution will, over time, deliver a simplified operating model and a blended human as well as digital experience for clients and advisers. Together this will reduce the firm’s overall risk profile. In addition, the firm will see financial benefits which will include cost avoidance, cost reduction and potential increase in revenues. GovernanceHow the board considered, and had regard to, the interests of key stakeholders and the requirements of section 172(1) The board engaged in extensive discussions with management ahead of making its decision and considered the long-term viability of the group’s position. On a regular basis, the board was updated on the company’s performance and its capital, funding and liquidity position, as well as expectations for the group’s financial resources in the following financial year, to understand the financial resources it had available and the impact a dividend payment would have in a range of scenarios. The board was regularly made aware of the position of clients and considered the broader market environment and the perception of increasing its dividend payments, including the views of regulators. The board considered the position of the regulator and the group discussed its proposal with the PRA ahead of making any decision and recognised the regulator’s interest in ensuring we could continue to support our clients. The expectation of shareholders was taken into account, with recognition given to the company’s progressive dividend policy and strong track record of dividend payments. The overall sentiment of employees was considered given the signal any decision would send and the impact a dividend payment may have on overall remuneration. The board acknowledges that a significant number of the group’s employees are shareholders, whether through the SAYE or SIP through general share ownership, and recognises the impact for them (and all shareholders) on whether a dividend is paid. The board’s recommendation of an final dividend of 47p in respect of the 2020 financial year was submitted to shareholders for approval at the company’s AGM in May 2021 and received approval from 100% of voting shareholders. An interim dividend of 27p per share was declared at the half year 2021 results, reflecting the group’s strong performance in the first half of the financial year and continued confidence in the business model and financial position. The board has recommended a final dividend of 54p per share in respect of the 2021 financial year, resulting in a full-year dividend of 81p. When deciding to proceed with the acquisition, the board considered the interests of a number of key stakeholders. In addition, senior management held engagement meetings with key stakeholders. The subsequent review of that engagement by the board confirmed that there was both a good cultural fit for employees and that the acquisition would promote the firm’s growth and proposition strategy. The impact of the transaction on Saunderson House clients was considered, including the firm’s ability to design future products to meet their requirements. Saunderson House clients will also benefit from the integration of the business into the firm’s operational platform and wider range of investment capabilities. The interests of Saunderson House employees were also of key importance upon completion and will be key to driving the integration, future growth and success of the business. The acquisition was subject to approval by the FCA, therefore management ensured ongoing engagement with them and approval for the transaction was granted in October 2021. As part of the board’s decision-making process, consideration was given to feedback received from various stakeholders on whether to proceed with the proposed digital solution and the respective vendors to deliver this strategy. From a client perspective, the firm engaged a third party to understand the needs of the client of the future and this insight provided us with excellent internal and external feedback. This report found that the digital expectation of existing and future clients had increased. Clients want seamless, personalised and interactive experiences with reduced documentation as well as improved efficiency of working. From an employee view point, IMs and advisers will be equipped with automated data and tools which will ensure improved client delivery as well as ensuring the end-to-end employee career journey will allow everyone to understand and feel inspired by how their work contributes to our purpose of ‘think, act and invest responsibly’. Also, this tool will enable our future working model by allowing employees to service clients through a variety of technological means. From an investor view point, this proposal will enable growth and drive performance by creating more efficiency across the business using modern digital technology, supporting desired client and IM behaviours, will aid the ability to provide greater client value-add and new win assets. Partnering with leading vendors will enable us to blend institutional and private client capabilities and enhance our growth opportunities. Also, this enhanced platform will be attractive to external investment teams and help support other inorganic opportunities. Financially, this proposal will involve a significant investment by the firm and the board reviewed various scenarios as well as the payback period and impact on margin for the next three years. From a regulatory view point, the firm’s risk profile should improve, accepting that change and operational risk will increase during the implementation phase of the project which will be monitored by our second and third lines of defence. rathbones.com 71 Corporate governance report continued Board of directors Chair Executive Directors Clive Bannister Chair Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer Appointed: 06/04/2021 Appointed: 09/05/2019 Appointed: 01/04/2019 Experience, skills, and contributions Clive was appointed to the board on 6 April 2021. He started his career as a banker at First National Bank of Boston in 1981 in Boston and London. In 1984, he joined Booz Allen & Hamilton and became a partner in their financial consulting practice in 1990. In 1994, Clive joined HSBC Investment Bank as Director and Head of Planning and Strategy in London. He moved to New York in 1996 to be the deputy CEO of HSBC Inc and Head of Investment Banking in the US. In 1999, he was appointed Chief Executive of HSBC Group Private Banking, became a Group General Manager in July 2001, and Group Managing Director in 2006 responsible for Group Insurance and Asset Management at HSBC Holdings Plc. In 2011, Clive was appointed as group CEO of the Phoenix Group, the UK’s largest life and pensions consolidator. Current external appointments Clive is currently the chair of the Museum of London. Experience, skills, and contributions Paul was appointed group 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. Paul is a member of the PIMFA Strategic Advisory Group. Current external appointments None Experience, skills, and contributions Jennifer began her career on the Lloyds TSB Finance graduate scheme following her graduation in 1995 and qualified as a 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 appointments None Audit committee Remuneration committee Group executive committee Nomination committee Group risk committee Committee chair 72 Rathbones Group Plc Report and accounts 2021 GovernanceSenior Independent Director Non-executive Directors Colin Clark Senior Independent Director (Independent) James Dean Non-executive Director (Independent) Sarah Gentleman Non-executive Director (Independent) Appointed: 24/10/2018 Appointed: 01/11/2013 Appointed: 21/01/2015 Experience, skills, and contributions Colin was appointed as a non-executive director in October 2018 and was appointed as senior independent director at our 2021 AGM. In addition, he was appointed as a designated non-executive director for our workforce engagement programme in 2019. He is currently chairman of Merchants Trust Plc, AXA Investment Managers UK and a non-executive director of AXA Investment Management SA. 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 Client 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 appointments Chairman of Merchants Trust Plc, AXA Investment Managers UK and non-executive director of AXA Investment Managers SA. Experience, skills, and contributions 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. Since 2012, James has gained significant non-executive director experience serving on the boards of a large UK retail insurer, LV= and a small building society. He was previously a chairman of The Stafford Railway Building Society and Reigate Grammar School. More recently he has joined the board of a start up, PE backed London market insurance and reinsurance company, Inigo Ltd. Current external appointments Non-executive director at Inigo Ltd. Experience, skills, and contributions Sarah 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 appointments Non-executive director of Engine B Ltd and Molten Ventures Plc (previously Draper Esprit Plc). rathbones.com 73 Corporate governance report continued Non-executive Directors Terri Duhon Non-executive Director (Independent) Iain Cummings Non-executive Director (Independent) Dharmash Mistry Non-executive Director (Independent) Appointed: 02/07/2018 Appointed: 05/10/2021 Appointed: 05/10/2021 Experience, skills, and contributions Terri was appointed as a non-executive director in July 2018 and is chair of the risk committee. Terri graduated with a Maths degree from Massachusetts Institute of Technology (MIT). She is currently a non-executive director on the board of Morgan Stanley International where she chairs the risk committee, is chair of Morgan Stanley Investment Management Limited and was recently appointed non- executive director of Wise Plc. She is an Associate Fellow at The Saïd Business School at Oxford University. Previously, Terri sat on the boards of CHAPS Co and Operation Smile UK 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 appointments Chair of Morgan Stanley Investment Management Ltd, non-executive director of Morgan Stanley International Ltd, Hanover Investors Ltd and Wise Plc. Experience, skills, and contributions Iain was appointed as non-executive director on 5 October 2021. Experience, skills, and contributions Dharmash was appointed as non-executive director on 5 October 2021. Iain is a Fellow of the Institute of Chartered Accountants in England and Wales with over 35 years of experience working in the financial sector. He was a partner at KPMG for over 24 years working with banks and other major financial services firms in both audit and advisory roles including three years leading KPMG’s banking audit practice. His audit roles included large firms in the investment banking sector and listed firms in the wealth, asset management and insurance sectors while his advisory engagements focused on aspects of risk, regulation and internal audit. Iain also served for a number of years as Chairman of the ICAEW Financial Services Faculty’s Risk and Regulation Committee and as a member of the ICAEW’s Technical Strategy Board. Current external appointments None Dharmash started his career with Procter & Gamble on their graduate programme and then went on to become a brand manager, followed by a period with Boston Consulting Group. He spent eight years in the media as Group Managing Director of EMAP Consumer Media and EMAP Performance. Dharmash is an experienced technology venture capitalist, entrepreneur and non- executive director. He was formerly a Partner at Balderton & Lakestar, leading investments including Revolut, Glovo, Infarm, Blockchain. com and Lovefilm amongst others. Prior to this he was Group MD of Emap Consumer Media, where he co-led the delisting of Emap Plc from the FTSE 100. His prior board NED positions include: BBC Executive Board, Hargreaves Lansdown Plc, Dixons Retail Plc, BBC Commercial Holdings and Blow Ltd. Current external appointments A board member of The British Business Bank, Halma plc and The Premier League. Audit committee Remuneration committee Group executive committee Nomination committee Group risk committee Committee chair 74 Rathbones Group Plc Report and accounts 2021 GovernanceGroup executive committee The group executive committee (GEC) is chaired by Paul Stockton, Group Chief Executive, and he is supported by the senior management team. The key role of the GEC 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. Full biographies of the group executive committee are available at rathbones.com/investor-relations/corporate-governance/group-executive-committee Paul Stockton Group Chief Executive Officer and Chair of GEC Jennifer Mathias Group Chief Financial Officer Rupert Baron Managing Director of Investment Management Ivo Darnley Managing Director of Investment Management Andrew Brodie Chief Operating Officer Gaynor Gillespie Chief People Officer Andrew Morris General Manager of Investment Management Sarah Owen-Jones Chief Risk Officer Richard Smeeton General Manager of Special Projects Mike Webb Chief Executive of Funds rathbones.com 75 Corporate governance report continued Board meetings and attendance in 2021 Number of meetings held Clive Bannister (chair)1 Paul Stockton (group chief executive officer) Jennifer Mathias (group chief financial officer) Colin Clark (senior independent director) Iain Cummings (non-executive director)2 James Dean (non-executive director) Terri Duhon (non-executive director) Sarah Gentleman (non-executive director) Dharmash Mistry (non-executive director)2 Former directors Mark Nicholls3 Jim Pettigrew4 Board 10 6(7) 10(10) 10(10) 10(10) 2(2) 10(10) 10(10) 10(10) 1(2) 2(3) 4(4) Nomination committee 3 2(2) Remuneration committee 4 2(2) Audit committee 7 Group risk committee 5 3(3) 1(1) 3(3) 3(3) 3(3) 1(1) 1(1) 1(2) 4(4) 1(1) 4(4) 4(4) 4(4) 1(1) 2(2) 2(2) 7(7) 1(2) 7(7) 7(7) 7(7) 2(2) 5(5) 1(1) 5(5) 5(5) 5(5) 1(1) 4(4) 2(2) 1. Clive Bannister joined the board, remuneration and nomination committee on 6 April 2021 2. Iain Cummings and Dharmash Mistry both joined the board and the committees on 5 October 2021 3. Mark Nicholls retired from the company on 5 March 2021 4. Jim Pettigrew retired from the committee on 6 May 2021 Compliance with the 2018 UK Corporate Governance Code During the financial year ended 31 December 2021, the board has applied the Principles and complied with the Provisions of the UK Corporate Governance Code 2018 (the Code). Below are some examples of our compliance with certain areas of the Code, together with cross-references to other sections of this annual report where further information can be found. — Workforce engagement (Provision 5): Colin Clark and Sarah Gentleman are the designated NEDs responsible for workforce engagement. A thorough programme of engagement initiatives is arranged and an update is provided to the board twice a year on key themes and outcomes which contributes to the decision-making process. — Whistle-blowing mechanisms (Provision 6): The audit committee receives and reviews regular reports on allegations, including trends information and investigations. Since all non- executive directors attend the audit committee, they all receive the same reports directly from internal audit. The board approves the firm’s whistleblowing policy on an annual basis and further information is set out on page 93. — Independence (Provisions 9, 10, 11 and 12): The chairman was considered independent on his appointment, as assessed against the criteria set out in Provision 10 of the Code. The roles of chairman and chief executive are not exercised by the same person. Over half of the directors are independent non-executives and none have served for longer than nine years. Colin Clark is our senior independent director and meets with other non-executive directors, without the chairman attending, yearly to appraise the performance of the chairman. Further information about the structure of the board is set out on page 68. — Board effectiveness evaluation (Provisions 21 and 22): A formal rigorous assessment and evaluation of the performance of the board, its committees, its processes and procedures, and of individual directors including the chairman is undertaken each year. During the year, the evaluation was facilitated by an external professional reviewer, Independent Audit. Further details about this external board evaluation exercise, its methodology, recommendations and actions are set out on page 80. The role of the board and its committees The board’s primary role is to provide effective leadership and direction for the firm as a whole, and to ensure that the firm is appropriately managed, delivers long-term shareholder value and contributes to wider society. It establishes the firm’s purpose and strategic objectives, and on an ongoing basis monitors management’s performance against those objectives. The board also supervises the firm’s operations, with the aim of ensuring that it maintains a framework of prudent and effective controls which enables risks to be properly assessed and appropriately managed. The board acknowledges its role in assessing the basis upon which the firm generates and preserves value over the long term. It spends time during the year, in scheduled board meetings, during its annual strategy discussions and in other sessions with senior management and stakeholders, considering how opportunities and risks to the future success of the firm’s business should be addressed, alongside discussions on the sustainability of the firm’s model. Further information on these considerations can be found in the strategic report of this annual report. 76 Rathbones Group Plc Report and accounts 2021 GovernanceBoard 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 chair and the chief executive is generally held. The non-executive directors also have informal meetings in the absence of the chair or chief executive. 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. During the pandemic, it was important that the board continued to meet informally outside of board meetings and virtual board sessions were introduced. 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. Another key function of the board is to define, promote and monitor the company’s culture and values. It also ensures effective engagement with shareholders and other stakeholders. When making decisions, the board has regard to the interests of a range of stakeholders, including employees, customers, clients and shareholders, as well as its broader duties under section 172 of the Companies Act 2006. Code principles Leadership and purpose Our purpose Chair’s statement Stakeholder engagement (s172) Board of directors Group executive committee Workforce engagement Division of responsibilities Corporate governance framework Division of responsibilities Operations of the board Composition, succession, and evaluation Board induction Board diversity Board and board committee evaluation Nomination committee report Audit, risk and internal control Viability statement Risk committee report Audit committee report Statement of directors’ responsibilities Remuneration Remuneration committee chair’s annual statement Remuneration outcomes for 2021 Directors’ report 2 4 10 72 75 84 68 68 77 79 79 80 95 53 86 90 115 99 99 112 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 chair 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. Independence The board, on the recommendation of the nomination committee, considers that all of the non-executive directors are independent, including the chair. 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. Potential conflicts of interest of non-executive directors can generally be managed by due process and common sense. rathbones.com 77 Corporate governance report continued Q&A with our new chair What attracted you to the role of chair at Rathbones? Rathbones is a well-established firm with a long and distinguished history. Its strong position in the markets it serves will allow us to take advantage of future growth opportunities. The role required a chair that has overseen considerable of change across the industry and one willing to assist in the direction of the overall business in a very competitive environment. What skills and experience will you bring to the board? I have worked in very complex organisations, both as an executive and non-executive; delivering change. I have managed significant stakeholders, possess strong negotiation skills and a broad range of strategic and management skills. As a chair, it is important to be independent, a team player and supportive but at the same time have the ability to ask difficult questions, probe, be persistent, and scrutinise decisions taken on behalf of all of our stakeholders. As always, the board members participate in the annual board evaluation in line with the Code to assess the effectiveness of the board and consider where improvements can be made. This year, Independent Audit undertook our externally facilitated board evaluation. It recognised that the board comprised a highly experienced group of non- executive directors with a strong skillset, a diverse range of viewpoints, capable of healthy challenges, and an appreciation for our stakeholders. For further details, please see page 80. What are the key challenges and opportunities for Rathbones in the year ahead? Looking ahead, key challenges and opportunities are: Delivering on our proposition We provide a personal service that brings empathy, reassurance and builds trust with clients and advisers through a quality investment and advice process that stands up to scrutiny and, most importantly, delivers value. We are able to provide strong propositions across different client groups and we will look to further strengthen these propositions. Delivery of the change programme The change programme continues to move forward. Rathbones has the opportunity to enhance productivity across the organisation through process enhancement and infrastructure improvement. Our strong organisation and management team will serve us well to manage change over the next few years. Maintaining organic growth We are now in a position to leverage from a more stable base and drive growth throughout the group. Through our specialist teams, operational efficiency and investment in faster growth areas, I am confident that Rathbones will continue to deliver sustainable organic growth. What are your initial impressions of Rathbones following your induction programme? Having already spent a year at Rathbones and having met a number of individuals during my six-month induction programme; my first impressions of the firm is that it provides valuable services within a culture that is client centric and entrepreneurial. It operates with a conservative orientation that respects rules, is collaborative, supportive and resilient. It is a firm that continues to evolve, building its propositions to find new ways to interact with existing clients, new clients and to broaden its network of advisers. I had a very comprehensive and tailored induction programme which was arranged by the chief executive officer and the company secretary. The induction focused on: — The firm’s strategic direction and priorities whilst operating within risk appetite — Understanding the financial performance of the firm and its market positioning — The regulatory environment — People, culture and values In addition, induction meetings were held with the following: — Executive directors and members of the executive team — Key heads of functions including risk and compliance — Investors — Investment managers and financial planners — Company brokers and advisers. What is your view on the company’s ESG (environmental, social and governance) responsibilities? Rathbones has a strong foundation of operating responsibly, but there are further opportunities for us to improve as we build out our responsible business programme. Whilst we have always operated with our stakeholders in mind, the continued shift in expectations requires us to respond in a responsible way that will add value not just to Rathbones business and our clients, but society as a whole. At Rathbones, as stewards and allocators of capital, we recognise that we have a business responsibility to contribute to delivering a sustainable society. As such we are committed to playing our role in the transition to a net zero economy. At the heart of our approach is a target to align to the Paris Agreement goal to limit global warming to well below 2°C, and preferably 1.5°C. We seek to do this by becoming a net zero emissions business by 2050 or sooner. 78 Rathbones Group Plc Report and accounts 2021 GovernanceBoard 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. An overview of the programme is provided above which addresses the following areas: — Business review — Performance and market positioning — Regulatory environment — People, culture, and values Board development The firm is committed to the training and development of all employees 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 are enhanced by full access to senior management and virtual 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 participated in a live cyber exercise that was facilitated by EY and an overview of the exercise is provided on page 80. Board diversity The board acknowledges the benefits that diversity and inclusion can bring to the board and to all levels of the firm’s operations. As such, the board is committed to the promotion of diversity and inclusion across the firm and to ensuring that all employees are treated fairly. 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. The policy recognises the importance of having directors with a range of skills, knowledge and experience, and embraces the benefits to be derived from having directors who come from a diversity of backgrounds, bringing different perspectives and the challenge needed to ensure effective decision-making. The gender and ethnicity balance of the board are also taken into consideration when recruiting a new non-executive director and this is reflected in the current composition of our board. To achieve this goal, we engage with only external search firms which are signatories to the Voluntary Code of Conduct for Executive Search Firms for board-level appointments. During the year, the board was supported by Spencer Stuart for the recruitment of two non-executive directors who are signatories of this voluntary code. The nomination committee regularly reviews and evaluates the structure, size and composition of the board and is responsible for identifying and recommending new directors for appointment. Board appointments are made following rigorous consideration by the nomination committee of the balance of skills, experience, knowledge and diversity required for the board to operate effectively as a whole. When considering board composition and appointments, the board and the nomination committee continue to have regard to relevant best practice and the findings of the Hampton- Alexander Review and the Parker Review. In line with the Code, the nomination committee has oversight of the firm’s diversity and inclusion programme for all levels across the firm and a regular update is provided by management. For further information on the firm’s diversity initiatives, please refer to the responsible business review on page 58. rathbones.com 79 Corporate governance report continued Cyber training for the board The board has a duty to oversee the firm’s management of cyber security, including oversight of appropriate risk mitigation strategies, systems, processes, and controls. The board’s objective is to provide a cyber-safe environment for our clients and for our people. The board regularly evaluates the cyber security risk exposure against appetite to determine whether the existing controls framework is robust enough. In November 2020, a board session was held on business resilience and cyber security which provided an overview of the business continuity management framework and discussions around how cyber incidents may unfold and the role of the board. In March 2021, the board took part in a cyber incident scenario simulation exercise to help it understand and prepare its response to a potential cyber incident. The exercise supported the practice, evaluate and improve our cyber incident response plans. The simulation exercise was carried out with involvement from the Rathbones crisis management team and the group executive committee. — The exercise was facilitated by EY, and took place via a virtual platform, MS Teams — The exercise moved through a targeted cyber attack on the Rathbones’ network and travel through the major incident and crisis response team structure to crisis level, with a ransomware scenario being presented to the board for a decision — As the simulation exercise escalated, sequential but separate MS Teams meetings were facilitated by EY to allow discussions between IT/Cyber, to the major incident management team, to the crisis management team, and ultimately to the board, supported by the CMT leader, selected subject matter experts and AIG — AIG, as the company’s insurers, attended the simulation to support board level discussions by providing advice on remediation, forensic analysis, legal services and bringing in extortion advisers — The board played an integral part in the exercise by understanding and rehearsing their role in the decision- making framework for a salient cyber security attack. Following the conclusion of the simulation exercise, a debrief session was arranged and facilitated by EY for all participants. Outputs from the session will be reviewed and key learnings have been incorporated into our ongoing cyber security training. Board and board committee evaluation The board’s effectiveness is reviewed and assessed on an annual basis. In accordance with the Code, an externally facilitated evaluation needs to be completed every three years. During the year, Independent Audit were selected to complete this exercise. Independent Audit have no connection with the firm or to our directors. The purpose of the evaluation was to conduct a comprehensive review and evaluate how the board and its committees operate as compared to current best practice corporate governance principles and in accordance with the UK Corporate Governance Code guidance. The evaluation also compared the board with sector and market cap peers. A comprehensive brief was given to Independent Audit by the senior independent director and company secretary. All board members were requested to complete a questionnaire focused on board dynamics, strategy, ESG, culture and stakeholders. It also covered the three main committees of the board. Independent Audit observed the main board and committee meetings and completed a thorough review of the meeting materials. Subsequently, a report was prepared and was discussed with the senior independent director and chair and subsequently discussed by the board. Feedback was also provided to committee chairs on the performance of each committee. 80 Rathbones Group Plc Report and accounts 2021 GovernanceOverall, the review found the Board had a number of important strengths which included the following: — Board dynamics are characterised by inclusive discussions based on collaborative relationships. The NEDs provide firm challenge but also support to the executive team. — Executives respond constructively to questions and they provide the NEDs with good insight into the business — The board’s succession plans have been considered and implemented smoothly — The board engages well with the workforce and it gains accurate and improving insight from the culture dashboard — The risk debate is of a good quality with strong input from the second line of defence — The audit, group risk and remuneration committees are all functioning well and benefit from being led by strong chairs. Suggestions for areas for the board to develop included: — Competitor analysis: bringing this analysis more clearly to bear in strategic debates — developing ESG requirements into the strategy and operation of the firm — Agendas and papers: continuous focus on improvement — Diversity and inclusion: gender diversity is good at the board level, but more can be done on diversity in its broader sense across the firm. — Hybrid meetings: Improvements can be made in technology and meeting protocols to help the smooth running of meetings. In addition to the board evaluation process, the senior independent director led a separate performance review in respect of the chair which involved a discussion with the non-executive directors, excluding the chair, and separate consultation with the chief executive. The senior independent director subsequently provided feedback to the chair on his appraisal which confirmed his effectiveness. The chair regularly meets with the non-executive directors and provides feedback on their performance. The board also considers that improvements had been made in the areas identified in the previous internal and external evaluations. These improvements focused on streamlining of board and committee papers, improved strategic monitoring, developed a comprehensive culture dashboard and focus on talent and succession management across the firm. Directors’ fitness and propriety In line with its regulatory obligations, the firm undertakes annual reviews of the fitness and propriety of all those in senior manager functions, including all of the company’s directors and a number of other senior executives. This process comprises assessments of individuals’ honesty, integrity and reputation; financial soundness; competence and capability; and continuing professional development. This year’s reviews have confirmed the fitness and propriety of all of the company’s directors and other senior executives who perform senior manager functions. Consideration of matters relating to fitness and propriety also form an important part of the board’s recruitment process for non-executive directors. 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 page 46, 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. rathbones.com 81 Corporate governance report continued 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 chair of the group risk committee and chief risk officer on the key risks facing the firm that impact on operational and financial objectives. This assessment is completed together with assurance that the level of risk retained is consistent with and is being managed in accordance with the board’s risk appetite. These reports include current and forward-looking assessments of capital and liquidity adequacy and a summary ‘risk dashboard’ is presented. Also, during the year the board reviewed and approved the operational risk assessment process for the 2021 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 also considers other sources, which 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 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. Engagement with shareholders The firm has a comprehensive investor relations (‘IR’) programme to ensure that current and potential shareholders, as well as financial analysts, are kept informed of the firm’s performance and have appropriate access to management to understand the company’s business and strategy. The firm arranges a programme of meetings, calls and presentations around the financial reporting calendar, as well as throughout the year. The firm also regularly seeks investor feedback, both directly and via the group’s corporate brokers, which is communicated to the board and management. The board is regularly updated on the IR programme through an IR report, which is produced for each board meeting and summarises share price performance, share register composition and feedback from any investor meetings. The board believes it is important to maintain open and constructive relationships with shareholders and for them to have opportunities to share their views with the board. The chief executive and group finance director engage with the group’s major institutional shareholders on a regular basis. In addition, the chair meets with major institutional shareholders to discuss matters such as strategy, corporate governance and succession planning. Feedback on these meetings is provided to the board during the course of the year. Our committee chairs engage with shareholders on material matters. There were no such matters for discussion during 2021. The chair of the remuneration committee takes part in consultations with major institutional shareholders on remuneration issues from time to time, including an extensive consultation on the review of the directors’ remuneration policy that was submitted to shareholders at the 2021 AGM. We have continued to engage on executive remuneration matters with investors and members of staff during the year. Investor relations activity in 2021 included the following: — 2021 year-end results — UK investor roadshow and analyst presentation — Q3 trading update — analyst call — AGM — 2021 interim results — UK investor roadshow and analyst presentation 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. The board hopes that the firm will be able to return to a more typical AGM this year. The AGM is scheduled to take place in May 2022 and we currently intend to hold a ‘hybrid’ meeting that enables shareholders to attend and participate in the business of the meeting either in person or online. Further details will be set out in the Notice of AGM sent to shareholders in due course but the company believes that this new form of meeting will allow more shareholders to join the meeting and discuss the performance of the group with the board. The board acknowledges the importance of shareholders receiving presentations from the board at the meeting and being able to ask questions on the business of the AGM and the performance of the group. The company will provide a means for them to ask questions of the directors. All voting at general meetings of the company is conducted by way of a poll. All shareholders have the opportunity to cast their votes in respect of proposed resolutions by proxy, either electronically or by post. Following the AGM, the voting results for each resolution are published and made available on the company’s website. 82 Rathbones Group Plc Report and accounts 2021 GovernanceMonitoring the firm’s culture The board recognises the critical importance that culture and values play in the long-term success of the firm, and therefore the role of the board in monitoring and assessing culture. The board acknowledges the importance of individual directors, and the board as a whole, acting with integrity, leading by example and promoting the desired culture. The board spends time monitoring, and satisfying itself as to, the alignment of the group’s purpose, values and strategy with its culture. During the year, the board monitored, assessed and promoted the group’s culture, including in the following ways: — half yearly reviews and discussion of the culture dashboard, which included setting out an assessment of culture, and conduct metrics across the firm focused on the key drivers — regular updates to the board on — encouraging and enabling eligible external guidance and insight on culture, including from regulators and industry bodies, which are used by the board to benchmark the group’s approach and plans — feedback received from employees across the group in regular employee opinion surveys — updates on activities across the group in relation to culture and values, including employee training programmes — consideration of culture, behaviour and conduct issues by the remuneration committee on assessing the ESPP award to executives — review of the group’s whistleblowing arrangements — regular direct engagement with employees as part of the board’s workforce engagement programme, including site visits and participation in employee meetings employees to participate in schemes to promote share ownership. Eligible employees are able to participate in the group’s Save As You Earn (‘SAYE’) and Share Incentive Plan (‘SIP’) schemes, which provide cost-effective opportunities for employees to acquire shares in the company. The activities described above have allowed the board to effectively monitor the group’s culture during the year and to ensure that culture continues to be aligned with the group’s purpose, values and strategy. Strengthening the board’s cultural dashboard has continued during the year, with work undertaken to enhance a number of KPIs. The main themes arising from the dashboard, align with the feedback received from the employee engagement survey and workforce engagement initiatives. Key drivers of corporate culture S172 elements The ongoing assessment of the contribution of culture and values to the group’s long-term success remains a key focus for the board. Our culture dashboard reports on key drivers of our culture which include leadership, clients, people, attitude to change and interaction with various stakeholders. Risk C h a n g e s h i p r e d a e L Clients S h a r e h o l d e r s Purpose y t ocie S People o rs a t R e g u l rathbones.com 83 Corporate governance report continued Workforce engagement with the board Colin Clark and Sarah Gentleman are the two designated non-executive directors responsible for gathering employee feedback. A workforce engagement framework was developed using existing employee engagement activities already in place to provide a range of opportunities to engage directly with employees and receive feedback. The framework takes account of guidance and suggestions published by the FRC in this area and is illustrated below: Our workforce engagement structure Our activities 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 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 Designated non-executive directors (NEDs) — be identified and accessible to the workforce Workforce engagement structure Management of workforce programme — review and analyse workforce feedback from various initiatives — engage with segments of the workforce on a quarterly basis — communicate the workforce’s feedback and messages to the board — ongoing and regular dialogue with group executive committee/chief executive on workforce themes arising from these initiatives — prepare and discuss findings with designated NEDs and agree recommendations for the board — support in delivery of the annual engagement programme 84 Rathbones Group Plc Report and accounts 2021 The size and format of discussions is determined by the stated objective of the board’s engagement. A summary of our activities is provided below: Annual employee survey Virtual board branch visits CEO team visits Virtual employee townhalls Numerous NED drop-in sessions with employees across the country GovernanceThe two-way dialogue between the board and employees is facilitated by a combination of engagement methods, which in normal circumstances would include face-to-face contacts through meetings, site visits and attendance at employee events. These tools complement the established annual all-employee survey process and the board’s review of findings. The adoption of a diverse range of listening channels has been based on the principle that everyone in the firm should have a voice, and is consistent with employee feedback of the benefit of multiple platforms to raise areas for discussion. In turn, it supports the board in gathering a fair and representative view of the issues which are important to employees and builds an appreciation of how these may differ by role and geography. Engagements can be classed as formal and informal, with both required to identify ongoing themes. Typically, the formal approach is used to gather a structured and holistic view across a large population of individuals at a point in time. The board’s informal methods provide a greater depth of feedback, truer understanding of underlying sentiment and support the development of constructive relationships with employees. An overview of the themes and feedback from our workforce engagement programme is detailed below: Communication — communication from the very top is clear and concise — there is clarity over our approach to the pandemic and hybrid working — there is a lot of communication across the firm and this makes me feel included and respected and part of the Rathbones family — continue with the communication as it helps employee engagement, there could be more updates on our strategy — don’t go quiet on the responsible and diversity agenda, there’s so much more to do and it’s here to stay Hybrid working — Great that they want to implement a ‘hybrid’ style of working. Very forward thinking — I feel that Rathbones has reacted quickly to concerns about new virus variants and adapted its approach — Rathbones have got it right with returning to work, very sensible approach focused on the safety of their people — A number of advantages with hybrid approach; improved productivity and flatter organisation as a result of home working — Challenge for management will be to maintain the firm’s excellent culture and ensuring a smooth return to the office model Our people Change — I am grateful to be able to speak openly to my line manager about current and upcoming changes at work — senior management provide great reassurance in the way they communicate change and delivery — the transition/change agenda at Rathbones is being managed smoothly and effectively — Rathbones are listening to feedback and things are changing — the change programme needs to deliver tangibles in order to improve the client journey, efficiency of working and service delivery Strategic direction — everyone in Rathbones counts and senior management is leading by example — I’m impressed with the amount of briefings that are available and in my view helps everyone understand the strategies of senior leadership — management recognise that tech is not just the best way to grow but also essential to survive — acquisition of Saunderson House will offer new services to clients — relative to a year ago there are a lot of improvements: more of a collegiate feel to the business, winning more business, improved confidence, technology is much better Details of how the board responded to these themes can be found in the board activities section on page 69. rathbones.com 85 Group risk committee report Group risk committee report Terri Duhon Chair of the group risk committee 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 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 (prior to board approval) key regulatory submissions including the Group Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP) documents — receive reports from first line risk owners on risk management and improvements to controls and processes. Full terms of reference for the committee are reviewed annually and are available on the company’s website. 86 Rathbones Group Plc Report and accounts 2021 Group risk committee chair’s annual statement On behalf of the board, I am happy to present the group risk committee report as its chair. Over the last 12 months, I have been pleased with the way in which the firm has managed its key risks effectively as we continue to operate in a new and unique COVID-19 environment. Notwithstanding the challenges associated with the pandemic, the committee and the firm have continued to progress against the broader risk agenda whilst taking all our key stakeholders into account. During 2021, the committee considered the firm’s operational resilience program, a new risk and control self-assessments framework, the evolution of the conduct risk framework in addition to the ICAAP, ILAAP, resolution pack and various operational stress scenarios which had been updated to take into account the impact of COVID-19. The committee also continued to focus on monitoring the firm’s investment portfolios outcomes, investment process, suitability and people risk. The committee also regularly considers emerging and thematic risks that may have a material impact on the group. In 2021, the committee reviewed the firm’s digital transformational plans and cyber program. Acquisition and integration risk was also reviewed to support the acquisition of Saunderson House. Further information can be found in the key risks and mitigations section of the strategic report set out on page 46. The following sections set out the committee’s membership, its key responsibilities and the principal areas of risk upon which we have focused during the year. GovernanceCommittee meetings Following the 2021 AGM, Jim Pettigrew retired from the board and, in October 2021, the firm welcomed two new non-executive directors to the board and to the committee, Iain Cummings and Dharmash Mistry. Our current members are the independent non-executive directors, who met formally on five occasions during the year and informally three times to review key regulatory reports. In addition to the members of the committee, standing invitations are extended to the chair, the executive directors, the chief risk officer, the chief operating officer, the managing directors 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. Committee activity in 2021 In addition to reviewing the risk register, emerging risks, investment risk programme progress, suitability programme progress, operating risk overview and financial 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 2021 — Review of the suitability 2021 plan — Oversight and approval of the ICAAP 2021 operational risk scenarios — Approval of the compliance and operational risk 2021 plans — Review of the firm’s group policy framework — Review of the firm’s reputational risk policy — Discuss firm’s operational resilience report — Discuss and review the ICAAP capital stress testing model — Risk review of business units September 2021 — Discuss the firm’s people risk profile — Spotlight on conduct risk framework — Approval of the ICAAP and reverse — Review the firm’s cyber security stress testing — Approval of the ILAAP, liquidity reverse stress testing, and liquidity contingency plan — Review of the firm’s operational resilience plans November 2021 — Review and approve the 2021 recovery plan and resolution pack — Approval of risk management policy statement — Annual approval of the firm’s risk appetite statement and risk taxonomy — Discuss the strategic risk profile of the group — Risk review of business units — Spotlight on the data and digital change program 2021 plan April 2021 — Review of the firm’s strategic risk profile — Review of the ICAAP operational risk capital — Review of the firm’s conduct risk framework — Review and approval of the Pillar 3 public disclosure document — Approval of the resolution pack — Risk review of business units — Review of the firm’s conduct risk framework July 2021 — Discussion and approval of the ICAAP operational risk capital — Discuss firm’s people risk profile — Discuss outcomes from vulnerable clients’ assessment — Discuss and review the annual report from the money laundering reporting officer rathbones.com 87 Group risk committee report continued Focus on cyber crime has continued to increase as we remain alert to the risk, with the committee receiving regular updates over the course of the year with the support of external parties. In order to continue to mitigate this risk, we continue to upgrade our detection and monitoring capabilities and provide training to all employees. During the year, the board conducted a cyber simulation exercise and details of this event can be found on page 80. We have also discussed the risks presented by climate change and I have received various updates throughout the year on the group’s progress in developing a regulatory-compliant climate risk framework. This remains an area of increasing focus, both within the group and across the industry more broadly. Ensuring that we are fully compliant with the numerous and ever-changing regulatory requirements for financial services firms remains challenging. We engage actively with regulators and industry bodies to ensure that our compliance framework remains appropriate and relevant for all of our businesses. Also, our compliance team works closely with first and second line colleagues, providing regulatory advice in support of our business strategies, as well as shaping policies, delivering training and conducting assurance reviews. 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 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. The committee always starts with the chief risk officer’s report which covers the second line risk view, followed by reports from management which give the first line risk view. We then hear about financial risks, and finally internal audit gives any thoughts at the end of the meeting to cover the third line risk view. 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. The committee undertakes a robust assessment of both the principal and emerging risks facing the group over the course of the year, and reviews reports from the risk and compliance function on the processes that support the management and mitigation of those risks. As part of the ongoing review process, a specific assessment of the principal risks and emerging risks and uncertainties facing the group is also carried out by the committee, including those that would threaten its business model, future performance, solvency or liquidity. A summary of the group’s principal risks and emerging risks and uncertainties is provided on page 49. The committee is also responsible for the inputs, outputs and the process followed to produce the following key regulatory reports: — 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 external board effectiveness review. The review found that the committee operated well and ensured that the firm’s risks were sufficiently analysed during the year. In addition, the committee is satisfied that it has access to sufficient resource to enable it to carry out its duties and continue to perform effectively. Committee activity in 2021 The risk function continues to evolve with the three lines of defence model now well established and a mature and effective risk management framework in place. The risk design has been strengthened further with both the recruitment and development of additional skills and resource in 2021, particularly in the areas of conduct, data protection and financial risk. The committee has delivered on all of its planned objectives for the year. There has been particular focus on the firm’s risk appetite framework particularly given the programme of change ahead. Also, the committee continued to focus on conduct risk, controls and processes, and the increased risk of fraud. Following the appointment of our chief people officer, the committee initiated a review on people risk as it is a key driver to deliver the firm’s strategy to its various stakeholders. 88 Rathbones Group Plc Report and accounts 2021 Governance Looking ahead to 2022 In reviewing the committee’s priorities for the coming year, consideration will be given to the following areas: — Continued focus on the firm’s investment and suitability processes — Continued focus on operational resilience — Oversight of the firm’s digital change programme — Oversight of the information and cyber security — Continued focus on climate change risk — Continued focus on investment and suitability risk — Saunderson House integration Terri Duhon Chair of the group risk committee 23 February 2022 A number of areas of operational and financial risks were stressed again this year as part of the annual ICAAP and ILAAP. These conversations were particularly robust given not only the market moves that occurred at the beginning of the pandemic but the changing competitive landscape in the wealth management space globally. Following extensive 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. The committee also continued its focus on investment risk throughout the year, looking at improved management information, processes and governance enhancements. Regarding Brexit, while it was a large focus of the committee over the past several years, the work and planning of the group prior to the event, means that we have been able to reduce our focus on this topic. Finally, the links between culture, risk and remuneration are fundamental. The risk committee chair 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. In 2022, we have also decided to formally review the remuneration programs from a risk perspective in the committee as part of one of our regular people risk updates. rathbones.com 89 Audit committee report Audit committee report James Dean Chair of the audit committee Roles and responsibilities The key activities of the committee are: — provide oversight of the firm’s financial performance and reporting, announcement of results and significant judgement 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. 90 Rathbones Group Plc Report and accounts 2021 Audit committee chair’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. The committee has again had a full agenda and continued to focus on the key matters across its principal roles and responsibilities, including overseeing the additional and ongoing impacts of the COVID-19 pandemic. Focus has been given to challenging the key accounting judgements across the group, assessing the integrity and fair presentation of the group’s external financial reporting and reviewing the maintenance and effectiveness of the group’s internal control framework. The committee has also monitored the activities and performance of internal and external audit, along with oversight of non-audit services. Also, the committee is grateful for the support of management and Deloitte, as external auditor, in promoting the integrity of the firm’s financial results. We welcome the BEIS consultation on proposed changes to audit and corporate governance and will continue to monitor these proposals as the conversation evolves. 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 — Review of the BEIS consultation on audit and corporate governance — Review of Speirs & Jeffrey earn- out consideration — Review of the accounting implications following the acquisition of Saunderson House — Approval of the firm’s whistleblowing policy GovernanceCommittee activity in 2021 Below is a summary of the key issues that the committee considered at each of its meetings during the year. January 2021 — Review of the report and accounts — Review of the year-end areas of key judgements for the annual report — Review of Speirs & Jeffrey earn-out consideration — Review of 2020 internal audit plan and 2021 internal audit cycle February 2021 — Approval of the report and accounts — Assessment of going concern and the viability statement — Assessment of the report and accounts being fair, balanced and understandable — Review of the firm’s distributable reserves and dividend policy for 2021 — Year-end external audit report and audit opinion — Review of accounting judgements and fraud controls — Review and approval of representation letter — Review of external auditor’s letter of independence April 2021 — Review and approval of the firm’s CASS submission — Review and approval of the Q1 interim management statement October 2021 — Review and approval of the Q3 interim management statement — Review of internal audit plan for 2021 and completed assessments across the firm — Review of and input to the development of the internal audit plan for 2022 — Review of the FRC external audit quality inspection report — Approval of committee’s terms of reference November 2021 — 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 2021 and approval of the 2022 internal audit plan — Review of corporate governance changes for the year February 2022 — Review and approval of the report and accounts — Review of the TCFD summary included in the annual report — Review of key judgements for the annual report — Assessment of going concern and the viability statement — Assessment of the report and accounts being fair, balanced — Review and approval of the external auditor’s letter and understandable of engagement and audit fee — Review of the firm’s distributable reserves and dividend — Review of internal audit plan for 2021 and completed policy for 2022 assessments across the firm — Review of the BEIS consultation on audit and corporate governance — Review and approval of the internal audit charter July 2021 — Approval of half-year report for 2021 — Assessment of the firm’s statement of going concern — External auditor’s half-year review — Proposed external audit plan for the year end — Annual review of audit and non-audit fee policy — Annual review of the whistleblowing policy and report — Review of Speirs & Jeffrey earn-out consideration — Review of the accounting treatment of the Saunderson House acquisition — Review and approval of the firm’s ISAE3402 report — Review of Alternative Performance Measures (‘APMs’) — Review of results of 2021 internal audit plan and annual opinion on controls — Consider a report on risks and controls prepared by a the risk function — Consideration of year-end external audit report and audit opinion — Review and approval of representation letter — Review of external auditor’s letter of independence rathbones.com 91 Audit committee report continued Committee meetings The committee is comprised solely of independent non-executive directors, who met on seven occasions in 2021 (2020: seven). During the year, at the AGM in May, Jim Pettigrew did not seek re-election as a director and stepped down from the committee. I would like to extend my thanks to Jim for his extensive contribution to the committee over the last four years. Following their appointments to the board in October, both Iain Cummings and Dharmash Mistry were appointed members of the committee. The qualifications of each of the members of the committee are outlined in the biographies on pages 72. The committee brings a diverse range of experience in finance, risk, control and business, with particular experience in the financial services sector. The composition of the committee satisfies the relevant requirements of the UK Corporate Governance Code. The board has confirmed that the members of the committee have the necessary expertise required to provide effective challenge to management. The board also considers that I have the appropriate recent and relevant experience. 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 2021, 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. During the year, I have regular meetings with the group finance director, company secretary, head of internal audit and the external audit partner to discuss key audit-related topics ahead of each meeting and discuss the agreed standing agenda. Committee effectiveness As described in more detail on page 80, an external evaluation of the board and its committees was undertaken during the year in line with the requirements of the UK Corporate Governance Code. Overall, the results confirm that the committee is operating effectively. The committee considers that it continued to have access to sufficient resources to enable it to carry out its duties during the year. Risk Management and Control Effectiveness Review The Audit Committee reviewed Risk Management and Control Effectiveness based on evidence from a number of sources. Both the Risk Function and Internal Audit provided the Committee with an annual report on risks and controls, based on their independent reviews during the year. Additionally, external audit firms provided ISAE3402 reports on their testing of controls over the core operating systems supporting the Investment Management and Funds businesses. Finally, external audits were performed covering controls over Client Assets held by regulated entities in the Group. The Committee was satisfied that no material weaknesses were identified and that adequate steps were being taken to remedy control deficiencies identified. During 2022, work will continue to develop a control self assessment programme, further enhancing control awareness in the first line of defence and providing additional evidence for the Committee to consider. Financial reporting Accounting judgements The committee spent considerable time reviewing the interim report and annual report. The committee discussed and challenged the key areas of accounting judgement taken by management in preparing the financial statements and the external auditor’s work. This also included consideration of the internal controls over financial reporting. The committee noted that there were no new material standards, or amendments to standards, relevant to the group that had become effective for the reporting period. The key judgement areas were largely unchanged from the prior year, reflecting the firm’s adherence to its business model and consistency of its approach to financial reporting. COVID-19 has required the committee to discuss at length with management the continued appropriateness of the conclusions reached during the 2020 financial year, and the implications on reporting in 2021. The main areas of focus are outlined below. Each of these matters were discussed with the external auditor and, where appropriate, have been addressed in the external auditor’s report. Impact of COVID-19 The committee considered the impact of COVID-19 on the financial sustainability and operational resilience of the business, taking into account the additional stress testing completed as part of the going concern and viability assessments. As a result we reviewed our approach for the interim and year-end results and considered the following key areas of focus for COVID-19 impact: — Impairment of goodwill and client intangibles — Market volatility and its impact on business performance — Increased risk of fraud — Going concern and viability — Impact on operation of key controls over financial reporting — Adequate disclosures in the interim and annual report Fair, balanced and understandable statement On behalf of the board, we reviewed the financial statements as a whole in order to assess whether they were fair, balanced and understandable. We discussed and challenged the balance and fairness of the overall report with the executive directors and also considered the views of the external auditor. We considered the overall presentation of the financial statements, including the use and prominence of alternative performance measures, s172 reporting and corporate governance disclosures, and were satisfied that the annual report could be regarded as fair, balanced and understandable and proposed that the board approve the annual report in that respect. 92 Rathbones Group Plc Report and accounts 2021 GovernanceThe valuation of defined benefit pension obligations The committee 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 29 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 and consistent with the requirements of IAS 19. Speirs & Jeffrey consideration Following the second trigger date of the earn out payment, the committee reviewed the relevant calculations and challenged the level of qualifying funds under management transferred to the firm. The committee noted that the vendors had agreed this final payment. Acquisition of the Saunderson House group In October 2021, the firm completed its acquisition of the Saunderson House group. We considered the judgement and estimates made by management in accounting for the acquisition of the Saunderson House group. In particular, we reviewed the estimated valuation and accounting treatment of the deferred elements of consideration payable for the business, the identification and valuation of the client relationships and other intangibles acquired and the valuation of goodwill arising from the acquisition. Provisions and contingent liabilities The committee discussed provisions totalling £15.3 million, which have been summarised in note 26 to the financial statements. The main areas of provisions relate to property dilapidations and deferred payments to acquire client relationship intangibles. Viability and going concern The committee assisted the board in determining the appropriateness of adopting the going concern basis of accounting and in performing the assessment of the viability of the firm. The committee reviewed a paper from management in support of the going concern basis and the longer-term viability of the firm. The committee also assessed the proven stability of the firm’s business model which is supported by the results of internal stress testing, and that the firm is strongly capitalised, soundly funded and has adequate access to liquidity. The committee considered whether a period of three years remained appropriate for the viability statement, particularly when taking into account changes in the economic, technological and regulatory environment. Overall the committee concluded that it remained appropriate to prepare the accounts on a going concern basis, advised the board that three years was a suitable period of review for the viability statement, and recommended the viability statement to the board for approval. 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 the period of amortisation applied to client relationships. Impairment of goodwill and client relationship intangibles The committee was presented with the annual goodwill impairment review and was satisfied that there were no impairment indicators. A detailed presentation on the impairment indicators, methodology and underlying assumptions used to determine the full impairment of goodwill and intangible assets acquired on acquisition in respect of Saunderson House was reviewed. The committee also discussed the appropriateness of the 15 year useful life applied to the majority of the group’s client relationship intangibles. The committee challenged the appropriateness of the assessments, including discussing the outcome with the firm’s auditor, and concluded the approach was reasonable. Whistleblowing champion The committee reviews and recommends the firm’s whistleblowing policy to the board for approval on an annual basis and I act as the whistleblowing policy champion. The firm continues to place a high priority on employees’ understanding of the process to enable them to speak out with confidence when appropriate. The Committee received and considered the annual Whistleblowing Report. TCFD climate risk reporting The committee reviewed the firm’s TCFD climate risk disclosure responsibilities as part of the Annual Report process for 2021. This exercise ensured that the summary in the Annual Report met key statutory and regulatory obligations with clear cross referencing to the full TCFD report on the firm’s website. Restoring trust in audit and corporate governance The Committee has, and will continue to, evaluate the impact of the Department for Business, Energy and Industry Strategy (‘BEIS’) consultation and resulting proposals for restoring trust in audit and corporate governance on the firm. 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 providing assurance that for all areas of the group the risk management, governance and internal control processes are operating effectively. The internal audit function is the third line of defence within the controls framework, providing independent and objective assurance to both senior management and the audit committee. The committee reviewed, challenged and approved the annual internal audit plan, and amendments made to it during the course of the year. It received regular reports on internal audit activities across the firm, detailing areas identified during audits for strengthening across the group’s risk management and internal control framework. All audits were summarised at meetings of the committee together with an update on the progress of remediating issues identified during audits. rathbones.com 93 Audit committee report continued Reporting and performance review of internal audit The committee has authority to appoint or remove the chief internal auditor, who reports directly to me. As reported in last year’s report, a new chief internal auditor was recruited during the year. I set the objectives of the chief internal auditor, appraising his performance against those objectives and recommending his remuneration to the remuneration committee, with advice from the chief executive. Internal audit effectiveness The committee reviews annually the effectiveness of the internal audit function and its level of independence. The evaluation for the year under review was completed internally and supported by feedback from stakeholders across the group. The internal audit function operates in line with the Chartered Institute of Internal Auditors’ professional standard and the Internal Audit Financial Services Code of Practice. In addition, the committee routinely ensures the internal audit function has appropriate resources. As well as meetings with management, I have regular meetings on a one-to-one basis with the chief internal auditor before audit committee meetings to ensure that any concerns can be raised in confidence. 2022 Internal audit plan The committee reviewed, challenged and approved the 2022 internal audit plan for the year, and supported the introduction of a more agile and thematic audit planning approach. This methodology has facilitated flexibility to provide assurance over emerging risks; controls impacted by COVID-19; transformation and change activity and to coordinate assurance activity with other teams across the first and second line. In reviewing the audit plan, the committee continued to assess the appropriateness of the skills and experience of the internal audit function to deliver that plan. The internal audit team has access to resources from professional services firms where additional skills and knowledge are required. Ongoing feedback on the performance of these co-source providers was presented to the committee throughout the year. External audit Audit work 2021 The committee has spent significant time with Deloitte during the year. In particular, the committee reviewed and challenged reports from Deloitte, which outlined their risk assessments and audit plans for 2021 (including their proposed materiality level for the performance of the annual audit), the status of their audit work and issues arising from it. Particular focus was given to their testing of internal controls, their work on the key judgement areas and possible audit adjustments. We can confirm that there are no such material items remaining unadjusted in the financial statements. Following a tender process in 2018, Deloitte have been auditor to the firm since our AGM in May 2019. Manbhinder Rana has been the firm’s lead partner from this date and attends all meetings of the committee. The committee confirms that the group has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which requires FTSE 350 companies to put their statutory audit services out to tender no less frequently than every 10 years. External audit effectiveness and appointment We place great importance on the quality, effectiveness and independence of the external audit process. In order to review the external audit process, including the performance of the external auditors, feedback is gathered from both committee members and management. This process was undertaken by internal audit. We also reviewed the annual FRC Audit Quality Inspection report prepared on our external auditor and discussed this report with the audit partner. Auditor independence and non-audit services The committee assesses the independence and objectivity, qualifications and effectiveness of the external auditor on an annual basis as well as making a recommendation on the reappointment of the auditor to the board. 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. The 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 2021 were £209,000. This represents 29.6% of the three-year average statutory audit fee of £704,000. 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. During the year, the committee also considered the findings of the FRC’s Audit Quality Inspection and Supervision on Deloitte and, in particular, how Deloitte were addressing the points raised. Following a formal assessment of the external auditor’s independence and objectivity, and taking into account the views of other key internal stakeholders, the committee concluded that Deloitte continued to be independent and objective. We agreed the external auditor’s fees (which are shown in note 7 to the financial statements) and reviewed the audit engagement letter. We also had discussions with the external auditor with no management present to provide an opportunity for any concerns to be raised and discussed. Focus for 2022 As well as considering the standing items of business, the committee will also focus on the following areas during 2022: — Review the recommendations from BEIS on changes to audit and corporate governance — Oversee the scope and quality of the company’s TCFD and ESG reports and disclosures — Progress development of a control self assessment programme — Develop a Audit and assurance policy James Dean Chair of the audit committee 23 February 2022 94 Rathbones Group Plc Report and accounts 2021 GovernanceNomination committee report Nomination committee report Clive Bannister Chair of the nomination committee Roles and responsibilities The responsibilities of the committee include reviewing the composition (including the skills, knowledge, experience and diversity) of the board and making recommendations to the board for the appointment of directors. The board as a whole then decides on any such appointment. The committee also has wider responsibilities for succession planning and the leadership needs of the organisation, both executive and non-executive, to ensure the continued ability of the firm to implement its strategy and compete effectively in the marketplace. Full terms of reference for the committee are reviewed annually and are available on the company’s website. Nomination committee chair’s annual statement On behalf of the board, I am pleased to present my first report of the nomination committee for 2021. This report sets out an overview of the committee’s roles, responsibilities and its key activities during the year. In the 2021, non-executive succession and recruitment has been important for the committee, following the retirement of Mark Nicholls as chair in March 2021 and Jim Pettigrew at the AGM in May. I thank them both for their significant contribution to the board and the firm. The committee adopts a proactive and structured approach to succession planning. In the appointments made in the year, the committee has remained mindful of board changes that will naturally occur in the years ahead as directors reach the end of their terms, and the need to ensure continuity of knowledge and experience across the board as a whole. As result of James Dean reaching nine years of service on the board, he will not be seeking re-election as a director at the AGM in 2022 and the committee took this into account during recruitment process during the year. The committee plays an increasingly broad role in ensuring the effective operation and development of the executive team and the wider workforce. These factors are critical to the delivery of our strategy. rathbones.com 95 Nomination committee report continued During the year, the committee oversaw the processes for the appointment of two new independent non-executive directors: Iain Cummings and Dharmash Mistry, who both joined the board on 5 October 2021. For all searches undertaken by the committee, arrangements are in place to ensure that changes to the board are well managed, with consideration given to candidates from diverse backgrounds. Further information on the background and experience of each of the non-executive directors can be found in their biographies on page 72. The committee also spend time considering succession planning and talent management for roles below board level. Once again this year, we have monitored activities and initiatives to develop the firm’s talent pipeline and improve diversity amongst senior management. Board succession During the year, the committee oversaw the formal and robust search processes that culminated in the decisions by the board to appoint Iain Cummings and Dharmash Mistry as non-executive directors. The resulting appointments will ensure that the board continues to be of an appropriate size and composition as other directors reach nine years’ service in the years ahead. In each case, the committee appointed a sub-committee to review and approve a detailed description for the role, having considered the particular skills, capabilities, experience and background required for each role. In all board searches, the committee assesses the balance of knowledge and expertise needed to ensure continued effective leadership of the firm, and the development and oversight of its strategy, purpose and culture. In identifying and recommending candidates for appointment to the board, the committee considers candidates from a wide range of backgrounds, assessing them on merit against objective criteria and with due regard for the benefits of diversity on the board. As part of the search process, the sub- committee decided to engage an external search firm and approved the appointment of Spencer Stuart (‘Spencer’). Spencer are not connected to the firm or to our directors in any way and are a signatory to the Voluntary Code of Conduct for Executive Search Firms. To facilitate this process, Spencer undertook detailed discussions with each member of the board in order to ascertain their views on the desired attributes, experience and qualities required for the two non- executive director positions as well as considering board dynamics and the firm’s culture. A detailed search was conducted by Spencer, as a result of which a longlist and then a shortlist of candidates was prepared. As part of the process, the committee considered the other commitments of candidates to ensure that they would have sufficient time to devote to their duties to the firm. Shortlisted candidates were discussed in detail and interviews were undertaken by Spencer, members of the sub-committee and the board. The committee was updated on the search process and discussions were held on the shortlist of candidates. Following this rigorous search process, the nomination committee recommended to the board the appointment of Iain Cummings and Dharmash Mistry. They were appointed to the board in October 2021. Talent and 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 the external market for those roles. The committee has monitored activities and the initiatives to develop the firm’s talent pipeline and reflected on the importance of building stronger diversity of experience, gender and ethnicity among senior management. Diversity In relation to board diversity, we aim to have a well-balanced board that represents a wide range of skills, knowledge and experience. We value diversity of outlook, approach and style. A balanced board is better equipped to understand the views of all our stakeholders as well as our shareholders, and therefore make decisions that take into consideration the wide range of challenges faced by the firm. A board needs a range of skills and business experience including knowledge of industry, understanding of the firm’s culture, challenges of change, and the regulatory environment in which we operate. It needs some members with a long corporate memory and others who bring fresh insights from different fields and backgrounds. There needs to be both support and challenge on the board as well as a balance of gender and commercial experience. 96 Rathbones Group Plc Report and accounts 2021 Governanceinitiatives across the firm. Among other things, the committee discussed the firm’s approach to recruitment, training and development programmes for employees. . In line with the UK Corporate Governance Code, the committee discloses that the gender balance of those in senior management (being the members of the executive committee and the company secretary) and their direct reports at 31 December 2021 was 38% (2020: 25%) female and 62% (2020: 75%) male. More detail on the firm’s approach to diversity and inclusion can be found in the responsible business review on page 58. Throughout 2021, over 33% of our board was female which ensures that we have exceeded the minimum requirements of the Hampton-Alexander Review. The board supports the recommendations set out in the Parker Review, and aims at all times to have at least one director from an ethnic minority background. Due to the relatively small size of the board, the committee also recognises the impact that the retirement of an individual director can have on the overall composition of the board from a diversity perspective. As a result, diversity and inclusion at board level will continue to be an area of focus for the committee. The committee continued to focus on overseeing the development of a diverse pipeline for senior management positions and the link between diversity and inclusion and delivery of the company’s purpose and strategic aims. To that end, it considered updates during the year in relation to diversity and inclusion Our board Board composition Board diversity Tenure of non-executive directors Chairman Executive Independent non-executive 12% 22% 67% Male Female 6 3 0-2 years 3-5 years 6-8 years 9+ years 43% 29% 29% 0% rathbones.com 97 Board effectiveness review A formal and rigorous evaluation of the committee’s effectiveness was undertaken during the year as part of the external board effectiveness review. The review found that the committee operated well during the year. Please see page 80 for more detail. The committee considers that during the year it continued to have access to sufficient resources to enable it to carry out its duties and has continued to perform effectively. During the year, the committee reviewed its terms of reference to ensure that they remain appropriate. Focus for 2022 During 2022, the committee will continue to keep under review a succession timetable for both executives and non-executives. We will continue to 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. Clive C R Bannister Chair of the nomination committee 23 February 2022 Nomination committee report continued Non-executive directors’ skills As mentioned above, a key responsibility of the committee is to ensure that the board maintains a balance of skills, independence, knowledge and experience appropriate to the operation of the business and as required to deliver the strategy. 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. 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 my board colleagues on potential conflicts of interest and time commitments. I am quite satisfied that incidents of conflicts of interest are rare and have been handled appropriately by the individual concerned. Reappointment of directors Prior to the company’s AGM each year, the committee considers, and makes recommendations to the board concerning, the reappointment of directors, having regard to their performance, suitability, time commitment and ability to continue to contribute to the board. Following this year’s review in advance of the 2022 AGM, the committee has recommended to the board that all serving directors, except James Dean, be reappointed at the AGM. Sarah Gentleman has served as a director for more than six years. The extension of her term of office has been considered and the committee has noted her significant contribution including as committee chair. The committee values the knowledge, experience and continuity of her appointment. 98 Rathbones Group Plc Report and accounts 2021 GovernanceRemuneration committee report Remuneration committee report Sarah Gentleman Chair of the remuneration committee Roles and responsibilities The committee’s responsibilities are to: — determine and set the firm’s remuneration philosophy, ensuring that it is aligned with the business plans and risk appetite — approve the remuneration policy for executive directors for final approval by shareholders and make remuneration decisions within the policy — approve total annual remuneration for executive directors based on achievements against objectives set by the committee — review total annual remuneration for executive committee members and material risk takers Full terms of reference for the committee are reviewed annually and are available on the company’s website. Remuneration committee chair’s annual statement On behalf of the board, I present the directors’ remuneration report for the year ended 31 December 2021. 2021 has been a busy year for the remuneration committee, which mainly focused on implementing the new directors’ remuneration policy. We also welcomed two new non-executive directors to the committee, Iain Cummings and Dharmash Mistry. At the AGM in May 2021, shareholders provided strong support for the new directors’ remuneration policy, which was developed to ensure that remuneration structures and performance measures: — supported the future strategy of our business, reflecting the need for investment at different times in the market cycle and the opportunities for inorganic growth that may arise — aligned the reward received by our executive directors and the experience and interests of our shareholders — continued to comply with regulations and industry best practice 2021 performance and remuneration outcomes Our remuneration framework is closely aligned with the financial performance of the group, which has performed strongly with FUM increasing by 24.7%, reaching £68.2 billion, and profit before tax increasing by 116.9% to £95.0 million with an underlying operating margin of 27.7% at 31 December 2021. Following the group’s strong performance in the year, the board is proposing a final dividend of 54p per share, resulting in a full-year dividend per share of 81p, an increase of 12.5%. rathbones.com 99 In relation to Jennifer Mathias, as we disclosed at the time of her appointment in 2019, the group finance director fixed pay was set below the level of the previous incumbent. This package reflected Jennifer’s first-time appointment as a finance director of a listed business and her experience. In recognition of her progression in role since appointment, the committee proposes to make a modest increase to her fixed pay which will be in line with workforce pay for 2022. The committee does not propose to increase Paul Stockton’s fixed pay but a review will be completed for him during 2022. Full details of remuneration arrangements are provided on page 103. 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 Chair of the remuneration committee 23 February 2022 Remuneration committee report continued Annual bonus outcomes The remuneration committee assessed the following factors when determining remuneration outcomes for the executive directors: how to maintain a fair balance between the interests of different stakeholders, including shareholders, employees and management; how to encourage and reward the behaviours that reflect our purpose and culture; and how to judge performance against objectives, including considering where the remuneration committee should apply discretion to adjust any formulaic outcomes. As detailed in last year’s report, variable remuneration is made up of two components: annual bonus with a maximum opportunity of 135% of fixed pay and a Restricted Stock Plan (‘RSP’) with a maximum of 65% of fixed pay with a three-year vesting period and two-year deferral. Following the 2021 AGM, the first RSP grant will vest in 2024, subject to the assessment of underpins at that time. The annual bonus was assessed against two financial measures, underlying profit before tax and total net organic growth in FUM as these are the key indicators of performance used by the firm and investors, as well as strategic measures. These specific targets are reviewed annually to ensure the nature and weightings are appropriate to achieve alignment between the interests of our executive directors, our strategy and the interests of our stakeholders. Also, the committee set these targets to encourage stretching levels of performance and to ensure alignment with the firm’s annual budget. The board considered a number of factors when setting and approving the final budget for 2021. This resulted in the remuneration committee approving higher year on year targets for profit and organic growth whilst balancing the impact of planned investments which were critical to the execution of strategy. In addition, the strategic objectives that were set include delivery of the firm’s critical projects as well as taking into account the firm’s stakeholder measures and client experience. As stated above, 2021 was a strong year for the group in terms its financial results and delivery of our key strategic objectives. These results were directly reflected in the annual bonus award of 85%. We have set out in more detail the outcomes against targets for 2021 on page 105. After consideration, the remuneration committee decided that these outcomes were appropriate and consistent for the year and no discretionary adjustment was required. Group-wide employee remuneration The responsibility for determining the reward practices on a firm-wide basis lies with the remuneration committee. As in previous years, the remuneration committee continues to spend time in having oversight of overall remuneration for employees across the firm. The average salary increase for 2022 across the firm will be 4.7%. The group is committed to paying all staff at or above the national living wage, which is in excess of the national minimum wage. 2022 incentives The committee has agreed that the current performance measures on the annual bonus and underpins on the RSP are fit for purpose, and remain aligned with the current strategy. As such no changes are being made to the measures or weightings. An overview of how incentives will be implemented in 2022 can be found on page 106. Fees and salaries The committee will continue to keep fixed pay levels under review, taking into account workforce pay and policies as per the UK Corporate Governance Code, the firm’s performance and the views of shareholders. In conducting any review of fixed pay levels the committee will take into account the continued development of both executives since their appointment. The remuneration arrangements of other firms of similar size and complexity are also reviewed for guidance. 100 Rathbones Group Plc Report and accounts 2021 GovernanceIllustration of the remuneration policy RSP (65% fixed) Shares (100%) Performance underpin Shares 2 year holding period Shares Shares Shares (50%) Cash (50%) Shares Annual Bonus (135% fixed) Fixed pay 2022 2023 2024 2025 2026 2027 Summary of the policy: — Annual bonus – with one year performance conditions — Restricted Stock award with minimum performance underpin 1) Annual Bonus Award — 135% of fixed pay at maximum — 50% in cash, 50% deferred into shares with three-year pro-rata vesting — Assessed against financial metrics (minimum 60%) and non-financial metrics (maximum 40%) 2) Restricted Share Award — 65% of fixed pay annual grant — Three-year vesting period with a two-year holding period — Vesting based on continued employment and underpin conditions designed to avoid payment for failure rathbones.com 101 Annual report on remuneration Annual report on remuneration Remuneration policy The remuneration policy (‘Policy’) was approved at the AGM in May 2021 and can be found on our website. No further changes have been made to the remuneration policy since it was approved in 2021. 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 2022 AGM, and the financial information in this part of the remuneration report has been audited where indicated. Role of remuneration committee The role of the committee is to set the overarching principles of the remuneration policy and provide oversight on remuneration across the firm. Details of the committee’s responsibilities and composition are noted above. At the invitation of the committee chair, the group chief executive officer and group chief financial officer 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 2021/22 Below is a summary of the key issues that the committee considered at each of its meetings during the year. February 2021 — Review information on wider workforce pay including salary budgets and forecast incentive outcomes November 2021 — Review progress against financial and non-financial aspects of the annual bonus — Review of firm wide remuneration — Review and approve executive in light of CRD V and IFPR director, GEC members’ and company secretary’s salaries for 2021 — Review of annual risk report on variable pay targets to ensure alignment with the firm’s risk appetite — Assess and approve the 2020 EIP award for executive directors and members of the executive committee — Approve annual bonus performance targets for 2021 — Review and approve the directors’ remuneration report for shareholder approval — Annual review of remuneration for material risk takers across the firm September 2021 — Review progress against financial and non-financial annual bonus targets for the current year — Annual review of the general principles of the regulatory remuneration policy — Review and discuss remuneration benchmarking survey — Re-appointment of the advisers to the committee — Review and approve the committee’s terms of reference February 2022 — Review information on wider workforce pay including salaries, budgets and forecasted incentive outcomes — Review and approve executive director, member of the executive committee, head of internal audit and company secretary’s salaries for 2022 — Review of annual risk report on variable pay targets to ensure alignment with the firm’s risk appetite — Assess and approve the 2021 annual bonus for executive directors and members of the executive committee — Approve annual bonus performance targets and RSP award for 2022 — Review and approve the directors’ remuneration report for shareholder approval — Annual review of remuneration for material risk takers across the firm 102 Rathbones Group Plc Report and accounts 2021 GovernanceSingle 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 2021 and the prior year: R P Stockton 2021 2020 J E Mathias 2021 2020 Taxable benefits and allowances £’000 Fixed pay1 £’000 534 477 358 320 3 3 2 4 Annual bonus2 £’000 614 – 412 – EIP3 £’000 Pensions £’000 SIP £’000 SAYE £’000 Total £’000 Total fixed pay £’000 Total variable pay £’000 – 814 – 545 0 57 0 38 4 4 1 – – 5 – 5 1,155 1,358 773 912 537 537 360 362 618 821 413 550 1. From 1 January 2021 the previous pension allowance was consolidated into fixed pay. The figures for 2020 include the previous base salary only. Fixed pay (previously salary + pension allowance) was unchanged between 2020 and 2021 2. 2021 figure is the annual bonus as described below 3. 2020 figure is the legacy EIP award, under the previous remuneration policy, as disclosed in last year’s report Taxable benefits Taxable benefits and allowances represent the provision of private medical insurance for executive directors and their dependants. Annual bonus Performance is assessed using a combination of measures that are detailed below: Financial Non-financial strategic Total Weight % 60 40 100 % of Fixed pay 81 54 135 Financial The one-year financial performance measures are two key performance indicators actively used by the business, which are closely aligned to strategy. The one-year financial measures and achievement levels are provided below: Financial Underlying profit before tax (£m) Total net organic growth in funds under management and administration (%) % of Fixed pay Threshold (25% of maximum) On target (60% of maximum) Maximum of Actual Weighted payout (% of Fixed pay) 40.5 40.5 81.3 3.0 92.9 104.5 120.7 4.6 6.0 5.3 40.5 32.3 The organic growth in funds under management and administration covers both our Investment Management and Funds businesses. rathbones.com 103 Annual report on remuneration continued 2) Non-financial strategic The non-financial strategic measures are designed to drive strategic goals. Details of the performance measures, assessment and outcomes are detailed below: Strategic objective Objective Performance in 2021 Client and proposition Roll out MyRathbones and achieve client take up of 50% Leverage the firm’s ESG proposition including GMAPs product Increase client take up of Rathbones Select — Positive client engagement on MyRathbones with over 43% of clients now actively using the system. Client feedback has been good and reflected in a series of upgrades also completed in the year — A new “responsible core” proposition was piloted supported by the implementation of external data feeds and improvements in investment process. Four Greenbank multi asset funds were launched during the year attracting £100m of inflows — Client mailings that offered the Rathbone Select product were marginally behind target but adoption rates post offer were more favourable than expected Launch the firm’s re-brand — The brand architecture and design were launched during the year to be implemented in 2022 as planned Extent to which objective has been met Largely achieved Growth Develop the firm’s advisor to advisor proposition Improve the firm’s organic and inorganic growth opportunities People Develop a return to office plan and hybrid working model Complete succession planning and talent assessment below the GEC Ensure ongoing employee engagement and implement diversity equality and inclusion initiatives Complete vendor selection process for the firm’s data and digital strategy Improved access and data quality Improved IT stability Operating efficiently Largely achieved — Proposition pathways, supporting documentation and a pilot were completed during the year to clarify suitability responsibility and pricing. De facto surveys completed by advisors were positive, and indirect gross inflows of £1,112m exceeded target by 65% compared to 2020, — Discretionary and managed net inflows were £1.8bn in the year representing 4.1% of opening FUMA — The number of investment managers grew to 332 from 304 and financial planners to 208 from 154 — Strong growth continued in the funds business with gross inflows of over £2bn. GreenBank FUM growth of 21% for the year — Completed the acquisition of Saunderson House and delivered on planned synergies from the Speirs & Jeffrey transaction — Return to office planning was dynamic as the pandemic developed. Strong collaboration and communication with employees on return to office policy was completed with a focus on wellbeing. Positive feedback received from employee surveys and board workforce engagement programme Largely achieved — Succession plan to support operational resilience completed. Talent assessed using “9 box grid” criteria — Positive employee feedback from surveys and dashboard data, and workforce engagement initiative (see page 84). Engagement scores well above FS benchmark scores (see page 12). Our Woman In Finance target remains on track and the firm’s D,E &I programme was launched supported by recruitment of dedicated resource — Board approved vendor selection completed Achieved — Enhancements to suitability and investment risk data and the completion of extensive firmwide data studies were completed during the year — Low IT incident count with all resolutions within agreed timelines Consolidate supplier base — Supplier & Contract Management project rationalised total supplier count by 23% Risk management New suitability process — Material improvements to suitability and investment risk tools to help Achieved support alignment to client portfolio mandate implemented during the year Mitigate the firm’s cyber risks — Cyber defence simulation completed during the year. Planned cyber risk Launch an automated portfolio monitoring software management improvements completed during the year — Software launched during the year as planned 104 Rathbones Group Plc Report and accounts 2021 GovernanceTotal 2021 annual bonus 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 annual bonus of 31.2% out of 40% was appropriate, which corresponds to 42.1% of fixed pay. Target Financial Non-financial strategic Total award Director R P Stockton J E Mathias Weighting 60 40 100% Delivered in cash (£) 306,917 205,898 Award achieved 53.9 31.2 85.1 Deferred in shares (£) 306,917 205,898 Total award (£) 613,834 411,796 Pensions Since 1 January 2021, Paul Stockton and Jennifer Mathias no longer receive a separate pension allowance, neither is in receipt of a defined benefit pension. All executive directors are eligible 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. 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) There were no payments made to past directors during the year. Service contracts and letter of appointment Executive directors It is company policy that service contracts should not normally contain notice periods of more than 12 months. Details of the notice periods in the contracts of employment of executive directors serving during the year are as shown below. R P Stockton J E Mathias Date of service contract 01 May 2019 27 September 2018 Notice Period 12 months 6 months Non-executive directors Non-executive directors have a letter of appointment rather than a contract of employment and these are available for inspection at the AGM. As with all other directors, they are required to stand for re-election annually in accordance with the UK Corporate Governance Code. Any term beyond six years is subject to particularly rigorous review and takes into account the need for progressive refreshing of the board. Date of appointment Notice Period Length of service at 31 December 2021 C C R Bannister C M Clark I A Cummings J W Dean T L Duhon S F Gentleman D P Mistry 06 April 2021 24 October 2018 05 October 2021 01 November 2013 02 July 2018 21 January 2015 05 October 2021 1 month 1 month 1 month 1 month 1 month 1 month 1 month 9 months 3 years, 2 months 3 months 8 years, 2 months 3 years, 6 months 6 years, 11 months 3 months rathbones.com 105 Annual report on remuneration continued Implementation of the remuneration policy in 2022 Fixed pay The fixed pay levels effective 1 January 2022 are £534,000 for Paul Stockton (0% increase) and £375,250 for Jennifer Mathias (4.7% increase). Annual bonus Annual bonus for 2022 will have maximum value of 135% of fixed pay with measures and weightings as follows: Financial – Underlying profit before tax – Total net organic growth in FUM Strategic measures aligned to our core strategic pillars – Enriching the client, adviser proposition and experience – Supporting and delivering growth – Inspiring our people – Operating more efficiently – Risk management Weight 30% 30% 40% 100% The targets under the financial metrics are deemed to be commercially sensitive and will be disclosed following the end of the performance period in next year’s DRR. RSP The RSP will be granted at 65% of fixed pay. The RSP will vest after three years, subject to the assessment of a performance underpin at the end of 2024. The committee will take into account the following factors when determining whether to exercise its discretion to adjust the number of shares vesting: — Total dividends paid over the three-year period relative to our generally progressive dividend policy; — Return on Capital Employed (ROCE) achieved relative to Weighted Average Cost of Capital (WACC) over the three-year period; — Maintenance of satisfactory operational performance and risk compliance; and — Internal control environments over the performance period. 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 Total Private shares 104,506 2,649 107,155 SIP1 Total 3,663 108,169 2,649 3,663 110,818 – EIP 63,878 30,058 93,936 RSP 21,881 14,679 36,560 SIP (not yet beneficially owned)1 780 41 821 Total SAYE 88,197 1,658 1,658 46,436 3,316 134,633 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, the chief executive and chief financial officer are required to acquire and retain a holding in shares or rights to shares equivalent to the value of 250% and 200% of fixed pay within five years of the date of appointment respectively. Shares that count towards these guidelines include shares that are owned outright, vested and not exercised EIP, Deferred Bonus, RSP and SIP awards. Share ownership versus policy J E Mathias (CFO) R P Stockton (CEO) 0% 100% 200% 300% 400% 500% 600% 700% 800% 900% 1000% Beneficially owned Conditional Remuneration policy 106 Rathbones Group Plc Report and accounts 2021 GovernanceRestricted Stock Plan At 1 January 2021 During 2021 At 31 December 2021 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) Unvested securities Normal exercise date (end of sales restriction period)3 Type of security Restricted Share Award 392,764 Restricted Share Award 263,488 – – – – 21,881 14,679 – – 21,881 14,679 – – 14/05/2026 14/05/2026 Executive directors/ Grant date R P Stockton 14/05/2021 J E Mathias 14/05/2021 1. Awards equivalent to 65% of fixed pay were granted. As regulations prohibit the payment of dividend on such awards, the number of shares awarded has been determined by applying a share price over five days preceding the grant date, discounted to reflect the value of estimated future dividends foregone over the vesting period (£15.87). The face value has been calculated using a share price of £17.95 which was the average price over five days preceding the grant 2. The award will vest on the third anniversary of the grant date, with associated values to be included in the single figure table, and a further two-year holding period will apply. The awards are subject to malus and clawback provisions 3. RSP awards vest after three years and are subject to an additional two-year holding period so must be held until the fifth anniversary of the grant Executive Incentive Plan At 1 January 2021 During 2021 At 31 December 2021 Face value of award at grant1 (£) Number of securities originally granted Number of unvested securities 2,449 272,722 12,229 4,040 232,105 10,103 226,485 5,318 8,864 376,157 16,376 13,100 372,435 24,326 24,326 – 486,862 – Vested but unexercised (subject to sales restriction period) 2,449 2,021 1,773 3,275 4,866 – Securities granted2 – – – – – 29,029 Vested but unexercised (subject to sales restriction period) Normal exercise date (end of sales restriction period)3 – 8,084 5,319 6,551 4,866 – 22/03/2021 21/03/2022 23/03/2023 22/03/2024 23/03/2025 06/04/2026 Unvested securities – 2,019 3,545 9,825 19,460 29,029 Type of security Nil paid options Conditional shares Conditional shares Conditional shares Conditional shares Conditional shares Conditional shares Conditional shares 202,608 13,233 13,233 – 326,592 – – 19,474 2,649 – 10,584 19,474 2,649 – 23/03/2025 06/04/2026 Executive directors/ Grant date R P Stockton 22/03/2016 22/03/2017 23/03/2018 22/03/2019 23/03/2020 06/04/2021 J E Mathias 23/03/2020 06/04/2021 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 £16.77 3. EIP 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 Share Incentive Plan R P Stockton J E Mathias Total At 1 January 2021 During 2021 At 31 December 2021 Total number of SIP shares1 4,036 – 4,036 Partnership shares acquired 100 – 100 Matching shares acquired 100 – 100 Dividend shares acquired 166 – 166 Free shares received 41 41 82 Total number of SIP shares1 4,443 41 4,484 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 rathbones.com 107 Annual report on remuneration continued Save As You Earn outstanding options Executive directors R P Stockton J E Mathias Total Number of shares Grant date 21/04/20 21/04/20 At 1 January 2021 1,658 1,658 3,316 Granted in 2021 – – – Exercised in 2021 – – – Lapsed in 2021 – – – At 31 December 2021 1,658 1,658 3,316 Earliest exercise date 01/06/23 01/06/23 Latest exercise date 01/12/23 01/12/23 Market price on grant (p) 1,356 1,356 Exercise price (p) 1,085 1,085 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 2021. TSR is calculated assuming that dividends are reinvested. Performance graph (unaudited) % change 200 150 100 50 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Rathbone Brothers Plc – TSR FTSE All Share Index – TSR Chief executive officer single figure During the 10 years to 31 December 2021, 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 2021 2020 2019 2019 2018 2017 2016 2015 2014 2014 2013 2012 Chief executive Paul Stockton Paul Stockton Paul Stockton Philip Howell Philip Howell Philip Howell Philip Howell Philip Howell Philip Howell Andy Pomfret Andy Pomfret Andy Pomfret 108 Rathbones Group Plc Report and accounts 2021 Chief executive single figure of total remuneration £’000 1,155 1,358 1,125 467 1,389 1,104 1,398 1,608 999 342 1,204 1,046 EIP award or short-term bonus as % of maximum opportunity 85 57 47 52 59 64 66 78 89 n/a 59 38 Long-term incentive vesting as % of maximum opportunity – – – – – – 67 100 n/a 96 100 100 GovernanceAnnual percentage change in the remuneration of the directors and employees The table below shows the percentage year-on-year change in salary, benefits and bonus in 2021 for the directors compared with the average Rathbones employee. Executive directors1 R P Stockton J E Mathias Non-executive directors C C R Bannister2 C M Clark3 I A Cummings4 J W Dean S F Gentleman T L Duhon D P Mistry4 Former directors M P Nicholls5 J N Pettigrew5 Average pay based on all Rathbones employees Salary Benefits Annual bonus Salary Benefits Annual bonus 2021 2020 0% 0% 1.2% -22.1% 1.2% -21.1% 0% 0% 7.1% 27% 5.5% 17.5% n/a 16.3% n/a 0% 0% 0% n/a 0% 0% 1.9% n/a 0% n/a 0% 0% 0% n/a n/a 0% n/a 0% 0% 0% n/a n/a 9.1% n/a 7.1% 7.1% 7.1% n/a n/a 0% n/a 0% 0% 0% n/a n/a 0% n/a 0% 0% 0% n/a 0% 0% 2.1% 0% 0% -6.4% 0% 0% 0% 7.1% 0% 0% 3.6% 12.3% 11.9% 1. For both executive directors, in 2020 the bonus figures reflect the cash and the deferred elements of the EIP executive award scheme. In 2021, EIP scheme was replaced with the ESPP scheme. The 2021 annual bonus figure includes both ESPP cash and year 1,2 and 3 deferred share ESPP bonus awards, but do not reflect the ESPP restricted stock plan (RSP) element which is dependent upon performance in future financial years 2. Clive Bannister joined as the new chair in April 2021 and received pro-rata fee for that year 3. Colin Clark’s salary reflects the additional fee received following his appointment as a senior independent director 4. Iain Cummings and Dharmash Mistry joined the board in October 2021 and received pro-rata fee for that year 5. Mark Nicholls retired from the company in March 2021 and Jim Pettigrew retired in May 2021, both received pro-rata fee for that year Chief executive and employee pay ratio Year 1 January to 31 December 2021 1 January to 31 December 2020 1 January to 31 December 2019 Method B B B 25th percentile pay ratio Median (50th percentile) pay ratio 15:1 23:1 23:1 43:1 43:1 42:1 75th percentile pay ratio 6:1 11:1 13:1 The chief executive pay ratio provides a comparison of total remuneration paid to the chief executive in the year ended 31 December 2021 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 103 of this report for Paul Stockton for the year ended 31 December 2021. The three employees have been identified from our 2021 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 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 43:1 (£26,604) — P50 15:1 (£79,250) — P75 6:1 (£188,879) The reduction in the pay ratio is primarily driven by the introduction of a new remuneration policy for the CEO and senior management. This has a lower maximum opportunity, and these changes only applied to the senior management not the wider employees. In addition this new policy moved from a backward looking incentive to a forward looking RSP, which leads to a further reduction in the CEO’s pay during this transition period until the first RSP vests. 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. rathbones.com 109 Annual report on remuneration continued Chair and non-executive directors’ fees (audited) Chair C C R Bannister1 Non-executive directors C M Clark2 I A Cummings3 J W Dean T L Duhon S F Gentleman D P Mistry3 Former directors M P Nicholls4 J N Pettigrew4 Total 1. Clive Bannister joined as the new chair in April 2021 and received pro-rata fee for that year 2. Colin Clark’s fee reflects the additional fee received following his appointment as senior independent director 3. Iain Cummings and Dharmash Mistry joined the board in October 2021 and received a pro-rata fee for the year 4. Mark Nicholls retired from the company in March 2021 and Jim Pettigrew retired in May 2021, both received pro-rata fee for that year Non-executive directors’ share interests The interest of the directors in the ordinary shares of the company are set out below: Chair C C R Bannister Non-executive directors C M Clark I A Cummings J W Dean T L Duhon S F Gentleman D P Mistry Total 2021 £’000 2020 £’000 148 70 14 75 75 75 14 33 49 553 0 60 0 75 75 75 0 180 75 540 Private shares Total 15,300 15,300 – 1,250 1,000 – 100 2,500 – 1,250 1,000 – 100 2,500 20,150 20,150 Relative importance of spend on pay The chart below shows the relationship between total employee remuneration, profit after tax and dividend distributions for 2021 and 2020. 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) Total staff(cid:23) costs Profit after tax Dividends paid 2021 2020 77.077.0 189% 26.726.7 43.943.9 37.837.8 16% 110 Rathbones Group Plc Report and accounts 2021 219.9 219.9 13% 195.2 195.2 GovernanceStatement of shareholder voting At the 2021 AGM, shareholders approved the remuneration policy, to apply for three years from the date of the AGM. At the 2021 AGM, shareholders also approved the remuneration report that was published in the 2020 report and accounts and the results are detailed below. Votes cast in favour Votes cast against Total votes cast Votes withheld Annual report on remuneration (2021 AGM) 99.96% 0.04% 75.86% 323,701 Remuneration policy (2021 AGM) 89.68% 10.32% 75.86% 325,955 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 £105,550 in 2021. 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. 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 Chair of the remuneration committee 23 February 2022 rathbones.com 111 Directors’ report Directors’ report The directors present their annual report and audited financial statements for the year ended 31 December 2021. The directors’ report includes the following sections of the annual report and accounts which form part of the directors’ report: Section Strategic report Corporate governance report including committee reports from nomination, audit, risk, and remuneration Statement of directors’ responsibilities DTR Rule DTR 4.1.5R DTR 7.2.1R DTR 4.1.5R Page 2 65 115 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 2021. This is demonstrated in the strategic report on page 10. Annual General Meeting (AGM) The 2022 AGM will be held on Thursday 5 May 2022 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 Rathbones Group Plc group profit after taxation for the year ended 31 December 2021 was £75,229,000 (2020: £26,652,000). The directors recommend the payment of a final dividend of 54p per share, if approved by shareholders at the 2022 AGM, be paid on 10 May 2022 to shareholders on the register on 22 April 2022. Interim dividend Final dividend Total * Subject to shareholder approval at the AGM on 5 May 2022 See note 12 to the financial statements. 2021 2020 Pence 27.0 54.0* 81.0* £m 15.9 31.5* 47.4* Pence 25.0 47.0 72.0 £m 13.5 25.2 38.7 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. Substantial shareholdings As at 31 December 2021, 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. Heronbridge Investment Management Aviva Investors Aberforth Partners BlackRock Vanguard Group Baillie Gifford & Co 112 Rathbones Group Plc Report and accounts 2021 Holding at 23 February 2022 6,812,000 3,677,393 3,222,552 2,662,039 2,638,184 2,549,514 2,112,104 % held at 23 February 2022 10.98 5.93 5.20 4.29 4.25 4.11 3.41 GovernanceShare capital The company’s share capital comprises one class of ordinary shares of 5p each. At 31 December 2021, 62,003,341 shares were in issue (2020: 57,486,413). No shares were held in treasury. Details of the movements during the year are set out in note 30 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 19,473,624 shares (approximately one third of the issued share capital at 31 March 2021). 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 set out 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 304,329 shares to satisfy share awards and issued 217,000 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 2021 AGM resolution to purchase own shares, the board currently has the authority to buy back up to 5,840,000 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 32 to the financial statements. During the year, the number of shares issued by the trust totalled 115,062 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. 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 76. The directors’ interests in the share capital of the company at 31 December 2021 are set out on page 106 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 2021 and remain in force at the date of this report. Employees Details of the company’s employment practices, including diversity, employment of disabled persons and employee involvement practices, can be found in our people report on page 64. Responsible business Information about greenhouse gas emissions and our approach to operating as a responsible business are set out in the responsible business review on page 54. rathbones.com 113 Directors’ report continued Financial instruments and risk management The risk management objectives and policies of the group are set out in note 33 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 7 to the financial statements sets out details of the auditor’s remuneration. Deloitte LLP was appointed as external auditor at the 2021 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 2022 AGM. The directors in office at the date of signing 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 chair’s statement, chief executive’s review, financial performance and segmental review. In addition, note 1.5 to the financial statements provides further details. The group companies are regulated by the Prudential Regulation Authority (PRA) and/ or the Financial Conduct Authority (FCA) and perform annual capital adequacy and liquidity 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 which were repaid in August 2021. In October 2021, Rathbones Group Plc issued £40 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 2021, the group made total charitable donations of £418,000 representing 0.4% of group pre-tax profits (2020: £467,000, representing 1.1% 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 2021, Rathbones employees made payments totalling £214,400 (2020: £201,700) through this scheme, which is administered by the Charities Aid Foundation. The company matched employee donations of up to £200 per month made through GAYE and, in 2021, donated £178,000 (2020: £166,000) to causes chosen by employees through this method. Political donations No political donations were made during the year (2020: nil). Post-balance sheet events Details of post-balance sheet events are set out in note 39 to the financial statements. Approved and authorised for issue by the board of directors Ali Johnson Company Secretary 23 February 2022 Registered office: 8 Finsbury Circus, London EC2M 7AZ 114 Rathbones Group Plc Report and accounts 2021 GovernanceStatement of directors’ responsibilities in respect of the report and accounts Statement of directors’ responsibilities in respect of the report and accounts 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 Group Chief Executive Officer 23 February 2022 The directors are responsible for preparing the report and accounts 2021, 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 (‘IFRS’) as adopted by the UK 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 UK — 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 rathbones.com 115 Financial statements Financial statements Independent auditor’s report Consolidated financial statements Notes to the consolidated financial statements Company financial statements Notes to the company financial statements 117 130 134 193 196 116 Rathbones Group Plc Report and accounts 2021 Consolidated financial statementsIndependent Auditor’s Report to the members of Rathbones Group Plc Report on the audit of the financial statements 1 Opinion In our opinion: — the financial statements of Rathbones Group 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 2021 and of the group’s profit for the year then ended; — the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards; — the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards 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. 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 61. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international accounting standards and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 2 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. The non-audit services provided to the group and parent company for the year are disclosed in note 7 to the financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard 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. rathbones.com rathbones.com 117 117 Independent Auditor’s Report to the members of Rathbones Group Plc continued 3 Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: — Valuation of the Saunderson House Limited (“SHL”) client relationship intangible asset and associated useful economic life (“UEL”); — Impairment of client relationship intangibles and goodwill; — Defined benefit pension scheme assumptions; and — Investment management fee revenue relating to bespoke fees. Within this report, key audit matters are identified as follows: Newly identified Similar level of risk Increased level of risk Decreased level of risk Materiality The materiality that we used for the group financial statements was £5.1m which was determined on the basis of 5% of normalised profit before tax. Scoping 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. Significant changes in our approach We have identified one additional key audit matter in relation to the valuation of the SHL client relationship intangible asset and associated UEL. With regards to Speirs & Jeffrey (“S&J”) deferred consideration, given the level of management judgement involved is now limited, we have not identified a key audit matter in relation to this area. Aside from the above there were no significant changes in our audit approach. 4 Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included: — Evaluating management’s judgement paper, identifying the assumptions applied in the going concern assessment and testing the mechanical accuracy of the underlying forecast; — Performing sensitivity analysis on the key assumptions applied to understand those that could give rise to a material uncertainty on the use of the going concern basis; — Stress testing for the amount by which the FTSE would need to fall to cause a material uncertainty in the use of the going concern basis and comparing this to historical falls in the FTSE to assess the likelihood of such an event occurring and causing a material uncertainty for the group; — Performing an analysis of the impact of negative interest rates over a long period of time to the financial forecasts for the group to assess the likelihood of such an event occurring and causing a material uncertainty for the group; — Assessing the regulatory capital and liquidity position of the group and performing a reverse stress test to determine the point at which a material uncertainty on the use of the going concern basis may arise and assessing the likelihood of such an event occurring; and — Checking consistency with the forecast assumptions applied in the going concern assessment across other forecasts within the group. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 118 118 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Independent Auditor’s Report to the members of Rathbones Group Plc continued 3 Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: — Valuation of the Saunderson House Limited (“SHL”) client relationship intangible asset and associated useful economic life (“UEL”); — Impairment of client relationship intangibles and goodwill; — Defined benefit pension scheme assumptions; and — Investment management fee revenue relating to bespoke fees. Within this report, key audit matters are identified as follows: Newly identified Similar level of risk Increased level of risk Decreased level of risk Materiality The materiality that we used for the group financial statements was £5.1m which was determined on the basis of 5% of normalised profit before tax. Scoping 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. Significant changes in our approach We have identified one additional key audit matter in relation to the valuation of the SHL client relationship intangible asset and associated UEL. With regards to Speirs & Jeffrey (“S&J”) deferred consideration, given the level of management judgement involved is now limited, we have not identified a key audit matter in relation to this area. Aside from the above there were no significant changes in our audit approach. 4 Conclusions relating to going concern the financial statements is appropriate. accounting included: In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of — Evaluating management’s judgement paper, identifying the assumptions applied in the going concern assessment and testing the mechanical accuracy of the underlying forecast; — Performing sensitivity analysis on the key assumptions applied to understand those that could give rise to a material uncertainty on the use — Stress testing for the amount by which the FTSE would need to fall to cause a material uncertainty in the use of the going concern basis and comparing this to historical falls in the FTSE to assess the likelihood of such an event occurring and causing a material uncertainty for of the going concern basis; the group; — Performing an analysis of the impact of negative interest rates over a long period of time to the financial forecasts for the group to assess the likelihood of such an event occurring and causing a material uncertainty for the group; — Assessing the regulatory capital and liquidity position of the group and performing a reverse stress test to determine the point at which a material uncertainty on the use of the going concern basis may arise and assessing the likelihood of such an event occurring; and — Checking consistency with the forecast assumptions applied in the going concern assessment across other forecasts within the group. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 5 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. 5.1. Valuation of SHL client relationship intangible asset and associated UEL Key audit matter description On 20 October 2021, the group acquired a 100% equity interest in SHL. In respect of this the group has recognised a client relationship intangible of £79.4 million, which is being amortised over 15 years, and goodwill of £70.8 million. How the scope of our audit responded to the key audit matter As detailed in the summary of principal accounting policies in note 1 and note 2, and as disclosed in note 8, acquisition accounting requires management to make a number of judgements to determine the fair value of acquired identifiable assets. We have identified the valuation of the SHL client relationship intangible and associated UEL as a fraud risk, given the inherent judgement, complexity and level of estimation involved. These judgements have also been considered by the Audit Committee as set out on page 93. The significant assumptions that underpin the client relationship intangible asset valuation include: the growth rate for assets under management (“AuM”); the revenue margins; the non-staff costs to income ratio; and the applied discount rate. The UEL has been derived based on the minimum life indicated from the group’s existing advisory book as well as future expectations for the SHL client proposition. In order to evaluate the appropriateness of the assumptions used by management, we obtained an understanding of relevant controls over the appropriate determination of key assumptions and the calculation of the client relationship intangible to be recognised in the financial statements. In order to challenge the appropriateness of the assumptions used in the valuation model to derive the valuation of the client relationship intangible asset and the assumptions that underpin the associated UEL we have involved our in-house valuation specialists in reviewing the model methodology and the key assumptions; independently recalculating the valuation; and benchmarking the assumptions to determine their reasonableness. We have also evaluated the accuracy of the data inputs and calculations performed by management. To challenge the assumptions for growth rate in AUM, revenue margin and non-staff costs to income ratio we scrutinised management’s business plans which underpinned the acquisition, assessed whether the assumptions were consistent with data from previous acquisitions and evaluated management’s ability to forecast with reasonable accuracy by validating actual outturns to historic forecasts. We have performed a review of the disclosures included within the financial statements to determine whether all required information has been included for a business combination under IFRS 3. Key observations We concluded that the valuation of the client relationship intangible asset and associated UEL have been appropriately determined. 118 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 119 119 Independent Auditor’s Report to the members of Rathbones Group Plc continued 5.2. Impairment of client relationship intangibles and goodwill Key audit matter description The group holds client relationship intangibles of £193.6 million (2020: £121.1 million) and goodwill of £167.7 million (2020: £96.9 million) comprising both relationships acquired through business combinations and through acquisition of individual investment managers and their client portfolios. We have identified this matter as a fraud risk, given the inherent judgement and level of estimation in the annual impairment review. As detailed in the summary of principal accounting policies in note 1 and note 2, 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 93. 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. The discount rate, annual revenue growth rate and terminal growth rate used were 12.0%, 4.2%, and 1.0% respectively as disclosed in note 22. How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls in relation to the impairment review process for client relationship intangibles for both acquired portfolios and individual relationships and for goodwill. We tested controls in place over Funds Under Management (“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”. Where the review indicated that an impairment trigger had occurred, we assessed the relevant assumptions and judgements made by management in determining whether an impairment needed to be recognised. We have challenged the key assumptions around the impairment triggers identified for each portfolio, which we have assessed for reasonableness and evaluated the accuracy of the inputs used by management. For goodwill, 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 checked for consistency with forecasts used elsewhere in the business. We challenged the determination of the discount rate applied by benchmarking to appropriate market rates of interest and recalculation. We have also independently re-performed management’s value-in-use calculation. Focusing on those assumptions where the impairment test was most sensitive, we also performed sensitivity analysis to assess the risk that reasonably possible changes in assumptions used by management could give rise to an impairment. 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 Through our testing for client relationship intangibles and goodwill, we concluded that management’s approach and conclusion was appropriate. 120 120 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements 5.2. Impairment of client relationship intangibles and goodwill 5.3. Defined benefit scheme assumptions Key audit matter description The group has recognised a defined benefit pension scheme asset of £12.3 million (2020: liability of £9.8 million). The net asset comprises scheme assets of £167.9 million (2020: £155.6 million) and a defined benefit obligation of £155.6 million (2020: £165.4 million). The calculation of the defined benefit obligation 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 2, disclosed in note 29 to the financial statements, and as considered by the Audit Committee on page 93. 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 defined benefit obligation. 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 obtained an understanding of relevant controls over the appropriate determination of assumptions and the calculation of the obligation 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. We have performed a review of the disclosures included within the financial statements to determine whether all required information has been included for a defined benefit pension scheme. Key observations We concluded that each of the key assumptions used by management to estimate the defined benefit obligation are consistent with the requirements of IAS 19 and that the valuation of the defined pension scheme asset has been appropriately determined. Independent Auditor’s Report to the members of Rathbones Group Plc continued Key audit matter description The group holds client relationship intangibles of £193.6 million (2020: £121.1 million) and goodwill of £167.7 million (2020: £96.9 million) comprising both relationships acquired through business combinations and through acquisition of individual investment managers and their client portfolios. We have identified this matter as a fraud risk, given the inherent judgement and level of estimation in the annual impairment review. As detailed in the summary of principal accounting policies in note 1 and note 2, 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 93. 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. The discount rate, annual revenue growth rate and terminal growth rate used were 12.0%, 4.2%, and 1.0% respectively as disclosed in note 22. How the scope of our audit responded to the key audit matter We obtained an understanding of relevant controls in relation to the impairment review process for client relationship intangibles for both acquired portfolios and individual relationships and for goodwill. We tested controls in place over Funds Under Management (“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”. Where the review indicated that an impairment trigger had occurred, we assessed the relevant assumptions and judgements made by management in determining whether an impairment needed to be recognised. We have challenged the key assumptions around the impairment triggers identified for each portfolio, which we have assessed for reasonableness and evaluated the accuracy of the inputs used by management. For goodwill, 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 checked for consistency with forecasts used elsewhere in the business. We challenged the determination of the discount rate applied by benchmarking to appropriate market rates of interest and recalculation. We have also independently re-performed management’s value-in-use calculation. Focusing on those assumptions where the impairment test was most sensitive, we also performed sensitivity analysis to assess the risk that reasonably possible changes in assumptions used by management could give rise to an impairment. 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 Through our testing for client relationship intangibles and goodwill, we concluded that management’s approach and conclusion was appropriate. 120 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 121 121 Independent Auditor’s Report to the members of Rathbones Group Plc continued 5.4. Investment management fee revenue relating to bespoke fees Key audit matter description As detailed in the summary of principal accounting policies in note 1 and in note 3, revenue comprises net investment management fee income of £349.4 million (2020: £274.2 million), net commission income of £53.6 million (2020: £62.3 million), net interest income of £3.9 million (2020: £8.4 million) and fees from advisory services and other income of £29.1 million (2020: £21.1 million). Investment management (“IM”) fees from the IM segment account for approximately 80% of total revenue 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 a number of clients are on bespoke rates rather than the current standard rates or legacy rates that were standard previously or at the time of acquisition. As a result, we identified a key audit matter relating to the risk that, whether due to error or fraud, incorrect bespoke fee rates could be used to calculate investment management fees. How the scope of our audit responded to the key audit matter We tested 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 bespoke client fee rates through to client contracts and the value of FUM to third party sources. Where manual fee rate amendments were made to system generated fees we inspected evidence of authority and rationale. We have performed a review of the disclosures included within the financial statements to determine whether all required information has been included for revenue. Key observations We concluded that the investment management fee revenue is appropriately recognised for the year ended 31 December 2021. 122 122 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Independent Auditor’s Report to the members of Rathbones Group Plc continued 5.4. Investment management fee revenue relating to bespoke fees 6 Our application of materiality Key audit matter description As detailed in the summary of principal accounting policies in note 1 and in note 3, revenue comprises net investment management fee income of £349.4 million (2020: £274.2 million), net commission income of £53.6 million (2020: £62.3 million), net interest income of £3.9 million (2020: £8.4 million) and fees from advisory services and other income of £29.1 million (2020: £21.1 million). Investment management (“IM”) fees from the IM segment account for approximately 80% of total revenue 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 a number of clients are on bespoke rates rather than the current standard rates or legacy rates that were standard previously or at the time of acquisition. As a result, we identified a key audit matter relating to the risk that, whether due to error or fraud, incorrect bespoke fee rates could be used to calculate investment management fees. How the scope of our audit responded to the key audit matter We tested 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 bespoke client fee rates through to client contracts and the value of FUM to third party sources. Where manual fee rate amendments were made to system generated fees we inspected evidence of authority and rationale. We have performed a review of the disclosures included within the financial statements to determine whether all required information has been included for revenue. Key observations We concluded that the investment management fee revenue is appropriately recognised for the year ended 31 December 2021. 6.1. 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 Group financial statements Parent company financial statements £5,123,500 (2020: £3,915,500) £4,098,800 (2020: £1,918,000) 5% of normalised profit before tax. Profit before tax has been normalised to exclude the non-recurring acquisition related staff costs incurred in the year of £5.6m. Normalised profit before tax has been 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 business acquisition and integration costs on the basis that they are non- recurring and that this provides a consistent basis for determining materiality year on year. Parent company materiality equates to 1% of net assets, which is capped at 80% 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 materiality £5.1m Component materiality range £0.3m to £4.1m Audit Committee reporting threshold £0.3m Normalised PBT £102.5m Group materiality Normalised PBT Group materiality Review at group level 122 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 123 123 Independent Auditor’s Report to the members of Rathbones Group Plc continued 6.2. 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. Performance materiality Basis and rationale for determining performance materiality Group financial statements Parent company financial statements 70% (2020: 70%) of group materiality 70% (2020: 70%) of parent company 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; — The performance of the group during 2021; and — Our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods. 6.3. Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £256,200 (2020: £195,700), 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. 7 An overview of the scope of our audit 7.1. Identification and scoping of components 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 Group plc; Rathbone Unit Trust Management Limited; and Rathbone Investment Management International Limited. All such entities were subject to a full scope audit and audited to an individual materiality level determined on their individual financial statements which range from £0.3m to £4.1m. Our full scope audits of the entities we deemed to be significant for the group audit covered 91% of the group’s revenue; 97% of the group’s normalised profit before tax, and 93% of the group’s net assets. Saunderson House Limited was acquired in the year, as such in the current year our component auditor is performing specified audit procedures to a materiality set by the group audit team of £2.6m. We performed analytical procedures on all other entities included in the group consolidation for group audit purposes. Revenue Normalised PBT Net assets Full audit scope Specified audit procedures Review at group level Full audit scope Specified audit procedures Review at group level 91% 1% 8% XX% XX% XX% XX% XX% XX% XX% 97% 1% 2% XX% XX% XX% XX% XX% XX% XX% XX% XX% Full audit scope Specified audit procedures Review at group level 93% 3% 4% XX% XX% XX% XX% XX% XX% XX% Rathbones Group Plc Report and accounts 2021 XX% XX% 124 124 Rathbones Group Plc Report and accounts 2021 XX% XX% Consolidated financial statements Independent Auditor’s Report to the members of Rathbones Group Plc continued 6.2. 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. 7.2. Our consideration of the control environment Based on our understanding of the group’s control environment, we elected to test controls, including the involvement of IT specialists to assess the associated IT controls, in the following areas: Performance materiality Basis and rationale for determining performance materiality Group financial statements Parent company financial statements 70% (2020: 70%) of group materiality 70% (2020: 70%) of parent company 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; — The performance of the group during 2021; and — Our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods. 6.3. Error reporting threshold We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £256,200 (2020: £195,700), 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. 7 An overview of the scope of our audit 7.1. Identification and scoping of components the risks of material misstatement at the group level. Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing 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 Group plc; Rathbone Unit Trust Management Limited; and Rathbone Investment Management International Limited. All such entities were subject to a full scope audit and audited to an individual materiality level determined on their individual financial statements which range from £0.3m to £4.1m. Our full scope audits of the entities we deemed to be significant for the group audit covered 91% of the group’s revenue; 97% of the group’s normalised profit before tax, and 93% of the group’s net assets. Saunderson House Limited was acquired in the year, as such in the current year our component auditor is performing specified audit procedures to a materiality set by the group audit team of £2.6m. We performed analytical procedures on all other entities included in the group consolidation for group audit purposes. — Investment management fee income; — Investment management commission income; — Other operating income; — Other operating costs; and — Trade debtors and creditors. The key IT systems relevant to the audit were the financial accounting system, the back office database and core IM business engine and the front office application, with the former being applicable to all components within the group. The latter two are pivotal systems for the provision of the investment management service and directly feed into the investment management fee and commission income recognised. Therefore, they are particularly relevant for Rathbone Investment Management Limited and Rathbone Investment Management International Limited. Our IT specialists tested the controls on the above systems, as well as supplementary systems and processes within the group. We have taken a controls reliance approach to the back office database and front office application systems and therefore, have taken a controls reliance approach to investment management fee and commission income. We have not taken a controls reliance approach over the financial accounting system, as its operation involves a high degree of manual intervention. 7.3. Our consideration of climate-related risks In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements. The Group continues to develop its assessment of the potential impacts and opportunities of ESG and climate change as explained in the Strategic Report on pages 54 to 63. As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with management to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Group’s financial statements. We read the disclosures included in the annual report to consider whether they are materially consistent with the financial statements and our knowledge obtained in the audit. 7.4. Working with other auditors The consolidation, and all entities within it subject to a statutory audit, were audited by the group audit team, with the exception of Saunderson House Limited. The group audit team sent instructions and held regular calls with the Deloitte LLP component audit team, attended key audit related meetings and also reviewed the audit work performed at various stages throughout the audit process. 124 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 125 125 Independent Auditor’s Report to the members of Rathbones Group Plc continued 8 Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. We have nothing to report in this regard. 9 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. 10 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. 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. 126 126 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Independent Auditor’s Report to the members of Rathbones Group Plc continued 8 Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. We have nothing to report in this regard. 9 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. 10 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. 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. 11 Extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 11.1. 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, the group’s control environment and business performance including the design of the group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; — the group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was approved by the Audit Committee on 8 February 2022; — 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 of their 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 of fraud or non-compliance with laws and regulations; — the matters discussed among the audit engagement team including significant component audit teams and 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: the valuation of the SHL client relationship intangible asset and associated UEL; the impairment of client relationship intangibles and goodwill; and the investment management fee revenue relating to bespoke fees. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the Prudential Regulatory Authority’s and Financial Conduct Authority’s regulations; the UK Companies Act, Listing Rules, pensions legislation and 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. 126 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 127 127 Independent Auditor’s Report to the members of Rathbones Group Plc continued 11.2. Audit response to risks identified As a result of performing the above, we identified the valuation of the SHL client relationship intangible asset and associated UEL; the impairment of client relationship intangibles and goodwill; and the investment management fee revenue relating to bespoke fees as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. 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 provisions of 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 Regulatory 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 significant component audit teams, 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 12 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. 13 Corporate Governance Statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit: — the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 114; — the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is appropriate set out on pages 52-53; — the directors’ statement on fair, balanced and understandable set out on page 92; — the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 48; — the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 81; and — the section describing the work of the Audit Committee set out on pages 90-94. 128 128 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Independent Auditor’s Report to the members of Rathbones Group Plc continued and claims; due to fraud; — reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC, the Prudential Regulatory 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 significant component audit teams, 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 12 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. 13 Corporate Governance Statement The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit: — the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material — the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is appropriate uncertainties identified set out on page 114; set out on pages 52-53; — the directors’ statement on fair, balanced and understandable set out on page 92; — the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 48; — the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 81; and — the section describing the work of the Audit Committee set out on pages 90-94. 11.2. Audit response to risks identified As a result of performing the above, we identified the valuation of the SHL client relationship intangible asset and associated UEL; the impairment of client relationship intangibles and goodwill; and the investment management fee revenue relating to bespoke fees as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. 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 provisions of 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 14 Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting) Regulations 2013 In our opinion the information given in note 40 to the financial statements for the financial year ended 31 December 2021 has been properly prepared, in all material respects, in accordance with the Capital Requirements (Country-by Country Reporting) Regulations 2013. 15 Matters on which we are required to report by exception 15.1 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 — performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement branches not visited by us; or — adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from — the parent company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. 15.2 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. 16 Other matters which we are required to address 16.1 Auditor tenure Following the recommendation of the Audit Committee, we were appointed by Shareholders on 9 May 2019 to audit the financial statements for the year ended 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 3 years, covering the years ended 31 December 2019 to 31 December 2021. 16.2 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). 17 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. As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. Manbhinder Rana, FCA (Senior Statutory Auditor) For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom 23 February 2022 128 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 129 129 Consolidated statement of comprehensive income for the year ended 31 December 2021 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 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 4 5 6 6 7 9 7 11 2021 £’000 7,710 (3,834) 3,876 457,696 (29,062) 428,634 – 3,417 435,927 (15,595) (10,089) (315,208) (340,892) 95,035 (19,806) 75,229 75,229 2020 £’000 14,976 (6,554) 8,422 378,240 (24,491) 353,749 (12) 3,929 366,088 (14,302) (34,449) (273,558) (322,309) 43,779 (17,127) 26,652 26,652 29 21 17,091 (3,247) (4,682) 1,668 13,844 (3,014) 89,073 23,638 81.0p 49,501 72.0p 38,728 133.5p 129.3p 49.6p 47.6p 12 13 130 130 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Consolidated statement of comprehensive income for the year ended 31 December 2021 Interest and similar income Interest expense and similar charges Net interest income Fee and commission income Fee and commission expense Net fee and commission income Net trading income Other operating income Operating income Acquisition-related costs Other operating expenses Operating expenses Profit before tax Taxation Profit after tax Charges in relation to client relationships and goodwill Profit for the year attributable to equity holders of the company Other comprehensive income: Items that will not be reclassified to profit or loss Net remeasurement of defined benefit liability Deferred tax relating to net remeasurement of defined benefit liability Other comprehensive income net of tax Total comprehensive income for the year net of tax attributable to equity holders of the company Dividends paid and proposed for the year per ordinary share Dividends paid and proposed for the year Earnings per share for the year attributable to equity holders of the company: – basic – diluted The accompanying notes form an integral part of the consolidated financial statements. Note 4 5 6 6 7 9 12 13 2021 £’000 7,710 (3,834) 3,876 457,696 (29,062) 428,634 – 3,417 2020 £’000 14,976 (6,554) 8,422 378,240 (24,491) 353,749 (12) 3,929 435,927 366,088 (15,595) (10,089) (14,302) (34,449) (315,208) (273,558) 7 (340,892) (322,309) 11 (19,806) 95,035 75,229 75,229 43,779 (17,127) 26,652 26,652 29 21 17,091 (3,247) (4,682) 1,668 13,844 (3,014) 89,073 23,638 81.0p 49,501 72.0p 38,728 133.5p 129.3p 49.6p 47.6p Consolidated statement of changes in equity for the year ended 31 December 2021 At 1 January 2020 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 2020 Profit for the year Net remeasurement of defined benefit asset 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 2021 Note 29 21 12 30 31 31 29 21 12 30 31 31 Share capital £’000 2,818 Share premium £’000 210,939 Merger reserve £’000 71,756 Own shares £’000 (41,971) Retained earnings £’000 241,851 26,652 (4,682) Total equity £’000 485,393 26,652 (4,682) – – 56 4,153 – – (5,077) 304 2,874 215,092 71,756 (46,744) – – – – 226 75,934 5,209 (15,130) 25,248 3,100 291,026 76,965 (36,626) 1,668 (3,014) 1,668 (3,014) – (37,831) 43,635 (304) (140) 270,849 75,229 17,091 (37,831) 4,209 43,635 (5,077) – (140) 513,827 75,229 17,091 (3,247) 13,844 (3,247) 13,844 (43,960) (3,247) (25,248) 1,350 288,817 (43,960) 81,369 (3,247) (15,130) – 1,350 623,282 The accompanying notes form an integral part of the consolidated financial statements. 130 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 131 131 Consolidated balance sheet as at 31 December 2021 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 Current tax asset Net deferred tax asset Intangible assets Retirement benefit asset 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 obligation Total liabilities Equity Share capital Share premium Merger reserve Own shares Retained earnings Total equity Total liabilities and equity Note 2021 £’000 2020 £’000 14 1,463,294 69,750 203,589 179,840 15 16 1,802,706 90,373 159,430 166,221 17 17 18 19 20 21 22 29 29,934 761,654 115,992 13,059 43,895 2,272 – 376,187 12,287 3,271,753 23 2,212 60,075 24 2,333,011 25 144,498 27 54,971 – 13,811 39,893 – 2,648,471 21 28 29 107,559 651,427 98,714 14,846 44,856 – 3,342 231,144 – 3,370,618 893 95,412 2,561,767 112,071 56,124 971 – 19,768 9,785 2,856,791 30 30 30 31 3,100 291,026 76,965 (36,626) 288,817 623,282 3,271,753 2,874 215,092 71,756 (46,744) 270,849 513,827 3,370,618 The financial statements were approved by the board of directors and authorised for issue on 23 February 2022 and were signed on its behalf by: Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer Company registered number: 01000403 The accompanying notes form an integral part of the consolidated financial statements. 132 132 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Consolidated balance sheet Consolidated statement of cash flows as at 31 December 2021 for the year ended 31 December 2021 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 Current tax asset Net deferred tax asset Intangible assets Retirement benefit asset 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 obligation Total liabilities Equity Share capital Share premium Merger reserve Own shares Retained earnings Total equity behalf by: Total liabilities and equity 3,271,753 3,370,618 The financial statements were approved by the board of directors and authorised for issue on 23 February 2022 and were signed on its Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer Company registered number: 01000403 The accompanying notes form an integral part of the consolidated financial statements. Note 2021 £’000 2020 £’000 14 1,463,294 1,802,706 15 16 17 17 18 19 20 21 22 29 23 25 27 21 28 29 30 30 30 31 3,271,753 3,370,618 2,212 60,075 893 95,412 24 2,333,011 2,561,767 69,750 203,589 179,840 29,934 761,654 115,992 13,059 43,895 2,272 – 376,187 12,287 144,498 54,971 13,811 39,893 – – 3,100 291,026 76,965 (36,626) 288,817 623,282 90,373 159,430 166,221 107,559 651,427 98,714 14,846 44,856 3,342 231,144 – – 112,071 56,124 971 – 19,768 9,785 2,874 215,092 71,756 (46,744) 270,849 513,827 2,648,471 2,856,791 Cash flows from operating activities Profit before tax Change in fair value through profit or loss Net interest income (Recoveries)/Impairment losses on financial instruments Net charge for provisions Profit on disposal of property, plant and equipment Depreciation, amortisation and impairment Foreign exchange movements Defined benefit pension scheme charges Defined benefit pension contributions paid Share-based payment charges Interest paid Interest received Changes in operating assets and liabilities: – net (increase)/decrease in loans and advances to banks and customers – net decrease/(increase) in settlement balance debtors – net increase in prepayments, accrued income and other assets – net decrease in amounts due to customers and deposits by banks – net (decrease)/increase in settlement balance creditors – net (decrease)/increase in accruals, deferred income, provisions and other liabilities Cash (used in)/generated from operations Tax paid Net cash (outflow)/inflow from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Purchase of property, plant, equipment and intangible assets Purchase of right-of-use assets Purchase of investment securities Proceeds from sale and redemption of investment securities Net cash used in investing activities Cash flows from financing activities Net (repurchase)/issue of ordinary shares Repayment of subordinated loan notes Net proceeds from the issue of subordinated loan notes Dividends paid Payment of lease liabilities Interest paid Net cash generated from/(used in) 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 consolidated financial statements. Note 2021 £’000 2020 £’000 95,035 (670) (3,876) (712) 3,118 – 31,279 (519) 105 (5,086) 20,132 (4,994) 11,225 145,037 (41,409) 20,624 (9,113) (227,435) (35,336) (39,381) (187,013) (27,207) (214,220) (79,736) (12,632) (70) (932,386) 821,790 (203,034) 43,779 (1,881) (8,422) 582 143 – 31,229 1,245 200 (3,111) 39,986 (5,300) 12,376 110,826 29,852 (37,852) (722) (106,013) 37,718 19,616 53,425 (21,410) 32,015 (12,048) (13,294) (238) (886,847) 833,712 (78,715) 33 26 17 29 29 17 17 38 12 (868) 44,335 – (20,114) – 39,893 (37,831) (43,960) (4,880) (5,109) (1,060) (895) (44,639) 14,150 (91,339) (403,104) 2,056,694 2,148,033 38 1,653,590 2,056,694 132 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 133 133 Notes to the consolidated financial statements Notes to the consolidated financial statements 1 Principal accounting policies Rathbones Group 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 UK-adopted International Accounting Standards. The company financial statements are presented on pages 193 to 212. The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value (notes 1.12 and 1.16). The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied consistently to all periods presented in the consolidated financial statements. 1.2 Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries), together ‘the group’, made up to 31 December each year. The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained, and no longer consolidated from the date that control ceases; their results are included in the consolidated financial statements up to the date that control ceases. Inter-company transactions and balances between group companies are eliminated on consolidation. 1.3 Developments in reporting standards and interpretations Standards and interpretations affecting the reported results or the financial position The following amendments to standards have been adopted in the current period, but have not had a significant impact on the amounts reported in these financial statements: — COVID-19-Related Rent Concessions (Amendment to IFRS 16) — Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) Future new standards and interpretations The following standards are effective for annual periods beginning after 1 January 2021 and earlier application is permitted; however, the group has not early-adopted the amended standard in preparing these consolidated financial statements. Standards available for early adoption COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) Annual Improvements to IFRS Standards 2018-2020 Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) Reference to the Conceptual Framework (Amendments to IFRS 3) IFRS 17 Insurance Contracts Classification of liabilities as current or non-current (Amendments to IAS 1) Amendments to IFRS 17 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) Definition of Accounting Estimate (Amendments to IAS 8) Effective date 01 April 2021 01 January 2022 01 January 2022 01 January 2022 01 January 2022 01 January 2023 01 January 2023 01 January 2023 01 January 2023 01 January 2023 Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes 01 January 2023 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) Optional None of these standards are expected to have a material impact on the group’s financial statements. 1.4 Business combinations Business combinations are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets acquired, liabilities assumed and equity instruments issued by the group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. 134 134 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statementsNotes to the consolidated financial statements Notes to the consolidated financial statements Rathbones Group Plc (‘the company’) is a public company limited by shares incorporated and domiciled in England and Wales under the 1 Principal accounting policies Companies Act 2006. 1.1 Basis of preparation The consolidated and company financial statements have been prepared in accordance with UK-adopted International Accounting Standards. The company financial statements are presented on pages 193 to 212. The financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair value (notes 1.12 and 1.16). The principal accounting policies adopted are set out in this note and, unless otherwise stated, have been applied consistently to all periods presented in the consolidated financial statements. 1.2 Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries), together ‘the group’, made up to 31 December each year. The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained, and no longer consolidated from the date that control ceases; their results are included in the consolidated financial statements up to the date that control ceases. Inter-company transactions and balances between group companies are eliminated on consolidation. 1.3 Developments in reporting standards and interpretations Standards and interpretations affecting the reported results or the financial position The following amendments to standards have been adopted in the current period, but have not had a significant impact on the amounts reported in these financial statements: — COVID-19-Related Rent Concessions (Amendment to IFRS 16) — Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) Future new standards and interpretations The following standards are effective for annual periods beginning after 1 January 2021 and earlier application is permitted; however, the group has not early-adopted the amended standard in preparing these consolidated financial statements. Standards available for early adoption COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) Annual Improvements to IFRS Standards 2018-2020 Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) Reference to the Conceptual Framework (Amendments to IFRS 3) Classification of liabilities as current or non-current (Amendments to IAS 1) IFRS 17 Insurance Contracts Amendments to IFRS 17 Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) Definition of Accounting Estimate (Amendments to IAS 8) Effective date 01 April 2021 01 January 2022 01 January 2022 01 January 2022 01 January 2022 01 January 2023 01 January 2023 01 January 2023 01 January 2023 01 January 2023 None of these standards are expected to have a material impact on the group’s financial statements. 1.4 Business combinations Business combinations are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets acquired, liabilities assumed and equity instruments issued by the group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values may arise as a result of additional information obtained after this date about facts and circumstances that existed at the acquisition date. Provided they arise within 12 months of the acquisition date, these changes are measurement period adjustments and are reflected against the cost of acquisition. Changes in the fair value of contingent consideration resulting from events occurring after the acquisition date are charged to profit or loss or other comprehensive income, except for obligations that are classified as equity, which are not remeasured. Such changes are irrespective of the 12-month period from acquisition. 1.5 Going concern The directors have, at the time of approving the financial statements, a reasonable expectation that the company and the group have adequate resources to continue in operational existence. In forming this view, the directors have considered the company’s and the group’s prospects for a period of at least 12 months. As a result, the directors continue to adopt the going concern basis of accounting in preparing the financial statements. 1.6 Foreign currencies The functional and presentational currency of the company and its subsidiaries is sterling. Transactions in currencies other than the relevant group entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in profit or loss for the year. 1.7 Income Net interest income Interest income or expense is 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. Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes 01 January 2023 A breakdown of the timing of revenue recognition can be found in note 3. Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) Optional Net trading income Net trading income comprises net dealing profits on the sale and redemption of units in the Funds 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. 134 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 135 135 Notes to the consolidated financial statements continued 1 Principal accounting policies continued 1.8 Leases 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 right-of-use 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 right-of-use 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 — 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 28), 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. 1.9 Share-based payments The group engages in equity-settled and cash-settled share-based payment transactions in respect of services received from its employees. Equity-settled awards For equity-settled share-based payments, the fair value of the award is measured by reference to the fair value of the shares or share options granted on the grant date. The cost of the employee services received in respect of the shares or share options granted is recognised in profit or loss over the vesting period, with a corresponding credit to equity. 136 136 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements The fair value of the awards or options granted is determined using a binomial pricing model, which takes into account the current share price, the risk-free interest rate, the expected volatility of the company’s share price over the life of the option or award, any applicable exercise price and other relevant factors. Only those vesting conditions that include terms related to market conditions are taken into account in estimating fair value. Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of employee services so that, ultimately, the amount recognised in profit or loss reflects the number of vested shares or share options, with a corresponding adjustment to equity. Where vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the market-related vesting condition is met, provided that any non-market vesting conditions are also met. Shares purchased and issued are charged directly to equity. Cash-settled awards For cash-settled share-based payments, a liability is recognised for the services received to the balance sheet date, measured at the fair value of the liability. At each subsequent balance sheet date and at the date on which the liability is settled, the fair value of the liability is remeasured with any changes in fair value recognised in profit or loss. 1.10 Taxation Current tax Current tax is the expected tax payable or receivable on net taxable income for the year. Current tax is calculated using tax rates enacted or substantively enacted by the balance sheet date, together with any adjustment to tax payable or receivable in respect of previous years. Deferred tax Deferred tax is accounted for under the balance sheet liability method in respect of temporary differences using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the liability is settled or when the asset is realised. Deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences may be utilised, except where the temporary difference arises: — from the initial recognition of goodwill; — from the initial recognition of other assets and liabilities in a transaction, which affects neither the tax profit nor the accounting profit, other than in a business combination; or — in relation to investments in subsidiaries and associates, where the group is able to control the reversal of the temporary difference and it is the group’s intention not to reverse the temporary difference in the foreseeable future. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis. 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. 1.11 Cash and cash equivalents Cash comprises cash in hand. Cash equivalents comprise money market funds which are realisable on demand and loans and advances to banks with a maturity of less than three months from the date of acquisition. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. rathbones.com rathbones.com 137 137 Notes to the consolidated financial statements continued 1 Principal accounting policies continued 1.12 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 1.7), less any impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. — at fair value through other comprehensive income (FVOCI) Debt instruments are measured at FVOCI if 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 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 — the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. 138 138 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 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 Classification and subsequent measurement Financial assets are classified and measured in the following categories: 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 Assets are measured at amortised cost using the effective interest rate method (note 1.7), less any impairment losses. Interest income, transaction price. in the business model. — amortised cost contractual cash flows. 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 affect the performance of the business model (and the financial assets held within that business model) and how those risks — how group employees are compensated, e.g. whether compensation is based on the fair value of the assets managed or the contractual are managed cash flows collected sales activity. 1 Principal accounting policies continued 1.12 Financial assets Initial recognition and measurement 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 basic lending criteria Financial assets, excluding trade debtors, are initially recognised when the group becomes party to the contractual provisions of the asset. — the impact of the time value of money 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 — features that would change the amount or timing of contractual cash flows — other factors, such as prepayment or extension features. Derecognition foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit The maximum period considered when estimating ECLs is the maximum contractual period over which the group is exposed to credit risk. 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 ECLs (losses resulting from possible defaults within the next 12 months); or — lifetime ECLs (losses resulting from possible defaults over the remaining life of the financial asset). The latter applies if there has been a significant deterioration in the credit quality of the asset; albeit lifetime ECLs will always be recognised for assets without a significant financing component. The group measures loss allowances at an amount equal to lifetime ECLs, except for treasury book and investment management loan book exposures for which credit risk has not increased significantly since initial recognition, which are measured at 12-month ECLs. Loss allowances for trust and financial planning debtors are always measured at an amount equal to lifetime ECLs. When assessing whether the credit risk of a financial asset has increased significantly between the reporting date and initial recognition, quantitative and qualitative indicators are used. More detail can be found at note 33. Measurement of ECLs Treasury book and investment management loan book The group has developed a model for calculating ECLs on its treasury book and investment management loan book (which includes loan commitments held off balance sheet). The group has developed three different economic scenarios: a base case, an upside and a downside. The base case is assigned a 60% probability of occurring with the upside and downside each assigned a 20% probability of occurring. The economic scenarios are based on the projections of GDP, inflation, unemployment rates, house price indices, financial markets and interest rates as set out in the banking system stress testing scenario published annually by the PRA. Management adjust the projections for the economic variables in arriving at the upside and downside scenarios. Under each resultant scenario, an ECL is forecast for each exposure in the treasury book and investment management loan book. The ECL 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. — the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future More detail on the group’s staging criteria is provided in note 33. ECLs are discounted back to the balance sheet date at the effective interest rate of the asset. 138 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 139 139 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 ECLs 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 33. Presentation of impairment Loss allowances for financial assets measured at amortised cost and FVOCI are deducted from the gross carrying amount of the assets. Impairment losses related to the group’s treasury book and investment management loan book are presented in ‘interest expense and similar charges’ and those related to all other financial assets (including trust and financial planning debtors) are presented under ‘other operating expenses’. No losses are presented separately on the statement of the comprehensive income and there have been no reclassifications of amounts previously recognised under IAS 39. 1.13 Property, plant and equipment All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less accumulated depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual value over their estimated useful lives, using the straight-line method, on the following bases: — leasehold improvements: over the lease term — plant, equipment and computer hardware: over three to 10 years. The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and these are included in profit or loss. 1.14 Intangible assets Goodwill Goodwill arises through business combinations and represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a business at the date of acquisition. Goodwill is recognised as an asset and measured at cost less accumulated impairment losses. It is allocated to groups of cash-generating units, which represent the lowest level at which goodwill is monitored for internal management purposes. Cash-generating units are identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets, and are no larger than the group’s operating segments, as set out in note 3. On disposal of a subsidiary the attributed amount of goodwill that has not been subject to impairment is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before 1 January 2004, being the date of the group’s transition to IFRS, has been retained at the previous UK GAAP carrying amounts and is tested for impairment annually. Client relationships Client relationships acquired as part of a business combination are initially recognised at fair value (note 1.4). Determining whether a transaction that involves the purchase of client relationships is treated as a business combination or a separate purchase of intangible assets requires judgement. The factors that the group takes into consideration in making this judgement are set out in note 2.1. Individually purchased client relationships are initially recognised at cost. Where a transaction to acquire client relationship intangibles includes an element of variable deferred consideration, an estimate is made of the value of consideration that will ultimately be paid. The client relationship intangible recognised on the balance sheet is adjusted for any subsequent change in the value of deferred consideration. Note 2.1 sets out the approach taken by the group where judgement is required to determine whether payments made for the introduction of client relationships should be capitalised as intangible assets or charged to profit or loss. Client relationships are subsequently carried at the amount initially recognised less accumulated amortisation, which is calculated using the straight-line method over their estimated useful lives (normally 10 to 15 years, but not more than 15 years). 140 140 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 1 Principal accounting policies continued Trust and financial planning debtors past four years. Credit-impaired financial assets occurred. The group’s definition of default is given in note 33. Presentation of impairment 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 ECLs based on actual credit loss experience over the 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 Loss allowances for financial assets measured at amortised cost and FVOCI are deducted from the gross carrying amount of the assets. Impairment losses related to the group’s treasury book and investment management loan book are presented in ‘interest expense and similar charges’ and those related to all other financial assets (including trust and financial planning debtors) are presented under ‘other operating expenses’. No losses are presented separately on the statement of the comprehensive income and there have been no reclassifications of amounts previously recognised under IAS 39. 1.13 Property, plant and equipment All property, plant and equipment is stated at historical cost, which includes directly attributable acquisition costs, less accumulated depreciation and impairment losses. Depreciation is charged so as to write off the cost of assets to their estimated residual value over their estimated useful lives, using the straight-line method, on the following bases: — leasehold improvements: over the lease term — plant, equipment and computer hardware: over three to 10 years. The assets’ residual lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and these are included in profit or loss. 1.14 Intangible assets Goodwill 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. Cash-generating units are identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets, and are no larger than the group’s operating segments, as set out in note 3. On disposal of a subsidiary the attributed amount of goodwill that has not been subject to impairment is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before 1 January 2004, being the date of the group’s transition to IFRS, has been retained at the previous UK GAAP carrying amounts and is tested for impairment annually. Client relationships Client relationships acquired as part of a business combination are initially recognised at fair value (note 1.4). Determining whether a transaction that involves the purchase of client relationships is treated as a business combination or a separate purchase of intangible assets requires judgement. The factors that the group takes into consideration in making this judgement are set out in note 2.1. Individually purchased client relationships are initially recognised at cost. Where a transaction to acquire client relationship intangibles includes an element of variable deferred consideration, an estimate is made of the value of consideration that will ultimately be paid. The client relationship intangible recognised on the balance sheet is adjusted for any subsequent change in the value of deferred consideration. Note 2.1 sets out the approach taken by the group where judgement is required to determine whether payments made for the introduction of client relationships should be capitalised as intangible assets or charged to profit or loss. Computer software and software development costs Costs incurred to acquire and bring to use computer software licences are capitalised and amortised through profit or loss over their expected useful lives (three to four years). Costs that are directly associated with the production of identifiable and unique software products controlled by the group are recognised as intangible assets when the group is expected to benefit from future use of the software and the costs are reliably measurable. Other costs of producing software are charged to profit or loss as incurred. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives (not exceeding four years). 1.15 Impairment of goodwill and intangible assets At each balance sheet date, the group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money. Goodwill is tested for impairment at least annually. For the purposes of impairment testing, goodwill is allocated to 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 or client relationships is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Goodwill arises through business combinations and represents the excess of the cost of acquisition over the group’s interest in the fair value of Any impairment loss is recognised immediately in profit or loss. 1.16 Financial liabilities Initial recognition and measurement Financial liabilities are initially recognised at fair value plus transaction costs that are directly attributable to their issue. 1.17 Provisions and contingent liabilities Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of economic benefits, that can be reliably estimated, will occur. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Contingent liabilities are possible obligations that depend on the outcome of uncertain future events or those present obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless the likelihood of crystallisation is judged to be remote. Classification and subsequent measurement Financial liabilities are classified as measured at amortised cost or at fair value through profit or loss. The group has not designated any liabilities as fair value through profit or loss and holds no liabilities as held for trading. Financial liabilities are measured at amortised cost using the effective interest method (note 1.7). Amortised cost is calculated by taking into account any issue costs and any discounts or premiums on settlement. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Client relationships are subsequently carried at the amount initially recognised less accumulated amortisation, which is calculated using the Derecognition straight-line method over their estimated useful lives (normally 10 to 15 years, but not more than 15 years). The group derecognises financial liabilities when its contractual obligations are discharged or cancelled, or expire. 140 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 141 141 Notes to the consolidated financial statements continued 1 Principal accounting policies continued 1.18 Retirement benefit obligations on retirement benefit schemes The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present value, and the fair value of any plan assets (at bid price) 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 in profit or loss immediately in the period of a plan amendment. Interest income on defined benefit assets and interest expense on the defined benefit obligations are also recognised in profit or loss in the period. The amount recognised in the balance sheet for death-in-service benefits represents the present value of the estimated obligation, reduced by the extent to which any future liabilities will be met by insurance policies. The company determines the net interest on the net defined benefit liability for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the net defined benefit liability. Contributions to defined contribution retirement benefit schemes are charged to profit or loss as an expense as they fall due. 1.19 Segmental reporting The group determines and presents operating segments based on the information that is provided internally to the group executive committee, which is the group’s chief operating decision-maker. Operating segments are organised around the services provided to clients; a description of the services provided by each segment is given in note 3. No operating segments have been aggregated in the group’s financial statements. Transactions between operating segments are reported within the income or expenses for those segments; intra-segment income and expenditure is eliminated at group level. Indirect costs are allocated between segments in proportion to the principal cost driver for each category of indirect costs that is generated by each segment. 1.20 Fiduciary activities The group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. Such assets and income arising thereon are excluded from these financial statements, as they are not assets of the group. Largely as a result of cash and settlement processing, the group holds money on behalf of some clients in accordance with the Client Money Rules of the Financial Conduct Authority, the Jersey Financial Services Commission and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, as applicable. Such monies and the corresponding amounts due to clients are not shown on the face of the balance sheet as the group is not beneficially entitled to them. 1.21 Financial guarantees The group provides a limited number of financial guarantees, which are backed by assets in clients’ portfolios. Financial guarantees are initially recognised in the balance sheet at fair value. Guarantees are subsequently measured at the higher of the best estimate of any amount to be paid to settle the guarantee and the amount initially recognised less cumulative amortisation, which is recognised over the life of the guarantee. 1.22 Fair value measurement The fair values of quoted financial instruments in active markets are based on current bid prices. If an active market for a financial asset does not exist, the group establishes fair value by using valuation techniques. These include the use of recent arm’s-length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 142 142 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 1 Principal accounting policies continued 1.18 Retirement benefit obligations on retirement benefit schemes The group’s net liability in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present 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 in profit or loss immediately in the period of a plan amendment. Interest income on defined benefit assets and interest expense on the defined benefit obligations are also recognised in profit or loss in the period. The amount recognised in the balance sheet for death-in-service benefits represents the present value of the estimated obligation, reduced by the extent to which any future liabilities will be met by insurance policies. The company determines the net interest on the net defined benefit liability for the year by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the net defined benefit liability. Contributions to defined contribution retirement benefit schemes are charged to profit or loss as an expense as they fall due. 1.19 Segmental reporting financial statements. The group determines and presents operating segments based on the information that is provided internally to the group executive committee, which is the group’s chief operating decision-maker. Operating segments are organised around the services provided to clients; a description of the services provided by each segment is given in note 3. No operating segments have been aggregated in the group’s Transactions between operating segments are reported within the income or expenses for those segments; intra-segment income and expenditure is eliminated at group level. Indirect costs are allocated between segments in proportion to the principal cost driver for each category of indirect costs that is generated by each segment. 1.20 Fiduciary activities The group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. Such assets and income arising thereon are excluded from these financial statements, as they are not assets of the group. Largely as a result of cash and settlement processing, the group holds money on behalf of some clients in accordance with the Client Money Rules of the Financial Conduct Authority, the Jersey Financial Services Commission and the Solicitors’ Accounts Rules issued by the Solicitors Regulation Authority, as applicable. Such monies and the corresponding amounts due to clients are not shown on the face of the balance sheet as the group is not beneficially entitled to them. 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 1.21 Financial guarantees the life of the guarantee. 1.22 Fair value measurement The fair values of quoted financial instruments in active markets are based on current bid prices. If an active market for a financial asset does not exist, the group establishes fair value by using valuation techniques. These include the use of recent arm’s-length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 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 The following key accounting policies involve critical judgements made in applying the accounting policy and involve estimations. 2 Critical accounting judgements and key sources of estimation 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. 2.1 Client relationship intangibles (note 22) 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 22). 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 £15.6 million (2020: £14.3 million) was charged during the year. At 31 December 2021, the carrying value of client relationship intangibles was £193.6 million (2020: £121.1 million). 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 £6.3 million. 2.2 Retirement benefit obligations (note 29) Estimation uncertainty The principal assumptions underlying the reported surplus of £12,287,000 (2020: £9,785,000 deficit) are set out in note 29. 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 sensitivities of the retirement benefit obligations to changes in all of the underlying estimates are set out in note 29. Of these, the most sensitive assumption is the discount rate used to measure the defined benefit obligation. Increasing the discount rate by 0.5% would decrease the schemes’ liabilities by £14,966,000 (2020: £15,689,000). A 0.5% decrease would have an equal and opposite effect. 142 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 143 143 Notes to the consolidated financial statements continued 2 Critical accounting judgements and key sources of estimation and uncertainty continued 2.3 Business combinations (note 8) Critical judgement Treatment and fair value of consideration transferred During the year, the group acquired the entire share capital of Saunderson House Limited. The group has accounted for the transaction as a business combination, as set out in note 8. The purchase price payable in respect of the acquisition is split into a number of different components. The payment of certain elements has been deferred; the timing and value of these are contingent on certain employment conditions and operational and financial targets being met. The proportion of the deferred payments that are contingent on the recipients remaining employees of the group for a specific period are accounted for as remuneration for ongoing services in employment. The group’s estimate of the amounts ultimately payable will be expensed over the deferral period. Estimation uncertainty Treatment and fair value of consideration transferred The deferred payments subject to the achievement of certain operational and performance targets at 31 December 2024 were assessed, and a provision for the expected consideration to be paid has been made. Under the terms of the agreements, the award ranges from a payment of £nil to a maximum possible payment of £7.2 million. Management’s best estimate of this award at the year end was £4.75 million, based on expected qualifying funds under management at 31 December 2024 of £5.0 billion. The maximum award of £7.2 million would result in an additional charge to profit or loss in 2021 of £0.1 million. Amortisation of client relationship intangibles Client relationships of £79.4 million were recognised in the period in relation to the acquisition of Saunderson House. These are being amortised over a 15 year useful life. A reduction of three years in the amortisation period of the client relationship intangible asset would increase the annual amortisation charge by £1.3 million. 144 144 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 2 Critical accounting judgements and key sources of estimation and uncertainty continued 2.3 Business combinations (note 8) Critical judgement Treatment and fair value of consideration transferred business combination, as set out in note 8. During the year, the group acquired the entire share capital of Saunderson House Limited. The group has accounted for the transaction as a The purchase price payable in respect of the acquisition is split into a number of different components. The payment of certain elements has been deferred; the timing and value of these are contingent on certain employment conditions and operational and financial targets being met. The proportion of the deferred payments that are contingent on the recipients remaining employees of the group for a specific period are accounted for as remuneration for ongoing services in employment. The group’s estimate of the amounts ultimately payable will be expensed over the deferral period. Estimation uncertainty Treatment and fair value of consideration transferred The deferred payments subject to the achievement of certain operational and performance targets at 31 December 2024 were assessed, and a provision for the expected consideration to be paid has been made. Under the terms of the agreements, the award ranges from a payment of £nil to a maximum possible payment of £7.2 million. Management’s best estimate of this award at the year end was £4.75 million, based on expected qualifying funds under management at 31 December 2024 of £5.0 billion. The maximum award of £7.2 million would result in an additional charge to profit or loss in 2021 of £0.1 million. Amortisation of client relationship intangibles Client relationships of £79.4 million were recognised in the period in relation to the acquisition of Saunderson House. These are being amortised over a 15 year useful life. A reduction of three years in the amortisation period of the client relationship intangible asset would increase the annual amortisation charge by £1.3 million. 3 Segmental information For management purposes, the group is organised into two operating divisions: Investment Management and Funds. Centrally incurred indirect expenses are allocated to these operating segments on the basis of the cost drivers that generate the expenditure; principally, these are 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 2021 Net investment management fee income Net commission income Net interest income Fees from advisory services and other income Operating income Staff costs − fixed Staff costs − variable Total staff costs Other direct expenses Allocation of indirect expenses Underlying operating expenses Underlying profit before tax Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Segment profit before tax Profit before tax attributable to equity holders of the company Taxation (note 11) Profit for the year attributable to equity holders of the company Segment total assets Unallocated assets Total assets Investment Management £’000 288,089 53,596 3,874 27,265 372,824 (89,343) (61,872) (151,215) (37,488) (85,767) (274,470) 98,354 (15,595) (9,635) 73,124 Funds £’000 61,289 – 2 1,812 63,103 (5,210) (16,833) (22,043) (10,084) (8,611) (40,738) 22,365 – – 22,365 Indirect expenses £’000 – – – – – (35,260) (11,426) (46,686) (47,692) 94,378 – – – (454) (454) Investment Management £’000 3,132,898 Funds £’000 126,568 Total £’000 349,378 53,596 3,876 29,077 435,927 (129,813) (90,131) (219,944) (95,264) – (315,208) 120,719 (15,595) (10,089) 95,035 95,035 (19,806) 75,229 Total £’000 3,259,466 12,287 3,271,753 144 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 145 145 Notes to the consolidated financial statements continued 3 Segmental information continued 31 December 2020 Net investment management fee income Net commission income Net interest income Fees from advisory services and other income Operating income Staff costs − fixed Staff costs − variable Total staff costs Other direct expenses Allocation of indirect expenses Underlying operating expenses Underlying profit before tax Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Segment profit before tax Profit before tax attributable to equity holders of the company Taxation (note 11) Profit for the year attributable to equity holders of the company Segment total assets Unallocated assets Total assets The following table reconciles underlying operating expenses to operating expenses: Underlying operating expenses Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Operating expenses Investment Management £’000 230,309 62,297 8,422 19,629 320,657 (83,673) (56,414) (140,087) (33,371) (67,753) (241,211) 79,446 (14,302) (32,433) 32,711 Funds £’000 43,929 – – 1,502 45,431 (4,118) (12,015) (16,133) (8,693) (7,521) (32,347) 13,084 – – 13,084 Indirect expenses £’000 – – – – – (29,697) (9,299) (38,996) (36,278) 75,274 – – – (2,016) (2,016) Total £’000 274,238 62,297 8,422 21,131 366,088 (117,488) (77,728) (195,216) (78,342) – (273,558) 92,530 (14,302) (34,449) 43,779 43,779 (17,127) 26,652 Investment Management £’000 3,243,198 Funds £’000 121,320 Total £’000 3,364,518 6,100 3,370,618 2021 £’000 315,208 15,595 10,089 340,892 2020 £’000 273,558 14,302 34,449 322,309 146 146 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 3 Segmental information continued 31 December 2020 Net investment management fee income Net commission income Net interest income Fees from advisory services and other income Operating income Staff costs − fixed Staff costs − variable Total staff costs Other direct expenses Allocation of indirect expenses Underlying operating expenses Underlying profit before tax Acquisition-related costs (note 9) Segment profit before tax Charges in relation to client relationships and goodwill (note 22) Profit before tax attributable to equity holders of the company Taxation (note 11) Profit for the year attributable to equity holders of the company Segment total assets Unallocated assets Total assets The following table reconciles underlying operating expenses to operating expenses: Underlying operating expenses Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Operating expenses Investment Management £’000 230,309 62,297 8,422 19,629 320,657 (83,673) (56,414) (140,087) (33,371) (67,753) 79,446 (14,302) (32,433) 32,711 Funds £’000 43,929 – – 1,502 45,431 (12,015) (16,133) (8,693) (7,521) 13,084 – – 13,084 (241,211) (32,347) Investment Management £’000 Funds £’000 3,243,198 121,320 Indirect expenses £’000 (2,016) (2,016) – – – – – – – – Total £’000 274,238 62,297 8,422 21,131 366,088 (78,342) – (273,558) 92,530 (14,302) (34,449) 43,779 43,779 (17,127) 26,652 Total £’000 3,364,518 6,100 3,370,618 2021 £’000 2020 £’000 315,208 273,558 15,595 10,089 14,302 34,449 340,892 322,309 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 2021 £’000 421,386 14,541 435,927 2020 £’000 353,712 12,376 366,088 The following is an analysis of the carrying amount of non-current assets analysed by the geographical location of the assets: (4,118) (29,697) (117,488) (9,299) (77,728) (38,996) (195,216) (36,278) 75,274 United Kingdom Jersey Non-current assets 2021 £’000 429,345 3,796 433,141 2020 £’000 286,409 4,437 290,846 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 2021 2020 Investment Management £’000 44,190 327,486 371,676 Funds £’000 – 64,251 64,251 Investment Management £’000 56,300 264,851 321,151 Funds £’000 (12) 44,949 44,937 Major clients The group is not reliant on any one client or group of connected clients for generation of revenues. 4 Net interest income Interest income Cash and balances with central banks 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 28) Credit impairment charges Net interest income 2021 £’000 2020 £’000 1,694 (7) 1,732 284 4,007 7,710 (186) (3,134) (1,241) 727 (3,834) 3,876 4,640 471 5,093 1,401 3,371 14,976 (1,686) (3,388) (902) (578) (6,554) 8,422 With the exception of credit impairment charges, which are calculated as described in note 33, all net interest income is calculated using the effective interest method (note 1.7). 146 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 147 147 Notes to the consolidated financial statements continued 5 Net fee and commission income Fee and commission income Investment Management Funds Fee and commission expense Investment Management Funds Net fee and commission income 2021 £’000 2020 £’000 389,252 68,444 457,696 327,699 50,541 378,240 (24,171) (4,891) (29,062) 428,634 (19,774) (4,717) (24,491) 353,749 6 Net trading and other operating income Net trading income Net trading income was £nil during the year. The net trading expense of £12,000 recognised in 2020 comprised Fund’s net dealing losses. Other operating income Other operating income of £3,417,000 (2020: £3,929,000) comprised gains and losses from fair value through profit or loss equity securities, rental income of £646,000 from sub-leases on certain properties leased by group companies (2020: £646,000) and sundry income. 7 Operating expenses Staff costs (note 10) Depreciation of property, plant and equipment (note 19) Depreciation of right-of-use assets (note 20) Amortisation of internally generated intangible assets (note 22) Amortisation and impairment of purchased software (note 22) Auditor’s remuneration (see below) Impairment charges on loans and advances to customers (note 33) Rental charge Other Other operating expenses Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Total operating expenses A more detailed analysis of auditor’s remuneration is provided below: Fees payable to the company’s auditor for the audit of the company’s annual financial statements Fees payable to the company’s auditor and their associates for other services to the group: – audit of the company’s subsidiaries pursuant to legislation – audit-related assurance services – other services 2021 £’000 219,944 4,263 4,985 1,383 5,053 1,241 14 1,944 76,381 315,208 15,595 10,089 340,892 2021 £’000 152 669 420 – 1,241 2020 £’000 195,216 4,382 4,860 1,197 6,488 1,007 5 1,815 58,588 273,558 14,302 34,449 322,309 2020 £’000 106 418 483 – 1,007 Of the above, audit-related services for the year incurred by the prevailing statutory auditor totalled £1,241,000 (2020: £1,007,000). Audit-related assurance services includes costs relating to the group’s CASS audits and ISAE 3402. 148 148 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 5 Net fee and commission income Fee and commission income Investment Management Funds Fee and commission expense Investment Management Funds Net fee and commission income 6 Net trading and other operating income Net trading income Other operating income 7 Operating expenses Staff costs (note 10) Depreciation of property, plant and equipment (note 19) Depreciation of right-of-use assets (note 20) Amortisation of internally generated intangible assets (note 22) Amortisation and impairment of purchased software (note 22) Auditor’s remuneration (see below) Impairment charges on loans and advances to customers (note 33) Rental charge Other Other operating expenses Acquisition-related costs (note 9) Total operating expenses Charges in relation to client relationships and goodwill (note 22) A more detailed analysis of auditor’s remuneration is provided below: Net trading income was £nil during the year. The net trading expense of £12,000 recognised in 2020 comprised Fund’s net dealing losses. Other operating income of £3,417,000 (2020: £3,929,000) comprised gains and losses from fair value through profit or loss equity securities, rental income of £646,000 from sub-leases on certain properties leased by group companies (2020: £646,000) and sundry income. Fees payable to the company’s auditor for the audit of the company’s annual financial statements Fees payable to the company’s auditor and their associates for other services to the group: – audit of the company’s subsidiaries pursuant to legislation – audit-related assurance services – other services Of the above, audit-related services for the year incurred by the prevailing statutory auditor totalled £1,241,000 (2020: £1,007,000). Audit-related assurance services includes costs relating to the group’s CASS audits and ISAE 3402. 2021 £’000 2020 £’000 389,252 68,444 457,696 327,699 50,541 378,240 (24,171) (4,891) (29,062) 428,634 (19,774) (4,717) (24,491) 353,749 2021 £’000 2020 £’000 219,944 195,216 315,208 273,558 340,892 322,309 4,263 4,985 1,383 5,053 1,241 14 1,944 76,381 15,595 10,089 2021 £’000 152 669 420 – 4,382 4,860 1,197 6,488 1,007 5 1,815 58,588 14,302 34,449 2020 £’000 106 418 483 – 1,241 1,007 8 Business combinations Speirs & Jeffrey On 31 August 2018, the group acquired 100% of the ordinary share capital of Speirs & Jeffrey Limited (‘Speirs & Jeffrey’). Other deferred payments The group has now provided for the total cost of deferred and contingent payments to be made to vendors for the sale of the shares of Speirs & Jeffrey. These payments required the vendors to remain in employment with the group for the duration of the respective deferral periods. Hence, they have been treated as remuneration for post-combination services and the grant date fair value has been charged to profit and loss over the respective vesting periods. The group continues to provide for related incentivisation awards for other staff. During the prior year, the group replaced a share-based incentivisation award for support staff with a cash award. The accumulated charge recognised in equity over the related vesting period was reversed, and a provision was recognised in the 2020 financial statements in respect of the cash award. The award was settled during the year. The remainder of payments are to be made in shares and have been 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 vested during the year at the third anniversary of the acquisition date. — earn-out consideration and related incentivisation awards were subject to the delivery of certain operational and financial performance targets. The awards were payable in two parts in the third and fourth years following the acquisition date. The second earn-out vested during the year. Further details of each of these elements are as follows: Initial share consideration Earn-out consideration and incentivisation awards Gross amount £’000 25,000 40,500 Grant date 31 August 2018 31 August 2018 Grant date fair value £’000 23,462 41,111 Vesting date 31 August 2021 31 December 2020/21 The gross amount in respect of the earn-out consideration and incentivisation awards represents the extent to which the performance targets were achieved at the respective vesting dates (note 2.3). The charge recognised in profit or loss for the year ended 31 December 2021 for the above elements is as follows: Initial share consideration Earn-out consideration and incentivisation awards 2021 £’000 4,533 1,430 5,963 2020 £’000 9,215 23,042 32,257 A net credit of £2,600,000 was charged to profit or loss in the year for the second earn-out consideration. This related in part to a release of a portion of the accumulated charge recognised since the acquisition date, which was based on a higher estimate of the expected award at the time than the final qualifying amount. These costs are being reported as staff costs within acquisition-related costs (see note 9). Barclays Wealth’s Personal Injury and Court of Protection business On 3 April 2020, the group acquired the trade and assets of Barclays Wealth’s Personal Injury and Court of Protection business. The acquired trade relates to the provision of discretionary investment management services to Personal Injury and Court of Protection clients. Cash consideration of £12,048,000 was transferred on the date of acquisition. The sale and purchase agreement also comprised an employee incentive plan that was payable in two tranches. The last tranche of the award vested on 31 December 2020 and was paid during the year. The awards under this plan are considered to be directly attributable costs of acquiring new client relationships, hence these costs have been capitalised in line with IFRS 15 and amortised over a 15 year useful life (note 22). Saunderson House On 20 October 2021, the group acquired 100% of the ordinary share capital of the Saunderson House group. Saunderson House is a UK-based advice-led wealth management business with a focus on professional services clients. It has a long-standing heritage in serving London and South East-based professional services clients, who tend to hold market-leading positions in accountancy and law firms. 148 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 149 149 Notes to the consolidated financial statements continued 8 Business combinations continued Consideration transferred The following table summarises the acquisition date fair value of each class of consideration transferred: Initial cash consideration Deferred cash consideration Total consideration Fair value £'000 87,981 10,873 98,854 Total consideration comprises an initial cash payment of £87,981,000, which was paid on 20 October 2021. A further £45,208,000 was paid to the vendors on completion to settle debt of the acquired group. This debt, now payable to Rathbone Brothers Plc, has been included in the value of net assets acquired. Deferred cash consideration is payable on the first anniversary of the acquisition date to vendors who are not required to remain in employment with the group. As the payment is due within one year, the consideration has not been discounted. Other deferred payments The sale and purchase agreement details other deferred and contingent payments to be made to the vendors for the sale of the shares of Saunderson House. However, these payments require the recipients to remain in employment with the group for the duration of the respective deferral periods. Hence, they are being treated as remuneration for post-combination services, and the cost charged to profit and loss over the respective vesting periods. Details of each of these elements is as follows: Initial share consideration Deferred share consideration Management incentive scheme Grant date Gross amount £'000 20 October 2021 5,223 4,052 20 October 2021 4,750 20 December 2021 Grant date fair value £'000 5,454 4,066 4,093 Expected vesting date 20 October 2024 20 October 2022 31 December 2024 All of these payments are to be made 100% in shares and are being accounted for as equity-settled share-based payments under IFRS 2. — Initial share consideration of £5,223,000 was issued on the date of acquisition, however does not vest until the third anniversary of the acquisition date, subject to the vendors remaining employed until this date. As the share issuance is in pursuance of the arrangement to acquire the shares of the Saunderson House group, the premium of £5,209,000 on the issuance of these shares has been recognised within the merger reserve. — Deferred share consideration of £4,052,000 is payable on the first anniversary of the acquisition date subject to the vendors remaining in employment with the group. — An incentive plan is in place for the Saunderson House senior management team, which is subject to certain operational and financial performance targets. The consideration vests in the fourth year following the acquisition date. The gross amount represents management’s best estimate as to the extent to which these targets will be achieved. The award ranges from a minimum payment of £nil to a cap of £7.2 million. These costs are being reported as staff costs within acquisition-related costs (see note 9). 150 150 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 8 Business combinations continued Consideration transferred The following table summarises the acquisition date fair value of each class of consideration transferred: Fair value £'000 87,981 10,873 98,854 Initial cash consideration Deferred cash consideration Total consideration value of net assets acquired. Other deferred payments Total consideration comprises an initial cash payment of £87,981,000, which was paid on 20 October 2021. A further £45,208,000 was paid to the vendors on completion to settle debt of the acquired group. This debt, now payable to Rathbone Brothers Plc, has been included in the Deferred cash consideration is payable on the first anniversary of the acquisition date to vendors who are not required to remain in employment with the group. As the payment is due within one year, the consideration has not been discounted. The sale and purchase agreement details other deferred and contingent payments to be made to the vendors for the sale of the shares of Saunderson House. However, these payments require the recipients to remain in employment with the group for the duration of the respective deferral periods. Hence, they are being treated as remuneration for post-combination services, and the cost charged to profit and loss over the respective vesting periods. Details of each of these elements is as follows: Initial share consideration Deferred share consideration Management incentive scheme 5,223 4,052 20 October 2021 20 October 2021 4,750 20 December 2021 Gross amount £'000 Grant date Grant date fair value £'000 5,454 4,066 4,093 Expected vesting date 20 October 2024 20 October 2022 31 December 2024 All of these payments are to be made 100% in shares and are being accounted for as equity-settled share-based payments under IFRS 2. — Initial share consideration of £5,223,000 was issued on the date of acquisition, however does not vest until the third anniversary of the acquisition date, subject to the vendors remaining employed until this date. As the share issuance is in pursuance of the arrangement to acquire the shares of the Saunderson House group, the premium of £5,209,000 on the issuance of these shares has been recognised within — Deferred share consideration of £4,052,000 is payable on the first anniversary of the acquisition date subject to the vendors remaining in — An incentive plan is in place for the Saunderson House senior management team, which is subject to certain operational and financial performance targets. The consideration vests in the fourth year following the acquisition date. The gross amount represents management’s best estimate as to the extent to which these targets will be achieved. The award ranges from a minimum payment of £nil to a cap of the merger reserve. employment with the group. £7.2 million. These costs are being reported as staff costs within acquisition-related costs (see note 9). Identifiable assets acquired and liabilities assumed The identifiable net assets of the acquired business at the acquisition date were as follows: 20 October 2021 Property, plant and equipment Trade and other receivables Software assets Client relationship intangibles (note 22) Cash held at bank Right-of-use assets Trade creditors Accruals and other liabilities Due to group companies Deferred tax liabilities (note 21) Lease liabilities Contingent liabilities Total net assets acquired Carrying amounts £'000 519 10,063 1,425 – 8,245 451 (86) (4,485) (47,655) (6) (451) – (31,980) Fair value £'000 – – – 79,415 – – – – – (19,386) – – 60,029 Recognised amounts £'000 519 10,063 1,425 79,415 8,245 451 (86) (4,485) (47,655) (19,392) (451) – 28,049 The fair value of the client relationship intangible assets has been measured using a multi-period earnings method (note 22). The model uses estimates of client longevity and investment performance to derive a series of cash flows, which are discounted to a present value to determine the fair value of the client relationships acquired. The deferred tax liability arises on recognition of the client relationship intangible assets, and is equal to its carrying value. The fair value of all other net assets acquired were equal to their carrying value. Goodwill Goodwill arising from the acquisition has been recognised as follows: Total consideration (see above) Fair value of identifiable net assets acquired (see above) £'000 98,854 28,049 70,805 Goodwill of £70,805,000 arises as a result of the acquired workforce, expected future growth as well as operational and revenue synergies arising post integration. Any impairment of goodwill in future periods is not expected to be deductible for tax purposes. During the period to 31 December 2021, Saunderson House contributed £6,142,000 to the group’s operating income, and £1,122,000 to the group’s profit before tax. This excludes the acquisition-related costs of £3,669,000 (see note 9), which were paid by Rathbone Brothers Plc. If the group had made the acquisition on 1 January 2021, Saunderson House would have contributed £32,481,000 to group operating income and £2,067,000 to profit before tax, as based on the company’s full year results. 150 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 151 151 Notes to the consolidated financial statements continued 9 Acquisition-related costs Acquisition of Speirs & Jeffrey Acquisition of Barclay’s Wealth Personal Injury and Court of Protection business Acquisition of Saunderson House Acquisition-related costs 2021 £’000 6,418 2 3,669 10,089 2020 £’000 34,273 176 – 34,449 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 following classification within the income statement: Acquisition costs: – Staff costs (note 10) – Legal and advisory fees Integration costs 2021 £’000 2020 £’000 5,964 5 449 6,418 32,257 20 1,996 34,273 Non-staff acquisition costs of £5,000 (2020: £20,000) and integration costs of £449,000 (2020: £1,996,000) have not been allocated to a specific operating segment (note 3). Costs relating to the acquisition of Barclays Wealth’s Personal Injury and Court of Protection business On 3 April 2020, the group acquired the trade and assets of Barclays Wealth’s Personal Injury and Court of Protection business. The group incurred professional services costs of £2,000 (2020: £176,000) in relation to the acquisition during the year. Costs relating to the acquisition of Saunderson House The group has incurred the following costs in relation to the acquisition of Saunderson House, summarised by the following classification within the income statement: Acquisition costs: – Staff costs (note 10) – Legal and advisory fees Integration costs 10 Staff costs Wages and salaries Social security costs Equity-settled share-based payments Acquisition-related staff costs (note 9) Pension costs (note 29): – Defined benefit schemes – Defined contribution schemes Total staff costs Acquisition-related staff costs Underlying staff costs (note 3) 2021 £’000 2020 £’000 1,406 2,263 – 3,669 – – – – 2021 £’000 172,921 23,231 11,599 7,370 2020 £’000 153,332 19,930 11,276 32,257 105 12,088 12,193 227,314 (7,370) 219,944 200 10,478 10,678 227,473 (32,257) 195,216 152 152 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued Acquisition of Barclay’s Wealth Personal Injury and Court of Protection business 9 Acquisition-related costs Acquisition of Speirs & Jeffrey Acquisition of Saunderson House Acquisition-related costs within the income statement: Acquisition costs: – Staff costs (note 10) – Legal and advisory fees Integration costs operating segment (note 3). Acquisition costs: – Staff costs (note 10) – Legal and advisory fees Integration costs 10 Staff costs Wages and salaries Social security costs Equity-settled share-based payments Acquisition-related staff costs (note 9) Pension costs (note 29): – Defined benefit schemes – Defined contribution schemes Total staff costs Acquisition-related staff costs Underlying staff costs (note 3) 2021 £’000 6,418 2 3,669 10,089 34,273 2020 £’000 176 – 34,449 2021 £’000 2020 £’000 5,964 32,257 5 449 6,418 20 1,996 34,273 2021 £’000 2020 £’000 1,406 2,263 – 3,669 – – – – 2021 £’000 2020 £’000 172,921 153,332 23,231 11,599 7,370 105 12,088 12,193 227,314 (7,370) 19,930 11,276 32,257 200 10,478 10,678 227,473 (32,257) 219,944 195,216 Non-staff acquisition costs of £5,000 (2020: £20,000) and integration costs of £449,000 (2020: £1,996,000) have not been allocated to a specific Costs relating to the acquisition of Barclays Wealth’s Personal Injury and Court of Protection business On 3 April 2020, the group acquired the trade and assets of Barclays Wealth’s Personal Injury and Court of Protection business. The group incurred professional services costs of £2,000 (2020: £176,000) in relation to the acquisition during the year. Costs relating to the acquisition of Saunderson House The group has incurred the following costs in relation to the acquisition of Saunderson House, summarised by the following classification within the income statement: 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 following classification 11 Income tax expense Current tax: – charge for the year – adjustments in respect of prior years Deferred tax (note 21): – credit for the year – adjustments in respect of prior years The average number of employees, on a full-time-equivalent basis, during the year was as follows: Investment Management: – investment management services – advisory services Funds Shared services 2021 2020 1,096 137 43 463 1,739 996 123 37 379 1,535 2021 £’000 2020 £’000 23,796 86 18,247 (727) (3,793) (283) 19,806 (1,495) 1,102 17,127 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 (2020: higher) than the standard rate of corporation tax in the UK of 19.0% (2020: 19.0%). The differences are explained below: Tax on profit from ordinary activities at the standard rate of 19.0% (2020: 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 9) – other – Effect of change in corporation tax rate on deferred tax 12 Dividends Amounts recognised as distributions to equity holders in the year: – final dividend for the year ended 31 December 2020 of 47.0p (2019: 45.0p) per share – interim dividend for the year ended 31 December 2021 of 27.0p (2020: 25.0p) per share Dividends paid in the year of 74.0p (2020: 70.0p) per share Proposed final dividend for the year ended 31 December 2021 of 54.0p (2020: 47.0p) per share 2021 £’000 18,057 984 87 (56) (197) 927 8 (4) 19,806 2020 £’000 8,318 454 2,228 (225) 375 5,455 (49) 571 17,127 2021 £’000 2020 £’000 25,938 18,022 43,960 31,479 24,316 13,515 37,831 25,213 An interim dividend of 27.0p per share was paid on 5 October 2021 to shareholders on the register at the close of business on 3 September 2021 (2020: 25.0p). A final dividend declared of 54p per share (2020: 47.0p) is payable on 10 May 2022 to shareholders on the register at the close of business on 22 April 2022. The final dividend is subject to approval by shareholders at the Annual General Meeting on 5 May 2022 and has not been included as a liability in these financial statements. 152 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 153 153 Notes to the consolidated financial statements continued 13 Earnings per share Earnings used to calculate earnings per share on the bases reported in these financial statements were: Underlying profit attributable to shareholders Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Profit attributable to shareholders Pre-tax £’000 120,719 (15,595) (10,089) 95,035 2021 Taxation £’000 (23,732) 2,963 963 (19,806) Post-tax £’000 96,987 (12,632) (9,126) 75,229 Pre-tax £’000 92,530 (14,302) (34,449) 43,779 2020 Taxation £’000 (20,928) 2,717 1,084 (17,127) Post-tax £’000 71,602 (11,585) (33,365) 26,652 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 on shares, of 56,334,784 (2020: 53,720,680). Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Saunderson House 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. The Speirs and Jeffrey initial share consideration vested during the year. 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 Speirs & Jeffrey initial share consideration (note 8) Effect of contingently issuable shares under Saunderson House initial share consideration (note 8) Diluted ordinary shares 2021 2020 56,334,784 53,720,680 231,259 73,990 929,457 1,006,522 – 58,178,975 55,961,908 521,955 237,776 811,508 – 272,952 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 2021 2020 133.5p 129.3p 172.2p 166.7p 49.6p 47.6p 133.3p 127.9p Underlying earnings per share is calculated in the same way as earnings per share, but by reference to underlying profit attributable to shareholders. 14 Cash and balances with central banks Cash in hand Balances with central banks Less impairment loss allowance 2021 £’000 – 1,463,377 (83) 1,463,294 2020 £’000 – 1,803,434 (728) 1,802,706 154 154 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 13 Earnings per share Earnings used to calculate earnings per share on the bases reported in these financial statements were: Underlying profit attributable to shareholders 120,719 (23,732) Charges in relation to client relationships and goodwill (note 22) Acquisition-related costs (note 9) Profit attributable to shareholders Pre-tax £’000 2021 Taxation £’000 (15,595) (10,089) 95,035 2,963 963 (19,806) Post-tax £’000 96,987 (12,632) (9,126) 75,229 Pre-tax £’000 2020 Taxation £’000 92,530 (20,928) (14,302) (34,449) 43,779 2,717 1,084 (17,127) Post-tax £’000 71,602 (11,585) (33,365) 26,652 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 on shares, of 56,334,784 (2020: 53,720,680). Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Saunderson House 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. The Speirs and Jeffrey initial share consideration vested during the year. 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 Speirs & Jeffrey initial share consideration (note 8) Effect of contingently issuable shares under Saunderson House initial share consideration (note 8) Diluted ordinary shares Earnings per share for the year attributable to equity holders of the company: Underlying earnings per share for the year attributable to equity holders of the company: – basic – diluted – basic – diluted to shareholders. 14 Cash and balances with central banks Cash in hand Balances with central banks Less impairment loss allowance 2021 2020 56,334,784 53,720,680 521,955 237,776 811,508 231,259 73,990 929,457 – 1,006,522 272,952 – 58,178,975 55,961,908 2021 2020 133.5p 129.3p 172.2p 166.7p 49.6p 47.6p 133.3p 127.9p 2021 £’000 – 2020 £’000 – 1,463,377 1,803,434 (83) (728) 1,463,294 1,802,706 Underlying earnings per share is calculated in the same way as earnings per share, but by reference to underlying profit attributable The fair value of balances with central banks is not materially different from their carrying amount. Repayable: – on demand – within 1 year but over 3 months Less impairment loss allowance Amounts include balances: – with variable interest rates – which are 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 33. 15 Loans and advances to banks Current accounts Fixed term deposits Less impairment loss allowance Repayable: – on demand – within 3 months or less excluding on demand – within 1 year but over 3 months Less impairment loss allowance Amounts include loans and advances: – with variable interest rates – with fixed interest rates – which are non-interest-bearing Less impairment loss allowance 2021 £’000 2020 £’000 1,460,001 1,798,000 5,434 (728) 1,463,294 1,802,706 3,376 (83) 1,460,000 1,798,000 5,434 (728) 1,463,294 1,802,706 3,377 (83) 2021 £’000 173,589 30,000 – 203,589 2020 £’000 149,432 10,000 (2) 159,430 2021 £’000 2020 £’000 173,589 – 30,000 – 203,589 203,417 – 172 – 203,589 149,432 10,000 – (2) 159,430 149,182 10,000 250 (2) 159,430 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 2021 were £173,589,000 (note 38) (2020: £159,432,000). The group’s exposure to credit risk arising from loans and advances to banks is described in note 33. 154 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 155 155 Notes to the consolidated financial statements continued 16 Loans and advances to customers Overdrafts Investment management loan book Trust and financial planning debtors Other debtors Less impairment loss allowance 2021 £’000 7,022 167,981 4,208 864 (235) 179,840 2020 £’000 6,384 157,957 1,425 557 (102) 166,221 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 – within 3 months or less excluding on demand – within 1 year but over 3 months – within 5 years but over 1 year Less impairment loss allowance Amounts include loans and advances: – with variable interest rates – which are 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 33. 17 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 2021 £’000 2020 £’000 8,199 4,565 2,621 164,690 (235) 179,840 174,401 5,674 (235) 179,840 7,185 3,545 107 155,486 (102) 166,221 164,229 2,094 (102) 166,221 2021 £’000 2020 £’000 7,376 2,558 5,728 2,569 20,000 29,934 99,262 107,559 2021 £’000 2020 £’000 761,682 (28) 761,654 651,533 (106) 651,427 Debt securities comprise certificates of deposit and are all due to mature within one year (2020: all). Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities comprises units in Rathbone Unit Trust Management managed funds and Euroclear shares. Equity securities do not bear interest. Money market funds, which declare daily dividends that are in the nature of interest at a variable rate and which are realisable on demand, have been included within cash equivalents (note 38). The fair value of debt securities is disclosed in note 33. The change in the group’s holdings of investment securities in the year is summarised below. 156 156 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 16 Loans and advances to customers Overdrafts Investment management loan book Trust and financial planning debtors Other debtors Less impairment loss allowance Repayable: – on demand – within 3 months or less excluding on demand – within 1 year but over 3 months – within 5 years but over 1 year Less impairment loss allowance Amounts include loans and advances: – with variable interest rates – which are non-interest-bearing Less impairment loss allowance 17 Investment securities Fair value through profit or loss Equity securities: – listed – unlisted – unlisted Money market funds: Amortised cost Debt securities: – unlisted Less impairment loss allowance 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. The group’s exposure to credit risk arising from loans and advances to customers is described in note 33. Debt securities comprise certificates of deposit and are all due to mature within one year (2020: all). Fair value through profit or loss securities include money market funds and direct holdings in equity securities. Equity securities comprises units in Rathbone Unit Trust Management managed funds and Euroclear shares. Equity securities do not bear interest. Money market funds, which declare daily dividends that are in the nature of interest at a variable rate and which are realisable on demand, have been included within cash equivalents (note 38). The fair value of debt securities is disclosed in note 33. The change in the group’s holdings of investment securities in the year is summarised below. 167,981 157,957 2021 £’000 7,022 4,208 864 (235) 2020 £’000 6,384 1,425 557 (102) 179,840 166,221 2021 £’000 2020 £’000 8,199 4,565 2,621 7,185 3,545 107 164,690 155,486 (235) (102) 179,840 166,221 174,401 164,229 5,674 (235) 2,094 (102) 179,840 166,221 2021 £’000 2020 £’000 7,376 2,558 5,728 2,569 20,000 29,934 99,262 107,559 2021 £’000 2020 £’000 761,682 651,533 (28) (106) 761,654 651,427 At 1 January 2020 Additions Disposals (sales and redemptions) Foreign exchange movements Gain from changes in fair value Increase in impairment loss allowance At 1 January 2021 Additions Disposals (sales and redemptions) Foreign exchange movements Gain from changes in fair value Decrease in impairment loss allowance At 31 December 2021 Fair value through profit or loss £’000 105,967 1,063 (417) (386) 1,332 – 107,559 56,658 (134,924) (188) 829 – 29,934 Amortised cost £’000 600,261 885,783 (833,295) (1,245) – (77) 651,427 930,728 (821,100) 519 – 80 761,654 Total £’000 706,228 886,846 (833,712) (1,631) 1,332 (77) 758,986 987,386 (956,024) 331 829 80 791,588 Included within amortised cost are additions of £1,658,000 (2020: £1,063,000) and £690,000 (2020: £417,000) of disposals of financial instruments that are not classified as cash and cash equivalents. 18 Prepayments, accrued income and other assets Work in progress Prepayments and other assets Accrued income 19 Property, plant and equipment Cost At 1 January 2020 Additions Disposals At 1 January 2021 Additions Acquisitions through business combinations (note 8) Disposals At 31 December 2021 Depreciation At 1 January 2020 Charge for the year Disposals At 1 January 2021 Charge for the year Acquisitions through business combinations (note 8) Disposals At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 2021 £’000 9,943 19,507 86,542 115,992 2020 £’000 3,526 16,191 78,997 98,714 Plant and equipment £’000 21,612 2,896 (819) 23,689 1,738 3,765 (1,987) 27,205 18,058 2,432 (819) 19,671 2,259 3,318 (1,946) 23,302 3,903 4,018 3,554 Total £’000 43,321 3,796 (819) 46,298 1,999 4,343 (1,987) 50,653 27,889 4,382 (819) 31,452 4,263 3,825 (1,946) 37,594 13,059 14,846 15,432 Short term leasehold improvements £’000 21,709 900 – 22,609 261 578 – 23,448 9,831 1,950 – 11,781 2,004 507 – 14,292 9,156 10,828 11,878 156 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 157 157 Notes to the consolidated financial statements continued 20 Right-of-use assets Cost At 1 January 2020 Additions Disposals Other movements At 1 January 2021 Additions Acquisitions through business combinations (note 8) Disposals Other movements At 31 December 2021 Depreciation and impairment 1 January 2020 Charge for the year Disposals Other movements At 1 January 2021 Charge for the year Disposals Other movements At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 Property £'000 Motor vehicles and equipment £’000 54,275 258 (42) (23) 54,468 3,505 451 (81) (284) 58,059 4,822 4,845 – (42) 9,625 4,953 (81) – 14,497 43,562 44,843 49,453 41 – – – 41 354 – (24) – 371 14 14 – – 28 34 (24) – 38 333 13 27 Total £’000 54,316 258 (42) (23) 54,509 3,859 451 (105) (284) 58,430 4,836 4,859 – (42) 9,653 4,987 (105) – 14,535 43,895 44,856 49,480 The group recognised a charge of £58,400 in profit or loss during the year in respect of short-term leases and low-value assets (2020: £43,000). 21 Net deferred tax asset/ (liability) The UK Government legislated in the Finance Act 2021 to increase the UK corporation tax rate to 25.0% in 2023. The Finance Act 2021 was enacted on 10 June 2021. This has been reflected in the deferred tax calculations. 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. 158 158 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued Acquisitions through business combinations (note 8) 20 Right-of-use assets Cost At 1 January 2020 Additions Disposals Other movements At 1 January 2021 Additions Disposals Other movements At 31 December 2021 Depreciation and impairment 1 January 2020 Charge for the year Disposals Other movements At 1 January 2021 Charge for the year Disposals Other movements At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 21 Net deferred tax asset/ (liability) 58,059 371 58,430 Motor vehicles Property and equipment £'000 £’000 54,275 41 54,316 Total £’000 258 (42) (23) 54,509 3,859 451 (105) (284) 4,836 4,859 – (42) 9,653 4,987 (105) – 14,535 43,895 44,856 49,480 54,468 3,505 41 354 258 (42) (23) 451 (81) (284) 4,822 4,845 – (42) 9,625 4,953 (81) – 14,497 43,562 44,843 49,453 – – – – – – – – (24) 14 14 28 34 (24) 38 333 13 27 The movement on the deferred tax account is as follows: As at 1 January 2021 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 Business combinations Total Deferred capital allowances £’000 2,634 110 119 934 1,163 – – – – – – – – – (6) Pensions £’000 1,857 (946) – – (946) (3,247) – – (3,247) – – – – – – Share-based payments £’000 4,364 Staff-related costs £’000 5,624 Fair value through profit or loss £’000 (701) 2,170 3 1,736 3,909 1,476 161 – 1,637 (97) – – (97) Intangible assets £’000 (10,436) 1,083 – (2,666) (1,583) – – – – 1,211 (8) 208 1,411 – – – – – – – – – – – – – – – – – – – – – – Total £’000 3,342 3,796 283 4 4,083 (3,247) – – (3,247) 1,211 (8) 208 1,411 – – – – – – – – (19,394) (19,394) (19,394) (19,400) The group recognised a charge of £58,400 in profit or loss during the year in respect of short-term leases and low-value assets (2020: £43,000). As at 31 December 2021 3,791 (2,336) 9,684 7,261 (798) (31,413) (13,811) The UK Government legislated in the Finance Act 2021 to increase the UK corporation tax rate to 25.0% in 2023. The Finance Act 2021 was enacted on 10 June 2021. This has been reflected in the deferred tax calculations. 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. Deferred tax assets Deferred tax liabilities As at 31 December 2021 Deferred capital allowances £’000 3,791 – 3,791 Pensions £’000 – (2,336) (2,336) Share-based payments £’000 9,684 – 9,684 Staff- related costs £’000 7,261 – 7,261 Fair value through profit or loss £’000 – (798) (798) Intangible assets £’000 – (31,413) (31,413) Total £’000 20,736 (34,547) (13,811) 158 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 159 159 Notes to the consolidated financial statements continued 21 Net deferred tax asset/ (liability) continued Deferred capital allowances £’000 1,964 As at 1 January 2020 Recognised in profit or loss in respect of: – current year – prior year – change in rate Total Share-based payments £’000 3,545 Staff-related costs £’000 4,996 398 22 445 865 1,327 (1,155) 456 628 Fair value through profit or loss £’000 (304) (360) – (37) (397) Intangible assets £’000 (8,925) 848 – (1,050) (202) Pensions £’000 1,360 (553) – (618) (1,171) 890 – 778 1,668 – – – – – – 405 31 234 670 – – – – – – – – – – Total £’000 2,636 2,065 (1,102) (570) 393 890 – 778 1,668 (36) (17) 7 (46) – – – – – – – – (1,309) (1,309) (1,309) (1,309) – – – – (36) (17) 7 (46) – – – – – – – – – – – – – – – – – – – – – – 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 Business combinations Total As at 31 December 2020 2,634 1,857 4,364 5,624 (701) (10,436) 3,342 Deferred tax assets Deferred tax liabilities As at 31 December 2020 Deferred capital allowances £’000 2,634 – 2,634 Pensions £’000 1,857 – 1,857 Share-based payments £’000 4,364 – 4,364 Staff-related costs £’000 5,624 – 5,624 Fair value through profit or loss £’000 – (701) (701) Intangible assets £’000 – (10,436) (10,436) Total £’000 14,479 (11,137) 3,342 160 160 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 21 Net deferred tax asset/ (liability) continued As at 1 January 2020 Recognised in profit or loss in respect of: Recognised in other comprehensive income in respect of: – current year – prior year – change in rate Total – current year – prior year – change in rate Total – current year – prior year – change in rate Total Business combinations Total Recognised in equity in respect of: Deferred capital allowances £’000 1,964 405 31 234 670 – – – – – – – – – – Pensions £’000 1,360 (553) – (618) (1,171) 890 – 778 1,668 – – – – – – Share-based payments £’000 3,545 Staff-related costs £’000 4,996 398 22 445 865 1,327 (1,155) 456 628 Fair value through profit or loss £’000 (304) (360) – (37) (397) Intangible assets £’000 (8,925) 848 – (1,050) (202) Total £’000 2,636 2,065 (1,102) (570) 393 890 – 778 1,668 (36) (17) 7 (46) – – – – – – – – (1,309) (1,309) (1,309) (1,309) – – – – – – – – – – – – – – (36) (17) 7 (46) – – – – – – – – – – – – As at 31 December 2020 2,634 1,857 4,364 5,624 (701) (10,436) 3,342 Deferred tax assets Deferred tax liabilities As at 31 December 2020 Deferred capital allowances £’000 2,634 – Pensions £’000 1,857 – Share-based payments £’000 4,364 – Staff-related costs £’000 5,624 – 2,634 1,857 4,364 5,624 Fair value through profit or loss £’000 – (701) (701) Intangible assets £’000 – (10,436) (10,436) Total £’000 14,479 (11,137) 3,342 22 Intangible assets Goodwill Other intangible assets 2021 £’000 167,677 208,510 376,187 2020 £’000 96,872 134,272 231,144 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. The carrying amount of goodwill has been allocated as follows: Cost At 1 January 2020 Acquired through business combinations (note 8) At 1 January 2021 Acquired through business combinations (note 8) At 31 December 2021 Impairment At 1 January 2020 Charge for the year At 1 January 2021 Charge for the year At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 Investment Management £’000 90,405 6,467 96,872 70,805 167,677 – – – – – 167,677 96,872 90,405 Funds £’000 Total £’000 1,954 – 1,954 – 1,954 1,954 – 1,954 – 1,954 – – – 92,359 6,467 98,826 70,805 169,631 1,954 – 1,954 – 1,954 167,677 96,872 90,405 Goodwill of £70,805,000 acquired through business combinations in the period relates to the acquisition of Saunderson House (2020: £6,467,000 acquired in the prior year relates to the acquisition of the Barclays Wealth’s Personal Injury and Court of Protection business). See note 8. This has been 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. Impairment 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. 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 Internal Capital Adequacy Assessment Process (‘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 CGU is shown in the table below; these are based on a risk- adjusted weighted average cost of capital. The group judges that these discount rates appropriately reflect the markets in which each group of CGUs operate. There was no impairment to the goodwill allocated to the Investment Management group of CGUs during the period. The group has considered any reasonably foreseeable changes to the assumptions used in the value-in-use calculation for the Investment Management group of CGUs to its cash flow projections and the level of risk associated with those cash flows. Based on this assessment, no such change would result in an impairment of the goodwill allocated to this CGU. 160 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 161 161 Notes to the consolidated financial statements continued 22 Intangible assets continued At 31 December Discount rate Annual revenue growth rate Terminal growth rate Other intangible assets Cost At 1 January 2020 Internally developed in the year Acquired through business combinations (note 8) Purchased in the year Disposals At 1 January 2021 Internally developed in the year Acquired through business combinations (note 8) Purchased in the year Disposals At 31 December 2021 Amortisation and impairment At 1 January 2020 Impairment charge Amortisation charge Disposals At 1 January 2021 Acquired through business combinations (note 8) Amortisation charge Disposals At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 Investment Management 2021 12.0% 4.2% 1.0% 2020 12.2% 5.0% 1.0% Purchased software £’000 41,148 – – 6,269 (1,228) 46,189 – 5,662 4,840 (3,699) 52,992 30,347 – 6,488 (1,228) 35,607 4,237 5,053 (3,673) 41,224 11,768 10,582 10,801 Total £’000 256,466 1,613 6,890 10,354 (3,086) 272,237 1,995 85,077 13,460 (5,415) 367,354 119,064 – 21,987 (3,086) 137,965 4,237 22,031 (5,389) 158,844 208,510 134,272 137,402 Client relationships £’000 207,136 – 6,890 4,085 (1,858) 216,253 – 79,415 8,620 (1,716) 302,572 82,680 – 14,302 (1,858) 95,124 – 15,595 (1,716) 109,003 193,569 121,129 124,456 Software development costs £’000 8,182 1,613 – – – 9,795 1,995 – – – 11,790 6,037 – 1,197 – 7,234 – 1,383 – 8,617 3,173 2,561 2,145 Client relationships of £79,415,000 acquired through business combinations in the period relate to the acquisition of Saunderson House (2020: £6,890,000 acquired in the prior year relates to the acquisition of the Barclays Wealth’s Personal Injury and Court of Protection business). See note 8. Purchases of client relationships of £8,620,000 (2020: £4,085,000) 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 £15,595,000 (2020: £14,302,000). Purchased software with a cost of £32,363,000 (2020: £23,803,000) has been fully amortised but is still in use. 23 Deposits by banks On 31 December 2021, deposits by banks included overnight cash book overdraft balances of £2,212,000 (2020: £893,000). 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. 162 162 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 22 Intangible assets continued At 31 December Discount rate Annual revenue growth rate Terminal growth rate Other intangible assets Internally developed in the year Acquired through business combinations (note 8) Cost At 1 January 2020 Purchased in the year Disposals At 1 January 2021 Internally developed in the year Acquired through business combinations (note 8) Purchased in the year Disposals At 31 December 2021 Amortisation and impairment At 1 January 2020 Impairment charge Amortisation charge Disposals At 1 January 2021 Amortisation charge Disposals At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 Acquired through business combinations (note 8) Investment Management 2021 12.0% 4.2% 1.0% 2020 12.2% 5.0% 1.0% Purchased software £’000 Total £’000 41,148 256,466 46,189 272,237 – – – – 6,269 (1,228) 5,662 4,840 (3,699) 52,992 6,488 (1,228) 4,237 5,053 (3,673) 41,224 11,768 10,582 10,801 1,613 6,890 10,354 (3,086) 1,995 85,077 13,460 (5,415) 367,354 – 21,987 (3,086) 4,237 22,031 (5,389) 158,844 208,510 134,272 137,402 Client development – – – – relationships £’000 207,136 6,890 4,085 (1,858) 216,253 79,415 8,620 (1,716) 14,302 (1,858) 95,124 15,595 (1,716) 109,003 193,569 121,129 124,456 Software costs £’000 8,182 1,613 9,795 1,995 1,197 1,383 8,617 3,173 2,561 2,145 – – – – – – – – – – 302,572 11,790 82,680 6,037 30,347 119,064 7,234 35,607 137,965 Client relationships of £79,415,000 acquired through business combinations in the period relate to the acquisition of Saunderson House (2020: £6,890,000 acquired in the prior year relates to the acquisition of the Barclays Wealth’s Personal Injury and Court of Protection business). See note 8. Purchases of client relationships of £8,620,000 (2020: £4,085,000) 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 £15,595,000 (2020: £14,302,000). Purchased software with a cost of £32,363,000 (2020: £23,803,000) has been fully amortised but is still in use. 23 Deposits by banks On 31 December 2021, deposits by banks included overnight cash book overdraft balances of £2,212,000 (2020: £893,000). 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. 24 Due to customers Repayable: – on demand – within 3 months or less excluding on demand – within 1 year or less but over 3 months Amounts include balances: – with variable interest rates – with fixed interest rates – which are non-interest-bearing 2021 £’000 2020 £’000 2,205,984 2,453,676 106,699 1,392 2,333,011 2,561,767 122,784 4,243 2,205,984 2,445,377 66,776 49,614 2,333,011 2,561,767 66,367 60,660 The fair value of amounts due to customers was not materially different from their carrying value. The estimated fair value of deposits with no stated maturity, which include non-interest-bearing deposits, is the amount at which deposits could be transferred to a third party at the measurement date. The estimated fair value of fixed-interest-bearing deposits is based on discounted cash flows using interest rates for new debts with similar remaining maturity. 25 Accruals, deferred income, provisions and other liabilities Trade creditors Other creditors Accruals Other provisions (note 26) 26 Other provisions At 1 January 2020 Charged to profit or loss Unused amount credited to profit or loss Net charge to profit or loss Other movements Utilised/paid during the year At 1 January 2021 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 2021 Payable within 1 year Payable after 1 year 2021 £’000 59 23,667 105,448 15,324 144,498 2020 £’000 785 20,766 81,805 8,715 112,071 Property- related £’000 5,238 (642) (23) (665) – (825) 3,748 995 – 995 – (100) 4,643 96 4,547 4,643 Total £’000 8,732 585 (442) 143 3,857 (4,017) 8,715 3,273 (155) 3,118 7,992 (4,501) 15,324 5,806 9,518 15,324 Deferred, variable costs to acquire client relationship intangibles £’000 1,319 – – 3,857 (1,391) 3,785 – – – 7,992 (3,239) 8,538 3,567 4,971 8,538 Deferred consideration in business combinations £’000 – 588 – 588 – – 588 – – – – (588) – Legal and compensation £’000 2,175 639 (419) 220 – (1,801) 594 2,278 (155) 2,123 – (574) 2,143 – – – 2,143 – 2,143 162 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 163 163 Notes to the consolidated financial statements continued 26 Other provisions continued 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. Deferred and contingent consideration in business combinations During the year, the group settled an incentivisation award for Speirs & Jeffrey support staff in the value of £588,000. 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 £4,643,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group (2020: £3,748,000). Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2021, dilapidation provisions increased by £885,000 (2020: decreased by £1,490,000). During the year, the group utilised £100,000 for the property held in Edinburgh (2020: £nil). The dilapidation provision held for the property at 1 Curzon Street was fully utilised in the prior year. The impact of discounting led to an additional credit of £995,000 (2020: additional charge of £642,000) being recognised during the year. Amounts payable after one year Property-related provisions of £4,547,000 are expected to be settled within 12 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 three years of the balance sheet date. 27 Lease liabilities Maturity analysis Less than one year One to five years More than five years Lease liabilities at 31 December Current Non-current 28 Subordinated loan notes Subordinated loan notes – face value – carrying value 2021 £’000 2020 £’000 4,853 4,869 19,819 19,307 30,299 31,948 54,971 56,124 4,853 4,869 50,118 51,255 54,971 56,124 2021 £’000 2020 £’000 40,000 39,893 20,000 19,768 During the year, Rathbone Investment Management Limited repaid its £20.0 million 10-year callable subordinated loan notes, and Rathbone Brothers Plc issued £40.0 million of 10-year tier 2 notes with a call option in October 2026 and annually thereafter. Interest is payable at a fixed rate of 5.642% per annum until the first call option date and at a fixed rate of 4.893% over Compounded Daily SONIA thereafter. Legal fees of £107,000 were incurred in issuing the notes, which have been accounted for in the carrying value of amortised cost. An interest expense of £1,241,000 (2020: £902,000) was recognised in the year. 164 164 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 26 Other provisions continued Deferred, variable costs to acquire client relationship intangibles relationships, which have been capitalised in the year. Deferred and contingent consideration in business combinations Other movements in provisions relate to deferred payments to investment managers and third parties for the introduction of client During the year, the group settled an incentivisation award for Speirs & Jeffrey support staff in the value of £588,000. 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 £4,643,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group (2020: £3,748,000). Dilapidation provisions are calculated using a discounted cash flow model; during the year ended 31 December 2021, dilapidation provisions increased by £885,000 (2020: decreased by £1,490,000). During the year, the group utilised £100,000 for the property held in Edinburgh (2020: £nil). The dilapidation provision held for the property at 1 Curzon Street was fully utilised in the prior year. The impact of discounting led to an additional credit of £995,000 (2020: additional charge of Property-related provisions of £4,547,000 are expected to be settled within 12 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 £642,000) being recognised during the year. Amounts payable after one year three years of the balance sheet date. 27 Lease liabilities Maturity analysis Less than one year One to five years More than five years Current Non-current Lease liabilities at 31 December 28 Subordinated loan notes Subordinated loan notes – face value – carrying value 2021 £’000 2020 £’000 4,853 4,869 19,819 19,307 30,299 31,948 54,971 56,124 4,853 4,869 50,118 51,255 54,971 56,124 2021 £’000 2020 £’000 40,000 39,893 20,000 19,768 During the year, Rathbone Investment Management Limited repaid its £20.0 million 10-year callable subordinated loan notes, and Rathbone Brothers Plc issued £40.0 million of 10-year tier 2 notes with a call option in October 2026 and annually thereafter. Interest is payable at a fixed rate of 5.642% per annum until the first call option date and at a fixed rate of 4.893% over Compounded Daily SONIA thereafter. Legal fees of £107,000 were incurred in issuing the notes, which have been accounted for in the carrying value of amortised cost. An interest expense of £1,241,000 (2020: £902,000) was recognised in the year. 29 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 contributions made to these schemes during the year £12,006,000 (2020: £10,411,000). The group also operates a defined contribution scheme for overseas employees, for which the total contributions were £82,000 (2020: £67,000). 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 (GMPs) 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 to achieve equality. The High Court made a further ruling in November 2020 relating to members with GMPs that had previously transferred out, whereby the scheme remains liable for paying any required adjustments arising from GMP equalisation. An estimate of the additional payment was recognised as a past service cost in 2020. 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 31 December 2019. 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 Prices Index Laurence Keen Scheme Rathbone 1987 Scheme 2021 % (unless stated) n/a 3.70 3.40 1.90 3.40 2.00 52.5 2020 % (unless stated) n/a 3.40 3.00 1.30 3.00 3.00 52.5 2021 % (unless stated) n/a 3.30 3.40 1.90 3.40 2.00 52.5 2020 % (unless stated) n/a 3.00 3.00 1.30 3.00 3.00 52.5 164 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 165 165 Notes to the consolidated financial statements continued 29 Long-term employee benefits continued Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically: 1. the discount rate has been increased by 0.6% to reflect a decrease in the yields available on AA-rated corporate bonds 2. the assumed rate of future inflation has increased by 0.4% and reflects expectations of long-term inflation as implied by changes in the Bank of England inflation yield curve 3. the assumed rates of future increases to pensions in payment increased by 0.3% for both schemes, allowing for the change to the assumed rate of future inflation Over the year the mortality assumptions have been updated. The CMI model used to project future improvements in mortality has been updated from the 2019 version to the 2020 version. 2% of members not yet in receipt of their pension are assumed to transfer out of the scheme each year (2020: 3%). The assumed duration of the liabilities for the Laurence Keen Scheme is 15 years (2020: 16 years) and the assumed duration for the Rathbone 1987 Scheme is 20 years (2020: 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 S3PA ‘Light’ actuarial tables with improvements in line with the CMI 2020 tables with a long-term rate of improvement of 1.5% p.a. The assumed life expectancies on retirement were: Retiring today: Retiring in 20 years: aged 60 aged 65 aged 60 aged 65 2021 2020 Males 28.2 23.3 29.9 24.8 Females 29.9 24.9 31.6 26.6 Males 28.2 23.3 29.9 24.8 Females 29.8 24.8 31.5 26.5 The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows: Present value of defined benefit obligations Fair value of scheme assets Net defined benefit liability Laurence Keen Scheme £’000 (11,149) 12,981 1,832 2021 Rathbone 1987 Scheme £’000 (144,428) 154,883 10,455 Total £’000 (155,577) 167,864 12,287 Laurence Keen Scheme £’000 (12,374) 12,592 218 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 (5) – (5) 2021 Rathbone 1987 Scheme £’000 110 – 110 Total £’000 105 – 105 Laurence Keen Scheme £’000 7 76 83 2020 Rathbone 1987 Scheme £’000 (153,030) 143,027 (10,003) 2020 Rathbone 1987 Scheme £’000 117 – 117 Total £’000 (165,404) 155,619 (9,785) Total £’000 124 76 200 Remeasurements of the net defined benefit asset have been reported in other comprehensive income. The actual return on scheme assets was a rise in value of £481,000 (2020: £451,000 rise) for the Laurence Keen Scheme and a rise in value of £11,501,000 (2020: £9,660,000 rise) for the Rathbone 1987 Scheme. 166 166 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued Over the year, the financial assumptions have been amended to reflect changes in market conditions. Specifically: 1. the discount rate has been increased by 0.6% to reflect a decrease in the yields available on AA-rated corporate bonds 2. the assumed rate of future inflation has increased by 0.4% and reflects expectations of long-term inflation as implied by changes in the 3. the assumed rates of future increases to pensions in payment increased by 0.3% for both schemes, allowing for the change to the assumed Bank of England inflation yield curve rate of future inflation Over the year the mortality assumptions have been updated. The CMI model used to project future improvements in mortality has been updated from the 2019 version to the 2020 version. 2% of members not yet in receipt of their pension are assumed to transfer out of the scheme each year (2020: 3%). The assumed duration of the liabilities for the Laurence Keen Scheme is 15 years (2020: 16 years) and the assumed duration for the Rathbone 1987 Scheme is 20 years (2020: 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 S3PA ‘Light’ actuarial tables with improvements in line with the CMI 2020 tables with a long-term rate of improvement of 1.5% p.a. The assumed life expectancies on retirement were: Retiring today: Retiring in 20 years: aged 60 aged 65 aged 60 aged 65 2021 2020 Males 28.2 23.3 29.9 24.8 Females 29.9 24.9 31.6 26.6 Males 28.2 23.3 29.9 24.8 The amount included in the balance sheet arising from the group’s assets in respect of the schemes is as follows: Laurence Keen Scheme £’000 2021 Rathbone 1987 Scheme £’000 Total £’000 Laurence Keen Scheme £’000 2020 Rathbone 1987 Scheme £’000 Present value of defined benefit obligations (11,149) (144,428) (155,577) (12,374) (153,030) (165,404) Fair value of scheme assets Net defined benefit liability 12,981 1,832 154,883 10,455 167,864 12,287 12,592 143,027 155,619 218 (10,003) (9,785) 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 2021 Rathbone 1987 Scheme £’000 110 – 110 (5) – (5) Total £’000 105 – 105 Laurence Keen Scheme £’000 7 76 83 2020 Rathbone 1987 Scheme £’000 117 – 117 Remeasurements of the net defined benefit asset have been reported in other comprehensive income. The actual return on scheme assets was a rise in value of £481,000 (2020: £451,000 rise) for the Laurence Keen Scheme and a rise in value of £11,501,000 (2020: £9,660,000 rise) for the Rathbone 1987 Scheme. Females 29.8 24.8 31.5 26.5 Total £’000 Total £’000 124 76 200 29 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 12,374 – 158 – 20 2021 Rathbone 1987 Scheme £’000 153,030 – 1,961 – 5,793 (159) (816) – (428) 11,149 (1,200) (10,761) – (4,395) 144,428 Total £’000 165,404 – 2,119 – 5,813 (1,359) (11,577) – (4,823) 155,577 Laurence Keen Scheme £’000 12,726 – 257 – (1,081) (389) 1,158 76 (373) 12,374 Movements in the fair value of scheme assets were as follows: 2020 Rathbone 1987 Scheme £’000 146,398 – 2,916 – (3,272) (5,154) 20,482 – (8,340) 153,030 2020 Rathbone 1987 Scheme £’000 138,932 Total £’000 159,124 – 3,173 – (4,353) (5,543) 21,640 76 (8,713) 165,404 Total £’000 151,110 At 1 January Remeasurement of net defined benefit liability: – interest income – return on scheme assets (excluding amounts included in interest income) Contributions from the sponsoring companies Contributions from scheme members Benefits paid At 31 December Laurence Keen Scheme £’000 12,592 2021 Rathbone 1987 Scheme £’000 143,027 Total £’000 155,619 Laurence Keen Scheme £’000 12,178 163 1,851 2,014 250 2,799 3,049 318 336 – (428) 12,981 9,650 4,750 – (4,395) 154,883 9,968 5,086 – (4,823) 167,864 201 336 – (373) 12,592 6,861 2,775 – (8,340) 143,027 7,062 3,111 – (8,713) 155,619 The statements of investment principles set by the trustees of both schemes were revised in 2020. They require that the assets of the schemes are invested in a diversified portfolio of assets, split between return-seeking assets (primarily equities) and safer assets (corporate bonds and liability-driven investments). The expected asset allocations at 31 December 2021 as set out in the statements of investment principles are as follows: Target asset allocation at 31 December 2021 Benchmark Safer assets Growth assets Range Safer assets Growth assets Laurence Keen Scheme Rathbone 1987 Scheme 60% 40% 60% 40% 50%–70% 50%–70% 30%–50% 30%–50% 166 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 167 167 Notes to the consolidated financial statements continued 29 Long-term employee benefits continued 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 corporate bonds Liability-driven investments – Cash – Other At 31 December Rathbone 1987 Scheme Equity instruments: – United Kingdom – Eurozone – North America – Other Debt instruments: – United Kingdom corporate bonds Liability-driven investments – Cash – Other At 31 December 2021 Fair value £’000 348 696 2,547 2,244 5,835 4,854 4,854 1,986 181 125 12,981 2020 Fair value £’000 485 555 2,284 2,048 5,372 4,489 4,489 2,441 161 129 12,592 2021 Current allocation % 2020 Current allocation % 46 43 37 15 1 1 100 36 19 1 1 100 2021 Fair value £’000 2020 Fair value £’000 2021 Current allocation % 2020 Current allocation % 18,035 9,107 27,980 16,823 71,945 54,370 54,370 26,308 2,260 – 154,883 29,299 5,948 15,978 15,497 66,722 41,509 41,509 32,700 2,096 – 143,027 47 46 35 17 1 – 100 29 24 1 – 100 All equity instruments have quoted prices in active markets. ‘Other’ scheme assets comprise commodities (2020: comprise commodities). Buy and maintain credit funds held with Legal and General Investment Management have been classified as UK corporate bonds. During the prior year, a proportion of assets was transferred to new fund managers, Legal and General Investment Management, and the interest rate swap instrument that was previously held was sold. The scheme now holds liability-driven investments, which act to reduce the group’s exposure to changes in net defined benefit pension obligations arising from changes in interest rates and inflation. The key assumptions affecting the results of the valuation are the discount rate, future inflation, mortality, the rate of members transferring out and the average age at the time of transferring out. In order to demonstrate the sensitivity of the results to these assumptions, the actuary has recalculated the defined benefit obligations for each scheme by varying each of these assumptions in isolation whilst leaving the other assumptions unchanged. For example, in order to demonstrate the sensitivity of the results to the discount rate, the actuary has recalculated the defined benefit obligations for each scheme using a discount rate that is 0.5% higher than that used for calculating the disclosed figures. A similar approach has been taken to demonstrate the sensitivity of the results to the other key assumptions. A summary of the sensitivities in respect of the total of the two schemes’ defined benefit obligations is set out below. 168 168 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 29 Long-term employee benefits continued 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 corporate bonds Liability-driven investments – Cash – Other At 31 December Rathbone 1987 Scheme Equity instruments: – United Kingdom – Eurozone – North America – Other Debt instruments: – United Kingdom corporate bonds Liability-driven investments – Cash – Other At 31 December 2021 Fair value £’000 2020 Fair value £’000 2021 Current allocation % 2020 Current allocation % 348 696 2,547 2,244 5,835 4,854 4,854 1,986 181 125 485 555 2,284 2,048 5,372 4,489 4,489 2,441 161 129 12,981 12,592 18,035 9,107 27,980 16,823 71,945 54,370 54,370 26,308 2,260 – 29,299 5,948 15,978 15,497 66,722 41,509 41,509 32,700 2,096 – 46 43 37 15 1 1 100 36 19 1 1 100 47 35 17 1 – 46 29 24 1 – 100 2021 Fair value £’000 2020 Fair value £’000 2021 Current allocation % 2020 Current allocation % 154,883 143,027 100 All equity instruments have quoted prices in active markets. ‘Other’ scheme assets comprise commodities (2020: comprise commodities). Buy and maintain credit funds held with Legal and General Investment Management have been classified as UK corporate bonds. During the prior year, a proportion of assets was transferred to new fund managers, Legal and General Investment Management, and the interest rate swap instrument that was previously held was sold. The scheme now holds liability-driven investments, which act to reduce the group’s exposure to changes in net defined benefit pension obligations arising from changes in interest rates and inflation. The key assumptions affecting the results of the valuation are the discount rate, future inflation, mortality, the rate of members transferring out and the average age at the time of transferring out. In order to demonstrate the sensitivity of the results to these assumptions, the actuary has recalculated the defined benefit obligations for each scheme by varying each of these assumptions in isolation whilst leaving the other assumptions unchanged. For example, in order to demonstrate the sensitivity of the results to the discount rate, the actuary has recalculated the defined benefit obligations for each scheme using a discount rate that is 0.5% higher than that used for calculating the disclosed figures. A similar approach has been taken to demonstrate the sensitivity of the results to the other key assumptions. A summary of the sensitivities in respect of the total of the two schemes’ defined benefit obligations is set out below. 0.5% increase in: – discount rate 0.5% increase in: – rate of inflation Reduce allowance for future transfers to nil 1-year increase to: – longevity at 60 Combined impact on schemes' liabilities (Decrease)/ increase £'000 (Decrease)/ increase % (14,966) 12,639 (9.6%) 8.1% 1,671 1.1% 7,884 5.1% The total contributions made by the group to the 1987 Scheme during the year were £4,750,000 (2020: £2,775,000). The group has a commitment to pay deficit-reducing contributions of £3,750,000 by 31 August 2022 and a further £2,750,000 by 31 August 2023 and each subsequent 31 August up to and including 31 August 2026, so long as that scheme remains in deficit. The deficit funding plan will be reviewed following the next triennial valuation, as at 31 December 2022. The total contributions made by the group to the Laurence Keen Scheme during the year were £336,000 (2020: £336,000). The group has a commitment to pay deficit-reducing contributions of £168,000 by 28 February each year from 2022 to 2026 (inclusive) and a further £168,000 by 31 August in each of those years, so long as that scheme remains in deficit. 30 Share capital and share premium The following movements in share capital occurred during the year: At 1 January 2020 Shares issued: – to Share Incentive Plan – to Save As You Earn scheme – to Employee Benefit Trust At 1 January 2021 Shares issued: – to Share Incentive Plan – to Save As You Earn scheme – to Employee Benefit Trust – to Business Combinations – on Placing At 31 December 2021 Number of shares 56,361,986 259,619 5,008 859,800 57,486,413 294,958 9,371 217,000 1,154,689 2,840,910 62,003,341 Exercise/issue price Pence Share capital £’000 2,818 Share premium £’000 210,939 Merger reserve £’000 71,756 Total £’000 285,513 1,296.0–2,110.0 1,641.0–1,648.0 5.0 1,540.0–2,055.0 1,648.0–1,977.0 5.0 1,913.4–2,484.0 1,760.0 13 – 43 2,874 15 – 11 58 142 3,100 4,070 83 – 215,092 5,253 157 – 21,858 48,666 291,026 – – – 71,756 – – – 5,209 – 76,965 4,083 83 43 289,722 5,268 157 11 27,125 48,808 371,091 The total number of issued and fully paid up ordinary shares at 31 December 2021 was 62,003,341 (2020: 57,486,413) with a par value of 5p per share. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the company. The ordinary shareholders are entitled to any residual assets on the winding up of the company. On 5 March 2021, the company issued 881,737 shares in respect of the Speirs & Jeffrey first earn-out consideration relating to the 2020 incentivisation award (see note 8). On 22 June 2021, the company issued 2,840,910 shares by way of a placing for cash consideration at £17.60 per share, which raised £48,808,000, net of £1,192,000 placing costs, offset against share premium arising on the issue. On 22 October 2021, the company issued 272,952 shares in respect of the initial share consideration from the acquisition of Saunderson House (see note 8). These shares are being held in own shares (see note 31) until they vest on the third anniversary of issue. As the share issuance was in pursuance of the arrangement to acquire the shares in Saunderson House, the premium on the issuance of these shares has been recognised within the merger reserve. 168 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 169 169 Notes to the consolidated financial statements continued 31 Own shares The following movements in own shares occurred during the year: At 1 January 2020 Acquired in the year Released on vesting At 1 January 2021 Acquired in the year Released on vesting At 31 December 2021 Number of shares 2,611,442 1,187,938 (42,010) 3,757,370 998,408 (1,131,064) 3,624,714 £’000 41,971 5,077 (304) 46,744 15,130 (25,248) 36,626 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 32). A total of 2,808,994 shares were held in the Employee Benefit Trust at 31 December 2021 (2020: 2,343,738), and 542,767 shares were held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees (2020: 407,110). A further 272,952 (2020: nil) shares were held in nominee in respect of the initial share consideration for the acquisition of Saunderson House (see note 30). During the year, 1,006,522 of shares previously held in nominee for the acquisition of Speirs & Jeffrey vested and were released from own shares. No shares were acquired through share buybacks during the year (2020: none). 32 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 £3,600 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 2021, the trustees of the SIP held 1,363,198 (2020: 1,240,212) ordinary shares of 5p each in Rathbones Group Plc with a total market value of £27,046,000 (2020: £19,099,000). Of the total number of shares held by the trustees, 812,843 (2020: 406,012) have been conditionally gifted to employees and 2,877 (2020: 1,098) remain unallocated. Dividends on the unallocated shares have been waived by the trustees. The group recognised a charge of £2,333,000 in relation to this scheme in 2021 (2020: £1,760,980). Savings-related share option or Save as You Earn (SAYE) plan Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three- or five-year savings period. Options with an aggregate estimated fair value of £848,000, determined using a binomial valuation model including expected dividends, were granted on 20 April 2021 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during 2021, as at the date of issue, were as follows: Share price (pence) Exercise price (pence) Expected volatility Risk-free rate Expected dividend yield 2021 1,812 1,365 26% 0.2% 3.9% 2020 1,380 1,085 26% 0.1% 2.8% 170 170 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements 2021 Number of share options – – 4,822 7,697 31,255 2020 Number of share options Exercise period 309 2020 8,988 2019 and 2021 6,874 2020 and 2022 31,228 2021 and 2023 2022 and 2024 43,246 2023 and 2025 1,115,270 1,158,317 – 2024 and 2026 1,363,852 1,248,962 31 Own shares The following movements in own shares occurred during the year: The number of share options outstanding for the SAYE plan at the end of the year, the period in which they were granted and the dates on which they may be exercised are given below. Number of shares 2,611,442 1,187,938 (42,010) 3,757,370 998,408 £’000 41,971 5,077 (304) 46,744 15,130 (1,131,064) (25,248) 3,624,714 36,626 Year of grant 2015 2016 2017 2018 2019 2020 2021 At 31 December Exercise price Pence 1,641.0 1,648.0 1,899.0 1,977.0 1,813.0 1,085.0 1,365.0 Notes to the consolidated financial statements continued At 1 January 2020 Acquired in the year Released on vesting At 1 January 2021 Acquired in the year Released on vesting At 31 December 2021 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 32). A total of 2,808,994 shares were held in the Employee Benefit Trust at 31 December 2021 (2020: 2,343,738), and 542,767 shares were held by the trustees of the Share Incentive Plan but were not unconditionally gifted to employees (2020: 407,110). A further 272,952 (2020: nil) shares were held in nominee in respect of the initial share consideration for the acquisition of Saunderson House (see note 30). During the year, 1,006,522 of shares previously held in nominee for the acquisition of Speirs & Jeffrey vested and were released No shares were acquired through share buybacks during the year (2020: none). from own shares. 32 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 £3,600 per annum. For UK employees, SIP dividends are reinvested and used to purchase dividend shares, whilst for Jersey employees dividends are paid in cash. by the trustees. As at 31 December 2021, the trustees of the SIP held 1,363,198 (2020: 1,240,212) ordinary shares of 5p each in Rathbones Group Plc with a total market value of £27,046,000 (2020: £19,099,000). Of the total number of shares held by the trustees, 812,843 (2020: 406,012) have been conditionally gifted to employees and 2,877 (2020: 1,098) remain unallocated. Dividends on the unallocated shares have been waived The group recognised a charge of £2,333,000 in relation to this scheme in 2021 (2020: £1,760,980). Savings-related share option or Save as You Earn (SAYE) plan Under the SAYE plan, employees can contribute up to £500 per month to acquire shares at the end of a three- or five-year savings period. Options with an aggregate estimated fair value of £848,000, determined using a binomial valuation model including expected dividends, were granted on 20 April 2021 to directors and staff under the SAYE plan. The inputs into the binomial model for options granted during 2021, as at the date of issue, were as follows: Share price (pence) Exercise price (pence) Expected volatility Risk-free rate Expected dividend yield 2021 1,812 1,365 26% 0.2% 3.9% 2020 1,380 1,085 26% 0.1% 2.8% Movements in the number of share options outstanding for the SAYE plan were as follows: At 1 January Granted in the year Forfeited or cancelled in the year Exercised in the year At 31 December 2021 2020 Number of share options 1,248,962 214,027 (82,035) (17,102) 1,363,852 Weighted average exercise price Number of share options Pence 520,604 1,141.0 1,365.0 1,177,277 (442,665) 1,464.0 (6,254) 1,557.0 1,152.0 1,248,962 Weighted average exercise price Pence 1,842.0 1,085.0 1,808.0 1,690.0 1,141.0 The weighted average share price at the dates of exercise for share options exercised during the year was £15.17 (2020: £16.85). The options outstanding at 31 December 2021 had a weighted average contractual life of 3.0 years (2020: 3.7 years) and a weighted average exercise price of £11.52 (2020: £11.41). Executive Incentive Plan 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. During the year, this award was replaced with the Executive Share Performance Plan. The group recognised a charge of £1,473,000 in relation to the equity-settled share-based payment element of this scheme in 2021 (2020: £2,399,000). Executive Share Performance Plan This scheme was launched during the year to replace the Executive Incentive Plan. Details of the general terms of this plan are set out in the remuneration committee report on pages 100 to 101. Under the remuneration policy, 50% of the annual bonus award is paid in cash and 50% is deferred in shares. An annual restricted stock plan award is also granted under the scheme, and payment is deferred in shares. The group treats the cash element of the award as an employee benefit under IAS 19 and the share element of the awards as equity-settled share-based payments under IFRS 2. The group recognised a charge of £1,423,000 in relation to the equity-settled share-based payment element of this scheme in 2021 (2020: £nil). Staff Equity Plan The Staff Equity Plan is for individuals within Rathbone Investment Management and Rathbone Investment Management International. The aim of the scheme is to promote increased equity interest in Rathbones Group Plc amongst employees. 170 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 171 171 204,808 Notes to the consolidated financial statements continued 32 Share-based payments continued 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 £4,327,000 in relation to this scheme in 2021 (2020: £4,327,000). 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 £11,599,000 in relation to share-based payment transactions in 2021 (2020: £11,276,000) (see note 10). Acquisition-related share-based payments Details of the general terms of share-based payments associated with the acquisition of Speirs & Jeffrey and Saunderson House are set out in note 8. 33 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 86 to 89. The group categorises its financial risks into the following primary areas: (i) credit risk (which includes counterparty default risk); (ii) liquidity risk; (iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk); and (iv) pension risk. The group’s exposures to pension risk are set out in note 29. The group’s financial risk management policies are designed to identify and analyse the financial risks that the group faces, to set appropriate risk tolerances, limits and controls, and to monitor the financial risks and adherence to limits by means of reliable and up-to-date information systems. The group regularly reviews its financial risk management policies and systems to reflect changes in the business, counterparties, markets and the range of financial instruments that it utilises. The treasury department, reporting through the banking committee, has principal responsibility for monitoring exposure to credit risk, liquidity risk and market risk. Procedures and delegated authorities are documented in a group treasury manual and policy documents prescribe the management and monitoring of each type of risk. The primary objective of the group’s treasury policy is to manage short term liquidity requirements whilst maintaining an appropriate level of exposure to other financial risks in accordance with the group’s risk appetite. (i) Credit risk The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its banking, treasury, trust and financial planning activities. The principal source of credit risk arises from placing funds in the money market and holding interest-bearing securities. The group also has exposure to credit risk through its client loan book and guarantees given on clients’ behalf. It is the group’s policy to place funds generated internally and from deposits by clients with a range of high-quality financial institutions and the Bank of England. Investments with financial institutions are spread to avoid excessive exposure to any individual counterparty. Loans made to clients are secured against clients’ assets that are held and managed by group companies. Exposure to credit risk is managed through setting appropriate ratings requirements and lending limits. Limits are reviewed regularly, taking into account the ability of borrowers and potential borrowers to meet repayment obligations. The group categorises its exposures based on the long-term ratings awarded to counterparties by Fitch or Moody’s. Each exposure is assessed individually, both at inception and in ongoing monitoring. In addition to formal external ratings, the banking committee also utilises market intelligence information to assist with its ongoing monitoring. 172 172 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 32 Share-based payments continued 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 The group recognised a charge of £4,327,000 in relation to this scheme in 2021 (2020: £4,327,000). grant date. Other schemes The group operates a number of other plans for rewarding employees. Participants are granted awards under these plans in the form of options, which vest automatically on an anniversary of the grant date (generally between one and five years). As the intention is to settle the options in such plans in shares, the awards are treated as equity-settled share-based payments under IFRS 2. The group recognised total charges of £11,599,000 in relation to share-based payment transactions in 2021 (2020: £11,276,000) (see note 10). Details of the general terms of share-based payments associated with the acquisition of Speirs & Jeffrey and Saunderson House are set out Acquisition-related share-based payments in note 8. 33 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 86 to 89. The group categorises its financial risks into the following primary areas: (i) credit risk (which includes counterparty default risk); (ii) 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 group’s exposures to pension risk are set out in note 29. 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 clients’ behalf. The group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due, through its banking, treasury, trust and financial planning activities. The principal source of credit risk arises from placing funds in the money market and holding interest-bearing securities. The group also has exposure to credit risk through its client loan book and guarantees given on 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 with its ongoing monitoring. The group’s financial assets are categorised as follows: Balances with central banks (note 14) The group has exposure to central banks through its deposits held with the Bank of England. Loans and advances to banks (note 15) and debt and other securities (note 17) The group has exposures to a wide range of financial institutions through its treasury portfolio, which includes bank deposits, certificates of deposit, money market funds and treasury bills. These exposures principally arise from the placement of clients’ cash, where it is held under a banking relationship, and the group’s own reserves. 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 2021 £’000 2020 £’000 1,463,377 1,803,434 10,000 651,427 99,262 2,275,031 2,564,123 30,000 761,654 20,000 The group’s policy requires that all such exposures are only taken with counterparties that have been awarded a minimum long-term rating of single A by Fitch or equivalent rating by Moody’s. Counterparty limits are also in place to limit exposure to an individual counterparty or connected group of counterparties. Counterparty exposures are monitored on a daily basis by the treasury department and reviewed by the banking committee on a monthly basis, or more frequently when necessary. The banking committee may suspend dealing in a particular counterparty, or liquidate specific holdings, in the light of adverse market information. Loans and advances to customers (note 16) The group provides loans to clients through its investment management operations (‘the investment management loan book’). The group is also exposed to credit risk on overdrafts on clients’ investment management accounts, trade debtors arising from the trust, tax and financial planning businesses (‘trust and financial planning debtors’) and other debtors. (a) Overdrafts Overdrafts on clients’ investment management accounts arise from time to time due to short-term timing differences between the purchase and sale of assets on a client’s behalf. Overdrafts are actively monitored and reported to the banking committee on a monthly basis. (b) Investment management loan book Loans are provided as a service to investment management clients, who are generally asset-rich but have short- to medium-term cash requirements. Such loans are normally made on a fully secured basis against portfolios held in Rathbones’ nominee name, and some loans may be partially secured by property. Extensions to the initial loan period may be granted subject to credit criteria. At 31 December 2021, the total lending exposure limit for the investment management loan book was £250,000,000 (2020: £225,000,000), of which £167,259,000 had been advanced (2020: £157,304,000) and a further £40,275,000 had been committed (2020: £39,510,000). (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. 172 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 173 173 Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued Settlement balances Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a daily basis. The Investment Management and Funds 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 – equity securities Other financial assets Credit risk relating to off-balance-sheet exposures: Loan commitments Financial guarantees (note 35) 2021 £’000 2020 £’000 1,463,377 1,803,434 90,373 159,430 69,750 203,589 7,021 167,980 4,194 864 781,682 2,558 102,150 6,384 157,957 1,424 557 750,795 2,569 92,386 40,275 – 39,510 – 2,843,440 3,104,819 The above table represents the group’s gross credit risk exposure at 31 December 2021 and 2020, 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. Of the total maximum exposure, 13.5% is derived from loans and advances to banks and customers (2020: 10.5%) and 27.5% represents investment securities (2020: 24.2%). The credit risk relating to off-balance-sheet exposures for financial guarantees reflects the group’s gross potential exposure of guarantees held on balance sheet (see note 1.21). Impairment of financial instruments The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets recognised in profit or loss were as shown in the table below. The main class of asset these impairment losses have arisen against is cash and balances held with central banks. Impairment losses/(reversals) arising from: – treasury book – investment management loan book – trust and financial planning debtors 2021 £'000 (726) – 14 (712) 2020 £'000 577 – 5 582 174 174 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued Settlement balances Credit risk relating to on-balance-sheet exposures: Maximum exposure to credit risk 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: – equity securities Other financial assets – unlisted debt securities and money market funds Credit risk relating to off-balance-sheet exposures: Loan commitments Financial guarantees (note 35) Settlement risk arises in any situation where a payment in cash or transfer of a security is made in the expectation of a corresponding delivery of a security or receipt of cash. The majority of transactions are carried out on a delivery versus payment basis, which results in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a daily basis. The Investment Management and Funds 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. 2021 £’000 2020 £’000 1,463,377 1,803,434 69,750 203,589 90,373 159,430 7,021 6,384 167,980 157,957 4,194 864 1,424 557 781,682 750,795 2,558 102,150 2,569 92,386 40,275 39,510 – – 2,843,440 3,104,819 2021 £'000 (726) – 14 (712) 2020 £'000 577 – 5 582 The above table represents the group’s gross credit risk exposure at 31 December 2021 and 2020, 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. Of the total maximum exposure, 13.5% is derived from loans and advances to banks and customers (2020: 10.5%) and 27.5% represents The credit risk relating to off-balance-sheet exposures for financial guarantees reflects the group’s gross potential exposure of guarantees held The group’s accounting policy governing impairment of financial assets is given in note 1.12. Impairment losses on financial assets recognised in profit or loss were as shown in the table below. The main class of asset these impairment losses have arisen against is cash and balances investment securities (2020: 24.2%). on balance sheet (see note 1.21). Impairment of financial instruments held with central banks. Impairment losses/(reversals) arising from: – treasury book – investment management loan book – trust and financial planning debtors Expected credit loss assessment At each reporting date, for both the treasury book and investment management loan book, the group assesses whether there has been a significant increase in credit risk of exposures since initial recognition, by comparing the change in the risk of a default occurring over the expected life of the instrument between the reporting date and the date of initial recognition. The following criteria are used to identify significant increases in credit risk and are monitored and reviewed periodically for appropriateness by the treasury team. Qualitative indicators The group periodically monitors its exposures and uses a set of defined criteria to flag any counterparties that may be experiencing financial difficulties. Such exposures are added to a watch list maintained by the treasury team, and those that are considered to have experienced a significant increase in credit risk are classified as ‘stage 2’, on which a lifetime ECL is recognised. Quantitative indicators The lifetime probability of default at the reporting date is compared to the original lifetime probability of default at initial recognition and if the difference exceeds a predefined threshold (for the current analysis this threshold is set at 50% of the value at initial recognition) the exposure is moved to stage 2. Probability of defaults used for identifying significant increases in credit risk for staging purposes are calculated using the same methodology and data used for estimating probability of defaults for the purpose of measuring expected credit losses. The ‘30 days past due’ backstop indicator has not been rebutted by the group, albeit it is not a significant driver of stage movements as the opportunity for a counterparty to miss a payment is low due to the fact that over the life of exposure, any interest and/or principal is directly debited from the counterparty’s investment balance and investment income, which is in turn held as collateral under the bank’s custody. Materially all exposures in both the treasury book and investment management 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 scenario and a downside scenario. These scenarios include the forecast of the macroeconomic factors that have been identified as relevant to the bank’s exposures, namely GDP and UK unemployment rates, which 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 & Poor’s, 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 revolve 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. 174 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 175 175 Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL. 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: 2021 2020 At amortised cost Fair value through profit or loss £'000 20,000 12-month ECL £'000 – – 1,893,631 330,978 – 20,000 2,224,609 (110) 20,000 2,224,499 Lifetime ECL − not credit- impaired £'000 – – – – – – Lifetime ECL − credit-impaired £'000 – – – – – – Fair value through profit or loss £'000 99,262 12-month ECL £'000 – – 2,095,029 369,987 – 99,262 2,465,016 (836) 99,262 2,464,180 Lifetime ECL − not credit- impaired £'000 – – – – – – Lifetime ECL − credit-impaired £'000 – – – – – – 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 – 1,463,294 – – 761,654 – 20,000 – 20,000 2,224,948 – – – – – – – – – – – 1,802,706 9,998 – 651,427 – 99,262 – 99,262 2,464,131 – – – – – The movement in allowance for impairment for the treasury book during the year was as follows. Balance at 1 January 2021 Net remeasurement of loss allowance Balance at 31 December 2021 Cash and balances with central banks Loans and advances to banks Unlisted debt securities ECL provision 12-month ECL £'000 836 (726) 110 83 – 28 110 Lifetime ECL − not credit- impaired £'000 – Lifetime ECL − credit-impaired £'000 – – – – – – – – – – – – – – – – Total ECL £'000 836 (726) 110 83 – 28 110 As a result of the COVID-19 pandemic, in the prior year there was a material deterioration in the macroeconomic factors that served as an input to the group’s PDs, which resulted in a significant increase to the loss allowance. In the current year, due to an improvement in the macroeconomic inputs, and a reduction in the gross amount held with the Bank of England, against which the group holds the largest ECL provision, the allowance has reduced and is broadly in line with pre-COVID levels. Investment management loan book assessment Due to the lack of historical defaults within the investment management 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 Lenders (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. 176 176 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued The following table presents an analysis of the credit quality of treasury book exposures at amortised cost and FVTPL. 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: 2021 Lifetime ECL − At amortised cost 12-month ECL impaired credit-impaired 12-month ECL impaired credit-impaired not credit- Lifetime ECL − through profit not credit- Lifetime ECL − £'000 £'000 £'000 £'000 Lifetime ECL − Fair value through profit or loss £'000 20,000 £'000 – – 1,893,631 – 330,978 AAA AA+ to AA- A+ to A- Gross carrying amounts 20,000 2,224,609 Loss allowance Carrying amount (110) 20,000 2,224,499 Cash and balances with central banks Loans and advances to banks Unlisted debt securities Money market funds Carrying amount – 1,463,294 – – 20,000 761,654 – – 20,000 2,224,948 – – – – – – – – – – – Balance at 1 January 2021 Net remeasurement of loss allowance Balance at 31 December 2021 Cash and balances with central banks Loans and advances to banks Unlisted debt securities ECL provision 2020 £'000 – Fair value or loss £'000 99,262 – 2,095,029 – 369,987 99,262 2,465,016 (836) 99,262 2,464,180 – 1,802,706 – – 9,998 651,427 99,262 – 99,262 2,464,131 – – – – – – – – – – – £'000 836 (726) 110 83 – 28 110 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – £'000 836 (726) 110 83 – 28 110 12-month ECL impaired credit-impaired Total ECL Lifetime ECL − not credit- Lifetime ECL − £'000 £'000 As a result of the COVID-19 pandemic, in the prior year there was a material deterioration in the macroeconomic factors that served as an input to the group’s PDs, which resulted in a significant increase to the loss allowance. In the current year, due to an improvement in the macroeconomic inputs, and a reduction in the gross amount held with the Bank of England, against which the group holds the largest ECL provision, the allowance has reduced and is broadly in line with pre-COVID levels. Investment management loan book assessment Due to the lack of historical defaults within the investment management 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 Lenders (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. The following table presents an analysis of the credit quality of investment management 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 2021 Lifetime ECL − not credit- impaired £'000 – – – – – – At amortised cost Lifetime ECL − credit-impaired £'000 – – – – – – – 12-month ECL £'000 29,931 103,626 20,146 3,917 157,620 – 157,620 2020 Lifetime ECL − not credit- impaired £'000 – – – 337 337 – 337 Lifetime ECL − credit-impaired £'000 – – – – – – – 12-month ECL £'000 30,250 116,646 18,174 2,911 167,981 – 167,981 The movement in allowance for impairment of the investment management loan book during the year was as follows. The movement in allowance for impairment for the treasury book during the year was as follows. Balance at 1 January 2021 and 31 December 2021 Trust and financial planning debtors assessment 12-month ECL £'000 – Lifetime ECL − not credit- impaired £'000 – Lifetime ECL − credit-impaired £'000 – Total ECL £'000 – 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 2021: Rathbone Trust Company Rathbone Trust & Legal Services Rathbone Financial Planning Saunderson House 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 2021 £’000 1,451 315 311 2,131 4,208 (235) 3,973 Weighted average loss rate £'000 0.3% 1.5% 2.7% 4.5% 23.9% Gross carrying amount £'000 1,133 90 93 27 108 1,451 Loss allowance Not credit impaired £'000 (4) (1) (2) (1) (7) (15) Credit impaired £'000 – (84) – (1) – (85) 2020 £’000 814 324 287 – 1,425 (102) 1,323 Total £'000 (4) (85) (2) (2) (7) (100) 176 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 177 177 Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued Rathbone Trust & Legal Services <90 days overdue 90-180 days overdue 180-270 days overdue 270-365 days overdue >365 days overdue Saunderson House <90 days overdue 90-180 days overdue 180-270 days overdue 270-365 days overdue >365 days overdue Weighted average loss rate £'000 0.8% 3.9% 7.0% 12.7% 12.3% Weighted average loss rate £'000 0.0% 30.8% 58.0% 76.5% 41.5% Gross carrying amount £'000 223 25 38 2 27 315 Gross carrying amount £'000 1,867 112 44 44 64 2,131 Not credit- impaired £'000 (3) (1) (3) – (3) (10) Loss allowance Credit-impaired £'000 – – – – (4) (4) Not credit- impaired £'000 – (37) (21) (46) (17) (121) Loss allowance Credit-impaired £'000 – – – – – – 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 Recognised on acquisition (note 8) At 31 December 2021 Concentration of credit risk Total £'000 (3) (1) (3) – (7) (14) Total £'000 – (37) (21) (46) (17) (121) Trust and financial planning debtors £’000 102 (19) 14 138 235 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. 178 178 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued Rathbone Trust & Legal Services <90 days overdue 90-180 days overdue 180-270 days overdue 270-365 days overdue >365 days overdue Saunderson House <90 days overdue 90-180 days overdue 180-270 days overdue 270-365 days overdue >365 days overdue Movement in impairment provision during the year At 1 January Amounts written off Credit to profit or loss Recognised on acquisition (note 8) At 31 December 2021 Concentration of credit risk Weighted Gross carrying Not credit- average loss rate Loss allowance impaired Credit-impaired £'000 £'000 £'000 0.8% 3.9% 7.0% 12.7% 12.3% £'000 0.0% 30.8% 58.0% 76.5% 41.5% amount £'000 223 25 38 2 27 315 amount £'000 1,867 112 44 44 64 (3) (1) (3) – (3) (10) £'000 – (37) (21) (46) (17) Weighted Gross carrying Not credit- average loss rate impaired Credit-impaired Loss allowance £'000 (4) (4) – – – – – – – – – – Total £'000 (3) (1) (3) – (7) (14) Total £'000 – (37) (21) (46) (17) (121) Trust and financial planning debtors £’000 102 (19) 14 138 235 The movement in allowance for impairment in respect of trust and financial planning debtors during the year is set out below. 2,131 (121) 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. 33 Financial risk management continued (i) Credit risk continued (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 2021 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: – equity securities – unlisted debt securities and money market funds Other financial assets At 31 December 2020 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: – equity securities – unlisted debt securities and money market funds – Other financial assets United Kingdom £’000 1,463,294 66,605 201,775 6,245 145,501 3,973 864 Eurozone £’000 – 1,158 – 95 259 – – Rest of the World £’000 Total £’000 – 1,463,294 69,750 203,589 1,987 1,814 682 22,221 – – 7,022 167,981 3,973 864 – 161,069 96,558 2,145,884 2,558 224,988 567 229,625 – 395,597 697 2,558 781,654 97,822 422,998 2,798,507 United Kingdom £’000 1,802,706 83,747 157,618 5,633 139,068 1,323 557 Eurozone £’000 – 1,323 – 25 310 – – Rest of the World £’000 5,303 1,812 Total £’000 – 1,802,706 90,373 159,430 726 18,579 – – 6,384 157,957 1,323 557 – 219,909 85,450 2,496,011 2,569 209,204 1,004 214,435 – 321,576 1,998 2,569 750,689 88,452 349,994 3,060,440 At 31 December 2021, materially all eurozone exposures were to counterparties based in the Netherlands, France, Finland, Ireland and Luxembourg (2020: 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 (2020: Switzerland, Sweden, Norway, Canada and Australia). At 31 December 2021, the group had no exposure to sovereign debt (2020: none). 178 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 179 179 Notes to the consolidated financial statements continued 33 Financial risk management continued (i) Credit risk continued (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 2021 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: – equity securities – unlisted debt securities and money market funds Other financial assets At 31 December 2020 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: – equity securities – unlisted debt securities and money market funds Other financial assets Public sector £’000 1,463,294 – – Financial institutions £’000 – 69,750 203,589 Clients and other corporates £’000 Total £’000 – 1,463,294 69,750 – 203,589 – – – – – – – – – 7,022 167,981 3,973 864 7,022 167,981 3,973 864 – – 165 2,558 781,654 2,309 1,463,459 1,059,860 – – 95,348 2,558 781,654 97,822 275,188 2,798,507 Public sector £’000 1,802,706 – – Financial institutions £’000 – 90,373 159,430 Clients and other corporates £’000 Total £’000 – 1,802,706 90,373 – 159,430 – – – – – – – – – 6,384 157,957 1,323 557 6,384 157,957 1,323 557 – – 75 2,569 750,689 3,048 1,802,781 1,006,109 – – 85,329 2,569 750,689 88,452 251,550 3,060,440 (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 Internal Liquidity Adequacy Assessment Process). 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). Funding risks are monitored by daily cash mismatch analyses and CRR 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. 180 180 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued (i) Credit risk continued (b) Industry sectors operate, were: The group’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties At 31 December 2021 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: – equity securities Other financial assets – unlisted debt securities and money market funds At 31 December 2020 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: – equity securities Other financial assets – unlisted debt securities and money market funds 165 2,309 95,348 1,463,459 1,059,860 275,188 2,798,507 Public sector £’000 1,463,294 Financial institutions £’000 69,750 203,589 Clients and other corporates £’000 Total £’000 – 1,463,294 69,750 203,589 – – – – – – – – – – 2,558 781,654 Financial institutions £’000 90,373 159,430 – – – – 7,022 7,022 167,981 167,981 3,973 864 3,973 864 2,558 781,654 97,822 Clients and other corporates £’000 Total £’000 – 1,802,706 – – 90,373 159,430 6,384 6,384 157,957 157,957 1,323 557 1,323 557 – – – – – – – – – – – – – – – – 2,569 750,689 – – 2,569 750,689 88,452 75 3,048 85,329 1,802,781 1,006,109 251,550 3,060,440 Public sector £’000 1,802,706 (ii) Liquidity risk delivering cash or another financial asset. Liquidity risk is the risk that the group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by 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 Internal Liquidity Adequacy Assessment Process). 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). Funding risks are monitored by daily cash mismatch analyses and CRR 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. 33 Financial risk management continued Non-derivative cash flows The table below presents the undiscounted cash flows receivable and payable by the group under non-derivative financial assets and liabilities analysed by the remaining contractual maturities at the balance sheet date. At 31 December 2021 Cash and balances with central banks Settlement balances Loans and advances to banks Loans and advances to customers Debt securities and money market funds Equity securities 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 2020 Cash and balances with central banks Settlement balances Loans and advances to banks Loans and advances to customers Debt securities and money market funds Equity securities 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 1,460,000 – 173,593 8,199 20,000 2,558 33 1,664,383 2,212 – 2,205,978 – 889 Not more than 3 months £’000 165 69,750 – 4,426 218,436 – 95,877 388,654 – 60,075 122,787 – 52,671 After 3 months but not more than 1 year £’000 3,376 – 30,011 2,660 530,172 – 803 567,022 After 1 year but not more than 5 years £’000 – – – 180,648 15,119 – 3,531 199,298 – – 4,246 2,257 22,321 – – – 49,027 70,269 After 5 years £’000 – – – – – – 804 804 – – – – 43,089 No fixed maturity date £’000 Total £’000 – 1,463,541 69,750 – 203,604 – 195,933 – 783,727 – 2,558 – – 101,048 – 2,820,161 2,212 – – 60,075 – 2,333,011 51,284 – 189,239 – 2,209,079 (544,696) (544,696) 235,533 153,121 (391,575) 28,824 538,198 146,623 119,296 80,002 226,625 43,089 (42,285) 184,340 – 2,635,821 184,340 – 184,340 On demand £’000 1,798,000 – 149,441 7,185 99,274 2,569 52 2,056,521 893 – 2,453,676 – 1,478 Not more than 3 months £’000 75 90,373 10,115 3,538 216,041 – 84,033 404,175 – 95,412 106,706 453 57,914 After 3 months but not more than 1 year £’000 5,434 – – 120 438,845 – 1,435 445,834 After 1 year but not more than 5 years £’000 – – – 172,915 – – 3,493 176,408 – – 1,392 20,453 8,088 – – – – 62,313 After 5 years £’000 – – – – – – 804 804 – – – – 52,621 No fixed maturity date £’000 Total £’000 – 1,803,509 90,373 – 159,556 – 183,758 – 754,160 – – 2,569 – 89,817 – 3,083,742 893 – – 95,412 – 2,561,774 20,906 – 182,414 – 2,456,047 (399,526) (399,526) 260,485 143,690 (255,836) 29,933 415,901 160,065 62,313 114,095 274,160 52,621 (51,817) 222,343 – 2,861,399 222,343 – 222,343 180 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 181 181 Notes to the consolidated financial statements continued 33 Financial risk management continued (ii) Liquidity risk continued Liabilities which do not have a contractual maturity date are categorised as ‘on demand’. Included within the amounts due to customers on demand are balances which historical experience shows are unlikely to be called in the short term. A prudent level of highly liquid assets is retained to cover reasonably foreseeable short-term changes in client deposits. All debt securities are readily marketable and can be realised through disposals. The group holds £7,376,000 of equity investments (2020: £5,728,000) which are subject to liquidity risk but are not included in the table above. These assets are held as fair value through profit or loss securities and have no fixed maturity date; cash flows arise from receipt of dividends or through sale of the assets. (iii) Market risk Off-balance-sheet items Cash flows arising from the group’s off-balance-sheet financial liabilities (note 35) 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 2021 Loan commitments Financial guarantees Capital commitments Total off-balance-sheet items At 31 December 2020 Loan commitments Financial guarantees Capital commitments Total off-balance-sheet items Total liquidity requirement At 31 December 2021 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement At 31 December 2020 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement Not more than 3 months £’000 40,275 – 988 41,263 After 3 months but not more than 1 year £’000 – – – – After 1 year but not more than 5 years £’000 – – – – Not more than 3 months £’000 39,510 – 26 39,536 After 3 months but not more than 1 year £’000 – – – – After 1 year but not more than 5 years £’000 – – – – After 5 years £’000 – – – – After 5 years £’000 – – – – Total £’000 40,275 – 988 41,263 Total £’000 39,510 – 26 39,536 On demand £’000 2,209,079 – 2,209,079 On demand £’000 2,456,047 – 2,456,047 Not more than 3 months £’000 235,533 41,263 276,796 After 3 months but not more than 1 year £’000 28,824 – 28,824 After 1 year but not more than 5 years £’000 119,296 – 119,296 Not more than 3 months £’000 260,485 39,536 300,021 After 3 months but not more than 1 year £’000 29,933 – 29,933 After 1 year but not more than 5 years £’000 62,313 – 62,313 After 5 years £’000 Total £’000 43,089 2,635,821 41,263 43,089 2,677,084 – After 5 years £’000 Total £’000 52,621 2,861,399 39,536 52,621 2,900,935 – 182 182 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 33 Financial risk management continued (ii) Liquidity risk continued Liabilities which do not have a contractual maturity date are categorised as ‘on demand’. Included within the amounts due to customers on demand are balances which historical experience shows are unlikely to be called in the short term. A prudent level of highly liquid assets is retained to cover reasonably foreseeable short-term changes in client deposits. All debt securities are readily marketable and can be realised The group holds £7,376,000 of equity investments (2020: £5,728,000) 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 through disposals. or through sale of the assets. (iii) Market risk Off-balance-sheet items Cash flows arising from the group’s off-balance-sheet financial liabilities (note 35) 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 2021 Loan commitments Financial guarantees Capital commitments Total off-balance-sheet items At 31 December 2020 Loan commitments Financial guarantees Capital commitments Total off-balance-sheet items Total liquidity requirement At 31 December 2021 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement At 31 December 2020 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement Not more than but not more not more than After 3 months After 1 year but than 1 year £’000 5 years £’000 After 5 years £’000 Not more than but not more not more than After 3 months After 1 year but than 1 year £’000 5 years £’000 After 5 years £’000 40,275 Total £’000 – 988 41,263 Total £’000 39,510 – 26 39,536 – – – – – – – – – – – – – – – – 3 months £’000 40,275 – 988 41,263 3 months £’000 39,510 – 26 39,536 Not more than but not more not more than After 3 months After 1 year but On demand £’000 2,209,079 2,209,079 3 months £’000 235,533 41,263 276,796 than 1 year £’000 28,824 5 years £’000 After 5 years £’000 Total £’000 119,296 43,089 2,635,821 – – 41,263 28,824 119,296 43,089 2,677,084 Not more than but not more not more than After 3 months After 1 year but On demand £’000 2,456,047 3 months £’000 260,485 39,536 than 1 year £’000 29,933 5 years £’000 After 5 years £’000 Total £’000 62,313 52,621 2,861,399 – – 39,536 2,456,047 300,021 29,933 62,313 52,621 2,900,935 – – – – – – – – – – – – 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 2021 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 1,459,919 – 173,417 174,401 – – 30,000 – 2,558 – – – – – – – – – – – 238,225 579 2,049,099 223,453 – 253,453 304,981 – 304,981 14,995 – 14,995 2,212 – 2,268,108 – – 2,270,320 (221,221) – – 4,243 – – 4,243 249,210 – – – – – – 304,981 – – – 39,893 – 39,893 (24,898) – – – – – – – – – – – – – – – 3,375 1,463,294 69,750 203,589 179,840 69,750 172 5,439 7,376 9,934 – 97,243 781,654 97,822 183,355 2,805,883 2,212 – 60,075 60,075 60,660 2,333,011 39,893 – 168,794 168,794 289,529 2,603,985 201,898 (106,174) 182 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 183 183 Notes to the consolidated financial statements continued 33 Financial risk management continued (iii) Market risk continued At 31 December 2020 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 1,797,275 – 159,180 163,879 2,569 – – – – – – – – – – 313,840 574 2,437,317 206,930 – 206,930 229,919 – 229,919 893 – 2,510,762 – – 2,511,655 (74,338) – – 1,391 – – 1,391 205,539 – – – 19,768 – 19,768 210,151 – – – 410 – – – 410 – – – – – – 410 – – – – – – – – – – – – – – – 5,431 1,802,706 90,373 159,430 166,221 90,373 250 1,932 5,728 8,297 – 87,878 750,689 88,452 191,592 3,066,168 893 – 95,412 95,412 49,614 2,561,767 19,768 – 135,548 135,548 280,574 2,813,388 252,780 (88,982) The banking committee has set an overall pre-tax interest rate exposure limit of £8,000,000 (2020: £8,000,000) 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 2021, the Bank had a net present value sensitivity of £5,442,000 (2020: £4,756,000) for an upward 2% shift in rates. The group held no forward rate agreements at 31 December 2021 (2020: none). Foreign exchange risk The group is exposed to translational foreign exchange risk as it undertakes transactions in foreign currencies and is therefore exposed to foreign exchange rate fluctuations. The group monitors its currency exposures that arise in the ordinary course of business on a daily basis and significant exposures are managed through the use of spot contracts, from time to time, so as to reduce any currency exposure to a minimal amount. The group has no structural foreign currency exposure. The group does not have any material exposure to transactional foreign exchange risk. The table below summarises the group’s exposure to foreign currency translation risk at 31 December 2021. Included in the table are the group’s financial assets and liabilities, at carrying amounts, categorised by currency. 184 184 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 33 Financial risk management continued (iii) Market risk continued Cash and balances with central banks 1,797,275 At 31 December 2020 Assets Settlement balances Loans and advances to banks Loans and advances to customers – unlisted debt securities and money Investment securities: – equity securities market funds Other financial assets Total financial assets Liabilities Deposits by banks Settlement balances Due to customers Subordinated loan notes Other financial liabilities Total financial liabilities Interest rate repricing gap After 3 months After 6 months Not more than but not more 3 months than 6 months £’000 £’000 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 £’000 313,840 206,930 229,919 2,437,317 206,930 229,919 410 – 159,180 163,879 2,569 574 893 – – – – – – – – – – – – – 2,510,762 1,391 19,768 2,511,655 1,391 19,768 – – – – – – – – – – 410 – – – – – – – – – – – – – – – – – – – – – – – – – – 5,431 1,802,706 90,373 250 1,932 90,373 159,430 166,221 5,728 8,297 – 750,689 87,878 88,452 191,592 3,066,168 – – 95,412 49,614 2,561,767 893 95,412 19,768 135,548 135,548 280,574 2,813,388 (74,338) 205,539 210,151 410 – (88,982) 252,780 The banking committee has set an overall pre-tax interest rate exposure limit of £8,000,000 (2020: £8,000,000) 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 2021, the Bank had a net present value sensitivity of £5,442,000 (2020: £4,756,000) for an upward 2% shift in rates. The group held no forward rate agreements at 31 December 2021 (2020: none). Foreign exchange risk The group is exposed to translational foreign exchange risk as it undertakes transactions in foreign currencies and is therefore exposed to foreign exchange rate fluctuations. The group monitors its currency exposures that arise in the ordinary course of business on a daily basis and significant exposures are managed through the use of spot contracts, from time to time, so as to reduce any currency exposure to a minimal amount. The group has no structural foreign currency exposure. The group does not have any material exposure to transactional foreign exchange risk. The table below summarises the group’s exposure to foreign currency translation risk at 31 December 2021. Included in the table are the group’s financial assets and liabilities, at carrying amounts, categorised by currency. At 31 December 2021 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 2020 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 1,463,294 67,110 143,377 171,258 7,376 729,973 97,518 2,679,906 2,212 57,419 2,214,268 39,893 168,534 2,482,326 197,580 40,275 – 1,948 36,586 5,275 – 51,681 136 95,626 – 1,611 91,905 – 228 93,744 1,882 – – 479 15,894 3,295 2,558 – 49 22,275 – 441 19,686 – 32 20,159 2,116 – – 1,463,294 69,750 203,589 179,840 213 7,732 12 – – 119 9,934 781,654 97,822 8,076 2,805,883 – 604 2,212 60,075 7,152 2,333,011 39,893 168,794 7,756 2,603,985 201,898 40,275 320 – – – Sterling £’000 US dollar £’000 Euro £’000 Other £’000 Total £’000 1,802,706 88,192 118,645 158,077 5,728 684,849 87,897 2,946,094 893 88,109 2,453,375 19,768 135,308 2,697,453 248,641 39,510 – 1,609 12,457 4,310 – 65,840 377 84,593 – 3,284 79,839 – 181 83,304 1,289 – – 178 20,843 3,834 2,569 – 130 27,554 – 1,103 23,784 – 59 24,946 2,608 – – 1,802,706 90,373 159,430 166,221 394 7,485 – – – 48 8,297 750,689 88,452 7,927 3,066,168 893 – 2,916 95,412 4,769 2,561,767 19,768 135,548 7,685 2,813,388 252,780 39,510 242 – – – 184 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 185 185 Notes to the consolidated financial statements continued 33 Financial risk management continued (iii) Market risk continued A 10% weakening of the US dollar against sterling, occurring on 31 December 2021, would have reduced equity and profit after tax by £152,000 (2020: reduced by £104,000). A 10% weakening of the euro against sterling, occurring on 31 December 2021, would have reduced equity and profit after tax by £171,000 (2020: reduced by £211,000). A 10% strengthening of the US dollar or euro would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other exchange rates, remain constant. Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of equity investment securities, which are reported at their fair value (note 17). At 31 December 2021, the fair value of listed equity securities recognised on the balance sheet was £7,376,000 (2020: £5,728,000). A 10% fall in global equity markets would, in isolation, have resulted in a pre-tax decrease to net assets of £434,000 (2020: £483,000); there would have been 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 2021 Assets Fair value through profit or loss: – equity securities – money market funds At 31 December 2020 Assets Fair value through profit or loss: – equity securities – money market funds Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 7,376 – 7,376 – 20,000 20,000 2,558 – 2,558 9,934 20,000 29,934 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 5,728 – 5,728 – 99,262 99,262 2,569 – 2,569 8,297 99,262 107,559 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 (2020: 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 17) comprise bank and building society certificates of deposit, which have fixed coupons. The fair value of debt securities at 31 December 2021 was £761,763,000 (2020: £654,769,000) and the carrying value was £761,682,000 (2020: £651,533,000). 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 28) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2021 was £42,824,000 (2020: £21,726,000) and the carrying value was £39,893,000 (2020: £19,768,000). 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. 186 186 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 33 Financial risk management continued (iii) Market risk continued A 10% weakening of the US dollar against sterling, occurring on 31 December 2021, would have reduced equity and profit after tax by £152,000 (2020: reduced by £104,000). A 10% weakening of the euro against sterling, occurring on 31 December 2021, would have reduced equity and profit after tax by £171,000 (2020: reduced by £211,000). A 10% strengthening of the US dollar or euro would have had an equal and opposite effect. This analysis assumes that all other variables, in particular other exchange rates, remain constant. Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or foreign exchange risk). The group is exposed to price risk through its holdings of equity investment securities, which are reported at their fair value (note 17). At 31 December 2021, the fair value of listed equity securities recognised on the balance sheet was £7,376,000 (2020: £5,728,000). A 10% fall in global equity markets would, in isolation, have resulted in a pre-tax decrease to net assets of £434,000 (2020: £483,000); there would have been no impact on profit after tax. A 10% rise in global markets would have had an equal and opposite effect. The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to — 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. Fair values determine the fair value: At 31 December 2021 Assets Fair value through profit or loss: – equity securities – money market funds At 31 December 2020 Assets Fair value through profit or loss: – equity securities – money market funds Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 7,376 – 7,376 – 2,558 20,000 20,000 – 2,558 9,934 20,000 29,934 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 5,728 – 5,728 – 2,569 8,297 99,262 – 2,569 107,559 99,262 99,262 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 (2020: 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 17) comprise bank and building society certificates of deposit, which have fixed coupons. The fair value of debt securities at 31 December 2021 was £761,763,000 (2020: £654,769,000) and the carrying value was £761,682,000 (2020: £651,533,000). 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 28) comprise Tier 2 loan notes. The fair value of the loan notes at 31 December 2021 was £42,824,000 (2020: £21,726,000) and the carrying value was £39,893,000 (2020: £19,768,000). Fair value of the loan notes is based on discounted future cash flows using current market rates for debts with similar remaining maturity, and hence would be categorised as level 2 in the fair value hierarchy. Level 3 financial instruments Fair value through profit or loss The group holds 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 valuation of €1,684 per share at 31 December 2021 has been calculated by reference to the most readily available data, which is the indicative price derived from recent transactions of the shares in the market. 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 2021, would have reduced equity and profit after tax by £207,000 (2020: £208,000). A 10% strengthening of the euro against sterling would have had 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 Total unrealised (losses)/gains recognised in profit or loss At 31 December 2021 2,569 (11) 2,558 2020 1,186 1,383 2,569 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. 34 Capital management Rathbones Group Plc’s capital is defined for accounting purposes as total equity. As at 31 December 2021 this totalled £623,282,000 (2020: £513,827,000). During the year, Rathbone Investment Management Limited repaid its £20.0 million 10-year callable subordinated loan notes, and Rathbone Brothers Plc issued £40.0 million of 10-year tier 2 notes with a call option in October 2026 and annually thereafter (note 28). As at 31 December 2021, the carrying value of the notes was £39,893,000 (2020: £19,768,000). 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 — comply with regulatory requirements at all times. Rathbones is classified for capital purposes as a banking group and performs an ICAAP, which is prepared on an annual basis and presented to the PRA on request. 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 2021 the group’s regulatory capital resources, including retained earnings for 2021, were £304,711,000 (2020: £303,752,000). The increase in reserves during 2021 is due to an increase in the group’s retained earnings, on account of profits generated in the year. 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 2020 and 2021. 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. 186 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 187 187 Notes to the consolidated financial statements continued 35 Contingent liabilities and commitments (a) Capital expenditure authorised and contracted for at 31 December 2021 but not provided in the financial statements amounted to £988,000 relating to expenditure on fixtures and fittings and software (2020: £26,000). The prior year related to expenditure on 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 (2020: £nil). 2021 £’000 – 31,005 9,270 40,275 2020 £’000 – 30,240 9,270 39,510 (c) The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors from loss in 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. 36 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 £nil (2020: £nil). Further information about the remuneration of individual directors is provided in the audited part of the directors’ remuneration report on page 99. Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 2021 £’000 12,159 290 1,305 1,997 15,751 2020 £’000 9,829 298 941 3,170 14,238 Dividends totalling £229,000 were paid in the year (2020: £98,000) in respect of ordinary shares held by key management personnel and their close family members. As at 31 December 2021, the group had outstanding interest-free season ticket loans of £nil (2020: £nil) issued to key management personnel. At 31 December 2021, key management personnel and their close family members had gross outstanding deposits of £634,000 (2020: £616,000) and gross outstanding banking loans of £nil (2020: nil), all of which (2020: 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. 188 188 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 35 Contingent liabilities and commitments (a) Capital expenditure authorised and contracted for at 31 December 2021 but not provided in the financial statements amounted to £988,000 relating to expenditure on fixtures and fittings and software (2020: £26,000). The prior year related to expenditure on fixtures (b) The contractual amounts of the group’s commitments to extend credit to its clients are as follows: and fittings. 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 (2020: £nil). (c) The arrangements put in place by the Financial Services Compensation Scheme (FSCS) to protect depositors and investors from loss in 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. 36 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 £nil (2020: £nil). Further information about the remuneration of individual directors is provided in the audited part of the directors’ remuneration report on page 99. 2021 £’000 – 31,005 9,270 40,275 2020 £’000 – 30,240 9,270 39,510 2021 £’000 12,159 290 1,305 1,997 15,751 2020 £’000 9,829 298 941 3,170 14,238 Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments close family members. Dividends totalling £229,000 were paid in the year (2020: £98,000) in respect of ordinary shares held by key management personnel and their As at 31 December 2021, the group had outstanding interest-free season ticket loans of £nil (2020: £nil) issued to key management personnel. At 31 December 2021, key management personnel and their close family members had gross outstanding deposits of £634,000 (2020: £616,000) and gross outstanding banking loans of £nil (2020: nil), all of which (2020: all) were made on normal business terms. A number of the group’s key management personnel and their close family members make use of the services provided by companies within the group. Charges for such services are made at various staff rates. Other related party transactions The group’s transactions with the pension funds are described in note 29. At 31 December 2021, no amounts were outstanding with either the Laurence Keen Scheme or the Rathbone 1987 Scheme (2020: none). 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 2021, the group managed 33 unit trusts, Sociétés d’Investissement à Capital Variable (SICAVs) and open-ended investment companies (OEICs) (together, ‘collectives’) (2020: 28 unit trusts and OEICs). The group charges each fund an annual management fee for these services, but does not earn any performance fees on the unit trusts. The management charges are calculated on the bases published in the individual fund prospectuses, which also state the terms and conditions of the management contract with the group. The following transactions and balances relate to the group’s interest in the unit trusts: Year ended 31 December Total management fees As at 31 December Management fees owed to the group Holdings in unit trusts (note 17) 2021 £’000 68,444 2021 £’000 6,240 7,376 13,616 2020 £’000 50,541 2020 £’000 4,885 5,728 10,613 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. 37 Interest in unconsolidated structured entities As described in note 36, at 31 December 2021, the group owned units in collectives managed by Rathbone Unit Trust Management with a value of £7,376,000 (2020: £5,728,000), representing 0.06% (2020: 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 the 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. 188 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 189 189 Notes to the consolidated financial statements continued 38 Consolidated statement of cash flows For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with less than three months until maturity from the date of acquisition: Cash and balances at central banks (note 14) Loans and advances to banks (note 15) Fair value through profit or loss investment securities (note 17) At 31 December 2021 £’000 2020 £’000 1,460,001 1,798,000 159,432 99,262 1,653,590 2,056,694 173,589 20,000 Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand. Cash flows arising from the (repurchase)/issue of ordinary shares comprise: Share capital issued (note 30) Share premium on shares issued (note 30) Merger reserve on shares issued (note 30) 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 was as follows: 2021 £’000 226 75,934 5,209 (21,902) (15,132) 44,335 2020 £’000 56 4,153 – – (5,077) (868) At 1 January 2021 Changes from financing cash flows Proceeds from issue of share capital Proceeds from issue of treasury shares Dividends paid Total changes from financing cash flows The effect of changes in foreign exchange rates Changes in fair value Repayment of loan notes Liability-related Issue of loan notes Interest expense Interest paid Total liability-related changes Total equity-related other changes At 31 December 2021 Liabilities Subordinated loan notes £’000 19,768 Share capital/ premium £’000 217,966 Equity Reserves £’000 25,012 Retained earnings £’000 270,849 Total £’000 533,595 – – – – – – (20,114) 39,893 1,241 (895) 20,125 – 39,893 54,244 – – 54,244 – – – (9,909) – (9,909) – – – – (43,960) (43,960) – – – – – – 21,916 294,126 – – – 25,236 40,339 – – – 61,928 288,817 54,244 (9,909) (43,960) 375 – – (20,114) 39,893 1,241 (895) 20,125 109,080 663,175 190 190 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 38 Consolidated statement of cash flows months until maturity from the date of acquisition: For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following balances with less than three Cash and balances at central banks (note 14) Loans and advances to banks (note 15) Fair value through profit or loss investment securities (note 17) At 31 December Fair value thought profit or loss investment securities are amounts invested in money market funds, which are realisable on demand. Cash flows arising from the (repurchase)/issue of ordinary shares comprise: Share capital issued (note 30) Share premium on shares issued (note 30) Merger reserve on shares issued (note 30) Shares issued in relation to share buybacks Shares issued in relation to share-based schemes for which no cash consideration was received A reconciliation of the movements of liabilities to cash flows arising from financing activities was as follows: At 1 January 2021 217,966 25,012 270,849 533,595 Subordinated Share capital/ Equity premium £’000 Reserves £’000 Liabilities loan notes £’000 19,768 Retained earnings £’000 Total £’000 2021 £’000 2020 £’000 1,460,001 1,798,000 173,589 20,000 159,432 99,262 1,653,590 2,056,694 2021 £’000 226 75,934 5,209 (21,902) (15,132) 44,335 2020 £’000 56 4,153 – – (5,077) (868) Changes from financing cash flows Proceeds from issue of share capital Proceeds from issue of treasury shares Dividends paid Total changes from financing cash flows The effect of changes in foreign exchange rates Changes in fair value Repayment of loan notes Liability-related Issue of loan notes Interest expense Interest paid Total liability-related changes Total equity-related other changes At 31 December 2021 – – – – – – (20,114) 39,893 1,241 (895) 20,125 54,244 (9,909) 54,244 (9,909) (43,960) (43,960) – – – – – – – – – – – – – – – – – – – – – – 54,244 (9,909) (43,960) 375 – – (20,114) 39,893 1,241 (895) 20,125 109,080 663,175 – 21,916 39,893 294,126 25,236 40,339 61,928 288,817 At 1 January 2020 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 2020 Liabilities Subordinated loan notes £’000 19,927 Share capital/ premium £’000 213,757 Equity Reserves £’000 29,785 Retained earnings £’000 241,851 Total £’000 505,320 – – – – – – (393) 4,209 – – 4,209 – – – 1,294 (1,060) (159) – 19,768 – – – – 217,966 – (4,773) – (4,773) – – – – – – – 25,012 – (304) (37,831) (38,135) – – – – – – 67,133 270,849 4,209 (5,077) (37,831) (38,699) – – 1,294 (1,060) (159) 67,133 533,595 39 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. 190 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 191 191 Notes to the consolidated financial statements continued 40 Country-by-country reporting HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV (CRD IV) and issued the Capital Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Rathbones Group Plc (together with its subsidiaries, ‘the group’) to publish certain additional information, on a consolidated basis, for the year ended 31 December 2021. 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 page 6. Discretionary investment management is the sole activity which occurs in Jersey. Turnover is defined as operating income. As the consolidated results are split by country, there is an element of double counting when inter-jurisdictional transactions (for example, the payment of dividends) occur. The entries to eliminate this double counting are included at the bottom of the table to enable the disclosed figures to agree to the published consolidated accounts of the group. Profit/(loss) before taxation These are accounting profits. As with turnover some double counting may arise and again this has been eliminated at the bottom of the table. The majority of the total relates to the elimination of inter-jurisdictional dividends, which are reflected as profits in the United Kingdom. Tax paid This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any given year relates directly to the profits earned in the same period. Public subsidies received The group received no public subsidies in the year. Number of employees The number of employees reported is the average number of full-time employees who were permanently employed by the group, or one of its subsidiaries, during the year. Contractors are excluded. Subsidiaries A list of the subsidiaries of the group, including their main activity and country of incorporation, is shown within note 45. Country United Kingdom Jersey Sub-total Inter-group eliminations and other entries arising on consolidation Total Turnover £'000 427,634 13,543 441,177 (5,250) 435,927 Profit/(loss) before taxation £'000 103,088 2,036 105,124 (10,089) 95,035 Tax paid £'000 26,752 295 27,047 – 27,047 Number of employees 1,711 28 1,739 – 1,739 192 192 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Consolidated financial statements Notes to the consolidated financial statements continued 40 Country-by-country reporting HM Treasury has transposed the requirements set out under the Capital Requirements Directive IV (CRD IV) and issued the Capital Requirements Country-by-Country Reporting Regulations 2013, effective 1 January 2014. The legislation requires Rathbones Group Plc (together with its subsidiaries, ‘the group’) to publish certain additional information, on a consolidated basis, for the year ended 31 December 2021. Basis of preparation: Country In most cases, we have determined the country by reference to the country of tax residence. Where an entity is not subject to tax (e.g. a partnership) we have considered the location of management or the jurisdiction in which the revenues are generated. In these cases it is possible that tax is paid in a different country to the one in which profits are reported. Nature of activities The nature of activities within the United Kingdom are described within our services on page 6. Discretionary investment management is the sole activity which occurs in Jersey. Turnover Turnover is defined as operating income. As the consolidated results are split by country, there is an element of double counting when inter-jurisdictional transactions (for example, the payment of dividends) occur. The entries to eliminate this double counting are included at the bottom of the table to enable the disclosed figures to agree to the published consolidated accounts of the group. Profit/(loss) before taxation These are accounting profits. As with turnover some double counting may arise and again this has been eliminated at the bottom of the table. The majority of the total relates to the elimination of inter-jurisdictional dividends, which are reflected as profits in the United Kingdom. Tax paid This column reflects corporation tax actually paid in the year. Note that it is rare that tax paid in any given year relates directly to the profits earned in the same period. Public subsidies received The group received no public subsidies in the year. Number of employees The number of employees reported is the average number of full-time employees who were permanently employed by the group, or one of its subsidiaries, during the year. Contractors Subsidiaries A list of the subsidiaries of the group, including their main activity and country of incorporation, are excluded. is shown within note 45. Country United Kingdom Jersey Sub-total Total Inter-group eliminations and other entries arising on consolidation (5,250) (10,089) – Turnover £'000 427,634 13,543 441,177 Profit/(loss) before taxation £'000 Tax paid £'000 103,088 26,752 2,036 295 105,124 27,047 Number of employees 1,711 28 1,739 – 435,927 95,035 27,047 1,739 Company statement of changes in equity for the year ended 31 December 2021 At 1 January 2020 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 2020 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 2021 Note Share capital £’000 2,818 Share premium £’000 210,939 Merger Reserve £’000 39,921 Own shares £’000 (41,971) Retained earnings £’000 113,944 24,155 Total equity £’000 325,651 24,155 (4,682) (4,682) 1,668 (3,014) 1,668 (3,014) (37,831) – 43,634 – (304) (140) 140,444 60,195 (37,831) 4,209 – 43,634 (5,077) – (140) 351,587 60,195 – – – – – – – – – – – – – – 39,921 – (5,077) 304 – (46,744) – – – – 5,208 – – – – 45,129 – – – – – 17,091 17,091 (3,247) 13,844 (3,247) 13,844 (43,960) – (43,960) 81,368 – (15,130) 25,248 – (36,626) (3,246) – (25,248) 1,350 143,379 (3,246) (15,130) – 1,350 446,008 54 49 44 55 55 55 54 49 44 55 55 55 – – – – 56 – – – – 2,874 – – – – – – – 4,153 – – – – 215,092 – – – – 226 – 75,934 – – – – 3,100 – – – – 291,026 The accompanying notes form an integral part of the company financial statements. 192 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 193 193 Company balance sheet for the year ended 31 December 2021 Non-current assets Investment in subsidiaries Other investments Right-of-use assets Deferred tax Retirement benefit asset 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 Subordinated loan notes 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 45 46 48 49 54 47 2021 £’000 2020 £’000 422,198 7,376 42,792 7,139 12,287 491,792 323,055 15,728 43,897 6,100 – 388,780 151,897 19,065 170,962 112,361 12,611 124,972 662,754 513,752 50 52 53 (109,846) (53,899) – (13,108) (39,893) (216,746) (89,804) (55,123) (5) (7,448) – (152,380) (45,784) (27,408) 54 – (216,746) (9,785) (162,165) 446,008 351,587 55 55 55 55 3,100 291,026 45,129 (36,626) 143,379 446,008 2,874 215,092 39,921 (46,744) 140,444 351,587 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. Rathbones Group Plc reported a profit after tax for the financial year ended 31 December 2021 of £60,195,000 (2020: £24,155,000). The financial statements were approved by the board of directors and authorised for issue on 23 February 2022 and were signed on its behalf by: Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer Company registered number: 01000403 The accompanying notes form an integral part of the company financial statements. 194 194 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Company balance sheet for the year ended 31 December 2021 Company statement of cash flows for the year ended 31 December 2021 Non-current assets Investment in subsidiaries Other investments Right-of-use assets Deferred tax Retirement benefit asset 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 Subordinated loan notes 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 45 46 48 49 54 2021 £’000 2020 £’000 422,198 323,055 7,376 42,792 7,139 12,287 15,728 43,897 6,100 – 491,792 388,780 47 151,897 19,065 170,962 112,361 12,611 124,972 662,754 513,752 50 (109,846) (53,899) – (13,108) (39,893) 52 53 (89,804) (55,123) (7,448) (5) – (216,746) (152,380) (45,784) (27,408) 54 – (9,785) (216,746) (162,165) 446,008 351,587 55 55 55 55 3,100 291,026 45,129 (36,626) 143,379 446,008 2,874 215,092 39,921 (46,744) 140,444 351,587 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 in accruals, deferred income, provisions and other liabilities Cash 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 Investment in subsidiaries Net purchase of right-of-use assets Purchase of other investments Proceeds from sale of investments Net cash (used in)/generated from investing activities Cash flows from financing activities Net proceeds from issue of subordinated loan notes Net (repurchase)/issue of ordinary shares Dividends paid Payment of lease liabilities Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The accompanying notes form an integral part of the company financial statements. Note 2021 £’000 2020 £’000 59,769 (681) (62,416) 865 4,680 105 (5,086) 20,130 17,366 (39,683) 22,840 523 (2,517) (1,994) 981 (3,073) 65,000 (99,143) 112 (56,658) 65,690 (27,091) 39,893 44,335 (43,960) (4,729) 35,539 6,454 12,611 19,065 26,920 (494) (54,764) (428) 4,643 200 (3,111) 39,986 12,952 12,579 25,413 50,944 (2,876) 48,068 66 (3,299) 58,000 (50,000) (182) (1,063) 417 3,939 – (868) (37,831) (4,901) (43,600) 8,407 4,204 12,611 52 54 54 55 45 45 53 55 44 60 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. Rathbones Group Plc reported a profit after tax for the financial year ended 31 December 2021 of £60,195,000 (2020: £24,155,000). The financial statements were approved by the board of directors and authorised for issue on 23 February 2022 and were signed on its behalf by: Paul Stockton Group Chief Executive Officer Jennifer Mathias Group Chief Financial Officer Company registered number: 01000403 The accompanying notes form an integral part of the company financial statements. 194 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 195 195 Notes to the company financial statements Notes to the company financial statements 41 Significant accounting policies Statement of compliance The separate financial statements of the company are presented as required by the Companies Act 2006 and have been prepared in accordance with UK-adopted International Accounting Standards., and IAS 27 ‘Separate Financial Statements’. On publishing the parent company financial statements here together with the group financial statements, the company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these approved financial statements. Developments in reporting standards and interpretations Developments in reporting standards and interpretations are set out in note 1.3 to the consolidated financial statements. Principal accounting policies The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are as set out below. Investments in subsidiaries Investments in subsidiaries are stated at cost less, where appropriate, provision for impairment. Management charges Intra-group management charges arise in relation to staff costs and other administrative expenses that are initially borne by the company and then recharged to other group companies, when incurred. Accounting policies in relation to impairment, interest income, dividend income, operating leases, foreign currency, retirement benefit obligations, taxation, cash and cash equivalents and share-based payments are set out in note 1 to the consolidated financial statements. 42 Critical accounting judgements and key sources of estimation uncertainty The critical accounting judgements and key sources of estimation uncertainty arise from the company’s defined benefit pension schemes and valuation of the consideration payable for Saunderson House. These are described in note 2 to the consolidated financial statements. 43 Expenses for the year The auditor’s remuneration for audit and other services to the company is set out in note 7 to the financial statements. The average number of employees, on a full-time-equivalent basis, during the year was as follows: Investment Management: – investment management services – advisory services Funds Shared services 2021 2020 1,027 137 43 463 1,670 932 123 37 379 1,471 196 196 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements Notes to the company financial statements 41 Significant accounting policies Statement of compliance The separate financial statements of the company are presented as required by the Companies Act 2006 and have been prepared in accordance with UK-adopted International Accounting Standards., and IAS 27 ‘Separate Financial Statements’. On publishing the parent company financial statements here together with the group financial statements, the company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these approved financial statements. Developments in reporting standards and interpretations Developments in reporting standards and interpretations are set out in note 1.3 to the consolidated financial statements. 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 are stated at cost less, where appropriate, provision for impairment. Principal accounting policies Investments in subsidiaries Management charges Intra-group management charges arise in relation to staff costs and other administrative expenses that are initially borne by the company and then recharged to other group companies, when incurred. Accounting policies in relation to impairment, interest income, dividend income, operating leases, foreign currency, retirement benefit obligations, taxation, cash and cash equivalents and share-based payments are set out in note 1 to the consolidated financial statements. 42 Critical accounting judgements and key sources of estimation uncertainty The critical accounting judgements and key sources of estimation uncertainty arise from the company’s defined benefit pension schemes and valuation of the consideration payable for Saunderson House. These are described in note 2 to the consolidated financial statements. 43 Expenses for the year The auditor’s remuneration for audit and other services to the company is set out in note 7 to the financial statements. The average number of employees, on a full-time-equivalent basis, during the year was as follows: Investment Management: – investment management services – advisory services Funds Shared services 2021 2020 1,027 137 43 463 932 123 37 379 1,670 1,471 44 Dividends Details of the company’s dividends paid and proposed for approval at the Annual General Meeting are set out in note 12 to the consolidated financial statements. The company’s dividend policy is described in the directors’ report on page 112. Reserves available for distribution as at 31 December were 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 45 Investment in subsidiaries At 1 January 2020 Additions Disposals At 1 January 2021 Additions Disposals At 31 December 2021 2021 £’000 446,008 2020 £’000 351,587 (3,100) (291,026) (45,129) 106,753 (2,874) (215,092) (39,921) 93,700 2021 £’000 93,700 60,195 13,844 (43,960) (17,026) 106,753 2020 £’000 71,973 24,155 (3,014) (37,831) 38,417 93,700 Equities £’000 273,055 50,000 – 323,055 99,143 – 422,198 Total £’000 273,055 50,000 – 323,055 99,143 – 422,198 196 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 197 197 Notes to the company financial statements continued 45 Investment in subsidiaries continued Equities On 30 April 2020, 588,235 ordinary shares of £1 each in Rathbone Investment Management Limited were issued to the company at a price of £85 per share for cash consideration. At 31 December 2021 the company’s subsidiary undertakings were as follows: Subsidiary undertaking Rathbone Investment Management Limited Rathbone Investment Management International Limited* Rathbone Trust Company Limited Rathbone Unit Trust Management Limited Arcticstar Limited** Vision Independent Financial Planning Limited Castle Investment Solutions Limited Rathbone Trust Legal Services Limited* Laurence Keen Holdings Limited** Rathbone Directors Limited* Rathbone Secretaries Limited* Laurence Keen Nominees Limited* Neilson Cobbold Client Nominees Limited* Rathbone Nominees Limited* Citywall Nominees Limited* Penchart Nominees Limited* 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* Saunderson House Limited CastleCo Limited HouseCo Limited CabinCo Limited CottageCo 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 Financial planning and investment management services Non-trading Non-trading Non-trading Non-trading ** UK subsidiary has taken an exemption from audit under section 479A of the Companies Act 2006 for the year ended 31 December 2021. Company registration number 1448919 50503 1688454 2376568 3898083 6650476 7370865 10514352 2474285 4410000 4627820 2801952 3217430 646336 3070653 2608726 11395344 5679426 2483921 SC204313 1246166 515534528 SC098335 SC162589 SC122842 SC095908 940473 130602 130603 130601 131144 198 198 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 45 Investment in subsidiaries continued Equities On 30 April 2020, 588,235 ordinary shares of £1 each in Rathbone Investment Management Limited were issued to the company at a price of £85 per share for cash consideration. At 31 December 2021 the company’s subsidiary undertakings were as follows: Subsidiary undertaking Rathbone Investment Management Limited Investment management and banking services Rathbone Investment Management International Limited* Activity and operation Company registration 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* CastleCo Limited HouseCo Limited CabinCo Limited CottageCo Limited * Held by subsidiary undertaking Saunderson House Limited Financial planning and investment management services ** UK subsidiary has taken an exemption from audit under section 479A of the Companies Act 2006 for the year ended 31 December 2021. Trust and legal services 10514352 Investment management Trust and tax services Unit trust management Introducer of private clients Financial planning services Investment support services Intermediate holding company Corporate director services Corporate secretarial services Corporate nominee Corporate nominee Corporate nominee Corporate nominee Corporate nominee Corporate nominee Non-trading Non-trading Non-trading Non-trading Investment management Corporate nominee Corporate nominee Corporate nominee Non-trading Non-trading Non-trading Non-trading number 1448919 50503 1688454 2376568 3898083 6650476 7370865 2474285 4410000 4627820 2801952 3217430 646336 3070653 2608726 11395344 5679426 2483921 SC204313 1246166 SC098335 SC162589 SC122842 SC095908 940473 130602 130603 130601 131144 European fund marketing 515534528 The registered office for all subsidiary undertakings is 8 Finsbury Circus, London EC2M 7AZ except for the following: Subsidiary undertaking Rathbone Investment Management Limited Rathbone Investment Management International Limited Vision Independent Financial Planning Limited Castle Investment Solutions Limited Speirs & Jeffrey Limited Speirs & Jeffrey Client Nominees Limited Speirs & Jeffrey Portfolio Management Limited Speirs & Jeffrey Fund Management Limited Rathbone Funds Advisers Unipessoal LDA Saunderson House Limited CastleCo Limited HouseCo Limited CabinCo Limited CottageCo Limited Registered office Port of Liverpool Building, Pier Head, Liverpool L3 1NW 26 Esplanade, St Helier, Jersey JE1 2RB Vision House, Unit 6A Falmouth Business Park, Bickland Water Road, Falmouth, Cornwall TR11 4SZ Vision House, Unit 6A Falmouth Business Park, Bickland Water Road, Falmouth, Cornwall TR11 4SZ George House, 50 George Square, Glasgow G2 1EH George House, 50 George Square, Glasgow G2 1EH George House, 50 George Square, Glasgow G2 1EH George House, 50 George Square, Glasgow G2 1EH R Tierno Galvan 10 Torre 3, Piso 6 Sala 602, 1070-274, Campo Ourique Lisbon, Lisbon, Portugal Saunderson House Ltd, 1 Long Lane, London, EC1A 9HF Aztec Group House, 11-15 Seaton Place, St Helier, Jersey, JE4 0QH Aztec Group House, 11-15 Seaton Place, St Helier, Jersey, JE4 0QH Aztec Group House, 11-15 Seaton Place, St Helier, Jersey, JE4 0QH Aztec Group House, 11-15 Seaton Place, St Helier, Jersey, JE4 0QH The company owns, directly or indirectly, 100% of the ordinary share capital of all subsidiary undertakings. 46 Other investments Fair value through profit or loss securities Equity securities: – listed Money market funds: – unlisted 47 Trade and other receivables Prepayments and other receivables Amounts owed by group undertakings Current Non-current 2021 £’000 2020 £’000 7,376 5,728 – 7,376 10,000 15,728 2021 £’000 3,516 148,381 151,897 2020 £’000 4,526 107,835 112,361 151,897 – 151,897 112,361 – 112,361 198 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 199 199 Notes to the company financial statements continued 48 Right-of-use assets Cost At 1 January 2020 Additions Disposals Other movements At 1 January 2021 Additions Disposals Other movements At 31 December 2021 Depreciation and impairment 1 January 2020 Charge for the year Disposals Other movements At 1 January 2021 Charge for the year Disposals Other movements At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 Property £’000 Motor vehicles and equipment £’000 50,186 601 2,506 (134) 53,159 3,505 (81) (284) 56,299 4,619 4,643 – – 9,262 4,660 (81) – 13,841 42,458 43,897 45,567 – – – – – 354 – – 354 – – – – – 20 – – 20 334 – – Total £’000 50,186 601 2,506 (134) 53,159 3,859 (81) (284) 56,653 – 4,619 4,643 – – 9,262 4,680 (81) – 13,861 42,792 43,897 45,567 During the year, the company recognised a charge of £50,000 in profit or loss in respect of short-term leases and low-value assets (2020: £7,000). 200 200 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 48 Right-of-use assets Cost At 1 January 2020 Additions Disposals Other movements At 1 January 2021 Additions Disposals Other movements At 31 December 2021 Depreciation and impairment 1 January 2020 Charge for the year Disposals Other movements At 1 January 2021 Charge for the year Disposals Other movements At 31 December 2021 Carrying amount at 31 December 2021 Carrying amount at 31 December 2020 Carrying amount at 1 January 2020 (2020: £7,000). Motor vehicles Property and equipment £’000 £’000 56,299 354 56,653 Total £’000 50,186 601 2,506 (134) 53,159 3,859 (81) (284) – – – – 4,619 4,643 9,262 4,680 (81) 13,861 42,792 43,897 45,567 – – – – – – – – – – – – – – – – 354 20 20 334 50,186 601 2,506 (134) 53,159 3,505 (81) (284) 4,619 4,643 – – 9,262 4,660 (81) – 13,841 42,458 43,897 45,567 49 Deferred tax The UK Government legislated in the Finance Act 2021 to increase the UK corporation tax rate to 25.0% in 2023. The Finance Act 2021 was enacted on 10 June 2021. This has been reflected in the deferred tax calculations. 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 2021 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 1,857 (946) – – (946) (3,247) – – (3,247) Share-based payments £’000 4,362 Staff-related costs £’000 93 Fair value through profit or loss £’000 (212) 2,170 3 1,736 3,909 (129) 140 – 11 (99) – – (99) – – – – – – – – 1,211 (8) 208 1,411 – – – – – – – – – – – – – – – – Total £’000 6,100 996 143 1,736 2,875 (3,247) – – (3,247) 1,211 (8) 208 1,411 During the year, the company recognised a charge of £50,000 in profit or loss in respect of short-term leases and low-value assets As at 31 December 2021 (2,336) 9,682 104 (311) 7,139 Deferred tax assets Deferred tax liabilities As at 31 December 2021 Pensions £’000 – (2,336) (2,336) Share-based payments £’000 9,682 – 9,682 Staff-related costs £’000 104 – 104 Fair value through profit or loss £’000 – (311) (311) Total £’000 9,786 (2,647) 7,139 200 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 201 201 Total £’000 5,106 (263) (189) (174) (626) 890 – 778 1,668 (38) (17) 7 (48) 6,100 – 6,312 (212) 6,100 Notes to the company financial statements continued 49 Deferred tax continued As at 1 January 2020 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 1,360 (553) – (618) (1,171) 890 – 778 1,668 – – – – Share-based payments £’000 3,545 Staff-related costs £’000 304 398 22 445 865 – – – – (38) (17) 7 (48) (11) (211) 11 (211) – – – – – – – – Fair value through profit or loss £’000 (103) (97) – (12) (109) – – – – – – – – As at 31 December 2020 1,857 4,362 93 (212) Deferred tax assets Deferred tax liabilities As at 31 December 2020 50 Trade and other payables Trade creditors Accruals, deferred income and other creditors Amounts owed to group undertakings Other taxes and social security costs 1,857 – 1,857 4,362 – 4,362 93 – 93 – (212) (212) 2021 £’000 57 99,029 – 10,760 109,846 2020 £’000 117 71,344 – 18,343 89,804 The fair value of trade and other payables is not materially different from their carrying amount. 202 202 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 49 Deferred tax continued As at 1 January 2020 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 2020 Deferred tax assets Deferred tax liabilities As at 31 December 2020 50 Trade and other payables Trade creditors Accruals, deferred income and other creditors Amounts owed to group undertakings Other taxes and social security costs Share-based payments £’000 3,545 398 22 445 865 Staff-related Fair value through profit or loss costs £’000 304 (11) (211) 11 (211) £’000 (103) (97) – (12) (109) Pensions £’000 1,360 (553) – (618) (1,171) 890 – 778 1,668 – – – – – – – – – – – – – (38) (17) 7 (48) – – – – – 1,857 4,362 1,857 4,362 93 – 93 Total £’000 5,106 (263) (189) (174) (626) 890 – 778 1,668 (38) (17) 7 (48) – 6,312 (212) 6,100 2020 £’000 117 – 18,343 89,804 – – – – – – – – – – (212) (212) 2021 £’000 57 10,760 109,846 99,029 71,344 1,857 4,362 93 (212) 6,100 The fair value of trade and other payables is not materially different from their carrying amount. 51 Lease liabilities Maturity analysis Less than one year One to five years More than five years Lease liabilities at 31 December Current Non-current 52 Provisions for liabilities and charges As at 1 January 2020 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 2020 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 2021 Payable within 1 year Payable after 1 year 2021 £’000 4,567 19,176 30,156 53,899 4,567 49,332 53,899 Property- related £’000 5,038 (589) (23) (612) – (825) 3,601 963 (100) 863 – – 4,464 96 4,368 4,464 2020 £’000 4,654 18,708 31,761 55,123 4,654 50,469 55,123 Total £’000 5,886 117 (23) 94 2,521 (1,052) 7,449 965 (100) 865 8,621 (3,827) 13,108 3,783 9,325 13,108 Deferred, variable costs to acquire client relationship intangibles £’000 848 – – – 2,521 (227) 3,142 – – – 8,621 (3,239) 8,524 3,567 4,957 8,524 Deferred and contingent consideration in business combinations £’000 – 588 – 588 – 588 – – – – (588) – – – – Legal and compensation £’000 – 118 – 118 – – 118 2 – 2 – – 120 120 – 120 During the year, the group settled an incentivisation award for Speirs & Jeffrey support staff in the value of £588,000. 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. Property-related provisions of £4,464,000 relate to dilapidation provisions expected to arise on leasehold premises held by the group (2020: £3,601,000). Dilapidation provisions are calculated using a discounted cash flow model; during the year, provisions have increased by £863,000 (2020: decreased by £1,437,000). During the year, the group utilised £100,000 for the property held in Edinburgh (2020: £nil). The dilapidation provision held for the property at 1 Curzon Street was fully utilised in the prior year. The impact of discounting led to an additional credit of £963,000 (2020: additional charge of £589,000) being recognised during the year. Provisions payable after one year are expected to be settled within two years of the balance sheet date (2020: two years), except for the property-related provisions of £4,368,000 (2020: £3,601,000), which are expected to be settled within 12 years of the balance sheet date (2020: 13 years). 202 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 203 203 Notes to the company financial statements continued 53 Subordinated loan notes Subordinated loan notes – face value – carrying value 2021 £’000 2020 £’000 40,000 39,893 – – During the year, Rathbone Brothers Plc issued £40.0 million of 10-year tier 2 notes with a call option in October 2026 and annually thereafter. Interest is payable at a fixed rate of 5.642% per annum until the first call option date and at a fixed rate of 4.893% over Compounded Daily SONIA thereafter. Legal fees of £107,000 were incurred in issuing the notes, which have been accounted for in the carrying value of amortised cost. An interest expense of £491,000 (2020: £nil) was recognised in the year. 54 Long-term employee benefits Details of the defined benefit pension schemes operated by the company are provided in note 29 to the consolidated financial statements. 55 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 30 and 31 to the consolidated financial statements. Details of options on the company’s shares and share-based payments are set out in note 32 to the consolidated financial statements. 56 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 (iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) (iv) pension risk. The company’s exposures to pension risk are set out in note 29 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 and staff advances. The collection and ageing of trade and other receivables are reviewed on a periodic basis by management. The company places surplus funds with its banking subsidiary, which operates under the group’s credit risk management policies. Group policy requires that funds are placed with a range of high-quality financial institutions. Investments are spread to avoid excessive exposure to any individual counterparty. 204 204 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements 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 2021 £’000 2020 £’000 – 10,000 148,381 5,588 19,065 173,034 107,835 6,472 12,611 136,918 The above table represents the gross credit risk exposure of the company at 31 December 2021 and 2020, 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 2021, based on Fitch or Moody’s long-term rating designation. AAA Trade and other receivables 2021 2020 Money market funds £’000 – Money market funds £’000 10,000 Total £’000 – Total £’000 10,000 (iii) market risk (which includes fair value interest rate risk, cash flow interest rate risk, foreign exchange risk and price risk) No trade and other receivables have been written off or are credit-impaired at the reporting date. The company’s exposures to pension risk are set out in note 29 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 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. 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 A 2021 £’000 19,065 19,065 2020 £’000 12,611 12,611 Notes to the company financial statements continued 53 Subordinated loan notes Subordinated loan notes – face value – carrying value 2021 £’000 2020 £’000 40,000 39,893 – – During the year, Rathbone Brothers Plc issued £40.0 million of 10-year tier 2 notes with a call option in October 2026 and annually thereafter. Interest is payable at a fixed rate of 5.642% per annum until the first call option date and at a fixed rate of 4.893% over Compounded Daily SONIA thereafter. Legal fees of £107,000 were incurred in issuing the notes, which have been accounted for in the carrying value of amortised cost. An interest expense of £491,000 (2020: £nil) was recognised in the year. 54 Long-term employee benefits Details of the defined benefit pension schemes operated by the company are provided in note 29 to the consolidated financial statements. 55 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 30 and 31 to the consolidated financial statements. Details of options on the company’s shares and share-based payments are set out in note 32 to the consolidated financial statements. 56 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. category of financial risk. and the wider industry. (i) Credit risk 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. 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 and staff advances. The collection and ageing of trade and other receivables are reviewed on a periodic basis by management. The company places surplus funds with its banking subsidiary, which operates under the group’s credit risk management policies. Group policy requires that funds are placed with a range of high-quality financial institutions. Investments are spread to avoid excessive exposure to any individual counterparty. 204 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 205 205 Notes to the company financial statements continued 56 Financial instruments continued (i) Credit risk continued Concentration of credit risk The company has counterparty credit risk within its balances at banks in that the principal exposure is to its banking subsidiary. The board sets and monitors the group policy for the management of group funds, which 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 2021 Other investments: – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks At 31 December 2020 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 – 147,619 1,425 19,065 168,109 – 761 119 – 880 Total £’000 – 148,380 1,544 19,065 168,989 United Kingdom £’000 Rest of the World £’000 Total £’000 10,000 – 10,000 107,279 2,136 12,611 132,026 556 403 – 959 107,835 2,539 12,611 132,985 At 31 December 2021, all rest of the world exposures were to counterparties based in Jersey, the Eurozone, and the United States of America (2020: Jersey, the Eurozone, and the United States of America). At 31 December 2021, the company had no exposure to sovereign debt (2020: none). 206 206 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 56 Financial instruments continued (i) Credit risk continued Concentration of credit risk financial institutions. (a) Geographical sectors At 31 December 2021 Other investments: – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks At 31 December 2020 Other investments: – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks 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 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. United Kingdom £’000 Rest of the World £’000 Total £’000 – – – – – 556 403 761 119 148,380 1,544 19,065 880 168,989 Total £’000 10,000 107,835 2,539 12,611 959 132,985 – 147,619 1,425 19,065 168,109 10,000 107,279 2,136 12,611 132,026 United Kingdom £’000 Rest of the World £’000 At 31 December 2021, all rest of the world exposures were to counterparties based in Jersey, the Eurozone, and the United States of America (2020: Jersey, the Eurozone, and the United States of America). At 31 December 2021, the company had no exposure to sovereign debt (2020: none). (b) Industry sectors The company’s credit exposures at the balance sheet date, analysed by the primary industry sectors in which our counterparties operate, were: At 31 December 2021 Other investments: – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks At 31 December 2020 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 – 32,026 – 19,065 51,091 116,354 1,544 – 117,898 148,380 1,544 19,065 168,989 Financial institutions £’000 Clients and other corporates £’000 Total £’000 10,000 – 10,000 66,110 – 12,611 88,721 41,725 2,539 – 44,264 107,835 2,539 12,611 132,985 206 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 207 207 Notes to the company financial statements continued 56 Financial instruments continued (ii) Liquidity risk Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The company places its funds in short-term or demand facilities with financial institutions to ensure liquidity. The company has no bank loans (2020: £nil). 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 2021 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 1year but not more than 5 years £’000 After 5 years £’000 No fixed maturity date £’000 – 148,381 33 19,065 167,479 – – 553 – 553 – – 697 – 697 – – 3,501 – 3,501 – – 804 – 804 – 153 – 37,599 – 19,447 – 69,799 – 42,973 – – – – – – – 153 167,326 167,326 37,599 (37,046) 130,280 19,447 (18,750) 111,530 69,799 (66,298) 45,232 42,973 (42,169) 3,063 – – 3,063 Total £’000 – 148,381 5,588 19,065 173,034 – 169,971 169,971 3,063 208 208 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 56 Financial instruments continued (ii) Liquidity risk liquidity. The company has no bank loans (2020: £nil). Non-derivative cash flows 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 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. After 3 months After 1year but On Not more but not more not more than No fixed demand than 3 months than 1 year £’000 £’000 £’000 5 years £’000 After 5 years maturity date £’000 £’000 Total £’000 – amounts owed by group undertakings 148,381 At 31 December 2021 Other investments: – money market funds Trade and other receivables: – 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 – 33 19,065 167,479 – 153 167,326 167,326 – – – – 553 553 697 3,501 697 3,501 – – – – – – – – 804 804 – – – – 37,599 19,447 69,799 42,973 – – – – – – – – – – – 148,381 5,588 19,065 173,034 169,971 169,971 3,063 Cumulative net liquidity gap 130,280 111,530 45,232 3,063 3,063 153 37,599 19,447 69,799 42,973 (37,046) (18,750) (66,298) (42,169) At 31 December 2020 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 10,000 107,835 53 12,611 130,499 – – 786 – 786 – 146 – 47,659 – – – 3,491 – 3,491 – 1,338 – 1,338 – 7,083 – 61,315 – 52,506 – – 804 – 804 146 130,353 130,353 47,659 (46,873) 83,480 7,083 (5,745) 77,735 61,315 (57,824) 19,911 52,506 (51,702) (31,791) – – (31,791) – – – – – – – Total £’000 10,000 107,835 6,472 12,611 136,918 – 168,709 168,709 (31,791) Included within trade and other payables disclosed above are balances that are repayable on demand or that do not have a contractual maturity date, which historical experience shows are unlikely to be called in the short term. The company holds £7,376,000 of equity investments (2020: £5,728,000) 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. Total liquidity requirement At 31 December 2021 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement At 31 December 2020 Cash flows arising from financial liabilities Total off-balance-sheet items Total liquidity requirement On demand £’000 153 – 153 Not more than 3 months £’000 37,599 – 37,599 After 3 months but not more than 1 year £’000 19,447 – 19,447 After 1 year but not more than 5 years £’000 69,799 – 69,799 After 5 years £’000 42,973 – 42,973 Total £’000 169,971 – 169,971 On demand £’000 146 – 146 Not more than 3 months £’000 47,659 – 47,659 After 3 months but not more than 1 year £’000 7,083 – 7,083 After 1 year but not more than 5 years £’000 61,315 – 61,315 After 5 years £’000 52,506 – 52,506 Total £’000 168,709 – 168,709 208 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 209 209 Notes to the company financial statements continued 56 Financial instruments continued (iii) Market risk Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets and liabilities. The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts, categorised by the earlier of contractual repricing or maturity dates. At 31 December 2021 Assets Other investments: – equity securities – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks Total financial assets Liabilities Trade and other payables: – amounts owed to group undertakings – other financial liabilities Total financial liabilities Interest rate repricing gap At 31 December 2020 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 – – – 579 19,060 19,639 – – – 19,639 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,376 – 7,376 – 148,380 965 5 156,726 148,380 1,544 19,065 176,365 – 149,606 149,606 7,120 – 149,606 149,606 26,759 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 – 575 12,606 23,181 – – – 23,181 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5,728 – 5,728 10,000 107,835 1,964 5 115,532 107,835 2,539 12,611 138,713 – 121,956 121,956 (6,424) – 121,956 121,956 16,757 A 1% parallel increase or decrease in the sterling yield curve would have no impact on profit after tax or equity (2020: no impact). 210 210 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 56 Financial instruments continued (iii) Market risk Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The company’s principal exposure to cash flow interest rate risk arises from the mismatch between the repricing of its financial assets and liabilities. The table below shows the repricing profile of the company’s financial assets and liabilities, stated at their carrying amounts, categorised by the earlier of contractual repricing or maturity dates. 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 2021 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 At 31 December 2020 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 – – – – – – – – – – – 579 19,060 19,639 19,639 10,000 575 12,606 23,181 23,181 After 3 months After 6 months Not more than but not more 3 months than 6 months £’000 £’000 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 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,376 7,376 148,380 148,380 965 5 1,544 19,065 156,726 176,365 – – – – 149,606 149,606 7,120 149,606 149,606 26,759 5,728 – 5,728 10,000 107,835 107,835 1,964 5 2,539 12,611 115,532 138,713 – 121,956 121,956 (6,424) – 121,956 121,956 16,757 A 1% parallel increase or decrease in the sterling yield curve would have no impact on profit after tax or equity (2020: no impact). The company has assessed the impact of climate change on the carrying amount of its financial assets and liabilities at the year end, and considers there to be no material 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 2021. Included in the table are the company’s financial assets and liabilities, at carrying amounts, categorised by currency. At 31 December 2021 Assets Other investments: – equity securities – money market funds Trade and other receivables: – amounts owed by group undertakings – other financial assets Balances at banks Total financial assets Liabilities Trade and other payables: – amounts owed to group undertakings – other financial liabilities Total financial liabilities Net on-balance-sheet position At 31 December 2020 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 7,376 – 148,380 1,425 19,065 176,246 – 149,488 149,488 26,758 – – – 119 – 119 – 119 119 – – – – – – – – – – – 7,376 – 148,380 1,544 19,065 176,365 – 149,607 149,607 26,758 Sterling £’000 US dollar £’000 Euro £’000 Total £’000 5,728 10,000 107,835 2,421 12,611 138,595 – 121,838 121,838 16,757 – – – 118 – 118 – 118 118 – – – – – – – – – – – 5,728 10,000 107,835 2,539 12,611 138,713 – 121,956 121,956 16,757 A 10% weakening of the US dollar against sterling would have reduced equity and profit after tax by £nil in 2021 (2020: £nil). 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 33. 210 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 211 211 Notes to the company financial statements continued 56 Financial instruments continued Fair values The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used to determine the fair value: — Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. — Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. — Level 3: inputs for the asset or liability that are not based on observable market data. At 31 December 2021 Assets Fair value through profit or loss: – equity securities – money market funds At 31 December 2020 Assets Fair value through profit or loss: – equity securities – money market funds Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 7,376 – 7,376 Level 1 £’000 – – – – – – Level 2 £’000 Level 3 £’000 7,376 – 7,376 Total £’000 5,728 – 5,728 – 10,000 10,000 – – – 5,728 10,000 15,728 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 (2020: 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 33 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 45). 212 212 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 56 Financial instruments continued Fair values determine the fair value: At 31 December 2021 Assets Fair value through profit or loss: – equity securities – money market funds At 31 December 2020 Assets Fair value through profit or loss: – equity securities – money market funds Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 – – – 7,376 – 7,376 Level 1 £’000 Level 2 £’000 Level 3 £’000 5,728 – 5,728 – 10,000 10,000 – – – – – – 7,376 – 7,376 Total £’000 5,728 10,000 15,728 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 (2020: 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 33 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 45). The table below analyses financial instruments measured at fair value into a fair value hierarchy based on the valuation technique used 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 — Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. — maintain a strong capital base to support the development of its business. other stakeholders — 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. For monitoring purposes, the company defines capital as distributable reserves (see note 44). 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 monitors 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. 57 Capital management The company’s objectives when managing capital are to: There were no changes in the company’s approach to capital management during the year. 58 Contingent liabilities and commitments The company had no contingent liabilities or commitments at the year end (2020: £nil). 59 Related party transactions Rathbones Group 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. Short-term employee benefits Other long-term benefits Share-based payments 2021 £’000 2,114 178 382 2,674 2020 £’000 1,435 50 550 2,035 Dividends totalling £229,000 were paid in the year (2020: £98,000) in respect of ordinary shares held by key management personnel and their close family members. All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Other related party transactions During the year, the company entered into the following transactions with its subsidiaries: Interest Charges for management services Dividends received 2021 2020 Receivable £’000 972 55,574 65,000 121,546 Payable £’000 – – – – Receivable £’000 – 209,878 58,000 267,878 Payable £’000 – – – – The company’s balances with fellow group companies at 31 December 2021 are set out in notes 47 and 50. The company’s transactions with the pension funds are described in note 54. At 31 December 2021, no amounts were due from the pension schemes (2020: £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. 212 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 213 213 Notes to the company financial statements continued 60 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 by employee benefit trust) 2021 £’000 19,065 2020 £’000 12,611 A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 38 to the consolidated financial statements. 61 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. 214 214 Rathbones Group Plc Report and accounts 2021 Rathbones Group Plc Report and accounts 2021 Company financial statements Notes to the company financial statements continued 60 Cash and cash equivalents months until maturity from the date of acquisition: For the purposes of the company statement of cash flows, cash and cash equivalents comprise the following balances with less than three Cash at bank (excluding amounts held by employee benefit trust) A reconciliation of the movements of liabilities to cash flows arising from financing activities is provided in note 38 to the consolidated 2021 £’000 2020 £’000 19,065 12,611 financial statements. 61 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. 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 2021 £’000 435,927 120,719 95,035 75,229 49,501 133.5p 129.3p 172.2p 81.0p 623,282 £68.2bn 2020 £’000 366,088 92,530 43,779 26,652 38,728 49.6p 47.6p 133.3p 72.0p 513,827 £54.7bn 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 1. A reconciliation between the underlying measure and its closest IFRS equivalent for the current year and the prior year is shown in table 4 on page 34 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 Saunderson House 17 rathbones.com rathboneimi.com rathbonegreenbank.com Unit trusts Rathbone Unit Trust Management 2 rathbones.com rutm.com Company secretary and registered office A Johnson Rathbones Group Plc 8 Finsbury Circus London EC2M 7AZ Company No. 01000403 www.rathbones.com ali.johnson@rathbones.com Registrars and transfer office Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA www.equiniti.com 214 Rathbones Group Plc Report and accounts 2021 rathbones.com rathbones.com 215 215 Our offices Head office 8 Finsbury Circus London EC2M 7AZ +44 (0)20 7399 0000 Investment Management 8 Finsbury Circus London EC2M 7AZ +44 (0)20 7399 0000 1 Albert Street Aberdeen AB25 1XX +44 (0)1224 218 180 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 . 216 Rathbones Group Plc Report and accounts 2021 Funds 8 Finsbury Circus London EC2M 7AZ +44 (0)20 7399 0000 Port of Liverpool Building Pier Head Liverpool L3 1NW +44 (0)151 236 6666 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 Saunderson House 1 Long Lane London EC1A 9HF +44 (0)20 7315 6500 Further informationIt is important to us that all materials used in the production of this document are environmentally sustainable. The forest-based material in this report is recycled. Both the printer and paper manufacturer are certified to the ISO 14001 environmental standard. Once you have finished with this report please recycle it. Rathbones Group Plc 8 Finsbury Circus, London, EC2M 7AZ +44 (0)20 7399 0000 rathbones.com R a t h b o n e s G r o u p P l c R e p o r t a n d a c c o u n t s 2 0 2 1

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