Final Results

RNS Number : 3783B

Rathbone Brothers PLC

17 February 2011

 



17 February 2011

Rathbone Brothers Plc

Rathbones funds under management above £15 billion

This is a preliminary statement of annual results published in accordance with FSA Listing Rule 9.7A.

It covers the year ended 31 December 2010.

Mark Powell, Chairman of Rathbone Brothers Plc, said:

"During the year, total funds under management within Rathbones rose by £2.53 billion (19.3%) reflecting £1.24 billion of new net organic and acquired funds. By the year end, total funds under management exceeded £15 billion for the first time ever.

I greatly regret having to report to our shareholders a significant deduction (£3.6 million) from our profits arising from FSCS levies caused by what appears to be mis-management in a different part of the financial sector over which Rathbones has no control or influence.

Rathbones continues to exhibit the ability to grow both organically and by attracting high quality investment managers with experience. Mark Nicholls joined the Board in December as Chairman-designate. I have no hesitation in believing that the combination of his ability and strategic direction and the energy, initiative and foresight of the Executive team, led by Andy Pomfret, promises Rathbones a positive and exciting future."

Highlights:

§ Underlying profit before tax (excluding amortisation of client relationship intangible assets, transaction costs and Financial Services Compensation Scheme (FSCS) levies) increased 18.8% to £38.5 million from £32.4 million. Basic underlying earnings per share (continuing operations) increased by 21.8% to 63.8p (2009: 52.4p).

§ Profit before tax (continuing operations) was £30.1 million for the year ended 31 December 2010, an increase of 2.0%, compared to £29.5 million in 2009.  Basic earnings per share (continuing operations) increased by 6.2% to 49.8p (2009: 46.9p). These figures reflect the impact of a £3.6 million charge in respect of FSCS levies (2009: £0.2 million) and amortisation of client relationship intangible assets of £4.8 million (2009: £2.0 million).

§ The Board recommends a 28p final dividend for 2010 (2009: second interim dividend of 26p), making a total of 44p for the year (2009: 42p).

§ Total funds under management were £15.63 billion at 31 December 2010, up 19.3% from £13.10 billion at 31 December 2009.  In comparison over the same period the FTSE 100 increased by 9% and there was an increase of 9.3% in the FTSE APCIMS Balanced Index.

§ The total net annual growth rate for Rathbone Investment Management was 10.2% (2009: 12.5%). This comprised £0.60 billion of acquired inflows of funds under management (2009: £0.55 billion) and £0.64 billion of net organic growth (2009: £0.63 billion), representing an underlying annual net organic growth rate of  5.3% (2009: 6.7%).

§ Net operating income in Rathbone Investment Management of £114.7 million for the year ended 31 December 2010 (2009: £104.3 million) represents an increase of 10.0%. The average FTSE 100 Index was 5528 on our quarterly billing dates (2009: 4706), an increase of 17.5%.

§ Net interest and other income in Rathbone Investment Management of £10.0 million for the year is 49.5% lower than the £19.8 million earned in 2009, reflecting continuing low yields on treasury assets.

§  Funds under management in Rathbone Unit Trust Management increased 10.6% to £1.04 billion at 31 December 2010 (2009: £0.94 billion). Profit before tax in Rathbone Unit Trust Management rose to £0.5 million for the year ended 31 December 2010 compared to a figure of £0.1 million in 2009.

For further information contact:

Rathbone Brothers Plc Tel: [phone] email: [e-mail] Mark Powell, Chairman Andy Pomfret, Chief Executive Paul Stockton, Finance Director

Quill PR Tel: [phone] Hugo Mortimer-Harvey

Rathbone Brothers Plc

Rathbone Brothers Plc is a leading independent provider of high-quality, personalised investment and wealth management services for private investors, charities and trustees. This includes discretionary investment management, tax and financial planning and unit trusts.

Rathbones has over 700 staff in 11 UK locations and Jersey, and has its headquarters in New Bond Street, London.

www.rathbones.com

Chairman's statement

2010 saw world markets going through a period of uncertainty and considerable volatility but by the year end the FTSE 100 Index had risen by 9.0% year on year and rallied by 22.8% to 5900 from its mid-year low of 4806. The FTSE APCIMS Balanced Index which is the market index which we consider most accurately reflects the mix of assets held by our clients rose by 9.3% during the course of calendar year 2010.

During the year, total funds under management within Rathbones rose by £2.53 billion (19.3%) reflecting £1.24 billion of new net organic and acquired funds. By the year end, total funds under management exceeded £15 billion for the first time ever.

Results and dividends

Profit before tax from continuing operations for the year to 31 December 2010 was £30.1 million compared with £29.5 million in 2009. This figure is struck after a charge of £4.8 million (2009: £2.0 million) in connection with the amortisation of intangible assets and a further £3.6 million charge (2009: £0.2 million) in respect of charges made by the Financial Services Compensation Scheme. The bulk of this sum is in respect of the failure of Keydata and other financial services companies regulated by the FSA but in a different sector of the market from Rathbones. I greatly regret reporting to our shareholders a significant deduction from our profits caused by what appears to be mis-management in a different part of the financial sector over which Rathbones has no control or influence.

2010 basic earnings per share were 49.76p compared with 45.55p in 2009. Basic earnings per share from continuing operations were 49.76p (2009: 46.87p). Your Board recommends that a final dividend of 28.0p per share compared with 26.0p last year, be paid making the total dividends per share in respect of the 2010 year 44.0p reflecting the good progress which Rathbones has made and the strength of our balance sheet. The final dividend will be paid on 18 May 2011.

Financial markets

As was the case in 2009, most world stock markets ended the year near to their highest levels but in the first half many markets were extremely volatile. Earlier in the year the FTSE 100 Index fell to its low point in June, but despite the uncertainties connected with the measures taken by the Coalition Government to reduce the public sector deficit, the market rallied by the year end. During the year interest rates have remained very low as governments in many developed economies have sought to assist the relatively weak recovery that has been underway. The interest rate environment continues to have an adverse effect on Rathbones' net interest income as it is very difficult for us to place funds in money markets in an appropriately cautious and prudent way that also earns an attractive return.

Funds under management in Rathbone Investment Management (including our subsidiary based in Jersey) rose by 20.0% to £14.59 billion (2009: £12.16 billion). The FTSE APCIMS Balanced Index rose 9.3% over the same period. The average level of the FTSE 100 Index on our key quarterly charging dates was 5528 compared with 4706 in 2009, a rise of 17.5%.

During the year funds under management in Rathbone Unit Trust Management rose by 10.6% to £1.04 billion at 31 December 2010.

Investment performance in our range of publicly marketed unit trusts was very strong during 2010 and we look forward to returning to a satisfactory growth in funds under management in 2011.

Composition of the Board

During November we announced that John May, a director of Caledonia Investments Plc, who has been a valuable Non-executive Director for the last three years, would retire from the Board at the conclusion of his three year term of office. He has been a supportive and positive member of our Board and we thank him and wish him well.

At the same time it was announced that I will retire from the Board of Rathbones at the conclusion of our Annual General Meeting in May 2011. Following a carefully conducted search process, Mark Nicholls has been appointed as a Non-executive Director of our Board and he will succeed me as Chairman after the Annual General Meeting. A solicitor by training, he was head of investment banking at S G Warburg before joining the Royal Bank of Scotland. He now has a range of board appointments in financial and other companies and brings great experience and expertise to us. I have absolutely no doubt that he will be a thoughtful and effective Chairman.

Outlook

The continuing turbulence in the financial markets indicates that 2011 will bring more uncertainty, but as the steps taken by the Coalition Government to reduce the fiscal deficit combine with the relative attraction of equities compared with low yielding government and corporate bonds, this makes us cautiously optimistic about the future.

Rathbones continues to exhibit the ability to grow both organically and by attracting investment managers with experience and quality to join us. I have no hesitation in believing that the combination of Mark Nicholls' ability and strategic direction and the energy, initiative and foresight of the Executive team, led by Andy Pomfret, promises Rathbones a positive and exciting future.

Mark Powell
Chairman

16 February 2011

Chief Executive's statement

Key highlights

In spite of the continuing uncertain economic climate, 2010 has been a better year than 2009. We have gained a significant amount of new business and at the end of the year our total funds under management exceeded £15 billion, a notable milestone. With the FTSE 100 Index ending the year at 5900 and strong commission figures, especially in the second half of the year, we produced a profit before tax of £30.1 million from continuing operations (2009: £29.5 million).

As a result of the 2009 transaction with Lloyds Banking Group more than 3,000 clients joined us during 2010 contributing to a total net growth rate for our core investment management business of 10.2% (2009: 12.5%). The acquisition of teams and corporate businesses are important for our growth but I have often said that the 'best' growth is net organic growth, where our existing investment managers gain new clients (or attract new business from existing clients). This net organic growth figure was a very respectable 5.3% in 2010 (2009: 6.7%). This figure takes account of the withdrawal of cash from client portfolios in the first half; there were signs that clients required cash to compensate for lower income earned on their investments, this reduced over the second half. We continue to consider how we can improve and increase our net organic growth rate.

Mike Webb took over as Chief Executive of our unit trust business (Rathbone Unit Trust Management) on 1 April 2010. This business has developed well since and now has £1.04 billion of funds under management and a much improved short term track record on key funds. Indeed at 31 December 2010, all IMA ranked funds were in the top quartile for performance over the one year period. The three year track record is the most important in obtaining net sales and it will take time to rebuild this, however, it has been encouraging to see a significant decline in the level of net redemptions. We are now turning our attention to gaining net sales in 2011 and investing in this area.

We have continued to invest to improve our infrastructure, the service to clients and our overall efficiency. We have also had to increase the amount we invest in coping with regulatory change. Even simple changes can have a significant effect on our systems, for example when CGT rates are changed part way through the year as happened in 2010.

Financial performance

In spite of the overall turmoil in financial markets, it would appear that 2008 saw the market and economic low point and 2010 showed some signs of resilience and recovery both in stock market terms and in the health of underlying companies. Our overall operating income grew by 8.9% to £127.2 million (2009: £116.8 million) as fees and commissions benefitted from stronger markets and the growth in funds under management. As anticipated our net interest income remains low and although there is an expectation that interest rates will increase, the timing remains uncertain. The overall level of the market is one of the most important drivers of our income line and on our four charging dates in 2010 the FTSE 100 Index was on average 17.5% higher than on the same dates in 2009.

We continue to manage our cost base carefully whilst at the same time seeking to invest in medium and long term growth opportunities for the business. Operating expenses (excluding contribution to the Financial Services Compensation Scheme, intangible asset amortisation and transaction costs) were £88.7 million, up 5.2% (2009: £84.3 million). Much of this cost increase related to newly acquired investment teams, office costs including those arising from office moves in Edinburgh and Cambridge, and the costs of additional projects. After two years of very tight salary cost controls, from January 2011 we have awarded salary increases of 4% overall, rewarding our staff who have worked so hard in a very difficult economic environment. Many of them had rises either well below inflation or zero over the last two years.

We are aware that in recent years our overall income as a percentage of funds under management has reduced below that of many of our competitors. We have consequently reviewed our investment management charging structure and are making changes which will come into effect from 6 April 2011. This is always a difficult and sensitive area but we believe it is fair that clients should face small increases for the premium service that they receive. We expect these increases to add approximately 3-4 basis points to our average net operating basis point return (85bps for 2010, 95bps for 2009) on an annualised basis.

The financial impact of Financial Services Compensation Scheme (FSCS) levies which arise from other industry failures is wholly outside our control. The interim levy of £3.2 million arising from the failure of Keydata Investment Services Limited and other intermediaries announced in January 2011 is unwelcome and adds to the £0.4 million we had already anticipated resulting in a £3.6 million charge for the year (2009: £0.2 million). We will be keeping a very close eye on future developments and how costs have been shared across the investment management industry.

2010 has also seen the full year impact of the amortisation of the intangible assets that arose as part of our Lloyds Banking Group transaction at the end of 2009. As expected, this largely resulted in the charge associated with client relationship intangibles growing to £4.8 million in 2010 (2009: £2.0 million).

Marketing and business development

During 2010 we have reviewed our marketing and business development activity. We are aiming to focus our resources on those target segments of the market where we have significant presence and feel we offer compelling solutions for clients. The role of Independent Financial Advisers (IFAs) is increasingly important in referring business to us. We are now focusing our efforts on a number of IFA firms where we wish to develop sustainable strategic relationships and are also targeting a number of chartered financial planners who we believe will have a significant requirement to introduce discretionary investment managers to their clients.

The impact of the Retail Distribution Review (RDR), which comes into force on 1 January 2013, has been much debated. Despite considerable industry consultation the rules as currently drafted do not reflect fully the business that we are in, namely providing a service to a client rather than selling a product to a customer. Although some changes will be inevitable the RDR will not significantly impact our business strategy. The effects on the IFA community are expected to be more profound and many IFAs will be unable to, or will not wish to, provide the bespoke discretionary investment management service that is our core business. We consider that our offering may well provide a helpful solution. In order to take advantage of this opportunity we will be investing more in our relationships with IFAs over the next year and developing our web portals for intermediaries.

We support the main principles of the RDR which will increase the professionalism of advisers and reduce the use of trail commission, which we have long viewed as an opaque means of charging the client and which, in our view, does not treat clients fairly. We continue to believe that our bespoke service offering, where a client deals directly with an investment professional, is one that sets us apart and enhances our role of trusted adviser to our clients.

Last year I highlighted our development of the Rathbone Multi Asset Portfolio Service. These funds particularly appeal to IFAs and their clients and have continued to grow well - now standing at £73.6 million of funds under management (2009: £40.7 million). We also continue to develop our panel relationships.

Our charities business has benefitted from some more focused marketing spend. We held our first Charity Symposium in the autumn of 2010 at the Royal Society with over 220 attendees. We look forward to growing this part of our business further in 2011. It now has some £1.63 billion (2009: £1.39 billion) of funds under management.

We continue to improve our overall investment process and the ways we present this to both the end clients and to the increasingly important intermediary clients. The proliferation of complex investment products means we are spending more on research to ensure our investment managers have the widest possible investment choice for private clients and charities. We will be investing further in 2011. Our asset allocation process prompts investment managers to look at portfolio diversification which has helped them manage client funds in volatile markets. The way the central investment process is communicated to investment managers across the country has also been improved.

Treasury and financing

During the year we undertook a major review of our banking licence to establish whether it was sensible to retain it in the light of changing regulation and public perception of banks. This was an extensive exercise which took account of the views of our investment managers, clients, investors, regulators and the external views of competitors and consultants. Our conclusion was that the banking regime in its current form remains attractive compared to the client money alternative and that, in a normal interest rate environment, the interest margin we would achieve more than outweighs the costs of regulation. Indeed we found there to be few savings in moving to a client money regime. However, we are also well prepared should we need to surrender it in future due to materially adverse changes in regulation or capital requirements.

Overall client cash levels remain static and were £0.76 billion at the end of 2010 (2009: £0.77 billion). Our treasury policy remains cautious and we are consistently seeking ways to avoid exposure to the more troubled countries in the Eurozone and the more troubled banks. The level of loans made to clients increased to £40.0 million at the end of 2010 (2009: £26.7 million). These loans are generally secured against the value of the portfolio that we manage and are often seen by clients as a very attractive way of obtaining reasonably priced bridging finance for a house move.

Our pension scheme deficits have been very volatile over the last year and at the end of 2010 were £6.6 million compared to £9.4 million at 31 December 2009 (but were £15.7 million at 30 June 2010). Our committed contributions to the schemes are £21.2 million over the next seven years and there is a triennial valuation due in 2011.

Our external borrowings were only £3.1 million at 31 December 2010 (2009: £6.2 million) so the business is effectively ungeared. Our Group Tier 1 capital ratio is 28.3% at 31 December 2010 (2009: 36.3%) on a Basel III basis, indicating the strength of our capital base. In 2010 we established an insurance cell with Harlequin Insurance PCC to provide additional cover against professional indemnity risks. This held net assets of £1.5 million at 31 December 2010.

Investing in our business

We have been looking hard at investment to drive our development. Some of the areas we have been working on and which we will progress in 2011 relate to improving our business efficiency, such as making contract notes optional for clients, upgrading our tax packs and significant work rewriting all of our primary client documentation. We have improved the way we deal and consolidated our dealing activities into our Liverpool office which has enhanced our settlement efficiency. We have also formalised the way our staff can work remotely, bearing in mind the ever present need for security of client data and for control over the way we deal.

We have moved to a new office in St Andrew Square in Edinburgh replacing what had become a cramped and dated office. Edinburgh is our second largest office measured by funds under management and is now in an appropriate home in an historic location. We have also taken more space in Liverpool to cope with the growing business and in November 2010 we moved our Cambridge office due to the expiry of the lease on our old premises. In 2011 we anticipate finalising arrangements for our London office; in the event of a move, this may result in additional costs in 2011 associated with any period of double occupation and the moving costs themselves.

Regulation

These days no report is complete without some comments on the level of regulation with which we must comply. Aside from the significant FSCS levies we have been charged, over the year we have also looked hard at the bank payroll tax (which did not impact us), the possible impact of a bank levy (again no impact due to our size), new rules on capital, liquidity management and reporting and the RDR. There are also changes in corporate governance and the way we monitor and report risk. We are currently dealing with consultation papers on the way we should structure remuneration for the more highly paid client facing staff and what we must disclose about it. None of these present fundamental problems or challenges to our business model but they do cost us either directly or indirectly, in management time, or through higher systems and processes expenditure, which may ultimately be passed on to clients.

Outlook

We have ended 2010 in a better position than 2009 with a larger business and positive markets. We will be investing in our business at an increased rate in 2011 in order to take advantage of some clear opportunities and to grow the business further. I would like to thank all staff who have worked so hard over the last year to make the business the success it is. Their experience and professionalism make us well placed to take advantage of the challenges ahead.

Andy Pomfret
Chief Executive

16 February 2011

Business review 2010

This business review has been prepared in line with guidance provided by the Accounting Standards Board to provide a balanced picture of Rathbones' business and prospects, without prejudicing the confidential nature of commercially sensitive information.

This business review 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 review. Statements contained within the business review should be treated with some caution due to the inherent uncertainties, including economic, regulatory and business risk factors, underlying any such forward looking statements. The business review has been prepared by Rathbone Brothers Plc to provide information to its shareholders and should not be relied upon by any other party or for any other purpose.

Investment Management

Table 1. Key performance indicators

	2010	2009
Underlying rate of net organic growth in Investment Management funds under management1	5.3%	6.7%
Underlying rate of total net growth in Investment Management funds under management1	10.2%	12.5%
Funds under management at 31 December1	£14.59bn	£12.16bn
Average net operating basis point return2	85bps	95bps

¹ See table 2

² See table 5

Business environment

After a volatile first half of 2010, the second half of the year witnessed a welcome rally with the FTSE 100 Index rising from 4917 at 30 June 2010 to 5900 at the end of the year.

Rathbone Investment Management has continued to attract funds at a healthy rate throughout 2010 largely reflecting successful acquisitions and a tried and tested business model which provides high quality services to private clients.

This growth combined with higher market levels to drive Investment Management funds under management some 20.0% higher over the year to £14.59 billion. Increases in the FTSE 100 and the FTSE APCIMS Balanced Indices were 9.0% and 9.3% respectively during 2010.

Table 2 demonstrates how organic and acquired growth and market movements have impacted funds under management by reconciling opening and closing balances.

Organic inflows represent the amount of new funds brought in by existing investment managers, either from existing clients or from new clients. Acquired growth represents new funds either from acquisitions or from investment managers who have joined us recently.

Table 2. Investment Management - funds under management

	2010 £bn	2009 £bn
As at 1 January	12.16	9.43
Inflows1	2.06	1.86
- organic	1.46	1.31
- acquired	0.60	0.55
Outflows1	(0.82)	(0.68)
Market adjustment2	1.19	1.55
As at 31 December	14.59	12.16
Net organic new business3	0.64	0.63
Underlying rate of net organic growth4	5.3%	6.7%
Underlying rate of total net growth5	10.2%	12.5%

¹ Value at the date of transfer in/out

² Impact of market movements and relative performance

³ Organic inflows less outflows

⁴ Net organic new business as a % of opening funds under management

⁵ Net organic and acquired business as a % of opening funds under management

Gross organic inflows of £1.46 billion represent 12.0% of funds under management at 1 January 2010 (2009: 13.9%) and have remained at consistently high levels throughout 2010. Net organic growth (stated after fund outflows which naturally occur because clients withdraw capital and/or income from portfolios to meet other financial requirements, or close their account) remained healthy at 5.3% in 2010 (2009: 6.7%). In the first quarter of 2010 we saw evidence of clients withdrawing cash from their portfolios to supplement their income, which reduced the net organic funds growth rate to 3.2% annualised based on that quarter's experience. This effect dwindled in the second half as markets recovered. The annualised net organic growth rate in the fourth quarter of 2010 was some 7.4% of opening year funds annualised.

We are continuing to see growth across all parts of our business, including:

·      Charity funds under management of £1.63 billion at 31 December 2010 up 17.3% on the £1.39 billion at 31 December 2009;

·      The value of funds managed as a result of provider panel relationships which increased by 28.7% to £1.30 billion at 31 December 2010 from £1.01 billion at the start of the year;

·      The value of Rathbone SIPP funds which increased by 19.7% to £334 million at 31 December 2010 from £279 million at the start of the year; and

·      Rathbone Pension & Advisory Services who saw the number of new SIPPs upon which it has advised increase by 7.3% to 1010 (2009: 941).

We acquired some £600 million of funds under management in 2010 (2009: £546 million) including more business resulting from our transaction with Lloyds Banking Group in 2009. This transaction has now brought us some £800 million of funds in total.

Total net organic and acquired growth has added £1.24 billion of funds under management in 2010 representing a growth rate of 10.2% (2009: 12.5%).

Financial performance

Table 3. Investment Management - financial performance

	2010 £m	2009 £m
Net fee income1	68.5	55.8
Commission	36.2	28.7
Interest and other income2	10.0	19.8
Net operating income	114.7	104.3
Underlying operating expenses3	(77.1)	(72.1)
Underlying profit before tax	37.6	32.2
Financial Services Compensation Scheme levies	(3.3)	(0.2)
Amortisation of client relationships	(4.8)	(2.0)
Transaction costs	-	(0.8)
Profit before tax	29.5	29.2
Underlying operating % margin4	32.8%	30.9%

¹ Net fee income is stated after deducting fees and commission expenses paid to introducers

² Interest and other income is presented net of interest expense paid on client accounts

³ See table 6 for more detail

⁴ Underlying profit before tax divided by net operating income

Net fee income increased by 22.8% from £55.8 million in the year ended 31 December 2009 to £68.5 million in 2010 benefitting both from the healthy growth levels mentioned above and higher market levels. The average FTSE 100 Index (measured on our quarterly billing dates) was 5528 in 2010 compared with an average of 4706 in 2009; an increase of some 17.5%. The FTSE APCIMS Balanced Index increased 13.7% on the same basis.

Average funds under management of £13.40 billion can be seen from table 4 below to be 27.0% higher than £10.55 billion in 2009.

Table 4. Investment Management - average funds under management

	2010 £bn	2009 £bn
Valuation dates for billing
- 5 April	13.02	9.11
- 30 June	12.41	9.69
- 30 September	13.59	11.23
- 31 December	14.59	12.16
- Average	13.40	10.55
- Average FTSE 100 level	5,528	4,706

Market conditions in 2010 presented investment managers with many opportunities to make positive investment decisions. Commission income of £36.2 million in 2010 was, as a result, some 26.1% higher than the £28.7 million in 2009. Client portfolios became more fully invested as cash represented 4.9% of portfolios at 31 December 2010 compared to 6.3% at 31 December 2009.

In contrast, interest and other income of £10.0 million fell by 49.5% compared to £19.8 million in 2009. This is unsurprising given that interest rates remained at very low levels throughout 2010 and that the first half of 2009 benefited from the three emergency base rate cuts made by the Bank of England. Whilst amounts fluctuated in response to 2010 market conditions, cash held in client portfolios ended the year at £0.76 billion (2009: £0.77 billion).

Table 5. Revenue margins

	2010 bps	2009 bps
Basis point return from1
- fee income	53	53
- commission	27	28
- interest2	5	14
Total margin	85	95

¹ Net operating income (see table 3) excluding interest on own reserves divided by the average funds under management on the quarterly billing dates. Funds under management exclude funds acquired as a result of the transaction with Lloyds Banking Group in 2009

² Excluding interest on own reserves

Total 2010 revenue margins of 85 basis points fell from 95 basis points in 2009 largely reflecting the significant year on year fall in net interest income.

Table 6. Investment Management - operating expenses

	2010 £m	2009 £m
Staff costs1
- fixed	26.2	25.2
- variable	13.8	13.9
Total staff costs1	40.0	39.1
Other operating expenses	37.1	33.0
Underlying operating expenses	77.1	72.1
Financial Services Compensation Scheme levies	3.3	0.2
Amortisation of client relationships	4.8	2.0
Transaction costs	-	0.8
Operating expenses	85.2	75.1
Underlying cost/income ratio2	67.2%	69.1%

¹ Represents the costs of investment managers and teams directly involved in client facing activities

² Operating expenses before the Financial Services Compensation Scheme levies, amortisation of client relationships and transaction costs divided by net operating income

Total operating expenses in Rathbone Investment Management for 2010 were £85.2 million, compared to £75.1 million in 2009, an increase of 13.4%. Fixed staff costs of £26.2 million increased by 4.0% year on year principally reflecting the successful addition of new revenue generating staff and salary inflation. Variable staff costs were marginally down year on year as higher profit based awards in 2010 were more than offset by reductions in the amount of funds-based growth awards. These latter awards are designed to reward strong levels of organic growth and outperformance against the FTSE APCIMS Index. Performance awards were high in 2009 as a result of resurgent bond markets which improved Rathbones' performance over and above the FTSE APCIMS Index.

Average full time equivalent headcount of investment managers and teams involved in client facing activities was 184 in 2010 compared to 145 in 2009.

Other operating expenses of £37.1 million include property, depreciation, settlement, IT, finance and other central support services costs. The year to year increase of £4.1 million (12.4%) largely reflects higher variable award payments to support staff in line with increased profitability, operational costs associated with the Lloyds Banking Group transaction, one off office moving costs of £0.6 million, mostly in Edinburgh, and additional project expenditure.

Recent market conditions have resulted in a number of financial services businesses failing which in turn places demands on the Financial Services Compensation Scheme (FSCS) to compensate investors. As an asset management group with a banking licence Rathbones is potentially exposed to levies from a number of industry sectors. As costs largely arise from exceptional market conditions affecting businesses not associated with Rathbones, levy costs have been highlighted separately in the above table and excluded from underlying profit before tax.

FSCS costs of £3.6 million in 2010 are £3.4 million higher than the prior year. This largely reflects additional levies as a result of the failure of Keydata Investment Services Limited and other intermediaries, somewhat offset by the favourable impact of continued low interest rates on the size of banking levies.

Client relationship intangible assets are created in the course of acquiring funds under management. As the amortisation charges associated with these assets represents a significant non-cash item, this has been excluded from underlying profit to separately highlight what are largely cash-based earnings.

Amortisation charges in respect of client relationship intangibles have increased from £2.0 million to £4.8 million largely as a result of acquired growth and the transaction with the Lloyds Banking Group at the end of 2009. The Lloyds Banking Group transaction resulted in the creation of a portfolio of intangible assets of £21.5 million which are being amortised over 10 years, and incurred transaction costs of £0.8 million which were expensed in 2009.

Unit Trusts

Table 7. Key performance indicators

	2010	2009
Funds under management at 31 December	1.04	0.94
Underlying rate of net growth in funds under management1	(3.2%)	(22.3%)

¹ See table 8

Business environment

The retail asset management sector has recovered somewhat from difficult times in recent years. Gross intermediary sales, including through platforms, were some £87 billion in 2010 compared to £68 billion in 2009 (source: IMA). Much of the year was dominated by sales in bond sectors, although latterly investors began to move into equities. Throughout the year sales into fund of funds were very strong, signalling a greater move by IFAs to outsourcing their investment services in reaction to the RDR. Performance remains fundamental to attracting funds growth in a market that is becoming increasingly dominated by institutional buying practices.

Following the arrival of Mike Webb as Chief Executive in 2010 the business is rebuilding its performance record after a difficult 2008, and is refocusing distribution to adapt to market changes. In June 2010, Rathbone Unit Trust Management publicly launched two multi asset funds, which play to the outsourcing theme above.

Table 8. Unit Trusts - funds under management

	2010 £bn	2009 £bn
As at 1 January	0.94	1.03
Net outflows	(0.03)	(0.23)
- inflows1	0.15	0.11
- outflows1	(0.18)	(0.34)
Market adjustments2	0.13	0.14
As at 31 December	1.04	0.94
Underlying rate of net growth3	(3.2%)	(22.3%)

¹ Valued at the date of transfer in/out

² Impact of market movements and relative performance

³ Net outflows as a % of opening funds under management

Funds under management increased 10.6% to £1.04 billion at 31 December 2010 from £0.94 billion at the start of the year. Whilst net redemptions continued for most of 2010, they slowed considerably over the course of the year as sales and fund performance improved and the fourth quarter saw net fund inflows of £18.3 million. Fund details are outlined in tables 9 and 10 below.

Table 9. Unit Trusts - fund assets

	31 December 2010 £m	31 December 2009 £m
Income Fund	483	503
Global Opportunities Fund	105	76
Blue Chip Income and Growth Fund	59	52
Ethical Bond Fund	54	42
Recovery Fund	69	69
Multi Asset Portfolio Service funds	74	41
Other	199	152
	1043	935

Overall, funds have been well positioned throughout 2010 with performance showing early signs of improvement across the range. Efforts will continue in earnest recognising the importance of three year performance records to platforms and institutions.

Table 10. Unit Trusts - fund performance

Quartile ranking over:	1 year	3 years	5 years
Blue Chip Income and Growth Fund	1	2	2
Ethical Bond Fund	1	2	2
Global Opportunities Fund	1	3	1
Income Fund	1	3	3
Recovery Fund1	1	n/a	n/a

¹ Performance data for the Rathbone Recovery Fund is not yet available beyond 1 year as the fund was launched on 13 July 2009

Financial performance

Table 11. Unit Trusts - financial performance

	2010 £m	2009 £m
Initial charges net of discounts	0.5	1.0
Annual management charges	12.5	11.6
Net dealing profits	0.2	0.4
Interest and other income	0.1	0.1
	13.3	13.1
Initial commission payable	-	(0.1)
Rebates and trail commission payable	(5.9)	(5.3)
Net operating income	7.4	7.7
Underlying operating expenses	(6.6)	(7.6)
Underlying profit before tax	0.8	0.1
Financial Services Compensation Scheme levy	(0.3)	-
Profit before tax	0.5	0.1
Operating % margin1	10.8%	1.3%

¹ Unit Trusts underlying profit before tax divided by net operating income

Annual management charges increased 7.8% from £11.6 million in the year ended 31 December 2009 to £12.5 million in 2010 with average funds under management increasing from £0.88 billion in 2009 to £0.94 billion in 2010. Annual management charges as a percentage of average funds under management are consistent at 1.3% (2009: 1.3%) year on year.

Rebates and trail commission payable as a percentage of annual management charge income was broadly consistent at 47.2% compared to 45.7% in 2009. Managers' box dealing profits constituted 2.7% of net operating income in the year (2009: 5.2%) as a consequence of fund redemptions. Net operating income as a percentage of average funds under management was 0.8% in 2010 compared to 0.9% in 2009.

Table 12. Unit Trusts - operating expenses

	2010 £m	2009 £m
Staff costs1
- fixed	2.2	2.1
- variable	1.2	1.8
Total staff costs	3.4	3.9
Other operating expenses	3.2	3.7
Underlying operating expenses	6.6	7.6
Financial Services Compensation Scheme levies	0.3	-
Operating expenses	6.9	7.6
Underlying cost/income ratio2	89.2%	98.7%

¹ Represents the costs of investment managers and teams directly involved in investment or distribution activities

² Operating expenses excluding Financial Services Compensation Scheme levies as a % of net operating income (see table 11)

Fixed staff costs of £2.2 million for year ended 31 December 2010 (2009: £2.1 million) grew marginally due to salary inflation and the full year effect of headcount changes. Average full time equivalent headcount was unchanged at 24 in 2010 and 2009, although 2010 year end headcount was 28, reflecting more investment in the sales team.

Variable staff costs of £1.2 million were down 33.3% as the impact of high prior year profit share schemes which are spread over the service periods of relevant employees was considerably reduced. New profit-based award schemes which are also linked with growth and performance have been put in place in 2010. Table 13 demonstrates the impact of deferred profit share awards on 2010 variable costs.

Table 13. Unit Trusts - variable staff costs

	2010 £m	2009 £m
Total variable staff costs	1.2	1.8
Deferred profit share adjustment	(0.3)	(1.4)
Variable staff costs excluding deferred profit share	0.9	0.4
Variable staff costs excluding deferred profit share as a % of underlying profit before tax and total variable staff costs	45.0%	21.1%

Other operating expenses have reduced by 13.5% to £3.2 million, as costs of £3.7 million in 2009 included £0.5 million of one off fund merger costs, redundancies and recruitment fees.

Trust and Tax Services

Table 14. Key performance indicators for Trust and Tax Services

	2010	2009
Operating % margin1	2.0%	4.3%

¹ See table 15

Business environment

The UK trust business is closely aligned with our core discretionary investment management business. It comprises:

·      the family office service based in London which provides advisory services to substantial family groups including trustee administration and taxation planning; and

·      the taxation services business based in Liverpool, which prepares tax returns for individuals and trusts, and provides income and capital tax planning services.

A rapidly changing legal and taxation environment in the UK continues to provide opportunities to provide quality advice to private clients and family offices.

Table 15. Trust and Tax Services - financial performance

	2010 £m	2009 £m
Net operating income	5.1	4.7
Operating expenses	(5.0)	(4.5)
Profit before tax	0.1	0.2
Operating % margin1	2.0%	4.3%

¹ Profit before tax divided by net operating income

Operating income grew by 8.5% to £5.1 million in 2010 from £4.7 million in 2009 reflecting higher advisory fees earned following the recruitment of two senior practitioners and their team in 2010.

Table 16. Trust and Tax Services - operating expenses

	2010 £m	2009 £m
Staff costs1
- fixed	2.7	2.5
- variable	0.2	0.3
Total staff costs1	2.9	2.8
Other operating expenses	2.1	1.7
Operating expenses	5.0	4.5
Cost/income ratio2	98.0%	95.7%

¹ Represents the costs of fee earning staff and teams involved in client facing activities

² Operating expenses divided by net operating income

Fixed staff costs of £2.7 million for 2010 compare to costs of £2.5 million in 2009 reflecting a higher average full time equivalent headcount of 43 compared to 40 in 2009. Other operating expenses represent property, depreciation, finance, IT and other support costs which are largely fixed, and were 42.0% of total operating expenses in 2010 (2009: 37.8%).

Taxation

The effective tax rate for the year is 28.4% (2009: 31.5%), calculated as the total tax charge on continuing operations of £8.5 million (2009: £9.3million) divided by the profit before income tax on continuing operations of £30.1 million (2009: £29.5 million).

The effective rate of tax in 2010 is higher than the composite UK standard rate of 28.0% due principally to the impact of disallowable expenses and a small over-provision for tax in prior years.

A full reconciliation of income tax expense is included in note 4.

Dividend

An interim dividend of 16.0p per share was paid to shareholders on 6 October 2010 and the Board is recommending that a final dividend of 28.0p be paid on 18 May 2011. This results in a total payment of 44.0p (2009: 42.0p) for the year. This dividend is covered 1.1 times by reported basic earnings per share and 1.4 times by basic underlying earnings per share (see note 6).

Consolidated income statement

for the year ended 31 December 2010

		2010	2009
	Note	£'000	£'000
Interest and similar income		10,274	21,502
Interest expense and similar charges		(1,445)	(3,006)
Net interest income		8,829	18,496
Fee and commission income		124,432	103,735
Fee and commission expense		(7,762)	(7,351)
Net fee and commission income		116,670	96,384
Dividend income		90	80
Net trading income		226	358
Other operating income		1,369	1,439
Operating income		127,184	116,757
Levies for the Financial Services Compensation Scheme		(3,575)	(229)
Amortisation of client relationships		(4,845)	(1,967)
Transaction costs		-	(782)
Other operating expenses		(88,681)	(84,311)
Operating expenses		(97,101)	(87,289)
Profit before tax from continuing operations		30,083	29,468
Taxation	4	(8,531)	(9,271)
Profit after tax from continuing operations		21,552	20,197
Discontinued operations
Loss before tax from discontinued operations		-	(391)
Income tax credit on loss before tax from discontinued operations		-	33
Loss recognised on re-measurement of assets of the disposal group		-	(211)
Net loss from discontinued operations		-	(569)
Profit for the period attributable to
equity holders of the Company		21,552	19,628
Dividends paid and proposed for the year per ordinary share (p)		44.00p	42.00p
Dividends paid and proposed for the year (£'000)		19,067	18,159
Earnings per share for the period attributable to equity
holders of the Company:
- basic	6	49.76p	45.55p
- diluted	6	49.35p	45.53p
Earnings per share from profit from continuing operations for the
period attributable to equity holders of the Company:
- basic	6	49.76p	46.87p
- diluted	6	49.35p	46.85p

Consolidated statement of comprehensive income

for the year ended 31 December 2010

		2010	2009
	Note	£'000	£'000
Profit for the year attributable to equity holders of the Company		21,552	19,628
Other comprehensive income:
Exchange translation differences		9	(182)
Net actuarial loss on retirement benefit obligation		(3,005)	(8,626)
Revaluation of available for sale investment securities:
- net gain/(loss) from changes in fair value		155	(59)
Deferred tax relating to components of other comprehensive income:
- available for sale investment securities		(13)	17
- actuarial gains and losses		782	2,415
Other comprehensive income for the year, net of tax		(2,072)	(6,435)
Total comprehensive income for the year, net of tax
attributable to equity holders of the Company		19,480	13,193

Consolidated statement of changes in equity

for the year ended 31 December 2010

					Available	Trans-	Total
		Share	Share	Merger	for sale	lation	other	Retained	Total
		capital	premium	reserve	reserve	reserve	reserves	earnings	equity
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009		2,143	28,957	31,835	2,119	786	34,740	118,791	184,631
Profit for the year								19,628	19,628
Exchange translation differences						(182)	(182)		(182)
Net actuarial loss on retirement
benefit obligation								(8,626)	(8,626)
Revaluation of available for sale
investment securities					(59)		(59)		(59)
Deferred tax relating to components
of other comprehensive income					17		17	2,415	2,432
Dividends paid	5							(18,066)	(18,066)
Issue of share capital		22	2,799						2,821
Reclassification of translation reserve
on disposal of subsidiaries						(359)	(359)	359	-
Share-based payments:
- value of employee services								1,219	1,219
- transfer to liabilities for cash
settled awards								(119)	(119)
- costs of shares issued/purchased								(1,096)	(1,096)
- tax on share-based payments								(94)	(94)
At 1 January 2010		2,165	31,756	31,835	2,077	245	34,157	114,411	182,489
Profit for the year								21,552	21,552
Exchange translation differences						9	9		9
Net actuarial loss on retirement
benefit obligation								(3,005)	(3,005)
Revaluation of available for sale
investment securities					155		155		155
Deferred tax relating to components
of other comprehensive income					(13)		(13)	782	769
Dividends paid	5							(18,167)	(18,167)
Issue of share capital		4	732						736
Reclassification of translation reserve
on liquidation of subsidiaries						(254)	(254)	254	-
Share-based payments:
- value of employee services								1,054	1,054
- costs of shares issued/purchased								(569)	(569)
- tax on share-based payments								351	351
At 31 December 2010		2,169	32,488	31,835	2,219	-	34,054	116,663	185,374

Consolidated statement of financial position

as at 31 December 2010

		2010	2009
	Note	£'000	£'000
Assets
Cash and balances at central banks		4	315
Settlement balances		18,169	17,305
Loans and advances to banks		39,565	92,661
Loans and advances to customers		40,025	26,745
Investment securities
- available for sale		42,587	86,932
- held to maturity		751,085	694,000
Prepayments, accrued income and other assets		36,368	29,878
Property, plant and equipment		6,143	5,676
Deferred tax asset		2,474	1,603
Intangible assets		91,702	81,973
Total assets		1,028,122	1,037,088
Liabilities
Deposits by banks		3,304	7,379
Settlement balances		23,712	22,157
Due to customers		762,026	766,361
Accruals, deferred income, provisions and other liabilities		42,455	46,875
Current tax liabilities		4,608	2,414
Retirement benefit obligations		6,643	9,413
Total liabilities		842,748	854,599
Equity
Share capital		2,169	2,165
Share premium		32,488	31,756
Other reserves		34,054	34,157
Retained earnings		116,663	114,411
Total equity		185,374	182,489
Total liabilities and equity		1,028,122	1,037,088

The financial statements were approved by the Board of Directors and authorised for issue on 16 February 2011 and were signed

on its behalf by:

A D Pomfret          R P Stockton

Chief Executive       Finance Director

Company registered number: 01000403.

Consolidated statement of cash flows

for the year ended 31 December 2010

		2010	2009
	Note	£'000	£'000
Cash flows from operating activities
Profit before income tax from continuing operations		30,083	29,468
Net interest income		(8,829)	(18,496)
Impairment losses on loans and advances		95	22
Profit on disposal of plant and equipment		(37)	(20)
Depreciation and amortisation		8,405	5,340
Defined benefit pension scheme charges		1,510	1,852
Share-based payment charges		1,729	1,219
Interest paid		(1,413)	(3,889)
Interest received		11,754	33,819
		43,297	49,315
Changes in operating assets and liabilities:
- net decrease/(increase) in loans and advances to banks and customers		24,572	(42,557)
- net increase in settlement balance debtors		(864)	(1,554)
- net (increase)/decrease in prepayments, accrued income and other assets		(7,980)	3,436
- net decrease in amounts due to customers and deposits by banks		(8,410)	(265,751)
- net increase in settlement balance creditors		1,555	8,109
- net increase/(decrease) in accruals, deferred income,
provisions and other liabilities		6,598	(8,723)
Cash generated from/(used in) operations		58,768	(257,725)
Defined benefit pension contributions paid		(7,285)	(6,788)
Tax paid		(6,089)	(9,625)
Discontinued operations		-	(1,522)
Net cash inflow/(outflow) from operating activities		45,394	(275,660)
Cash flows from investing activities
Disposal of businesses, net of cash transferred	7	-	(1,341)
Purchase of property, equipment and intangible assets		(30,417)	(3,319)
Proceeds from sale of property, plant and equipment		128	65
Purchase of investment securities		(1,679,090)	(1,796,282)
Proceeds from sale and redemption of investment securities		1,622,005	1,977,261
Discontinued operations		-	(4)
Net cash (used in)/generated from investing activities		(87,374)	176,380
Cash flows from financing activities
Purchase of shares for share-based schemes		(286)	(468)
Issue of ordinary shares	7	453	2,193
Dividends paid		(18,167)	(18,066)
Net cash used in financing activities		(18,000)	(16,341)
Net decrease in cash and cash equivalents		(59,980)	(115,621)
Cash and cash equivalents at the beginning of the period		139,044	255,021
Effect of exchange rate changes on cash and cash equivalents		5	(356)
Cash and cash equivalents at the end of the period	7	79,069	139,044

Notes

for the year ended 31 December 2010

1 Accounting policies

In preparing the financial information included in this statement the Group has applied accounting policies which are in accordance with International Financial Reporting Standards as adopted by the EU at 31 December 2010.  The accounting policies have been applied consistently to all periods presented in the consolidated accounts.

2 Critical accounting judgements and key sources of estimation and uncertainty

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year.  Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Client relationship intangibles

The Group makes estimates about 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 management's expectations for the future.  During the year client relationship intangible assets were amortised over a 10 to 15 year period. Amortisation of £4,845,000 was charged during the year.  A reduction in the average amortisation period of 1 year would increase the amortisation charge by approximately £410,000.

In determining whether a client relationship is lost management consider factors such as the level of funds withdrawn and the existence of other retained family relationships.

Financial Services Compensation Scheme levies

The arrangements put in place by the Financial Services Compensation Scheme ('FSCS') to protect depositors and investors from loss in the event of failure of financial institutions have resulted in significant FSCS levies on the industry.  The financial impact of FSCS levies are largely out of the Group's control as they result from other industry failures.

The FSCS announced on 20 January 2011 that it would be raising an interim levy of £326 million, principally to cover the cost of compensating investors from the failure of Keydata Investment Services Limited (Keydata) and other intermediaries.  On 24 January 2011 the Group received invoices totalling £3,203,000 for the Keydata and other intermediary failures. This cost has been charged to profit in the financial statements and recognised within accruals.

It is possible that the FSCS will make future recoveries from third parties and from the underlying assets for which compensation is being paid.  However the timing and total amount of these recoveries is uncertain, as is the Group's share of any recoveries made.

The total amount relating to FSCS levies charged to the income statement during 2010 was £3,575,000.

Vendor loan notes

The Group has issued vendor loan notes ("notes") with a nominal value of £5,000,000 to the acquirer of the Group's Jersey trust operations in 2008. The notes are repayable on the occurrence of certain events, principally the refinancing of the operations disposed of.

The carrying value of the notes has been calculated as £3,267,000 using a discounted cash flow model based on the estimated repayment date, using a discount rate equal to the initial effective interest rate of the loan. Changing the estimated repayment date of the notes by one year would result in an increase or decrease in their carrying value of approximately £250,000. A 1% increase/decrease in the assumed rate at which interest accrues under the loan would increase/decrease the carrying value of the loan by approximately £96,000.

Retirement benefit obligations

The Group makes estimates about a range of long-term trends and market conditions to determine the value of the deficit on its retirement benefit schemes, based on the Group's expectations of the future and advice taken from qualified actuaries.  The reported deficit at 31 December 2010 is £6,643,000.

Long-term forecasts and estimates are necessarily highly judgemental and subject to risk that actual events may be significantly different to those forecast.  If actual events deviate from the assumptions made by the Group then the reported surplus or deficit in respect of retirement benefit obligations may be materially different.

3 Segmental information

(a) Operating segments

For management purposes, the Group is currently organised into three operating divisions: Investment Management, Unit Trusts and Trust and Tax Services.  These segments are the basis on which the Group reports its performance to the Executive Committee.  Certain items of income are presented within different categories of operating income in the financial statements compared to the presentation for internal reporting.  The information presented in this note follows the presentation for internal reporting to the Group Executive Committee.

	Investment	Unit	Trust and Tax
	Management	Trusts	Services	Total
31 December 2010	£'000	£'000	£'000	£'000
Net fee income	68,485	7,074	4,931	80,490
Net commission	36,180	-	-	36,180
Net interest and other income	10,030	343	141	10,514
Operating income	114,695	7,417	5,072	127,184
Staff costs - fixed	(26,239)	(2,161)	(2,673)	(31,073)
Staff costs - variable	(13,756)	(1,233)	(232)	(15,221)
Total staff costs	(39,995)	(3,394)	(2,905)	(46,294)
Other direct expenses	(11,907)	(1,545)	(617)	(14,069)
Allocation of indirect expenses	(25,151)	(1,686)	(1,481)	(28,318)
Underlying operating expenses	(77,053)	(6,625)	(5,003)	(88,681)
Underlying profit before tax	37,642	792	69	38,503
Levies for the Financial Services Compensation Scheme	(3,332)	(243)	-	(3,575)
Amortisation of client relationships	(4,845)	-	-	(4,845)
Transaction costs	-	-	-	-
Profit before tax attributable to equity holders
of the Company	29,465	549	69	30,083
Income tax expense				(8,531)
Profit for the year attributable to equity holders
of the Company				21,552
	Investment	Unit	Trust and Tax
	Management	Trusts	Services	Total
	£'000	£'000	£'000	£'000
Segment total assets	995,501	12,923	9,416	1,017,840
Unallocated assets				10,282
Total assets				1,028,122

	Investment	Unit	Trust and Tax
	Management	Trusts	Services	Total
31 December 2009	£'000	£'000	£'000	£'000
Net fee income	55,784	7,590	4,657	68,031
Net commission	28,740	-	-	28,740
Net interest and other income	19,789	130	67	19,986
Operating income	104,313	7,720	4,724	116,757
Staff costs - fixed	(25,170)	(2,086)	(2,483)	(29,739)
Staff costs - variable	(13,900)	(1,852)	(315)	(16,067)
Total staff costs	(39,070)	(3,938)	(2,798)	(45,806)
Other direct expenses	(9,725)	(2,138)	(465)	(12,328)
Allocation of indirect expenses	(23,406)	(1,479)	(1,292)	(26,177)
Underlying operating expenses	(72,201)	(7,555)	(4,555)	(84,311)
Underlying profit before tax	32,112	165	169	32,446
Levies for the Financial Services Compensation Scheme	(212)	(17)	-	(229)
Amortisation of client relationships	(1,967)	-	-	(1,967)
Transaction costs	(782)	-	-	(782)
Profit before tax from continuing operations	29,151	148	169	29,468
Discontinued operations	-	-	(602)	(602)
Profit/(loss) before tax attributable to equity holders
of the Company	29,151	148	(433)	28,866
Income tax expense from continuing operations				(9,271)
Income tax credit from discontinued operations				33
Profit for the year attributable to equity holders
of the Company				19,628
	Investment	Unit	Trust and Tax
	Management	Trusts	Services	Total
	£'000	£'000	£'000	£'000
Segment total assets	1,002,284	15,947	9,472	1,027,703
Unallocated assets				9,385
Total assets				1,037,088

Included within Investment Management net fee and commission income is £1,225,000 (31 December 2009: £1,028,000) of fee and commission receivable from Unit Trusts. Included within Trust and Tax services net fee and commission income is £31,000 (31 December 2009: £86,000) of fees receivable from Investment Management. Intersegment sales are charged at prevailing market prices.

Centrally incurred indirect expenses are allocated to operating segments on the basis of the cost drivers that generate the expenditure.

(b) Geographic analysis

The following table presents operating income analysed by the geographical location of the Group entity providing the service:

Operating income by geographical market (continuing operations)

	2010	2009
	£'000	£'000
United Kingdom	123,119	113,121
Jersey	4,065	3,636
	127,184	116,757

The following is an analysis of the carrying amount of non-current assets analysed by the geographical area in which the assets are located:

Non-current assets by geographical location (continuing operations)        

	2010	2009
	£'000	£'000
United Kingdom	97,053	87,645
Jersey	792	4
	97,845	87,649

(c) Major clients

The Group is not reliant on any one client or group of connected clients for generation of revenues.

4 Income tax expense

	2010	2009
	£'000	£'000
Current tax	8,200	5,899
Adjustments in respect of previous years	82	154
Deferred tax	249	3,218
	8,531	9,271

The tax charge on profit from continuing operations for the year is higher (2009: higher) than the standard rate of corporation

tax in the UK of 28.0% (2009: 28.0%).  The differences are explained below:

	2010	2009
	£'000	£'000
Tax on profit from ordinary activities
at the standard rate of 28.0% (2009 - 28.0%)	8,423	8,251
Effects of:
Disallowable expenses (i)	340	566
Share-based payments	(30)	30
Tax on overseas earnings	(77)	(22)
(Over)/under provision for tax in previous years	(136)	446
Other	(35)	-
Effect of change in corporation tax rate	46	-
	8,531	9,271

(i) The tax effect of disallowable expenses in 2009 included £219,000 in respect of the Lloyds Banking Group transaction.

The UK Government has proposed that the UK corporation tax rate is reduced to 24.0% over the four years from 2011. At 31 December 2010 only the first step of this reduction, to 27.0%, had been substantively enacted. Consequently deferred tax assets and liabilities are calculated at 27.0%.

In addition to the amount charged to the income statement, deferred tax relating to actuarial gains and losses, share-based payments and gains and losses arising on available for sale investment securities amounting to £1,120,000 has been credited directly to equity (2009: £2,338,000).

5 Dividends

	2010	2009
	£'000	£'000
Amounts recognised as distributions to equity holders in the year:
- second interim dividend for the year ended 31 December 2009 of 26.0p (final	11,246	11,164
dividend for the year ended 31 December 2008: 26.0p) per share
- first interim dividend for the year ended 31 December 2010 of 16.0p
(2009: 16.0p) per share	6,921	6,902
	18,167	18,066
Proposed final dividend for the year ended 31 December
2010 of 28.0p (2009: second interim dividend of 26.0p) per share	12,146	11,257

An interim dividend of 16.0p per share was paid on 6 October 2010 to shareholders on the register at the close of business on 17 September 2010 (2009: 16.0p).

A final dividend declared of 28.0p per share is payable on 18 May 2011 to shareholders on the register at the close of business on 3 May 2011. The final dividend is subject to approval by shareholders at the Annual General Meeting on 11 May 2011 and has not been included as a liability in these financial statements.

6 Earnings per share

Earnings used to calculate earnings per share on the bases reported in these financial statements were:

	2010	2010	2010	2009	2009	2009
	Pre tax	Taxation	Post tax	Pre tax	Taxation	Post tax
	£'000	£'000	£'000	£'000	£'000	£'000
Underlying profit attributable to shareholders	38,503	(10,889)	27,614	32,446	(9,886)	22,560
Levies for the Financial Services
Compensation Scheme	(3,575)	1,001	(2,574)	(229)	64	(165)
Amortisation of client relationships	(4,845)	1,357	(3,488)	(1,967)	551	(1,416)
Transaction costs	-	-	-	(782)	-	(782)
Profit from continuing operations	30,083	(8,531)	21,552	29,468	(9,271)	20,197
Loss from discontinued operations	-	-	-	(602)	33	(569)
Profit attributable to shareholders	30,083	(8,531)	21,552	28,866	(9,238)	19,628

Basic earnings per share has been calculated by dividing earnings by the weighted average number of shares in issue throughout the period of 43,307,423 (2009: 43,087,369).

Diluted earnings per share is the basic earnings per share, adjusted for the effect of contingently issuable shares under the Long Term Incentive Plan, employee share options remaining capable of exercise and any dilutive shares to be issued under the Share Incentive Plan, weighted for the relevant period (see table below).

	2010	2009
Weighted average number of ordinary shares in issue during the period - basic	43,307,423	43,087,369
Effect of ordinary share options	76,153	15,948
Effect of dilutive shares issuable under the Share Incentive Plan	116,364	7,977
Effect of contingently issuable ordinary shares under the Long Term Incentive Plan	169,580	-
Diluted ordinary shares	43,669,520	43,111,294

Earnings per share from discontinued operations and underlying earnings per share were as follows:

	2010	2009
Earnings per share from discontinued operations for the year attributable to
equity holders of the Company:
- basic (p)	-	(1.32)p
- diluted (p)	-	(1.32)p
Underlying earnings per share from continuing operations for the year attributable to
equity holders of the Company:
- basic (p)	63.76p	52.36p
- diluted (p)	63.23p	52.33p

7 Consolidated statement of cash flows

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three months until maturity from the date of acquisition:

	2010	2009
	£'000	£'000
Cash and balances at central banks	4	5
Loans and advances to banks	39,565	55,039
Available for sale investment securities	39,500	84,000
	79,069	139,044

Available for sale investment securities are amounts invested in money market funds which are realisable on demand.

Cash flows arising from issue of ordinary shares comprise:

	2010	2009
	£'000	£'000
Share capital issued	4	22
Share premium on shares issued	732	2,799
Shares issued in relation to share-based schemes for which
no cash consideration was received	(283)	(628)
	453	2,193

The aggregate net assets of entities disposed of during the year at the dates of disposal were as follows:  

	2010	2009
	£'000	£'000
Cash and balances at central banks	-	35
Loans and advances to banks	-	1,638
Loans and advances to customers	-	17,374
Property, plant and equipment	-	123
Prepayments, accrued income and other assets	-	1,721
Due to customers	-	(15,744)
Accruals, deferred income, provisions and other liabilities	-	(4,623)
	-	524
Loss on disposal	-	(211)
Total consideration receivable	-	313

Satisfied by:

Cash and cash equivalents	-	313
Net cash flow arising on disposal:
Consideration received in cash and cash equivalents	-	313
Cash and cash equivalents disposed of	-	(1,654)
	-	(1,341)

8 Financial information

The financial information set out in this preliminary announcement has been extracted from the Group's financial statements, which have been approved by the Board of Directors and agreed with the Company's auditor.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 December 2010 or 2009. Statutory financial statements  for 2009 have been delivered to the Registrar of Companies. Statutory financial statements for 2010 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor has reported on both the 2009 and 2010 financial statements. Their reports were unqualified and did not draw attention to any matters by way of emphasis. They also did not contain statements under section 498 of the Companies Act 2006.

 

END

 

 

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