Final Results

RNS Number : 5801H

Rathbone Brothers PLC

24 February 2010

 



24 February 2010

Rathbone Brothers Plc

Preliminary results for the 12 months ended 31 December 2009

Funds growth of over 12% at Rathbones helps return funds under management to 2007 levels

Rathbone Brothers Plc, a leading provider of discretionary fund management and wealth management services for private investors, charities and trustees, announces its preliminary results for the year ended 31 December 2009.

Chairman, Mark Powell said:

"In a volatile year, we have grown our investment management business organically and through acquisition by over 12%. This growth, together with the effects of the market recovery in the second half of 2009, returned our total funds under management to £13.10 billion. Maintaining the dividend at the same level as 2008 reflects our confidence in the strength of business."

"The challenges in 2010 may be similar to those we saw in 2009. Rathbones is well capitalised, has demonstrated the ability to make acquisitions and can continue to grow organically.  We are excellently placed for the future."

Highlights:

§ Total funds under management as at 31 December 2009 were £13.10 billion (2008: £10.46 billion). At 31 December 2007 total funds under management were £13.12 billion.

§ The annualised rate of net organic growth of funds under management in Rathbone Investment Management was 6.7% in 2009 (2008: 7.4%). 

§ Underlying profit before tax from continuing operations decreased by 27.8% to £32.5 million (2008: £45.0 million). Underlying basic earnings per share from continuing operations fell by 27.4% from 72.12p to 52.36p.

§ Profit before tax from continuing operations decreased by 30.3% to £29.5 million from £42.3 million in 2008.

§ Basic earnings per share increased by 2.5% to 45.55p compared with 44.45p in 2008.

§ The Board recommends a second interim dividend of 26.0p replacing a final dividend for 2009, maintaining a total of 42.0p for the year (2008: 42.0p).

§ Inflows into Rathbone Investment Management from acquisitions totalled £0.55 billion, which when added to net organic growth represents an annual growth rate of 12.5% (2008: 11.0%).

§ Following our transaction with Lloyds Banking Group in October 2009, over 2,500 former clients of the Bank of Scotland Portfolio Management Service (some 65% of the total) have now consented to join Rathbones, representing nearly £500 million of funds under management.

§ The Lloyds transaction will add 12 staff to our Edinburgh office in 2010 and we have opened a new office in Aberdeen this month.

§ Net operating income in Rathbone Investment Management decreased by 8.4% to £104.3 million (2008: £113.9 million) as a 2.4% increase in fee and commission income was more than offset by a 40.3% fall in net interest income.

§ Net operating income in Rathbone Unit Trust Management of £7.7 million in the year ended 31 December 2009 fell 38.4% from £12.5 million in 2008 as net redemptions more than offset positive market movements in funds under management.

§ Total operating expenses of £87.3 million decreased by £1.6 million from £88.9 million in 2008 (a reduction of 1.8%).

For further information contact:

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

Brunswick Tel: [phone] Kate Holgate

Rathbone Brothers Plc

Rathbone Brothers Plc is one of the UK's largest and longest-established providers 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 nearly 700 staff in 11 UK locations and Jersey, and has its headquarters in New Bond Street, London.

Total funds under management as at 31 December 2009 were £13.10 billion with funds managed by Rathbone Investment Management Limited at £12.16 billion.

§ Rathbone Investment Management provides discretionary investment management services to private investors and charities with portfolios held in discretionary accounts, trust structures, ISAs or SIPPs from 12 offices in the UK and Jersey.  It accounts for approximately 90% of Rathbone Brothers Plc's operating income. 

On 20 October 2009 Rathbone Brothers Plc announced that it had agreed terms with Lloyds Banking Group for the transfer to Rathbones of elements of Lloyds TSB's legacy discretionary investment management assets that are closed to new business and HBOS' discretionary investment management activities.  To date some 65% of the clients concerned have consented to join Rathbones (representing nearly £500 million of funds under management).

·     Rathbone Unit Trust Management offers a range of unit trusts which are distributed mainly through independent financial advisers: Blue Chip Income and Growth, Income, Global Opportunities, Ethical Bond, and Recovery.

·     Trust and Tax - Rathbone Brothers Plc's tax and trust division is based in the UK and provides taxation services, probate, trust services and family office services.

www.rathbones.com

Chairman's statement

In this very challenging environment, Rathbones has achieved net organic growth in funds under management of 6.7%. In the last quarter of the year we entered into an agreement with Lloyds Banking Group which had, to 31 December 2009, brought some 2,000 clients and £381 million of funds under management to Rathbones.

Total growth in funds under management, excluding market movements was 12.5% in the year.

Results and dividends

Profit before tax from continuing operations for the year to 31 December 2009 were £29.5 million compared with £42.3 million in 2008. This figure is struck after charging £0.8 million in connection with the Lloyds Banking Group transaction in 2009 and a Financial Services Compensation Scheme levy cost of £0.2 million (2008: £1.4 million). 2009 basic earnings per share were 45.55p compared with 44.45p in 2008. Basic earnings per share from continuing operations were 46.87p (2008: 67.57p) reflecting the sale of our overseas businesses in that year.

The Board recommends that a second interim dividend of 26.0p per share be paid in place of a final dividend. This makes an unchanged total dividend per share of 42.0p for the year and reflects our strong balance sheet and regulatory capital position. The second interim dividend will be paid on 31 March 2010, and there will be no final dividend.

Market and environment

Financial markets ended on a high in 2009, after experiencing extreme volatility during the year. Having fallen by 31.3% in 2008, the FTSE 100 Index fell by a further 13.6% by early March. It had subsequently recovered by 41.3% at the year end, a rise of 22.1% year on year. Interest rates have remained at extremely low levels despite the alarming increase in the Public Sector Borrowing Requirement and the uncertainty of an election year in 2010.

Funds under management in Rathbone Investment Management (including Rathbone Investment Management International) rose by 29.0% to £12.16 billion (2008: £9.43 billion). This compares with a rise in the FTSE APCIMS Balanced Index of 12.7% and the FTSE 100 Index of 22.1%. The average level of the FTSE 100 Index on Rathbones' key quarterly charging dates was 4706 compared with 5227 in 2008, down 10.0%.

Extremely low base rates make it very difficult for Rathbones to benefit from net interest income on client deposits. During the year, net interest income fell by 40.3% from £31.0 million in 2008 to £18.5 million in 2009.

In the same period, funds under management in Rathbone Unit Trust Management fell 8.7% from £1.03 billion at the beginning of the year to £0.94 billion at 31 December 2009 as net redemptions outweighed positive market movements.

Composition of the Board

In our interim statement we announced that Peter Pearson Lund, a director of the Company and chief executive of Rathbone Unit Trust Management Limited, was planning to retire in 2010. He will leave us on 31 March 2010 when Mike Webb takes charge as chief executive of Rathbone Unit Trust Management Limited. Peter has led the establishment of our unit trust business over the last ten years and has done so with great flair. He leaves a business which has contributed to the growth and reputation of Rathbones and has the potential to develop further.

James Barclay who has been a non-executive director for the past six years has decided that he will not stand for re-election. Mark Robertshaw has decided that he can no longer devote the time he considers is appropriate and will also not stand for re-election.

Peter, James and Mark have made important and valuable contributions to our Board and we thank them.

In January we announced the appointment of Kate Avery and Kathryn Matthews as new non-executive directors who bring valuable and relevant experience of investment management and the financial sector generally.

Outlook

The outlook for 2010 remains uncertain as the UK faces an environment of exceptionally low interest rates and a general election before June 2010. The considerable benefits of the transaction with Lloyds Banking Group are expected to arise in 2011, and meanwhile Rathbones continues to grow organically and remains well-capitalised.

Mark Powell

Chairman

23 February 2010

Chief executive's statement

Key highlights

Given a background of a FTSE 100 Index at 4434 at the start of 2009 and the considerable uncertainty regarding the future of the UK economy, our full year profit from continuing operations of £29.5 million is of great credit to the hard work of all our staff.

Importantly in these difficult times we have continued to grow our business both organically and through a reasonably substantial transaction with Lloyds Banking Group towards the end of the year. We first considered this transaction back in 2008, which gives some indication of just how long it can be before some growth opportunities come to fruition. The transaction demonstrates our ability to make acquisitions that fit with our overall strategy and allow us to spread operational and regulatory costs across a larger business.

We have continued to watch our cost base very closely, and for the second year running we have limited overall pay inflation such that our 2010 payroll will increase by less than 2.0% annualised compared to 2009. We believe it is important to maintain our focus on costs and to reward people through awards linked to profit and growth.

We continue to invest in the business so that we are better placed to take advantage of growth opportunities as they arise. Early in 2010, we opened a new office in Aberdeen, and this, coupled with the significant increase in the size of our Edinburgh office as a result of the Lloyds Banking Group transaction, will substantially enlarge our presence in Scotland. The Edinburgh office is now our second largest office (as measured by funds under management) and we anticipate moving to larger premises in Edinburgh during 2010.

In addition to the ever-increasing cost of regulation, we also continue to invest in improving our systems and greatly improving our online offering to Independent Financial Advisers.

Although corporate acquisitions tend to make the headlines, we have continued quietly to recruit individual investment managers and their clients. What we call net acquired growth (either from new investment managers or acquisitions) was £546 million in 2009. This, together with net organic growth (where our existing investment managers attract additional client funds) of £631 million, represents a total growth rate of over 12%.

With profit attributable to equity holders of £19.6 million (2008: £19.0 million) the dividend of 42.0p per share is 1.1 times covered, reflecting our confidence in the business.

Financial performance

Net operating income fell to £116.8 million in 2009 from £131.2 million in 2008. Fees in the second half recovered from a very difficult first half and commission levels were in line with 2008. The most noticeable income shortfall was on interest margin. Following the dramatic fall in interest rates in 2008 it is no surprise that the interest margin in 2009 was considerably lower than in previous years. Net interest income fell to £18.5 million in 2009 from £31.0 million in 2008 with only £5.7 million earned in the second half of the year. This reflects the full impact of exceptionally low interest rates which have continued into 2010. We have also continued to be very cautious about where we have placed our cash as we have not wanted to take inappropriate counterparty risks. By definition, this limits our ability to achieve high interest rates on the client money that is held by us as banker and placed by us in the money markets.

Operating expenses fell 1.8% from £88.9 million in 2008 to £87.3 million in 2009, but excluding intangible asset amortisation, Financial Services Compensation Scheme levies and Lloyds Banking Group transaction costs, other operating expenses were down 2.2%.

Rathbone Unit Trust Management Limited has continued to experience net outflows of funds, albeit mostly in the first half of 2009 following a period of poor performance. Towards the end of 2009 we have seen some signs of improvement, although it will take a while to rebuild momentum. Mike Webb joined us in February 2010 and will be taking over as chief executive of Rathbone Unit Trust Management with effect from 1 April 2010. We look forward to working with him to develop this important part of Rathbones.

Our overall financial performance has also been impacted by a number of specific items. Government borrowing costs, which largely drive levies payable to the Financial Services Compensation Scheme, have been lower than expected, so the profit and loss charge for 2009 of £0.2 million is much more favourable than the £1.4 million charged in 2008. Operating expenses in 2009 include £0.8 million of costs arising from the Lloyds Banking Group transaction. Intangible asset amortisation was £2.0 million in 2009 compared with £1.3 million in 2008.

Marketing and business development

For four years we have invested selectively in background advertising in the national press to increase awareness of Rathbones nationally. We will continue to use advertising in this way - not least where we make acquisitions. Existing clients remain our best source of referrals and the number of clients for whom we now act has increased by some 8% over the year to just below 34,000 at 31 December 2009.

As indicated last year, the Retail Distribution Review is causing many IFAs to review their arrangements for discretionary investment management, and we have arrangements in place with a number of the larger and more sophisticated IFAs, the most visible with Cavanagh. This relationship alone has added over £90 million to our funds under management, and we are keen to see more relationships develop as the implementation of the RDR moves closer.

We have endeavoured to increase the appeal of our products and our service for IFAs, and launched two unitised multi asset funds (a strategic growth portfolio fund targeting inflation +5%, and a total return fund targeting LIBOR +2%) accessed through a discretionary mandate with Rathbone Investment Management Limited. In line with our aim to be a 'one-stop-shop' for IFAs looking to outsource the investment management of private client portfolios, we have launched new marketing literature for IFAs which outlines the more structured approach we offer to selected firms. In the coming year we will be running more IFA seminars (we held nine during 2009) as we believe this approach has and will bring us business that we might otherwise not have seen.

Our charities team continues to grow, with funds under management increasing to nearly £1.4 billion at 31 December 2009 (2008: £1.1 billion), reflecting a combination of good investment performance, energetic marketing and continued high standards of client service. The charities team won its second Charity Times award and plans to hold its first symposium for existing clients at the Royal Society in London in September 2010.

Our ethical investment service, Rathbone Greenbank Investments, has had a particularly good year, growing funds under management from £0.32 billion to £0.38 billion in the year. It held some successful events in 2009, and sponsored the Schumacher lecture in Bristol to enhance its local profile. Investors continue to become increasingly aware of ethical and green issues, so I expect the business to continue to grow.

In addition to our practitioner-led investment committee structure, we continue to dedicate a small central team to researching both fund of hedge funds and structured products to ensure that those products that we approve for investment are suitable for our clients. As products become more complex, this becomes an increasingly challenging role and one to which additional resources will need to be devoted in the future.

Corporate activity

In October 2009 we acquired some business from Lloyds Banking Group through a transaction consisting of three elements.

The Portfolio Management Service ('PMS') of the Bank of Scotland had been through considerable change over the last few years, as the merger of Halifax and Bank of Scotland to form HBOS was soon followed by the takeover of HBOS by Lloyds TSB late in 2008. The business had some £800 million of funds under management, and over 2,500 former clients have now consented to transfer their portfolios to Rathbones, representing some 65% of the total number and nearly £500 million of funds under management. Of these funds, £381 million are included in reported funds under management at 31 December 2009. We expect to employ at least 12 individuals from the 50 or so who worked at PMS to help provide our new clients with stability and a high quality investment service.

The second part of the transaction was to acquire two legacy books of Lloyds' clients seeking an investment portfolio with a direct investment in securities, something Lloyds no longer wish to provide to clients with less than £2 million invested. These two books of business will migrate to us over the coming year, but no staff will transfer from Lloyds with them. This gives us an opportunity to add funds under management to a number of our offices.

Finally, Lloyds have agreed to refer to us all of their clients who do not wish to subscribe to their unitised service. Initially, this arrangement has a five year term and we are looking forward to developing this relationship with Lloyds.

For all three parts of this acquisition, we will only be paying for clients that sign up to Rathbone standard terms, subject to some minimum consideration levels in respect of the Lloyds legacy business. Our teams have worked hard to ensure that the client migration process runs smoothly. The investment in systems, people and infrastructure that we have made over several years has been validated by the speed with which we have been able to move clients on to our systems.

Further to our announcement of 20 October 2009 regarding the transaction with Lloyds Banking Group ("LBG") it has subsequently been agreed with LBG that the initial consideration payment on account due in respect of the client portfolios acquired from Lloyds TSB Private Banking Limited will be reduced to 50% of the FUM at 31 August 2009. This revision will equate to a payment of £8.38 million on 26 February 2010 (as opposed to the £13.4 million representing 80% of the total consideration we had initially agreed to pay).

Other corporate activity involved the completion of the sales of our offshore trust operations in Geneva, Singapore and the BVI - each to their management teams. We are currently finalising the return of the BVI banking licence which was used to facilitate transactions for a small number of offshore trust clients. When that happens early in 2010 we will have completed all disposals relating to our former offshore trust division. The sale of these businesses has proved timely as the continued regulatory pressure on offshore jurisdictions would have made it more difficult for these businesses to thrive under our ownership.

I am pleased that we have been able to expand the UK trust business as part of our overall strategy to develop a family office service for a number of wealthy families. This business continues to provide a means to strengthen our relationships with a number of investment management clients.

Treasury and financing

The acquisition from Lloyds will be funded from our own internal resources. As noted last year, we held significant amounts of surplus regulatory capital following the sale of our Jersey-based trust business and it is helpful from an earnings perspective to put this to good use. Our level of external borrowings was £6.2 million at 31 December 2009 (2008: £9.2 million).

Our treasury team has continued to invest very cautiously, selecting counterparties that have an A rating (or above) from Fitch. Client liquidity has reduced from £1.1 billion to approximately £0.8 billion at 31 December 2009 as investment managers have reinvested funds.

Investing in our business

Staff remain our most important asset; they present the face of Rathbones to our clients. Notwithstanding our pay restraint over the past two years, our staff turnover rate remains low. We operate a Share Incentive Plan into which over 84% of our staff contribute on a monthly basis. We have recently introduced a tax efficient Save As You Earn scheme. This helps to further our underlying desire to increase staff shareholding in the business. We continue to invest in staff training.

As the business has grown, we continue to upgrade and improve the premises we occupy (property being our second largest cost element). During 2009 we moved to a new office in Chichester and in early 2010 we opened in Aberdeen. We anticipate moving to a new office in Edinburgh to accommodate expansion in 2010.

Capital expenditure of £2.3 million on software, property, plant and equipment was 54% down on the £5.0 million spent in 2008 largely as a result of cost focus and project prioritisation in 2009 combined with some £1.0 million of Liverpool office refurbishment costs in 2008. We would expect the level of investment to increase to more normal levels in 2010 and beyond.

Regulation

We work hard to maintain good relationships with our regulators. The burden of regulation is increasing and we are very much aware that we may face additional regulations that are aimed at much larger banks.

Over the year we have worked on a number of 'Treating Clients Fairly' projects - most notably undertaking a survey of our existing clients. Overall, the feedback received was positive but there will be a number of lessons that we can learn so that we are able to improve our services in the future.

Outlook

Overall 2009 was a challenging year for the business, albeit ending on a rather more positive note. Markets in 2010 may well be as volatile and unpredictable.

The business is well capitalised, we have demonstrated we can make acquisitions, and our organic growth continues. We are well placed for the future.

I take this opportunity to thank all our staff who have worked so hard in very difficult circumstances. I also thank our clients who have remained very supportive throughout the year.

Andy Pomfret

Chief executive

23 February 2010

Business review

Investment Management

Table 1. Key performance indicators for Investment Management

	2009	2008
Underlying rate of net organic growth in investment management funds under managment1	6.7%	7.4%
Funds under management at 31 December1	£12.16bn	£9.43bn
Average net operating income basis point return2	95 bps	104 bps

1 See Table 2
2 Net operating income (see Table 3) excluding interest on own reserves divided by the average funds under management on the quarterly billing dates (see Table 4)

Business environment

Investment Management funds under management grew 29.0% over the year to £12.16 billion, recovering back to levels last seen at the beginning of 2008. This compares to 22.1% and 12.7% increases in the FTSE 100 and the FTSE APCIMS Balanced Indices respectively.

Table 2. Investment Management - funds under management

	2009 £bn	2008 £bn
As at 1 January	9.43	11.23
Inflows1	1.86	1.97
- organic	1.31	1.56
- acquired	0.55	0.41
Outflows1	(0.68)	(0.73)
Market adjustment2	1.55	(3.04)
As at 31 December	12.16	9.43
Net organic new business3	0.63	0.83
Underlying rate of net organic growth4	6.7%	7.4%

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

Organic inflows represent the amount of new funds brought in by existing investment managers, either from existing clients or from new clients. Gross organic inflows of £1.31 billion were 16.0% down on the £1.56 billion in 2008 which was a very creditable performance given market conditions. 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) was £631 million, which translates into an annualised growth rate of 6.7%. Acquired growth from investment managers who joined us recently added £165 million (2008: £413 million) of funds under management during the year, in addition to the £381 million from the Lloyds Banking Group transaction. Outflows of funds continued at normal levels and account closures were also at expected levels in spite of the challenging market conditions.

We are continuing to see growth across all parts of our business. Charity funds under management were £1.5 billion at 31 December 2009 compared to £1.1 billion at the same time last year.

IFA-sourced growth continued to be strong, with the number of IFA-linked accounts growing to 4,276 from 3,406 at the end of 2008.

SIPP business was undoubtedly impacted by changes to taxation rules for high earners in the Budget, however the number of portfolios managed grew by 4.4% in the year ended 31 December 2009. The value of SIPP funds held with Rathbone Investment Management under the Rathbone SIPP increased by 24.0% to £279 million at 31 December 2009 from £225 million at the start of the year. Growth remains positive and our participation in a number of key provider panels remains an important part of our growth strategy in this area. Rathbone Pension & Advisory Services saw the number of new SIPPs upon which it has advised increase by 4.2% to 941 (2008: 903).

The overall basis point return on funds under management decreased in 2009. This is largely as a result of exceptionally high net interest income in 2008 which, as expected, has not repeated in 2009.

Financial performance

Table 3. Investment Management - financial performance

	2009 £m	2008 £m
Net fee income1	55.8	54.3
Commission	28.7	28.2
Interest and other income2	19.8	31.4
Net operating income	104.3	113.9
Underlying operating expenses3	(72.1)	(71.5)
Underlying profit before tax	32.2	42.4
Amortisation of client relationships	(2.0)	(1.3)
Transaction costs	(0.8)	-
Financial Services Compensation Scheme levy	(0.2)	(1.4)
Profit before tax	29.2	39.7
Underlying operating % margin4	30.9%	37.2%

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 5
4 Investment Management profit before tax and exceptional items divided by net operating income

Net fee income increased by 2.8% from £54.3 million in the year ended 31 December 2008, to £55.8 million in 2009. This largely resulted from positive net inflows of funds under management throughout the year which offset lower market levels. The average FTSE 100 Index of 4706 in 2009 (based on when clients are billed) was 10.0% down on the average of 5227 in 2008, whilst average funds under management on the same quarterly billing dates was £10.55 billion, some 4.0% up compared to £10.14 billion in 2008.

Table 4. Investment Management - average funds under management

	2009 £bn	2008 £bn
Valuation dates for billing
- 5 April	9.11	10.75
- 30 June	9.69	10.49
- 30 September	11.23	9.87
- 31 December	12.16	9.43
- Average	10.55	10.14

Commission income of £28.7 million in 2009 was marginally higher than last year (2008: £28.2 million) with both years seeing the sort of volatility that generates a greater number of trading opportunities.

Interest income in the first half of 2009 remained strong, benefitting from the three emergency base rate cuts made by the Bank of England. Second half income was exceptionally low though reflecting the unprecedented interest rate environment we continue to see. Client liquidity fell to £0.8 billion at 31 December 2009 compared to £1.1 billion at 31 December 2008 and returns on shareholder cash remain very low.

Cash represented 6.3% of client portfolios at 31 December 2009 compared to 10.4% at 31 December 2008 as cash was reinvested into other asset classes in the latter half of the year.

Net operating income for 2009 of £104.3 million decreased 8.4% from £113.9 million in 2008 almost wholly as a result of lower net interest income.

Table 5. Investment Management - operating expenses

	2009 £m	2008 £m
Staff costs1
- fixed	25.2	24.6
- variable	13.9	13.6
Total staff costs1	39.1	38.2
Other operating expenses	33.0	33.3
Underlying operating expenses	72.1	71.5
Financial Services Compensation Scheme levy	0.2	1.4
Amortisation of client relationships	2.0	1.3
Transaction costs	0.8	-
Operating expenses	75.1	74.2
Underlying cost/income ratio2	69.1%	62.8%

1 Represents the costs of investment managers and teams directly involved in client facing activities
2 Operating expenses before Financial Services Compensation Scheme levy, amortisation of client relationships and transaction costs divided by operating income

Total operating expenses in Rathbone Investment Management for 2009 were £75.1 million, compared to £74.2 million in 2008, an increase of 1.2%. Costs in 2009 included £0.8 million of transaction costs associated with the Lloyds transaction, and a £0.7 million increase in the intangible asset amortisation charge resulting from strong acquired growth levels in 2008. 2008 costs included £1.4 million in respect of FSCS levies (2009: £0.2 million). Adjusting for these items means that underlying business costs have been kept at 2008 levels in spite of business growth.

Controls over salary increases have restricted fixed staff cost increases to minimal levels as increases year-to-year reflect business expansion. Some variable staff costs decreased as expected in line with lower profit levels, however this positive effect was offset by higher awards in schemes designed to reward strong levels of organic growth and outperformance against the FTSE APCIMS Index. Funds-based growth awards include a performance element against the FTSE APCIMS Index. In 2008, performance was lower than expected as a result of difficult corporate bond markets in the last quarter which materially reduced bond values against gilts. This effect has largely reversed in 2009, which has increased the cost of the scheme.

Average full time equivalent headcount was 438 in 2009 compared to 429 in 2008.

Other operating expenses include property, depreciation, settlement, IT, finance and other central support services costs. These are largely fixed and were 43.9% of total operating expenses in 2009 (2008: 44.9%).

Financial Services Compensation Scheme costs were lower in 2009 following additional guidance on expected levies for the 2008/9 and 2009/10 years, which disclosed lower costs of Government borrowing than was originally expected. Further levy charges are likely to be incurred in future years and the ultimate cost remains uncertain.

Unit Trusts

Table 6. Key performance indicators for Unit Trusts

	2009	2008
Funds under management at 31 December	£0.94bn	£1.03bn
Underlying rate of net growth in funds under management1	(22.3)%	(12.2)%

1 See Table 7

Business environment

The retail asset management sector continued to suffer in the early part of 2009 as redemption levels remained high and investors lost a lot of confidence in equity markets. However, the market recovered somewhat significantly in the second half as asset values climbed.

Table 7. Unit Trusts -funds under management

	2009 £bn	2008 £bn
As at 1 January	1.03	1.89
Net (outflow)/inflows	(0.23)	(0.23)
- Inflows1	0.11	0.15
- Outflows1	(0.34)	(0.38)
Market adjustment2	0.14	(0.63)
As at 31 December	0.94	1.03
Underlying rate of net growth3	(22.3)%	(12.2)%

1 Valued at the date of transfer in/out
2 Impact of market movements and relative performance
3 Net inflows as a % of opening funds under management

Funds managed fell 8.7% to £0.94 billion at 31 December 2009 from £1.03 billion at the start of the year. Positive market movements of £0.1 billion offset some £0.2 billion of net redemptions, which largely occurred in the first half following the loss of two mandates totalling £130 million.

Table 8. Unit Trusts -fund details

	Morningstar Fund Stars	31 Dec 2009 £m	31 Dec 2008 £m
Ethical Bond Fund	1	42	36
Global Opportunities Fund	3	76	52
Income Fund	3	503	544
High Income Fund			16
Income and Growth Fund			34
Blue Chip Income and Growth Fund	4	52
Smaller Companies Fund			24
Special Situations Fund			54
Recovery Fund	n/a	69
Other	n/a	193	269
Total		935	1,029

Performance of the largest fund (the Rathbone Income Fund) improved slightly demonstrating second quartile performance for the one year period.

In the summer, the funds were restructured and rebalanced. The Rathbone High Income Fund was merged into the Rathbone Blue Chip Income and Growth Fund. The Rathbone Smaller Companies Fund and the Rathbone Special Situations Fund were merged to create the relaunched Rathbone Recovery Fund. The fund restructurings were well received by the market, and performance overall is showing some early signs of improvement.

Table 9. Unit Trusts -fund performance

Quartile ranking over:	1 year	3 years	5 years
Blue Chip Income and Growth Fund	2	3	3
Ethical Bond Fund	1	4	4
Global Opportunities Fund	1	1	1
Income Fund	2	4	4
Recovery Fund*	n/a	n/a	n/a

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

Financial performance

Table 10. Unit Trusts - financial performance

	2009 £m	2008 £m
Initial charges net of discounts	1.0	0.9
Annual management charges	11.6	17.7
Net dealing profits	0.4	0.5
Interest and other income	0.1	1.3
	13.1	20.4
Initial commission payable	(0.1)	(0.1)
Rebates and trail commission payable	(5.3)	(7.8)
Net operating income	7.7	12.5
Operating expenses	(7.6)	(10.1)
Profit before tax	0.1	2.4
Operating % margin1	1.3%	19.2%

1 Unit Trusts profit before tax divided by net operating income

Annual management charges fell 34.5%from £17.7 million in the year ended 31 December 2008 to £11.6 million in 2009. This change is in line with the 39.3% reduction in average funds under management to £0.88 billion in 2009 from £1.45 billion in 2008. Annual management charges as a percentage of average funds under management rose slightly to 1.3% (2008: 1.2%) reflecting the loss of the mandates in the first half of 2009.

Rebates and trail commission payable as a percentage of annual management charge income was 45.7% compared to 44.1% in 2008, reflecting the continued pricing pressure from fund supermarkets. Managers' box dealing profits constituted 5.2% of net operating income in the year (2008: 4.0%) as a consequence of continued redemptions in the funds. Net operating income as a percentage of average funds under management was 0.9% in 2009 compared to 0.9% in 2008.

Table 11. Unit Trusts -operating expenses

	2009 £m	2008 £m
Staff costs1
- fixed	2.1	2.8
- variable	1.8	3.4
Total staff costs	3.9	6.2
Other operating expenses	3.7	3.9
Operating expenses	7.6	10.1
Cost/income ratio2	98.7%	80.8%

1 Represents the costs of investment managers and teams directly involved in investment or distribution activities
2 Operating expenses as a % of net operating income (see Table 10)

Fixed staff costs of £2.1 million for the year ended 2009 were 25% lower than the £2.8 million in 2008, largely as a result of redundancies made in the latter part of 2008 and the early part of 2009. Average full time equivalent headcount was 24 during 2009 compared to 31 last year.

Variable staff costs include costs in relation to prior year profit share schemes which are spread over the service periods of relevant employees. The effect has been to distort 2009 costs as awards were significantly higher in previous years when profits were greater. The following table demonstrates the impact of deferred profit share awards on 2009 variable costs.

The effect of spreading prior year awards is expected to reduce after 2009 as most of the cost of awards from more profitable years had been recognised by the end of 2009.

Table 12. Unit Trusts -variable staff costs

	2009 £m	2008 £m
Total variable staff costs	1.8	3.4
Deferred profit share adjustment	(1.4)	(1.7)
Variable staff costs excluding deferred profit share	0.4	1.7
Variable staff costs excluding deferred profit share as a % of profit before tax and total variable staff costs	21.1%	29.3%

Other operating expenses in 2009, which have reduced by 5.1% from £3.9 million in 2008, include £0.5 million of costs in relation to fund mergers, redundancies and recruitment fees in the year. Excluding these items, other operating costs have fallen 17.9% compared to 2008.

Trust and Tax

Table 13. Key performance indicators for Trust and Tax

	2009 %	2008 %
Operating % margin1	4.3	4.1

1 Trust and Tax profit before tax from continuing operations divided by Trust and Tax net operating income (see Table 14)

Business environment

The sale of our Geneva trust operation to its management was completed on 10 February 2009 and the sale of the Singapore and British Virgin Islands trust operations were completed on 31 March 2009.

On 12 November 2009, the Group ceased to control Rathbone International Finance B.V. and the loan book contained within Rathbone International Finance B.V. was disposed of.

The continuing business is concentrated wholly in the UK and 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;

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

Both of these businesses have performed satisfactorily in 2009.

Table 14. Trust and Tax -financial performance

	2009 £m	2008 £m
Net operating income	4.7	4.9
Operating expenses	(4.5)	(4.7)
Profit before tax from continuing operations	0.2	0.2
Discontinued operations	(0.6)	(10.0)
Loss before tax	(0.4)	(9.8)
Operating % margin1	4.3%	4.1%

1 Trust and Tax profit before tax from continuing operations divided by net operating income

Operating income fell from £4.9 million in 2008 to £4.7 million in 2009 reflecting slightly lower levels of activity based fees.

Table 15. Trust and Tax -operating expenses

	2009 £m	2008 £m
Staff costs1
- fixed	2.5	2.8
- variable	0.3	0.4
Total staff costs1	2.8	3.2
Other operating expenses	1.7	1.5
Operating expenses	4.5	4.7
Cost/income ratio	95.7%	95.9%

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

Fixed staff costs of £2.5 million for 2009 compare to costs of £2.8 million in 2008. Average full time equivalent headcount was 40 compared to 43 in 2008. Other operating expenses represent property, depreciation, settlement, finance, IT and other support costs which are largely fixed, and were 37.8% of total operating expenses in 2009 (2008: 31.9%).

Taxation

The effective tax rate for the year is 31.5% (2008: 31.7%), calculated as the total tax charge on continuing operations of £9.3 million (2008: £13.4 million) divided by the profit before income tax on continuing operations of £29.5 million (2008: £42.3 million).

The effective rate of tax in 2009 is higher than the composite UK standard rate of 28.0% due principally to the effect of disallowable expenditure, arising on the acquisition of client funds from Lloyds and adjustments in respect of prior years.

A full reconciliation of income tax expense is included in note 4 to the preliminary announcement.

Dividend

An interim dividend of 16.0p per share was paid to shareholders on 7 October 2009 and the Board is recommending that a second interim dividend of 26.0p be paid on 31 March 2010 which will replace the final dividend. This results in a total payment of 42.0p (2008: 42.0p) for the year. This dividend is covered 1.1 times by reported basic earnings per share and 1.2 times by underlying earnings per share (see note 7).

Capital

Rathbones has adopted the standardised approach to calculating its Pillar I credit risk component and the basic indicator approach to calculating its operational risk component.

Rathbones remains well capitalised and does not rely on the wholesale market to fund its operations.

Intangible assets created by the acquisition of funds under management, such as for the Lloyds Banking Group transaction, are not allowable for capital resource purposes so do reduce capital headroom as soon as they are reported in the balance sheet. Intangible assets of £11.7 million have been recorded at 31 December 2009 in respect of the acquisition of £381 million of funds under management from Lloyds Banking Group.

Rathbones' Pillar III disclosure is given on our website at www.rathbones.com.

Treasury and financing

As a licensed deposit taker, Rathbone Investment Management holds the Group's surplus liquidity on its balance sheet together with any clients' cash not held on a segregated client money basis.

The treasury department of Rathbone Investment Management, reporting through the Banking Committee to the Board, operates in accordance with procedures set out in an approved treasury manual and monitors exposure to market, credit and liquidity risk.

The treasury department invest in a range of appropriate instruments issued by a relatively wide number of counterparties. Counterparties must be A rated or higher by Fitch and are regularly reviewed to ensure ratings remain appropriate.

As a net provider of liquidity to the banking markets Rathbones does not rely on wholesale funding to finance its operations and does not anticipate that this will change. External borrowings are limited to a term loan facility of £6.2 million at 31 December 2009 from Barclays Bank PLC (2008: £9.2 million). The balance is repayable in six-monthly equal instalments ending on 4 April 2011.

Cash flow

As fee income is largely collected directly from client portfolios, Rathbones operates with modest working capital. Larger cash flows are principally generated from the Group's banking/treasury operations. Excluding these cash flows, the most significant non-operating cash flows during the year were as follows:

• Cash outflows relating to the payment of dividends of £18.1 million (2008: £17.5 million)

• £3.3 million of capital expenditure (2008: £11.3 million)

Pensions

Rathbones operates two defined benefit pension schemes (both of which are closed to new members) and a defined contribution pension scheme. At 31 December 2009, the combined accounting deficit for the two defined benefit schemes totalled £9.4 million (2008: £5.7 million). Spreads on 15 year AA rated corporate bonds were very high at the end of 2008, which artificially reduced the reported IFRS deficits. Spreads are at more normal levels currently, such that valuations prepared for both reporting and funding purposes are more closely aligned. The deficit at 31 December 2009 has benefitted from the significant equity market recovery in the second half of 2009.

The Board has approved a schedule of contributions of £3.1 million annually for the next seven years to fund the scheme's deficit, in addition to £0.4 million per annum over the next four years previously committed. During the year, the Group made regular contributions of £3.6 million (2008: £2.3 million) into the Rathbone 1987 Scheme.

In order to manage the increasing costs of the 1987 defined benefit scheme, scheme benefits were amended with effect from 1 July 2009. From that date benefits for future service will no longer accrue based upon a member's final salary, but on a Career Average Revalued Earnings (CARE) basis. The normal retirement age of the scheme was also changed from 60 to 65. Benefits in relation to service prior to 1 July 2009 were unaffected by the changes.

A triennial valuation of the Laurence Keen Scheme was substantially completed in the year and forms the basis of assumptions used at 31 December 2009.

Operations and resources

Rathbones' information technology department has continued to provide a robust operations infrastructure. Our integrated core systems, comprising 3i's core Rhymesight processing engine, the internally developed Rathbone Investment Desk and Equipos' STR client reporting package, were upgraded significantly in 2009 to provide capacity for business expansion and increased data demands on the system.

There have been a large number of different developments in our investment systems and our business support systems to drive forward our business and its efficiency. Some of the more significant examples have been:

 • MS Office 2007 - a major project to upgrade core Microsoft systems across the business

• Dealing Infrastructure Review - the successful introduction of new dealing mechanisms (DMA and Algorhythmic trading) with new counterparties, which keep us up with an evolving market

• Significant background work on a new client documentation management system

• A telephone recording capability to meet FSA requirements

• Infrastructure support for the launch of our new unitised multi asset service

• Investment into client reporting, with new layout, charts, e-mail capacity, and more facilities for IFAs

• Increasing investment in data security by locking down USB access and improving firewalls

• Upgrading our Sun accounting system.

Operations teams have been working hard to ensure that the transfer of new clients from the Portfolio Management Service of Lloyds Banking Group into Rathbones happens smoothly, and our thanks go out to all involved in this project for their continued commitment.

Rathbones offers bespoke solutions for different client needs, and does not aim to generate 'index' returns over short periods. This means that we provide a full range of assets to our clients including traditional equities and bonds, fund of hedge funds, structured products and investment into areas such as commodities, private equity and property funds when appropriate. Operationally, we continue to support the ever increasing complexity associated with this approach to ensure that we are able to provide clients with a whole of market investment choice.

This year we achieved our best ever CREST and overseas settlement rates, and will continue to invest in our core processes to secure future efficiencies.

In 2010 we plan to complete a major upgrade in our Voice over IP telephone technology in London and Liverpool and significantly upgrade our Microsoft Exchange server capacity.

We will continue to work hard to secure optimal use of space as part of our overall plans to manage costs carefully. Having relocated our Chichester office in June, we expect to consider our London location in 2010 in advance of lease break opportunities in 2012.

Consolidated income statement

for the year ended 31 December 2009

		2009	2008
		£’000	£’000
	Note		restated ( note 1)
Interest and similar income		21,502	68,115
Interest expense and similar charges		(3,006)	(37,140)
Net interest income		18,496	30,975
Fee and commission income		103,735	106,656
Fee and commission expense		(7,351)	(8,565)
Net fee and commission income		96,384	98,091
Dividend income		80	134
Net trading income		358	480
Other operating income		1,439	1,486
Operating income		116,757	131,166
Additional levy for Financial Services Compensation Scheme		(229)	(1,404)
Amortisation of client relationships		(1,967)	(1,310)
Transaction costs	8	(782)	-
Other operating expenses		(84,311)	(86,146)
Operating expenses		(87,289)	(88,860)
Profit before tax from continuing operations		29,468	42,306
Taxation	4	(9,271)	(13,421)
Profit after tax from continuing operations		20,197	28,885
Discontinued operations
(Loss)/profit before tax from discontinued operations		(391)	2,666
Income tax credit on (loss)/profit before tax from discontinued operations		33	129
Loss recognised on re-measurement of assets of the disposal group		(211)	(12,680)
Net loss from discontinued operations	5	(569)	(9,885)
Profit for the period attributable to equity holders of the Company		19,628	19,000
Dividends paid and proposed for the year per ordinary share (p)	6	42.00p	42.00p
Dividends paid and proposed for the year (£'000)	6	18,159	17,984
Earnings per share for the period attributable to equity holders of the Company:	7
- basic		45.55p	44.45p
- diluted		45.53p	44.09p
Earnings per share from profit from continuing operations for the period attributable to equity holders of the Company:	7
- basic		46.87p	67.57p
- diluted		46.85p	67.02p

Consolidated statement of comprehensive income

for the year ended 31 December 2009

	2009	2008
	£'000	£'000
Profit for the year	19,628	19,000
Other comprehensive income:
Exchange translation differences	(182)	1,001
Actuarial loss on retirement benefit obligation	(8,626)	(44)
Revaluation of available for sale investment securities:
- net loss from changes in fair value	(59)	(3,957)
Deferred tax relating to components of other comprehensive income:
- available for sale investment securities	17	1,108
- actuarial gains and losses	2,415	12
Other comprehensive income for the year, net of tax	(6,435)	(1,880)
Total comprehensive income for the year, net of tax
attributable to equity holders of the Company	13,193	17,120

Consolidated statement of changes in equity

for the year ended 31 December 2009

				Available		Total
	Share	Share	Merger	for sale	Translation	other	Retained	Total
	capital	premium	reserve	reserve	reserve	reserves	earnings	equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	2,134	27,758	49,428	4,968	(215)	54,181	100,677	184,750
Total comprehensive income for the period				(2,849)	1,001	(1,848)	18,968	17,120
Dividends paid							(17,503)	(17,503)
Issue of share capital	9	1,199						1,208
Share-based payments:
- value of employee services							1,299	1,299
- costs of shares issued/purchased							(1,728)	(1,728)
- tax on share-based payments							(515)	(515)
Transfer of merger reserve to retained earnings on disposal of subsidiary			(17,593)			(17,593)	17,593	-
At 1 January 2009	2,143	28,957	31,835	2,119	786	34,740	118,791	184,631
Total comprehensive income for the period				(42)	(182)	(224)	13,417	13,193
Dividends paid							(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 31 December 2009	2,165	31,756	31,835	2,077	245	34,157	114,411	182,489

Consolidated balance sheet

as at 31 December 2009

		2009	2008
	Note	£'000	£'000
Assets
Cash and balances at central banks		315	351
Settlement balances		17,305	15,751
Loans and advances to banks		92,661	175,973
Loans and advances to customers		26,745	39,412
Investment securities
- available for sale		86,932	81,991
- held to maturity		694,000	874,979
Assets of disposal groups classified as held for sale	5	-	5,813
Intangible assets		81,973	68,232
Property, plant and equipment		5,676	6,816
Deferred tax asset		1,603	2,483
Prepayments, accrued income and other assets		29,878	38,646
Total assets		1,037,088	1,310,447
Liabilities
Deposits by banks	9	7,379	9,201
Settlement balances		22,157	14,048
Due to customers		766,361	1,044,351
Accruals, deferred income, provisions and other liabilities		46,875	42,450
Current tax liabilities		2,414	6,035
Liabilities of disposal groups classified as held for sale	5	-	4,008
Retirement benefit obligations		9,413	5,723
Total liabilities		854,599	1,125,816
Equity
Share capital		2,165	2,143
Share premium		31,756	28,957
Other reserves		34,157	34,740
Retained earnings		114,411	118,791
Total equity		182,489	184,631
Total liabilities and equity		1,037,088	1,310,447

Approved by the Board of Directors on 23 February 2010

Company number: 1000403 

Consolidated cash flow statement

for the year ended 31 December 2009

		2009	2008
		£'000	£'000
	Note		restated (note 1)
Cash flows from operating activities
Profit before income tax from continuing operations		29,468	42,306
Net interest income		(18,496)	(30,975)
Impairment losses on loans and advances		22	52
Profit on disposal of plant and equipment		(20)	(45)
Depreciation and amortisation		5,340	4,614
Defined benefit pension scheme charges		1,852	1,942
Share-based payment charges		1,219	1,299
Interest paid		(3,889)	(37,970)
Interest received		33,819	68,147
		49,315	49,370
Changes in operating assets and liabilities:
- net (increase)/decrease loans and advances to banks and customers		(42,557)	33,169
- net (increase)/decrease in settlement balance debtors		(1,554)	5,822
- net decrease prepayments, accrued income and other assets		3,436	4,914
- net (decrease)/increase in amounts due to customers and deposits by banks		(265,751)	90,162
- net increase/(decrease) in settlement balance creditors		8,109	(5,878)
- net decrease in accruals, deferred income, provisions and other liabilities		(8,723)	(2,911)
Cash (used in)/generated from operations		(257,725)	174,648
Defined benefit pension contributions paid		(6,788)	(2,715)
Tax paid		(9,625)	(10,940)
Discontinued operations		(1,522)	2,247
Net cash (outflow)/inflow from operating activities		(275,660)	163,240
Cash flows from investing activities
Acquisition of businesses, net of cash acquired		-	(734)
Disposal of businesses, net of cash transferred	10	(1,341)	16,340
Purchase of property, equipment and intangible assets		(3,319)	(11,311)
Proceeds from sale of property and equipment		65	151
Purchase of investment securities		(1,796,282)	(2,545,080)
Proceeds from sale and redemption of investment securities		1,977,261	2,435,375
Discontinued operations		(4)	(266)
Net cash generated from/(used in) investing activities		176,380	(105,525)
Cash flows from financing activities
Purchase of shares for share based schemes		(468)	(1,728)
Issue of ordinary shares	10	2,193	1,208
Dividends paid		(18,066)	(17,503)
Net cash used in financing activities		(16,341)	(18,023)
Net (decrease)/increase in cash and cash equivalents		(115,621)	39,692
Cash and cash equivalents at the beginning of the period		255,021	214,220
Effect of exchange rate changes on cash and cash equivalents		(356)	1,109
Cash and cash equivalents at the end of the period	10	139,044	255,021

Notes to the consolidated accounts

1    Accounting policies

Basis of preparation

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 2009.  The accounting policies have been applied consistently to all periods presented in the consolidated accounts, except as noted below.

Changes in accounting policies and disclosures

Comparative balances for the year ended 31 December 2008 have been reclassified in the Consolidated income statement, the Consolidated cash flow statement and the related notes, where applicable, to reflect the presentation of certain subsidiary entities as discontinued operations in accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. Further details are set out in note 5.

Changes to accounting policies adopted with effect from 1 January 2009, arising from changes to IFRS and which have a material impact on these interim accounts are set out below:

(i) Determination and presentation of operating segments

The Group determines and presents operating segments based on the information that is provided to the Group Executive Committee, which is the Group's chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 'Operating Segments'.

Comparative segmental information has been re-presented as required by the transitional requirements of IFRS 8. The change in accounting policy only impacts presentation and disclosure and, consequently, there is no impact on earnings per share.

Segmental results that are reported to the Group Executive Committee include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

(ii) Presentation of financial statements

The Group applies revised IAS 1 'Presentation of Financial Statements (2007)', which became effective as of 1 January 2009. As a result, the Group presents in the Consolidated statement of changes in equity all changes in equity arising from transactions with shareholders in their capacity as owners, whereas all other changes in equity are presented in the Consolidated statement of comprehensive income. This presentation has been applied in these interim accounts.

Comparative information has been re-presented on a consistent basis. The change in accounting policy only impacts presentational aspects and, consequently, there is no impact on earnings per share.

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.

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.  In the year, management's estimate of the likely repayment date has been put back from 2013 to 2015, based on the likely impact of the economic turmoil on the Jersey business.  Changing the estimated repayment date of the notes by one year would result in a change in their carrying value of approximately £140,000.

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

The sensitivities regarding the principal assumptions used to measure the total of the two schemes' liabilities are set out below:

	Combined impact on schemes' liabilities
	(Decrease)/increase	(Decrease)/increase
	£'000	%
0.5% increase to:
- discount rate	(9,119)	(10.5)
- rate of inflation	4,086	4.7
- rate of salary growth	3,283	3.8
1 year increase to longevity at 60	2,440	2.8

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.

31 December 2009	Investment Management	Unit Trusts	Trust and Tax Services	Total (continuing)
	£'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	(12,686)	(2,155)	(465)	(15,306)
Allocation of indirect expenses	(23,406)	(1,479)	(1,292)	(26,177)
Operating expenses	(75,162)	(7,572)	(4,555)	(87,289)
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
Segment total assets	1,002,284	15,947	9,472	1,027,703
Unallocated assets				9,385
Total assets				1,037,088

31 December 2008	Investment Management	Unit Trusts	Trust and Tax Services	Total (continuing)
restated (note 1)	£'000	£'000	£'000	£'000
Net fee income	54,313	11,149	4,882	70,344
Net commission	28,157	-	-	28,157
Net interest and other income	31,375	1,290	-	32,665
Operating income	113,845	12,439	4,882	131,166
Staff costs - fixed	(24,586)	(2,799)	(2,792)	(30,177)
Staff costs - variable	(13,558)	(3,412)	(368)	(17,338)
Total staff costs	(38,144)	(6,211)	(3,160)	(47,515)
Other direct expenses	(12,444)	(2,094)	(435)	(14,973)
Allocation of indirect expenses	(23,513)	(1,770)	(1,089)	(26,372)
Operating expenses	(74,101)	(10,075)	(4,684)	(88,860)
Profit before tax from continuing operations	39,744	2,364	198	42,306
Discontinued operations	-	-	(10,014)	(10,014)
Profit/(loss) before tax attributable to equity holders of the Company	39,744	2,364	(9,816)	32,292
Income tax expense from continuing operations				(13,421)
Income tax credit from discontinued operations				129
Profit for the year attributable to equity holders of the Company				19,000
Segment total assets	1,231,678	10,611	36,938	1,279,227
Unallocated assets				31,220
Total assets				1,310,447

Included within Investment Management net commission income is £1,028,000 (31 December 2008: £1,160,000) of commission receivable from Unit Trusts.  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 from continuing operations analysed by the geographical location of the Group entity providing the service.

	2009	2008
	£'000	£'000
		restated (note 1)
United Kingdom	113,121	126,772
Jersey	3,636	4,394
	116,757	131,166

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

	2009	2008
	£'000	£'000
United Kingdom	87,645	73,059
Jersey	4	1,989
	87,649	75,048

(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

	2009	2008
	£'000	£'000
		restated (note 1)
Current tax	5,899	11,366
Adjustments in respect of previous years	154	(178)
Deferred tax	3,218	2,233
	9,271	13,421

The tax charge on profit from continuing operations for the year is higher (2008: higher) than the standard rate of corporation tax in the UK of 28.0% (2008: 28.5%).  The differences are explained below:

	2009	2008
	£'000	£'000
		restated (note 1)
Tax on profit from ordinary activities at the standard rate of 28.0% (2008 - 28.5%)	8,251	12,057
Effects of:
Disallowable expenses (i)	566	388
Share-based payments	30	273
Tax on overseas earnings	(22)	80
Under provision for tax in previous years	446	623
	9,271	13,421

(i) The tax effect of disallowable expenses included £219,000 in respect of the Lloyds Banking Group transaction (note 8).

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 £2,338,000 has been credited directly to equity (2008: £605,000).

5    Disposal groups and discontinued operations

During 2008, the Group announced its intention to exit its international trust businesses and disposed of its subsidiaries Rathbone Trust Company Jersey Limited and Rathbone Jersey Limited.

On 10 February 2009 the Group disposed of its subsidiary Rathbone Trust Company S.A., on 31 March 2009 the Group disposed of its subsidiaries Rathbone Trust Company (BVI) Limited and Rathbone Trust (Singapore) Pte. Limited and on 17 November 2009 the Group disposed of its subsidiary Rathbone Trust International B.V..

On 12 November 2009, the Group ceased to be represented on the Board of Rathbone International Finance B.V., the Group's trading agreements with that company were terminated and the Group ceased to have effective control over it.  The Group ceased to consolidate the results of Rathbone International Finance B.V. with effect from that date.

At 31 December 2009, plans to liquidate Rathbone Trust Company B.V. and Rathbone Bank (BVI) Limited were well advanced, representing the final stage in the Group's exit from overseas trust activities.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

	2009	2008
	£'000	£'000
		restated (note 1)
Operating income	959	19,228
Operating expenses	(1,350)	(16,562)
(Loss)/profit before tax from discontinued operations	(391)	2,666
Attributable tax credit	33	129
(Loss)/profit after tax from discontinued operations	(358)	2,795
Loss recognised on re-measurement of assets of the disposal group	(211)	(12,680)
Attributable tax expense	-	-
Loss from discontinued operations	(569)	(9,885)

The operations of these businesses are included within Trust and Tax Services in the segmental analysis in note 3.

The major classes of assets and liabilities comprising the operations classified as held for sale were as follows:

	2009	2008
	£'000	£'000
Cash and balances at central banks	-	21
Loans and advances to banks	-	790
Loans and advances to customers	-	4,153
Intangible assets	-	46
Property, plant and equipment	-	148
Prepayments, accrued income and other assets	-	655
Total assets of the disposal group	-	5,813
Accruals, deferred income and other liabilities	-	4,008
Total liabilities of the disposal group	-	4,008
Net assets of the disposal group	-	1,805

Comparative balances have not been restated to show assets and liabilities held for sale, in accordance with IFRS 5.

Cash flows arising from discontinued operations, which have been included in the Consolidated cash flow statement, were as follows:

	2009	2008
	£'000	£'000
Net cash (outflow)/inflow from operating activities	(1,522)	2,247
Net cash used in investing activities	(4)	(266)
Net (decrease)/increase in cash and cash equivalents	(1,526)	1,981

As a result of the disposal in the year of subsidiaries described above, £359,000 was transferred from the translation reserve to retained earnings.

6    Dividends

	2009	2008
	£'000	£'000
Amounts recognised as distributions to equity holders in the year:
- final dividend for the year ended 31 December 2008 of 26.0p (2007: 25.0p) per share	11,164	10,662
- first interim dividend for the year ended 31 December 2009 of 16.0p (2008:16.0p) per share	6,902	6,841
	18,066	17,503
Proposed second interim dividend for the year ended 31 December 2009 of 26.0p (2008: Final dividend of 26.0p) per share	11,257	11,143

A first interim dividend of 16.0p per share was paid on 7 October 2009 to shareholders on the register at the close of business on 18 September 2009 (2008: 16.0p).

A second interim dividend of 26.0p per share is payable on 31 March 2010 to shareholders on the register at the close of business on 5 March 2010. No final dividend is proposed.

7    Earnings per share

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

	2009	2009	2009	2008	2008	2008
	Pre tax	Taxation	Post tax	Pre tax	Taxation	Post tax
	£'000	£'000	£'000	£'000	£'000	£'000
Underlying profit attributable to shareholders	32,446	(9,886)	22,560	45,020	(14,194)	30,826
Additional levy for Financial Services Compensation Scheme	(229)	64	(165)	(1,404)	400	(1,004)
Amortisation of client relationships	(1,967)	551	(1,416)	(1,310)	373	(937)
Transaction costs	(782)	-	(782)	-	-	-
Profit from continuing operations	29,468	(9,271)	20,197	42,306	(13,421)	28,885
Loss from discontinued operations	(602)	33	(569)	(10,014)	129	(9,885)
Profit attributable to shareholders	28,866	(9,238)	19,628	32,292	(13,292)	19,000

Basic earnings per share has been calculated by dividing earnings by the weighted average number of shares in issue throughout the period of 43,087,369 (2008: 42,745,197).

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).

	2009	2008
Weighted average number of ordinary shares in issue during the period - basic	43,087,369	42,745,197
Effect of ordinary share options	15,948	172,845
Effect of dilutive shares issuable under the Share Incentive Plan	7,977	7,998
Effect of contingently issuable ordinary shares under the Long Term Incentive Plan	-	172,823
Diluted ordinary shares	43,111,294	43,098,863

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

	2009	2008
Earnings per share from discontinued operations for the period attributable to equity holders of the Company:
- basic (p)	(1.32)p	(23.12)p
- diluted (p)	(1.32)p	(22.93)p
Underlying earnings per share from continuing operations for the period attributable to equity holders of the Company:
- basic (p)	52.36p	72.12p
- diluted (p)	52.33p	71.52p

8    Intangible assets

On 20 October 2009, the Group agreed terms with Lloyds Banking Group for the transfer of elements of Lloyds TSB's legacy discretionary investment management assets and HBOS's discretionary investment management activities.

As at 31 December 2009, acquired client relationships of £11,683,000 had been recognised in relation to new relationships with those former Bank of Scotland Portfolio Management Service clients from whom consent had been received and portfolio transfer values determined.  Consideration payments for Portfolio Management Service clients will be made in instalments shortly after 30 June 2010 and 31 December 2010 in proportion to the total value of funds under management for clients who have agreed to transfer to the Group at those dates.

Plans to migrate discretionary private client portfolios from Lloyds TSB during 2010 are at an advanced stage. As at 31 December 2009 no assets had been recognised in relation to new relationships with such clients as no clients had transferred to the Group at that time. The agreement includes a floor on the minimum total consideration payable, which is 50% of the maximum purchase consideration, in recognition of assistance from Lloyds Banking Group with the transfer of clients and a cap on the maximum consideration payable. Funds under management for those clients who elect to remain with Lloyds Banking Group are excluded from the calculation of the maximum purchase consideration. At 31 December 2009, the theoretical maximum consideration payable under the floor, if more than 50% of clients elect not to remain with Lloyds Banking Group nor transfer to Rathbones, was £8,382,000. An advance payment of up to £8,382,000 will be made on 26 February 2010, which is recoverable if the total consideration ultimately payable is below this value.

Transaction costs of £782,000 have been recognised in the Consolidated income statement in connection with the Lloyds Banking Group transaction. No goodwill arose in relation to the transaction.

9    Deposits by banks

The Group has drawn down £6,155,000 (2008: £9,201,000) of an unsecured term loan which is repayable in four, six-monthly instalments ending on 4 April 2011.  Interest is payable on the loan at 0.7% above the London Inter-Bank Offer Rate. On 31 December 2009, deposits by banks included overnight overdraft balances of £1,224,000 (2008: nil).

10   Consolidated cash flow statement

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

	2009	2008
	£'000	£'000
		restated (note 1)
Cash and balances at central banks	5	3
Loans and advances to banks	55,039	175,227
Available for sale investment securities	84,000	79,000
Included within assets held for sale (note 5)	-	791
	139,044	255,021

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:

	2009	2008
	£'000	£'000
Share capital issued	22	9
Share premium on shares issued	2,799	1,199
Shares issued in relation to share-based schemes for which no cash consideration was received	(628)	-
	2,193	1,208

The aggregate net assets of entities disposed of during the year (note 5) at the dates of disposal were as follows:

	2009	2008
	£'000	£'000
Cash and balances at central banks	35	21
Loans and advances to banks	1,638	1,171
Loans and advances to customers	17,374	22,477
Property, plant and equipment	123	148
Prepayments, accrued income and other assets	1,721	1,473
Due to customers	(15,744)	(18,440)
Accruals, deferred income, provisions and other liabilities	(4,623)	(4,941)
	524	1,909
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)

11   Financial information

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

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2009 or 2008. Statutory accounts for 2008 have been delivered to the Registrar of Companies. Statutory accounts for 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on both the 2008 and 2009 accounts. 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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