Final Results
Rathbone Brothers PLC
01 March 2007
1 March 2007
Rathbone Brothers Plc
Preliminary results for the 12 months to 31 December 2006
'Rathbone Brothers Plc: Record profits and strong funds
under management growth in 2006'
Rathbone Brothers Plc, a leading provider of discretionary fund management and
wealth management services for private investors and trustees, announces its
preliminary results for the year ended 31 December 2006.
Highlights:
• Operating income increased by 18.1% to £133.7 million (2005: £113.2 million).
• Profits before tax rose by 26.6% to £44.7 million (2005: £35.3 million).
o 2006 results include profits of £3.2 million (2005:
£2.3 million) from a part disposal of the Company's
holding in London Stock Exchange Group plc; 2005
results also include £1.4 million of costs in relation
to an aborted acquisition.
o Unit trust profits increased by 34.2% to £5.1 million
(2005: £3.8 million).
• Basic earnings per share rose by 27.4% to 76.62p (2005: 60.13p).
• Recommended final dividend is 21.5p, making a total of 35p (2005: 30p)
for the year - an overall increase of 16.7%.
• Successful integration of the acquisition of the investment management
and private banking business of Dexia Banque Internationale a Luxembourg
S.A., London Branch bringing 11 investment managers and £600 million in
funds under management into Rathbone Investment Management.
Mark Powell, chairman of Rathbone Brothers Plc, commented:
'Record profits and strong funds under management growth of 28.4% to £12.2
billion have been achieved in a year which has seen helpful stock market
conditions in the UK and overseas, an important acquisition and some valuable
recruitments.
'The year has also seen continuing improvements in the infrastructure of
Rathbones and an increase in the underlying rate of net organic growth of funds
under management to 7.2% within Rathbone Investment Management and 41.7% in our
unit trust business. These statistics reflect the impact of our increased
emphasis on marketing generally and especially marketing to financial
intermediaries and, within Rathbone Unit Trust Management, the excellent
performance record of the Rathbone Income Fund in particular.
'Subject to market conditions, it seems reasonable to expect a further year of
growth in 2007. We face the future with genuine optimism.'
For further information contact:
Rathbone Brothers Plc 020 7399 0000 (Switchboard)
Mark Powell, Chairman
Andy Pomfret, Chief Executive
Emily Morris, Marketing Director
Smithfield
Reg Hoare/Miranda Good 020 7360 4900
Notes for editors:
Rathbone Brothers Plc
Rathbone Brothers Plc specialises in providing, through its subsidiaries,
personalised investment management and wealth management services for private
investors and trustees, including discretionary fund management, unit trusts,
tax planning, trust and company management, pension and banking services. It
manages £12.2 billion of funds, including £1.9 billion managed by Rathbone Unit
Trust Management Limited (as at 31 December 2006).
Chairman's statement
I am very pleased to present our results for the year ended 31 December 2006.
Record profits have been achieved in a year which has seen helpful stock market
conditions in the UK and overseas, an important acquisition and some valuable
recruitments. The year has also seen continuing improvements in the
infrastructure of Rathbones and an increase in the underlying rate of net
organic growth of funds under management.
Results and dividend
Profits before tax for the year to 31 December 2006 were £44.7m, compared with
£35.3m in 2005 - an increase of 26.6%. Adjusting for profits from part disposals
of the Company's investment in London Stock Exchange Group plc of £3.2m in 2006
and £2.3m in 2005, and aborted acquisition costs of £1.4m in 2005, underlying
profits have increased by 20.6%.
Reported earnings per share have risen by 27.4% to 76.62p, compared with 60.13p
in 2005. Underlying earnings per share have risen from 59.50p to 71.28p, an
increase of 19.8%.
It is recommended that the final dividend be increased to 21.5p (2005: 18.5p),
making a total of 35.0p (2005: 30.0p) for the year, an increase of 16.7%.
The record results achieved in 2006 are in large part attributable to the energy
and commitment of our staff to whom a great debt of gratitude is due.
Rathbones in 2006
During the year the FTSE 100 Index rose by 10.7% and the FTSE/APCIMS Balanced
Index, which most closely reflects the spread of investments held by our
clients, rose by 6.8%. As we announced on 8 January 2007, funds under management
as a whole have risen by 28.4% to £12.2bn (2005: £9.5bn). The value of
investment portfolios under management within Rathbone Investment Management
rose by 24.1% to £10.3bn (2005: £8.3bn) and the value of funds under management
in Rathbone Unit Trust Management rose by 58.3% to £1.9bn (2005: £1.2bn).
A key performance indicator for Rathbones is the underlying rate of net organic
growth of funds under management which in Rathbone Investment Management during
the year was 7.2%, compared with 5.8% in 2005, and in Rathbone Unit Trust
Management was 41.7% compared with 37.5% in 2005. These statistics reflect the
impact of our increased emphasis on marketing generally and especially marketing
to financial intermediaries and, within Rathbone Unit Trust Management, the
excellent performance record of the Rathbone Income Fund in particular.
This year has also seen continuing growth in the range and variety of investment
opportunities that are available to private investors and to the managers of
their investment portfolios. We have seen further growth in the proportion of
our clients' assets which is committed to collective investments, as well as
increased use of funds of alternative assets and the use of structured products.
These developments result from increased emphasis on asset allocation decisions
and the understanding of the risk profiles that each of our clients is happy to
accept.
Each year your Board takes time outside routine meetings to examine its stated
strategic objectives and consider any developments, changes or enhancements that
are necessary. The revised statement of our strategic ambitions is reproduced in
the annual report. Our focus remains the provision of investment management
services to private investors and trustees, the management of a range of unit
trusts and the provision of trust and tax services in the UK and offshore, as
well as pension services in the UK.
During 2006 profits from Rathbone Investment Management, through which we
provide segregated investment management services to private individuals and
other investors, and which is a bank authorised and regulated under the
Financial Services and Markets Act 2000, have grown by 24.5% and in Rathbone
Unit Trust Management they have grown by 34.2%.
The results from our trust and tax activities have been less satisfactory,
despite some important reorganisation and management changes. A combination of
the inevitable disruption suffered during the relocation of our three offices in
Jersey into one building, competition from other providers of trust and tax
services, and the uncertainty connected with some proposed unfavourable changes
in trust law announced in the 2006 Budget, have put pressure on this division
and profits fell by 28.1%. It should be noted, however, that the major part of
this reduction is directly attributable to one-off property costs in Jersey.
Corporate activity
During the course of the year we have pursued our policy of seeking attractive
acquisition opportunities and appropriate recruitments of established
professionals from other organisations. In April we completed the purchase of
the UK investment management and private banking activities of Dexia. This
business has now been fully integrated into Rathbone Investment Management and,
as recently announced, the private banking activity that was acquired has been
sold to Butterfield Bank (UK) Limited as it did not fit strategically into our
existing banking and investment management activities. The integration was
achieved more quickly than had been planned and we now expect this acquisition
to be earnings-enhancing during the whole of 2007.
Additionally, we recruited eight new investment managers in Rathbone Investment
Management during the year and following the Dexia acquisition and these
recruitments, we now have 160 investment professionals in Rathbones as a whole.
We continue to look for suitable acquisition opportunities but only if they meet
our strict criteria of involving professionals who share our commitment to
discretionary investment management, are earnings-enhancing within a reasonable
timeframe and/or that they broaden the range of services available to our
clients.
James Lifford
At the end of the year James Lifford, who has been a director since 1996 and
responsible for our investment management offices outside London and Liverpool,
retired from the Board. During the last ten years he has made a major
contribution to the growth and development of our business and his experience
and wise counsel will be missed on the Board. We are delighted, however, that he
is remaining a director of our offshore investment management company and will
continue to focus on the investment affairs of clients from our Winchester
office.
Outlook
Mergers and acquisitions activity generally and the role of private equity in
particular have clearly had a favourable impact on UK stock markets during the
year. Subject to market conditions, it seems reasonable to expect a further year
of growth in 2007. We face the future with genuine optimism.
Mark Powell
Chairman
28 February 2007
Consolidated income statement
for the year ended 31 December 2006
Note 2006 2005
£'000 £'000
________________________________________________________________________________
Interest and similar income 37,335 27,472
Interest expense and similar charges (21,297) (15,029)
________________________________________________________________________________
Net interest income 16,038 12,443
________________________________________________________________________________
Fee and commission income 120,039 102,869
Fee and commission expense (8,365) (6,850)
________________________________________________________________________________
Net fee and commission income 111,674 96,019
________________________________________________________________________________
Dividend income 117 78
Net trading income 1,285 1,409
Net income from sale of available for sale
investment securities 3,196 2,261
Other operating income 1,376 975
________________________________________________________________________________
Operating income 133,686 113,185
________________________________________________________________________________
Operating expenses (88,966) (77,887)
Aborted acquisition costs - (1,381)
Other operating expenses (88,966) (76,506)
Profit before tax 44,720 35,298
Profit before aborted acquisition costs and tax 44,720 36,679
Aborted acquisition costs - (1,381)
Income tax expense 5 (12,582) (10,617)
________________________________________________________________________________
Profit for the year attributable to equity
holders of the Company 32,138 24,681
________________________________________________________________________________
Earnings per share for the year attributable to
equity holders of the Company:
Basic 7 76.62p 60.13p
Diluted 7 74.71p 58.84p
Dividends paid and proposed for the year per
ordinary share 6 35.00p 30.00p
Dividends (£'000) 14,786 12,351
________________________________________________________________________________
Consolidated balance sheet
as at 31 December 2006
Note 2006 2005
£'000 £'000
________________________________________________________________________________
Assets
Cash and balances at central banks 281 511
Settlement balances 19,628 14,017
Loans and advances to banks 119,247 144,975
Loans and advances to customers 77,360 37,520
Investment securities
- available for sale 6,152 5,157
- held to maturity 558,368 396,000
Intangible assets 81,248 60,101
Property, plant and equipment 6,463 4,295
Deferred tax asset 5,321 8,599
Prepayments, accrued income and other assets 38,551 25,093
________________________________________________________________________________
Total assets 912,619 696,268
________________________________________________________________________________
Liabilities
Deposits by banks 12,119 1,853
Settlement balances 18,078 16,133
Due to customers 664,762 493,612
Debt securities in issue - 141
Accruals, deferred income and other 39,605 27,533
liabilities
Current tax liabilities 8,143 7,869
Retirement benefit obligations 9 10,763 18,710
________________________________________________________________________________
Total liabilities 753,470 565,851
________________________________________________________________________________
Equity
Share capital 2,114 2,063
Share premium 10 24,518 17,487
Other reserves 10 53,717 53,013
Retained earnings 10 78,800 57,854
________________________________________________________________________________
Total equity 159,149 130,417
________________________________________________________________________________
Total equity and liabilities 912,619 696,268
________________________________________________________________________________
Consolidated cash flow statement
for the year ended 31 December 2006
Note 2006 2005
£'000 £'000
(restated)
________________________________________________________________________________
Cash flows from operating activities
Profit before tax 44,720 35,298
Net interest income (16,038) (12,443)
Net income from sale of available for sale
investment securities (3,196) (2,261)
Movement in fair value of derivative
financial instruments (30) (12)
Impairment losses on loans and advances 323 386
Profit on disposal of plant and equipment (49) (160)
Depreciation and amortisation 3,418 2,497
Defined benefit pension scheme charges 3,448 2,920
Share based payment charges 2,080 1,971
Interest paid (20,655) (14,781)
Interest received 30,728 27,211
________________________________________________________________________________
44,749 40,626
Changes in operating assets and liabilities
- net decrease/(increase) in loans and advances to banks
and customers 18,158 (18,490)
- net (increase) in settlement balance debtors (5,611) (2,818)
- net (increase) in prepayments, accrued
income and other assets (6,851) (2,702)
- net increase in amounts due to customers
and deposits by banks 129,407 67,509
- net increase in settlement balance creditors 1,946 894
- net increase in accruals, deferred income,
provisions and other liabilities 5,296 4,339
________________________________________________________________________________
Cash generated from operations 187,094 89,358
Defined benefit pension contributions paid (5,927) (3,359)
Tax paid (10,609) (10,246)
________________________________________________________________________________
Net cash inflow from operating activities 170,558 75,753
________________________________________________________________________________
Cash flows from investing activities
Acquisition of businesses, net of cash acquired (5,786) -
Purchase of property, equipment and
intangible assets (5,690) (2,602)
Proceeds from sale of property and equipment 113 205
Purchase of investment securities (1,363,970) (1,229,307)
Proceeds from sale and redemption of
investment securities 1,178,798 1,240,609
________________________________________________________________________________
Net cash (used in)/generated from investing
activities (196,535) 8,905
________________________________________________________________________________
Cash flows from financing activities
Repayments of debt securities (141) (146)
Purchase of shares for share based schemes (3,407) (293)
Issue of ordinary shares 12 6,715 1,586
Dividends paid (13,449) (11,660)
________________________________________________________________________________
Net cash used in financing activities (10,282) (10,513)
________________________________________________________________________________
Net (decrease)/increase in cash and cash
equivalents (36,259) 74,145
Cash and cash equivalents at the beginning of
the year 234,883 160,517
Effect of exchange rate changes on cash and
cash equivalents (281) 221
________________________________________________________________________________
Cash and cash equivalents at the end of the
year 12 198,343 234,883
________________________________________________________________________________
Consolidated statement of recognised income and expense
for the year ended 31 December 2006
2006 2005
£'000 £'000
________________________________________________________________________________
Profit after taxation 32,138 24,681
________________________________________________________________________________
Exchange translation differences (240) 120
Actuarial gain/(loss) on retirement benefit
obligations 5,468 (4,166)
Revaluation of available for sale investment
securities:
- net gain from changes in fair value 4,202 199
- net profit on disposal transferred to income
during the period (3,196) (2,261)
________________________________________________________________________________
1,006 (2,062)
________________________________________________________________________________
Deferred tax on equity items:
- available for sale investment securities (302) 619
- actuarial gains and losses (1,640) 1,250
________________________________________________________________________________
(1,942) 1,869
________________________________________________________________________________
Net income/(expense) recognised directly in equity 4,292 (4,239)
________________________________________________________________________________
Recognised income and expense for the period
attributable to equity holders of the Company 36,430 20,442
________________________________________________________________________________
Notes
1. Accounting policies
In preparing the financial information included in this statement the Group has
applied policies which are in accordance with International Financial Reporting
Standards as adopted by the European Commission at 31 December 2006. There have
been no changes to accounting policies adopted during the year except as noted
below. Full details of the Group's other accounting policies can be found in the
Group's financial statements for the year ended 31 December 2005.
Changes in accounting policies and disclosure
During the year, the Group has adopted the amendments to IAS 39 Financial
Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts that
relate to financial guarantees. In accordance with IAS 39, financial guarantees
issued by the Group are initially recognised in the balance sheet at fair value.
Guarantees are subsequently measured at the higher of the best estimate of any
amount to be paid to settle the guarantee and the amount initially recognised
less cumulative amortisation, which is recognised over the life of the contract.
Adoption of the amendments did not have a material impact on the reported
results or position of the Group for the years ended 31 December 2005 and 2006.
Comparative figures have therefore not been restated.
The comparative figures in the cash flow statement have been restated to show
separately interest paid and received.
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.
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 principal assumptions underlying the reported deficit
of £10,763,000 are given in note 9.
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 history of experience adjustments is set out in note
9.
Impairment of goodwill
The Group makes estimates in relation to the value in use of the cash generating
units to which goodwill has been allocated in determining whether goodwill is
impaired. The value in use calculation requires the entity to estimate the
future cash flows expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. The carrying amount of
goodwill at the balance sheet date was £69,965,000. There has been no impairment
of goodwill in prior years.
Share based payments
In determining the fair value of equity settled share based awards and the
related charge to the income statement, the Group makes assumptions about future
events and market conditions. In particular, judgements must be formed as to the
likely number of shares that will vest, and the fair value of each award
granted. The fair value of awards is determined using a valuation model which is
dependent on further estimates, including the Group's future dividend policy,
employee turnover, the timing with which options will be exercised and future
volatility in the price of the Group's shares. Such assumptions are based on
publicly available information, where available, and reflect market expectations
and advice taken from qualified actuaries. Different assumptions about these
factors to those made by the Group could materially affect the reported value of
share based payments.
Income recognition
Revenue in the Trust and Tax business is calculated by reference to the
estimated stage of completion of the service rendered. Estimates are also made
as to the recoverability of work in progress and debtors in relation to this
income. At the year end, total work in progress and debtors for trust and
pension services amounted to £11,372,000 (2005: £10,753,000).
Conversely, very little judgement is required in the recognition of income
arising from the Investment Management and Unit Trusts businesses due to the
close proximity of billing dates to the year end and the inherently
non-judgemental nature of interest accrual calculations.
3. Segmental information
(a) Business segments
For management purposes, the Group is currently organised into three operating
divisions: Investment Management, Unit Trusts and Trust and Tax. These divisions
are the basis on which the Group reports its primary segment information.
Transactions between the business segments are on normal commercial terms and
conditions. Intra-segment income constitutes trail commission.
Revenues and expenses are allocated to the business segment that originated the
transaction. Centrally incurred expenses are allocated to business segments on
an appropriate pro-rata basis. Segment assets and liabilities comprise operating
assets and liabilities, being the majority of the balance sheet, but exclude
items such as taxation and borrowings.
At 31 December 2006 Investment Unit Trust and
management trusts tax Eliminations Total
£'000 £'000 £'000 £'000 £'000
__________________________________________________________________________________
External revenues 115,322 22,652 22,178 - 160,152
Revenues from other
segments 1,463 - - (1,463) -
__________________________________________________________________________________
116,785 22,652 22,178 (1,463) 160,152
Unallocated external
revenues 3,196
__________________________________________________________________________________
Total revenues 163,348
__________________________________________________________________________________
Segment result 34,119 5,059 2,346 41,524
Unallocated items 3,196
__________________________________________________________________________________
Profit before tax 44,720
Tax (12,582)
__________________________________________________________________________________
Profit for the year 32,138
__________________________________________________________________________________
Segment assets 805,597 17,307 55,193 878,097
Unallocated assets 34,522
__________________________________________________________________________________
Total assets 912,619
__________________________________________________________________________________
Segment liabilities 689,943 12,654 18,048 720,645
Unallocated liabilities 32,825
__________________________________________________________________________________
Total liabilities 753,470
__________________________________________________________________________________
Other segment items:
Capital expenditure 11,995 194 2,393 14,582
Depreciation and
amortisation 2,737 143 538 3,418
Other non-cash expenses 1,481 208 714 2,403
Provisions charged in the year 1,788 - 613 2,401
Provisions utilised in the year 6,273 - 457 6,730
__________________________________________________________________________________
Investment Unit Trust and
management trusts tax Eliminations Total
At 31 December 2005 £'000 £'000 £'000 £'000 £'000
__________________________________________________________________________________
External revenues 93,927 16,600 22,221 - 132,748
Revenues from other segments 1,199 - - (1,199) -
__________________________________________________________________________________
95,126 16,600 22,221 (1,199) 132,748
Unallocated external
revenues 2,316
__________________________________________________________________________________
Total revenues 135,064
__________________________________________________________________________________
Segment result 27,383 3,784 3,194 34,361
Unallocated items 937
__________________________________________________________________________________
Profit before tax 35,298
Tax (10,617)
__________________________________________________________________________________
Profit for the year 24,681
__________________________________________________________________________________
Segment assets 601,607 11,374 53,617 666,598
Unallocated assets 29,670
__________________________________________________________________________________
Total assets 696,268
__________________________________________________________________________________
Segment liabilities 511,966 7,985 17,589 537,540
Unallocated liabilities 28,311
__________________________________________________________________________________
Total liabilities 565,851
__________________________________________________________________________________
Other segment items:
Capital expenditure 1,816 93 693 2,602
Depreciation and
amortisation 1,891 138 467 2,496
Other non-cash expenses 1,498 208 785 2,491
Provisions charged in the year 1,819 - 704 2,523
Provisions utilised in the year 230 - 339 569
__________________________________________________________________________________
Unallocated external revenues are principally comprised of gains on disposal of
available for sale securities
(b) Geographical Segments
The Group's operations are located in the United Kingdom, Jersey, Switzerland
and the British Virgin Islands. The following table provides an analysis of the
Group's revenues by geographical market, by origin of the services:
Total revenues by geographical market
2006 2005
£'000 £'000
________________________________________________________________________________
United Kingdom 140,666 113,146
Jersey 18,421 17,579
Rest of the world 4,261 4,339
________________________________________________________________________________
163,348 135,064
________________________________________________________________________________
The following is an analysis of the carrying amount of segment assets, and
additions to property, plant and equipment and intangible assets, analysed by
the geographical area in which the assets are located:
Carrying amount of segment assets
2006 2005
£'000 £'000
________________________________________________________________________________
United Kingdom 826,822 622,115
Jersey 31,448 24,132
Rest of the world 19,827 20,351
________________________________________________________________________________
878,097 666,598
________________________________________________________________________________
Additions to property, plant and equipment and intangible assets
2006 2005
£'000 £'000
________________________________________________________________________________
United Kingdom 12,421 2,022
Jersey 2,122 444
Rest of the world 39 136
________________________________________________________________________________
14,582 2,602
________________________________________________________________________________
(c) Total revenues
Total revenue constitutes the following:
2006 2005
£'000 £'000
________________________________________________________________________________
Interest and similar income 37,335 27,472
Fee and commission income 120,039 102,869
Dividend income 117 78
Net trading income 1,285 1,409
Gains less losses from investment securities 3,196 2,261
Other operating income 1,376 975
________________________________________________________________________________
Total revenues 163,348 135,064
Interest payable (21,297) (15,029)
Fees and commission expense (8,365) (6,850)
________________________________________________________________________________
Operating income 133,686 113,185
________________________________________________________________________________
4. Business combinations
On 6 April 2006, the Group acquired the investment management and private
banking business of Dexia Banque Internationale a Luxembourg S.A., London
Branch. The business was transferred to Rathbone Investment Management Limited,
a principal subsidiary of the Company, by way of a Court order sanctioning a
banking business transfer scheme pursuant to Part VII of the Financial Services
and Markets Act 2000.
Included within the consolidated income statement for the year ended 31 December
2006 is a profit before tax of £228,000 relating to the acquired business. If
the acquisition had occurred on 1 January 2006, the estimated total revenue for
the Group for the year ended 31 December 2006 would have been £164,642,000 and
profit after tax for the year would have been £32,094,000.
The acquired business' net assets at the acquisition date were as follows:
Recognised Fair value Carrying
values adjustments amounts
£'000 £'000 £'000
________________________________________________________________________________
Cash and cash equivalents 9,101 - 9,101
Loans and advances to customers 43,342 - 43,342
Property, plant and equipment 91 - 91
Client relationships 3,962 3,962 -
Other receivables 14 - 14
Due to customers (52,443) - (52,443)
________________________________________________________________________________
Net identifiable assets acquired 4,067 3,962 105
______________________
Goodwill on acquisition 12,230
________________________________________________________
Total net assets acquired 16,297
________________________________________________________
Total consideration for the acquisition, including directly attributable costs,
constitutes the following:
Amount paid Amount Total
deferred
£'000 £'000 £'000
________________________________________________________________________________
Cash consideration 14,478 1,410 15,888
Professional fees 409 - 409
________________________________________________________________________________
14,887 1,410 16,297
________________________________________________________________________________
The goodwill arising on the acquisition is attributable to the employees and the
anticipated profitability of incorporating the business into the Group's
operating model and utilising existing capacity within its operations.
5. Income tax expense
2006 2005
£'000 £'000
________________________________________________________________________________
Current tax 10,820 11,649
Adjustments in respect of previous years 64 387
Deferred tax 1,698 (1,419)
________________________________________________________________________________
12,582 10,617
________________________________________________________________________________
The tax charge for the year is lower (2005: higher) than the standard rate of
corporation tax in the UK of 30% (2005: 30%). The differences are explained
below:
2006 2005
£'000 £'000
________________________________________________________________________________
Tax on ordinary activities at the standard rate of
30% (2005: 30%) 13,416 10,590
Effects of:
UK dividend income (23) (17)
Disallowable expenses 257 639
Share based payments (649) (101)
UK tax on overseas subsidiary dividends - 63
Tax relief on purchased goodwill 79 (3)
Withholding tax suffered - 3
Lower tax rates on overseas earnings (719) (36)
Under/(over) provision for tax in previous years 221 (521)
________________________________________________________________________________
Income tax expense 12,582 10,617
________________________________________________________________________________
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 £1,580,000 has been
charged directly to equity (2005: £2,800,000 credited to equity).
6. Dividends
2006 2005
£'000 £'000
________________________________________________________________________________
Amounts recognised as distributions to equity
holders in the year:
- final dividend for the year ended 31 December
2005 of 18.5p (2004: 17p) per share 7,754 6,948
- adjustment to 2005 final dividend on 4,763
shares in respect of dividends waived (1) -
- adjustment to 2004 final dividend on 31,991
shares in respect of dividends waived - (5)
- interim dividend for the year ended 31 December
2006 of 13.5p (2005: 11.5p) per share 5,697 4,724
- adjustment to 2005 interim dividend on 59,435
shares in respect of dividends waived - (7)
- adjustment to 2006 interim dividend on 6,170
shares in respect of dividends waived (1) -
________________________________________________________________________________
13,449 11,660
________________________________________________________________________________
Proposed final dividend for the year ended 31
December 2006 of 21.5p (2005: 18.5p) per share 9,090 7,634
________________________________________________________________________________
The interim dividend of 13.5p per share was paid on 13 October 2006 to
shareholders on the register at the close of business on 22 September 2006.
The final dividend declared of 21.5p per share is payable on 10 May 2007 to
shareholders on the register at the close of business on 13 April 2007. The
final dividend is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial statements.
7. Earnings per share
Basic earnings per share has been calculated by dividing the profits
attributable to shareholders of £32,138,000 (2005: £24,681,000) by the weighted
average number of shares in issue throughout the year of 41,946,781 (2005:
41,046,753).
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).
2006 2005
________________________________________________________________________________
Weighted average number of ordinary shares in
issue during the year - basic 41,946,781 41,046,753
Effect of ordinary share options 580,127 385,312
Effect of dilutive shares issuable under the
Share Incentive Plan 152,580 163,556
Effect of contingently issuable ordinary shares
under the Long Term Incentive Plan 334,720 354,242
________________________________________________________________________________
Diluted ordinary shares 43,014,208 41,949,863
________________________________________________________________________________
8. Provisions
Deferred
contingent Client Litigation
consideration compensation related Total
£'000 £'000 £'000 £'000
________________________________________________________________________________
At 1 January 2006 157 2,072 582 2,811
Exchange adjustments - - (13) (13)
________________________________________________________________________________
Charged to the income statement 1,373 1,028 2,401
Unused amount credited to the
income statement (676) (174) (850)
________________________________________________________________________________
Net charge to the income
statement(i) 697 854 1,551
Capitalised during the year(ii) 10,829 10,829
Utilised/paid during the year (4,579) (1,244) (907) (6,730)
________________________________________________________________________________
At 31 December 2006 6,407 1,525 516 8,448
________________________________________________________________________________
Current 4,540 1,189 422 6,151
Non-current 1,867 336 94 2,297
________________________________________________________________________________
6,407 1,525 516 8,448
________________________________________________________________________________
(i) In addition to the net charge of £1,551,000 (2005: £2,523,000) to the income
statement in the above table, a net credit of £179,000 (2005: £594,000) has been
recognised in the income statement during the period in relation to expected
insurance recoveries resulting in a net charge to the income statement for other
provisions of £1,372,000 (2005: £1,929,000).
(ii) Amounts capitalised during the period comprise £5,410,000 deferred
consideration in relation to the acquisition of the investment management and
private banking business of Dexia Banque Internationale a Luxembourg S.A.,
London Branch (see note 4), £4,425,000 in relation to deferred payments to
investment managers under earn-out schemes and £994,000 in relation to the
acquisition of client relationships.
Deferred contingent consideration relates to a number of agreements in relation
to the attraction of investment management clients. The amount of the
consideration is contingent on the value of funds attracted and is payable in
cash.
In the ordinary course of business, the Group receives complaints from clients
in relation to the services provided. Complaints are assessed on a case by case
basis and provisions for compensation are made where judged necessary.
Provisions have also been made in relation to a number of cases where legal
proceedings are expected to result in loss to the Group.
9. Retirement benefit obligations
The Group operates a defined contribution group personal pension scheme and
contributes to various other personal pension arrangements for certain directors
and employees. The total of contributions made to this scheme during the year
was £594,000 (2005: £370,000). The Group also operates defined contribution
schemes for overseas employees, for which the total contributions were £517,000
(2005: £450,000).
The Group operates two pension schemes providing benefits based on final
pensionable pay for executive directors and staff employed by the Company (the
Rathbone 1987 Scheme and the Laurence Keen Scheme). The schemes are currently
both clients of Rathbone Investment Management Limited, with investments managed
on a discretionary basis. Scheme assets are held separately from those of the
Group. The scheme operated by Rathbone Stockbrokers Limited (the Laurence Keen
Scheme) was closed to new entrants and future pension accrual for the current
membership with effect from 1 October 1999. As from that date all the active
members of the Laurence Keen Scheme were included under the Rathbone 1987 Scheme
for accrual of retirement benefits for further service. The Rathbone 1987 Scheme
was closed to new entrants with effect from 31 March 2002. Both schemes continue
on a closed basis with the existing assets remaining invested thereunder.
The schemes are valued by independent actuaries every three years using the
projected unit credit method which looks at the value of benefits accruing over
the years following the valuation date based on projected salary to date of
termination of services. The valuations are updated at each balance sheet date
in between full valuations. The latest full actuarial valuations were carried
out as at:
Latest full actuarial valuation as at:
________________________________________________________________________________
Rathbone 1987 Scheme 31 December 2004
Laurence Keen Scheme 31 December 2002
________________________________________________________________________________
The actuarial valuation of the Laurence Keen Scheme as at 31 December 2005 is in
progress but has not yet been completed. Consideration has been given to the
preliminary results of that valuation in preparing these financial statements.
The assumptions used by the actuaries are the best estimates chosen from a range
of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice. The principal actuarial assumptions used,
which reflect the different membership profiles of the schemes, were:
Laurence Keen Scheme Rathbone 1987 Scheme
2006 2005 2006 2005
_____________________________________________________________________________
Rate of increase in salaries 4.15% 4.05% 4.15% 4.05%
Rate of increase in pensions in
payment *3.50% *2.80% *2.90% *2.80%
Rate of increase of deferred
pensions 2.90% 2.80% 2.90% 2.80%
Discount rate 5.20% 4.90% 5.20% 4.90%
Expected return on scheme assets 6.21% 5.99% 7.09% 7.06%
Inflation assumption 2.90% 2.80% 2.90% 2.80%
_____________________________________________________________________________
*5% for service prior to April 2001
The overall expected return on scheme assets is a weighted average of the
returns expected on each class of asset held by the scheme, as disclosed below.
Normal retirement age is 65 for members of the Laurence Keen Scheme and 60 for
members of the Rathbone 1987 Scheme. The assumed life expectancy for the
membership of both schemes is based on the PA92 actuarial tables. In 2006, the
assumption for life expectancy was updated to take account of recent and
expected future improvements in life expectancy by using the 'Medium Cohort'
projection, rated up by 2 years. The assumed life expectations on retirement
were:
2006 2005 2006 2005
Males Males Females Females
_________________________________________________________________________
Retiring today - aged 60 24.7 24.6 27.6 27.5
- aged 65 20.0 19.9 22.9 22.8
Retiring in 20 years - aged 60 25.9 25.8 28.7 28.6
- aged 65 21.1 21.1 23.9 23.9
_________________________________________________________________________
The amount included in the balance sheet arising from the Group's obligations in
respect of the schemes is as follows:
2006 2005
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
____________________________________________________________________________________
Present value of defined
benefit obligations (10,423) (53,982) (64,405) (11,697) (50,501) (62,198)
Fair value of scheme assets 8,996 44,646 53,642 8,118 35,370 43,488
____________________________________________________________________________________
Deficit in schemes (1,427) (9,336) (10,763) (3,579) (15,131) (18,710)
____________________________________________________________________________________
The amounts recognised in the income statement, within operating expenses, are
as follows:
2006 2005
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
____________________________________________________________________________________
Current service cost - 3,445 3,445 - 2,585 2,585
Interest cost 567 2,571 3,138 519 2,182 2,701
Expected return on scheme
assets (480) (2,655) (3,135) (419) (1,947) (2,366)
____________________________________________________________________________________
87 3,361 3,448 100 2,820 2,920
____________________________________________________________________________________
Actuarial gains and losses have been reported in the statement of recognised
income and expense. The actual return on scheme assets was £565,000 (2005:
£958,000) for the Laurence Keen scheme and £3,381,000 (2005: £6,244,000) for the
Rathbone 1987 scheme.
Movements in the present value of defined benefit obligations were as follows:
2006 2005
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
____________________________________________________________________________________
At 1 January 11,697 50,501 62,198 9,552 38,214 47,766
Service cost (employer's
part) - 3,445 3,445 - 2,585 2,585
Interest cost 567 2,571 3,138 519 2,182 2,701
Contributions from members - 959 959 - 778 778
Actuarial gains and losses (1,592) (3,038) (4,630) 1,864 7,138 9,002
Benefits paid (249) (456) (705) (238) (396) (634)
____________________________________________________________________________________
10,423 53,982 64,405 11,697 50,501 62,198
____________________________________________________________________________________
Movements in the fair value of the schemes' assets were as follows:
2006 2005
Laurence Rathbone Laurence Rathbone
Keen 1987 Keen 1987
Scheme Scheme Total Scheme Scheme Total
£'000 £'000 £'000 £'000 £'000 £'000
____________________________________________________________________________________
At 1 January 8,118 35,370 43,488 6,836 25,947 32,783
Expected return on scheme 480 2,655 3,135 419 1,947 2,366
assets
Actuarial gains and losses 85 753 838 539 4,297 4,836
Contributions from the
sponsoring companies 562 5,365 5,927 562 2,797 3,359
Contributions from scheme
members - 959 959 - 778 778
Benefits paid (249) (456) (705) (238) (396) (634)
____________________________________________________________________________________
8,996 44,646 53,642 8,118 35,370 43,488
____________________________________________________________________________________
The analysis of the schemes' assets at the balance sheet date, measured at bid
prices, and expected rates of return on those assets was as follows:
Laurence Keen Scheme
Expected Fair Value Current
return allocation
1.1.06 1.1.05 2006 2005 2006 2005
% % £'000 £'000 % %
___________________________________________________________________
Equity instruments 7.50 7.50 5,047 4,302 56 53
Debt instruments 4.30 4.60 3,738 3,342 42 41
Cash 4.30 4.50 211 474 2 6
___________________________________________________________________
8,996 8,118
___________________________________________________________________
Rathbone 1987 Scheme
Expected Fair Value Current
return allocation
1.1.06 1.1.05 2006 2005 2006 2005
% % £'000 £'000 % %
___________________________________________________________________
Equity instruments 7.50 7.50 35,515 27,504 80 78
Debt instruments 5.20 5.50 8,649 7,045 19 20
Cash 4.30 4.50 482 821 1 2
___________________________________________________________________
44,646 35,370
___________________________________________________________________
The expected return on equities was assumed to be 3.25% above the return on long
dated Gilts. The expected rate of return on debt instruments is based on long
term yields at the start of the year, with an adjustment for the risk of default
and future downgrade in relation to corporate bonds. Cash has been assumed to
generate a similar return to short dated government bonds.
The history of experience adjustments is as follows:
Laurence Keen Scheme 2006 2005 2004
_______________________________________________________________________________
Present value of defined benefit
obligations (£'000) (10,423) (11,697) (9,552)
Fair value of scheme assets (£'000) 8,996 8,118 6,836
_______________________________________________________________________________
Surplus/(deficit) in the scheme (£'000) (1,427) (3,579) (2,716)
_______________________________________________________________________________
Experience adjustments on scheme
liabilities:
- amount (£'000) 1,592 1,864 466
- percentage of scheme liabilities (%) 15% 16% 5%
_______________________________________________________________________________
Experience adjustments on scheme
assets:
- amount (£'000) 85 539 359
- percentage of scheme assets (%) 1% 7% 5%
_______________________________________________________________________________
Rathbone 1987 Scheme 2006 2005 2004
_______________________________________________________________________________
Present value of defined benefit (53,982) (50,501) (38,214)
obligations (£'000)
Fair value of scheme assets (£'000) 44,646 35,370 25,947
_______________________________________________________________________________
Surplus/(deficit) in the scheme (£'000) (9,336) (15,131) (12,267)
_______________________________________________________________________________
Experience adjustments on scheme
liabilities:
- amount (£'000) 3,038 7,138 1,881
- percentage of scheme liabilities (%) 6% 14% 5%
_______________________________________________________________________________
Experience adjustments on scheme
assets:
- amount (£'000) 753 4,297 1,132
- percentage of scheme assets (%) 2% 12% 4%
_______________________________________________________________________________
The total regular contributions made by the Group to The Rathbone 1987 Scheme
during the year were £2,365,000 (2005: £1,802,000). On 1 April 2006, the Group
increased its contributions from 11.5% to 15.5% of pensionable salary and on 25
August 2006, in accordance with advice received from the scheme actuaries, the
Group's contributions were reduced to 13.9% of pensionable salaries. Additional
lump sum contributions amounting to £3,000,000 were also paid in 2006 (2005:
£1,000,000). With effect from 1 April 2006, each active member of the scheme was
required to elect either to maintain their current rate of contributions but
receive a lower benefit accrual rate or to pay a higher rate of contributions
whilst maintaining their current benefit accrual rate. The Group has committed
to make additional payments of up to £7,000,000 to reduce the current funding
deficit during the course of 2007. After 31 March 2002 the Rathbone 1987 Scheme
was closed to new entrants and, consequently, the current pension cost will
increase as the members of the Scheme approach retirement.
The total contributions made by the Group to the Laurence Keen Scheme during the
year were £562,000 (2005: £562,000). The level of funding will be reviewed as
part of the process to conclude the triennial valuation as at 31 December 2005
As the Scheme was closed to new entrants with effect from 1 October 1999, the
current pension cost will increase as the members of the Scheme approach
retirement.
10. Reserves and retained earnings
Available
Share Merger for sale Translation Retained
premium reserve reserve reserve earnings
£'000 £'000 £'000 £'000 £'000
_______________________________________________________________________________________
At 1 January 2005 14,766 49,428 5,029 (109) 46,283
Retained profit for the year 24,681
Foreign currency translation 120
Dividends paid (11,660)
Shares issued 2,721
Actuarial gains and losses (4,166)
Revaluation of investment
securities 199
Net gains transferred to net profit
on disposal of available for sale
investment securities (2,261)
Share based payments
- value of employee services 1,971
- cost of shares issued/purchased (1,448)
Tax on equity items 618 2,182
_______________________________________________________________________________________
At 1 January 2006 17,487 49,428 3,585 11 57,843
Retained profit for the year 32,138
Foreign currency translation (240)
Dividends paid (13,449)
Shares issued 7,031
Actuarial gains and losses 5,468
Revaluation of investment
securities 4,202
Net gains transferred to net profit
on disposal of available for sale
investment securities (3,196)
Share based payments
- value of employee services 2,080
- cost of shares issued/purchased (3,773)
Tax on equity items (302) (1,278)
_______________________________________________________________________________________
At 31 December 2006 24,518 49,428 4,289 (229) 79,029
_______________________________________________________________________________________
11. Contingent liabilities and commitments
(a) The Group is currently carrying out a review of its Rathbone Self
Invested Personal Pension ('Rathbone SIPP') business. The principal aim of the
review is to ascertain whether any of the Rathbone SIPPs arranged for clients
were unsuitable. The review was initiated by the Group in 2004; the Group's
regulator has been consulted in relation to the approach being adopted. To date,
the review has identified a small number of cases involving the transfer of
clients' existing pension policies into Rathbone SIPPs where the case files do
not contain conclusive evidence of suitability and a provision has been made in
relation to these (see note 8). There remains 1 case requiring further
investigation and, at this stage, it is not practicable to determine what, if
any, financial effect there will be for the Group in respect of that remaining
case.
(b) Indemnities are provided to a number of directors and employees
in our Trust Division in connection with them acting as Directors on client
structures in the normal course of business.
(c) Capital expenditure authorised and contracted for at 31 December
2006 but not provided in the accounts amounted to £1,016,000 (2005: £1,363,000).
(d) The contractual amounts of the Group's commitments to extend
credit to its clients are as follows:
2006 2005
£'000 £'000
______________________________________________________________________________
Guarantees 411 1,679
Undrawn commitments to lend of 1 year or less 14,768 4,990
______________________________________________________________________________
15,179 6,669
______________________________________________________________________________
The fair value of the guarantees is £nil (2005: £nil).
(e) At 31 December 2006, the Group had outstanding commitments for
future minimum lease payments under non-cancellable operating leases, which fall
due as follows:
2006 2005
£'000 £'000
______________________________________________________________________________
No later than 1 year 3,956 3,147
Later than 1 year and no later than 5 years 10,918 12,120
Later than 5 years 2,936 6,687
______________________________________________________________________________
17,810 21,954
______________________________________________________________________________
Minimum lease payments under operating leases recognised in income for the year
were £3,573,000 (2005: £3,221,000).
12. 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 maturity from the date of
acquisition.
2006 2005
£'000 £'000
______________________________________________________________________________
Cash and balances at central banks 5 197
Loans and advances to banks 108,338 118,686
Debt securities 90,000 116,000
______________________________________________________________________________
198,343 234,883
______________________________________________________________________________
Cash flows arising from issue of ordinary shares comprise:
2006 2005
£'000 £'000
______________________________________________________________________________
Cash inflow - share capital 51 20
Cash inflow - share premium 7,031 2,721
Cash outflow - financing of shares in relation to
share based schemes (367) (1,155)
______________________________________________________________________________
6,715 1,586
______________________________________________________________________________
13. Events after the balance sheet date
On 5 January 2007 the Group completed the sale of the private banking business
acquired from Dexia Banque Internationale a Luxembourg S.A., London Branch. This
resulted in derecognition of £33,208,000 of Loans and Advances to Customers from
the consolidated balance sheet at this date. As part of this agreement
£9,552,000 of related amounts Due to Customers will be transferred during 2007.
14. 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.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2006 or 2005. Statutory
accounts for 2005 have been delivered to the Registrar of Companies. Statutory
accounts for 2006 will be delivered to the Registrar of Companies following the
Company's Annual General Meeting. The auditors have reported on both the 2005
and 2006 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 237(2) or (3) of the Companies Act 1985.
This information is provided by RNS
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