Transition to IFRS

Rathbone Brothers PLC 04 August 2005 4 August 2005 FOR IMMEDIATE RELEASE RATHBONE BROTHERS PLC TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS From 1 January 2005, Rathbone Brothers Plc is required by European Directives to report its consolidated financial statements under International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU). This announcement explains how the changes in accounting treatment under IFRS impact on the Group's previously reported financial information for the year ended 31 December 2004 prepared under UK Generally Accepted Accounting Principles (UK GAAP). All IFRS figures included in this announcement are unaudited. The date of transition to IFRS is 1 January 2004, being the start of the earliest period of comparative information. A summary of the impact on the Group of the transition to IFRS for 2004 is provided in the table below: UK GAAP IFRS (as previously reported) Â£'000s Â£'000s Increase Year ended 31 December 2004: Profit before tax 28,492 20,866 36.6% Profit before goodwill amortisation and 28,492 26,793 6.3% tax Earnings per ordinary share - basic 48.99p 32.23p 52.0% - basic before goodwill amortisation 48.99p 46.79p 4.7% Total equity as at 1 January 2004 106,835 105,902 0.9% Total equity as at 31 December 2004 117,440 110,585 6.2% ----------------------------------- ------- -------- ------- The most significant changes from the transition to IFRS are: â€¢ the cessation of goodwill amortisation, which has had the largest impact on profit (IFRS 3) â€¢ not accruing a liability for dividends that have not been declared and approved (IAS 10) â€¢ the inclusion of fair value charges in respect of outstanding employee share options granted after 7 November 2002 (and not vested by 1 January 2005) spread over the vesting period (IFRS 2) â€¢ the replacement of existing charges for other share based payment awards with fair value charges for those awards granted after 7 November 2002 (and not vested by 1 January 2005) spread over the vesting period (which is a revised time period to that adopted under UK GAAP in some instances) (IFRS 2) â€¢ the inclusion in the balance sheet of all employee benefit liabilities (largely the defined benefit pension scheme deficits) (IAS 19) â€¢ the classification of equity investments as available-for-sale (IAS 39) â€¢ the tax effect of the above adjustments for IFRS, where applicable, and provision of deferred tax in relation to unremitted overseas earnings (IAS 12) The appendices included in this announcement contain the following: Appendix 1 - IFRS Primary Statements 1a The Group's consolidated income statement for the year ended 31 December 2004 1b The Group's consolidated balance sheet at 1 January 2004 1c The Group's consolidated balance sheet at 31 December 2004 1d The Group's consolidated cash flow statement for the year ended 31 December 2004 1e The Group's consolidated statement of recognised income and expense for the year ended 31 December 2004 Appendix 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2a Effect of IFRS on the UK GAAP consolidated income statement for the year ended 31 December 2004 2b Effect of IFRS on the UK GAAP consolidated balance sheet as at 1 January 2004 2c Effect of IFRS on the UK GAAP consolidated balance sheet as at 31 December 2004 Appendix 3 - Principal Accounting Policies under IFRS The financial information contained in Appendices 1 and 2 has been prepared in accordance with the standards and interpretations approved by the International Accounting Standards Board and its predecessors, all of which have been approved by the European Commission, with the exception of the revisions to IAS 19 'Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures' where it is assumed that the revisions will be endorsed without amendment. The standards in issue are subject to ongoing review and endorsement by the EU, whilst application of the standards continues to be subject to review by the International Financial Reporting Interpretations Committee (IFRIC). Modifications to the information presented in this announcement may therefore be required in the event that further guidance is issued and as practice develops. Transitional arrangements IFRS 1 'First Time Adoption of International Financial Reporting Standards' permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. The Group's application of the optional exemptions is as follows: Business combinations The Group has chosen not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that occurred prior to 1 January 2004. Employee benefits The Group has chosen to recognise all cumulative actuarial gains and losses associated with the Group's defined benefit schemes at the date of transition. Share based payments The Group has chosen not to apply IFRS 2 'Share-based Payment' to share and share option awards that were granted on or before 7 November 2002 or to those granted after 7 November 2002 which vested before 1 January 2005. Exemption from using IAS 32 and IAS 39 in comparatives The Group has chosen not to take advantage of the exemption within IFRS 1 that allows comparative information presented in the first year of adoption of IFRS not to comply with IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. Key impact analysis IFRS 3 - Business Combinations In accordance with the transitional provisions of IFRS 1, the Group has chosen to apply IFRS 3 prospectively from the date of transition. This results in the value of goodwill arising from previous acquisitions being frozen at the value held on the Group balance sheet as at 1 January 2004 and the reversal of any amortisation charged in the year to 31 December 2004. From 1 January 2004, goodwill is subject to an annual impairment review in accordance with the standard and will be impaired where there are indications that the carrying value may not be recoverable. Under UK GAAP, goodwill was amortised over expected useful lives of between 8 - 20 years. This change results in the reversal of Â£5.9 million previously charged to the income statement under UK GAAP for the year ended 31 December 2004. Closing balance sheet equity is therefore also increased by Â£5.9 million. IAS 10 - Events after the Balance Sheet Date Under IAS 10, assets and liabilities should be adjusted for subsequent events that existed at the balance sheet date, but not for events that are indicative of conditions that arose subsequent to the balance sheet date. The main effect of this is that under IAS 10, entities are not permitted to recognise a liability for dividends declared after the balance sheet date. Under UK GAAP proposed dividends at the half year and year end were accrued although there is no obligation to pay until the dividend is declared. Interim and final dividends are now recorded as an appropriation of shareholders' funds in the period that they are declared by the Board. The overall impact of this change is to increase opening balance sheet equity by Â£6.5 million and closing balance sheet equity by Â£6.9 million. IFRS 2 - Share-based Payment The Group recognises a charge to the income statement for the fair value of outstanding share options and share awards in relation to the Group's Share Incentive Plan ('SIP') and Long Term Incentive Plan granted to employees after 7 November 2002 and not vested by 1 January 2005. The charges are calculated using a binomial valuation model or Monte Carlo simulation techniques, as appropriate, and are spread over the relevant vesting periods, taking account of actual and expected levels of vesting, where appropriate. The levels of vesting are dependent on performance conditions and forfeit rates. Under UK GAAP, there was no charge in the income statement in relation to share option awards but there were charges for share awards granted before 7 November 2002. In relation to the SIP free shares, the charge was recognised in the performance year, whereas under IFRS the charge is spread over the vesting period of 4.25 years. The impact on opening balance sheet equity is an increase of Â£0.2 million and a decrease of Â£0.2 million on closing balance sheet equity. There is a positive impact of Â£1.8 million on profit before tax for the year. IAS 19 - Employee Benefits The Group recognises the net liability on defined benefit schemes in the balance sheet and takes all actuarial gains and losses to the statement of recognised income and expense, in accordance with the permitted methods of recognition on early adoption of the amendment to IAS 19, issued in December 2004. Under UK GAAP, the Group accounted for the defined benefit schemes in accordance with SSAP 24 'Accounting for pension costs'. These changes reduce opening balance sheet equity by Â£14.7 million. The effect on the profit for the year is an increase of Â£0.2 million. Actuarial losses of Â£0.9 million have been recognised directly in equity. Closing balance sheet equity is reduced by Â£15.7 million. IAS 39 - Financial Instruments Recognition and Measurement In considering the options available under IAS 39, the Group has elected to adopt the following classifications for financial assets: - held-to-maturity for certificates of deposit which will therefore continue to be held in the balance sheet at cost - available-for-sale for equity shares with gains and losses on revaluation being taken directly to equity Derivative financial instruments are stated at fair value with gains and losses on revaluation being taken to profit and loss. The impact of the changes is to increase opening balance sheet equity by Â£5.8 million and closing balance sheet equity by Â£7.2 million. IAS 38 - Intangible Assets The Group capitalises certain software expenditure as intangible assets where the expenditure meets the criteria for capitalisation as set out in the standard. Under UK GAAP, software expenditure was either classified as tangible fixed assets or expensed in the income statement. The change increases opening and closing balance sheet equity by Â£0.3 million. IAS 18 - Revenue Under IAS 18, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognised by reference to the stage of completion of the transaction at the balance sheet date. In relation to the Group's work in progress for trust and pension services, valuation will be at the expected recoverable amount rather than the UK GAAP treatment of valuing at the lower of cost and expected recoverable amount. The principles of IAS 18 and IAS 39 have also been interpreted as applying to some of the income streams in the unit trust business. The Group is spreading an element of its unit trust income over the estimated average life of the related unit holdings in line with emerging industry practice which is still evolving. The impact of IAS 18 on the Group is a decrease of Â£0.1 million in opening balance sheet equity, Â£0.4 million in profit and Â£0.5million in closing balance sheet equity. IAS 12 - Income Taxes The Group's effective tax rate under IFRS is 30.0% compared to 37.1% under UK GAAP. This is principally due to the changed treatment of goodwill referred to earlier and in part, due to the provision of deferred tax for overseas earnings expected to be remitted in the foreseeable future. Under UK GAAP, no provision was made for unremitted overseas earnings in the absence of binding agreements with the Group's overseas subsidiaries. IAS 7 - Cash Flow Statements The Group has prepared its cash flow statement in accordance with IAS 7. Under IAS 7, the cash flow statement shows the movement in cash and cash equivalents, being defined as cash on hand, demand deposits and short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Under UK GAAP, the Group's cash flow statement showed the movement in cash repayable on demand only and in particular, excluded short term highly liquid investments. This change in definition from cash to cash and cash equivalents results in an increase of cash under UK GAAP of Â£17.3 million changing to a decrease in cash and cash equivalents of Â£3.4 million under IFRS, although it should be noted that for regulatory solvency purposes, the marketability of the whole portfolio of certificates of deposit is taken into account. All other adjustments made to the cash flow statement for IFRS represent reclassifications between line items and have not impacted actual cash flows. Further Communication The Group will publish its interim results on 1 September 2005. The interim report will include a description of the nature and effect of all accounting policy changes on transition, reconciliations of the Group's financial information included in this announcement from UK GAAP to IFRS for the six months ended 30 June 2004, together with notes sufficient to give an understanding of the six month period to 30 June 2005. For further information contact: Rathbone Brothers Plc 020 7399 0000 (Switchboard) Sue Desborough, Finance Director The financial information included in this document does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The consolidated statutory accounts for Rathbone Brothers Plc in respect of the year ended 31 December 2004, on which the auditors made a report under section 235 of the Companies Act 1985, have been delivered to the registrar of companies. The auditors' report in respect of the statutory accounts for the year ended 31 December 2004 was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Forward looking statements This announcement contains certain forward-looking statements and forecasts with respect to the financial condition, results of operations and businesses of Rathbone Brothers Plc and its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast. APPENDIX 1 - IFRS Primary Statements 1a CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 Â£'000s Interest and similar income 20,759 Interest expense and similar charges (10,477) Net interest income 10,282 Fee and commission income 86,067 Fee and commission expense (4,276) Net fee and commission income 81,791 Dividend income 915 Net trading income 919 Gains less losses from investment securities 759 Other operating income 861 Operating income 95,527 Operating expenses (67,035) Profit before tax 28,492 Tax (8,540) Profit for the year 19,952 Earnings per share for profit attributable to the equity holders of the Company during the year: - basic 48.99p - diluted 48.07p APPENDIX 1 - IFRS Primary Statements 1b CONSOLIDATED BALANCE SHEET as at 1 January 2004 Unaudited IFRS as at 1 January 2004 Â£'000 Assets ----------------------------------- ----------- Cash and balances at central banks 3,205 ----------------------------------- ----------- Settlement balances 13,523 ----------------------------------- ----------- Loans and advances to banks 43,207 ----------------------------------- ----------- Loans and advances to customers 36,353 ----------------------------------- ----------- Investment securities 5,801 - available-for-sale 333,002 - held-to-maturity ----------------------------------- ----------- Intangible assets 59,434 ----------------------------------- ----------- Property, plant and equipment 4,787 ----------------------------------- ----------- Deferred tax asset 3,958 ----------------------------------- ----------- Prepayments, accrued income and other assets 20,804 ----------------------------------- ----------- Total assets 524,074 ----------------------------------- ----------- Liabilities ---------------------------------- ------------ Deposits by banks 5,335 ---------------------------------- ------------ Settlement balances 11,376 ---------------------------------- ------------ Due to customers 366,715 ---------------------------------- ------------ Debt securities in issue 898 ---------------------------------- ------------ Accruals, deferred income, provisions and other liabilities 14,624 ---------------------------------- ------------ Current tax liabilities 4,447 ---------------------------------- ------------ Retirement benefit obligations 13,844 ---------------------------------- ------------ Total liabilities 417,239 ---------------------------------- ------------ Equity ---------------------------------- ------------ Share capital 2,033 ---------------------------------- ------------ Share premium 13,791 ---------------------------------- ------------ Other reserves 49,428 ---------------------------------- ------------ Retained earnings 41,583 ---------------------------------- ------------ Total equity 106,835 ---------------------------------- ------------ Total equity and liabilities 524,074 ---------------------------------- ------------ APPENDIX 1 - IFRS Primary Statements 1c CONSOLIDATED BALANCE SHEET as at 31 December 2004 Unaudited IFRS as at 31 December 2004 Â£'000 Assets ----------------------------------- ------------ Cash and balances at central banks 15,840 ----------------------------------- ------------ Settlement balances 11,199 ----------------------------------- ------------ Loans and advances to banks 57,881 ----------------------------------- ------------ Loans and advances to customers 41,226 ----------------------------------- ------------ Investment securities 7,219 - available-for-sale 381,119 - held-to-maturity ----------------------------------- ------------ Intangible assets 59,860 ----------------------------------- ------------ Property, plant and equipment 4,480 ----------------------------------- ------------ Deferred tax asset 4,378 ----------------------------------- ------------ Prepayments, accrued income and other assets 22,155 ----------------------------------- ------------ Total assets 605,357 ----------------------------------- ------------ Liabilities ----------------------------------- ------------ Deposits by banks 3,243 ----------------------------------- ------------ Settlement balances 15,238 ----------------------------------- ------------ Derivative financial instruments 19 ----------------------------------- ------------ Due to customers 425,078 ----------------------------------- ------------ Debt securities in issue 286 ----------------------------------- ------------ Accruals, deferred income, provisions and other liabilities 23,003 ----------------------------------- ------------ Current tax liabilities 6,067 ----------------------------------- ------------ Retirement benefit obligations 14,983 ----------------------------------- ------------ ------- Total liabilities 487,917 ----------------------------------- ------------ Equity ----------------------------------- ------------ Share capital 2,043 ----------------------------------- ------------ Share premium 14,766 ----------------------------------- ------------ Other reserves 49,428 ----------------------------------- ------------ Retained earnings 51,203 ----------------------------------- ------------ Total equity 117,440 ----------------------------------- ------------ Total equity and liabilities 605,357 ----------------------------------- ------------ APPENDIX 1 - IFRS Primary Statements 1d CONSOLIDATED CASHFLOW STATEMENT for the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 Â£'000s Cash flows from operating activities Profit before tax 28,492 Gain less losses from investment securities (759) Profit on disposal of plant and equipment (130) Depreciation and amortisation 2,629 Share based payment charges 1,329 -------- 31,561 Changes in operating assets and liabilities - net (increase) in loans and advances to banks and customers (9,793) - net decrease in settlement balance debtors 2,323 - net (increase) in prepayments, accrued income and other (1,713) assets - net increase in amounts due to customers and deposits by 56,317 banks - net increase in settlement balance creditors 3,862 - net decrease in accruals, deferred income, provisions and other 8,151 liabilities - net increase in retirement benefit obligations 284 -------- Cash generated from operations 90,992 Tax paid (7,004) -------- Net cash inflow from operating activities 83,988 ======== Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (169) Purchase of property, equipment and intangible assets (2,249) Proceeds from sale of property and equipment 211 Purchase of investment securities (1,495,420) Proceeds from sale and redemption of securities 1,422,139 -------- Net cash used in investing activities (75,488) ======== Cash flows from financing activities Repayments of debt securities (611) Purchase of shares for share based schemes (1,266) Issue of ordinary shares 745 Dividends paid (10,780) -------- Net cash used in financing activities (11,912) ======== Net decrease in cash and cash equivalents (3,412) Cash and cash equivalents at beginning of year 164,413 Effect of exchange rate changes on cash and cash equivalents (203) -------- Cash and cash equivalents at the end of the year 160,798 ======== APPENDIX 1 - IFRS Primary Statements 1e CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 Â£'000s Profit after taxation 19,952 Exchange translation differences (109) Share based payments: - credit in relation to IFRS 2 charge (1,845) - debit in relation to cost of shares issued/purchased 1,506 (339) Actuarial loss on retirement benefit obligations (856) Revaluation of available-for-sale investment securities: - net gain from changes in fair value 2,177 - net profit on disposal (759) 1,418 Deferred tax 334 Recognised income and expense for the period 20,400 Attributable to: Equity holders of the parent 20,400 APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2a Effect of IFRS on the UK GAAP consolidated income statement for the year ended 31 December 2004 UK GAAP Presentation Share- Employee Business Financial 12 of Financial based Benefits Combinations Instruments months Statements Payment (IAS 19) (IFRS 3) (IAS 39) ended (IAS 1) (IFRS Â£'000 Â£'000 Â£'000 31.12.04 Â£'000 2) Â£'000 Â£'000 Interest and similar income 20,759 Interest expense and similar charges (10,477) Net interest income 10,282 Fee and commission income 83,818 2,681 Fee and commission expense (4,276) Net fee and commission income 79,542 2,681 Dividend income 915 Net trading income 938 (19) Gains less losses from investment securities 759 Other operating income 4,465 (3,604) Operating income 95,204 774 (19) Operating expenses (75,097) (15) 1,829 (198) 5,927 Operating profit 20,107 759 1,829 (198) 5,927 (19) Exceptional item 759 (759) Profit before tax 20,866 - 1,829 (198) 5,927 (19) Tax (7,737) - Profit for the year 13,129 - 1,829 (198) 5,927 (19) Earnings per share for profit attributable to the equity holders of the Company during the year: - basic 32.23p - diluted 31.63p Intangible Revenue Other Income Unaudited Assets (IAS 18) Â£'000 Taxes IFRS (IAS 38) Â£'000 (IAS 12) 12 months Â£'000 Â£'000 ended 31.12.04 Â£'000 Interest and similar income 20,759 Interest expense and similar charges (10,477) Net interest income 10,282 Fee and commission income (432) 86,067 Fee and commission expense (4,276) Net fee and commission income (432) 81,791 Dividend income 915 Net trading income 919 Gains less losses from investment securities 759 Other operating income 861 Operating income (432) 95,527 Operating expenses 54 465 (67,035) Operating profit 54 (432) 465 28,492 Exceptional item - Profit before tax 54 (432) 465 28,492 Tax (803) (8,540) Profit for the year 54 (432) 465 (803) 19,952 Earnings per share for profit attributable to the equity holders of the Company during the year: - basic 48.99p - diluted 48.07p APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2b Effect of IFRS on the UK GAAP consolidated balance sheet as at 1 January 2004 UK GAAP Presentation Events Share- Employee Financial 1.1.04 of Financial after based Benefits Instruments Â£'000 Statements Balance Payment (IAS 19) (IAS 39) (IAS 1) Sheet (IFRS Â£'000 Â£'000 Â£'000 Date 2) (IAS Â£'000 10) Â£'000 Assets Cash and balances at central banks 3,205 Settlement balances 13,523 Loans and advances to banks 43,207 Loans and advances to customers 36,353 Debt securities 333,002 (333,002) Investment securities - available-for- sale 35 5,766 - held- to-maturity 333,002 Equity shares 35 (35) Intangible assets 57,702 Tangible fixed assets 6,226 (6,226) Property, plant and equipment 6,226 Deferred income tax asset 1,243 Prepayments, accrued income and other assets 21,911 (1,243) (842) Total assets 515,164 - - - (842) 5,766 Liabilities Deposits by banks 5,335 Settlement balances 11,376 Due to customers 366,715 Debt securities in issue 898 Accruals, deferred income, provisions and other liabilities 24,938 (4,447) (6,507) (167) Current tax liability 4,447 Retirement benefit obligation 13,844 Total liabilities 409,262 - (6,507) (167) 13,844 - Equity Share capital 2,033 Share premium 13,791 Other reserves 49,428 Retained earnings 40,650 6,507 167 (14,686) 5,766 Total equity 105,902 - 6,507 167 (14,686) 5,766 Total equity and liabilities 515,164 - - - (842) 5,766 Intangible Revenue Other Income Unaudited Assets (IAS 18) Â£'000 Taxes IFRS (IAS 38) Â£'000 (IAS 12) 1.1.04 Â£'000 Â£'000 Â£'000 Assets Cash and balances at central banks 3,205 Settlement balances 13,523 Loans and advances to banks 43,207 Loans and advances to customers 36,353 Debt securities - Investment securities - available-for- sale 5,801 - held- to-maturity 333,002 Equity shares - Intangible assets 1,732 59,434 Tangible fixed assets - Property, plant and equipment (1,439) 4,787 Deferred income tax asset 2,715 3,958 Prepayments, accrued income and other assets 474 504 20,804 Total assets 293 474 504 2,715 524,074 Liabilities Deposits by banks 5,335 Settlement balances 11,376 Due to customers 366,715 Debt securities in issue 898 Accruals, deferred income, provisions and other liabilities 578 229 14,624 Current tax liability 4,447 Retirement benefit obligation 13,844 Total liabilities - 578 229 - 417,239 Equity Share capital 2,033 Share premium 13,791 Other reserves 49,428 Retained earnings 293 (104) 275 2,715 41,583 Total equity 293 (104) 275 2,715 106,835 Total equity and liabilities 293 474 504 2,715 524,074 APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2c Effect of IFRS on the UK GAAP consolidated balance sheet as at 31 December 2004 UK GAAP Presentation Events Share- Employee Business 31.12.04 of Financial after based Benefits Combinations Â£'000 Statements Balance Payment (IAS 19) (IFRS 3) (IAS 1) Sheet (IFRS Â£'000 Â£'000 Â£'000 Date 2) (IAS Â£'000 10) Â£'000 Assets Cash and balances at central banks 15,840 Settlement balances 11,199 Loans and advances to banks 57,881 Loans and advances to customers 41,226 Debt securities 381,119 (381,119) Investment securities - available-for- sale 35 - held- to-maturity 381,119 Equity shares 35 (35) Intangible assets 51,812 5,927 Tangible fixed assets 5,625 (5,625) Property, plant and equipment 5,625 Deferred income tax asset 2,132 Prepayments, accrued income and other assets 24,010 (2,132) (757) Total assets 588,747 - (757) 5,927 Liabilities Deposits by banks 3,243 Settlement balances 15,238 Derivative financial instruments Due to customers 425,078 Debt securities in issue 286 Accruals, deferred income, provisions and other liabilities 34,317 (6,067) (6,948) 242 Current tax liability 6,067 Retirement benefit obligation 14,983 Total liabilities 478,162 - (6,948) 242 14,983 Equity Share capital 2,043 Share premium 14,766 Other reserves 49,428 Retained earnings 44,348 6,948 (242) (15,740) 5,927 - brought forward 40,650 6,507 167 (14,686) - currency adjustments (109) - share based payments 1,899 (2,238) - dividend paid/declared (11,221) 441 - actuarial gains/losses (856) - revaluation of AVS securities - profit for the year 13,129 1,829 (198) 5,927 Total equity 110,585 - 6,948 (242) (15,740) 5,927 Total equity and liabilities 588,747 - - - (757) 5,927 Financial Intangible Revenue Other Income Unaudited Instruments Assets (IAS 18) Â£'000 Taxes IFRS (IAS 39) (IAS 38) Â£'000 (IAS 31.12.04 Â£'000 Â£'000 12) Â£'000 Â£'000 Assets Cash and balances at central banks 15,840 Settlement balances 11,199 Loans and advances to banks 57,881 Loans and advances to customers 41,226 Debt securities - Investment securities - available-for- sale 7,184 7,219 - held- to-maturity 381,119 Equity shares - Intangible assets 1,492 629 59,860 Tangible fixed - assets Property, plant and equipment (1,145) 4,480 Deferred income tax asset 2,246 4,378 Prepayments, accrued income and other assets 526 508 22,155 Total assets 7,184 347 526 1,137 2,246 605,357 Liabilities Deposits by banks 3,243 Settlement balances 15,238 Derivative financial instruments 19 19 Due to customers 425,078 Debt securities in issue 286 Accruals, deferred income, provisions and other liabilities 1,062 397 23,003 Current tax liability 6,067 Retirement benefit obligation 14,983 Total liabilities 19 1,062 397 487,917 Equity Share capital 2,043 Share premium 14,766 Other reserves 49,428 Retained earnings 7,165 347 (536) 740 2,246 51,203 - brought forward 5,766 293 (104) 275 2,715 41,583 - currency adjustments (109) - share based payments 503 164 - dividend paid/declared (10,780) - actuarial gains/losses 257 (599) - revaluation of AVS securities 1,418 (426) 992 - profit for the year (19) 54 (432) 465 (803) 19,952 Total equity 7,165 347 (536) 740 2,246 117,440 Total equity and liabilities 7,184 347 526 1,137 2,246 605,357 APPENDIX 3 Principal accounting policies under IFRS Basis of presentation The financial statements have been prepared in accordance with IFRS for the first time in the format prescribed by IAS 30 'Disclosures in the Financial Statements of Banks and Similar Financial Institutions'. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Unless otherwise stated, the acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the period are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less any cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. However, impairment losses relating to goodwill may not be reversed. Interest income and expenses Interest income and expense are recognised in the income statement for all instruments measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Dividend income Dividend income on equity securities is accounted for on the date the security becomes ex-dividend. Fees and commissions Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time apportionment basis. Asset management fees are recognised rateably over the period the service is provided. Commission receivable is accounted for in the period in which the related transaction takes place. To the extent that retained initial charge income received on the sale of units represents the provision of ongoing investment management services, this income is credited to income on a straight line basis over the estimated average life of the unit holding. Clients' deposits The Group holds money on behalf of some clients in accordance with the Client Money Rules of the Financial Services Authority. Such monies and the corresponding liability to clients are not shown on the face of the balance sheet as the Group is not beneficially entitled thereto. Intangible assets (a) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and is reviewed for impairment at least annually, or when other occasions or changes in circumstances indicate that it might be impaired. Any impairment is recognised immediately in the profit and loss and is not subsequently reversed. Goodwill arising on acquisition is allocated to cash generating units for purposes of impairment testing. On disposal of a subsidiary the attributed amount of unamortised goodwill, which has not been subject to impairment is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. (b) Computer software and software development costs Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives (three to four years). Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives (not exceeding four years). Financial instruments The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification of financial assets is determined at initial recognition. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated. Derivatives are also categorised as held for trading unless they are designated as hedges. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. (c) Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. (d) Available-for-sale Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity and available -for-sale are recognised on trade date - the date on which the Group commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the entity's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. Work in progress Work in progress is valued at the expected recoverable amount. Derecognition of financial instruments The derecognition of financial instruments takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all of the cash flows attributable to the instrument are passed through to an independent third party. Interest bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discounts or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event which it is possible will result in an outflow of economic benefits that can be reasonably estimated. Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring which has been notified to affected parties. Foreign currencies Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity. On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of transition to IFRS as sterling denominated assets and liabilities. Retirement benefit costs The cost of providing benefits under defined benefit plans are determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the profit and loss and are presented in the statement of recognised income and expense. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested. The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. Taxation The tax expense represents the sum of tax currently payable and movements in deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principal, deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences may be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) or other assets and liabilities in a transaction, which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amounts of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled or when the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Cash and cash equivalents Cash comprises cash on hand and demand deposits which may be accessed without penalty. Cash equivalents comprise short-term highly liquid investments with a maturity of less than three months from the date of acquisition. For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Share-based Payment The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not vested as of 1 January 2005. The Group engages in equity settled share-based payment transactions in respect of services received from certain employees. The fair value of the services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The cost of the employee services received in respect of the shares or share options granted is recognised in the income statement over the period that the services are received, which is the vesting period. The fair value of the options granted is determined using option pricing models, which take into account the exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the Company's share price over the life of the option/award and other relevant factors. Except for those which include terms related to market conditions, vesting conditions included in the terms of the grant are not taken into account in estimating fair value. Non-market vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of employee services so that ultimately, the amount recognised in the income statement reflects the number of vested shares or share options. Where vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the market related vesting condition is met, provided that the non-market vesting conditions are met. This information is provided by RNS The company news service from the London Stock Exchange

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Rathbones Group (RAT)

Tuesday, 23rd July 2024

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