Final Results
Rathbone Brothers PLC
06 March 2003
6th March 2003
Rathbone Brothers Plc
Preliminary results for the year to 31st December 2002
Rathbone Brothers Plc, the group that specialises in discretionary investment
management for private clients, announces preliminary results for the year ended
31st December 2002.
Headlines:
• Operating income rises by 1.4% to £79.8m.
• Funds under management fall by 9% to £5.3bn, a significant achievement
given the fall in the FTSE 100 Index of 24%.
• Pre-tax profits before exceptional items and goodwill amortisation at
£18.4m fall only 11%.
• Earnings per share, before goodwill amortisation, decline by 20% from the
figure for 2001 (restated) to 33.91p.
• Recommended final dividend is maintained at 16p, making an unchanged total
of 26p for the year.
• As announced on 5th September 2002, Micky Ingall is to retire as Chairman
and will be succeeded by Mark Powell.
Micky Ingall, Chairman, commented:
'During 2002, Rathbones experienced a very satisfactory inflow of new clients.
In particular, the Unit Trust company delivered an outstanding investment
performance, growing its funds under management by 18% despite a fall of 24% in
the main UK index.
'Against the background of falling markets, I believe that the 11% drop in
pre-tax profits is a very creditable performance. It is also important to
emphasise the financial strength of Rathbones - the Group has no core debt and
remains both profitable and cash generative. Consequently, despite a fall in
profits, the recommended final dividend is maintained at 16p.'
'As announced at the time of our interim figures, I am retiring both as Chairman
and as a member of the Board of Rathbone Brothers Plc at the AGM on 7th May.
Despite market conditions, I believe that I leave Rathbones in an extremely
strong situation and, relative to the financial sector, the Group has never been
stronger. The Board intend to elect Mark Powell, currently Deputy Chairman, as
my successor and I am totally confident that under his able direction, together
with our Chief Executive Roy Morris, Rathbones will continue to prosper.'
For further information, please contact:
Rathbone Brothers Plc (020 7399 0000)
• Micky Ingall, Chairman
• Mark Powell, Deputy Chairman
• Andy Pomfret, Finance Director
Luther Pendragon (020 7618 9100)
• Tim Trotter (Trotter & Co)
• Jon Bennett
• Andrew Sharkey
CHAIRMAN'S STATEMENT
I have pleasure in presenting Group results for the year to 31st December 2002.
Operating income has increased by 1.4% from £78.7m to £79.8m. Profits before tax
(before exceptional items and goodwill amortisation) amount to £18.4m and
earnings per share are 33.91p (before goodwill amortisation). The figures show a
fall of 11% and 20% respectively on the restated amounts for the previous year.
The recommended final dividend is maintained at 16p making an unchanged total of
26p for the year. Discretionary funds under management at the year end amounted
to £5.3bn which is a fall of 9% in the year and compares with a fall in the FTSE
100 Index of 24%.
Although it is extremely disappointing to announce a fall in both profits and
earnings per share for the second year in succession, the main investment
management division has produced a very creditable performance in the face of a
further 24% fall in the main UK index which extends the fall since the beginning
of 2000 to more than 40%.
Our strategy over many years has been to concentrate our efforts and resources
on the private individual with their attendant trusts, charities and pensions.
In particular, we have stressed the merits of investment management on a fee
paying basis and a direct and close relationship between each individual client
and their investment manager. Similarly, our trust services have focused on
providing individuals with personal service.
Despite the hostile investment environment in which we have now been operating
for three years, it is apparent that our investment services are reaching a
broader audience. Many of our direct competitors are departments of larger
organisations where services to private clients are largely peripheral. The
harsh investment climate has caused many business models and long term
strategies to be re-examined or even abandoned.
It seems that the provision of investment services on a bespoke basis to private
individuals is not a service which is ideally suited to being a peripheral
add-on to an institutional fund manager. Although there are overlaps in research
and investment processes, the skills and systems required to manage private
client portfolios and to communicate on an individual basis are not compatible
and when cost pressures are exerted across a financial institution, the private
client operation often suffers disproportionately. Private client investment
management requires a unique business model, in order to offer both the
necessary level of service and to be profitable.
In many houses, these influences have resulted in a reduction in service to
clients and disillusionment amongst managers. In sharp contrast, Rathbones has
experienced a very satisfactory inflow of new clients and our recruitment of new
managers accompanied by their clients has continued. It would be misleading to
imply that the clients of Rathbones have been insulated from market falls but
the close contact which managers maintain with their clients has proved helpful
in managing clients' affairs and retaining client loyalty.
In my statement last year, I likened growing an investment management business
to running up the down escalator. In the first half of 2002, the strength of our
new business enabled the totality of discretionary funds under management more
or less to remain constant despite an 11% fall in the market. Unfortunately in
the second half, the downward momentum has accelerated to an extent that
discretionary funds under management have fallen by 10% since June 2002, still a
considerable achievement in relative terms.
I draw attention to the outstanding achievements of our Unit Trust company.
Funds under management have risen 18% to £220m and the performance of individual
unit trusts generally has been excellent. We have received awards for both unit
trusts and VCTs. The unit trusts, although small in relation to the Group,
provide the shop window to our investment management division and are central to
our investment process.
The Trust Division has had a disappointing year with profits before tax down 48%
to £2.1m. Income in normal circumstances should be largely unaffected by short
term stockmarket movements but it has become apparent that the prolonged bear
market and the consequent impact on wealth creation has affected revenue and the
increasing costs of regulation in some overseas territories has increased costs
resulting in a profit squeeze in certain areas.
In these difficult financial markets, it is important to emphasise the financial
strength of Rathbones. The Group has no core debt and remains both profitable
and cash generative. Furthermore our policy of acting as agents for our clients
significantly reduces our requirement for capital and the overall risk profile
of our business. It also avoids many of the more obvious conflicts of interest
which affect some of our competitors. Although towards the end of last year we
embarked on a cost reduction programme, we are still managing the business for
growth.
In my statement last year, I expressed cautious optimism for 2002. This proved
to be misplaced and at the time of writing, 2003 has started badly for world
stockmarkets. It is evident that some sustained recovery will be required before
we can rebuild our profitability to its previous levels but as I have sought to
demonstrate, the Group is growing in its key areas and should benefit greatly
when the upturn comes as I am convinced it will.
In June 2002, Bill Keatley, one of our non-executive directors, retired from the
Board. He was Chairman of Laurence Keen at the time of the merger with Rathbones
in 1995 and had spent his entire working life with Laurence Keen and its
predecessor firms. As such his contribution to the development of Rathbones is
enormous and we shall miss his wise counsel and good company. Jamie
Cayzer-Colvin, an associate director of Caledonia Investments Plc, joined the
Board in July as a non-executive director. His knowledge of the financial sector
is greatly valued.
As announced at the time of our interim figures, I am retiring both as Chairman
and as a member of the Board of Rathbone Brothers Plc at the AGM on 7th May. I
have now been a director of the Company for 18 years and had hoped to depart on
a high note. Sadly market conditions have rendered fulfilment of this ambition
unlikely. I know I share this regret with clients, shareholders and colleagues,
to all of whom I owe a great debt of gratitude over many years. Despite market
conditions, I believe that I leave Rathbones in an extremely strong situation
and, relative to the financial sector, the Group has never been stronger. The
Board intend to elect Mark Powell, currently Deputy Chairman, as my successor
and I am totally confident that under his able direction, together with our
Chief Executive Roy Morris, Rathbones will continue to prosper.
Micky Ingall
Chairman
5th March 2003
Consolidated profit and loss account
For the year ended 31st December 2002
2002 2001
(Restated)
Note £'000 £'000
Interest receivable
- interest receivable and similar income arising from debt securities 16,839 18,158
- other interest receivable and similar income 3,945 5,014
Interest payable (9,081) (11,774)
Net interest income 11,703 11,398
Dividend income 90 125
Fees and commissions receivable 73,880 70,667
Fees and commissions payable (7,063) (4,361)
Other operating income 1,215 836
Operating income - continuing operations 79,825 78,665
Administrative expenses (57,187) (53,626)
Depreciation and amortisation (7,220) (6,107)
Other operating charges (529) (726)
Provisions for bad and doubtful debts (341) 53
Group operating profit 14,548 18,259
Group operating profit before goodwill amortisation 18,364 20,629
Goodwill amortisation (3,816) (2,370)
Net profit on sale of regional office business - continuing operations
- 381
Gain on sale of investment securities - continuing operations 9 777 -
Group profit on ordinary activities before tax - continuing operations 15,325 18,640
Tax on Group profit on ordinary activities 3 (6,211) (6,494)
Group profit on ordinary activities after tax 9,114 12,146
Dividends 4 (10,451) (9,422)
Transferred to reserves (1,337) 2,724
Dividends per ordinary share 4 26p 26p
Earnings per ordinary share 5
Basic after goodwill amortisation 23.90p 33.62p
Basic before goodwill amortisation 33.91p 42.15p
Diluted after goodwill amortisation 23.83p 33.37p
Diluted before goodwill amortisation 33.81p 41.84p
Consolidated balance sheet
as at 31st December 2002
2002 2001
(Restated)
Note £'000 £'000
Assets
Cash and balances at central banks 19,019 8,083
Settlement balances 6,837 8,629
Loans and advances to banks 33,025 38,109
Loans and advances to customers 36,828 30,207
Debt securities 363,426 381,525
Equity shares 6 70 70
Intangible fixed assets 56,232 27,592
Tangible fixed assets 7,454 8,955
Other assets 3,651 3,526
Prepayments and accrued income 16,132 15,146
Total assets 542,674 521,842
Liabilities
Deposits by banks 62 630
Settlement balances 5,865 7,387
Customer accounts 408,039 416,033
Debt securities in issue 5,768 -
Other liabilities 10,899 9,154
Accruals and deferred income 7,671 5,742
Provision for liabilities and charges 3,940 5,449
Called up share capital 1,969 1,814
Shares to be issued including premium 1,927 -
Share premium account 9,639 7,277
Other reserves 45,674 25,342
Profit and loss account 41,221 43,014
Equity shareholders' funds 100,430 77,447
Total liabilities 542,674 521,842
Memorandum items
Contingent liabilities
- guarantees 730 955
- assets pledged as collateral security 49 40
779 995
Commitments
- undrawn commitments to lend 4,503 6,760
Consolidated cash flow statement
for the year ended 31st December 2002
2002 2001
Note £'000 £'000 £'000 £'000
Net cash inflow from operating activities 10(i) 14,837 160,146
Taxation
- UK corporation tax (5,279) (7,756)
- overseas tax (1,425) (502)
Net cash outflow for taxation (6,704) (8,258)
Capital expenditure and financial investments
- purchase of equity shares - (5)
- purchase of investment securities (1,733,062) (1,873,471)
- proceeds from sale and maturities of
1,751,939 1,726,537
investment securities
- purchase of tangible fixed assets (1,866) (5,331)
- sale of tangible fixed assets 179 358
Net cash inflow/(outflow) for capital expenditure
and financial investments 17,190 (151,912)
Acquisitions and disposals
- acquisitions of subsidiaries/businesses (4,754) (4,193)
- disposal of regional office business - 1,092
- net cash acquired with subsidiary undertakings/ 1,186 11
businesses
Net cash outflow for acquisitions and disposals (3,568) (3,090)
Equity dividends paid (9,953) (9,019)
Net cash inflow/(outflow) before financing 11,802 (12,133)
Financing
- issue of shares 260 727
- issue expenses of debt securities (29) -
Net cash inflow from financing 231 727
Increase/(Decrease) in cash in the year 10(ii) 12,033 (11,406)
Consolidated statement of total recognised gains and losses
for the year ended 31st December 2002
2002 2001
(Restated)
£'000 £'000
Profit for the financial year attributable
To shareholders 9,114 12,146
Currency adjustments (107) 132
Total recognised gains and losses for the year 9,007 12,278
Prior year adjustment (see note 11) 2,018
Total gains and losses recognised since the last report 11,025
Reconciliations of movements in shareholders' funds
for the year ended 31st December 2002
2002 2001
(Restated)
£'000 £'000
Profit for the financial year attributable to shareholders 9,114 12,146
Dividends (10,451) (9,422)
Result for the financial year (1,337) 2,724
Currency adjustments (107) 132
Shares issued or to be issued 155 14
Premium on shares issued and shares (including premium) to be issued 24,621 1,941
Goodwill on disposals previously eliminated against reserves - 711
Movement in relation to the SIP (349) (306)
Net addition to shareholders' funds 22,983 5,216
Opening shareholders' funds 77,447 72,231
Closing shareholders' funds 100,430 77,447
Notes
1 Accounting policies
This preliminary announcement has been prepared on the basis of the accounting
policies as set out in the published report and accounts for the year ended 31st
December 2001 with the exception of the policy in relation to taxation which has
been changed to comply with Financial Reporting Standard ('FRS') 19 'Deferred
tax' - see note 11.
2 Segmental information
Gross operating income Profit before taxation
2002 2001 2002 2001
£'000 £'000 £'000 £'000
By class of business:
Investment management and banking 75,238 75,162 13,193 14,526
Trust services 20,731 19,638 2,132 4,114
95,969 94,800 15,325 18,640
Total assets Net assets
2002 2001 2002 2001
(Restated) (Restated)
£'000 £'000 £'000 £'000
By class of business:
Investment management and banking 480,112 469,820 58,255 46,715
Trust services 62,562 52,022 42,175 30,732
542,674 521,842 100,430 77,447
Gross operating income Profit before taxation
2002 2001 2002 2001
£'000 £'000 £'000 £'000
By geographical segment:
United Kingdom 79,737 80,028 12,141 14,246
Jersey, Switzerland and other European countries 14,208 12,235 2,031 2,960
The Americas 2,024 2,537 1,153 1,434
95,969 94,800 15,325 18,640
Total assets Net assets
2002 2001 2002 2001
(Restated) (Restated)
£'000 £'000 £'000 £'000
By geographical segment:
United Kingdom 484,005 471,978 63,961 47,054
Jersey, Switzerland and other European countries 53,814 45,429 34,217 27,566
The Americas 4,855 4,435 2,252 2,827
542,674 521,842 100,430 77,447
Interest receivable Dividend income Fees and commissions Other operating
Analysis of gross receivable income
operating income by 2002 2001 2002 2001 2002 2001 2002 2001
geographical segment £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 19,796 22,126 90 125 58,641 56,966 1,210 811
Jersey, Switzerland and
other European countries 921 883 - - 13,282 11,351 5 1
The Americas 67 163 - - 1,957 2,350 - 24
20,784 23,172 90 125 73,880 70,667 1,215 836
(i) The Group's banking activity relates almost entirely to clients in the
investment management business and both banking and investment management are
treated as one segment for management and internal reporting purposes.
Accordingly, in the opinion of the directors, it is more meaningful to present
segmental information for these activities on a combined basis.
(ii) The allocations by class of business and geographical segment of total and
net assets include goodwill of £56,232,000 (2001: £27,592,000) of which
£30,598,000 (2001: £24,261,000) relates to trust services.
(iii) In the opinion of the directors, there is no material difference between
the sales origin and destination of gross operating income and accordingly, the
geographic segmental analysis has been prepared on a sales origin basis only.
None of the activities were discontinued in the current and previous years. The
tables include companies that have joined the Group with effect from the date of
their acquisition.
(iv) Common costs and earnings on shareholders' funds have been allocated on the
same basis that is used for internal management reporting. Total and net assets
have been allocated on a legal entity basis which, in the main, reflects both
the 'by class of business' and 'by geographical segment' analyses.
3 Tax on profit on ordinary activities
2002 2001
(Restated)
£'000 £'000
Current tax:
UK corporation tax on profits for the year 4,770 5,500
Adjustments in respect of previous years (92) 67
4,678 5,567
Foreign tax (including £11,000 (2001: £41,000) in respect of previous years) 1,131 993
Total current tax 5,809 6,560
Deferred tax:
Origination and reversal of timing differences - current year 208 (66)
- previous year 194 -
Total deferred tax 402 (66)
6,211 6,494
The tax charge for the year is higher than the standard rate of corporation tax
in the UK of 30% (2001: 30%). The differences are explained below:
2002 2001
(Restated)
£'000 £'000
Tax on ordinary activities at the standard rate 30% (2001: 30%) 4,598 5,592
Effects of:
UK dividend income (26) (1)
Goodwill amortisation 1,145 888
Leasehold property depreciation 92 50
Disallowable expenses 163 208
UK tax on overseas subsidiary dividends 578 142
Lower tax rates on overseas earnings (452) (493)
Underprovision for tax in previous years 113 108
Overall tax charge 6,211 6,494
Timing differences subject to deferred tax:
Timing difference in relation to capital allowances and depreciation (27) 144
Timing difference in relation to SSAP 24 pension cost (277) -
Timing difference in relation to the SIP costs (110) (92)
Other short term timing difference 12 14
Current tax charge 5,809 6,560
4 Dividends
2002 2001
£'000 £'000
Interim dividend of 10p per share on 39,119,091 shares
(2001: 10p per share on 36,175,860 shares) 3,912 3,618
Final dividend of 16p per share on 39,388,073 shares
(2001: 16p per share on 36,280,118 shares) 6,302 5,804
Adjustment to previous year's final dividend 237 -
Total dividends - 26p per share (2001: 26p per share) 10,451 9,422
5 Earnings per share
Basic earnings per share has been calculated by dividing the profit attributable
to shareholders of £9,114,000 (2001: £12,146,000 (restated)) by the weighted
average number of shares in issue throughout the year of 38,139,407 (2001:
36,127,021).
Diluted earnings per share is the basic earnings per share, adjusted for the
effect of contingently issuable shares, 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).
The directors believe that the provision of additional EPS figures, in
particular before goodwill amortisation, is beneficial to the users of the
financial statements to understand the performance of the Group and therefore
supplementary basic and diluted EPS figures have been calculated to exclude the
effect of goodwill amortisation of £3,816,000 included in operating
administrative expenses (2001: £3,081,000 comprising £2,370,000 included in
operating administrative expenses and £711,000 included in non-operating
exceptional items).
The average fair value of one ordinary share during 2002 was £6.89 (2001: £8.70)
and the average exercise price for shares under option during 2002 was £7.50
(2001: £7.19).
2002 2001
Weighted average number of ordinary shares in issue
during the year - basic 38,139,407 36,127,021
Effect of ordinary share options - 256,222
Effect of dilutive shares issuable under the Share Incentive Plan 16,183 10,621
Weighted average number of contingently issuable
ordinary shares during the year 90,225 -
Diluted ordinary shares 38,245,815 36,393,864
6 Equity shares
2002 2001
Directors' Directors'
valuation/ valuation/
market market
Cost value Cost value
£'000 £'000 £'000 £'000
Listed equity shares (see Note (b) below) - 5,526 - 8,440
Unlisted equity shares 70 70 70 70
70 5,596 70 8,510
(a) The equity shares are held as investment securities for continuing use in
the business.
(b) The Group holds a total of 1,750,000 (2001: 2,000,000) shares in London
Stock Exchange plc held by Rathbone Neilson Cobbold Limited and Rathbone
Stockbrokers Limited (formerly Rathbone Laurence Keen Limited), which are held
in the balance sheet at cost (£2).
7 Acquisitions
Oaktree
Investment
Galsworthy Management
& Stones (a) Limited (b) Others (c) Total
£'000 £'000 £'000 £'000
Consideration paid:
Acquisition costs 88 20 239 347
Issue of new ordinary shares of 5p in Rathbone Brothers Plc 642 850 20,466 21,958
Unsecured Loan Notes 2005 - - 5,797 5,797
Cash 2,570 1,275 560 4,405
Deferred contingent consideration 1,778 362 - 2,140
Total consideration 5,078 2,507 27,062 34,647
Net assets acquired:
Loans and advances to banks 764 134 288 1,186
Loans and advances to customers 834 49 105 988
Tangible fixed assets 238 94 - 332
Other assets 695 55 51 801
Accrued income and prepayments 173 - 31 204
Total assets 2,704 332 475 3,511
Liabilities (152) (135) (195) (482)
Net assets on acquisition date 2,552 197 280 3,029
Total fair value adjustments (1,108) - - (1,108)
Adjusted net assets acquired 1,444 197 280 1,921
Goodwill arising on acquisition 3,634 2,310 26,782 32,726
(a) On 8th August 2002, Rathbone Trust Company Limited acquired the business
assets and goodwill associated with the Jersey based trust company business of
Galsworthy & Stones in accordance with the terms of a sale and purchase
agreement ('the agreement') signed on that date.
The initial consideration was satisfied by the issue of 104,473 shares at 615p
each on 17th September 2002 and payment of cash of £2,570,000. Acquisition costs
of £90,000 were incurred of which £2,000 related to the issue of shares.
Deferred consideration will be payable in July 2003 in shares or cash with a
value equal to three times the profit for the year ended 30th April 2003
(adjusted in accordance with the terms of the agreement).
An estimate of the value of the shares to be issued of £1,777,000 has been
accounted for in shareholders' funds.
(b) On 9th September 2002, Rathbone Investment Management Limited acquired the
entire share capital of Oaktree Investment Management Limited, a Jersey based
investment management business in accordance with the terms of a sale and
purchase agreement ('the agreement') signed on that date.
The initial consideration was satisfied by the issue of 153,009 shares at 555.5p
on 17th September 2002 and payment of cash of £1,275,000. Acquisition costs of
£22,000 were incurred of which £2,000 related to the issue of shares. Deferred
consideration will be payable in September 2003 in shares or cash to the value
of £150,000 and cash of £225,000, contingent upon the value of funds under
management (as defined in the agreement) as at 9th September 2003 not being 15%
or more below the funds under management as at 9th September 2002.
An estimate of the value of the shares to be issued of £150,000 has been
accounted for in shareholders' funds. The discounted value of the cash
consideration has been included in 'Provisions for liabilities and charges'.
(c) On 3rd April, 8th July and 15th July 2002, the Group acquired, in total,
eleven UK companies for a consideration of shares, loan notes and cash, the
details of which are set out below:
3rd April 8th July 15th July
2002 2002 2002 Total
£'000 £'000 £'000 £'000
Acquisition costs 163 72 4 239
New shares issued:
1,482,256 @ 817.6p each 12,119 - - 12,119
1,033,693 @ 702.5p each - 7,262 - 7,262
157,459 @ 689.0p each - - 1,085 1,085
12,119 7,262 1,085 20,466
Unsecured Loan Notes 2005 1,034 3,543 1,220 5,797
Cash - 275 285 560
These companies act as introducers of private client investment management and
trust services business. In total, they had introduced £1,032 million of new
discretionary managed clients to the Group prior to their acquisition, resulting
in an annualised increase to the Group's operating income of £9,500,000. The
companies had earned fees from the Group for the introduction of new business.
The companies have contributed £132,000 to the Group's profit after tax for the
year. An estimate of the profit after tax of these companies in aggregate for
the period 1st January 2002 to the date of acquisition is £70,000 (year to 31st
December 2001: £186,000). None of the companies acquired is individually
material to the Group.
8 Pension schemes
FRS 17 disclosures
Whilst the Group continues to account for pension costs in accordance with
Statement of Standard Accounting Practice 24 'Accounting for pension costs',
under FRS 17 'Retirement benefits' the following transitional disclosures are
required:
(i) The Group currently operates two funded pension schemes in the UK (the
Rathbone Scheme and the Laurence Keen Scheme) providing benefits based on final
pensionable salary. The Laurence Keen Scheme was closed to new entrants with
effect from 1st October 1999. The Rathbone Scheme was closed to new entrants
with effect from 1st April 2002. The assets are held in independent, trustee
administered funds. The pension costs are assessed on the advice of the scheme
actuaries using the projected unit 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 service.
(ii) The latest full actuarial valuations were conducted as at 31st December
2001 (the Rathbone Scheme) and 1st April 2000 (the Laurence Keen Scheme) and
were updated to 31st December 2002 by qualified independent actuaries. The major
assumptions used in these valuations were as follows:
Laurence Keen Scheme Rathbone Scheme
2002 2001 2002 2001
Rate of increase in salaries 3.0% 4.7% 3.0% 4.7%
Rate of increase of pensions in payment 2.25% 2.7% *2.25% *2.7%
Rate of increase of deferred pensions 2.25% 2.7% 2.25% 2.7%
Discount rate 5.8% 5.7% 5.8% 5.7%
Inflation assumption 2.25% 2.7% 2.25% 2.7%
* 5% for service prior to April 2001
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.
(iii) The fair value of the Schemes' assets, which are not intended to be
realised in the short term and may be subject to significant change before they
are realised, and the present value of the Schemes' liabilities, which are
derived from cash flow projections over long periods and are thus inherently
uncertain, and the related tax effect are set out below:
Laurence Keen Scheme Rathbone Scheme
Long term Long term Long term Long term Laurence
rate of rate of rate of rate of Keen
return return return return Scheme
expected at expected at expected expected at £'000 Rathbone 2002 2001
1.1.02 1.1.03 at 1.1.02 1.1.03 Scheme Total Total
£'000 £'000 £'000
Equities 8.0% 8.0% 8.0% 8.0% 2,457 11,591 14,048 14,197
Bonds 5.25% 4.9% 6.2% 5.8% 2,734 2,748 5,482 6,364
Other 4.0% 2.75% 4.0% 2.75% 88 1,903 1,991 970
Total market value of 5,279 16,242 21,521 21,531
assets
Present value of scheme (7,940) (24,999) (32,939) (31,830)
liabilities
Deficit in scheme (2,661) (8,757) (11,418) (10,299)
Related deferred tax asset 798 2,627 3,425 3,090
Net pension liability (1,863) (6,130) (7,993) (7,209)
(iv) If the above amounts had been recognised in the financial statements, the
Group's net assets and profit and loss reserve at 31st December 2002 would have
been as follows:
2002 2001
(Restated)
£'000 £'000
Net assets
Net assets excluding pension liability 100,430 77,447
Pension liability (7,993) (7,209)
Net assets including pension liability 92,437 70,238
Reserves
Profit and loss reserve excluding pension liability 41,221 43,014
Pension liability (7,993) (7,209)
Profit and loss reserve including pension liability 33,228 35,805
(v) Movement in deficit during the year
Laurence Rathbone Total
Keen Scheme Scheme £'000
£'000 £'000
Balance at 1st January 2002 2,172 8,127 10,299
Movement in the year:
Current service cost - 4,082 4,082
Past service costs - - -
Contributions (8) (3,826) (3,834)
Other finance income 82 242 324
Actuarial loss 415 132 547
Balance at 31st December 2002 2,661 8,757 11,418
The actuarial loss can be analysed as follows:
Laurence
Keen Rathbone
Scheme Scheme
£'000 £'000
Actual return less expected return on pension scheme assets (700) (4,064)
Percentage difference between expected and actual returns 13% 25%
Experience gains and losses arising on the scheme liabilities (725) 38
Percentage of the present value of the scheme liabilities 9% 0.2%
Total amount recognised in statement of recognised gains and losses (415) (132)
Percentage of the present value of the scheme liabilities 5% 0.5%
(vi) The total regular contributions made by the Group to the Rathbone Scheme
during the year were £1,790,655 (2001: £1,579,538) based on 11.5% of pensionable
salary and an additional lump sum contribution of £1,000,000 was paid in
December 2002 (2001: Nil). Given that after 31st March 2002 the Rathbone Scheme
was closed to new entrants, the current pension costs 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 £8,250 (2001: Nil). As the Scheme was closed to new entrants with
effect from 1st October 1999, the current pension cost will increase as the
members of the Scheme approach retirement.
9 Gain on sale of investment securities
In December 2002, 250,000 shares in London Stock Exchange plc were sold by
Rathbone Neilson Cobbold Limited. The shares were acquired at no cost and the
sale proceeds and profit on sale amounted to £777,000. The amount of tax
attributable to the profit on sale included in the overall tax charge is
£233,000.
10 Group cash flow statement
(i) Reconciliation of operating profit to net cash inflow from operating
activities
2002 2001
£'000 £'000
Operating profit 14,548 18,259
Loss on disposal of tangible fixed assets 11 48
Depreciation and amortisation 7,220 6,107
UITF Abstract 17 SIP charge 283 98
Provision for bad and doubtful debts 341 (53)
(Increase) in accrued income and prepayments (801) (2,295)
(Decrease)/Increase in provision for liabilities and charges (1,067) 281
Increase in accruals and deferred income 1,841 772
Net cash inflow from trading activities 22,376 23,217
Net decrease in loans and advances to banks and customers 1,057 3,321
Net decrease in settlement debtor balances 1,790 17,482
Net (decrease) in settlement creditor balances (1,522) (6,245)
Net (decrease)/increase in deposits by banks and customer accounts (9,266) 124,187
Net (decrease) in other liabilities (41) (2,314)
Net decrease in other assets 443 498
Net cash inflow from operating activities 14,837 160,146
(ii) Analysis of the balances of cash as shown in the balance sheet
At 1st At 31st
January Cash Non-cash Exchange December
2002 flow Changes movements 2002
£'000 £'000 £'000 £'000 £'000
Cash and balances at central banks 8,083 10,972 - (36) 19,019
Loans and advances to banks repayable on (56)
demand 27,271 1,061 - 28,276
Total 35,354 12,033 - (92) 47,295
The Group is required to maintain balances with the British Virgin Islands
government which, at 31st December 2002, amounted to £335,000 (2001: £344,000).
(iii) Analysis of changes in financing
Share Share Shares
capital premium to be issued
£'000 £'000 £'000
Balance at 1st January 2002 1,814 7,277 -
Cash inflow 8 1,003 -
Cash outflow - (120) -
Other movement 147 1,479 1,927
Balance at 31st December 2002 1,969 9,639 1,927
(iv) Acquisition of subsidiary undertakings and businesses
The effects of the acquisitions made during the year are set out in note 7.
The companies/businesses acquired did not make a material contribution to the
Group's net operating cashflows or capital expenditure.
(v) Major non-cash transactions
The consideration for the companies/businesses acquired included shares - see
note 7.
(vi) Disposal of investment securities
Net sale proceeds of £777,000 were received in relation to the sale of
investment securities - see note 9.
11 Prior year adjustment
FRS 19 'Deferred tax' is mandatory for all periods ending on or after 23rd
January 2002 and has been adopted in these accounts.
The new standard requires the following:
• in the absence of a binding agreement to distribute overseas earnings,
deferred tax should only be provided if a dividend has been declared
• accelerated capital allowances or excess depreciation should be provided for
in full as, considered individually, future reversals cannot be avoided
Previously, the Group's policy was to provide for deferred tax on timing
differences to the extent that they were likely to crystallise in the
foreseeable future. In practice, this resulted in a full provision for
unremitted overseas earnings given the Group's policy to pay overseas earnings
by way of dividend to the UK on a regular basis and the Group took no
recognition of a deferred tax asset in respect of excess depreciation.
Accordingly, in adopting FRS 19, provision on unremitted overseas earnings is
now made only when dividends have been declared by the balance sheet date and
full provision is now made for excess depreciation to the extent that the
deferred tax asset that is created is more likely than not to be recoverable.
Comparative figures have been restated to reflect this change of accounting
policy. The effect of the change has been to increase retained profits and
shareholders' funds in prior periods as set out in the following table:
Retained Shareholders'
profit funds as at
for 2001 31st December 2001
£'000 £'000
As previously reported 2,258 75,429
Reduction in provision for tax on unremitted overseas earnings 322 1,212
Provision for deferred tax asset in relation to excess depreciation 144 806
466 2,018
As restated 2,724 77,447
The retained profit for 2002 has been reduced by £521,000 and the shareholders'
funds as at 31st December 2002 have been increased by £1,497,000 as a result of
the change in accounting policy.
12 Post balance sheet events
Since 31st December 2002, Rathbone Investment Management Limited has signed
agreements to transfer investment management clients from two organisations. For
both deals, the consideration payable is contingent on the number of clients who
agree to transfer on the basis of the standard terms and conditions of Rathbone
Investment Management Limited. In total, the consideration is not expected to
exceed £4 million which it is anticipated will be paid in cash.
13 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 year ended 31st December 2002 or 2001. Statutory
accounts for 2001 have been delivered to the Registrar of Companies and those
for 2002 will be delivered following the Company's Annual General Meeting. The
auditors have reported on those accounts. Their reports were unqualified and did
not contain statements under section 237(2) or (3) of the Companies Act 1985.
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