Final Results

Rathbone Brothers PLC 06 March 2008 6 March 2008 Rathbone Brothers Plc Preliminary results for the 12 months to 31 December 2007 Strong organic growth continues at Rathbone Brothers Plc 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 2007. Highlights: ___________ â€¢ Operating income increased by 15.6% to Â£154.5 million (2006: Â£133.7 million). â€¢ Profits before tax rose by 16.8% to Â£52.2 million (2006: Â£44.7 million). o Excluding gains on a part disposal of London Stock exchange shares, underlying profit before tax rose by 22.7% from Â£41.5 million to Â£50.9 million. â€¢ Funds under management rose by 7.2% over 2007 to Â£13.12 billion (Â£12.24 billion). â€¢ Organic growth of funds under management in Rathbone Investment Management (in the UK and Jersey) at highest ever level of 7.8%. â€¢ Basic earnings per share rose by 14.7% to 87.88p (2006: 76.62p). â€¢ Recommended final dividend is 25p, making a total of 41p (2006: 35p) for the year - an overall increase of 17.1%. â€¢ Acquisition of Citywall Financial Management adds an office in Exeter. Mark Powell, chairman of Rathbone Brothers Plc, commented: 'Record results have been achieved and the rate of net organic growth of funds under management, at 7.8 per cent, is the highest that Rathbone Investment Management, in the UK and Jersey, has ever announced. These statistics reflect our continuing commitment to promoting Rathbones as the investment manager of choice for private investors and trustees, and we believe it reflects a growing awareness of Rathbones. Particular efforts have been made in promoting our services to professional intermediaries, to charity trustees and in the increasingly important market for self-invested personal pensions. 'Despite the uncertainties created by the problems being experienced in credit markets and high levels of day-to-day volatility in equity markets, Rathbones is well placed to continue to grow our investment management and other services. In part, this reflects the quality of our client relationships and we are confident of the long term future.' For further information contact: Rathbone Brothers Plc Smithfield 020 7399 0000 (Switchboard) 020 7360 4900 (Switchboard) Mark Powell, Chairman Reg Hoare Andy Pomfret, Chief Executive Miranda Good Emily Morris, Marketing Director Notes for editors: Rathbone Brothers Plc Rathbone Brothers Plc specialises in providing, through its subsidiaries, high quality, 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 Â£13.12 billion of funds, including Â£1.89 billion managed by Rathbone Unit Trust Management Limited (as at 31 December 2007). Chairman's statement I am delighted to report our results for the year ended 31 December 2007. Despite the tensions and uncertainties associated with the difficulties in credit markets, record results have been achieved. The percentage rate of net organic growth of funds under management is the highest that Rathbone Investment Management, in the UK and Jersey, has ever announced. Results and dividend Profit before tax for the year to 31 December 2007 was Â£52.2 million compared with Â£44.7 million in 2006 - an increase of 16.8%. Excluding profits arising from part disposals of our investment in London Stock Exchange Group Plc of Â£1.3 million in 2007 and Â£3.2 million in 2006, underlying profits have increased by 22.7%. Reported earnings per share have risen by 14.7% to 87.88p compared with 76.62p in 2006. Underlying earnings per share have risen from 71.28p to 85.74p, an increase of 20.3%. It is recommended that the final dividend be increased to 25.0p (2006: 21.5p) making a total of 41.0p for the year (2006: 35.0p), an increase of 17.1%. 2007 can be characterised as a year of two parts. During the first half of the year, bond and equity markets were firm and made progress. In the second half, the well-publicised difficulties arising from sub-prime mortgage lending in the USA led to very difficult conditions in credit markets and much more volatile equity markets. July and August saw the FTSE 100 Index fall by over 12%. Although there has been some overall recovery, at the year end the FTSE 100 Index had risen by only 3.8% and the FTSE/APCIMS Balanced Index rose by 2.5%. As announced on 10 January 2008, funds under management as a whole have risen during 2007 by 7.2% to Â£13.12 billion (2006: Â£12.24 billion). Adjusting for funds withdrawn and acquired, and for market movements this represents an underlying organic growth rate of 7.9%. The value of funds under management within Rathbone Investment Management including Rathbone Investment Management International (RIMI), rose by 8.2% to Â£11.23 billion (2006: Â£10.38 billion) and the value of funds under management in Rathbone Unit Trusts rose by 1.6% to Â£1.89 billion (2006: Â£1.86 billion). Within Rathbone Investment Management (including RIMI) the underlying net organic growth rate for 2007 was 7.8% compared with 7.2% in 2006 and 5.8% in 2005. These statistics reflect our continuing commitment to promoting Rathbones as the investment manager of choice for private investors and trustees, and we believe that it reflects a growing awareness of Rathbones. Particular efforts have been made in promoting our services to professional intermediaries, to charity trustees and in the increasingly important market for self-invested personal pensions. Your Board considers that this excellent rate of net organic growth reflects the value of our policy of combining the roles of investment management and client relationship management. We believe that it is greatly appreciated by clients and prospective clients, and that it is the way of providing the most appropriate investment solution for each individual client in the light of their circumstances and risk appetite. In common with other unit trust managers, Rathbone Unit Trust Management experienced difficult trading conditions in the second half of the year and funds under management for the year as a whole grew by 1.6% compared with the remarkable 55.0% achieved in 2006. The Chancellor of the Exchequer's proposals for changes to capital gains tax evidently had some impact on sales and redemptions in UK equity income funds, and the credit crunch clearly had an adverse impact on the confidence of retail investors and intermediary advisers. During 2007, profits from our trust and tax activities grew by 69.6% to Â£3.9 million (2006: Â£2.3 million) as the benefits of the relocation of our offices in Jersey into one building have been felt. This improvement in profitability was achieved despite a rather unhelpful background in the provision of fiduciary and trust services from offshore centres and the management of this division has expended considerable energies in seeking to control costs and to identify new business opportunities. With this in mind we announced the acquisition of a small, well-established trust business in Singapore in April 2007 which is now headed by a director of our Jersey operation. 'Credit crunch' The 'credit crunch' has not had a detrimental impact on Rathbones' ability to finance its operations, indeed the consequent impact on credit markets in the second half of the year has been beneficial for profitability. Our banking licence allows our treasury department to make use of a range of appropriate instruments issued by counterparties with high ratings when placing funds in the money markets. Rathbones, as a net provider of liquidity to the banking markets, has been able to take advantage of historically high short-term interest rate margins, which has had the effect of increasing interest income in the last quarter of the year when liquidity in client portfolios rose to Â£990 million (2006: Â£697 million). Rathbones has no reliance on debt markets to finance its operating activities and does not anticipate that this will change. Corporate activity For many years Rathbones has sought to supplement organic growth through the acquisition of suitable businesses and the recruitment of established professionals from other organisations. 2007 has seen a great deal of enquiry in this area but it has not proved possible to make suitable acquisitions at valuations which your Board has considered attractive. Since the year end we have, however, committed to take over a small investment management business based in Exeter and we are delighted to be establishing a presence there. It will complement our existing office in Bristol. Our approach to acquisition opportunities is that they must meet the criteria of involving professionals who share our commitment to discretionary investment management and that they are earnings enhancing within a reasonable timeframe or broaden the range of services available to our clients. Sue Desborough The tragic and untimely death of our finance director at the end of November has cast a dark shadow over Rathbones. Sue joined Rathbones as group financial controller in 2000 and in October 2004 was appointed finance director. During her all too brief time with us she had made an enormous contribution to Rathbones as a friend, as a professional and as a greatly admired and respected colleague. She will be sadly missed by us all. Composition of the Board During the year, two of our non-executive directors, Roy Morris and Jamie Cayzer-Colvin, have retired. Roy first joined Rathbones 50 years ago and was chief executive from 1997 to 2004. He has made a massive contribution to Rathbones over a remarkable career. Jamie Cayzer-Colvin has served as a non-executive director for over five years and we have benefited from his experience of the financial sector generally and the investment management area in particular. In December we welcomed David Harrel and John May to our Board as new non-executive directors. They both bring with them wide experience which I am confident will be of great value to us. Outlook Despite the uncertainties created by the problems being experienced in credit markets and high levels of day-to-day volatility in equity markets, Rathbones is well placed to continue to grow our investment management and other services. In part, this reflects the quality of our client relationships and we are confident of the long term future. Mark Powell Chairman 5 March 2008 Consolidated income statement for the year ended 31 December 2007 2007 2006 Note Â£'000 Â£'000 ______________________________________________________________________________________ Interest and similar income 52,058 37,335 Interest expense and similar charges (32,568) (21,297) ______________________________________________________________________________________ Net interest income 19,490 16,038 ______________________________________________________________________________________ Fee and commission income 141,929 120,039 Fee and commission expense (11,499) (8,365) ______________________________________________________________________________________ Net fee and commission income 130,430 111,674 ______________________________________________________________________________________ Dividend income 67 117 Net trading income 1,676 1,285 Net income from sale of available for sale securities 1,297 3,196 Other operating income 1,565 1,376 ______________________________________________________________________________________ Operating income 154,525 133,686 Operating expenses (102,301) (88,966) ______________________________________________________________________________________ Profit before tax 52,224 44,720 Taxation 5 (14,844) (12,582) ______________________________________________________________________________________ Profit for the year attributable to equity holders of the company 37,380 32,138 ______________________________________________________________________________________ Dividends paid and proposed for the year per ordinary 6 share (p) 41.00p 35.00p Dividends paid and proposed for the year (Â£'000) 6 17,479 14,786 Earnings per share attributable to equity holders of the company for the year: 7 Basic (p) 87.88p 76.62p Diluted (p) 86.46p 74.71p ______________________________________________________________________________________ Consolidated balance sheet as at 31 December 2007 2007 2006 Â£'000 Â£'000 restated Note (note 1) _______________________________________________________________________________________ Assets Cash and balances at central banks 275 281 Settlement balances 21,573 19,628 Loans and advances to banks 250,103 119,247 Loans and advances to customers 39,380 77,360 Investment securities - available for sale 6,948 6,152 - held to maturity 765,274 558,368 Intangible assets 85,734 81,248 Property, plant and equipment 8,131 6,463 Deferred tax asset 3,528 5,321 Prepayments, accrued income and other assets 45,677 38,551 _______________________________________________________________________________________ Total assets 1,226,623 912,619 _______________________________________________________________________________________ Liabilities Deposits by banks 12,460 12,119 Settlement balances 19,926 18,078 Due to customers 946,608 664,762 Accruals, deferred income, provisions and other liabilities 49,637 39,605 Current tax liabilities 6,790 8,143 Retirement benefit obligations 9 6,452 10,763 _______________________________________________________________________________________ Total liabilities 1,041,873 753,470 _______________________________________________________________________________________ Equity Share capital 2,134 2,114 Share premium 27,758 24,518 Other reserves 10 54,181 53,488 Retained earnings 10 100,677 79,029 _______________________________________________________________________________________ Total equity 184,750 159,149 _______________________________________________________________________________________ Total equity and liabilities 1,226,623 912,619 _______________________________________________________________________________________ Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 Â£'000 Â£'000 restated Note (note 1) _______________________________________________________________________________________ Cash flows from operating activities Profit before tax 52,224 44,720 Net interest income (19,490) (16,038) Net income from sale of available for sale securities (1,297) (3,196) Impairment losses on loans and advances 130 323 Profit on disposal of plant and equipment (17) (49) Depreciation and amortisation 4,723 3,418 Defined benefit pension scheme charges 2,554 3,448 Share based payment charges 2,692 2,080 Interest paid (31,811) (20,655) Interest received 47,457 30,728 _______________________________________________________________________________________ 57,165 44,779 Changes in operating assets and liabilities - net decrease in loans and advances to banks and customers 14,280 18,158 - net (increase) in settlement balance debtors (1,945) (5,611) - net (increase) in prepayments, accrued income and other assets (2,269) (6,881) - net increase in amounts due to customers and deposits by banks 280,791 129,407 - net increase in settlement balance creditors 1,848 1,946 - net increase in accruals, deferred income, provisions and other liabilities 8,697 5,296 _______________________________________________________________________________________ Cash generated from operations 358,567 187,094 Defined benefit pension contributions paid (6,595) (5,927) Tax paid (13,773) (10,609) _______________________________________________________________________________________ Net cash inflow from operating activities 338,199 170,558 _______________________________________________________________________________________ Cash flows from investing activities Acquisition of businesses, net of cash acquired (422) (5,786) Purchase of property, equipment and intangible assets (10,199) (5,690) Proceeds from sale of property and equipment 44 113 Purchase of investment securities (1,276,420) (1,453,970) Proceeds from sale and redemption of investment securities 1,070,811 1,294,798 _______________________________________________________________________________________ Net cash used in investing activities (216,186) (170,535) _______________________________________________________________________________________ Cash flows from financing activities Repayments of debt securities - (141) Purchase of shares for share-based schemes (3,210) (3,407) Issue of ordinary shares 11 2,963 6,715 Dividends paid 6 (15,914) (13,449) _______________________________________________________________________________________ Net cash used in financing activities (16,161) (10,282) _______________________________________________________________________________________ Net increase/(decrease) in cash and cash equivalents 105,852 (10,259) Cash and cash equivalents at the beginning of the year 108,343 118,883 Effect of exchange rate changes on cash and cash equivalents 25 (281) _______________________________________________________________________________________ Cash and cash equivalents at the end of the year 11 214,220 108,343 _______________________________________________________________________________________ Consolidated statement of recognised income and expense for the year ended 31 December 2007 2007 2006 Note Â£'000 Â£'000 _______________________________________________________________________________________ Profit after taxation 37,380 32,138 _______________________________________________________________________________________ Exchange translation differences 14 (240) Actuarial gain on retirement benefit obligation 9 270 5,468 Revaluation of available for sale investment securities: _______________________________________________________________________________________ - net gain from changes in fair value 2,069 4,202 - net profit on disposal transferred to income during the period (1,297) (3,196) _______________________________________________________________________________________ 772 1,006 Deferred tax on equity items: _______________________________________________________________________________________ - available for sale investment securities (93) (302) - actuarial gains and losses 34 (1,640) - share-based payments 694 362 _______________________________________________________________________________________ 635 (1,580) _______________________________________________________________________________________ Net income recognised directly in equity 1,691 4,654 _______________________________________________________________________________________ Recognised income and expense for the year attributable to equity holders of the company 39,071 36,792 _______________________________________________________________________________________ Notes 1. Accounting policies In preparing the financial information included in this statement the Group has applied accounting policies which are in accordance with International Financial Reporting Standards as adopted by the European Commission at 31 December 2007. The accounting policies have been applied consistently to all periods presented in the consolidated accounts, except as noted below. The comparative balances have been restated to be consistent with the current year presentation of the Translation Reserve as a component of Other Reserves. In prior years, the Translation Reserve was included as a component of retained earnings. Comparative balances have also been restated to reflect the exclusion of held to maturity debt securities from cash equivalents and the cash flow statement. This amendment has had no impact on profit or equity.Rathbone Brothers Plc is a public company incorporated in Great Britain. 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 Â£6,452,000 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 and information on the sensitivity of the retirement benefit obligation to changes in underlying estimates 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 Â£70,536,000. 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 Tax services amounted to Â£13,363,000 (2006: Â£11,372,000). 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 Services. 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. Revenues and expenses that are not directly originated by a business segment are reported as unallocated. 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. Trust Investment Unit and tax management trusts services Eliminations Total At 31 December 2007 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 _________________________________________________________________________________________ External revenues 141,078 30,303 25,914 - 197,295 Revenues from other segments 1,606 - - (1,606) - _________________________________________________________________________________________ 142,684 30,303 25,914 (1,606) 197,295 Unallocated external revenues 1,297 _________________________________________________________________________________________ Total gross revenues (note 3c) 198,592 _________________________________________________________________________________________ Segment result 40,091 6,880 3,956 50,927 Unallocated items 1,297 _________________________________________________________________________________________ Profit before tax 52,224 Taxation (14,844) _________________________________________________________________________________________ Profit for the year 37,380 _________________________________________________________________________________________ Segment assets 1,115,899 27,837 59,722 1,203,458 Unallocated assets 23,165 _________________________________________________________________________________________ Total assets 1,226,623 _________________________________________________________________________________________ Segment liabilities 974,760 21,390 18,462 1,014,612 Unallocated liabilities 27,261 _________________________________________________________________________________________ Total liabilities 1,041,873 _________________________________________________________________________________________ Other segment items: Capital expenditure 8,718 262 912 9,892 Depreciation and amortisation 3,724 148 850 4,722 Other non-cash expenses 1,852 256 714 2,822 Provisions charged in the year 1,080 - 911 1,991 Provisions utilised in the year 5,512 - 922 6,434 _________________________________________________________________________________________ Trust Investment Unit and tax management trusts services Eliminations Total At 31 December 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'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 gross revenues (note 3c) 163,348 _________________________________________________________________________________________ Segment result 34,119 5,059 2,346 41,524 Unallocated items 3,196 _________________________________________________________________________________________ Profit before tax 44,720 Taxation (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 _________________________________________________________________________________________ Unallocated external revenues comprise gains on disposal of available for sale securities. (b) Geographical segments The Group's operations are located in the United Kingdom, Jersey, Switzerland, the British Virgin Islands and Singapore. The following table provides an analysis of the Group's revenues by geographical market, by origin of the services: Total gross revenues by geographical market 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ United Kingdom 171,556 140,666 Jersey 21,686 18,421 Rest of the world 5,350 4,261 ______________________________________________________________________________________ 198,592 163,348 ______________________________________________________________________________________ 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: Assets allocated to business segments 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ United Kingdom 1,145,684 826,822 Jersey 37,123 31,448 Rest of the world 20,651 19,827 ______________________________________________________________________________________ 1,203,458 878,097 ______________________________________________________________________________________ Additions to property, plant and equipment and intangible assets 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ United Kingdom 9,790 12,421 Jersey 296 2,122 Rest of the world 23 39 ______________________________________________________________________________________ 10,109 14,582 ______________________________________________________________________________________ (c) Total gross revenues and operating income 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ Interest and similar income 52,058 37,335 Fee and commission income 141,929 120,039 Dividend income 67 117 Net trading income 1,676 1,285 Net income from sale of available for sale securities 1,297 3,196 Other operating income 1,565 1,376 ______________________________________________________________________________________ Total gross revenues 198,592 163,348 Interest expense and similar charges (32,568) (21,297) Fee and commission expense (11,499) (8,365) Operating income 154,525 133,686 ______________________________________________________________________________________ 4. Business combinations On 2 April 2007, the Group acquired the entire share capital of Federal Trust (Singapore) Pte Limited for cash consideration of Â£496,000 and contingent, deferred consideration of up to Â£249,000. The acquired business' net assets at the acquisition date were as follows: Recognised Fair value Carrying Values adjustments amounts Â£'000 Â£'000 Â£'000 ________________________________________________________________________________________ Cash and cash equivalents 198 - 198 Other current assets 170 - 170 Property, plant and equipment 9 - 9 Client relationships 93 93 - Current liabilities (293) - (293) ________________________________________________________________________________________ Net identifiable assets acquired 177 93 84 _________________________ Goodwill on acquisition 568 _______________________________________________________________ Total net assets acquired 745 _______________________________________________________________ Included within the consolidated income statement for the year is a loss before tax, including acquisition costs, of Â£290,000 relating to the acquired business. If the business had been acquired on 1 January 2007, consolidated profit before tax for the Group would have been Â£52,255,000. The goodwill arising on the acquisition is attributable to the anticipated profitability of incorporating the business into the Group's operating model. 5. Taxation 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ Current tax 12,371 10,820 Adjustments in respect of previous years 45 64 Deferred tax 2,428 1,698 ______________________________________________________________________________________ 14,844 12,582 ______________________________________________________________________________________ The tax charge for the year is lower (2006: lower) than the standard rate of corporation tax in the UK of 30% (2006: 30%). The differences are explained below: 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ Tax on profit from ordinary activities at the standard rate of 30% (2006 - 30%) 15,667 13,416 Effects of: UK dividend income - (23) Disallowable expenses 617 257 Share-based payments (854) (649) Trading losses 83 - Tax relief on purchased goodwill - 79 Lower tax rates on overseas earnings (1,161) (719) Under provision for tax in previous years 45 221 Effect of change in corporation tax rate 447 - ______________________________________________________________________________________ Income tax expense 14,844 12,582 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 Â£635,000 has been credited directly to equity (2006: Â£1,580,000 charged to equity). 6. Dividends 2007 2006 Â£'000 Â£'000 ______________________________________________________________________________________ Amounts recognised as distributions to equity holders in the year: - final dividend for the year ended 31 December 2006 of 21.5p (2005: 18.5p) per share 9,107 7,753 - interim dividend for the year ended 31 December 2007 of 16.0p (2006: 13.5p) per share 6,807 5,696 ______________________________________________________________________________________ 15,914 13,449 ______________________________________________________________________________________ Proposed final dividend for the year ended 31 December 2007 of 25.0p (2006: 21.5p) per share 10,672 9,090 ______________________________________________________________________________________ The interim dividend of 16.0p per share was paid on 10 October 2007 to shareholders on the register at the close of business on 21 September 2007. The final dividend declared of 25.0p per share is payable on 14 May 2008 to shareholders on the register at the close of business on 18 April 2008. 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 Â£37,380,000 (2006: Â£32,138,000) by the weighted average number of shares in issue throughout the year of 42,536,821 (2006: 41,946,781). 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). 2007 2006 ______________________________________________________________________________________ Weighted average number of ordinary shares in issue during the year - basic 42,536,821 41,946,781 Effect of ordinary share options 461,167 580,127 Effect of dilutive shares issuable under the Share Incentive Plan 85,535 152,580 Effect of contingently issuable ordinary shares under the Long Term Incentive Plan 148,431 334,720 ______________________________________________________________________________________ Diluted weighted average number of ordinary shares 43,231,954 43,014,208 ______________________________________________________________________________________ 8. Provisions Deferred Contingent Client Litigation consideration compensation related Total Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ At 1 January 2007 6,407 1,525 516 8,448 Exchange adjustments (3) - - (3) ___________________________________________________________________________________________ Charged to the income statement 1,308 683 1,991 Unused amount credited to the income statement (134) (86) (220) ___________________________________________________________________________________________ Net charge to the income statement(i) 1,174 597 1,771 Capitalised during the year(ii) 4,377 4,377 Utilised/paid during the year (4,938) (724) (772) (6,434) ___________________________________________________________________________________________ At 31 December 2007 5,843 1,975 341 8,159 ___________________________________________________________________________________________ Current 3,834 1,935 341 6,110 Non-current 2,009 40 - 2,049 ___________________________________________________________________________________________ 5,843 1,975 341 8,159 ___________________________________________________________________________________________ (i) In addition to the net charge of Â£1,771,000 (2006: Â£1,551,000) to the income statement in the above table, a net credit of Â£723,000 (2006: Â£179,000) 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 Â£1,048,000 (2006: Â£1,372,000). (ii) Amounts capitalised during the period comprise Â£249,000 deferred consideration in relation to the acquisition of Federal Trust (Singapore) Pte Limited (see note 4) and Â£4,128,000 in relation to deferred payments to investment managers under earn-out schemes. The amount of the deferred consideration arising on earn-out schemes is contingent on the value of funds attracted and is payable in cash. At 31 December 2007, anticipated insurance recoverables relating to client compensation and litigation related provisions of Â£477,000 (2006: Â£436,000) were included within other assets. 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 Â£697,000 (2006: Â£594,000). The Group also operates defined contribution schemes for overseas employees, for which the total contributions were Â£581,000 (2006: Â£517,000). The Group operates two funded pension schemes providing benefits based on final pensionable pay for executive directors and staff employed by the Company in the UK (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, in accordance with the statement of investment principles agreed by the trustees. Scheme assets are held separately from those of the Group. The trustees of the fund are required to act in the best interest of the fund's beneficiaries. The appointment of trustees to the fund is determined by the schemes' trust documentation and legislation. The Group has a policy that one-third of all trustees should be nominated by members of the fund. 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 the date of termination of services, discounted to a present value using a rate that reflects the characteristics of the liability. The valuations are updated at each balance sheet date in between full valuations. The latest full actuarial valuations were carried out as at: Last full actuarial valuation as at: _________________________________________________________________________________ Rathbone 1987 Scheme 31 December 2004 Laurence Keen Scheme 31 December 2005 _________________________________________________________________________________ The actuarial valuation of the Rathbone 1987 Scheme as at 31 December 2007 is in progress but has not yet been completed. 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: 2007 2006 2007 2006 Laurence Laurence Rathbone Rathbone Keen Keen 1987 1987 Scheme Scheme Scheme Scheme _________________________________________________________________________________________ Rate of increase in salaries 4.55% 4.15% 4.55% 4.15% Rate of increase in pensions in payment *3.60% *3.50% *3.20% *2.90% Rate of increase of deferred pensions 3.30% 2.90% 3.30% 2.90% Discount rate 5.70% 5.20% 5.70% 5.20% Expected return on scheme assets 6.10% 6.21% 7.10% 7.09% Inflation assumption 3.30% 2.90% 3.30% 2.90% _________________________________________________________________________________________ * 5% for service prior to April 2001 The assumed duration of the liabilities for both schemes is 25 years (2006: 25 years). 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 2007, 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: 2007 2007 2006 2006 Males Females Males Females ____________________________________________________________________________________ Retiring today - aged 60 24.7 27.7 24.7 27.6 - aged 65 20.0 22.9 20.0 22.9 Retiring in 20 years - aged 60 25.9 28.7 25.9 28.7 - aged 65 21.1 23.9 21.1 23.9 ____________________________________________________________________________________ The amount included in the balance sheet arising from the Group's obligations in respect of the schemes is as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ Present value of defined benefit obligations (10,301) (60,274) (70,575) (10,423) (53,982) (64,405) Fair value of scheme assets 9,708 54,415 64,123 8,996 44,646 53,642 ___________________________________________________________________________________________ Deficit in schemes (593) (5,859) (6,452) (1,427) (9,336) (10,763) ___________________________________________________________________________________________ The amounts recognised in the income statement, within operating expenses, are as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ Current service cost - 3,083 3,083 - 3,445 3,445 Interest cost 532 2,897 3,429 567 2,571 3,138 Expected return on scheme assets (551) (3,407) (3,958) (480) (2,655) (3,135) ___________________________________________________________________________________________ (19) 2,573 2,554 87 3,361 3,448 Actuarial gains and losses have been reported in the statement of recognised income and expense. The actual return on scheme assets was Â£621,000 (2006: Â£565,000) for the Laurence Keen Scheme and Â£3,317,000 (2006: Â£3,381,000) for the Rathbone 1987 Scheme. The cumulative actuarial gains and losses reported in the statement of recognised income and expense since the adoption of IFRS is as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ At 1 January 245 201 446 (1,432) (3,590) (5,022) Actuarial gains/(losses) recognised in the year 348 (78) 270 1,677 3,791 5,468 ___________________________________________________________________________________________ At 31 December 593 123 716 245 201 446 ___________________________________________________________________________________________ Movements in the present value of defined benefit obligations were as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ At 1 January 10,423 53,982 64,405 11,697 50,501 62,198 Service cost (employer's part) - 3,083 3,083 - 3,445 3,445 Interest cost 532 2,897 3,429 567 2,571 3,138 Contributions from members - 1,030 1,030 - 959 959 Actuarial gains (278) (12) (290) (1,592) (3,038) (4,630) Benefits paid (376) (706) (1,082) (249) (456) (705) ___________________________________________________________________________________________ At 31 December 10,301 60,274 70,575 10,423 53,982 64,405 ___________________________________________________________________________________________ Movements in the fair value of scheme assets were as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________________ At 1 January 8,996 44,646 53,642 8,118 35,370 43,488 Expected return on scheme assets 551 3,407 3,958 480 2,655 3,135 Actuarial gains/(losses) 70 (90) (20) 85 753 838 Contributions from the sponsoring companies 467 6,128 6,595 562 5,365 5,927 Contributions from scheme members - 1,030 1,030 - 959 959 Benefits paid (376) (706) (1,082) (249) (456) (705) ___________________________________________________________________________________________ At 31 December 9,708 54,415 64,123 8,996 44,646 53,642 ___________________________________________________________________________________________ The analysis of the scheme assets, measured at bid prices, and expected rates of return on those assets at the balance sheet date was as follows: Laurence Keen Scheme 1.1.07 1.1.06 2007 2006 2007 2006 Expected Expected Fair Fair Current Current return return value value allocation allocation % % Â£'000 Â£'000 % % ________________________________________________________________________________________ Equity instruments 7.60 7.50 5,180 5,047 53 56 Debt instruments 4.40 4.30 4,161 3,738 43 42 Cash 4.40 4.30 367 211 4 2 ________________________________________________________________________________________ 9,708 8,996 Rathbone 1987 Scheme 1.1.07 1.1.06 2007 2006 2007 2006 Expected Expected Fair Fair Current Current return return value value allocation allocation % % Â£'000 Â£'000 % % ________________________________________________________________________________________ Equity instruments 7.60 7.50 42,099 35,515 77 80 Debt instruments 5.70 5.20 9,323 8,649 17 19 Cash 4.40 4.30 2,993 482 6 1 ________________________________________________________________________________________ 54,415 44,646 ________________________________________________________________________________________ The expected return on equities was assumed to be 3.20% above the return on long dated Gilts (2006: 3.25% above). 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 statement of investment principles set by the trustees requires that the assets of the scheme are invested in a balanced portfolio in the following sectors and proportions: Laurence Keen Scheme Rathbone 1987 Scheme UK equities 35% - 55% 43% - 57% Overseas equities 0% - 15% 21% - 35% Fixed interest stocks 45% - 65%* 14% - 28% Cash deposits 45% - 65%* 0% - 8% *The total allocation of assets in the Laurence Keen Scheme to fixed interest stocks and cash deposits is expressed as a combined percentage of the two asset classes in the statement of investment principles. In the Rathbone 1987 Scheme, not more than 85% of the assets may be held in equities. A maximum of 5% of UK equities may be invested in companies outside the FTSE 350 and not more than 5% of total equity assets can be invested in hedge funds. The sensitivities regarding the principal assumptions used to measure the schemes liabilities are set out below: Impact on Scheme Liabilities (Decrease)/ (Decrease)/ Increase Increase Â£'000 % _______________________________________________________________________________________ 0.5% increase to: - Discount rate (7,400) (10.50) - Rate of inflation 5,400 7.70 - Rate of salary growth 2,600 3.70 1 year increase to longevity at 60 2,000 2.80 _______________________________________________________________________________________ The history of experience adjustments is as follows: Laurence Keen Scheme 2007 2006 2005 2004 ______________________________________________________________________________________ Present value of defined benefit obligations (Â£'000) (10,301) (10,423) (11,697) (9,552) Fair value of scheme assets (Â£'000) 9,708 8,996 8,118 6,836 ______________________________________________________________________________________ Deficit in the scheme (Â£'000) (593) (1,427) (3,579) (2,716) ______________________________________________________________________________________ Experience adjustments on scheme liabilities: - amount (Â£'000) 104 1,592 1,864 466 - percentage of scheme liabilities (%) 1% 15% 16% 5% ______________________________________________________________________________________ Experience adjustments on scheme assets: - amount (Â£'000) 70 85 539 359 - percentage of scheme assets (%) 1% 1% 7% 5% ______________________________________________________________________________________ Rathbone 1987 Scheme 2007 2006 2005 2004 ______________________________________________________________________________________ Present value of defined benefit obligations (Â£'000) (60,274) (53,982) (50,501) (38,214) Fair value of scheme assets (Â£'000) 54,415 44,646 35,370 25,947 ______________________________________________________________________________________ Deficit in the scheme (Â£'000) (5,859) (9,336) (15,131) (12,267) ______________________________________________________________________________________ Experience adjustments on scheme liabilities: - amount (Â£'000) 1,264 3,038 7,138 1,881 - percentage of scheme liabilities (%) 2% 6% 14% 5% ______________________________________________________________________________________ Experience adjustments on scheme assets: - amount (Â£'000) 90 753 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 Â£2,238,000 (2006: Â£2,365,000) based on 13.9% of pensionable salaries (1 January to 31 March 2006: 11.5%, 1 April to 24 August 2006: 15.5%, 25 August to 31 December 2006: 13.9% of pensionable salaries). Additional lump sum contributions amounting to Â£3,890,000 were also paid in 2007 (2006: Â£3,000,000). 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 Â£467,000 (2006: 562,000). Annual contributions of Â£420,000 will continue to be made to the Laurence Keen Scheme. 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 Total Merger for sale Translation other Retained reserve reserve reserve reserves earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 _______________________________________________________________________________________ At 1 January 2006 49,428 3,585 11 53,024 57,843 Profit for the year 32,138 Translation differences arising in the year (240) (240) Dividends paid (13,449) Actuarial gains and losses 5,468 Revaluation of investment securities 4,202 4,202 Net gains transferred to net profit on disposal of available for sale investment securities (3,196) (3,196) Share-based payments - value of employee services 2,080 - cost of shares issued/purchased (3,773) Tax on equity items (302) (302) (1,278) _______________________________________________________________________________________ At 1 January 2007 49,428 4,289 (229) 53,488 79,029 Profit for the year 37,380 Translation differences arising in the year 14 14 Dividends paid (15,914) Actuarial gains and losses 270 Revaluation of investment securities 2,069 2,069 Net gains transferred to net profit on disposal of available for sale investment securities (1,297) (1,297) Share-based payments - value of employee services 2,692 - cost of shares issued/ purchased (3,508) Tax on equity items (93) (93) 728 _______________________________________________________________________________________ At 31 December 2007 49,428 4,968 (215) 54,181 100,677 _______________________________________________________________________________________ The Merger Reserve represents share premium that was not recognised on the issue of shares as consideration for an acquisition prior to the adoption of IFRS on 1 January 2004, in accordance with the Companies Act. 11. 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. 2007 2006 Â£'000 Â£'000 restated (note 1) _______________________________________________________________________________________ Cash and balances at central banks (note 14) 4 5 Loans and advances to banks (note 15) 214,216 108,338 _______________________________________________________________________________________ 214,220 108,343 _______________________________________________________________________________________ Cash flows arising from the issue of ordinary shares in the year comprise: 2007 2006 Â£'000 Â£'000 Cash inflow - share capital 20 51 Cash inflow - share premium 3,240 7,031 Cash outflow - financing of shares in relation to share-based schemes (297) (367) _______________________________________________________________________________________ 2,963 6,715 _______________________________________________________________________________________ 12. 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 2007 or 2006. Statutory accounts for 2006 have been delivered to the Registrar of Companies. Statutory accounts for 2007 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on both the 2006 and 2007 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 The company news service from the London Stock Exchange

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