Final Results

Rathbone Brothers PLC 02 March 2005 2nd March 2005 Rathbone Brothers Plc Preliminary results for the 12 months to 31st December 2004 Rathbones announces strong growth in profits and funds under management Rathbone Brothers Plc, a leading provider of discretionary fund management and wealth management services for private clients and trustees, announces its preliminary results for the 12 months to 31st December 2004. Mark Powell, Chairman of Rathbone Brothers Plc, commented: 'Profits before tax (before exceptional gains and goodwill amortisation) increased by 32.0% over 2003 to £26.0 million and earnings per share (before goodwill amortisation) by 22.8% to 46.79p. Total funds under management rose by 13.2% to £7.7 billion. '2004 was a year of real progress for Rathbones, against a background of a much calmer stock market than had been the case in 2003. We continue to attract new clients and new funds in our core businesses, and to build our profile and our relationships with intermediaries - an increasingly important source of new business. 'Rathbone Unit Trust Management continues to flourish with funds under management reaching £916m as at the end of February this year. We have welcomed Peter Pearson Lund, the chief executive of our unit trust division, to the board and he joins our other new board appointment - Sue Desborough - who became finance director in October 2004 when Andy Pomfret was appointed to the chief executive role. '2005 has so far seen a further welcome improvement in world equity markets despite continuing currency uncertainties. Provided that markets do not deteriorate, we can look forward to further growth in all parts of our business. We are confident that we have the professional skills, management and operational capability to achieve our medium term objective of becoming the leading independent private client wealth management firm in the UK.' Highlights: • Operating income increased by 16.4% to £95.2m (2003: £81.8m). • Operating profit before goodwill amortisation of £26.0m, an increase of 32.0% (2003: £19.7m). • Operating profit after goodwill amortisation was £20.1m, an increase of 41.5% (2003: £14.2m). • Total funds under management increased by 13.2% to £7.7 billion compared with an increase in the FTSE 100 Index of 7.5% over the same period. • Funds under management in Rathbone Unit Trusts increased by 72.2% over the period to £818m as at 31 Dec 2004. • Operating profit before goodwill amortisation in the Trust Division was £3.0m compared to £2.2m in 2003. • Earnings per share before goodwill amortisation rose by 22.8% to 46.79p (2003: 38.11p). Earnings per share after goodwill amortisation rose by 33.9% to 32.23p (2003: 24.07p). • Recommended final dividend is increased to 17.0p, making a total of 27.5p (2003:26p) for the year - an increase of 5.8%. For further information contact: Rathbone Brothers Plc 020 7399 0000 (Switchboard) Mark Powell, Chairman Andy Pomfret, Chief Executive Emily Morris, Marketing Director Financial Dynamics Geoffrey Pelham-Lane 020 7269 7194 Andrew Waterworth 020 7269 7127 Ed Gascoigne-Pees 020 7269 7132 CHAIRMAN'S STATEMENT I am delighted to present our results for the year ended 31st December 2004. 2004 was a year of real progress for Rathbones, against a background of a much calmer stock market than had been the case in 2003. Operating income rose by 16.4% to £95.2 million. Profits before tax, before exceptional gains and goodwill amortisation are £26.0 million, an increase of 32.0% over 2003 and earnings per share (before goodwill amortisation) are 46.79p compared with 38.11p in 2003, an increase of 22.8%. Profits before tax rose from £15.2 million to £20.9 million. Earnings per share (after goodwill amortisation) rose from 24.07p to 32.23p, an increase of 33.9%. It is recommended that the final dividend be increased to 17p, making a total of 27.5p for the year, an increase of 5.8% over the total in respect of 2003. During 2004 funds under management grew by 13.2% to £7.7bn. This reflected growth in all parts of our investment management business but especially within Rathbone Unit Trust Management where funds grew by 72% to £818 million. This reflects some excellent performance in our funds and increasing industry recognition supported by an effective sales and marketing effort. Within the rest of investment management, funds under management rose by 9.1%. The FTSE/ APCIMS Balanced Index (which we regard as the most appropriate benchmark for our assets under management) rose by 6.5% and the FTSE 100 Index rose by 7.5%. Our trust division made significant moves forward in 2004. The largest part - Rathbone Trust Company Jersey - had an excellent year and plans are now in progress to move all of our people into one headquarters building in St Helier in 2006. Refocusing our Geneva office has made encouraging progress under the leadership of the new managing director and we anticipate that this process will continue in 2005. Within the UK, our trust division seeks to expand its family office activities and to increase its provision of tax and trust services to our investment management clients. Profits before tax, before exceptional items and goodwill amortisation in the trust division for the year rose by 31.5% to £3.0 million. For most of the past decade, private investors have centred their attentions, entirely understandably, on the suitability and performance of their investments. Increasingly they are once more equally exercised by the cumulative effects of a range of tax and policy changes by the Inland Revenue. Inheritance tax liabilities arising from an estate are uppermost in many investors' minds, reflecting the rise in residential property prices in particular. Capital gains tax continues to distort investment decision making and reduce choice, as well as being an extremely expensive tax to collect, even without the costs of compliance with it which are incurred by investors. It is particularly disappointing that the Chancellor of the Exchequer did not respond to pressure to retain the income taxation advantages of Individual Savings Accounts. At a time when there is a widespread acknowledgement of the need to increase the habit of savings in the UK through pensions and in other ways, it is important to stress the relationship between saving and taxation. 2004 saw some extremely important changes in the make up of our executive management team. At the end of September, Roy Morris retired after 47 years service with Rathbones. He has made an enormous contribution to the organisation during his career, particularly since his appointment as chief executive in 1997. His contribution has been made in an unfailingly good humoured way and we are pleased that his advice will continue to be available to us, as he remains on the Board as a non-executive director. His place as chief executive has been filled by Andy Pomfret, who had been finance director since he joined us in 1999, a role that he filled with great distinction. Following a competitive external search, Sue Desborough was appointed to succeed Andy as finance director. Sue had been our group financial controller since she joined us in 2000 from Kleinwort Benson. Both Andy and Sue are already making a very positive contribution to Rathbones in their new roles and we believe that their appointments underline the strength of the executive management team. In January 2005, we announced the appointment of Peter Pearson Lund to the Board. As chief executive of Rathbone Unit Trust Management Limited he has led the creation of what is now a very meaningful business for Rathbones which contributes to our profits, our investment process and our reputation. The early weeks of 2005 have been characterised by a great deal of comment and speculation about further consolidation in the investment management sector generally and that part of it which specialises in investment management services for private investors in particular. On 14th January 2005, we announced that we had made an approach to Rensburg plc, a well regarded UK private client wealth management firm. Despite extensive discussions with the senior management of Rensburg, it has not so far been possible to obtain their Board's recommendation. During the last 15 years Rathbones has sought to grow its investment management business through a combination of organic growth, the recruitment of acknowledged private client specialist fund managers and acquisition. At different times during this period one or more of these routes to growth have seemed more attractive. We have, however, always had in mind the need to demonstrate that recruitments or acquisitions would be earnings enhancing other than in the relatively short-term and enhance our client base or our service offering to clients. We remain constant to that philosophy. 2005 has so far seen a further welcome improvement in world equity markets despite continuing currency uncertainties. Provided that markets do not deteriorate, we can look forward to further growth in all parts of our business. We are confident that we have the professional skills, management and operational capability to achieve our medium term objective of becoming the leading independent private client wealth management firm in the UK. Mark Powell Chairman 2 March 2005 Consolidated profit and loss account for the year ended 31st December 2004 ______________________________________________________________________________ 2004 2003 Notes £'000 £'000 ______________________________________________________________________________ Interest receivable - interest receivable and similar income arising from debt securities 16,294 14,399 - other interest receivable and similar income 4,465 3,552 Interest payable (10,477) (7,968) ______________________________________________________________________________ Net interest income 10,282 9,983 Dividend income 3 915 62 Fees and commissions receivable 83,818 72,117 Fees and commissions payable (4,276) (2,228) Other operating income 3 4,465 1,843 ______________________________________________________________________________ Operating income 95,204 81,777 Administrative expenses (66,599) (58,802) Depreciation and amortisation (8,512) (8,661) Other operating charges - (17) Provisions for bad and doubtful debts 14 (132) ______________________________________________________________________________ Operating profit 20,107 14,165 Operating profit before goodwill amortisation 26,034 19,745 Goodwill amortisation (5,927) (5,580) Exceptional gains on sales of investment securities 11 759 1,088 ______________________________________________________________________________ Profit on ordinary activities before tax 20,866 15,253 Tax on profit on ordinary activities 4 (7,737) (5,685) ______________________________________________________________________________ Profit on ordinary activities after tax 13,129 9,568 Equity dividends paid and proposed 5 (11,221) (10,524) ______________________________________________________________________________ Retained profit/(loss) for the year 1,908 (956) ______________________________________________________________________________ Dividends per ordinary share 5 27.5p 26.0p Earnings per ordinary share 6 Basic 32.23p 24.07p Diluted 31.63p 23.86p Basic before goodwill amortisation 46.79p 38.11p Diluted before goodwill amortisation 45.91p 37.77p ______________________________________________________________________________ There is no difference between the profit on ordinary activities before taxation and the result for the year above and their historic cost equivalents. Operating income, operating profit and the exceptional gains on sales of investment securities all derive from continuing operations. Consolidated balance sheet as at 31st December 2004 ______________________________________________________________________________ 2004 2003* Note £'000 £'000 ______________________________________________________________________________ Assets Cash and balances at central banks 15,840 3,205 Settlement balances 11,199 13,523 Loans and advances to banks 57,881 43,207 Loans and advances to customers 41,226 36,353 Debt securities 381,119 333,002 Equity shares 7 35 35 Intangible fixed assets 51,812 57,702 Tangible fixed assets 5,625 6,226 Other assets 4,528 4,245 Prepayments and accrued income 19,482 17,666 ______________________________________________________________________________ Total assets 588,747 515,164 ______________________________________________________________________________ Liabilities Deposits by banks 3,243 5,335 Settlement balances 15,238 11,376 Customer accounts 425,078 366,715 Debt securities in issue 286 898 Other liabilities 8 20,571 15,637 Accruals and deferred income 13,033 8,560 Provision for liabilities and charges 9 713 741 Called up share capital 2,043 2,033 Share premium account 14,766 13,791 Other reserves 49,428 49,428 Profit and loss account 44,348 40,650 ______________________________________________________________________________ Equity shareholders' funds 110,585 105,902 ______________________________________________________________________________ ______________________________________________________________________________ Total liabilities 588,747 515,164 ______________________________________________________________________________ * Comparatives restated - see notes 8 and 9 Memorandum items Contingent liabilities - guarantees 902 912 - assets pledged as collateral security 52 49 ______________________________________________________________________________ 954 961 ______________________________________________________________________________ Commitments - undrawn commitments to lend 3,253 4,182 ______________________________________________________________________________ Consolidated cash flow statement for the year ended 31st December 2004 ___________________________________________________________________________________ 2004 2003+ Notes £'000 £'000 £'000 £'000 ___________________________________________________________________________________ Net cash inflow/(outflow) 12 85,596 (22,934) from operating activities ___________________________________________________________________________________ Taxation - UK corporation tax (6,280) (5,120) - overseas tax (724) (506) ___________________________________________________________________________________ Net cash outflow for taxation (7,004) (5,626) ___________________________________________________________________________________ Capital expenditure and financial investments - purchase of investment securities (1,587,497) (1,962,667) - proceeds from sale and maturities of investment securities 1,540,139 1,994,214 - purchase of tangible fixed assets (2,062) (1,903) - sale of tangible fixed assets 212 105 ___________________________________________________________________________________ Net cash (outflow)/inflow for (49,208) 29,749 ___________________________________________________________________________________ capital expenditure and financial investments Acquisitions and disposals - acquisitions of subsidiaries/ businesses (169) (4,970) - net cash acquired with subsidiary undertakings/ businesses - 70 ___________________________________________________________________________________ Net cash outflow for acquisitions and disposals (169) (4,900) ___________________________________________________________________________________ Equity dividends paid (10,780) (10,319) ___________________________________________________________________________________ Net cash inflow/(outflow) before financing 18,435 (14,030) ___________________________________________________________________________________ Financing - issue of shares 12 745 3,466 - purchase of shares for share based schemes (1,266) - - repayment of debt securities (611) (4,870) ___________________________________________________________________________________ Net cash (outflow) from financing (1,132) (1,404) ___________________________________________________________________________________ Increase/(decrease) in cash in the year 12 17,303 (15,434) ___________________________________________________________________________________ + Comparatives restated see note 12(vi) Consolidated statement of total recognised gains and losses for the year ended 31st December 2004 ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Profit for the financial year attributable to equity shareholders 13,129 9,568 Currency adjustments (109) (207) ________________________________________________________________________________ Total recognised gains and losses for the year 13,020 9,361 ________________________________________________________________________________ Reconciliations of movements in equity shareholders' funds for the year ended 31st December 2004 ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Profit for the financial year attributable to equity shareholders 13,129 9,568 Dividends (11,221) (10,524) ________________________________________________________________________________ Profit/(loss) for the financial year 1,908 (956) Currency adjustments (109) (207) Shares issued or to be issued 10 64 Premium on shares issued 975 5,979 Movement in relation to share based schemes 1,899 592 ________________________________________________________________________________ Net addition to equity shareholders' funds 4,683 5,472 Opening equity shareholders' funds 105,902 100,430 ________________________________________________________________________________ Closing equity shareholders' funds 110,585 105,902 ________________________________________________________________________________ Notes 1 Principal 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 2003 with the exception of the following additional policy: • Off Balance Sheet Financial Instruments Forward rate agreements ('FRAs') are used to manage interest rate risk. The net interest paid or received on FRAs' is recorded on an accruals basis from settlement date and included within net interest in the profit and loss account. 2 Segmental information (a) Segmental information as required by Statement of Standard Accounting Practice 25 'Segmental reporting': ________________________________________________________________________________ Gross operating income Profit before tax 2004 2003 2004 2003 £'000 £'000 £'000 £'000 ________________________________________________________________________________ By class of business: Investment management and banking 77,399 65,956 18,292 14,185 Unit trusts 11,245 5,818 1,506 402 Trust services 21,313 20,199 1,068 666 ________________________________________________________________________________ 109,957 91,973 20,866 15,253 ________________________________________________________________________________ Total assets Net assets 2004 2003 2004 2003 £'000 £'000 £'000 £'000 ________________________________________________________________________________ By class of business: Investment management and banking 520,766 450,641 70,625 63,495 Unit trusts 9,478 5,165 2,679 1,831 Trust services 58,503 59,358 37,281 40,576 ________________________________________________________________________________ 588,747 515,164 110,585 105,902 ________________________________________________________________________________ Gross operating income Profit before tax 2004 2003 2004 2003 £'000 £'000 £'000 £'000 ________________________________________________________________________________ By geographical segment: United Kingdom 89,780 74,867 17,993 12,670 Jersey, Switzerland and other European countries 19,476 16,206 2,778 2,552 The Americas 701 900 95 31 ________________________________________________________________________________ 109,957 91,973 20,866 15,253 ________________________________________________________________________________ Total assets Net assets 2004 2003 2004 2003 £'000 £'000 £'000 £'000 ________________________________________________________________________________ By geographical segment: United Kingdom 530,677 458,371 77,189 70,318 Jersey, Switzerland and other European countries 55,633 53,466 32,638 34,085 The Americas 2,437 3,327 758 1,499 ________________________________________________________________________________ 588,747 515,164 110,585 105,902 ________________________________________________________________________________ Interest Dividend Fees and Other receivable income commissions operating receivable income 2004 2003 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ___________________________________________________________________________________ Analysis of gross operating income by geographical segment: United Kingdom 19,178 17,026 915 62 65,303 55,965 4,384 1,814 Jersey, Switzerland and other European countries 1,546 868 - - 17,863 15,314 67 23 The Americas 35 57 - - 652 838 14 6 ___________________________________________________________________________________ 20,759 17,951 915 62 83,818 72,117 4,465 1,843 ___________________________________________________________________________________ (b) Additional segmental analysis: ___________________________________________________________________________________ Gross operating Profit before tax, Profit before income before exceptional tax and goodwill items and goodwill amortisation amortisation 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'000 ___________________________________________________________________________________ By class of business: Investment management and banking 77,399 65,956 21,649 17,147 22,158 17,690 Unit Trusts 11,245 5,818 1,431 352 1,506 402 Trust services 21,313 20,199 2,954 2,246 3,129 2,741 ___________________________________________________________________________________ 109,957 91,973 26,034 19,745 26,793 20,833 ___________________________________________________________________________________ Gross operating Profit before tax, Profit before income before exceptional tax before items and goodwill goodwill amortisation amortisation 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'0000 ___________________________________________________________________________________ By geographical segment: United Kingdom 89,780 74,867 21,460 15,839 22,219 16,535 Jersey, Switzerland and other European countries 19,476 16,206 4,479 3,936 4,479 4,267 The Americas 701 900 95 (30) 95 31 ___________________________________________________________________________________ 109,957 91,973 26,034 19,745 26,793 20,833 ___________________________________________________________________________________ Notes (i) Gross operating income and operating income are derived as follows: ________________________________________________________________________________ Year Year ended ended 31st December 31st December 2004 2003 £'000 £'000 ________________________________________________________________________________ Interest receivable from debt securities 16,294 14,399 Other interest receivable 4,465 3,552 Dividend income 915 62 Fees and commissions receivable 83,818 72,117 Other operating income 4,465 1,843 ________________________________________________________________________________ Gross operating income 109,957 91,973 Interest payable (10,477) (7,968) Fees and commissions payable (4,276) (2,228) ________________________________________________________________________________ Operating income 95,204 81,777 ________________________________________________________________________________ (ii) 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. (iii) The allocations by class of business and geographical segment of total and net assets include goodwill of £51,812,000 (2003: £57,702,000) of which £27,408,000 (2003: £29,428,000) relates to trust services. (iv) 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. (v) 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. (vi) As the Group is not required to disclose turnover, no segmental analysis of turnover is included above. 3 Dividend income and other operating income Dividend income comprises income from equity shares of £915,000 (2003: £62,000). In 2004, dividend income includes an amount of £825,000 which is the special dividend of 55p per share paid by London Stock Exchange plc on 16th August in relation to the Group's holding of 1,500,000 shares on the record date of 23rd July. Further details in relation to this holding are included in Note 7. Other operating income of £4,465,000 (2003: £1,843,000) includes £3,619,000 (2003: £1,116,000) of net unit trust dealing profits. 4 Tax on profit on ordinary activities ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Current tax: UK corporation tax on profits for the year 7,673 6,262 Adjustments in respect of previous years 56 (395) ________________________________________________________________________________ 7,729 5,867 Foreign tax (including £5,000 (2003: £128,000) in respect of previous years) 898 749 ________________________________________________________________________________ Total current tax 8,627 6,616 ________________________________________________________________________________ Deferred tax: Origination and reversal of timing differences - current year (906) (923) - previous year 16 (8) ________________________________________________________________________________ Total deferred tax (890) (931) ________________________________________________________________________________ 7,737 5,685 ________________________________________________________________________________ The tax charge for the year is higher than the standard rate of corporation tax in the UK of 30% (2003: 30%). The differences are explained below: ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Tax on ordinary activities at the standard rate 30% (2003: 30%) 6,260 4,576 Effects of: UK dividend income (271) (15) Goodwill amortisation 1,706 1,601 Leasehold property depreciation 81 80 Disallowable expenses 179 75 Share options exercised (124) (56) UK tax on overseas subsidiary dividends 285 352 Lower tax rates on overseas earnings (445) (399) Under/(over)provision for tax in previous years 66 (529) ________________________________________________________________________________ Overall tax charge 7,737 5,685 ________________________________________________________________________________ Timing differences subject to deferred tax: Timing difference in relation to capital allowances and depreciation (31) 128 Timing difference in relation to SSAP 24 pension cost 26 24 Timing difference in relation to the share based payments 247 130 Timing difference in relation to other incentive costs 648 649 ________________________________________________________________________________ Current tax charge 8,627 6,616 ________________________________________________________________________________ 5 Dividends ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Interim dividend of 10.5p per share on 40,721,015 shares (2003: 10p per share on 39,649,942 shares) 4,276 3,965 Adjustment to interim dividend of 10.5p per share on 31,065 shares (2003: 10p per share on 425,946 shares) (3) 43 Final dividend of 17p per share on 40,868,815 shares (2003: 16p per share on 40,668,642 shares) 6,948 6,507 ________________________________________________________________________________ 11,221 10,515 Adjustment to previous year's final dividend - 9 ________________________________________________________________________________ Total dividends 11,221 10,524 ________________________________________________________________________________ The interim dividend of 10.5p per share was paid on 15th October 2004 to shareholders on the register at the close of business on 24th September 2004. The final dividend declared of 17p per share is payable on 12th May 2005 to shareholders on the register at the close of business on 15th April 2005. 6 Earnings per share Basic earnings per share has been calculated by dividing the profits attributable to shareholders of £13,129,000 (2003: £9,568,000) by the weighted average number of shares in issue throughout the year of 40,729,520 (2003: 39,750,634). 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). 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. Supplementary basic and diluted EPS figures have been calculated to exclude the effect of goodwill amortisation of £5,927,000 included in operating administrative expenses (2003: £5,580,000). The average fair value of one ordinary share during 2004 was £7.30 (2003: £5.97) and the average exercise price of shares under option during 2004 was £4.51 (2003: £6.71). _______________________________________________________________________________ 2004 2003 No. No. _______________________________________________________________________________ Weighted average number of ordinary shares in issue during the year - basic 40,729,520 39,750,634 Effect of ordinary share options 333,709 243,661 Effect of dilutive shares issuable under the Share Incentive Plan 174,606 110,897 Effect of contingently issuable ordinary shares under the Long Term Incentive Plan 265,611 - _______________________________________________________________________________ Diluted ordinary shares 41,503,446 40,105,192 _______________________________________________________________________________ 7 Equity shares ________________________________________________________________________________ 2004 2003 Directors' Directors' valuation/ valuation/ market market Cost value Cost value £'000 £'000 £'000 £'000 ________________________________________________________________________________ Listed equity shares (see Note (b) below) - 6,402 - 5,025 Unlisted equity shares (see Notes (c) and (d) below) 35 817 35 35 ________________________________________________________________________________ 35 7,219 35 5,060 ________________________________________________________________________________ (a) The equity shares are held as investment securities for continuing use in the business. (b) The Group holds 1,100,000 (2003: 1,500,000) shares in London Stock Exchange plc which are held in the balance sheet at cost (£2). On 26th July 2004, there was a 6 for 7 share consolidation and the Group's holding of 1,500,000 shares was consolidated to 1,285,714 shares. On 30th November 2004, the Group sold 185,714 shares. (c) The Group holds 1,809 shares in Euroclear plc which are held in the balance sheet at cost of £30,000 (2003: £30,000). The Directors' valuation of £812,225 has been derived from the unaudited net asset value per share provided by the company. (d) The Group holds 5,000 shares in an unlisted company which are held in the balance sheet at a cost of £5,000 (2003: £5,000). 8 Other Liabilities ________________________________________________________________________________ 2004 2003* £'000 £'000 ________________________________________________________________________________ Corporation tax 6,067 4,447 Other taxes and social security costs 1,635 1,285 Proposed dividend 6,948 6,507 Other creditors 5,921 3,398 ________________________________________________________________________________ 20,571 15,637 ________________________________________________________________________________ * Comparative restated to reclassify corporation tax from provision for liabilities and charges 9 Provision for liabilities and charges ________________________________________________________________________________ 2004 2003* £'000 £'000 ________________________________________________________________________________ Deferred contingent consideration - 154 Other 713 587 ________________________________________________________________________________ 713 741 ________________________________________________________________________________ * Comparative restated to reclassify corporation tax as other liabilities ________________________________________________________________________________ Deferred Legal Total Contingent and Consideration Other £'000 £'000 £'000 ________________________________________________________________________________ As at 1st January 2004 154 587 741 Charged to the profit and loss account - 370 370 Unused amounts reversed (24) - (24) Amounts used (130) (244) (374) ________________________________________________________________________________ As at 31st December 2004 - 713 713 ________________________________________________________________________________ Further details on legal and other provisions have not been provided on the basis that the directors consider that this would be prejudicial to the Company's interests. 10 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 as at 31st December 2002 (the Laurence Keen Scheme) and for the purposes of FRS17 disclosures the actuary has determined the following information. The major assumptions used in these valuations were as follows: _________________________________________________________________________________ Laurence Keen Scheme Rathbone Scheme 2004 2003 2002 2004 2003 2002 _________________________________________________________________________________ Rate of increase in salaries 3.65% 3.45% 3.00% 3.65% 3.45% 3.00% Rate of increase of pensions in payment 2.70% 2.60% 2.25% *2.70% *2.60% *2.25% Rate of increase of deferred pensions 2.90% 2.60% 2.25% 2.90% 2.60% 2.25% Discount rate 5.50% 5.60% 5.80% 5.50% 5.60% 5.80% Inflation assumption 2.90% 2.70% 2.25% 2.90% 2.70% 2.25% ________________________________________________________________________________ * 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 rate of Long term rate of Laurence Rathbone 2004 2003 2002 return expected at return expected at Keen Scheme Total Total Total Scheme £'000 £'000 £'000 £'000 1.1.03 1.1.04 1.1.05 1.1.03 1.1.04 1.1.05 £'000 _______________________________________________________________________________________________________________ Equities 8.00% 7.70% 7.50% 8.00% 7.70% 7.50% 3,257 20,856 24,113 20,096 14,048 Bonds 4.90% 4.80% 4.60% 5.80% 5.60% 5.50% 3,258 4,258 7,516 6,038 5,482 Other 2.75% 4.60% 4.50% 2.75% 4.60% 4.50% 321 833 1,154 899 1,991 _______________________________________________________________________________________________________________ Total market value of assets 6,836 25,947 32,783 27,033 21,521 Present value of scheme liabilities (9,552) (38,214) (47,766) (40,877) (32,939) _______________________________________________________________________________________________________________ Deficit in scheme (2,716) (12,267) (14,983) (13,844) (11,418) Related deferred tax asset 815 3,680 4,495 4,153 3,425 _______________________________________________________________________________________________________________ Net pension liability (1,901) (8,587) (10,488) (9,691) (7,993) _______________________________________________________________________________________________________________ (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 2004 would have been as follows: ________________________________________________________________________________ 2004 2003 £'000 £'000 ________________________________________________________________________________ Net assets Net assets excluding pension liability 110,585 105,902 Pension liability (10,488) (9,691) ________________________________________________________________________________ Net assets including pension liability 100,097 96,211 ________________________________________________________________________________ Reserves Profit and loss reserve excluding pension liability 44,348 40,650 Pension liability (10,488) (9,691) ________________________________________________________________________________ Profit and loss reserve including pension liability 33,860 30,959 ________________________________________________________________________________ (v) Movement in deficit during the year ____________________________________________________________________________________ 2004 2003 Laurence Rathbone Total Laurence Rathbone Total Keen Scheme Keen Scheme Scheme Scheme £'000 £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________ Balance at 1st January (3,051) (10,793) (13,844) (2,661) (8,757) (11,418) Movement in the year: Current service cost - (3,056) (3,056) - (2,588) (2,588) Contributions 562 2,576 3,138 33 2,557 2,590 Other finance income (120) (245) (365) (128) (300) (428) Actuarial loss (107) (749) (856) (295) (1,705) (2,000) ____________________________________________________________________________________ Balance at 31st December (2,716) (12,267) (14,983) (3,051) (10,793) (13,844) ____________________________________________________________________________________ (vi) The following amounts would have been included within operating profit under FRS17: ____________________________________________________________________________________ 2004 2003 Laurence Rathbone Total Laurence Rathbone Total Keen Scheme Keen Scheme Scheme Scheme £'000 £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________ Current service costs (employer's part only) - 2,280 2,280 - 1,808 1,808 Past service cost - - - - - - ____________________________________________________________________________________ Total operating charge - 2,280 2,280 - 1,808 1,808 ____________________________________________________________________________________ (vii) Analysis of the amount credited to other finance income under FRS17: ____________________________________________________________________________________ 2004 2003 Laurence Rathbone Total Laurence Rathbone Total Keen Scheme Keen Scheme Scheme Scheme £'000 £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________ Expected return on pension scheme assets 369 1,616 1,985 319 1,210 1,529 Interest on post retirement liabilities (489) (1,861) (2,350) (447) (1,510) (1,957) ____________________________________________________________________________________ Net return (120) (245) (365) (128) (300) (428) ____________________________________________________________________________________ (viii) The actuarial loss can be analysed as follows: ____________________________________________________________________________________ Laurence Keen Rathbone Scheme Scheme 2004 2003 2002 2004 2003 2002 £'000 £'000 £'000 £'000 £'000 £'000 ____________________________________________________________________________________ Actual return less expected return on pension scheme assets 359 654 (700) 1,132 1,696 (4,064) Percentage difference between expected and actual return 5% 11% 13% 4% 8% 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 (107) (295) (415) (749) (1,705) (132) Percentage of the present value of the scheme liabilities 1% 3% 5% 2% 5% 0.5% ____________________________________________________________________________________ (ix) Analysis of amount recognised in statement of total recognised gains and losses ('STRGL') under FRS17 ______________________________________________________________________________ Laurence Keen Rathbone Scheme Scheme 2004 2003 2004 2003 £'000 £'000 £'000 £'000 ______________________________________________________________________________ Actual return less expected return on scheme assets 359 654 1,132 1,696 Experience gains and losses arising on scheme's liabilities - - - - Loss due to changes in assumptions under the FRS17 value of scheme liabilities (466) (949) (1,881) (3,401) ______________________________________________________________________________ Actuarial loss recognised in the STRGL (107) (295) (749) (1,705) ______________________________________________________________________________ (x) The total regular contributions made by the Group to the Rathbone Scheme during the year were £1,800,000 (2003: £1,777,000) based on 11.5% of pensionable salary. No additional lump sum contributions were paid in 2004 (2003: £nil). Future employer contributions will continue at the rate of 11.5% of pensionable salaries. Given that after 31st March 2002 the Rathbone Scheme was closed to new entrants, the current pension cost will increase as the members of the Scheme approach retirement. The total contributions made by the Group to the Laurence Keen Scheme during the year were £562,000 (2003: £33,000). Future employer contributions of £562,000 p.a. will be paid to the Scheme over ten years commencing in 2004. 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. 11 Exceptional gains on sale of investment securities ____________________________________________________________________________________ Security No. Cost Sale Profit Attributable shares £'000 proceeds £'000 Tax sold £'000 £'000 ____________________________________________________________________________________ 2004 London Stock Exchange plc 185,714 - 759 759 228 ____________________________________________________________________________________ - 759 759 228 ____________________________________________________________________________________ 2003 London Stock Exchange plc 250,000 - 909 909 273 Consort Security Systems Limited 35,000 35 192 157 47 Euroclear Bank S.A./N.V. 1 - 22 22 7 ____________________________________________________________________________________ 35 1,123 1,088 327 ____________________________________________________________________________________ 12 Group cash flow statement (i) Reconciliation of operating profit to net cash inflow from operating activities _________________________________________________________________________________ 2004 2003+ £'000 £'000 _________________________________________________________________________________ Operating profit 20,107 14,165 (Profit) on disposal of tangible fixed assets (135) (60) Depreciation and amortisation 8,512 8,661 UITF Abstract 17 share based schemes charge 3,158 1,165 Provision for bad and doubtful debts (14) 132 Net (increase) in accrued income and prepayments (1,798) (1,524) Net increase in provision for liabilities and charges 330 86 Net increase in accruals and deferred income 4,453 903 _________________________________________________________________________________ Net cash inflow from trading activities 34,613 23,528 Net (increase) in loans and advances to banks and customers (15,001) (8,603) Net decrease/(increase) in settlement debtor balances 2,323 (6,684) Net decrease in settlement creditor balances 3,862 5,511 Net increase/(decrease) in deposits by banks and customer accounts 56,317 (37,109) Net increase in other liabilities 2,874 85 Net decrease in other assets 608 338 _________________________________________________________________________________ Net cash inflow/(outflow) from operating activities 85,596 (22,934) _________________________________________________________________________________ + comparative restated see note (vi) (ii) Analysis of the balances of cash as shown in the balance sheet ___________________________________________________________________________________ At 1st At 31st January Cash Non-cash Exchange December 2004+ flow Changes movements 2004 £'000 £'000 £'000 £'000 £'000 ___________________________________________________________________________________ Cash and balances at central banks 3,205 12,655 - (20) 15,840 Loans and advances to banks repayable on demand 28,525 4,648 - (21) 33,152 ___________________________________________________________________________________ Total 31,730 17,303 - (41) 48,992 ___________________________________________________________________________________ + comparative restated see note (vi) The Group is required to maintain balances with the British Virgin Islands government which, at 31st December 2004, amounted to £281,000 (2003 £302,000). (iii) Analysis of changes in financing _______________________________________________________________________________ Share Share capital premium £'000 £'000 _______________________________________________________________________________ Balance at 1st January 2004 2,033 13,791 Cash inflow 10 975 _______________________________________________________________________________ Balance at 31st December 2004 2,043 14,766 _______________________________________________________________________________ (iv) Disposal of investment securities Net sale proceeds of £759,000 (2003: £1,123,000) were received in relation to the sale of investment securities, and are included in the amount of £1,540,139 (2003: £1,994,214) in the cash flow statement (see also note 11). (v) Analysis of financing through issue of shares _______________________________________________________________________________ 2004 2003 £'000 £'000 _______________________________________________________________________________ Cash inflow - share capital 10 37 Cash inflow - share premium 975 4,003 Cost of shares issued in relation to shares based schemes (240) (574) _______________________________________________________________________________ 745 3,466 _______________________________________________________________________________ (vi) Amendments to the cashflow statement for the year ended 31st December 2003. The cashflow statement and related notes for the year ended 31st December 2003 have been amended for two money market deposits totalling £8,299,000 which were classified as repayable on demand rather than repayable within three months. 13 Contingent liabilities a) The Group is currently carrying out a review of its Rathbone Self Invested Personal Pension ('Rathbone SIPP') business. The principal aim of the review is to ascertain whether any of the Rathbone SIPPs arranged for clients were unsuitable. The review was initiated by the Group; the Group's regulator has been consulted in relation to the approach being adopted. To date, the review has identified a number of cases involving the transfer of clients' existing pension policies into Rathbone SIPPs where the case files do not contain conclusive evidence of suitability. Some of these cases could result in a cost to the Group. The cases will be the subject of further investigation by the Group so, at this stage, it is not practicable to determine what, if any, financial effect there will be for the Group. b) A third party is in dispute with the Group in relation to a transfer of business agreement dated November 1999. The third party has stated that it intends to seek compensation for lost business opportunities that have arisen or may arise from the untimely transfer of certain clients. The Group strongly refutes the claim and believes that it can demonstrate that client records were transferred on a timely basis. c) A subsidiary of the Group, in its capacity as trustee of a client's settlement, jointly with the client issued proceedings for breach of contract and negligence against a third party in January 2003. Judgement against the claimants was handed down in June 2004 in which the client was awarded nominal damages, the Group subsidiary's claim was dismissed and the client and the Group subsidiary were ordered to pay the defendant's costs on the standard basis if not agreed. The claimants were also ordered to make an interim payment on account of costs of £350,000, although this interim costs award has been stayed. Permission to appeal against this judgement was granted in December 2004 and the appeal is due to be heard in April 2005. Although there can be no certainty as to the outcome of the appeal or the size of any consequential costs award (in favour of any party), the Directors believe that, even if the appeal is lost, it is not likely to have a significant effect on the financial position of the Group. 14 Post balance sheet event On 14th January 2005, the Company announced a pre-conditional offer for Rensburg plc ('Rensburg'). There have subsequently been substantive discussions and exchanges of information with Rensburg, which led to a revised pre-conditional offer proposal being made on 23rd February 2005 which was subsequently rejected by the board of Rensburg. In the course of this approach the Company continues to incur professional advisory costs. In the event that an offer for Rensburg is made and goes unconditional, it is anticipated that the majority of these costs (including those costs which are only payable in the event of an offer being successful) will be capitalised. If no offer is made, these costs will be charged to the profit and loss account in 2005. 15 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 2004 or 2003. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 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. This information is provided by RNS The company news service from the London Stock Exchange

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