REG - Rathbones Group PLC - Preliminary results 2021
24/02/2022 07:00
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RNS Number : 6326C Rathbones Group PLC 24 February 2022
Preliminary results for the twelve months ended 31 December 2021
Strategic momentum leading to strong financial results
Paul Stockton, Group Chief Executive, said:
"We set out our focused strategy over two years ago and it has driven some
considerable and positive changes within the business over that period. It is
clear from the results we are publishing today that Rathbones is building
strong organic growth momentum, complemented by value-added acquisitions,
which has led to total funds under management and advice (FUMA) growth of
24.7% to £68.2 billion in the year.
Our financial results for 2021 are strong and include meaningful investments
that are enabling further strategic progress. Statutory profit before tax of
£95.0 million is up 116.9% on the £43.8 million reported a year ago. The
business ends 2021 in good health and our confidence in the future is
reflected in our full-year dividend of 81p, up 12.5% from 72p last year. This
financial outcome gives us a strong platform to enter the next phase of our
strategy which will further leverage technology to deliver a holistic digital
experience to clients, advisers and colleagues, and harness efficiency
opportunities.
After a decade of significant growth, the Rathbones of today offers a holistic
range of wealth management and advice services, complemented by a high-quality
fund management business; our December 2021 announcement to rename the company
to Rathbones Group Plc reflects this."
Financial highlights
- Total FUMA reached £68.2 billion at 31 December 2021, up 24.7% from £54.7
billion at 31 December 2020:
- £50.3 billion in Investment Management (excluding Saunderson House), up
12.0% (2020: £44.9 billion).
- £4.9 billion of Saunderson House FUMA following completion of the
acquisition in October 2021.
- £13.0 billion in Rathbone Funds, up 32.7% (2020: £9.8 billion).
- In 2021, we enhanced our reporting capability to represent more closely the
way we deliver our products and services:
- Discretionary service net inflows totalled £1.3 billion in the year (2020:
£1.0 billion), while inflows into our multi-asset fund range totalled £0.5
billion (2020: £0.2 billion). Total discretionary and managed net inflows
therefore were £1.8 billion (2020: £1.2 billion), representing an annualised
growth rate of 4.1% (2020: 2.9%), demonstrating growing momentum in both
direct-to-client business and the indirect financial adviser market.
- Net flows into our single strategy fund range grew by 20.0% year-on-year to
£1.2 billion (2020: £1.0 billion).
- In total, Rathbone Funds generated net inflows of £2.1 billion (2020: £1.5
billion), an exceptional growth rate of 21.1% (2020: 20.1%).
2021 2020 Change
£m
£m
(unless stated)
(unless stated)
Operating income 435.9 366.1 19.1%
Underlying operating expenses1 (315.2) (273.6) 15.2%
Underlying profit before tax1 120.7 92.5 30.5%
Underlying operating margin1 27.7% 25.3%
Profit before tax 95.0 43.8 116.9%
Underlying earnings per share1 172.2p 133.3p 29.2%
Earnings per share 133.5p 49.6p 169.2%
1. A reconciliation between the underlying measure and its closest IFRS
equivalent is provided in the financial performance section.
Outlook and guidance
Rathbones is in a strong position to implement the next phase of its digital
strategy, secure the delivery of its ambitions for Saunderson House, and
continue its organic growth momentum whilst being mindful of an inflationary
post-pandemic period and current tensions in Ukraine.
Net interest income in 2022 is expected to increase as a result of recent Bank
of England base rate rises and those widely anticipated in the remainder of
2022.
The progression of our digital strategy has been carefully considered and is
expected to result in an additional investment of £40 million in total, split
between 2022 and 2023. At market levels consistent with conditions at 31
December 2021, we plan to manage this investment within existing underlying
operating margin guidance of mid-20%s in 2022 and 2023 with a view to
returning to 27-30% from 2024 onwards.
Rathbones' balance sheet is well capitalised which places it in a strong
position to invest to drive organic inflows, continue to improve services to
clients and explore further opportunities for growth.
Declaration of final dividend
The board recommends a final dividend of 54p for 2021 (2020: 47p), making a
total of 81p for the year (2020: 72p), an increase of 12.5% on 2020. This is
consistent with our progressive policy and is supported by our strong capital
position and robust balance sheet. The dividend will be paid on 10 May 2022,
subject to shareholder approval at our 2022 Annual General Meeting on 5 May
2022.
2021 results presentation
A presentation detailing Rathbones' 2021 results is available on the investor
relations website under the tab 'Results Presentations'
(https://www.rathbones.com/investor-relations/results-and-presentations).
A presentation to analysts and investors will take place this morning at
10:30am at our offices at 8 Finsbury Circus, London, EC2M 7AZ. Participants
who wish to join the presentation virtually can do so by either joining the
video webcast
(https://www.investis-live.com/rathbone-brothers/620242f403c52012000f9ae2/whh3
(https://protect-eu.mimecast.com/s/snjaCvZywiOglMBCQYfax?domain=investis-live.com)
) or by dialling in using the conference call details below:
United Kingdom: 0800 640 6441
United Kingdom (Local) : 020 3936 2999
All other locations : +44 203 936 2999
Participant access code: 865870
A Q&A session will follow the presentation. Participants will be able to
ask their questions either via the webcast by typing them in or via the
conference call line.
A recording of the presentation will be available later today on our website
at: www.rathbones.com/investor-relations/results-and-presentations.
Issued on 24 February 2022
For further information contact:
Rathbones Group Plc
Tel: 020 7399 0000
email: shelly.patel@rathbones.com
Paul Stockton, Group Chief Executive
Jennifer Mathias, Group Chief Financial Officer
Shelly Patel, Head of Investor Relations
Camarco
Tel: 020 3757 4984
email: ed.gascoigne-pees@camarco.co.uk
Ed Gascoigne-Pees
Julia Tilley
Rathbones Group Plc
Rathbones provides individual investment and wealth management services for
private clients, charities, trustees and professional partners. We have been
trusted for generations to manage and preserve our clients' wealth. Our
tradition of investing and acting responsibly has been with us from the
beginning and continues to lead us forward. Our ambition is to be recognised
as the UK's most responsible wealth manager.
Rathbones has over 1,900 staff in 15 UK locations and Jersey; its
headquarters is 8 Finsbury Circus, London, EC2M 7AZ.
www.rathbones.com
Chair's statement
Dear Shareholder
In my first year as Chair of Rathbones, I have spent time getting to know the
various teams that comprise this special business, as well as having the
pleasure of speaking to some of our shareholders and other key stakeholders
about Rathbones and the wider UK wealth market. This has been informative, and
I look forward to continuing this dialogue during 2022 and beyond.
These discussions have confirmed that the work we do on behalf of our clients
and advisers is of real importance. It is our responsibility to be good,
long-term stewards of the £68.2 billion of wealth entrusted to Rathbones. Our
commitment to be a leader in responsible business stems from our sense of
purpose to society. It is woven throughout our business strategy, and embedded
in our day-to-day decision-making. This focus on the long term is how we will
not only create value for our clients, but also make a wider contribution to
the society where we live.
2021 was a year of good progress as we delivered against our strategic
ambitions. We generated very strong financial results and took another major
step forward in the expansion of our financial planning proposition with the
acquisition of Saunderson House. The board reviewed the merits of the
transaction and concluded that Saunderson House will accelerate group growth
and enable us to reach new clients across the wealth sector. The acquisition
brings £4.9 billion of FUMA (at 31 December 2021) and reinforces Rathbones'
position as one of the largest independent UK wealth managers. Their
51 financial planners will strengthen our existing financial planning
capabilities and enhance the wider wealth proposition we provide to our
existing clients. The transaction is earnings accretive, underpinned by
revenue and cost synergies, with a target return on invested capital of
approximately 12% by the end of 2024.
Dividend
In line with a progressive dividend policy of over 25 years, positive
financial results and a strong capital position, the board has recommended a
final dividend of 54p per share. This brings the total dividend for the year
to 81p per share, 12.5% ahead of 2020.
Environmental, social and governance (ESG)
Rathbones' has long been at the forefront of responsible investing through
Rathbone Greenbank Investments who have created bespoke, ethical, and
sustainable portfolios for our clients for over 20 years. Our approach to
responsible investment was recognised by the FT & Investors' Chronicle
Investment Awards 2021, where Rathbones was named ESG Champion of the Year,
and ESG Champion for Governance. We intend to further integrate ESG into our
investment process across the Group, including the launch of four new Rathbone
Greenbank Multi-Asset Funds announced earlier this year.
In keeping with our ESG responsibilities, I am delighted that Rathbones is
committed to achieving net zero emissions by 2050 or earlier.
Outside of our own group, we have always recognised the importance of
maintaining a dialogue with the companies in which we invested, and remain
eager to help them towards better, more sustainable long-term performance. Our
highly regarded stewardship team directly engaged with 705 companies in 2021
to discuss ESG issues.
The board is conscious that good governance is not simply a matter of
regulatory compliance but encompasses the firm's culture, behaviours and how
we serve our clients. We recognise the crucial link between culture,
governance and leadership. As a result, the board closely monitors and
analyses the firm's culture. This is supported by my own engagement with
employees and our workforce engagement programme. It is gratifying to see the
firm's strong and distinctive culture in action. This is evident by the way
our employees work to provide positive outcomes for our clients and partners.
During the year the board held strategy days with the group executive team to
focus on strategic issues including emerging trends, client needs and their
future expectations. Commitment to fulfilling client needs remains paramount,
supported by a digital approach to enhance that interaction. Our new portal
and app, MyRathbones, was launched in 2021 and during 2022, we will continue
our digital investment through the roll out of a more seamless, personalised,
and interactive experience resulting in reduced documentation for clients and
advisers.
Board composition and succession
This has been a year of change for the board. I succeeded Mark Nicholls as
Chair at the AGM in May 2021. Mark's decade of commitment to Rathbones and his
competence as chair were very clear and we wish him well in his retirement.
Jim Pettigrew also retired at the AGM in May 2021. As part of the board's
succession plans, Colin Clark succeeded Jim as our Senior Independent
Director. I thank Jim for his tireless work over his four years at Rathbones
and am delighted that Colin has taken on these important responsibilities.
James Dean has indicated that he will not seek re-election at the 2022 AGM as
he has served nine years on the Board. James has made a huge contribution to
the board, both as a non-executive director and chair of the audit committee.
As part of the board's succession plans, I am pleased that Iain Cummings will
succeed James as chair of the audit committee.
As part of our nomination committee review of board effectiveness and
succession planning, we monitor the diversity, depth of knowledge and industry
experience within the board; to assess what new skills are necessary to
continue constructive challenge and guidance to the executive team. As a
result, in October, we appointed Iain Cummings and Dharmash Mistry as
independent non-executive directors. Their experience in industry within and
beyond the financial sector will be of great value to Rathbones in the years
ahead.
Looking ahead
This has been a very strong financial year for Rathbones. In 2022 there is a
continued commitment to accelerate the firm's organic growth, accelerate the
digital transformation agenda, and successfully integrate Saunderson House.
Finally, on behalf of the board, I would like to thank our colleagues for
their remarkable resilience. They have supported both Rathbones and each other
throughout the pandemic.
I would also like to thank our clients, shareholders, and wider stakeholders
for their continued commitment to our success. I am confident that together,
we are building a stronger, better business.
Clive C R Bannister
Chair
23 February 2022
Chief executive's statement
Introduction
It is difficult to report on 2021 without mentioning the pandemic which has
impacted so much. For Rathbones, it has presented both challenges and
opportunities that have changed the way in which we have invested and improved
the way in which we deliver services to clients. We end the year in a very
strong position having taken advantage of opportunities to improve client
service quality, deliver strong investment returns, and build a robust change
management and delivery capability. Our approach to supporting our employees
has focussed on well-being, thereby improving productivity and securing a high
level of staff engagement throughout the year.
As a result, we have made considerable progress in delivering on a strategic
change agenda that will not only improve our services, but also build greater
affinity with a wider range of client groups and make us significantly easier
to do business with. We have succeeded in balancing cost and revenue growth
during this period, culminating in a very strong year financially. Total funds
under management and administration (FUMA) grew 24.7% to reach £68.2 billion
at 31 December 2021 (2020: £54.7 billion), while profit before tax grew
116.9% to £95.0 million (2020: £43.8 million. Underlying profit before tax
totalled £120.7 million, 30.5% ahead of the £92.5 million reported in 2020.
This resulted in an underlying operating profit margin of 27.7% (2020: 25.3%).
Further information can be found in the financial performance section.
After a decade of significant growth, the Rathbones of today is a business
offering a holistic range of wealth management and advice services,
complemented by a high-quality Funds busines; our December 2021 announcement
to rename the company to Rathbones Group Plc reflects this.
Growth and fund flows
By the end of the year and before the rotation to value we saw in early 2022,
global investment markets largely looked to a future beyond the pandemic
as key indices recovered well, comparing favourably to the considerable
nervousness in the period leading up to the end of 2020. In the year, the FTSE
100 was up 14.3% and the WMA Balanced Index up 10.3%. This relatively strong
performance combined with our own organic and acquired growth increased FUMA
by 24.7% in the year (2020: 8.6%). Against relevant indices, our investment
performance was also strong over one, three and five years.
In 2021 we enhanced our reporting capability, which is reflected in the
improved disclosure found in the financial performance section. Discretionary
service net inflows totalled £1.3 billion in the year, up 30% on £1.0
billion in 2020. External inflows of £0.5 billion into our risk
targeted multi-asset fund range were up considerably from £0.2 billion in
2020. This fund range is a central part of our offering to the adviser market
and also underpins our offering for those clients wishing to invest smaller
values. Total discretionary and managed net inflows were £1.8 billion in 2021
representing an annualised growth rate of 4.1%. This compares to growth of
1.4% in 2019 (net inflow of £0.5 billion) and 2.9% in 2020 (net inflow of
£1.2 billion) demonstrating a growing momentum in both direct to client
business and the indirect financial adviser market.
Our growth plans continue to focus on improving services to existing clients
and establishing relationships with new clients and advisers. Our dedicated
client development team has provided a welcome point of focus in the direct
market, encouraging a 'One Rathbones' approach to deliver a more holistic
client service where we bring together the best of our skills and knowledge
to support focused growth campaigns. Our specialist intermediary sales team is
also well positioned to grow, and has seen momentum build in 2021 with
indirect net flows from IFAs into our discretionary services at £0.7 billion
in 2021 (2020: £0.2 billion) reflecting the investment we have made in the
team.
Our Funds business had another very strong year with funds under management
(FUM) reaching £13.0 billion at 31 December 2021 (2020: £9.8 billion). Net
flows into our single strategy fund range grew by 20.0% year on year to £1.2
billion (2020: £1.0 billion). In total, Rathbone Funds generated net inflows
of £2.1 billion (2020: £1.5 billion), a growth rate of 21.1% (2020: 20.1%).
Rathbones was ranked in 5th position for total net retail sales in the UK in
2021 (source: Pridham Report), ahead of its 9th place position in 2020.
Our strategy in action
Rathbones' future success is founded on our commitment to deliver a personal
service that brings empathy and reassurance and builds trust with clients and
advisers. We are committed to a responsible business agenda that fits our
brand values and resonates strongly with both stakeholders and the next
generation holders of wealth. Our strategy aims to establish a blended human
and digital experience that transitions seamlessly across Rathbones and
continually improves the quality of our investment and advice processes that
stand up to scrutiny and deliver value. To achieve this, our objective is
driven by four main pillars: enriching the client and adviser proposition and
experience, supporting and delivering growth, inspiring our people, and
operating more efficiently. Our focus on delivering against this strategy has
driven considerable and positive changes within the business that have helped
deliver strong financial outcomes in 2021.
Building our financial advice capability
The completion of the Saunderson House Limited acquisition in October 2021
added the largest specialist professional services-focused financial planning
business in the UK to Rathbones Group. With £4.9 billion (as at 31 December
2021) of FUMA and 51 certified advisers, Saunderson House presents a valuable
opportunity to expand our proposition and accelerate the growth of our
financial advice capability. Work since acquisition has reaffirmed the
opportunities we anticipated: to be able to provide a deeper and more
flexible investment service to Saunderson House clients and grow its presence
in the sectors it operates in. Integration work is on track to deliver against
expectations. The cultural fit with our existing Rathbones Financial Planning
team is strong, with both management teams working well together.
Vision Independent Financial Planning (Vision) grew FUMA to £2.7 billion at
31 December 2021, up 22.7% from £2.2 billion in 2020, and now has 131
financial planners. The network is actively seeking to recruit further in
2022.
Looking across the group, Rathbones can now provide clients with access to
over 200 financial planners and paraplanners and over 300 investment
professionals that together can provide any combination of advice or
investment services. Our strategy recognises that external advisers demand
quality investment services directly, and we have continued to invest to
enhance our direct to adviser proposition to deliver value and breadth of
proposition to advisers and networks. As at 31 December 2021, the amount of
adviser linked FUMA was £11.4 billion (31 December 2020: £9.7 billion).
Responsible investing
A critical part of the development of our proposition is to deliver a leading
approach to responsible investing across the group. In our wealth business, we
have over 20 years of experience in ethical investing and our specialist
ethical, sustainable and impact team Rathbone Greenbank Investments had £2.3
billion of funds under management at 31 December 2021 (2020: £1.9 billion).
We are leveraging the expertise and experience of Rathbone Greenbank
Investments more widely across Rathbones as well as adding capability to
develop its proposition in a rapidly changing environment to facilitate
further growth. All of our investment managers and their support staff have
now completed the CISI Professional Assessment on Sustainability and
Responsible Investment or the CFA equivalent. In 2022 we will also integrate
an expanded ESG research data set into the investment process across the group
and improve ESG reporting to clients with support from research and our
award-winning stewardship team who during 2021, completed 705 company
engagements.
Our Funds business also supports the responsible investment approach by
delivering fund-based solutions for clients and advisers. Our highly
successful Ethical Bond Fund continues to deliver strong investment
performance, growing to reach £2.8 billion at 31 December 2021 (2020:
£2.1 billion) while the Rathbone Greenbank Global Sustainability Fund now
manages £116 million (2020: £44 million). In March, we added to our
sustainability fund offering by launching the Rathbone Greenbank Multi-Asset
Portfolios (RGMAPs) fund range.
The RGMAPs funds are managed by Rathbones' acclaimed multi-asset team
and supported by Rathbone Greenbank Investments and though nascent, now
manage £105 million. Total ethical and sustainable funds managed by Rathbones
Group now equate to £5.3 billion and continue to grow.
We will continue to place responsible investing at our core, and enhance our
capability through recruitment and skills development across investment and
advice teams. Our charity proposition also continues to gain prominence with
Rathbones ranked the 4th largest charity manager in the UK by Charity Finance
with funds managed under a charitable mandate totalling £7.1 billion (2020:
£6.5 billion). In a recent charity survey, respondents gave their Rathbones
investment manager a mean satisfaction score of 9/10,. There were also a
number of insights that we will use to improve our service.
We are committed to responding to our own fiduciary duty as a business to help
build a better world for future generations as well as being stewards and
allocators of capital. The establishment of a responsible business committee
is critical to this ambition. Chaired by me, this committee oversees not only
our responsible investment agenda, but also how we deliver on our
responsibilities to our employees, our own environmental impact, and our
social agenda. More information on our work in these areas will be published
in our first standalone responsible business report in April 2022.
The success of Speirs & Jeffrey
The acquisition of Speirs & Jeffrey in 2018 added considerable skills and
capabilities to Rathbones as well as creating a leading market presence in
Scotland. The transaction has established us as one of the largest independent
wealth managers in Scotland with FUMA of £11.0 billion at 31 December 2021
(2020: £10.3 billion).
At the time of the acquisition in 2018, we outlined the following financial
targets for 2021: expected underlying EPS accretion from the acquisition of at
least 8%, and an underlying return on investment of approximately 13%. As at
31 December 2021, we exceeded both of the targets we originally laid out
despite an uncertain and challenging backdrop through much of 2020 and 2021.
Importantly, we have now largely worked through the short-term impact from the
acquisition on basic earnings per share (EPS), which is now up 169.2% to
133.5p (2020: 49.6p) and more closely reflecting underlying EPS. Further
information on financials related to the acquisition can be found in the
business review. My thanks go to the Glasgow and transition teams that have
worked so hard to make the deal such a success.
Current and future digital plans
Our strategy sets out the need for a resolute focus on leveraging technology
and people as part of a holistic digital experience that differentiates by
quality, demonstrates value to clients, advisers and colleagues and harnesses
efficiency opportunities. There is little doubt that the pandemic has greatly
emphasised the importance of this direction of travel as well as being a
significant facilitator of change as to how we work and interact with each
other and our clients.
The first part of our digital strategy was the launch of our 'MyRathbones' web
portal and app. Today, c.43% of clients are actively using the portal and app
and this will continue to grow in 2022. It is also clear that the level of
engagement with 'MyRathbones' has increased significantly versus our legacy
platform. Alongside this development, we have also built in a continual
improvement ('agile') capability that delivers regular upgrades that can keep
the platform current and continue to respond to client-led improvements.
MyRathbones will grow to be the digital doorway into Rathbones, providing
clients and advisers with a straightforward, flexible, and safe experience for
everyday tasks.
During 2021 we took our digital strategy further, in partnership with
Objectway, by upgrading our custody and settlement system that provides the
fundamental support for all aspects of the business. This significant work was
completed on time and budget and has now established an up-to-date platform
for operating our day-to-day books and records. It is a solid foundation upon
which to build more client-centric systems, supporting an interim redesign
of client and adviser reporting.
In 2021 we also mobilised a significant change team to support the delivery of
a Client Lifecycle Management capability that will transform how Rathbones
engages with clients and advisers. Our ambition is that clients and advisers
will see a seamless, personalised and interactive experience that
significantly reduces unnecessary documentation and data processes that
materially improves efficiency and client centricity across the business. When
achieved, our investment managers and financial advisers will be equipped with
leading data and client management tools that will promote rather than inhibit
service delivery and make Rathbones much easier to do business with. It will
also enable more time to focus on performance and growth within the client
facing teams.
To make this important step change, we have partnered with InvestCloud, a
global company which specialises in digital transformation in the financial
industry. It brings leading expertise in digital design, innovative technology
and data capabilities to enable us to deliver leading Client Lifecycle
Management capabilities to deliver a holistic digital experience. This will
also enable us to keep pace with the rapid changes in client preferences and
industry standards we expect to see over the medium term.
In addition to our partnership with InvestCloud, we have signed a partnership
agreement with Charles River. It is a leading provider of portfolio management
solutions that will help to take our Funds business to the next level, adding
more institutional fund management capability to support investment
performance and the next phase of growth.
The programme of delivery for all our digital plans will be phased to enable
prioritisation and re-investment of early benefits. The phase of investment is
expected to be concentrated over the next two years at a total operating
expenditure cost of £40 million. At market levels consistent with conditions
at 31 December 2021, we plan to manage this investment within existing
underlying operating margin guidance of mid-20s with a view to returning to
upper-20s operating margins of 27-30% from 2024 onwards.
People
I have always maintained that, aside from our clients, our people are our most
important asset and it has been truly heartening to witness the resilience and
focus of our employees over the past two years. Like many businesses, having
learnt from remote working, we will incorporate what we have learned into our
future hybrid working approach. Employees will have greater autonomy in how
they use their time and the ways in which they work. Rathbones will facilitate
this activity to ensure that we can drive productivity, support flexibility,
and compete for talent.
Rathbones recognises that capturing the full value and impact of our people at
work can only be achieved by having an inclusive and diverse workforce who
feel that they belong to the Rathbones Group. As a predominantly client-facing
business this is critical to us being able to serve our clients and deliver on
goals we have set. We took some important strides in 2021 to promote our
Diversity, Equality & Inclusion (DE&I) agenda by adding resources,
capturing helpful data for nearly 65% of our employees and taking part in
several workforce programmes.
An engaged workforce is essential to delivery of our purpose and strategy. Our
2021 employee survey received an 83% response rate and our overall engagement
score is notably higher than our industry benchmark. We are committed to
continually improving our employees' experience at work and will continue to
run and respond to surveys throughout the year.
Risk management
Risk management practices are embedded across the firm and will continue to
develop as we upgrade risk management systems and consider control
self-assessment processes in 2022. We remain conscious of the impact of the
changing risk landscape to our firm and industry, particularly as the world
emerges from the pandemic. Risks associated with ESG, including climate
change, anti-money laundering and the potential for further supply chain risks
arising from Brexit are considered and assessed regularly. We will also remain
diligent to mitigate risks in respect of potential cyber threats,
business change, and greater investment in digital solutions.
Outlook
The business ends 2021 in good health and is showing strong momentum having
posted strong financial returns and delivered on some important initiatives in
the year. The post pandemic environment, together with inflationary and
macro-economic pressures, as well as the current tensions in Ukraine will
continue to be digested by investment markets, but Rathbones is in a strong
position to implement critical client lifecycle and investment systems
capabilities in 2022, secure the delivery of ambitions for Saunderson House,
and explore further opportunities to drive growth.
Paul Stockton
Group Chief Executive
23 February 2022
Financial performance
Overview of financial performance
The group delivered a very strong set of results for the year to 31 December
2021, driven by growth in all areas of the business and the realisation of
benefits of our acquisition strategy.
Underlying profit before tax grew 31% to £120.7 million (2020: £92.5
million) reflecting strong operating income growth, balanced with the
continuation of investment in the strategic plans announced in October 2019.
The underlying operating margin, which is calculated as the ratio of
underlying profit before tax to operating income, was 27.7% (2020: 25.3%).
Statutory profit before tax for 2021 was
£95.0 million (2020: £43.8 million). This included planned deferred
acquisition and integration costs of £6.4 million relating to Speirs &
Jeffrey (2020: £32.3 million). We also incurred costs of £3.7 million in
2021 relating to the acquisition of Saunderson House.
The board primarily considers underlying measures of income, expenditure and
earnings when assessing the performance of the group. These are considered to
be a better reflection of true business performance than reviewing results
on a statutory basis only. These measures are also widely used by research
analysts covering the group. A full reconciliation between underlying results
and the closest IFRS equivalent is provided in Table 4.
Funds under management and administration
In 2021 we enhanced our FUMA flow reporting capability to provide additional
analysis of FUMA by service level.
Table 1 presents separately the FUMA, and associated movements, in those
services and products which support our wealth management solutions from
asset management products and other services. Wealth management FUMA
incorporates our bespoke discretionary portfolio and managed portfolio
services. It also includes direct sales into our range of risk-targeted
multi-asset funds, which are designed to be used as wealth management
solutions for clients of investment platforms and financial advisers. Asset
management FUMA includes our focused range of specialist 'single strategy'
funds, which are designed to act as individual holdings within investment
portfolios.
Including the acquisition of Saunderson House, group FUMA increased 24.7%
in the year to £68.2 billion. Saunderson House FUMA totalled £4.9 billion
at 31 December 2021.
Net inflows of discretionary and managed FUMA in Investment Management
totalled £1.3 billion in 2021, up 30% from £1.0 billion in 2020 (2019:
£0.3 billion). Direct net flows into our multi-asset fund range totalled
£0.5 billion in the year (2020 and 2019: £0.2 billion). Taken together,
this represents a growth rate of 4.1% in discretionary and managed FUMA
(2020: 2.9%; 2019: 1.4%).
In addition to the above, FUMA on Vision Financial Planning's discretionary
wealth management platform that was not managed by the group totalled £0.8
billion at 31 December 2021 (2020: £0.7 billion).
In 2022 we will continue to enhance this disclosure to incorporate FUMA in our
financial planning businesses.
Operating income
Operating income increased 19% in 2021 to £435.9 million, reflecting growth
in all areas of the business and a full year of Speirs & Jeffrey operating
on standard tariffs post transition in the fourth quarter of 2020. This also
includes £6.1 million of post-acquisition income in Saunderson House.
Fee income of £349.4 million in 2021 increased 27.4% compared to £274.2
million in 2020. Fees represented 80.2% of operating income in 2021, up from
74.9% in 2020.
Net commission income decreased 14.0% to £53.6 million in 2021 (2020: £62.3
million). Commission income was elevated in 2020 as investment managers
monitored and responded to the market impacts of the pandemic. The transition
of Speirs & Jeffrey clients to fee-only tariffs in 2020 also impacted in
2021.
Net interest income decreased 53.6% to 3.9 million, reflecting a full year
with the UK base rate at 0.1%, following the cut in March 2020.
Underlying operating expenses
Operating expenses increased from £322.3 million to £340.9 million during
the year. Operating expenses are adjusted to exclude expenditure falling into
the two categories explained under Table 4.
Underlying operating expenses increased by £41.6 million (15.2%) to £315.2
million, reflecting ongoing investment in our strategic objectives, continued
growth momentum across the business and the acquisition of Saunderson House.
Advancing the strategic plans to invest in our digital capability, ESG
proposition and IT infrastructure added £9.2 million to our non-staff cost
base in the year. Business growth and inflation added a further £6.0 million.
Excluding Saunderson House, planned additions to headcount in 2020 and 2021
and market-led salary increases increased fixed staff costs by £9.3 million
to £126.8 million. Average headcount increased by 10% to 1,694 in 2021,
driven largely by increases in client facing and change delivery teams.
Variable staff costs increased by £12.0 million to £89.7 million, reflecting
higher profitability and strong performance of client portfolios.
Post-acquisition costs in Saunderson House totalled £5.0 million, of which
£3.4 million related to staff costs.
Table 1. Group FUMA and flows by service level
Year ended 31 December 2021 Opening FUMA Net flows Net service level transfers Market & investment performance Closing FUMA Net growth (flows)
£bn
£bn
£bn
£bn
£bn
%
Discretionary service 43.4 1.3 - 4.6 49.3 3.0%
Bespoke portfolios 42.5 1.1 (0.1) 4.5 48.0 2.6%
Managed via in-house funds 0.9 0.2 0.1 0.1 1.3 19.9%
Multi-asset funds 1.3 0.5 - 0.2 2.0 40.3%
Total discretionary & managed 44.7 1.8 - 4.8 51.3 4.1%
Non-discretionary service 1.4 (0.1) (0.3) - 1.0 (11.4%)
Total wealth management 46.1 1.7 (0.3) 4.8 52.3 3.6%
Single-strategy funds 6.3 1.2 - 0.8 8.3 18.9%
Execution only & banking 2.3 (0.2) 0.3 0.3 2.7 (8.9%)
Total group (pre acquisitions) 54.7 2.7 - 5.9 63.3 4.9%
Saunderson House 4.9
Total group 68.2
Year ended 31 December 2020 Opening FUMA Net flows Net service level transfers Market & investment performance Closing FUMA Net growth (flows)
£bn
£bn
£bn
£bn
£bn
%
Discretionary service 39.9 1.0 0.8 1.8 43.4 2.5%
Bespoke portfolios 39.3 0.9 0.7 1.7 42.5 2.2%
Managed via in-house funds 0.6 0.1 0.1 0.1 0.9 15.5%
Multi-asset funds 1.0 0.2 - 0.1 1.3 24.4%
Total discretionary & managed 40.9 1.2 0.8 1.8 44.7 2.9%
Non-discretionary service 2.6 (0.1) (1.0) (0.1) 1.4 (3.8%)
Total wealth management 43.5 1.1 (0.2) 1.7 46.1 2.5%
Single-strategy funds 4.7 1.0 - 0.7 6.3 20.4%
Execution only & banking 2.2 (0.2) 0.2 0.1 2.3 (10.4%)
Total group 50.4 1.8 - 2.5 54.7 3.6%
Year ended 31 December 2019 Opening FUMA Net flows Net service level transfers Market & investment performance Closing FUMA Net growth (flows)
£bn
£bn
£bn
£bn
£bn
%
Discretionary service 34.2 0.3 0.2 5.2 39.9 0.9%
Bespoke portfolios 33.8 0.2 0.2 5.1 39.3 0.5%
Managed via in-house funds 0.4 0.1 - 0.1 0.6 20.0%
Multi-asset funds 0.7 0.2 - - 1.0 31.3%
Total discretionary & managed 35.0 0.5 0.3 5.2 40.9 1.4%
Non-discretionary service 3.4 (0.1) (0.4) (0.3) 2.6 (2.1%)
Total wealth management 38.3 0.4 (0.1) 4.9 43.5 1.1%
Single-strategy funds 3.7 0.4 - 0.6 4.7 10.0%
Execution only & banking 2.1 (0.5) 0.1 0.5 2.2 (25.5%)
Total group 44.1 0.3 - 6.1 50.4 0.6%
Table 2. Reconciliation of service levels to segmental presentation
Investment Management FUMA (including intra-group holdings) Intra-group holdings¹ Investment Management FUMA Funds FUMA Group FUMA
£bn
£bn
£bn
£bn
£bn
Discretionary service 49.3 (2.7) 46.6 2.7 49.3
Bespoke portfolios 48.0 (1.5) 46.5 1.5 48.0
Managed via in-house funds 1.3 (1.2) 0.1 1.2 1.3
Multi-asset funds - - - 2.0 2.0
Total discretionary & managed 49.3 (2.7) 46.6 4.7 51.3
Non-discretionary service 1.0 - 1.0 - 1.0
Total wealth management 50.3 (2.7) 47.6 4.7 52.3
Single-strategy funds - - - 8.3 8.3
Execution only & banking 2.7 - 2.7 - 2.7
Total group (pre acquisitions) 53.0 (2.7) 50.3 13.0 63.3
Saunderson House 4.9 - 4.9 - 4.9
Total group 57.9 (2.7) 55.2 13.0 68.2
1. Intra-group holdings represent in-house funds held within an investment
management portfolio.
Table 3. Group's overall performance
2021 2020
£m
£m
(unless stated)
(unless stated)
Operating income 435.9 366.1
Underlying operating expenses¹ (315.2) (273.6)
Underlying profit before tax¹ 120.7 92.5
Underlying operating margin¹ 27.7% 25.3%
Profit before tax 95.0 43.8
Effective tax rate 20.8% 39.0%
Taxation (19.8) (17.1)
Profit after tax 75.2 26.7
Underlying earnings per share¹ 172.2p 133.3p
Earnings per share 133.5p 49.6p
Dividend per share² 81.0p 72.0p
Return on capital employed (ROCE) 13.0% 5.3%
Underlying return on capital employed¹ 16.1% 13.6%
1. A reconciliation between the underlying measure and its closest IFRS
equivalent is shown in table 4
2. The total interim and final dividend proposed for the financial year
Alternative performance measures
Charges in relation to client relationships and goodwill (note 8)
Client relationship intangible assets are recognised when we acquire
a business or hire a team of investment managers.
The charges associated with these assets represent the proportion of the
cost of securing client contracts that is charged to profit or loss as
amortisation each year over the estimated duration of the client
relationships. The quantum of the accounting charge will vary depending on the
terms of each individual acquisition or team hire and represents a significant
non-cash profit and loss item. They have, therefore, been excluded from
underlying profit, which represents largely cash-based earnings and more
directly relates to the financial reporting period. Research analysts
commonly exclude these costs when comparing the performance of firms in the
wealth management industry.
Acquisition-related costs (note 5)
Acquisition-related costs are significant costs which arise from strategic
investments to grow the business rather than its operating performance and are
therefore excluded from underlying results.
They primarily represent deferred acquisition consideration and the costs of
integrating acquired businesses.
Deferred acquisition costs are generally significant payments that are capital
in nature reflecting the transfer of ownership of the business. However, in
accordance with IFRS 3, any deferred consideration payments to former
shareholders of the acquired business who are required to remain in employment
with the group must be treated as remuneration. This distorts the view of
operational performance given by the statutory measure of profit.
During 2021, £6.0 million of deferred consideration payments for Speirs &
Jeffrey (2020: £32.3 million), and £1.4 million for Saunderson House (2020:
£nil) were charged to the income statement.
Table 4. Reconciliation of underlying performance measures to closest
equivalent IFRS measures
2021 2020
£m
£m
(unless stated)
(unless stated)
Operating income 435.9 366.1
Operating expenses (340.9) (322.3)
Charges in relation to client relationships and goodwill 15.6 14.3
Acquisition-related costs 10.1 34.4
Underlying operating expenses (315.2) (273.6)
Profit before tax 95.0 43.8
Underlying profit before tax¹ 120.7 92.5
Operating margin 21.8% 12.0%
Underlying operating margin² 27.7% 25.3%
Taxation (19.8) (17.1)
Tax on non-underlying expenses (3.9) (3.8)
Underlying taxation (23.7) (20.9)
Profit after tax 75.2 26.7
Underlying profit after tax³ 97.0 71.6
Weighted average number of shares in issue 56.3m 53.7m
Earnings per share 133.5 49.6
Underlying earnings per share⁴ 172.2 133.3
Underlying quarterly average total equity 599.1 520.5
ROCE 13.0% 5.3%
Underlying ROCE⁵ 16.1% 13.6%
1. Operating income less underlying operating expenses
2. Underlying profit before tax as a percentage of operating income
3. Underlying profit before tax less underlying taxation
4. Underlying profit after tax divided by the weighted average number of
shares in issue
5. Underlying profit after tax as a percentage of underlying quarterly average
total equity
Taxation
The corporation tax charge for 2021 was £19.8 million (2020: £17.1 million)
(see note 6). The effective tax rate was 20.8% (2020: 39.0%).
The prior year rate reflects the significant amount of disallowable costs of
deferred consideration payments for the acquisition of Speirs & Jeffrey.
The effective tax rate is now expected to remain closer to the statutory
rate of tax, as the level of disallowable costs for deferred consideration
payments for Saunderson House is expected to be much lower (see note 2.3).
Thereafter, the group expects it to return to 2-4 percentage points above the
statutory rate.
The UK Government legislated in the Finance Act 2021 to increase the UK
corporation tax rate to 25.0% in 2023. We have reflected this rate in the
deferred tax calculations.
Basic earnings per share
Basic earnings per share for the year ended 31 December 2021 was 133.5p
compared to 49.6p in 2020. The increase in the year reflects the significantly
lower amount of non-underlying charges in relation to the acquisition of
Speirs & Jeffrey compared to the prior year. On an underlying basis,
earnings per share were 172.2p in 2021, compared to 133.3p in 2020 (see note
12). The increase in the year relates to the much higher growth in underlying
profit since 2020 than the number of ordinary shares in issue.
Dividends
We operate a generally progressive dividend policy, as set out in the
directors' report.
In determining the level of any proposed dividend, the board has regard to
current and forecast financial performance. Any proposal to pay a dividend is
subject to compliance with:
- the Companies Act, which requires that the company must have sufficient
distributable reserves to pay the dividend; and
- regulatory capital requirements, which require the group to maintain at
least a minimum level of own funds.
The company's distributable reserves are primarily dependent on:
- the level of profits earned by the company, including distributions received
from trading subsidiaries (some of which are subject to minimum regulatory
capital requirements themselves); and
- actuarial changes in the value of the pension schemes that are recognised
in the company's other comprehensive income, net of deferred tax.
At 31 December 2021 the company's distributable reserves were £106.8 million
(2020: £93.7 million).
In setting the proposed dividend for 2021, the board has considered the
group's performance in 2021 and the strong balance sheet position, balanced
with the need to continue our investment programme and the ongoing uncertainty
in the economic outlook. As a result, the board is proposing a final dividend
for 2021 of 54p; resulting in a full year dividend of 81p (an increase of 9p
on 2020).
The proposed full year dividend is covered 1.6 times by basic earnings and 2.1
times by underlying earnings.
Capital expenditure
Overall, capital expenditure of £8.8 million in 2021 was £2.9 million below
2020. Spend on regulatory driven projects and property improvements reduced by
a total of £1.2 million. Capitalised spend on technology and other change
projects fell by £1.7 million as the focus on the development of cloud-based
solutions has increased the proportion of strategic project spend that is
charged to operating expenses.
Underlying return on capital employed
The board monitors the underlying return on capital employed (ROCE) as a key
performance measure. For monitoring purposes, underlying ROCE is defined as
underlying profit after tax expressed as a percentage of quarterly average
total equity across the year.
Assessment of underlying return on capital is a key consideration for all
investment decisions, particularly in relation to acquired growth.
In 2021, underlying ROCE was 16.1% (2020: 13.6%). Quarterly average total
equity increased by £78.6 million in 2021 compared to 2020, reflecting
growth in retained earnings.
Outlook
The business enters 2022 in a robust financial position and with encouraging
growth momentum.
External factors will continue to have a significant impact on the group's
profitability in 2022. We expect global investment markets to remain volatile
during the year, with both the domestic and global political environments
adding considerable uncertainty. Inflationary pressures continue, but these
are likely to lead to higher interest rates, which will benefit net interest
income.
As noted in the Chief executive's review, investment in our medium-term
strategy will continue in 2022 and 2023. In total, we expect to invest
operating expenditure of £40 million in delivery of our digital plans over
the next two years. The increasing use of modern cloud-based software
solutions will have a lasting impact on the mix of capital and operating
expenditure, with fewer projects generating material fixed assets and related
depreciation costs consequently falling over time.
We anticipate that integration and deferred acquisition costs relating to the
acquisition of Saunderson House will total approximately £10 million in 2022.
Synergies from the integration are expected to start to bring material benefit
in 2023.
Deferred acquisition costs for Speirs & Jeffrey are now substantially
complete. Costs of some £2.5 million are expected to be incurred each year in
2022 and 2023, after which no further material costs relating to the
acquisition will arise.
Staff costs in 2022 will reflect salary inflation of approximately 5% and
national insurance increases, in addition to the full impact of hiring
activity in 2021 and further joiners planned in 2022 in support of the
strategic initiatives.
Alongside the investment in our strategic initiatives, we will continue to
maintain our focus on cost discipline. Based on market conditions at 31
December 2021, we plan to manage this investment within existing underlying
operating margin guidance of mid-20s for the next two years. The underlying
operating margin is expected to return to a high-20s level from 2024 onwards.
Segmental review
The group is managed through two key operating segments, Investment Management
and Funds.
Investment Management
The results of the Investment Management segment described below include the
trading results of Rathbone Trust Company, Vision Independent Financial
Planning and Saunderson House, post-acquisition.
Investment Management income is largely driven by revenue margins earned from
funds under management and administration. Revenue margins are expressed as a
basis point return, which depends on a mix of tiered fee rates, commissions
charged for transactions undertaken on behalf of clients and the interest
margin earned on cash in client portfolios and client loans.
Year-on-year changes in the key performance indicators for Investment
Management are shown in table 5.
Funds under management and administration
Investment Management funds under management and administration increased by
22.9% to £55.2 billion at 31 December 2021, driven by strong growth,
investment performance and markets.
Gross organic inflows of £4.5 billion represented 10.0% of opening funds
under management and administration, up from 9.1% in 2020. Outflows of funds
under management and administration were 8.0% of the opening balance (2020:
7.7%). Of this, approximately 38% related to accounts that were closed with
the remainder being drawings from capital to supplement income or for
inter-generational transfers.
Total Investment Management new business was £0.8 billion during 2021,
representing 2.0% of opening funds under management and administration (2020:
net total increase of 1.4%).
In addition to the above, the acquisition of Saunderson House added £4.9
billion to funds under management and advice in 2021.
Table 5. Investment Management - key performance indicators
2021 2020
Funds under management and administration at 31 December £55.2bn £44.9bn
Rate of net organic growth in Investment Management funds under management and 1.8% 0.1%
administration¹
Rate of total net growth in Investment Management funds under management and 2.1% 1.4%
administration¹
Average net operating basis point return(2) 71.4 bps 72.7 bps
Number of Investment Management clients ('000)(3) 66 64
Number of investment managers 332 304
1. See table 6 (percentages calculated on unrounded figures)
2. See table 10
3. The comparative figure has been restated to align calculation of the number
of Speirs & Jeffrey clients with Rathbones accounting policies, which
reflects a lower level of aggregation of underlying funds.
Table 6. Investment Management - funds under management and administration
Year ended 31 December 2021 Year ended 31 December 2020
£bn
£bn
As at 1 January 44.9 43.0
Inflows 4.5 3.9
- Organic(1) 4.4 3.3
- Acquired2 0.1 0.6
Outflows (3.6) (3.3)
Market adjustment3 4.5 1.3
Total (pre acquisitions) 50.3 44.9
Saunderson House 4.9 -
Total 55.2 44.9
Net organic new business(4) 0.8 -
Rate of net organic growth(5) 1.8% 0.1%
Rate of total net growth(6) 2.1% 1.4%
1. Value at the date of transfer in/(out)
2. Value at date of acquisition
3. Represents the impact of market movements and investment performance
4. Organic inflows less outflows
5. Net organic new business (excluding Saunderson House) as a percentage of
opening funds under management and administration
6. Net organic new business and acquired inflows (excluding Saunderson House)
as a percentage of opening funds under management and administration
Growth in discretionary and managed FUMA of £1.3 billion in 2021 has come
equally from direct contact with clients and through financial adviser
networks. Our specialist intermediary sales team continued to build momentum
in the year, with indirect net flows from IFAs into our discretionary and
managed services of £0.7 billion (2020: £0.2 billion).
The group saw net outflows from non-discretionary investment management, and
execution only & banking mandates totalling £0.4 billion in the year.
During the year, our clients continued to migrate into discretionary services
from non-discretionary. Switches into execution only services largely reflect
the transfer of funds into probate following death of a client.
The global recovery from lockdown-ridden 2020 drove stock markets higher in
2021, however returns were more volatile than the headline indices suggest.
Many investors switched from "growth" stocks to "value" and back again during
the year as the impacts of COVID-19 ebbed and flowed, inflation rose, central
banks shifted guidance and companies reported.
A significant concern for investors in 2021 was inflation, which hit
multi-decade highs in many large nations. Initial belief that higher prices
would be a passing phase gave way to longer term concerns later
in the year, which drove steep rises in the yield on government bonds and
the prices of "value" stocks whilst weighing on the value of "growth" stocks.
These trends have accelerated into the early months of 2022.
The outperformance was largely driven by our tactical asset allocation
decisions in worldwide equities, fixed income and alternatives. Company
valuations, particularly in the developed nations, were supported by stronger
earnings whilst being underweight fixed income also added positively with
rising real yields. Lastly, overweight property and underweight gold related
holdings were also helpful. Overall, the company performance against other
competitors' indices, such as the Private Client indices publish by ARC was
robust.
Table 7. Investment Management - new business by channel
2021 2021 2021 2021 2021 2021 2021 2020
Opening
Net flows
Service level transfers
Market and investment performance
Gross
Intra-group holdings(1)
Net
Net
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Bespoke portfolios 33.3 0.5 (0.1) 3.5 37.2
Managed via in-house funds 0.4 0.1 0.1 0.1 0.7
Total direct 33.7 0.6 - 3.6 37.9
Bespoke portfolios 9.2 0.6 - 1.0 10.8
Managed via in-house funds 0.5 0.1 - - 0.6
Total financial adviser linked 9.7 0.7 - 1.0 11.4
Total discretionary & managed 43.4 1.3 - 4.6 49.3 (2.7) 46.6 41.2
Non-discretionary service 1.4 (0.2) (0.3) 0.1 1.0 - 1.0 1.4
Total wealth management 44.8 1.1 (0.3) 4.7 50.3 (2.7) 47.6 42.6
Execution only & banking 2.3 (0.2) 0.3 0.3 2.7 - 2.7 2.3
Saunderson House 4.9 4.9
Total Investment Management 47.1 0.9 - 5.0 57.9 (2.7) 55.2 44.9
1. Holdings of the group's in-house funds in Investment Management client
portfolios and in-house funds for which the management of the assets is
undertaken by Investment Management teams; the corresponding funds under
management and administration is reported within Funds.
Overall, 2021 was a strong year for our specialist teams. Rathbone Greenbank
Investments continued to grow strongly and reached funds under management
and administration of £2.2 billion at 31 December 2021, up 20% on 2020.
Charity funds under management and administration grew 9.2% to £7.1 billion
at 31 December 2021. The Personal Injury and Court of Protection business
ended 2021 with £1.0 billion of funds under management and administration.
As at 31 December 2021, Vision Independent Financial Planning advised on
client assets of £2.7 billion, up 23% from 2020.
Financial performance
Underlying profit before tax in Investment Management grew 23.9% in the year
to £98.4 million, reflecting an underlying operating margin of 26.4%. This
was driven by strong growth in fee income and the post-acquisition impact of
Saunderson House.
Higher average funds under management and administration levels on our
principal charging dates during 2021 (see table 9) boosted net investment
management fee income, which rose 25.1% to £288.1 million. This was driven by
stronger markets and investment performance, as well as the adoption of
fee-only tariffs in the fourth quarter of 2020 for clients of Speirs &
Jeffrey.
Net commission income fell 14.0% to
£53.6 million, as the elevated levels of transactional activity seen in 2020
reduced, along with market volatility, in 2021 and following the switch to
fee-only tariffs for Speirs & Jeffrey clients.
The cut in the Bank of England base rate to 0.1% in March 2020 was maintained
throughout 2021, reducing the margin available on our treasury book. Net
interest income consequently decreased 53.6% to £3.9 million in the year.
As a result of the factors described above, the average net operating basis
point return on funds under management and administration fell slightly by
1.3 bps to 71.4 bps in 2021.
Fees from advisory services and other income increased 39.3% to £27.3
million, reflecting growth in our advisory businesses and the
post-acquisition results of Saunderson House, which contributed
£6.1 million of additional revenue.
The issue of an additional £20 million of Tier 2 loan notes, bringing the
total notes issued to £40 million in October 2021, is expected to increase
the annual interest charge on these notes by approximately £1 million
compared to 2021.
Underlying operating expenses in Investment Management for 2021 were £274.5
million, an increase of 13.8% compared to 2020. This is highlighted in table
11.
Table 8. Investment Management - financial performance
2021 2020
£m
£m
Net investment management fee income(1¹) 288.1 230.3
Net commission income 53.6 62.3
Net interest income 3.9 8.4
Fees from advisory services(2 )and other income 27.3 19.6
Operating income 372.9 320.6
Underlying operating expenses(3) (274.5) (241.2)
Underlying profit before tax 98.4 79.4
Underlying operating margin(4) 26.4% 24.8%
1. Net investment management fee income is stated after deducting fees and
commission expenses paid to introducers
2. Fees from advisory services includes income from trust, tax and financial
planning services (including Vision)
3. See table 11
4. Underlying profit before tax as a percentage of operating income
Table 9. Investment Management - average funds under management and
administration (pre acquisitions)
2021 2020
£bn
£bn
Valuation dates for billing
- 5 April 45.5 35.9
- 30 June 47.8 41.3
- 30 September 48.8 41.8
- 31 December 50.3 44.9
Average 48.1 41.0
Average FTSE 100 level(1) 7,066 5,978
1. Based on the corresponding valuation dates for billing
Table 10. Investment Management - revenue margin
2021 2020
bps
bps
Basis point return1 from:
- fee income 59.9 56.2
- commission 11.1 15.2
- interest 0.4 1.3
Basis point return on funds under management and administration 71.4 72.7
1. Operating income (see table 8), excluding interest on own reserves,
interest payable on Tier 2 notes issued, interest payable on lease assets,
fees from advisory services and other income, divided by the average funds
under management and administration on the quarterly billing dates (see table
9)
Fixed staff costs of £89.3 million increased by 6.7% year-on-year,
reflecting the growth in headcount Variable staff costs totalled
£61.9 million in 2021, an increase of £5.5 million on 2020. This
principally reflects growth in profit share awards, driven by segmental
profitability.
Other operating expenses of £123.3 million include property, depreciation,
settlement, IT, finance and other central support services costs.
Incremental spend on our strategic initiatives to develop systems and enhance
the client experience totalled £8.7 million in 2021.
Savings arising from the impact of the pandemic on entertaining, travel,
events and subsistence spend, as well as reduced use of the group's office
space persisted for most of 2021.
Post-acquisition costs in Saunderson House totalled £5.0 million.
Funds
Funds' financial performance is principally driven by the value and growth of
funds under management. Year-on-year changes in the key performance indicators
for Funds are shown in table 12.
Funds under management
Net retail sales in the asset management industry totalled approximately
£43.4 billion in 2021, as reported by the Investment Association (IA), up
from around £30.8 billion in 2020. Industry-wide funds under management
increased 10.4% to £1.6 trillion at the end of the year.
Equities was again the top seller in 2021 at £14.8 billion, up 42% compared
to 2020. Consistent sales to responsible investment funds, where equities make
up over 50% of sales, helped to maintain consistent inflows to equities, even
during periods of market turbulence.
The IA Global sector (containing Rathbone Global Opportunities Fund and
Rathbone Global Sustainability Fund) was the highest selling equity sector for
the fourth year in a row with inflows of £12.0 billion. Over £4.8 billion
also went to the IA Volatility Managed sector, which includes our six-fund
multi-asset range and the four-fund ESG range launched in 2021 called Rathbone
Greenbank Multi-Asset Portfolios.
The positive momentum in sales continued through 2021, with gross sales up 22%
in the year to £4.4 billion. Redemptions increased more modestly, rising 9.5%
to £2.3 billion for the year. As a result, net inflows of £2.1 billion for
the year were up 40% on £1.5 billion in 2020. Rathbone Unit Trust Management
consistently ranked in the top 10 for net UK sales throughout the year
according to the quarterly Pridham Sales Reports.
Table 11. Investment Management - underlying operating expenses
2021 2020
£m
£m
Staff costs(1)
- fixed 89.3 83.7
- variable 61.9 56.4
Total staff costs 151.2 140.1
Other operating expenses 123.3 101.1
Underlying operating expenses 274.5 241.2
Underlying cost/income ratio(2) 73.6% 75.2%
1. Represents the costs of investment managers and teams directly involved in
client-facing activities
2. Underlying operating expenses as a percentage of operating income
(see table 8)
Table 12. Funds - key performance indicators
2021 2020
Funds under management at 31 December(1) £13.0bn £9.8bn
Rate of net growth in Unit Trusts funds under management¹ 21.1% 20.1%
Underlying profit before tax(2) £22.4m £13.1m
1. See table 14
2. See table 16
Table 13. Funds - funds under management by product
2021 2020
£m
£m
Rathbone Global Opportunities Fund 4,334 3,202
Rathbone Ethical Bond Fund 2,802 2,088
Rathbone Multi-Asset Portfolios 2,679 1,714
Rathbone Income Fund 825 811
Offshore funds 661 578
Rathbone High Quality Bond Fund 291 283
Rathbone Active Income Fund for Charities 245 227
Rathbone Strategic Bond Fund 200 204
Rathbone Core Investment Fund for Charities 156 129
Rathbone UK Opportunities Fund 76 49
Rathbone Global Sustainability Fund 116 44
Other funds 500 491
Greenbank Multi-Asset Portfolios 105 -
12,990 9,820
The strong net inflows for the year were principally into the Ethical Bond
Fund (£0.8 billion), multi-asset funds (£0.8 billion), including £0.1
billion into the new Greenbank multi-asset offering, and Global Opportunities
Fund (£0.5 billion). The Ethical Bond Fund, in particular, bucked the trend
for other bond funds in the sector, which generally saw more muted inflows.
Total net inflows, combined with positive investment performance and market
movements, raised total funds under management to £13.0 billion at the end of
the year, an increase of 32% during the year (see table 14).
Long-term performance for our retail funds remains strong and the funds are
performing in line with expectations and their benchmarks.
The Ethical Bond and Global Opportunities funds maintained their excellent
long-term track records and both finished in the first quartile for
performance, measured over three and five years. The UK Opportunities Fund
maintained its top quartile performance during 2021, which has resulted in a
much improved long-term track record.
The growth focused multi-asset funds, which have risk targeted mandates, beat
their benchmarks over one, three and five years (or since launch) and remained
within volatility targets over the same periods.
Performance of the UK Income fund was impacted by the large cuts in dividends
by UK stocks in 2020. During 2021, the fund's longer-term performance
recovered and it is now above median for one, three and five years.
The High Quality Bond Fund posted good returns over the year, performing well
against its cash-plus based benchmark.
The Strategic Bond Fund remains more defensively positioned, which has
continued to weigh on short-term performance.
As at 31 December 2021, 97% of holdings in Funds' retail funds were in
institutional units (31 December 2020: 97%).
During the year, the total number of investment professionals in Funds
increased to 21 at 31 December 2021 from 18 at the end of 2020.
Table 14. Funds - funds under management
2021 2020
£bn
£bn
As at 1 January 9.8 7.4
Net inflows 2.1 1.5
- Inflows(1) 4.4 3.6
- Outflows(1) (2.3) (2.1)
Market adjustments(2) 1.1 0.9
As at 31 December 13.0 9.8
Rate of net growth(3) 21.1% 20.1%
1. Valued at the date of transfer in/(out)
2. Impact of market movements and relative performance
3. Net inflows as a percentage of opening funds under management
Table 15. Funds - performance1,2
2021/(2020) Quartile ranking3 over 1 year 3 years 5 years
Rathbone Ethical Bond Fund 1 (2) 1 (1) 1 (1)
Rathbone Global Opportunities Fund 2 (1) 1 (1) 1 (1)
Rathbone Income Fund 2 (2) 2 (2) 2 (3)
Rathbone Strategic Bond Fund 3 (2) 3 (2) 2 (2)
Rathbone UK Opportunities Fund 1 (1) 1 (2) 1 (2)
1. Quartile ranking data is sourced from FE Trustnet
2. Excludes multi-asset funds (for which quartile rankings are prohibited by
the Investment Association (IA)), High Quality Bond Fund, which has no
relevant peer group against which to measure quartile performance,
non-publicly marketed funds and segregated mandates
3. Ranking of institutional share classes at 31 December 2021 and 2020 against
other funds in the same IA sector, based on total return performance, net of
fees (consistent with investment performance information reported in the
funds' monthly factsheets)
4. Funds included in the above table account for 64% of the total FUM of the
Funds business
Financial performance
Funds' income is primarily derived from annual management charges, which are
calculated on the daily value of funds under management, net of rebates
payable to intermediaries.
Net annual management charges increased 40% to £61.3 million in 2021, driven
principally by the rise in average funds under management. Net annual
management charges as a percentage of average funds under management fell to
55.0 bps (2020: 55.5 bps) reflecting the continued growth in the fixed income
mandate funds.
Operating income as a percentage of average funds under management fell
slightly to 55.6 bps in 2021 from 55.9 bps in 2020 for the same reasons.
Fixed staff costs of £5.2 million for the year ended 31 December 2021 were
27% higher than 2020. This reflects salary inflation and growth in headcount
in response to growth in the business.
Variable staff costs of £16.8 million were 40% higher than 2020 as a result
of growth in profit and the higher value of gross sales, which drove increases
in sales commissions.
Other operating expenses have increased by 15% to £18.7 million in 2021.
Administration costs of £5.7 million were up £0.9 million on 2020, driven by
higher levels of funds under management and sales. 2021 saw a full year's
benefit of improved rate cards with third-party service providers which were
negotiated and implemented in 2020. Incremental spend on development of
systems totalled approximately £0.5 million in 2021. Regulatory costs also
grew by £0.1 million, reflecting the growth in levies for the Financial
Services Compensation Scheme.
Table 16. Funds - financial performance
2021 2020
£m
£m
Net annual management charges 61.3 43.9
Net dealing profits 0.0 0.0
Interest and other income 1.8 1.5
Operating income 63.1 45.4
Underlying operating expenses(1) (40.7) (32.3)
Underlying profit before tax 22.4 13.1
Operating % margin(2) 35.5% 28.9%
1. See table 17
2. Underlying profit before tax divided by operating income
Table 17. Funds - underlying operating expenses
2021 2020
£m
£m
Staff costs
- Fixed 5.2 4.1
- Variable 16.8 12.0
Total staff costs 22.0 16.1
Other operating expenses 18.7 16.2
Underlying operating expenses 40.7 32.3
Underlying cost/income ratio(1) 64.5% 71.1%
1. Underlying operating expenses as a percentage of operating income
(see table 16)
Financial position
Own funds
Rathbones is classified as a banking group for regulatory capital purposes and
is required to operate within the restrictions on capital resources and
banking exposures prescribed by the Capital Requirements Regulation,
as applied in the UK by the Prudential Regulation Authority (PRA).
At 31 December 2021, the group's regulatory own funds (including verified
profits for the year) were £305 million (2020: £304 million).
Common Equity Tier 1 (CET1) own funds decreased by £27.0 million during 2021
to £266.2 million. This was primarily due to the acquisition of Saunderson
House, partly offset by an increase in Tier 1 capital following the placing of
£50 million of fresh share capital during the year. The CET1 ratio was 18.7%,
a decrease on the 23.5% reported at the previous year end.
The leverage ratio was 9.1% at 31 December 2021, down from 9.2% at 31 December
2020 The leverage ratio represents our Tier 1 capital as a percentage of our
total assets, excluding intangible assets, plus certain off balance sheet
exposures. The reduction is in line with the decrease in CET1 capital.
The business is primarily funded by equity, but also supported by £40 million
of ten-year Tier 2 subordinated loan notes, which were issued in October 2021.
The notes introduce a small amount of gearing into our balance sheet as a way
of financing future growth in a cost-effective and capital-efficient manner.
They are repayable in October 2031, with a call option for the issuer annually
from 2026. Interest is payable at a fixed rate of 5.642%.
Total equity was £623 million at 31 December 2021, up 21.2% from £514
million at the end of 2020, reflecting the share placing in the year.
Own funds and liquidity requirements
As required under PRA rules, we perform an Internal Capital Adequacy
Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process
(ILAAP) annually, which include performing a range of stress tests to
determine the appropriate level of regulatory capital and liquidity that we
need to hold. In addition, we monitor a wide range of capital and liquidity
statistics on a daily, monthly or less frequent basis as required. Surplus
capital levels are forecast on a monthly basis, taking account of proposed
dividends and investment requirements, to ensure that appropriate buffers are
maintained. Investment of proprietary funds is controlled by our treasury
department.
We are required to hold capital to cover a range of own funds requirements.
Table 18. Group's financial position
2021 2020
£m
£m
(unless stated)
(unless stated)
Own funds:
Common Equity Tier 1 ratio¹ 18.7% 23.5%
Total own funds ratio² 21.4% 24.3%
Total equity 288.8 513.8
Tier 2 subordinated loan notes³ 39.9 19.8
Total risk exposure amount 1,424.5 1,247.8
Leverage ratio⁴ 9.1% 9.2%
Other resources:
Total assets 3,271.8 3,370.6
Treasury assets⁵ 2,458.5 2,721.1
Investment Management loan book 168.0 158.0
Intangible assets from acquired growth⁶ 195.5 218.0
Tangible assets and software⁷ 28.0 28.0
Liabilities:
Due to customers⁸ 2,333.0 2,561.8
Net defined benefit pension asset/(liability) 12.3 (9.8)
1. Common Equity Tier 1 capital as a proportion of total risk exposure amount
2. Total own funds (see table 19) as a proportion of total risk exposure
amount
3. Represents the carrying value of the Tier 2 loan notes
4. Tier 1 capital as a percentage of total assets, excluding intangible
assets, plus certain off balance sheet exposures
5. Balances with central banks, loans and advances to banks and
investment securities
6. Net book value of acquired client relationships and goodwill (note 8)
7. Net book value of property, plant and equipment and computer software
8. Total amounts of cash in client portfolios held by Rathbone Investment
Management as a bank
Table 19. Regulatory own funds
2021 2020
£m
£m
Share capital and share premium 294.1 218.0
Reserves 365.8 342.6
Less:
Own shares (36.6) (46.7)
Intangible assets¹ (344.8) (220.7)
Retirement benefit asset² (12.3) 0.0
Common Equity Tier 1 own funds 266.2 293.2
Tier 2 own funds 38.5 10.7
Total own funds 304.7 303.9
1. Net book value of goodwill, client relationship intangibles and software is
deducted directly from own funds, less any related deferred tax.
2. The retirement benefit asset is deducted directly from own funds.
Table 20. Group's own funds requirements(1)
2021 2020
£m
£m
Credit risk requirement 50.9 46.9
Market risk requirement 0.8 0.6
Operational risk requirement 62.3 52.4
Pillar 1 own funds requirement 114.0 99.9
Pillar 2A own funds requirement 40.1 40.0
Total Capital Requirement ('TCR') 154.1 139.9
Combined buffer:
capital conservation buffer (CCB) 35.6 31.1
countercyclical capital buffer (CCyB) - 0.1
Total Capital Requirement ('TCR') and Combined buffer 189.7 171.1
1. Own funds requirements stated above include the impact of trading results
and changes to requirements and buffers that were known as at 31 December and
which became effective prior to the publication of the preliminary results
Pillar 1 - minimum requirement for capital
Pillar 1 focuses on the determination of a total risk exposure amount (also
known as 'risk-weighted assets') and expected losses in respect of the
group's exposure to credit, counterparty credit, market and operational risks,
and sets a minimum requirement for capital.
At 31 December 2021, the group's total risk exposure amount was £1,425
million (2020: £1,248 million).
Pillar 2 - supervisory review process
Pillar 2 supplements the Pillar 1 minimum requirement with firm-specific
Pillar 2A requirements and a framework of regulatory capital buffers.
The Pillar 2A own funds requirement (which is set by the PRA and the
calculation of which remains confidential with the PRA) reflects those risks,
specific to the firm, which are not fully captured under the Pillar 1 own
funds requirement.
Pension obligation risk
The potential for additional unplanned capital strain or costs that the group
would incur in the event of a significant deterioration in the funding
position of the group's defined benefit pension schemes.
Interest rate risk in the banking book
The potential losses in the non-trading book resulting from interest rate
changes or widening of the spread between Bank of England base rates and
SONIA.
Concentration risk
Greater loss volatility arising from a higher level of loan default
correlation than is assumed by the Pillar 1 assessment.
The group is also required to maintain a number of regulatory capital buffers,
all of which must be met with CET1 capital.
Capital conservation buffer (CCB)
The CCB is a general buffer, designed to provide for losses in the event of a
stress, and represents 2.5% of the group's total risk exposure amount as at
31 December 2021.
Countercyclical capital buffer (CCyB)
The CCyB is designed to act as an incentive for banks to constrain credit
growth in times of heightened systemic risk. The amount of the buffer is
determined by reference to rates set by the FPC (for UK exposures) and other
jurisdictions for our exposures to their locations from time to time,
depending on prevailing market conditions, for individual countries where the
group has credit risk exposures.
The buffer rate is currently set at 0% for the UK. The group also has some
small, relevant credit exposures in other jurisdictions, resulting in a
weighted buffer rate of 0% of the group's total risk exposure amount as at 31
December 2021. An increased UK rate of 1% will come into effect from December
2022, which has been built into our forecasts.
The surplus of own funds (including verified profits for the full year) over
Total Capital Requirement and Combined buffer was £115 million, down from
£133 million at the end of 2020, owing to additional deductions in the year
for the Saunderson House intangibles and retirement benefit asset.
Pillar 2B PRA buffer
The PRA also determines whether any incremental firm-specific buffer is
required. The PRA requires any such buffer to remain confidential between the
group and the PRA.
In managing the group's regulatory capital position over the next few years,
we will continue to be mindful of:
- future volatility in pension scheme valuations which affect both the level
of CET1 own funds and the value of the Pillar 2A requirement for pension risk;
and
- regulatory developments;
- the demands of future acquisitions which generate intangible assets and,
therefore, directly reduce CET1 resources; and
- expected additional increases in the UK countercyclical capital buffer rate.
We keep these issues under constant review to ensure that any necessary
capital-raising activities are carried out in a planned and controlled manner.
The group's Pillar 3 disclosures are published annually on our website
(rathbones.com/investor-relations/results-and-presentations) and provide
further details about regulatory capital resources and requirements.
Total assets
Total assets at 31 December 2021 were £3.3 billion (2020: £3.4 billion),
of which £2.3 billion (2020: £2.6 billion) represents the investment in
the money markets of the cash element of client portfolios that is held as a
banking deposit.
Treasury assets
As a licensed deposit taker, Rathbone Investment Management holds our surplus
liquidity on its balance sheet together with clients' cash. Cash in client
portfolios as held on a banking basis of £2.3 billion (2020: £2.6 billion)
represented 4.2% of total Investment Management funds under management and
administration at 31 December 2021, compared to 5.7% at the end of 2020. Cash
held in client money accounts was £13.9 million (2020: £5.5 million).
The treasury department of Rathbone Investment Management, reporting
through the banking committee to the board, operates in accordance with
procedures set out in a board-approved treasury manual and monitors exposure
to market, credit and liquidity. It invests in a range of securities issued by
a relatively large number of counterparties. These counterparties must be
single-'A'-rated or higher by Fitch at the time of investment and are
regularly reviewed by the banking committee.
During the year, the share of treasury assets held with the Bank of England
reduced to £1.5 billion from £1.8 billion at 31 December 2020. Client
balances fell at the beginning of the year and started to recover from August
as settlement activity reduced.
Loans to clients
Loans are provided as a service to Investment Management clients who have
short- to medium-term cash requirements. Such loans are normally made on a
fully secured basis against portfolios held in our nominee name, requiring two
times cover, and are usually advanced for five years. In addition, charges may
be taken on property held by the client to meet security cover requirements.
Our ability to provide such loans is a valuable additional service, for
example, to clients who require bridging finance when buying and selling their
homes.
Loans advanced to clients increased to £168 million at end of 2021 (2020:
£158 million) as clients' demand for bridging finance increased in favour
of drawing down from investment portfolios at a time of market volatility.
Intangible assets
Intangible assets arise principally from acquired growth in funds under
management and administration and are categorised as goodwill and client
relationships. Intangible assets reported on the balance sheet also include
purchased and developed software.
At 31 December 2021, the total carrying value of intangible assets arising
from acquired growth was £361.3 million (2020: £218.0 million). During the
year, client relationship intangible assets of £88.0 million were capitalised
(2020: £11.0 million), including £79.4 million in relation to Saunderson
House (2020: £6.9 million in relation to the Personal Injury and Court of
Protection business of Barclays). Goodwill of £70.8 million was acquired
during the year in relation to the Saunderson House acquisition (2020: £6.5
million in relation to the Personal Injury and Court of Protection business of
Barclays).
Client relationship intangibles are amortised over the estimated life of the
client relationship, generally a period of 10 to 15 years. When client
relationships are lost, any related intangible asset is derecognised in the
year. The total amortisation charge for client relationships in 2021,
including the impact of any lost relationships, was £13.9 million (2020:
£12.4 million).
Goodwill, which arises from business combinations, is not amortised but is
subject to a test for impairment at least annually. No goodwill was identified
as impaired during the year.
Capital expenditure
Capex spend of £8.8 million in 2021 is down £2.9 million on 2020. Capital
expenditure on regulatory driven projects and our premises fell by £1.2
million in the year as certain projects came to an end.
Capex spend on the development of our systems fell by £1.7 million to £8.1
million in the year. The proportion of spend on the development of our
systems that is capitalised has reduced in line with the increasing adoption
of cloud-based, strategic technology solutions. The costs of cloud-based
solutions are largely charged to profit or loss, with a consequent reduction
in the level of depreciation cost in future years.
We expect property expenditure to increase in 2022 as we continue to develop
our hybrid working capability and relocate our premises in Edinburgh following
the conclusion of the current lease.
Defined benefit pension schemes
We operate two defined benefit pension schemes, both of which have been closed
to new members for several years. With effect from 30 June 2017, we closed
both schemes, ceasing all future benefit accrual and breaking the link
to salary.
At 31 December 2021 the combined schemes' liabilities, measured on an
accounting basis, had increased to £155.6 million, down 5.9% from £165.4
million at the end of 2020, primarily reflecting the increase in interest
rates used to discount the liabilities during the year, and an increase in the
assumed future rate of inflation. The reported position of the schemes as at
31 December 2021 was a surplus of £12.3 million (2020: deficit of
£9.8 million).
Triennial funding valuations form the basis of the annual contributions that
we make into the schemes. Funding valuations of the schemes as at 31 December
2019 were completed during the prior year. Having reviewed the long-term plan
for the schemes, we agreed with the trustees a target to fund the schemes to a
self-sufficient basis over the medium term. This targets a level of assets in
the scheme sufficient to fund future cash flows from interest and maturities
of the scheme assets, reducing the reliance on equity returns to meet
the schemes' requirements. This will significantly reduce the volatility of
the schemes and the future burden on the group. Reflecting this, we agreed a
schedule of contributions totalling £25 million over the next six years.
This schedule will be reviewed at the next triennial valuations, as at 31
December 2022.
Liquidity and cash flow
Fees and commissions are largely collected directly from client portfolios
and a significant proportion of expenses are predictable. Consequently, we
operate with a modest amount of working capital. Larger cash flows are
principally generated from banking and treasury operations when investment
managers make asset allocation decisions about the amount of cash to be held
in client portfolios.
As a bank, we are subject to the PRA's ILAAP regime, which requires us to hold
a suitable Liquid Assets Buffer to ensure that short-term liquidity
requirements can be met under certain stressed scenarios. Liquidity risks are
actively managed on a daily basis and depend on operational and investment
transaction activity.
Cash and balances at central banks was £1.5 billion at 31 December 2021
(2020: £1.8 billion).
Cash and cash equivalents, as defined by accounting standards, includes cash,
money market funds and banking deposits, which had an original maturity of
less than three months. Consequently, cash flows, as reported in the
financial statements, include the impact of capital flows in treasury assets.
Net cash flows from operating activities reflect a £227.4 million decrease
in banking client deposits (2020: £106.0 million decrease), as a result of
asset allocation decisions to reduce the proportion of funds under management
and administration held as cash in clients' portfolios, reflecting market
conditions at the year end.
Cash flows from investing activities also included a net outflow of £110.6
million from the purchase of certificates of deposit (2020: net outflow of
£53.1 million), as we reduced the proportion of treasury assets held with the
Bank of England.
The most significant non-operating cash flows during the year were as
follows:
- outflows relating to the payment of dividends of £44.0 million (2020:
£37.8 million);
- payments made (net of cash acquired) in business combinations of £79.7
million (2020: £12.0 million);
- net proceeds from the repayment and issuance of subordinated loan notes of
£19.8 million (2020: £nil);
- outflows relating to payments to acquire intangible assets (other than as
part of a business combination) of £10.7 million (2020: £9.5 million); and
- £2.0 million of capital expenditure (other than as part of a business
combination) on tangible property, plant and equipment (2020: £3.8 million).
Table 21. Extracts from the consolidated statement of cash flows
2021 2020
£m
£m
Cash and cash equivalents at the end of the year 1,653.6 2,056.7
Net cash inflows from operating activities (214.2) 32.0
Net change in cash and cash equivalents (403.1) (91.3)
Risk management and control
We have a well established approach to risk management, which has continued
to evolve in response to the firm's growth and external developments. Our
risk governance, processes and infrastructure are designed to ensure that
appropriate risk management is applied to existing and emerging challenges to
the firm's day-to-day activities and strategic objectives. Our priority for
2022 is to continue managing risk effectively in accordance with our risk
appetite, to support the long-term future of the firm.
Managing risk
The board is ultimately accountable for risk management across the group. It
regularly assesses the most significant risks and emerging threats to the
group's strategy. Oversight of risk management activities is also undertaken
through the group risk and audit committees.
Our risk management approach and governance framework support the group
chief executive officer and executive committee members with their risk
management responsibilities, underpinned by the executive risk and banking
committees. Day-to-day responsibility for managing risk is delegated to the
group chief executive officer and executive committee members.
Risk culture
The risk culture embedded across the group continues to enhance the
effectiveness of risk management and decision-making. The board sets a
constructive tone in support of a strong risk culture and, supported by our
executive and senior management team, encourages appropriate behaviours and
collaboration on risk management across the group. Risk management is
therefore an integral part of everyone's day-to-day responsibilities and
activities; it is linked to performance and development, as well as to the
group's remuneration and reward schemes. We aim to create an open and
transparent working environment, encouraging employees to engage positively in
risk management in support of the achievement of our strategic objectives.
Risk appetite
The board, group risk committee and executive committee regularly review
and, at least annually, formally approve the group's risk appetite statement,
ensuring it remains consistent with our strategy and objectives. We define
risk appetite as the amount and type of risk the board is prepared to take or
accept in pursuit of our long-term strategic objectives.
Our appetite framework is aligned with the group's overall prudential
requirements for strategic, financial and non-financial (conduct and
operational) risk. Specific appetite statements are set and measures
established for each principal risk. The risk appetite framework is used to
support strategic decision making, as well as providing a mechanism to monitor
risk exposure.
The position against our risk appetite measures is assessed and reported on a
regular basis to the executive committee, group risk committee and the board,
so that risk mitigation can be reviewed and strengthened if needed.
In line with our strategy, the current economic outlook and the evolving
regulatory landscape within the sector, the board remains committed to having
a relatively low overall appetite for risk and ensuring that our internal
controls mitigate risk to appropriate levels. The board recognises our
performance is susceptible to fluctuations in investment markets and has the
potential to bear losses from financial and non-financial risks from time to
time, either as reductions in income or increases in operating costs.
Risk categories Risk appetite statement Example of measures
Business & strategic risk The board expects business and strategic risks to be understood and managed to Underlying dividend cover
limit the impact on delivering sustainable growth and change initiatives
required to meet longer term client, stakeholder, and societal expectations. Net zero and diversity targets
Financial risk The board requires financial risks to be actively monitored and prudently Prudential ratios (e.g. CET Tier 1, Total Capital)
managed to protect company assets, maintain liquidity and regulatory own
funds, limit credit and market risk exposures, and respond to our pension
obligations.
Non-financial risk The board accepts that non-financial risks and losses can arise from failures Significant operational loss
(conduct & operational) in processes, people, systems or external events however expects appropriate
conduct and behaviours to minimise the impact on clients, stakeholders and our Pass rate of assurance checks
reputation.
Three lines of defence
We operate a three lines of defence model across the group to support
governance and risk management:
First line
Senior management, business operations and support functions are responsible
for managing risks, by developing and maintaining effective internal controls
to mitigate risk in line with risk appetite.
Second line
Risk, compliance and anti-money laundering functions maintain a level of
independence from the first line and are responsible for providing oversight
of and challenge to the first line's day-to-day risk management, including
monitoring and reporting of risks to both senior management and governing
bodies.
Third line
Our internal audit function is responsible for providing independent assurance
to senior management, the board and audit committee on the effectiveness of
the group's governance, risk management and internal controls.
Throughout the group, everyone has responsibility for managing risk and
adhering to our control framework in line with their roles and our conduct
expectations.
Identification of risks
Our risks are classified hierarchically in a three-level register, to reflect
our current and anticipated future risk profile. Our highest level of risk
(Level 1) comprises business and strategic, financial, conduct and operational
risks. We continue to separate conduct and operational risk, rather than
combine them into a non-financial risk category, to ensure that both elements
receive appropriate focus. Our next level (Level 2) contains 20 risk
categories, which are each allocated to a Level 1 risk. Detailed risks (Level
3) are identified as sub-sets of Level 2 risks. There are 52 Level 3 risks in
our register. We recognise that some Level 2 and Level 3 risks have features
which need to be considered under more than one Level 1 risk, which is
facilitated through a process of primary and secondary considerations.
The risks in the register are reviewed with risk owners, senior management,
and business units leaders to identify the principal risks which have the
potential to impact future performance and the delivery of our strategic
objectives and business priorities. All risks in the register are monitored
through top down and bottom up reviews which consider the potential impact,
existing internal controls and management actions required to mitigate the
impact and likelihood of emerging issues and potential future events.
Risk assessment process
The board, executive and senior management are actively involved
in a continuous risk assessment process as part of our risk management
framework, supported by the Internal Capital Adequacy Assessment Process
(ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) work, which
assesses the principal risks facing the group.
Our process considers both the impact and likelihood of risks materialising
which could affect the delivery of strategic objectives and annual business
plans and ensures that our assessment of Level 2 risk categories and detailed
Level 3 risks is challenged and reviewed on a regular basis. The board,
executive committee and executive risk committee receive regular reports and
information from senior management, operational business units, risk
oversight functions and other committees to support this assessment.
We have a consistent approach to identifying and assessing our Level 3 risks.
We consider risk on both an inherent and residual basis over a three-year
period against a number of different impact criteria, including financial,
client, operations, reputation, strategy and regulation indicators. A residual
risk exposure and overall risk profile rating of high, medium, low or very
low is then derived for the three-year period, which includes consideration of
the internal control environment and/or insurance mitigation. The assessment
of our control environment includes contributions from first, second and third
line colleagues, data, and monitoring and assurance activity.
We maintain a watch list as part of our approach to identify and evaluate any
current, emerging or future issues, threats, business developments and
regulatory or legislative changes, which could have the potential to impact
the firm's current or longer term risk profile. Any material changes may
require active risk management, usually through process changes or systems
development.
Stress tests are also undertaken to include consideration of the impact of a
number of severe but plausible events that could impact the business. This
work takes account of the availability and likely effectiveness of mitigating
actions that could be taken to avoid or reduce the impact or likelihood of the
underlying risks materialising.
The group's risk profile, risk register, watch list and stress tests are
regularly reviewed and challenged by the executive, senior management, group
risk committee and the board.
Three lines of defence
Overview
External independent assurance
Profile and mitigation of principal risks
The group's underlying risk profile has improved over the last 12 months,
despite another year of mostly remote working. Although the risk ratings for
many Level 2 risks are unchanged, there have been improvements in the
management of some principal risks as opportunities were taken to invest
further in people, processes and technology to improve risk mitigation,
including against cyber threats. We have remained focused on service to
clients, the reliability of business operations and the wellbeing of our
colleagues and we believe this approach has been effective.
Based upon our risk assessment processes, the board believes that the
principal risks and uncertainties facing the group which could impact the
delivery of our strategic objectives have been identified below. These risks
reflect our strategic initiatives and change programme, changes to
the group's business model following the acquisition of Saunderson House,
environmental and societal challenges, the cyber threat landscape,
operational resilience in relation to our suppliers, and the political
environment. The board remains vigilant to potential risks that could arise
from the longer-term impact of COVID-19 on our business and suppliers,
society and the economy, and also to regulatory risks that, in turn, may arise
from the continuing development of law, regulation and standards in our
sector.
Further information about the principal risks is set out below. We include the
potential impacts (I) the firm might face and our assessment of the likelihood
(L) of each principal risk crystallising. These assessments take into account
the controls in place to mitigate the risks. However, as is always the case,
should a risk materialise, a range of outcomes (both in scale and type) might
be experienced. This is particularly relevant for firms such as ours where the
outcome of a risk event can be influenced by market conditions as well as
internal control factors.
We use ratings of high, medium, low and very low in our risk assessment. We
perceive as high-risk items those which have the potential to impact the
delivery of strategic objectives, with medium-, low- and very low-rated items
having proportionately less impact on the group. Likelihood is similarly based
on a qualitative assessment.
Key principal risk profile trends
Risk Description Risk trend in 2021
Change In 2021, we have remained agile and adapted to the continuing effects of →
COVID-19, while delivering growth opportunities through the Saunderson House
acquisition and digital enhancements for clients.
Sustainability We continue to monitor external market conditions, including environmental and →
social factors, which could adversely affect sustainable growth, market share
or profitability. We broadened the risk appetite measures for this risk for
2021, which now include diversity and our climate risk indicators.
Suitability We continue to refine our processes and improve investment risk oversight, →
focusing on both client suitability and portfolio construction. Further
technology enhancements are expected in 2022.
Information security and cyber We have continued to invest in improving our security posture, including staff ↓
awareness, preparedness and technology developments to ensure we progress and
are prepared for the evolving threat landscape.
People People risk fluctuated during 2021 as a result of the pandemic, with turnover →
increasing against last year and labour market challenges impacting some
areas. Management action has been taken to address the concerns raised by our
colleagues. Our new employee survey tool is well established and employee
engagement is positive.
Third-party supplier This was a key area of focus in 2021, with framework improvements and ↓
increased supplier oversight introduced. Together with our suppliers, we have
improved the management of risks associated with their activities, including
potential service disruption and other client impacts. Work will continue in
2022, in line with our change agenda.
Principal risks
The most significant risks which could impact the delivery of our strategy and
annual business plans are detailed below. The potential impacts (I) the firm
might face and our assessment of the likelihood (L) of each principal risk
crystallising are included in the table. Some of these risks increased in
2021, although they have since stabilised.
Residual rating
Risk owner(s) Level 2 risk How the risk arises I L Control environment
Group Chief Financial Officer Credit This risk can arise from placing funds with other banks and holding High Low - Banking committee and senior management oversight
interest-bearing securities. There is also a limited level of lending to
The risk that one or more counterparties fail to fulfil contractual clients - Counterparty limits and credit reviews
obligations, including stock settlement
- Treasury policy and procedures
- Client lending policy and procedures
- Active monitoring of exposures
- Annual ICAAP
Group Chief Financial Officer Pension This risk can arise through a sustained deficit between the schemes' assets High Medium - Board, senior management and trustee oversight
and liabilities. A number of factors impact a deficit, including increased
The risk that the cost of funding our defined benefit pension schemes life expectancy, falling interest rates and falling asset values - Monthly valuation estimates
increases, or their valuation affects dividends, reserves and regulatory own
funds - Triennial independent actuarial valuations
- Investment policy
- Senior management review and defined management actions
- Annual ICAAP
Chief Operating Officer Change This risk can arise if the business is too aggressive and unstructured in its Very high Low - Executive and board oversight of material change programmes
change programme to manage project risks, or fails to make available the
The risk that the change portfolio does not support delivery of the group's capacity and capabilities to deliver business benefits - Transformation Office Programme Board oversight and delivery-focused
strategy operating model
- Differentiated governance approach to strategic change programmes and
business projects
- Dedicated change delivery function and use of internal and, where required,
external subject matter experts
- Two-stage assessment, challenge and approval of project plans
- Documented project and change procedures
Group Chief Executive Officer Sustainability This risk can arise from strategic decisions which fail to consider the High Medium - Board, executive and responsible business committee oversight
current operating environment, our stakeholders' expectations, or can be
The risk that the business model does not respond in an optimal manner to influenced by external factors such as environmental and social factors - A documented strategy, including responsible investment policy
changing market conditions, including environmental and social factors, such
that sustainable growth, market share or profitability is adversely affected - Monitoring of strategic risks
- Annual business targets, subject to regular review and challenge
- Regular reviews of pricing structure
- Continued investment in the investment process, service standards and
marketing
- Trade body participation
- Regular competitor benchmarking and analysis
- Monitoring of strategic risks
- Commitment to diversity and inclusion themes
Group Chief Executive Officer & Chief Risk Officer Regulatory compliance and legal This risk can arise from failures by the business to comply with existing High Medium - Board and executive oversight
regulation or failure to identify and react to regulatory change
The risk of failure by the group or a subsidiary to fulfil its regulatory or - Management oversight and active involvement with industry bodies
legal requirements and comply with the introduction of new or updated
regulations and laws - Compliance monitoring programme to examine the control of key regulatory
risks
- Separate anti-money laundering function with specific responsibility
- Oversight of industry and regulatory developments
- Documented policies and procedures
- Staff training and development
Managing Director Rathbone Investment Management Suitability This risk can arise through failure to appropriately understand the wealth High Medium - Board, executive and general managers committee oversight
management needs of our clients, or failure to apply suitable advice or
The risk of an unsuitable client outcome either through service, investment investment strategies - Investment governance and structured committee oversight
mandate, investment decisions taken, investment recommendations made or
portfolio or fund construction - Management oversight and segregated quality assurance and performance teams
- Performance measurement and attribution analysis
- 'Know your client' (KYC) suitability processes
- Weekly investment management meetings
- Investment manager reviews through supervisor sampling
- Compliance monitoring
Chief Operating Officer Information security and cyber This risk can arise from the firm failing to maintain and keep secure High Medium - Board and executive oversight
sensitive and confidential data through its operating infrastructure,
The risk of inappropriate access to, manipulation, or disclosure of, client or including the activities of employees, and through the management of - Data governance committee oversight
company-sensitive information cyber threats
- Information security policy, data protection policy and associated
procedures
- System access controls and encryption
- Penetration testing and multi-layer network security
- Training and employee awareness programmes
- Physical security
Chief People Officer People This risk can arise across all areas of the business as a result of resource High Medium - Board and executive oversight
management failures or from external factors such as increased competition or
The risk of loss of key staff, lack of skilled resources or inappropriate material changes in regulation - Succession and contingency planning
behaviour or actions. This could lead to lack of capacity or capability
threatening the delivery of business objectives, or to behaviour leading to - Transparent, consistent and competitive remuneration schemes
complaints, litigation or regulatory action
- Contractual clauses with restrictive covenants
- Continual investment in staff training and development
- Employee engagement survey
- Appropriate balanced performance measurement system
- Culture monitoring and reporting
Chief Operating Officer & Chief Executive Officer of Rathbone Third-party supplier This risk can arise when the firm does not have appropriate governance and High Medium - Board and executive oversight
Unit Trust Management
oversight of its supplier relationships, in particular those considered key
The risk of one or more third party suppliers failing to provide or perform and material to the operational resilience of business services provided to - Senior dedicated relationship managers
authorised and/or outsourced services to standards expected by the group, clients or investors
impacting the ability to deliver core services. This includes intra-group - Supplier contracts and defined service level agreements/KPIs
outsourcing activity
- New supplier due diligence and approval process
- Close liaison and regular service review meetings
- Documented procedures
Emerging risks and threats
Emerging risks, including legislative and regulatory change, which have the
potential to impact the group and delivery of our strategic objectives, are
monitored through our watch list. During the year, the executive committee
continued to recognise and respond to a number of emerging risks and threats
to the financial services sector as a whole and to our business. In addition,
throughout 2021 we have continued to develop and maintain our approach to
monitoring strategic risks and horizon threats. Key emerging risks and threats
are:
Near-term Cyber threats and supply chain resilience Climate change transition risk Post pandemic UK and global economic challenges
ESG acceleration
Medium-term UK specific and global political tensions Sector consolidation Digital currencies
Changing regulatory Open finance
expectations
Longer-term Generational wealth change Social care financing More extreme pandemics
Our view for 2022 is that we can reasonably expect current market conditions
and uncertainties to remain, given the implications of COVID-19 variants and
the wide range of global economic and political scenarios which could emerge.
Assessment of the company's prospects
The board reviews its strategic plan annually. This, alongside the ICAAP and
ILAAP, forms the basis for capital planning which is discussed periodically
with the Prudential Regulation Authority (PRA).
During the year, the board has considered a number of stress tests and
scenarios which focus on material or severe but plausible events that could
impact the business and the company's financial position. The board also
considers the plans and procedures in place in the event that contingency
funding is required to replenish regulatory capital. On a monthly basis,
critical capital projections and sensitivities have been refreshed and
reviewed, taking into account current or expected market movements and
business developments.
The board's assessment considers all the principal risks identified by the
group and assesses the sufficiency of our response to all Pillar 1 risks
(defined as credit, market and operational risks, including conduct) to the
required regulatory standards. In addition, the crystallisation of the
following events were considered for enhanced stress testing: an equity market
fall, a loss of business/competitive threat, business expansion, pension
obligation and a combined market fall and reputational event. The economic and
commercial impacts of the global pandemic on the prospects of the company were
also factored into the assessment.
The group considers the possible impacts of serious business interruption
as part of its operational risk assessment process and remains mindful of
the importance of maintaining its reputation. Although the business is almost
wholly UK-situated, it does not suffer from any other material client,
geographical or counterparty concentrations.
While this stress test does not consider all of the risks that the group may
face, the directors consider that this stress testing based assessment of the
group's prospects is reasonable in the circumstances of the inherent
uncertainty involved.
Viability statement
In accordance with the UK Corporate Governance Code, the board has assessed
the prospects and viability of the group over a three-year period considering
the risk assessments identified above. The directors have considered the
firm's current position and the potential impact of the principal risks and
uncertainties set out above. As part of the viability statement, the
directors confirm that they have carried out a robust assessment of both the
principal risks facing the group, and stress tests and scenarios that would
threaten the sustainability of its business model, and its future performance,
solvency or liquidity.
The board regularly reviews business performance and at least annually its
current strategic plan through to 2024, alongside a strategic risk assessment.
The board also considers five-year projections as part of its annual
regulatory reporting cycle, including strategic and investment plans. However,
the directors have determined and continue to believe that a three-year
period to 31 December 2024 constitutes an appropriate and prudent period over
which to provide its viability statement given the uncertainties associated
with the global pandemic, as well as economic and political factors and their
potential impact on investment markets over a longer period. This three-year
view is also more aligned to the firm's detailed stress testing and capital
planning activity. There is no reason to believe the five year view would be
different but as always, there is more uncertainty over a longer time horizon
particularly in relation to external factors.
Stress testing and scenario analysis shows that the group would remain
profitable in excess of our risk appetite tolerances for capital and
liquidity, and able to withstand the impact of such scenarios. An example of a
mitigating action in such scenarios would be a reduction in costs,
specifically around change initiatives, along with a reduction in dividend.
Scenarios modelled include:
Market wide stress (capital & liquidity): a 30% fall in all market levels
for a prolonged 18-month period and FX illiquidity.
Idiosyncratic stress (capital & liquidity): a reputation-affecting cyber
event causing outflow of 20% of FUMA with associated compensation and
rectification costs.
Combined stress (capital & liquidity): aggregation of the above stresses,
together with negative interest rates and additional FUMA outflow to fund
personal lifestyle changes.
Based on this assessment, the directors confirm that they have a reasonable
expectation that the company will be able to continue in operation and meet
its liabilities as they fall due over the period to 31 December 2024.
Going concern
Details of the group's business activities, results, cash flows and resources,
together with the risks it faces and other factors likely to affect its future
development, performance and position are set out in the chair's statement,
chief executive's review, financial performance and segmental review.
The group companies are regulated by the Prudential Regulation Authority (PRA)
and/or the Financial Conduct Authority (FCA) and perform annual capital
adequacy and liquidity assessments, which include the modelling of certain
extreme stress scenarios. The company publishes Pillar 3 disclosures annually
on its website, which provide detail about its regulatory capital resources
and requirements. In July 2015, Rathbone Investment Management issued £20
million of 10-year subordinated loan notes to finance future growth which were
repaid in August 2021. In October 2021, Rathbones Group Plc issued £40
million of 10-year subordinated loan notes to finance future growth.
The group has no other external borrowings.
The directors believe that the company is well placed to manage its business
risks successfully despite the continuing uncertain economic and political
outlook. As the directors have a reasonable expectation that the company has
adequate resources to continue in operational existence for the foreseeable
future, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Note 2021 2020
£'000
£'000
Interest and similar income 7,710 14,976
Interest expense and similar charges (3,834) (6,554)
Net interest income 3,876 8,422
Fee and commission income 457,696 378,240
Fee and commission expense (29,062) (24,491)
Net fee and commission income 428,634 353,749
Net trading income - (12)
Other operating income 3,417 3,929
Operating income 435,927 366,088
Charges in relation to client relationships and goodwill (15,595) (14,302)
Acquisition-related costs 5 (10,089) (34,449)
Other operating expenses (315,208) (273,558)
Operating expenses (340,892) (322,309)
Profit before tax 95,035 43,779
Taxation 6 (19,806) (17,127)
Profit after tax 75,229 26,652
Profit for the year attributable to equity holders of the company 75,229 26,652
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit liability 10 17,091 (4,682)
Deferred tax relating to net remeasurement of defined benefit liability (3,247) 1,668
Other comprehensive income net of tax 13,844 (3,014)
Total comprehensive income for the year net of tax attributable to equity 89,073 23,638
holders of the company
Dividends paid and proposed for the year per ordinary share 7 81.0p 72.0p
Dividends paid and proposed for the year 49,501 38,728
Earnings per share for the year attributable to equity holders of the company:
- basic 12 133.5p 49.6p
- diluted 129.3p 47.6p
Consolidated statement of changes in equity
for the year ended 31 December 2021
Note Share Share Merger Own Retained Total
capital
premium
reserve
shares
earnings
equity
£'000
£'000
£'000
£'000
£'000
£'000
At 1 January 2020 2,818 210,939 71,756 (41,971) 241,851 485,393
Profit for the year 26,652 26,652
Net remeasurement of defined benefit liability 10 (4,682) (4,682)
Deferred tax relating to components of other comprehensive income 1,668 1,668
Other comprehensive income net of tax - - - - (3,014) (3,014)
Dividends paid 7 (37,831) (37,831)
Issue of share capital 56 4,153 - 4,209
Share-based payments:
- value of employee services 43,635 43,635
- cost of own shares acquired (5,077) (5,077)
- cost of own shares vesting 304 (304) -
- tax on share-based payments (140) (140)
At 31 December 2020 2,874 215,092 71,756 (46,744) 270,849 513,827
Profit for the year 75,229 75,229
Net remeasurement of defined benefit asset 10 17,091 17,091
Deferred tax relating to components of other comprehensive income (3,247) (3,247)
Other comprehensive income net of tax - - - - 13,844 13,844
Dividends paid 7 (43,960) (43,960)
Issue of share capital 226 75,934 5,209 81,369
Share-based payments:
- value of employee services (3,247) (3,247)
- cost of own shares acquired (15,130) (15,130)
- cost of own shares vesting 25,248 (25,248) -
- tax on share-based payments 1,350 1,350
At 31 December 2021 3,100 291,026 76,965 (36,626) 288,817 623,282
Consolidated balance sheet
as at 31 December 2021
Note 2021 2020
£'000
£'000
Assets
Cash and balances with central banks 1,463,294 1,802,706
Settlement balances 69,750 90,373
Loans and advances to banks 203,589 159,430
Loans and advances to customers 179,840 166,221
Investment securities:
- fair value through profit or loss 29,934 107,559
- amortised cost 761,654 651,427
Prepayments, accrued income and other assets 115,992 98,714
Property, plant and equipment 13,059 14,846
Right-of-use assets 43,895 44,856
Current tax asset 2,272 -
Net deferred tax asset - 3,342
Intangible assets 8 376,187 231,144
Retirement benefit asset 10 12,287 -
Total assets 3,271,753 3,370,618
Liabilities
Deposits by banks 2,212 893
Settlement balances 60,075 95,412
Due to customers 2,333,011 2,561,767
Accruals, provisions and other liabilities 9 144,498 112,071
Lease liabilities 54,971 56,124
Current tax liabilities - 971
Net deferred tax liability 13,811 -
Subordinated loan notes 39,893 19,768
Retirement benefit obligation 10 - 9,785
Total liabilities 2,648,471 2,856,791
Equity
Share capital 3,100 2,874
Share premium 291,026 215,092
Merger reserve 76,965 71,756
Own shares (36,626) (46,744)
Retained earnings 288,817 270,849
Total equity 623,282 513,827
Total liabilities and equity 3,271,753 3,370,618
Company registered number: 01000403
Consolidated statement of cash flows
for the year ended 31 December 2021
Note 2021 2020
£'000
£'000
Cash flows from operating activities
Profit before tax 95,035 43,779
Change in fair value through profit or loss (670) (1,881)
Net interest income (3,876) (8,422)
(Recoveries)/Impairment losses on financial instruments (712) 582
Net charge for provisions 9 3,118 143
Profit on disposal of property, plant and equipment - -
Depreciation, amortisation and impairment 31,279 31,229
Foreign exchange movements (519) 1,245
Defined benefit pension scheme charges 10 105 200
Defined benefit pension contributions paid 10 (5,086) (3,111)
Share-based payment charges 20,132 39,986
Interest paid (4,994) (5,300)
Interest received 11,225 12,376
145,037 110,826
Changes in operating assets and liabilities:
net (increase)/decrease in loans and advances to banks and customers (41,409) 29,852
net decrease/(increase) in settlement balance debtors 20,624 (37,852)
net increase in prepayments, accrued income and other assets (9,113) (722)
net decrease in amounts due to customers and deposits by banks (227,435) (106,013)
net (decrease)/increase in settlement balance creditors (35,336) 37,718
net (decrease)/increase in accruals, deferred income, provisions and other (39,381) 19,616
liabilities
Cash (used in)/generated from operations (187,013) 53,425
Tax paid (27,207) (21,410)
Net cash (outflow)/inflow from operating activities (214,220) 32,015
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (79,736) (12,048)
Purchase of property, plant, equipment and intangible assets (12,632) (13,294)
Purchase of right-of-use assets (70) (238)
Purchase of investment securities (932,386) (886,847)
Proceeds from sale and redemption of investment securities 821,790 833,712
Net cash used in investing activities (203,034) (78,715)
Cash flows from financing activities
Net (repurchase)/issue of ordinary shares 14 44,335 (868)
Repayment of subordinated loan notes (20,114) -
Net proceeds from the issue of subordinated loan notes 39,893 -
Dividends paid 7 (43,960) (37,831)
Payment of lease liabilities (5,109) (4,880)
Interest paid (895) (1,060)
Net cash generated from/(used in) financing activities 14,150 (44,639)
Net decrease in cash and cash equivalents (403,104) (91,339)
Cash and cash equivalents at the beginning of the year 2,056,694 2,148,033
Cash and cash equivalents at the end of the year 14 1,653,590 2,056,694
Notes to the preliminary announcement
1 Accounting policies
In preparing the financial information included in this statement the group
has applied accounting policies which are in accordance with UK-adopted
International Accounting Standards at 31 December 2021. The accounting
policies have been applied consistently to all periods presented in this
statement, except as detailed below.
2 Critical accounting judgements and key sources of estimation uncertainty
The group makes judgements and estimates that affect the application of the
group's accounting policies and reported amounts of assets, liabilities,
income and expenses within the next financial year. Estimates and assumptions
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.
The following key accounting policies involve critical judgements made in
applying the accounting policy and involve estimations.
2.1 Client relationship intangibles (note 8)
Critical judgements
Client relations hip intangibles purchased through corporate transactions
When the group purchases client relationships through transactions with other
corporate entities, a judgement is made as to whether the transaction should
be accounted for as a business combination or as a separate purchase of
intangible assets. In making this judgement, the group assesses the assets,
liabilities, operations and processes that were the subject of the transaction
against the definition of a business combination in IFRS 3. In particular,
consideration is given to the scale of the operations subject to the
transaction and whether ownership of a corporate entity has been acquired,
among other factors.
Payments to newly recruited investment managers
The group assesses whether payments made to newly recruited investment
managers under contractual agreements represent payments for the acquisition
of client relationship intangibles or remuneration for ongoing services
provided to the group. If these payments are incremental costs of acquiring
investment management contracts and are deemed to be recoverable (i.e. through
future revenues earned from the funds that transfer), they are capitalised as
client relationship intangibles. Otherwise, they are judged to be in relation
to the provision of ongoing services and are expensed in the period in which
they are incurred. Upfront payments made to investment managers upon joining
are expensed as they are not judged to be incremental costs for acquiring
the client relationships.
Estimation uncertainty
Amortisation of client relationship intangibles
The group makes estimates as to the expected duration of client relationships
to determine the period over which related intangible assets are amortised.
The amortisation period is estimated with reference to historical data on
account closure rates and expectations that these will continue in the future.
During the year, client relationship intangible assets were amortised over a
10-to-15-year period.
Amortisation of £15.6 million (2020: £14.3 million) was charged during the
year. At 31 December 2021, the carrying value of client relationship
intangibles was £193.6 million (2020: £121.1 million).
A reduction of three years in the amortisation period of those client
relationship intangible assets currently amortised over 15 years would
increase the annual amortisation charge by £6.3 million.
2.2 Retirement benefit obligations (note 10)
Estimation uncertainty
The principal assumptions underlying the reported surplus of £12,287,000
(2020: £9,785,000 deficit) are set out in note 10.
In setting these assumptions, the group makes estimates about a range of
long-term trends and market conditions to determine the value of the surplus
or deficit on its retirement benefit schemes, based on the group's
expectations of the future and advice taken from qualified actuaries.
Long-term forecasts and estimates are necessarily highly subjective 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 sensitivities of the retirement benefit obligations to changes in all of
the underlying estimates are set out in note 10. Of these, the most sensitive
assumption is the discount rate used to measure the defined benefit
obligation. Increasing the discount rate by 0.5% would decrease the schemes'
liabilities by £14,966,000 (2020: £15,689,000). A 0.5% decrease would have
an equal and opposite effect.
2.3 Business combinations (note 4)
Critical judgement
Treatment and fair value of consideration transferred
During the year, the group acquired the entire share capital of Saunderson
House Limited. The group has accounted for the transaction as a business
combination.
The purchase price payable in respect of the acquisition is split into a
number of different components. The payment of certain elements has been
deferred; the timing and value of these are contingent on certain employment
conditions and operational and financial targets being met.
The proportion of the deferred payments that are contingent on the recipients
remaining employees of the group for a specific period are accounted for as
remuneration for ongoing services in employment. The group's estimate of the
amounts ultimately payable will be expensed over the deferral period.
Estimation uncertainty
Treatment and fair value of consideration transferred
The deferred payments subject to the achievement of certain operational and
performance targets at 31 December 2024 were assessed, and a provision for
the expected consideration to be paid has been made. Under the terms of the
agreements, the award ranges from a payment of £nil to a maximum possible
payment of £7.2 million.
Management's best estimate of this award at the year end was £4.75 million,
based on expected qualifying funds under management at 31 December 2024 of
£5.0 billion. The maximum award of £7.2 million would result in an
additional charge to profit or loss in 2021 of £0.1 million.
Amortisation of client relationship intangibles
Client relationships of £79.4 million were recognised in the period in
relation to the acquisition of Saunderson House. These are being amortised
over a 15 year useful life. A reduction of three years in the amortisation
period of the client relationship intangible asset would increase the annual
amortisation charge by £1.3 million.
3 Segmental information
For management purposes, the group is organised into two operating divisions:
Investment Management and Funds. Centrally incurred indirect expenses are
allocated to these operating segments on the basis of the cost drivers that
generate the expenditure; principally, these are the headcount of staff
directly involved in providing those services from which the segment earns
revenues, the value of funds under management and administration and the
segment's total revenue. The allocation of these costs is shown in a separate
column in the table below, alongside the information presented for internal
reporting to the group executive committee, which is the group's chief
operating decision-maker.
31 December 2021 Investment Management Funds Indirect expenses Total
£'000
£'000
£'000
£'000
Net investment management fee income 288,089 61,289 - 349,378
Net commission income 53,596 - - 53,596
Net interest income 3,874 2 - 3,876
Fees from advisory services and other income 27,265 1,812 - 29,077
Operating income 372,824 63,103 - 435,927
Staff costs − fixed (89,343) (5,210) (35,260) (129,813)
Staff costs − variable (61,872) (16,833) (11,426) (90,131)
Total staff costs (151,215) (22,043) (46,686) (219,944)
Other direct expenses (37,488) (10,084) (47,692) (95,264)
Allocation of indirect expenses (85,767) (8,611) 94,378 -
Underlying operating expenses (274,470) (40,738) - (315,208)
Underlying profit before tax 98,354 22,365 - 120,719
Charges in relation to client relationships and goodwill (note 8) (15,595) - - (15,595)
Acquisition-related costs (note 5) (9,635) - (454) (10,089)
Segment profit before tax 73,124 22,365 (454) 95,035
Profit before tax attributable to equity holders of the company 95,035
Taxation (note 6) (19,806)
Profit for the year attributable to equity holders of the company 75,229
Investment Management Funds Total
£'000
£'000
£'000
Segment total assets 3,132,898 126,568 3,259,466
Unallocated assets 12,287
Total assets 3,271,753
31 December 2020 Investment Management Funds Indirect expenses Total
£'000
£'000
£'000
£'000
Net investment management fee income 230,309 43,929 - 274,238
Net commission income 62,297 - - 62,297
Net interest income 8,422 - - 8,422
Fees from advisory services and other income 19,629 1,502 - 21,131
Operating income 320,657 45,431 - 366,088
Staff costs − fixed (83,673) (4,118) (29,697) (117,488)
Staff costs − variable (56,414) (12,015) (9,299) (77,728)
Total staff costs (140,087) (16,133) (38,996) (195,216)
Other direct expenses (33,371) (8,693) (36,278) (78,342)
Allocation of indirect expenses (67,753) (7,521) 75,274 -
Underlying operating expenses (241,211) (32,347) - (273,558)
Underlying profit before tax 79,446 13,084 - 92,530
Charges in relation to client relationships and goodwill (note 8) (14,302) - - (14,302)
Acquisition-related costs (note 5) (32,433) - (2,016) (34,449)
Segment profit before tax 32,711 13,084 (2,016) 43,779
Profit before tax attributable to equity holders of the company 43,779
Taxation (note 6) (17,127)
Profit for the year attributable to equity holders of the company 26,652
Investment Management Funds Total
£'000
£'000
£'000
Segment total assets 3,243,198 121,320 3,364,518
Unallocated assets 6,100
Total assets 3,370,618
The following table reconciles underlying operating expenses to operating
expenses:
2021 2020
£'000
£'000
Underlying operating expenses 315,208 273,558
Charges in relation to client relationships and goodwill (note 8) 15,595 14,302
Acquisition-related costs (note 5) 10,089 34,449
Operating expenses 340,892 322,309
Geographic analysis
The following table presents operating income analysed by the geographical
location of the group entity providing the service:
2021 2020
£'000
£'000
United Kingdom 421,386 353,712
Jersey 14,541 12,376
Operating income 435,927 366,088
The following is an analysis of the carrying amount of non-current assets
analysed by the geographical location of the assets:
2021 2020
£'000
£'000
United Kingdom 429,345 286,409
Jersey 3,796 4,437
Non-current assets 433,141 290,846
Timing of revenue recognition
The following table presents operating income analysed by the timing of
revenue recognition of the operating segment providing the service:
2021 2020
Investment Management Funds Investment Management Funds
£'000
£'000
£'000
£'000
Products and services transferred at a point in time 44,190 - 56,300 (12)
Products and services transferred over time 327,486 64,251 264,851 44,949
Operating income 371,676 64,251 321,151 44,937
Major clients
The group is not reliant on any one client or group of connected clients for
generation of revenues.
4 Business combinations
Speirs & Jeffrey
On 31 August 2018, the group acquired 100% of the ordinary share capital of
Speirs & Jeffrey Limited ('Speirs & Jeffrey').
Other deferred payments
The group has now provided for the total cost of deferred and contingent
payments to be made to vendors for the sale of the shares of Speirs &
Jeffrey. These payments required the vendors to remain in employment with the
group for the duration of the respective deferral periods. Hence, they have
been treated as remuneration for post-combination services and the grant date
fair value has been charged to profit and loss over the respective vesting
periods. The group continues to provide for related incentivisation awards for
other staff.
During the prior year, the group replaced a share-based incentivisation award
for support staff with a cash award. The accumulated charge recognised in
equity over the related vesting period was reversed, and a provision was
recognised in the 2020 financial statements in respect of the cash award. The
award was settled during the year.
The remainder of payments are to be made in shares and have been accounted for
as equity-settled share-based payments under IFRS 2:
- initial share consideration was payable on completion. However, although the
shares were issued on the date of acquisition, they vested during the year at
the third anniversary of the acquisition date.
- earn-out consideration and related incentivisation awards were subject to
the delivery of certain operational and financial performance targets. The
awards were payable in two parts in the third and fourth years following the
acquisition date. The second earn-out vested during the year.
Further details of each of these elements are as follows:
Gross amount Grant date Grant date fair value Vesting date
£'000
£'000
Initial share consideration 25,000 31 August 2018 23,462 31 August 2021
Earn-out consideration and incentivisation awards 40,500 31 August 2018 41,111 31 December 2020/21
The gross amount in respect of the earn-out consideration and incentivisation
awards represents the extent to which the performance targets were achieved at
the respective vesting dates.
The charge recognised in profit or loss for the year ended 31 December 2021
for the above elements is as follows:
2021 2020
£'000
£'000
Initial share consideration 4,533 9,215
Earn-out consideration and incentivisation awards 1,430 23,042
5,963 32,257
A net credit of £2,600,000 was charged to profit or loss in the year for the
second earn-out consideration. This related in part to a release of a portion
of the accumulated charge recognised since the acquisition date, which was
based on a higher estimate of the expected award at the time than the final
qualifying amount. These costs are being reported as staff costs within
acquisition-related costs (see note 5).
Barclays Wealth's Personal Injury and Court of Protection business
On 3 April 2020, the group acquired the trade and assets of Barclays Wealth's
Personal Injury and Court of Protection business. The acquired trade relates
to the provision of discretionary investment management services to Personal
Injury and Court of Protection clients.
Cash consideration of £12,048,000 was transferred on the date of acquisition.
The sale and purchase agreement also comprised an employee incentive plan that
was payable in two tranches. The last tranche of the award vested on 31
December 2020 and was paid during the year.
The awards under this plan are considered to be directly attributable costs of
acquiring new client relationships, hence these costs have been capitalised in
line with IFRS 15 and amortised over a 15 year useful life (note 8).
Saunderson House
On 20 October 2021, the group acquired 100% of the ordinary share capital of
the Saunderson House group.
Saunderson House is a UK-based advice-led wealth management business with a
focus on professional services clients. It has a long-standing heritage in
serving London and South East-based professional services clients, who tend to
hold market-leading positions in accountancy and law firms.
Consideration transferred
The following table summarises the acquisition date fair value of each class
of consideration transferred:
Fair value
£'000
Initial cash consideration 87,981
Deferred cash consideration 10,873
Total consideration 98,854
Total consideration comprises an initial cash payment of £87,981,000, which
was paid on 20 October 2021. A further £45,208,000 was paid to the vendors
on completion to settle debt of the acquired group. This debt, now payable to
Rathbone Brothers Plc, has been included in the value of net assets acquired.
Deferred cash consideration is payable on the first anniversary of the
acquisition date to vendors who are not required to remain in employment with
the group. As the payment is due within one year, the consideration has not
been discounted.
Other deferred payments
The sale and purchase agreement details other deferred and contingent payments
to be made to the vendors for the sale of the shares of Saunderson House.
However, these payments require the recipients to remain in employment with
the group for the duration of the respective deferral periods. Hence, they are
being treated as remuneration for post-combination services, and the cost
charged to profit and loss over the respective vesting periods. Details of
each of these elements is as follows:
Gross amount £'000 Grant date Grant date fair value £'000 Expected vesting date
Initial share consideration 5,223 20 October 2021 5,454 20 October 2024
Deferred share consideration 4,052 20 October 2021 4,066 20 October 2022
Management incentive scheme 4,750 20 December 2021 4,093 31 December 2024
All of these payments are to be made 100% in shares and are being accounted
for as equity-settled share-based payments under IFRS 2.
- Initial share consideration of £5,223,000 was issued on the date of
acquisition, however does not vest until the third anniversary of the
acquisition date, subject to the vendors remaining employed until this date.
As the share issuance is in pursuance of the arrangement to acquire the shares
of the Saunderson House group, the premium of £5,209,000 on the issuance of
these shares has been recognised within the merger reserve.
- Deferred share consideration of £4,052,000 is payable on the first
anniversary of the acquisition date subject to the vendors remaining in
employment with the group.
- An incentive plan is in place for the Saunderson House senior management
team, which is subject to certain operational and financial performance
targets. The consideration vests in the fourth year following the acquisition
date. The gross amount represents management's best estimate as to the extent
to which these targets will be achieved. The award ranges from a minimum
payment of £nil to a cap of £7.2 million.
These costs are being reported as staff costs within acquisition-related costs
(see note 5).
Identifiable assets acquired and liabilities assumed
The identifiable net assets of the acquired business at the acquisition date
were as follows:
20 October 2021 Carrying amounts Fair value Recognised amounts
£'000
£'000
£'000
Property, plant and equipment 519 - 519
Trade and other receivables 10,063 - 10,063
Software assets 1,425 - 1,425
Client relationship intangibles (note 8) - 79,415 79,415
Cash held at bank 8,245 - 8,245
Right-of-use assets 451 - 451
Trade creditors (86) - (86)
Accruals and other liabilities (4,485) - (4,485)
Due to group companies (47,655) - (47,655)
Deferred tax liabilities (6) (19,386) (19,392)
Lease liabilities (451) - (451)
Contingent liabilities - - -
Total net assets acquired (31,980) 60,029 28,049
The fair value of the client relationship intangible assets has been measured
using a multi-period earnings method (note 8). The model uses estimates of
client longevity and investment performance to derive a series of cash flows,
which are discounted to a present value to determine the fair value of the
client relationships acquired. The deferred tax liability arises on
recognition of the client relationship intangible assets, and is equal to its
carrying value.
The fair value of all other net assets acquired were equal to their carrying
value.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
£'000
Total consideration (see above) 98,854
Fair value of identifiable net assets acquired (see above) 28,049
70,805
Goodwill of £70,805,000 arises as a result of the acquired workforce,
expected future growth as well as operational and revenue synergies arising
post integration. Any impairment of goodwill in future periods is not expected
to be deductible for tax purposes.
During the period to 31 December 2021, Saunderson House contributed
£6,142,000 to the group's operating income, and £1,122,000 to the group's
profit before tax. This excludes the acquisition-related costs of £3,669,000
(see note 5), which were paid by Rathbone Brothers Plc.
If the group had made the acquisition on 1 January 2021, Saunderson House
would have contributed £32,481,000 to group operating income and £2,067,000
to profit before tax, as based on the company's full year results.
5 Acquisition-related costs
2021 2020
£'000
£'000
Acquisition of Speirs & Jeffrey 6,418 34,273
Acquisition of Barclay's Wealth Personal Injury and Court of Protection 2 176
business
Acquisition of Saunderson House 3,669 -
Acquisition-related costs 10,089 34,449
Costs relating to the acquisition of Speirs & Jeffrey
The group has incurred the following costs in relation to the 2018 acquisition
of Speirs & Jeffrey, summarised by the following classification within the
income statement:
2021 2020
£'000
£'000
Acquisition costs:
- Staff costs 5,964 32,257
- Legal and advisory fees 5 20
Integration costs 449 1,996
6,418 34,273
Non-staff acquisition costs of £5,000 (2020: £20,000) and integration costs
of £449,000 (2020: £1,996,000) have not been allocated to a specific
operating segment (note 3).
Costs relating to the acquisition of Barclays Wealth's Personal Injury and
Court of Protection business
On 3 April 2020, the group acquired the trade and assets of Barclays Wealth's
Personal Injury and Court of Protection business. The group incurred
professional services costs of £2,000 (2020: £176,000) in relation to the
acquisition during the year.
Costs relating to the acquisition of Saunderson House
The group has incurred the following costs in relation to the acquisition of
Saunderson House, summarised by the following classification within the income
statement:
2021 2020
£'000
£'000
Acquisition costs:
- Staff costs 1,406 -
- Legal and advisory fees 2,263 -
Integration costs - -
3,669 -
6 Income tax expense
2021 2020
£'000
£'000
Current tax:
- charge for the year 23,796 18,247
- adjustments in respect of prior years 86 (727)
Deferred tax:
- credit for the year (3,793) (1,495)
- adjustments in respect of prior years (283) 1,102
19,806 17,127
The tax charge is calculated based on our best estimate of the amount payable
as at the balance sheet date. Any subsequent differences between these
estimates and the actual amounts paid are recorded as adjustments in respect
of prior years.
The tax charge on profit for the year is higher (2020: higher) than the
standard rate of corporation tax in the UK of 19.0% (2020: 19.0%).
The differences are explained below:
2021 2020
£'000
£'000
Tax on profit from ordinary activities at the standard rate of 19.0% (2020: 18,057 8,318
19.0%) effects of:
- disallowable expenses 984 454
- share-based payments 87 2,228
- tax on overseas earnings (56) (225)
- adjustments in respect of prior year (197) 375
- deferred payments to previous owners of acquired companies (note 5) 927 5,455
- other 8 (49)
- Effect of change in corporation tax rate on deferred tax (4) 571
19,806 17,127
7 Dividends
2021 2020
£'000
£'000
Amounts recognised as distributions to equity holders in the year:
- final dividend for the year ended 31 December 2020 of 47.0p (2019: 25,938 24,316
45.0p) per share
- interim dividend for the year ended 31 December 2021 of 27.0p (2020: 18,022 13,515
25.0p) per share
Dividends paid in the year of 74.0p (2020: 70.0p) per share 43,960 37,831
Proposed final dividend for the year ended 31 December 2021 of 54.0p (2020: 31,479 25,213
47.0p) per share
An interim dividend of 27.0p per share was paid on 5 October 2021 to
shareholders on the register at the close of business on 3 September 2021
(2020: 25.0p).
A final dividend declared of 54p per share (2020: 47.0p) is payable on 10 May
2022 to shareholders on the register at the close of business on 22 April
2022. The final dividend is subject to approval by shareholders at the Annual
General Meeting on 5 May 2022 and has not been included as a liability in
these financial statements.
8 Intangible assets
2021 2020
£'000
£'000
Goodwill 167,677 96,872
Other intangible assets 208,510 134,272
376,187 231,144
Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to
the groups of cash-generating units (CGUs) that are expected to benefit from
that business combination.
The carrying amount of goodwill has been allocated as follows:
Investment Funds Total
Management
£'000
£'000
£'000
Cost
At 1 January 2020 90,405 1,954 92,359
Acquired through business combinations (note 4) 6,467 - 6,467
At 1 January 2021 96,872 1,954 98,826
Acquired through business combinations (note 4) 70,805 - 70,805
At 31 December 2021 167,677 1,954 169,631
Impairment
At 1 January 2020 - 1,954 1,954
Charge for the year - - -
At 1 January 2021 - 1,954 1,954
Charge for the year - - -
At 31 December 2021 - 1,954 1,954
Carrying amount at 31 December 2021 167,677 - 167,677
Carrying amount at 31 December 2020 96,872 - 96,872
Carrying amount at 1 January 2020 90,405 - 90,405
Goodwill of £70,805,000 acquired through business combinations in the period
relates to the acquisition of Saunderson House (2020: £6,467,000 acquired in
the prior year relates to the acquisition of the Barclays Wealth's Personal
Injury and Court of Protection business). See note 4. This has been allocated
to the Investment Management group of CGUs. The group does not believe there
are any key assumptions where reasonable changes could occur which could give
rise to a material adjustment in the carrying value.
Impairment
The recoverable amounts of the groups of CGUs to which goodwill is allocated
are assessed using value-in-use calculations. The group prepares cash flow
forecasts derived from the most recent financial budgets approved by the
board, covering the forthcoming and future years. Budgets are extrapolated for
five years based on annual revenue and cost growth for each group of CGUs (see
table below), as well as the group's expectation of future industry growth
rates. A five-year extrapolation period is chosen as this aligns with the
period covered by the group's Internal Capital Adequacy Assessment Process
('ICAAP') modelling. A terminal growth rate is applied to year five cash
flows, which takes into account the net growth forecasts over the
extrapolation period and the long-term average growth rate for the industry.
The group estimates discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risks specific to the
group of CGUs.
The pre-tax rate used to discount the forecast cash flows for each group of
CGU is shown in the table below; these are based on a risk-adjusted weighted
average cost of capital. The group judges that these discount rates
appropriately reflect the markets in which each group of CGUs operate.
There was no impairment to the goodwill allocated to the Investment Management
group of CGUs during the period. The group has considered any reasonably
foreseeable changes to the assumptions used in the value-in-use calculation
for the Investment Management group of CGUs to its cash flow projections and
the level of risk associated with those cash flows. Based on this assessment,
no such change would result in an impairment of the goodwill allocated to this
CGU.
Investment Management
At 31 December 2021 2020
Discount rate 12.0% 12.2%
Annual revenue growth rate 4.2% 5.0%
Terminal growth rate 1.0% 1.0%
Other intangible assets
Client Software Purchased Total
relationships
development
software
£'000
£'000
costs
£'000
£'000
Cost
At 1 January 2020 207,136 8,182 41,148 256,466
Internally developed in the year - 1,613 - 1,613
Acquired through business combinations (note 4) 6,890 - - 6,890
Purchased in the year 4,085 - 6,269 10,354
Disposals (1,858) - (1,228) (3,086)
At 1 January 2021 216,253 9,795 46,189 272,237
Internally developed in the year - 1,995 - 1,995
Acquired through business combinations (note 4) 79,415 - 5,662 85,077
Purchased in the year 8,620 - 4,840 13,460
Disposals (1,716) - (3,699) (5,415)
At 31 December 2021 302,572 11,790 52,992 367,354
Amortisation and impairment
At 1 January 2020 82,680 6,037 30,347 119,064
Impairment charge - - - -
Amortisation charge 14,302 1,197 6,488 21,987
Disposals (1,858) - (1,228) (3,086)
At 1 January 2021 95,124 7,234 35,607 137,965
Acquired through business combinations (note 4) - - 4,237 4,237
Amortisation charge 15,595 1,383 5,053 22,031
Disposals (1,716) - (3,673) (5,389)
At 31 December 2021 109,003 8,617 41,224 158,844
Carrying amount at 31 December 2021 193,569 3,173 11,768 208,510
Carrying amount at 31 December 2020 121,129 2,561 10,582 134,272
Carrying amount at 1 January 2020 124,456 2,145 10,801 137,402
Client relationships of £79,415,000 acquired through business combinations in
the period relate to the acquisition of Saunderson House
(2020: £6,890,000 acquired in the prior year relates to the acquisition of
the Barclays Wealth's Personal Injury and Court of Protection business). See
note 4.
Purchases of client relationships of £8,620,000 (2020: £4,085,000) in the
year relate to payments made to investment managers and third parties for the
introduction of client relationships.
The total amount charged to profit or loss in the year in relation to goodwill
and client relationships was £15,595,000 (2020: £14,302,000).
Purchased software with a cost of £32,363,000 (2020: £23,803,000) has been
fully amortised but is still in use.
9 Provisions
2021 2020
£'000
£'000
Trade creditors 59 785
Other creditors 23,667 20,766
Accruals 105,448 81,805
Other provisions 15,324 8,715
144,498 112,071
Deferred, Deferred Legal and Property- Total
variable costs
consideration
compensation
related
£'000
to acquire client
in business
£'000
£'000
relationship
combinations
intangibles
£'000
£'000
At 1 January 2020 1,319 - 2,175 5,238 8,732
Charged to profit or loss 588 639 (642) 585
Unused amount credited to profit or loss - - (419) (23) (442)
Net charge to profit or loss - 588 220 (665) 143
Other movements 3,857 - - - 3,857
Utilised/paid during the year (1,391) - (1,801) (825) (4,017)
At 1 January 2021 3,785 588 594 3,748 8,715
Charged to profit or loss - - 2,278 995 3,273
Unused amount credited to profit or loss - - (155) - (155)
Net charge to profit or loss - - 2,123 995 3,118
Other movements 7,992 - - - 7,992
Utilised/paid during the year (3,239) (588) (574) (100) (4,501)
At 31 December 2021 8,538 - 2,143 4,643 15,324
Payable within 1 year 3,567 - 2,143 96 5,806
Payable after 1 year 4,971 - - 4,547 9,518
8,538 - 2,143 4,643 15,324
10 Long-term employee benefits
Defined contribution pension scheme
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 contributions made to these schemes during
the year £12,006,000 (2020: £10,411,000). The group also operates a defined
contribution scheme for overseas employees, for which the total contributions
were £82,000 (2020: £67,000).
Defined benefit pension schemes
The group operates two defined benefit pension schemes that operate within the
UK legal and regulatory framework: the Rathbone 1987 Scheme and the Laurence
Keen Retirement Benefit Scheme. The schemes are currently both clients of
Rathbone Investment Management, with investments managed on a discretionary
basis, in accordance with the statements of investment principles agreed by
the trustees. Scheme assets are held separately from those of the group.
The trustees of the schemes are required to act in the best interest of the
schemes' beneficiaries. The appointment of trustees 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 schemes.
Following a High Court ruling in 2018, the cost of equalising pension benefits
for the impact of unequal Guaranteed Minimum Pensions (GMPs) has been
recognised. Only the Laurence Keen Scheme was impacted. The Rathbone 1987
Scheme was never contracted out, meaning there are no GMP benefits in this
scheme. Ahead of a specific method for equalisation being agreed with the
scheme trustees, the cost has been estimated using a method consistent with
that deemed by the High Court to be the minimum necessary to achieve equality.
The High Court made a further ruling in November 2020 relating to members with
GMPs that had previously transferred out, whereby the scheme remains liable
for paying any required adjustments arising from GMP equalisation. An estimate
of the additional payment was recognised as a past service cost in 2020.
The Laurence Keen Scheme was closed to new entrants and future accrual with
effect from 30 September 1999. Past service benefits continue to be calculated
by reference to final pensionable salaries. From 1 October 1999, 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
and to future accrual from 30 June 2017.
The schemes are valued by independent actuaries at least 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 31 December 2019.
The assumptions used by the actuaries, to estimate the schemes' liabilities,
are the best estimates chosen from a range of possible actuarial assumptions.
Due to the timescale covered by the liability, these assumptions may not
necessarily be borne out in practice.
The principal actuarial assumptions used, which reflect the different
membership profiles of the schemes, were:
Laurence Keen Scheme Rathbone 1987 Scheme
2021 2020 2021 2020
%
%
%
%
(unless stated)
(unless stated)
(unless stated)
(unless stated)
Rate of increase of salaries n/a n/a n/a n/a
Rate of increase of pensions in payment 3.70 3.40 3.30 3.00
Rate of increase of deferred pensions 3.40 3.00 3.40 3.00
Discount rate 1.90 1.30 1.90 1.30
Inflation* 3.40 3.00 3.40 3.00
Percentage of members transferring out of the schemes per annum 2.00 3.00 2.00 3.00
Average age of members at date of transferring out (years) 52.5 52.5 52.5 52.5
* Inflation assumptions are based on the Retail Prices Index
Over the year, the financial assumptions have been amended to reflect changes
in market conditions. Specifically:
1. the discount rate has been increased by 0.6% to reflect a decrease in the
yields available on AA-rated corporate bonds
2. the assumed rate of future inflation has increased by 0.4% and reflects
expectations of long-term inflation as implied by changes in the Bank of
England inflation yield curve
3. the assumed rates of future increases to pensions in payment increased by
0.3% for both schemes, allowing for the change to the assumed rate of future
inflation
Over the year the mortality assumptions have been updated. The CMI model used
to project future improvements in mortality has been updated from the 2019
version to the 2020 version.
2% of members not yet in receipt of their pension are assumed to transfer out
of the scheme each year (2020: 3%).
The assumed duration of the liabilities for the Laurence Keen Scheme is 15
years (2020: 16 years) and the assumed duration for the Rathbone 1987 Scheme
is 20 years (2020: 21 years).
The normal retirement age for members of the Laurence Keen Scheme is 65 (60
for certain former directors). The normal retirement age for members of the
Rathbone 1987 Scheme is 60 for service prior to 1 July 2009 and 65 thereafter,
following the introduction of pension benefits based on Career-Average
Revalued Earnings (CARE) from that date. The assumed life expectancy for the
membership of both schemes is based on the S3PA 'Light' actuarial tables with
improvements in line with the CMI 2020 tables with a long-term rate of
improvement of 1.5% p.a. The assumed life expectancies on retirement were:
2021 2020
Males Females Males Females
Retiring today: aged 60 28.2 29.9 28.2 29.8
aged 65 23.3 24.9 23.3 24.8
Retiring in 20 years: aged 60 29.9 31.6 29.9 31.5
aged 65 24.8 26.6 24.8 26.5
The amount included in the balance sheet arising from the group's assets in
respect of the schemes is as follows:
2021 2020
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
Present value of defined benefit obligations (11,149) (144,428) (155,577) (12,374) (153,030) (165,404)
Fair value of scheme assets 12,981 154,883 167,864 12,592 143,027 155,619
Net defined benefit liability 1,832 10,455 12,287 218 (10,003) (9,785)
The amounts recognised in profit or loss, within operating expenses, are as
follows:
2021 2020
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
Net interest on net liability (5) 110 105 7 117 124
Past service cost - - - 76 - 76
(5) 110 105 83 117 200
Remeasurements of the net defined benefit asset have been reported in other
comprehensive income. The actual return on scheme assets was a rise in value
of £481,000 (2020: £451,000 rise) for the Laurence Keen Scheme and a rise in
value of £11,501,000 (2020: £9,660,000 rise) for the Rathbone 1987 Scheme.
Movements in the present value of defined benefit obligations were as follows:
2021 2020
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
At 1 January 12,374 153,030 165,404 12,726 146,398 159,124
Service cost (employer's part) - - - - - -
Interest cost 158 1,961 2,119 257 2,916 3,173
Contributions from members - - - - - -
Actuarial experience gains 20 5,793 5,813 (1,081) (3,272) (4,353)
Actuarial gains/(losses) arising from:
- demographic assumptions (159) (1,200) (1,359) (389) (5,154) (5,543)
- financial assumptions (816) (10,761) (11,577) 1,158 20,482 21,640
Past service cost - - - 76 - 76
Benefits paid (428) (4,395) (4,823) (373) (8,340) (8,713)
At 31 December 11,149 144,428 155,577 12,374 153,030 165,404
Movements in the fair value of scheme assets were as follows:
2021 2020
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
At 1 January 12,592 143,027 155,619 12,178 138,932 151,110
Remeasurement of net defined benefit liability:
- interest income 163 1,851 2,014 250 2,799 3,049
- return on scheme assets (excluding amounts included in interest income) 318 9,650 9,968 201 6,861 7,062
Contributions from the sponsoring companies 336 4,750 5,086 336 2,775 3,111
Contributions from scheme members - - - - - -
Benefits paid (428) (4,395) (4,823) (373) (8,340) (8,713)
At 31 December 12,981 154,883 167,864 12,592 143,027 155,619
The statements of investment principles set by the trustees of both schemes
were revised in 2020. They require that the assets of the schemes are invested
in a diversified portfolio of assets, split between return-seeking assets
(primarily equities) and safer assets (corporate bonds and liability-driven
investments).
The expected asset allocations at 31 December 2021 as set out in the
statements of investment principles are as follows:
Target asset allocation at 31 December 2021 Laurence Keen Rathbone
Scheme
1987 Scheme
Benchmark
Safer assets 60% 60%
Growth assets 40% 40%
Range
Safer assets 50% - 70% 50% - 70%
Growth assets 30% - 50% 30% - 50%
The analysis of the scheme assets, measured at bid prices, at the balance
sheet date was as follows:
Laurence Keen Scheme 2021 2020 2021 2020
Fair
Fair
Current
Current
value
value
allocation
allocation
£'000
£'000
%
%
Equity instruments:
- United Kingdom 348 485
- Eurozone 696 555
- North America 2,547 2,284
- Other 2,244 2,048
5,835 5,372 46 43
Debt instruments:
- United Kingdom corporate bonds 4,854 4,489
4,854 4,489 37 36
Liability-driven investments 1,986 2,441 15 19
- Cash 181 161 1 1
- Other 125 129 1 1
At 31 December 12,981 12,592 100 100
Rathbone 1987 Scheme 2021 2020 2021 2020
Fair
Fair
Current
Current
value
value
allocation
allocation
£'000
£'000
%
%
Equity instruments:
- United Kingdom 18,035 29,299
- Eurozone 9,107 5,948
- North America 27,980 15,978
- Other 16,823 15,497
71,945 66,722 47 46
Debt instruments:
- United Kingdom corporate bonds 54,370 41,509
54,370 41,509 35 29
Liability-driven investments 26,308 32,700 17 24
- Cash 2,260 2,096 1 1
- Other - - - -
At 31 December 154,883 143,027 100 100
All equity instruments have quoted prices in active markets. 'Other' scheme
assets comprise commodities (2020: comprise commodities). Buy and maintain
credit funds held with Legal and General Investment Management have been
classified as UK corporate bonds.
During the prior year, a proportion of assets was transferred to new fund
managers, Legal and General Investment Management, and the interest rate swap
instrument that was previously held was sold. The scheme now holds
liability-driven investments, which act to reduce the group's exposure to
changes in net defined benefit pension obligations arising from changes in
interest rates and inflation.
The key assumptions affecting the results of the valuation are the discount
rate, future inflation, mortality, the rate of members transferring out and
the average age at the time of transferring out. In order to demonstrate the
sensitivity of the results to these assumptions, the actuary has recalculated
the defined benefit obligations for each scheme by varying each of these
assumptions in isolation whilst leaving the other assumptions unchanged. For
example, in order to demonstrate the sensitivity of the results to the
discount rate, the actuary has recalculated the defined benefit obligations
for each scheme using a discount rate that is 0.5% higher than that used for
calculating the disclosed figures. A similar approach has been taken to
demonstrate the sensitivity of the results to the other key assumptions. A
summary of the sensitivities in respect of the total of the two schemes'
defined benefit obligations is set out below.
Combined impact on schemes' liabilities
(Decrease)/increase (Decrease)/increase
£'000
%
0.5% increase in:
- discount rate (14,966) (9.6%)
0.5% increase in: 12,639 8.1%
- rate of inflation
Reduce allowance for future transfers to nil 1,671 1.1%
1-year increase to:
- longevity at 60 7,884 5.1%
The total contributions made by the group to the 1987 Scheme during the year
were £4,750,000 (2020: £2,775,000). The group has a commitment to pay
deficit-reducing contributions of £3,750,000 by 31 August 2022 and a further
£2,750,000 by 31 August 2023 and each subsequent 31 August up to and
including 31 August 2026, so long as that scheme remains in deficit. The
deficit funding plan will be reviewed following the next triennial valuation,
as at 31 December 2022.
The total contributions made by the group to the Laurence Keen Scheme during
the year were £336,000 (2020: £336,000). The group has a commitment to pay
deficit-reducing contributions of £168,000 by 28 February each year from 2022
to 2026 (inclusive) and a further £168,000 by 31 August in each of those
years, so long as that scheme remains in deficit.
11 Fair values disclosures
The table below analyses financial instruments measured at fair value into a
fair value hierarchy based on the valuation technique used to determine the
fair value:
- Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities
- Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly or indirectly.
- Level 3: inputs for the asset or liability that are not based on observable
market data.
At 31 December 2021 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Fair value through profit or loss:
- equity securities 7,376 - 2,558 9,934
- money market funds - 20,000 - 20,000
7,376 20,000 2,558 29,934
At 31 December 2020 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Fair value through profit or loss:
- equity securities 5,728 - 2,569 8,297
- money market funds - 99,262 - 99,262
5,728 99,262 2,569 107,559
The group recognises transfers between levels of the fair value hierarchy at
the end of the reporting period during which the change has occurred. There
have been no transfers between levels during the year (2020: none).
The fair value of listed equity securities is their quoted price. Money market
funds are demand securities and changes to estimates of interest rates will
not affect their fair value. The fair value of money market funds is their
daily redemption value.
The fair values of the group's other financial assets and liabilities are not
materially different from their carrying values, with the exception of:
- Investment debt securities measured at amortised cost comprise bank and
building society certificates of deposit, which have fixed coupons. The fair
value of debt securities at 31 December 2021 was £761,763,000 (2020:
£654,769,000) and the carrying value was £761,682,000 (2020: £651,533,000).
Fair value of debt securities is based on market bid prices, and hence would
be categorised as level 1 within the fair value hierarchy.
- Subordinated loan notes comprise Tier 2 loan notes. The fair value of the
loan notes at 31 December 2021 was £42,824,000
(2020: £21,726,000) and the carrying value was £39,893,000 (2020:
£19,768,000). Fair value of the loan notes is based on discounted
future cash flows using current market rates for debts with similar remaining
maturity, and hence would be categorised as level 2 in the fair value
hierarchy.
Level 3 financial instruments: Fair value through profit or loss
The group holds 1,809 shares in Euroclear Holdings SA, which are classed as
level 3 in the fair value hierarchy since no observable market data is
available.
The valuation of €1,684 per share at 31 December 2021 has been calculated by
reference to the most readily available data, which is the indicative price
derived from recent transactions of the shares in the market. The valuation at
the balance sheet date has been adjusted for movements in exchange rates since
the acquisition date. A 10% weakening of the euro against sterling, occurring
on 31 December 2021, would have reduced equity and profit after tax by
£207,000 (2020: £208,000). A 10% strengthening of the euro against sterling
would have had an equal and opposite effect.
Changes in the fair values of financial instruments categorised as level 3
within the fair value hierarchy were as follows:
2021 2020
At 1 January 2,569 1,186
Total unrealised (losses)/gains recognised in profit or loss (11) 1,383
At 31 December 2,558 2,569
The gains or losses relating to the fair value through profit or loss equity
securities is included within 'other operating income' in the consolidated
statement of comprehensive income.
There were no other gains or losses arising from changes in the fair value of
financial instruments categorised as level 3 within the fair value hierarchy.
12 Earnings per share
Earnings used to calculate earnings per share on the bases reported in these
financial statements were:
2021 2020
Pre-tax Taxation Post-tax Pre-tax Taxation Post-tax
£'000
£'000
£'000
£'000
£'000
£'000
Underlying profit attributable to shareholders 120,719 (23,732) 96,987 92,530 (20,928) 71,602
Charges in relation to client relationships and goodwill (note 8) (15,595) 2,963 (12,632) (14,302) 2,717 (11,585)
Acquisition-related costs (note 5) (10,089) 963 (9,126) (34,449) 1,084 (33,365)
Profit attributable to shareholders 95,035 (19,806) 75,229 43,779 (17,127) 26,652
Basic earnings per share has been calculated by dividing profit attributable
to shareholders by the weighted average number of shares in issue throughout
the year, excluding on shares, of 56,334,784 (2020: 53,720,680).
Diluted earnings per share is the basic earnings per share, adjusted for the
effect of contingently issuable shares under the Saunderson House initial
share consideration and Executive Incentive Plan, employee share options
remaining capable of exercise, and any dilutive shares to be issued under the
Share Incentive Plan, all weighted for the relevant period. The Speirs and
Jeffrey initial share consideration vested during the year.
2021 2020
Weighted average number of ordinary shares in issue during the year - basic 56,334,784 53,720,680
Effect of ordinary share options/Save As You Earn 521,955 231,259
Effect of dilutive shares issuable under the Share Incentive Plan 237,776 73,990
Effect of contingently issuable shares under the Executive Incentive Plan 811,508 929,457
Effect of contingently issuable shares under Speirs & Jeffrey initial - 1,006,522
share consideration (note 4)
Effect of contingently issuable shares under Saunderson House initial share 272,952 -
consideration (note 4)
Diluted ordinary shares 58,178,975 55,961,908
2021 2020
Earnings per share for the year attributable to equity holders of the company:
- basic 133.5p 49.6p
- diluted 129.3p 47.6p
Underlying earnings per share for the year attributable to equity holders of
the company:
- basic 172.2p 133.3p
- diluted 166.7p 127.9p
Underlying earnings per share is calculated in the same way as earnings per
share, but by reference to underlying profit attributable to shareholders.
13 Related party transactions
Transactions with key management personnel
The remuneration of the key management personnel of the group, who are defined
as the company's directors and other members of senior management who are
responsible for planning, directing and controlling the activities of the
group, is set out below.
Gains on options exercised by directors during the year totalled £nil (2020:
£nil). Further information about the remuneration of individual directors is
provided in the audited part of the directors' remuneration report.
2021 2020
£'000
£'000
Short-term employee benefits 12,159 9,829
Post-employment benefits 290 298
Other long-term benefits 1,305 941
Share-based payments 1,997 3,170
15,751 14,238
Dividends totalling £229,000 were paid in the year (2020: £98,000) in
respect of ordinary shares held by key management personnel and their close
family members.
As at 31 December 2021, the group had outstanding interest-free season ticket
loans of £nil (2020: £nil) issued to key management personnel.
At 31 December 2021, key management personnel and their close family members
had gross outstanding deposits of £634,000 (2020: £616,000) and gross
outstanding banking loans of £nil (2020: nil), all of which (2020: all) were
made on normal business terms. A number of the group's key management
personnel and their close family members make use of the services provided by
companies within the group. Charges for such services are made at various
staff rates.
Other related party transactions
The group's transactions with the pension funds are described in note 10. At
31 December 2021, no amounts were outstanding with either the Laurence Keen
Scheme or the Rathbone 1987 Scheme (2020: none).
One group subsidiary, Rathbone Unit Trust Management, has authority to manage
the investments within a number of unit trusts. Another group company,
Rathbone Investment Management International, acted as investment manager for
a protected cell company offering unitised private client portfolio services.
During 2021, the group managed 33 unit trusts, Sociétés d'Investissement à
Capital Variable (SICAVs) and open-ended investment companies (OEICs)
(together, 'collectives') (2020: 28 unit trusts and OEICs).
The group charges each fund an annual management fee for these services, but
does not earn any performance fees on the unit trusts. The management charges
are calculated on the bases published in the individual fund prospectuses,
which also state the terms and conditions of the management contract with the
group.
The following transactions and balances relate to the group's interest in the
unit trusts:
Year ended 31 December 2021 2020
£'000
£'000
Total management fees 68,444 50,541
As at 31 December 2021 2020
£'000
£'000
Management fees owed to the group 6,240 4,885
Holdings in unit trusts 7,376 5,728
13,616 10,613
Total management fees are included within 'fee and commission income' in the
consolidated statement of comprehensive income.
Management fees owed to the group are included within 'accrued income' and
holdings in unit trusts are classified as 'fair value through profit or loss
equity securities' in the consolidated balance sheet. The maximum exposure to
loss is limited to the carrying amount on the balance sheet as disclosed
above.
All amounts outstanding with related parties are unsecured and will be settled
in cash. No guarantees have been given or received. No expected credit loss
provisions have been made in respect of the amounts owed by related parties.
14 Consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows, cash and cash
equivalents comprise the following balances with less than three months until
maturity from the date of acquisition:
2021 2020
£'000
£'000
Cash and balances at central banks 1,460,001 1,798,000
Loans and advances to banks 173,589 159,432
Fair value through profit or loss investment securities 20,000 99,262
At 31 December 1,653,590 2,056,694
Fair value thought profit or loss investment securities are amounts invested
in money market funds, which are realisable on demand.
Cash flows arising from the (repurchase)/issue of ordinary shares comprise:
2021 2020
£'000
£'000
Share capital issued 226 56
Share premium on shares issued 75,934 4,153
Merger reserve on shares issued 5,209 -
Shares issued in relation to share-based schemes for which no cash (21,902) -
consideration was received
Shares issued in relation to share buybacks (15,132) (5,077)
44,335 (868)
A reconciliation of the movements of liabilities to cash flows arising from
financing activities was as follows:
Liabilities Equity
Subordinated loan notes Share capital/ Reserves Retained Total
£'000
premium
£'000
earnings
£'000
£'000
£'000
At 1 January 2021 19,768 217,966 25,012 270,849 533,595
Changes from financing cash flows
Proceeds from issue of share capital - 54,244 - 54,244
Proceeds from issue of treasury shares - - (9,909) (9,909)
Dividends paid - - - (43,960) (43,960)
Total changes from financing cash flows - 54,244 (9,909) (43,960) 375
The effect of changes in foreign exchange rates - - - - -
Changes in fair value - - - - -
Repayment of loan notes (20,114) - - - (20,114)
Liability-related
Issue of loan notes 39,893 39,893
Interest expense 1,241 - - - 1,241
Interest paid (895) - - - (895)
Total liability-related changes 20,125 - - - 20,125
Total equity-related other changes - 21,916 25,236 61,928 109,080
At 31 December 2021 39,893 294,126 40,339 288,817 663,175
Liabilities Equity
Subordinated loan notes Share capital/ Reserves Retained Total
£'000
premium
£'000
earnings
£'000
£'000
£'000
At 1 January 2020 19,927 213,757 29,785 241,851 505,320
Changes from financing cash flows
Proceeds from issue of share capital - 4,209 - - 4,209
Proceeds from sale of treasury shares - - (4,773) (304) (5,077)
Dividends paid - - - (37,831) (37,831)
Total changes from financing cash flows - 4,209 (4,773) (38,135) (38,699)
The effect of changes in foreign exchange rates - - - - -
Changes in fair value - - - - -
Other changes (393) - - -
Liability-related
Interest expense 1,294 - - - 1,294
Interest paid (1,060) - - - (1,060)
Total liability-related changes (159) - - - (159)
Total equity-related other changes - - - 67,133 67,133
At 31 December 2020 19,768 217,966 25,012 270,849 533,595
15 Events after the balance sheet date
There have been no material events occurring between the balance sheet date
and the date of signing this report.
16 Financial information
The financial information set out in this preliminary announcement has been
extracted from the Group's financial statements, which have been approved by
the Board of directors and agreed with the Company's auditor.
The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 31 December 2021 or 2020.
Statutory financial statements for 2020 have been delivered to the Registrar
of Companies. Statutory financial statements for 2021 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. The
auditor has reported on both the 2020 and 2021 financial statements. Their
reports were unqualified and did not draw attention to any matters by way of
emphasis. They also did not contain statements under Section 498 of the
Companies Act 2006.
17 Forward looking statements
This announcement contains certain forward-looking statements, which are made
by the directors in good faith based on the information available to them at
the time of their approval of the 2021 annual report. Statements contained
within this announcement should be treated with some caution due to the
inherent uncertainties (including but not limited to those arising from
economic, regulatory and business risk factors) underlying any such
forward-looking statements. This announcement has been prepared by Rathbone
Brothers Plc to provide information to its shareholders and should not be
relied upon for any other purpose.
Independent auditor's report to the shareholders of Rathbones Group Plc on the
preliminary announcement of Rathbones Group Plc
As the independent auditor of Rathbones Group Plc we are required by UK
Listing Rule LR 9.7A.1(2)R to agree to the publication of Rathbones Group
Plc's preliminary announcement statement of annual results for the period
ended 31 December 2021.
The preliminary statement of annual results for the period ended 31 December
2021 includes:
- Disclosures required by the Listing Rules;
- Chair's statement;
- Chief executive's statement;
- Financial performance;
- Segmental review;
- Financial position;
- Liquidity and cash flow;
- Risk management and control;
- Consolidated statement of comprehensive income;
- Consolidated statement of changes in equity;
- Consolidated balance sheet;
- Consolidated statement of cash flows; and
- Notes to the preliminary announcement.
We are not required to agree to the publication of presentations to analysts,
trading statement, interim management statement or half-yearly financial
report.
The directors of Rathbones Group Plc are responsible for the preparation,
presentation and publication of the preliminary statement of annual results in
accordance with the UK Listing Rules.
We are responsible for agreeing to the publication of the preliminary
statement of annual results, having regard to the Financial Reporting
Council's Bulletin "The Auditor's Association with Preliminary Announcements
made in accordance with UK Listing Rules".
Status of our audit of the financial statements
Our audit of the annual financial statements of Rathbones Group Plc is
complete and we signed our auditor's report on 23 February 2022. Our auditor's
report is not modified and contains no emphasis of matter paragraph.
Our audit report on the full financial statements sets out the following key
audit matters which had the greatest effect on our overall audit strategy; the
allocation of resources in our audit; and directing the efforts of the
engagement team, together with how our audit responded to those key audit
matters and the key observations arising from our work:
Valuation of the Saunderson House Limited ("SHL") client relationship
intangible asset and associated Useful Economic Life ("UEL")
Key audit matter description
On 20 October 2021, the Group acquired a 100% equity interest in SHL. In
respect of, this the Group has recognised a client relationship intangible of
£79.4 million, which is being amortised over 15 years.
As detailed in the critical accounting judgements and key sources of
estimation uncertainty note 2, and as disclosed in note 4, acquisition
accounting requires management to make a number of judgements to determine the
fair value of acquired identifiable assets. We have identified the valuation
of the SHL client relationship intangible asset and associated UEL as a fraud
risk, given the inherent judgement, complexity and level of estimation
involved.
The significant assumptions that underpin the client relationship intangible
asset valuation include: the growth rate for assets under management ("AuM");
the revenue margins; the non-staff costs to income ratio; and the applied
discount rate.
The UEL has been derived based on the minimum life indicated from the Group's
existing advisory book as well as future expectations for the SHL client
proposition.
How our audit responded to this key audit matter
In order to evaluate the appropriateness of the assumptions used by
management, we obtained an understanding of relevant controls over the
appropriate determination of key assumptions and the calculation of the client
relationship intangible asset to be recognised in the financial statements.
In order to challenge the appropriateness of the assumptions used in the
valuation model to derive the valuation of the client relationship intangible
asset and the assumptions that underpin the associated UEL we have involved
our in-house valuation specialists in reviewing the model methodology and the
key assumptions; independently recalculating the valuation; and benchmarking
the assumptions to determine their reasonableness. We have also evaluated the
accuracy of the data inputs and calculations performed by management.
To challenge the assumptions for growth rate in AUM, revenue margin and
non-staff costs to income ratio we scrutinised management's business plans
which underpinned the acquisition, assessed whether the assumptions were
consistent with data from previous acquisitions and evaluated management's
ability to forecast with reasonable accuracy by validating recent actual
outturns to historic forecasts.
We have performed a review of the disclosures included within the financial
statements to determine whether all required information has been included for
a business combination under IFRS 3.
Key observations
We concluded that the valuation of the client relationship intangible asset
and associated UEL have been appropriately determined.
Impairment of client relationship intangible assets and goodwill
Key audit matter description
The Group holds client relationship intangible assets of £193.6 million
(2020: £121.1 million) and goodwill of £167.7 million (2020: £96.9 million)
comprising both client relationships acquired through business combinations
and through acquisition of individual investment managers and their client
portfolios. We have identified this matter as a fraud risk, given the inherent
judgement and level of estimation in the annual impairment review.
As detailed in note 8, client relationship intangible assets are reviewed for
indicators of impairment at each balance sheet date and, if an indicator of
impairment exists, an impairment test is performed. Goodwill is tested for
impairment at least annually, whether or not indicators of impairment exist.
For client relationship intangible assets, in determining the appropriate
impairment triggers for each portfolio, there is a degree of significant
management judgement. This assessment is based on movements in the value of
Funds Under Management ("FUM") and the loss of client relationships in advance
of the amortisation period.
For goodwill, the impairment assessment is performed by comparing the carrying
amount of each cash generating unit ("CGU") to its recoverable amount from its
value-in-use, calculated using a discounted cash flow method. In determining
the value-in-use for the CGUs, management is required to make assumptions in
relation to an appropriate income growth rate, expenditure growth rate and the
discount rate. The discount rate, annual revenue growth rate and terminal
growth rate used were 12.0%, 4.2%, and 1.0% respectively as disclosed in note
8.
How our audit responded to this key audit matter
We obtained an understanding of relevant controls in relation to the
impairment review process for client relationship intangible assets for both
acquired portfolios and individual client relationships and for goodwill. We
tested controls in place over FUM values which form the basis of the
impairment assessment.
For client relationship intangible assets, we specifically tested the
calculations prepared by management as part of the impairment review exercise
to assess whether they meet the requirements of IAS 36 "Impairment of Assets".
Where the review indicated that an impairment trigger had occurred, we
assessed the relevant assumptions and judgements made by management in
determining whether an impairment needed to be recognised. We have challenged
the key assumptions around the impairment triggers identified for each
portfolio, which we have assessed for reasonableness and evaluated the
accuracy of the inputs used by management.
For goodwill, in order to challenge the appropriateness of the income and
expenditure growth assumptions used in the value-in-use calculation, we have
back-tested the assumptions used by management against recent historical
performance and checked for consistency with forecasts used elsewhere in the
business. We challenged the determination of the discount rate applied by
benchmarking to appropriate market rates of interest and recalculation. We
have also independently re-performed management's value-in-use calculation.
Focusing on those assumptions where the impairment test was most sensitive, we
also performed sensitivity analysis to assess the risk that reasonably
possible changes in assumptions used by management could give rise to an
impairment.
We have performed a review of the disclosures included within the financial
statements to determine whether all required information has been included for
client relationship intangible assets and goodwill.
Key observations
Through our testing for client relationship intangible assets and goodwill, we
concluded that management's approach and conclusion was appropriate.
Valuation of the Defined Benefit Scheme obligation
Key audit matter description
The Group has recognised a defined benefit pension scheme asset of £12.3
million (2020: liability of £9.8 million). The net asset comprises scheme
assets of £167.9 million (2020: £155.6 million) and a defined benefit
obligation of £155.6 million (2020: £165.4 million).
The calculation of the defined benefit scheme obligation is sensitive to
changes in underlying assumptions and is considered to be a key source of
estimation uncertainty for the Group as detailed in note 2.
The key assumptions are in respect of the discount rate, inflation rate and
mortality rate where small changes to these assumptions could result in a
material change to the valuation of the defined benefit scheme obligation.
How our audit responded to this key audit matter
In order to evaluate the appropriateness of the assumptions used by
management, we obtained an understanding of relevant controls over the
appropriate determination of the assumptions used and the calculation of the
defined benefit scheme obligation to be recognised in the financial
statements.
With the involvement of our in-house actuarial specialists, we made direct
enquiries of the Group's actuary to review and challenge each of the key
assumptions used in the IAS 19 ("Employee Benefits") pension valuation. In
particular, we compared each assumption used by management against our
independently determined benchmarks derived using market and other data.
We have performed a review of the disclosures included within the financial
statements to determine whether all required information has been included for
a defined benefit pension scheme obligation.
Key observations
We concluded that each of the key assumptions used by management to estimate
the defined benefit scheme obligation are consistent with the requirements of
IAS 19 and that the valuation of the defined pension scheme obligation has
been appropriately determined.
Investment management fee revenue relating to bespoke fees
Key audit matter description
As detailed in note 3, revenue comprises net investment management fee income
of £349.4 million (2020: £274.2 million), net commission income of £53.6
million (2020: £62.3 million), net interest income of £3.9 million (2020:
£8.4 million) and fees from advisory services and other income of £29.1
million (2020: £21.1 million).
Investment management ("IM") fees from the IM segment account for
approximately 80% of total revenue and are based on a percentage of an
individual client's funds under management ("FUM"). Due to its many long
standing client relationships and history of acquisitions, the number of fee
schedules managed by the Group is high. This means that a number of clients
are on bespoke rates rather than the current standard rates or legacy rates
that were standard previously or at the time of acquisition.
As a result, we identified a key audit matter relating to the risk that,
whether due to error or fraud, incorrect bespoke fee rates could be used to
calculate investment management fees.
How our audit responded to this key audit matter
We tested controls over the calculation of investment management fees. This
included controls relating to the set-up of client fee rates, rate card
amendments, the valuation of FUM and the system generated investment
management fees, including associated IT controls.
We used data analytics to recalculate the system generated amount for the
total fees population.
We agreed a sample of bespoke client fee rates through to client contracts and
the value of FUM to third party sources. Where manual fee rate amendments were
made to system generated fees, we inspected evidence of authority and
rationale.
We have performed a review of the disclosures included within the financial
statements to determine whether all required information has been included for
revenue.
Key observations
We concluded that the investment management fee revenue is appropriately
recognised for the year ended 31 December 2021.
These key audit matters set out above were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion
thereon, and we did not provide a separate opinion on these matters.
Procedures performed to agree to the preliminary announcement of annual
results
In order to agree to the publication of the preliminary announcement of annual
results of Rathbones Group Plc we carried out the following procedures:
(a) checked that the figures in the preliminary announcement covering the
full year have been accurately extracted from the audited financial statements
and reflect the presentation to be adopted in the audited financial
statements;
(b) considered whether the information (including the management
commentary) is consistent with other expected contents of the annual report;
(c) considered whether the financial information in the preliminary
announcement is misstated;
(d) considered whether the preliminary announcement includes a statement
by directors as required by section 435 of CA 2006 and whether the preliminary
announcement includes the minimum information required by UKLA Listing Rule
9.7A.1;
(e) where the preliminary announcement includes alternative performance
measures ("APMs"), considered whether appropriate prominence is given to
statutory financial information and whether:
- the use, relevance and reliability of APMs has been explained;
- the APMs used have been clearly defined, and have been given meaningful
labels reflecting their content and basis of calculation;
- the APMs have been reconciled to the most directly reconcilable line item,
subtotal or total presented in the financial statements of the corresponding
period; and
- comparatives have been included, and where the basis of calculation has
changed over time this is explained.
(f) read the management commentary, any other narrative disclosures and
any final period figures and considered whether they are fair, balanced and
understandable.
Use of our report
Our liability for this report, and for our full audit report on the financial
statements is to the company's members as a body, in accordance with Chapter 3
of Part 16 of the Companies Act 2006. Our audit work has been undertaken so
that we might state to the company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit
work, for our audit report or this report, or for the opinions we have formed.
Manbhinder Rana FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 February 2022
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