REG - Rathbones Group PLC - Preliminary results 2022
01/03/2023 07:00
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RNS Number : 4191R Rathbones Group PLC 01 March 2023
Preliminary results for the twelve months ended 31 December 2022
Securing future momentum
Paul Stockton, Group Chief Executive, said:
"The UK wealth and asset management sector remains fundamentally attractive,
underpinned by long-term trends. The strong progress we have made this year to
develop our investment and financial planning services is part of our ongoing
investment to improve client experience and promote efficiency.
Our financial results reflect the difficult market conditions faced by many
investors in 2022, but also the very deliberate investment in technology we
have committed to, which will provide critical support to the delivery of the
personal service we offer and improve our investment capability.
Throughout the year, we remained focused on providing consistency and
reassurance to our clients, to help them achieve their financial goals."
Financial highlights
- Total FUMA was £60.2 billion at 31 December 2022, down 11.6% from
£68.2 billion at 31 December 2021:
- £45.1 billion in Investment Management (excluding Saunderson House), down
10.2% (2021: £50.3 billion).
- £11.0 billion in Rathbone Funds, down 15.3% (2021: £13.0 billion).
- £4.1 billion of Saunderson House FUMA, down 16.3% (2021: £4.9 billion).
- Discretionary and managed net inflows were resilient in the year at £1.3
billion (2021: £1.8 billion), representing a growth rate of 2.6% (2021:
4.1%):
- Discretionary service net inflows totalled £0.9 billion (2021: £1.3
billion).
- Net inflows into our multi-asset fund range were strong, totalling £0.4
billion and equating to net growth for the year of 20% (2021: £0.5 billion).
2022 2021 Change
£m
£m
(unless stated)
(unless stated)
Operating income 455.9 435.9 4.6%
Underlying operating expenses1 (358.8) (315.2) 13.8%
Underlying profit before tax1 97.1 120.7 (19.6%)
Underlying operating margin1 21.3% 27.7%
Profit before tax 64.1 95.0 (32.5%)
Underlying earnings per share1 130.8p 172.2p (24.0%)
Earnings per share 83.6p 133.5p (37.4%)
1. A reconciliation between the underlying measure and its closest IFRS
equivalent is provided in the financial performance section.
Outlook and guidance
As set out in 2022, investment in our medium-term strategy will continue in
2023, to complete the integration of Saunderson House and the investment in
our digital programme. We remain on track to invest a total of £40 million in
this programme, continuing to target a return to more usual "higher 20s"
underlying operating margin levels by the end of 2024, as benefits from recent
acquisitions and planned investment are achieved.
The wealth management sector continues to offer a significant long-term
opportunity which Rathbones has the brand, momentum and balance sheet strength
to benefit from.
Declaration of final dividend
The board recommends a final dividend of 56p for 2022 (2021: 54p), making a
total of 84p for the year (2021: 81p), an increase of 3.7% on 2021. 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 9 May 2023,
subject to shareholder approval at our 2023 Annual General Meeting on 4 May
2023.
2022 results presentation
A presentation detailing Rathbones' 2022 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/63c03c58aeebb9120025c60f/glelee
(https://protect-eu.mimecast.com/s/DWE9CQ7lXi9Jo3viPbqDz?domain=eur01.safelinks.protection.outlook.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: 453969
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 1 March 2023
For further information contact:
Rathbones Group Plc
Tel: 07702605524
email: sarah.lewandowski@rathbones.com
Paul Stockton, Group Chief Executive
Jennifer Mathias, Group Chief Financial Officer
Sarah Lewandowski, 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 2,200 staff in 14 UK locations and Jersey; its
headquarters is 8 Finsbury Circus, London, EC2M 7AZ.
www.rathbones.com
Chair's statement
DEAR SHAREHOLDER
As I look back to the start of 2022, few of us correctly predicted the full
global economic impacts of the aftermath of the coronavirus pandemic, together
with implications of the unprovoked war in Ukraine. With UK inflation at its
highest in 40 years (more than double the rate it was when I wrote this
statement last year), the resulting 'cost-of-living' crisis has highlighted
even more the importance of the work we do for our clients and all our
stakeholders.
In the face of these challenges, the reassurance and advice that Rathbones has
diligently provided our clients has demonstrated the resilience that is part
of our DNA. We continued to invest to improve the firm's capabilities and made
strong progress against our strategic ambitions. Saunderson House is a new and
welcome member of our family, integrating well and improving our advisory
services. I look forward to seeing the continued future benefits both from
this acquisition and from our ongoing investment in technology.
SHAREHOLDER RETURNS AND DIVIDENDS
Rathbones has a long and successful track record in generating attractive
returns for our shareholders. In 2022, Rathbones' total shareholder return
(TSR) was 7%, which compares favourably against the FTSE All Share Index of
0.3%.
This is in part a result of our progressive dividend policy, in place for the
last 25 years. When making dividend decisions, the board considers several
factors and aims to look beyond temporary market or economic downturns. Given
the strength of our balance sheet, and our confidence in the long-term future
of the business, the board has recommended a final dividend of 56p per share.
This brings the total dividend for the year to 84p per share, 3.7% ahead of
2021. The dividend will be paid on 9 May 2023, subject to shareholder approval
at our 2023 Annual General Meeting on 4 May 2023, for shareholders who are on
the register on 21 April 2023.
CULTURE
The board plays a critical role in setting the firm's strategy, purpose,
business model and culture. Each director recognises the role we have to play
in setting the 'tone from the top'; and in monitoring how the firm's culture
and values are 'lived'. The board has refreshed its culture dashboard which
has been simplified to help strengthen the firm's culture. Importantly, the
culture dashboard is subject to regular review by the board.
Through my own engagement with employees and through our board's workforce
engagement programme, I am pleased to see the firm's strong and distinctive
culture in action. This is evidenced by the continuing commitment on the part
of our employees to support our clients and the broader community. Further
information can be found in the full corporate governance report.
RESPONSIBLE INVESTMENT
Rathbones has a long history of ethical, sustainable and impact investment -
led by Greenbank - which continues to receive industry accolades for its
purpose and performance, and which this year celebrated its 25th Investor Day.
A quarter of a century evidences the company's commitment to investing in
ethical, sustainable and impact opportunities for clients.
In 2021, Rathbones announced its intention to be a net zero emissions business
by 2050 or sooner. In 2022, our near-term targets were validated by the
Science-Based Targets initiative. The year saw an increase in our operational
emissions, mainly driven by an increase in travel as colleagues returned to
face-to-face meetings and moving between our offices. In 2023, we will look to
make reductions in our operational footprint as we welcome our Saunderson
House colleagues to Finsbury Circus, a much more energy efficient building.
Our responsible investment committee defines responsible investing as 'the
purposeful integration of ESG considerations into the investment management
process'. In 2022, we took this further and incorporated climate risks into
the management of our portfolios. We now recognise that climate risks can
materially affect the performance of our client's investment holdings over the
longer term. In particular, our updated voting policy includes clear
expectations of how companies will be assessed on their own net zero
strategies.
COLLEAGUES
Our colleagues are critical to Rathbones' success, so it is imperative that
the board instils a culture that motivates and rewards. We want all Rathbones'
employees to have the opportunity to build long-lasting and fulfilling
careers. During 2022, we conducted an employee engagement survey where 82% of
employees responded. Our net promoter score at 39 is well above the sector
average of 22; highlighting the attractiveness of our employee proposition.
Our colleagues possess integrity and operate in a culture which values
personal responsibility and delivery.
We are incredibly grateful to all our colleagues for their resilience and
diligence in a difficult year. We could not have achieved sustained growth and
good returns for all other stakeholders without their efforts. The mental and
financial wellbeing of our colleagues is important and deserves - and receives
- our continual focus. The board continued to improve wellbeing initiatives;
including our employee assistance programme, flexibility in the form of hybrid
working and provided a one-off cost of living payment to eligible employees.
BOARD COMPOSITION AND SUCCESSION
2022 was a year of change for the board. As planned, James Dean stepped down
at the Annual General Meeting (AGM) in May, having served nine years on the
board, where he made a huge contribution as a non-executive director and the
chair of the audit committee. As part of the board's succession plans, Iain
Cummings succeeded James as chair of the audit committee.
In July, Colin Clark, senior independent director and non-executive director,
stepped down from the board. Colin joined the board in 2018 and helped oversee
the appointment of a new chair. His extensive industry knowledge and
experience have been much valued. I am pleased that Sarah Gentleman, chair of
the remuneration committee, assumed the role of senior independent director.
During the year, the nomination committee spent time to identify the
diversity, skills and experience required by the board to deliver our strategy
and to continue to guide the executive team appropriately.
We currently meet the Hampton-Alexander requirement for at least one third of
the board to be female and the Parker Review recommendation that all boards
should have at least one ethnic minority director. While we are content with
the progress made in this area, we acknowledge that there is more to be done
to drive greater diversity - principally of thinking - in our business at both
board and executive level.
LOOKING AHEAD
Whilst every year has a strong focus on clients and client outcomes, this was
particularly true in 2022. We will continue that work into 2023 and beyond to
ensure that we offer the best service and value for money that we can, as our
business model continues to support our stakeholders through this period of
uncertainty.
From a strategic perspective, the focus for 2023 remains to deliver further
returns from the acquisition of Saunderson House, to foster sustained organic
growth across the business, at the same time delivering on our digital
transformation agenda. The delivery of these objectives will allow us to
improve operating margins by the end of 2024.
There remain significant opportunities in the private client wealth management
sector in the United Kingdom, and with a strong balance sheet and professional
colleagues, Rathbones is well placed to take advantage of the opportunities
that lie ahead. Difficult as current markets may appear, Rathbones possesses
extraordinary positional assets - our brand, our people, our competencies and
our clients.
Finally, on behalf of the board, I would like to thank our clients,
shareholders and colleagues for their commitment to achieving our goals in
what has been a very challenging year.
Clive C R Bannister
Chair
28 February 2023
GROUP CHIEF EXECUTIVE'S REVIEW
INTRODUCTION AND MARKET OVERVIEW
As a market facing business, our performance this year has inevitably been
impacted by the many well chronicled events of 2022. Clients have observed
financial markets that we have not seen in a long time, and alongside many,
our active orientation towards growth stocks dampened investment performance
over this financial year. Despite these external market pressures, Rathbones
delivered a resilient financial performance in the year, benefiting from a
diversified business model that meets client needs no matter what market
conditions we face.
The UK wealth and asset management sector remains fundamentally attractive
with embedded structural growth underpinned by strong long-term trends. The
progress we have made this year, in terms of growing our financial planning
offering and taking strides to continually improve our customer experience,
positions us well despite short-term market fluctuations. Our model responds
positively in times like these by providing reassurance and consistency to our
clients and supporting high client retention rates of 93.7%.
FINANCIAL PERFORMANCE AND FUND FLOWS
Market movements in investment values to 31 December 2022 adversely impacted
total funds under management and administration (FUMA), which closed the year
at £60.2 billion, down from £68.2 billion in the same period last year. This
comprised £45.1 billion in our Investment Management business (FY 2021:
£50.3 billion), £11.0 billion in Rathbones Funds business (FY 2021: £13.0
billion) and £4.1 billion in Saunderson House (FY 2021: £4.9 billion).
Profit before tax totalled £64.1 million (2021: £95.0 million) and
underlying profit before tax totalled £97.1 million (2021: £120.7 million).
This resulted in an underlying operating profit margin of 21.3% (2021: 27.7%),
which was in line with expectations after planned investment in change and
technology.
Markets were heavily driven by macroeconomic themes in the year, which changed
rapidly and were often difficult to navigate for long-term investors.
Investment performance in our investment management business reflected this
volatility and fell 11.3%, much more in line with the MSCI PIMFA Private
Investor Balanced Index which fell 10.2% in the year, a favourable outcome
against the FTSE 250, which was down 19.7%.
Despite the challenging market, net inflows in the period have been positive,
highlighting the attractiveness of our propositions and our clients'
willingness to invest. Total discretionary and managed net inflows were £1.3
billion in 2022 (2021: £1.8 billion), representing a growth rate of 2.6%.
External inflows of £0.4 billion into our risk targeted multi-asset fund
range (a central part of our managed offering to the adviser market) were
resilient in the period (2021: £0.5 billion). This fund range also underpins
our offering for those clients wishing to invest smaller values.
As expected, the asset management industry experienced significant outflows in
the year as investors exercised caution across growth and fixed income
mandates. Nevertheless, a net outflow of £0.4 billion in our single-strategy
fund range was low when compared with the market. Rathbones was also ranked in
8th position for total net sales in the UK in the most recent Pridham Report
(2021: 5th position).
STRATEGIC UPDATE
Our strategy is driven by four 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 positive changes within the business during the year, with
the main highlights outlined throughout this report.
Aside from using technology to improve how our clients access portfolio
information and interact with us, our proposition focus in 2022 was to
streamline the way in which we work with external financial advisers and
networks directly. In May 2022 we launched a revised 'Reliance on Adviser'
proposition which improved administrative processes and simplified our overall
operating model to make Rathbones easier to do business with. As the new
proposition removes duplication of documentation and simplifies client
onboarding, this provides benefits for both investment managers and advisers
to foster stronger relationships and support growth. Since launch, the
proposition has been well received by existing advisers and introduced 40 new
IFA relationships to Rathbones.
The Defaqto discretionary fund manager satisfaction study (published February
2022) is based on feedback from adviser firms that have outsourced their
client investment assets to third-party discretionary managers. The study
received nearly 300 responses and measured which DFMs were being recommended
and how satisfied the advisers were with their preferred DFM providers. The
study showed that bespoke services are still the most popular form of DFM with
65% of advisers opting for this service. Rathbones, among some peers, received
most nominations as a preferred provider from advisers for bespoke DFM which
rewards our continued investment in this area. At 31 December 2022, the amount
of adviser linked FUMA across Rathbones was £10.7 billion (31 December 2021:
£11.4 billion).
The acquisition of Saunderson House in 2021 was an important step to add
financial advice capability to the group. In June 2022 we launched new advice
and investment propositions that brought together the best of Saunderson House
and Rathbones, delivering stronger discretionary services together with wealth
planning and ongoing advice and point in time advice services. We begin 2023
with one leadership team across Saunderson House and Rathbone Financial
Planning with the division now comprising 303 people in total, in seven
offices and with 72 financial planners. We now have a sizeable UK market
presence that is working more effectively in target segments and across the
group. During 2023, the focus will be on transitioning Saunderson House
clients to new propositions to support the benefits that were highlighted at
the time of acquisition. Other work to integrate support teams into Rathbones
has been largely completed, creating a vibrant combined culture that has
offered many employees the opportunity to work across a wider group. Despite
volatile markets since the acquisition, the accretion of c.10% and a return on
invested capital of 12% by the end of 2024 remains our target.
Vision remains an important part of our financial advice proposition as an
independent specialist financial advice network focusing on high-net-worth
private clients. In 2022, FUMA in Vision was £2.6 billion at 31 December 2022
(2021: £2.7 billion) with 131 financial planners (2021: 131), including 15
new IFAs and another 9 going through the onboarding process. We anticipate
further recruitment in Vision in 2023 as the business continues to grow and
leverage its strong relationship with the Rathbones Group.
During the year, we developed the 'Rathbone Select Portfolio Service' further.
The aim of this service is to deliver a high-quality, 'self-select' investment
service for smaller value portfolios. It provides cost effective solutions for
our clients with portfolios below £150k, recognising the importance of an
entry point to Rathbones to suit the needs of the next generation of wealth.
Following a successful pilot, in 2022 Rathbone Select Portfolio Service has
been rolled out to all offices, now serving c.3,000 clients. In 2023, we will
continue to offer the service to clients with less to invest, adding capacity
by delivering a diversified and economical solution for clients.
AN UPDATE ON OUR DIGITAL PROGRAMME
Our objectives for 2022 were to make positive strides to better employ
technology, not only to improve client experience, but to streamline processes
and drive greater productivity across the business that will support growth.
Technology can also boost employee morale and create the time and resources to
invest in future growth initiatives.
Our aspiration is that over the medium term we embed a digital experience that
complements our face-to-face services, offering a broader set of communication
and service delivery options for clients, advisers and other new
relationships.
The first stage in our digital delivery was the launch of the MyRathbones
client portal and app in 2021. We significantly developed MyRathbones'
capability in 2022 and over c.33,900 clients (around 50% of our client base)
interact with the portal, which we expect to grow further in 2023. The strong
app rating that it has achieved reflects a high-quality user experience and a
sensitivity to client needs, now incorporating secure messaging and sharing
investment content on a proactive basis.
The deployment of our InvestCloud client lifecycle management system has
progressed well this year, resulting in the deployment of prospecting
capability to a pilot group in the fourth quarter. We also completed work to
upgrade our data management capability and streamline key client processes in
preparation for the more extensive launch of on-boarding and suitability
functionality in 2023. This investment in our digital platform will improve
productivity as well as enhance the experience for clients, investment
managers and planners.
In our Funds business we successfully delivered on the first phase of the
Charles River's portfolio management solution. Deployed in November 2022, this
is an important additional capability to strengthen investment processes and
improve efficiency.
In 2023, we will continue to deliver on our technology plans, including the
further deployment of InvestCloud and have a clear roadmap to enhance our
digital capabilities further. Our digital and data strategy programmes remain
critical to client engagement and productivity.
ONGOING SERVICE IMPROVEMENT
In a volatile market we have seen some of the benefits of the more diversified
investment approach we take, that supports our bespoke discretionary
investment service. Investment in our research capability over recent years
has improved the quality and depth of our investment process, the support that
is offered to investment teams, and the production of topical output that we
share with clients. Overall, our research team now consists of 45 research
professionals with our investment managers also contributing to research and
asset allocation across the group.
Our ambition is to cater to client needs across the ESG spectrum, whether
their interest in ESG factors is driven simply by financial materiality or by
specific sustainability preferences. To support all areas of responsible
investment, in 2022 we integrated an expanded ESG research data set into the
investment process across the group and improved our ESG reporting. We believe
that clear and ongoing communication to clients on the ESG characteristics of
our investments is as important as being clear on other value-based components
of investment decision-making.
External market conditions were not kind to any portfolio that excluded oil
and/or mining companies and also some banks, particularly in the first quarter
of 2022. This inevitably impacted performance in specialist ethical and
sustainable portfolios at Rathbone Greenbank Investments as £2.0 billion of
funds under management at 31 December 2022 fell 13.0% from £2.3 billion in
2021. We continue to believe that this longer-term proposition has growth
potential to capture future opportunities.
Rathbones has received recognition from a variety of sources in 2022. We were
included in a select group of firms to have received Five Stars in the
Investment Providers category at the 2022 Financial Adviser Service Awards,
representing 'excellent service'. Our 'Votes against slavery' collaborative
engagement programme has also won Stewardship initiative of the year at the
PRI awards. The campaign that was led by Rathbones included 122 asset
managers, pension funds and institutional investors with assets under
management totalling £9.6 trillion and targeted FTSE 350 companies failing to
comply with Section 54 of the Modern Slavery Act 2015. We were also listed as
the top DFM provider for bespoke portfolios in The Citywire New Model Adviser
Top 100. Prestigious awards such as these highlight the commitment we have to
our clients and the wider community and affirms the high-quality service we
provide.
Our most recent client experience survey, undertaken in October 2022, shows a
strong level of satisfaction. We will continue to prioritise client engagement
to demonstrate and be accountable for the choices we make to help our clients
grow their wealth.
OUR PEOPLE
As a people led business, our strategy sets a culture that drives performance
and builds long, rewarding careers for our colleagues. Aside from our
commitment to diversity, equality and inclusion, we continue to invest in
training and career development, building leadership skills and proactively
managing succession. We obtain regular feedback from employees, now running
regular surveys covering various topics. Engagement scores throughout 2022
remained high, with our survey scoring 8/10, higher than the financial
services benchmark of 7.8, with an employee response rate of 82%.
Ensuring employee wellbeing has always been important at Rathbones.
Considering the challenges facing many individuals during the current cost of
living crisis, our financial wellbeing offerings have proved ever more
valuable this year, including one-off discretionary payments to eligible
colleagues.
Furthering our diversity, equality and inclusion agenda, we launched many
initiatives during the year, noting in particular our four inclusion networks
across the group, which have the aim of challenging us to attract a diverse
range of talent, create a more gender balanced Rathbones and leverage the
skills and abilities of all colleagues from different backgrounds.
RISK MANAGEMENT AND REGULATION
Risk management practices continue to be embedded across the business as we
remain conscious of the impact of the changing risk landscape to our firm and
industry, particularly in an uncertain economic climate. We continue to
respond appropriately to regulatory changes and acknowledge recent FCA and PRA
consultation activity and statements. Consumer Duty rules are expected to come
into force during the summer of 2023 and we have been working hard to respond
accordingly, developing plans for implementation later this year.
OUTLOOK
The business starts 2023 with good momentum as our client propositions and
focus on service continue to promote opportunities for growth.
As set out in 2022, investment in our medium-term strategy will continue in
2023, most notably to complete the integration of Saunderson House and the
investment in technology, to embed a digital capability that improves client
experience. We remain on track to invest a total of £40 million in this
programme, continuing to target a return to more usual 'high-20s' underlying
operating margin levels by the end of 2024, as benefits from recent
acquisitions and planned investment are achieved.
The wealth management sector continues to offer a significant long-term
opportunity which Rathbones has the brand, momentum and balance sheet strength
to benefit from.
Paul Stockton
Group Chief Executive Officer
28 February 2023
financial performance
Overview of financial performance
The group's financial performance for the year to 31 December 2022 remained
resilient during a challenging year for markets and investors. We continued to
attract new business and achieved sustained net inflows despite volatile
markets.
Underlying profit before tax was £97.1 million (2021: £120.7 million), a
fall of 19.6% in the year, which includes £16.3 million of the £40 million
planned expenditure on our digital strategy which we announced in February
2022. Despite falls across all major markets, operating income increased 4.6%
to £455.9 million (2021: £435.9 million). The underlying operating margin,
which is calculated as the ratio of underlying profit before tax to operating
income, was 21.3% (2021: 27.7%).
Operating income for the year benefited from our diversified revenue streams
with use of the group's banking licence and a full year's contribution of
Saunderson House which we acquired in October 2021. Whilst fee income reduced
given lower funds under management, net interest income contributed £18.3
million to operating income in 2022 (2021: £3.9 million) due to the rising
interest rate environment. The increase in expenditure was in line with
expectations and largely driven by our strategic growth plan, including our
digital programme, together with the addition of Saunderson House.
The underlying operating margin rises to 24.9% when underlying profit before
tax is adjusted for £16.3 million of operating expenses on the group's
digital programme. Agile and phased delivery of the project has ensured good
progress with a resulting improvement in client engagement.
Statutory profit before tax for 2022 was £64.1 million (2021: £95.0
million). This included planned deferred acquisition and integration costs of
£10.0 million relating to Saunderson House (2021: £3.7 million), and £3.5
million deferred acquisition costs for Speirs & Jeffrey (2021: £6.4
million). See note 3 for further detail.
The board primarily considers underlying measures of income, expenditure and
earnings when assessing the performance of the group. These are considered to
provide useful additional information on business performance, rather 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 3.
Table 1. Group's overall performance
2022 2021
£m
£m
(unless stated)
(unless stated)
Operating income 455.9 435.9
Underlying operating expenses¹ (358.8) (315.2)
Underlying profit before tax¹ 97.1 120.7
Underlying operating margin¹ 21.3% 27.7%
Profit before tax 64.1 95.0
Effective tax rate 23.6% 20.8%
Taxation (15.1) (19.8)
Profit after tax 49.0 75.2
Underlying earnings per share¹ 130.8p 172.2p
Earnings per share 83.6p 133.5p
Dividend per share² 84.0p 81.0p
Return on capital employed (ROCE)¹ 7.7% 13.0%
Underlying return on capital employed¹ 11.8% 16.1%
1. A reconciliation between the measure and its closest IFRS equivalent is
shown in table 3
2. The total interim and final dividend proposed for the financial year
BUSINESS PERFORMANCE: Funds under management and administration (FUMA)
Net inflows of discretionary and managed FUMA in Investment Management
remained positive across each quarterly trading period, despite volatile
investor conditions, totalling £0.9 billion in 2022 (2021: £1.3 billion).
Direct net flows into our multi-asset fund range were particularly robust,
reflecting the diversification and perceived relative safety of these funds,
and totalled £0.4 billion in the year (2021: £0.5 billion). Taken together,
this represents a growth rate of 2.6% in discretionary and managed FUMA
(2021: 4.1%).
The asset management industry saw outflows in single-strategy funds in the
year, with a 13.8% reduction in industry-wide funds under management and
administration. Our single-strategy funds experienced net outflows of £0.4
billion in the year (2021: net inflows of £1.2 billion), representing 4.5% of
opening funds under management and administration, as investors favoured value
stocks over our relative overweight position in growth-oriented stocks. As the
year progressed, we saw a reduction in the level of outflows as investors
began to adopt higher risk positions as inflation and interest rate fears
abated somewhat.
Uncertainty across UK and global markets, driven by macroeconomic and
geopolitical volatility, contributed to an adverse £8.4 billion market
movement on asset values in the year, resulting in FUMA closing 11.7% down at
£60.2 billion (2021: £68.2 billion) (Table 2). This compares with favourable
market movements of £5.9 billion in 2021. During the latter half of the year,
our investment performance benefited from an underweight exposure to both
fixed income securities and North American equities, relative to the PIMFA
Balanced index.
Table 2. Group FUMA and flows by service level
Year ended 31 December 2022 Opening FUMA Net flows Net service level transfers Market & investment performance Closing FUMA Net growth (flows)
£bn
£bn
£bn
£bn
£bn
%
Discretionary service 49.3 0.9 (0.2) (5.7) 44.3 1.9%
Bespoke portfolios 48.0 0.8 (0.3) (5.6) 42.9 1.6%
Managed via in-house funds 1.3 0.1 0.1 (0.1) 1.4 10.3%
Multi-asset funds 2.0 0.4 - (0.2) 2.2 20.0%
Total discretionary & managed 51.3 1.3 (0.2) (5.9) 46.5 2.6%
Non-discretionary service 1.0 (0.1) (0.1) (0.1) 0.7 (7.4%)
Total wealth management 52.3 1.2 (0.3) (6.0) 47.2 2.4%
Single-strategy funds 8.3 (0.4) - (1.4) 6.5 (4.5%)
Execution only & banking 2.7 (0.2) 0.3 (0.4) 2.4 (9.0%)
Total 63.3 0.6 0.0 (7.8) 56.1 1.0%
Saunderson House 4.9 (0.2) (0.0) (0.6) 4.1 (4.9%)
Total group 68.2 0.4 - (8.4) 60.2 0.6%
Table 2 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.
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 54.7 2.7 - 5.9 63.3 4.9%
Saunderson House 4.9
Total group 68.2
Operating income
Operating income increased by £20.0 million in 2022 to £455.9 million,
predominantly due to a full year of Saunderson House income which contributed
£23.4 million of this additional income.
Investment management and funds fee income of £337.0 million in 2022
decreased by 3.5%, as a result of lower funds under management and
administration in the year. This represented 73.9% of operating income in
2022, down from 80.2% in 2021, reflecting the increase in financial planning
and advisory income of £51.6 million for the full year (2021: £29.0
million).
Net commission income fell 9% to £48.8 million in 2022 (2021: £53.6 million)
despite a broadly consistent level of transaction activity. The reduction
reflects an increasing proportion of our client base being on fee-only
mandates, and therefore not being separately charged for transactions.
Net interest income increased by 369% to £18.3 million, reflecting the Bank
of England base rates increasing from 0.25% at the start of 2022, to 3.5% by
the end of December 2022, and highlighting the benefit of our banking
structure.
Underlying operating expenses
Underlying operating expenses increased by £43.6 million (13.8%) to £358.8
million. Underlying operating expenses exclude expenditure falling into the
categories explained under table 3. Over half of this increase reflects a
full-year of operating expenditure for Saunderson House, acquired in October
2021, at £27.2 million (2021: £5.0 million). A further £16.3 million of the
increase is year 1 of the strategic investment in developing our digital
capability. Excluding these increases, expenditure increased by £5.1 million
in the year.
Higher fixed staff costs in the year of £28.7 million, which include £12.9
million for the full year impact of Saunderson House and £2.4 million of
spend on the group's digital strategy, are in line with expected headcount
growth and salary inflation. This was partly offset by lower variable staff
costs of £3.1 million, which was driven by reduced profit share and bonuses,
reflecting the market conditions during 2022.
Non-staff costs increased by £18.0 million in the year, which includes £5.8
million for a full year of costs for Saunderson House and £13.5 million of
expenditure on the group's digital programme. Excluding the impact of these,
non-staff costs fell by £1.3 million in the year, mainly due to a £2.2
million reduction in the FSCS levy (total charge in 2022 for the group of
£5.3 million). Other costs remain broadly consistent with 2021, demonstrating
a focus on controlling discretionary spend in an inflationary environment.
Including Saunderson House, average headcount increased by 18.1% to 2,053 in
2022. The full-year effect of Saunderson House accounted for 9.2%, with the
remaining headcount increases being largely in client-facing, client
experience and change delivery teams.
Total operating expenses increased from £340.9 million to £391.8 million
during the year, with £22.2 million of the increase solely due to a full-year
of Saunderson House (2021: £5.0 million.
Table 3. Reconciliation of underlying performance measures to closest
equivalent IFRS measures
2022 2021
£m
£m
(unless stated)
(unless stated)
Operating income 455.9 435.9
- Operating expenses (excluding digital change spend)¹ (375.5) (340.9)
- Digital transformation change spend¹ (16.3) 0.0
Total operating expenses (391.8) (340.9)
Charges in relation to client relationships and goodwill 19.5 15.6
Acquisition-related costs 13.5 10.1
Underlying operating expenses (358.8) (315.2)
Profit before tax 64.1 95.0
Underlying profit before tax² 97.1 120.7
Operating margin 14.1% 21.8%
Underlying operating margin³ 21.3% 27.7%
Taxation (15.1) (19.8)
Tax on non-underlying expenses (5.3) (3.9)
Underlying taxation (20.4) (23.7)
Profit after tax 49.0 75.2
Underlying profit after tax⁴ 76.7 97.0
Weighted average number of shares in issue 58.6m 56.3m
Earnings per share (p) 83.6 133.5
Underlying earnings per share (p)⁵ 130.8 172.2
Quarterly average total equity 632.7 579.0
Underlying quarterly average total equity 650.4 599.1
ROCE⁶ 7.7% 13.0%
Underlying ROCE⁷ 11.8% 16.1%
1. Operating expenses adjusted for £16.3 million of costs incurred on the
group's digital strategy in 2022
2. Operating income less underlying operating expenses
3. Underlying profit before tax as a percentage of operating income
4. Underlying profit before tax less underlying taxation
5. Underlying profit after tax divided by the weighted average number of
shares in issue
6. Profit after tax as a percentage of quarterly average total equity
7. Underlying profit after tax as a percentage of underlying quarterly average
total equity
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 are therefore 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.
During 2022, £3.5 million of deferred consideration payments for Speirs &
Jeffrey (2021: £6.0 million) were charged to the income statement.
£6.5 million of deferred consideration payments for Saunderson House (2021:
£1.4 million) and £3.4 million of integration costs were charged to the
income statement (2021: £nil).
Taxation
The corporation tax charge for 2022 was £15.1 million (2021: £19.8 million)
(see note 6). The effective tax rate was 23.5% (2021: 20.8%).
From 2023, the effective tax rate is expected to be 4-5 percentage points
above the statutory rate, largely due to disallowable costs for deferred
consideration payments.
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 2022 was 83.6p
compared to 133.5p in 2021. On an underlying basis, earnings per share were
130.8p in 2022, compared to 172.2p in 2021 (see note 12). The decrease in the
year relates to the fall in underlying profit since 2021 and an increase in
the number of shares in issue.
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 underlying 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 2022, underlying ROCE was 11.8% (2021: 16.1%). Underlying quarterly average
total equity increased by £51.4 million in 2022 compared to 2021, reflecting
growth in retained earnings and a full year impact of the share placing that
took place in the second quarter of 2021.
Outlook
The Group's financial performance remains closely linked to the behaviour of
global investment markets, which are expected to remain fragile in 2023 even
as the outlook for inflation has moderated. Income sources that include
increased net interest income and growing financial planning income support
more stable operating income that not only delivers strong returns for
shareholders, but also enables us to continue to invest productively for
growth.
Employee costs in 2023 will reflect salary inflation of approximately 5-6%
plus the full impact of hiring activity in 2022. A lower rate of net hiring is
expected for 2023 as we continue implementation phases of our strategic
initiatives, whilst ever focused on cost discipline whilst in an inflationary
environment.
From July 2023, the countercyclical buffer, as set by the FPC, is expected to
increase to 2% for UK exposures. The group currently expects its relevant
credit exposures to require an increase of £16 million to group capital
requirement.
As set out in 2022, investment in our medium-term strategy will continue in
2023, most notably the ongoing integration of Saunderson House and delivering
technology to embed a digital capability that improves client experience and
promotes growth. We remain on track to invest a total of £40m. From 2024, our
aim remains to return to an operating margin in the high 20's. In light of
ongoing market fragility and the continuation of the investment in our digital
programme throughout 2023, we expect to deliver a similar margin to 2022.
We continue to anticipate total integration and deferred acquisition costs of
£10 million associated with Saunderson House, which will then substantially
reduce as the integration completes in 2024. Financial synergies from the
integration of Saunderson House are expected to start in 2023, with a full
annualised impact in 2024.
Rathbones is financially well placed, with a strong balance sheet to take
advantage of opportunities in 2023.
SEGMENTAL REVIEW
The group is managed through two key operating segments: Investment Management
and Funds.
Table 4. 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 44.3 (2.3) 42.0 2.4 44.4
Bespoke portfolios 42.9 (1.0) 41.9 1.0 42.9
Managed via in-house funds 1.4 (1.3) 0.1 1.4 1.5
Multi-asset funds - - - 2.1 2.1
Total discretionary & managed 44.3 (2.3) 42.0 4.5 46.5
Non-discretionary service 0.7 - 0.7 - 0.7
Total wealth management 45.0 (2.3) 42.7 4.5 47.2
Single-strategy funds - - - 6.5 6.5
Execution only & banking 2.4 - 2.4 - 2.4
Total 47.4 (2.3) 45.1 11.0 56.1
Saunderson House 4.1 - 4.1 - 4.1
Total group 51.5 (2.3) 49.2 11.0 60.2
1. Intra-group holdings represent in-house funds held within an investment
management portfolio.
Investment Management
The results of the Investment Management segment described below include the
trading results of Rathbones Trust Company, Vision Independent Financial
Planning and Saunderson House.
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.
Funds under management and administration
Year-on-year changes in the key performance indicators for Investment
Management are shown in table 5. Investment Management funds under management
and administration decreased by 10.9% to £49.2 billion as at 31 December
2022, impacted by economic uncertainty and worldwide volatility in the
markets.
Table 5. Investment Management - key performance indicators
2022 2021
Funds under management and administration at 31 December £49.2bn £55.2bn
Rate of net organic growth in Investment Management funds under management and 1.1% 1.8%
administration¹
Rate of total net growth in Investment Management funds under management and 1.2% 2.1%
administration¹
Average net operating basis point return² 72.4 bps 71.4 bps
Number of Investment Management clients ('000) 68 66
Number of investment managers 352 332
1. See table 6 (percentages calculated on unrounded figures)
2. See table 10
Table 6. Investment Management - funds under management and administration
Year ended 31 December 2022 Year ended 31 December 2021
£bn
£bn
As at 1 January 50.3 44.9
Inflows 3.8 4.5
organic¹ 3.8 4.4
acquired² 0.0 0.1
Outflows (3.2) (3.6)
Market adjustment³ (5.8) 4.5
Total 45.1 50.3
Saunderson House 4.1 4.9
Total group 49.2 55.2
Net organic new business⁴ 0.6 0.8
Rate of net organic growth⁵ 1.1% 1.8%
Rate of total net growth⁶ 1.2% 2.1%
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
Table 6 reconciles the movement in funds under management and administration
during the year. Inflows of £3.8 billion are dominated by new funds into our
discretionary bespoke portfolio service, which has benefited during the year
from resilient investment performance, positive client experience, and our
revised Reliance on Advisor proposition. Outflows of £3.2 billion represent
6.4% of opening funds under management and administration, 59.0% of which
represents drawings from capital to supplement income or inter-generational
transfers. In significant contrast to 2021, the PIMFA MSCI reduced by 10.2% in
2022, driving a £5.8 billion reduction in funds under management and
administration.
In addition to the above, Saunderson House contributed £4.1 billion
to closing funds under management and advice in 2022. At the year end, FUMA
on Vision Independent Financial Planning's discretionary wealth management
platform that was not managed by the group totalled £0.8 billion (2021: £0.8
billion).
Table 7 provides an analysis of funds under management and new business by
channel and service level. 40% of the total £0.9 billion growth in
discretionary and managed funds under management and administration in the
year was driven through direct interactions with the client, whilst the
remaining 60% includes interactions through financial adviser networks.
The group experienced net outflows from non-discretionary investment
management, and execution-only and banking mandates totalling £0.3 billion
in the year.
During the year, clients continued to migrate into discretionary services from
non-discretionary (£0.1 billion). Switches into execution-only services
largely reflect the transfer of funds into probate following the death of a
client (£0.3 billion).
Table 7. Investment Management - new business by channel
Opening FUM Net flows (£m) Service level transfers (£m) Market movement (£m) 2022 2022 2022 2021
(£m)
Gross
Intra-group holdings¹
Net
Net
£bn
£bn
£bn
£bn
Bespoke portfolios 37.2 0.3 (0.4) (4.1) 33.0
Managed via in-house funds 0.6 0.0 0.1 0.0 0.7
Total direct 37.8 0.3 (0.3) (4.1) 33.7
Bespoke portfolios 10.8 0.5 0.0 (1.4) 9.9
Managed via in-house funds 0.6 0.1 0.1 (0.1) 0.7
Total financial adviser linked 11.4 0.6 0.1 (1.5) 10.6
Total discretionary & managed 49.2 0.9 (0.2) (5.6) 44.3 (2.3) 42.0 46.6
Non-discretionary service 1.0 (0.1) (0.2) (0.0) 0.7 0.7 1.0
Total wealth management 50.2 0.8 (0.4) (5.6) 45.0 (2.3) 42.7 47.6
Execution only & banking 2.7 (0.3) 0.3 (0.3) 2.4 2.4 2.7
Saunderson House 4.9 (0.2) (0.0) (0.6) 4.1 4.1 4.9
Total Investment Management 57.8 0.3 (0.1) (6.5) 51.5 (2.3) 49.2 55.2
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
2. Direct net flows relate to direct interactions with the client, whilst net
flows from financial advisor linked relate to interactions through financial
adviser networks
Inflation across the world's most advanced economies hit a rate in December
2022 not seen since 1982. In 2022, core inflation - which excludes energy and
food prices - hit a 40-year high and continued to rise until the autumn.
The macro-economic environment has shifted significantly more than many
commentators expected twelve months ago. The market generally expected the US
Federal Reserve to raise interest rates by just 0.75% throughout 2022, in
comparison to an actual increase in rates of 4.25% - the sharpest increase
since the early 1980s. It is highly unusual for equity markets to fall over
the first 12 months of a rate tightening cycle, but we saw an inflationary
bear market emerge.
There have been two key equity market sector trends. First, the
underperformance of cyclical sectors and the outperformance of steadier
defensive ones, particularly those able to pass on higher input costs to
customers. Second, the de-rating of expensive 'Growth' companies, particularly
technology stocks yet to make a profit, and the resilience of cheaper sectors
such as financials, energy and healthcare. A global benchmark of 'Value'
companies ended the year down 6% compared to the 28% loss in 'Growth'
companies.
Overall, 2022 was another strong year for our specialist teams. Rathbone
Greenbank Investments continued to grow its net new business, despite the
segment being most impacted by market volatility, and reached funds under
management and administration of £1.9 billion at 31 December 2022 (2021:
£2.2 billion). The Personal Injury and Court of Protection business ended
2022 with £1.0 billion of funds under management and administration (2021:
£1.0 billion).
Rathbone Financial Planning also saw a strong year in 2022, increasing net new
business growth by 26% from 2021, and maintaining funds under management and
administration broadly in line with 2021 of £1.6 billion as at 31 December
2022, despite market falls.
As at 31 December 2022, Vision Independent Financial Planning advised on
client assets of £2.6 billion (2021: £2.7 billion). Despite net new
business inflows of £0.3 billion in the year, market movements offset this,
resulting in a £0.1 billion reduction in total client assets at the year end.
Saunderson House closed the year with funds under management and
administration of £4.1 billion (2021: £4.9 billion). £0.5 million of the
fall in the year was driven by adverse market movements. Client attrition was
largely in-line with expectations, reflecting net outflows of £0.2 billion,
as focus switched to existing client migration rather than new client wins.
The new Saunderson House proposition is now fully developed, and as at the
year-end approximately one third of clients, by asset value, had been
contacted to initiate the process of switching to the new proposition.
Financial performance
Underlying profit before tax in Investment Management reduced by 28.2% in the
year to £70.7 million, reflecting an underlying operating margin of 18.0%,
which, when adjusted for £16.3 million of operating expenses to deliver the
group's digital strategy, rises to 22.1%.
Lower average funds under management and administration on our principal
charging dates during 2022 (see table 9) impacted investment management fee
income, causing a 4.6% reduction compared to 2021.
Net commission income fell by 8.8% to £48.9 million (2021 £53.6 million), as
the proportion of our client base becomes increasingly fee-only.
The increase in base rates set by the Bank of England from 0.25% at the start
of 2022 to 3.5% by December 2022 contributed an additional £13.9 million to
net interest income in the year.
Fees from advisory services and other income increased 88.3% to £51.4
million, reflecting a full-year's impact of Saunderson House, which
contributed £23.4 million of additional revenue. Rathbone Financial Planning,
Vision, and the Trust business have contributed an additional £0.7 million to
advisory income year-on-year.
Underlying operating expenses during the year were £322.3 million; an
increase of 17.4% on the prior year, largely reflecting the impact of
Saunderson House and £16.3 million of costs incurred on the group's digital
strategy in 2022 (see table 11).
Table 8. Investment Management - financial performance
2022 2021
£m
£m
Net investment management fee income¹ 274.9 288.1
Net commission income 48.9 53.6
Net interest income 17.8 3.9
Fees from advisory services² and other income 51.4 27.3
Operating income 393.0 372.9
Underlying operating expenses³ ⁴ (322.3) (274.5)
Underlying profit before tax 70.7 98.4
Underlying operating margin⁵ 18.0% 26.4%
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 and Saunderson House)
3. See table 11
4. Included within underlying operating expenses are £16.3 million of costs
relating to the group's digital strategy, of which £1.5 million relates to
asset management
5. Underlying profit before tax as a percentage of operating income. Excluding
£16.3 million of expenditure on our digital strategy in the year, the
underlying operating margin was 22.1%
Table 9. Investment Management - average funds under management and
administration
2022 2021
£bn
£bn
Valuation dates for billing
- 5 April 47.9 45.5
- 30 June 43.8 47.8
- 30 September 43.2 48.8
- 31 December 45.1 50.3
Quarterly average¹ 45.0 48.1
Average FTSE 100 level² 7,282 7,066
1. Quarterly average funds under management and administration excluding
Saunderson House
2. Based on the corresponding valuation dates for billing
Table 10. Investment Management - revenue margin
2022 2021
bps
bps
Basis point return¹ from:
- fee income 61.1 59.9
- commission 10.8 11.1
- interest 0.5 0.4
Basis point return on funds under management and administration 72.4 71.4
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 £109.5 million increased by 22.6% year-on-year,
reflecting the growth in headcount and a full year's cost for Saunderson
House of £15.9 million (2021: £3.0 million - acquired in October 2021).
Variable staff costs totalled £66.9 million in 2022, an increase of 8.1% on
2021, driven by the inclusion of Saunderson House staff, as well as new
employee share plans.
Other operating expenses of £145.9 million include property, depreciation,
settlement, IT, finance and other central support services costs.
The basis point return on funds under management and administration increased
by 1.0 in the year to 72.4, as adverse market movements reduced the value of
client portfolios, thereby increasing the proportion of funds in lower value,
but higher cost tiers.
Table 11. Investment Management - underlying operating expenses
2022 2021
£m
£m
Staff costs¹
- fixed 109.5 89.3
- variable 66.9 61.9
Total staff costs 176.4 151.2
Other operating expenses 145.9 123.3
Underlying operating expenses 322.3 274.5
Underlying cost/income ratio² 82.0% 73.6%
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)
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
From setting sales records in 2021, 2022 was a tough year for the industry.
Net retail redemptions in the asset management industry totalled £25.7
billion, as reported by the Investment Association (IA), down £69.3 billion
from £43.6 billion of net sales in 2021. Industry-wide funds under management
fell 13.8% to £1.4 trillion at the end of the year.
Gross sales in Rathbone Unit Trust Management ('the company') fell 30% from
£4.4 billion to £3.1 billion in 2022. Rising inflation and interest rates
coupled with concerns about equity market valuations and the conflict in
Ukraine left investors unsure where to turn. The impact of this meant growth
focused, single-strategy funds, including Rathbones' biggest funds, struggled
for performance and sales growth in 2022.
Many investors also decided to withdraw their cash leading to increased gross
redemptions of £2.9 billion (2021: £2.3 billion), which adversely impacted
total funds managed by the Company over the course of the year. In addition to
this, £0.2 billion of 'Other funds' (table 13) were transferred out from the
Company to an independent Authorised Corporate Director as a result of a
strategic decision, but continued to be managed by the Group.
Muted 2022 inflows combined with severe market movements, especially in
corporate bonds and growth-oriented securities, which affected our mix of
products, meant total funds under management fell to £11.0 billion at the end
of 2022, a decrease of 15.4% during the year (see table 14).
Table 12. Funds - key performance indicators
2022 2021
Funds under management at 31 December¹ £11.0bn £13.0bn
Rate of net growth in Unit Trusts funds under management¹ 0.4% 21.1%
Underlying profit before tax² £26.4m £22.4m
1. See table 14
2. See table 16
Table 13. Funds - funds under management by product
2022 2021
£m
£m
Rathbone Global Opportunities Fund 3,361 4,334
Rathbone Multi-Asset Portfolios 3,043 2,679
Rathbone Ethical Bond Fund 2,169 2,802
Rathbone Income Fund 741 825
Offshore funds 549 661
Rathbone Active Income Fund for Charities 216 245
Rathbone High Quality Bond Fund 206 291
Greenbank Multi-Asset Portfolios 168 105
Other funds¹ 149 500
Rathbone Core Investment Fund for Charities 147 156
Rathbone Strategic Bond Fund 138 200
Rathbone Global Sustainability Fund 69 116
Rathbone UK Opportunities Fund 49 76
11,005 12,990
1. £213 million of 'Bespoke' other funds transferred out during the year post
the switch of Authorised Corporate Director (ACD) from Rathbone Unit Trust
Management Limited to Evelyn Partners, an independent ACD
Despite adverse market conditions, Rathbones featured in the Pridham Report
industry top ten for net retail sales in all 4 quarters of 2022 as well as net
retail sales for the year.
Volatility managed funds (multi-asset portfolios) were the IA's top net seller
in 2022 with £2.9 billion of net sales and this trend was mirrored in
Rathbones which accounted for 24% of the industry total, with net sales in the
year, totalling £0.7 billion, down only £0.1 billion when compared to 2021.
The IA Global sector which was the highest selling equity sector for the
previous four years in a row, suffered net redemptions of £2.9 billion. This
sector contains the Company's largest fund, Rathbone Global Opportunities
Fund, which saw a net £77 million outflow from the fund over the course of
the year. Rathbone Global Opportunities Fund also suffered the greatest loss
from market adjustments, due to its growth bias, accounting for £900 million
of the Company's £2 billion total.
Rathbone Ethical Bond Fund suffered from net redemptions in the year (£129
million), due to the significant interest rate rises brought on by market
uncertainty. The fund also contributed £0.5 billion to the adverse market
adjustment total in 2022.
The Ethical Bond and Global Opportunities funds maintained their excellent
industry long-term track performance records and both finished the year in the
first quartile for performance measured for five years, which is a key factor
in investors' decision-making.
As at 31 December 2022, 98% of holdings in Funds' retail funds were in
institutional units (2021: 97%).
During the year, the total number of investment professionals running the
funds increased to 24 at 31 December 2022 (2021: 21).
Table 14. Funds - funds under management
2022 2021
£bn
£bn
As at 1 January 13.0 9.8
Net inflows (0.0) 2.1
- inflows¹ 3.1 4.4
- outflows¹ (2.9) (2.3)
- Bespoke² (0.2) 0.0
Market adjustments³ (2.0) 1.1
As at 31 December 11.0 13.0
Rate of net growth⁴ 0.4% 21.1%
1. Valued at the date of transfer in/(out)
2. Bespoke funds transferred out during the year post the switch of Authorised
Corporate Director ("ACD") from Rathbone Unit Trust Management Limited to
Evelyn Partners, an independent ACD
3. Impact of market movements and relative performance
4. Net inflows as a percentage of opening funds under management
Table 15. Funds - performance1, 2
2022/(2021) Quartile ranking³ over 1 year 3 years 5 years
Rathbone Ethical Bond Fund 2 (1) 2 (1) 1 (1)
Rathbone Global Opportunities Fund 4 (2) 2 (1) 1 (1)
Rathbone Income Fund 2 (2) 2 (2) 2 (2)
Rathbone Strategic Bond Fund 3 (3) 3 (3) 3 (2)
Rathbone UK Opportunities Fund 4 (1) 4 (1) 4 (1)
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 2022 and 2021 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 59% 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 slightly to £62.2 million in 2022,
driven principally by the rise in average funds under management. Despite the
fall in funds under management at year end, the mean average for 2022 was
£265 million higher than in 2021. Net annual management charges as a
percentage of average funds under management fell by 0.3bps to 54.8 bps (2021:
55.0 bps), due to a change in the mix of fund types. Despite higher net annual
management charges, interest and other income fell by £1.0 million in the
year. As a result, total operating income as a percentage of average funds
under management fell to 54.7 bps in 2022 from 55.6 bps in 2021.
Fixed staff costs of £6.9 million for the year ended 31 December 2022 were
£1.7 million higher than 2021. This reflects salary increases post
benchmarking versus peers, a rebalancing of variable pay to fixed pay and
general inflationary rises.
Variable staff costs of £11.2 million were 33% lower than 2021 resulting from
the remuneration benchmarking exercise mentioned above and a drop in the value
of gross sales, which drove a reduction in sales commissions.
Other operating expenses have fallen by 1.6% to £18.4 million in 2022.
Administration costs of £5.3 million were down £0.4 million on 2021, driven
by reducing levels of funds under management and flows, as well as improved
rate cards with third-party service providers which were negotiated and
implemented early in the year. Regulatory costs fell by £0.2 million,
reflecting the drop in levies for the Financial Services Compensation Scheme.
Table 16. Funds - financial performance
2022 2021
£m
£m
Net annual management charges 62.2 61.3
Interest and other income 0.8 1.8
Operating income 63.0 63.1
Underlying operating expenses¹ (36.6) (40.7)
Underlying profit before tax 26.4 22.4
Operating % margin² 41.9% 35.5%
1. See table 17
2. Underlying profit before tax divided by operating income
Table 17. Funds - underlying operating expenses
2022 2021
£m
£m
Staff costs
- Fixed 6.9 5.2
- Variable 11.2 16.8
Total staff costs 18.1 22.0
Other operating expenses 18.4 18.7
Underlying operating expenses 36.5 40.7
Underlying cost/income ratio¹ 57.9% 64.5%
1. Underlying operating expenses as a percentage of operating income (see
table 16)
FINANCIAL POSITION
Own funds
As a banking group, Rathbones 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 2022, the group's regulatory own funds (including verified
profits for the year) were £338.7 million (2021: £304.7 million). The
increase in the year of £34.0 million was due to a £19.0 million increase in
share capital and share premium and a £8.4 million increase in reserves (see
table 19), largely reflecting the impact of the group's equity-settled
employee remuneration plans. In addition to this, the deduction from capital
for intangible assets was £18.1 million lower in the year, as these are
amortised over their useful life. This was partly offset by a £15.9 million
increase in the own shares deduction from capital, as the group continued to
repurchase shares to satisfy the vesting of future employee share plans.
The increase in own funds was offset by a greater increase in the group's
total capital requirement and combined buffers by £38.7 million, resulting in
a capital surplus at the end of 2022 of £110.3 million, down from £115.0
million in 2021.
The CET1 ratio was 17.9%, a decrease on the 18.7% reported at the previous
year-end, owing to an increase in the Pillar 1 own funds requirement, which
was driven largely by an increase in the credit risk requirement (see table
20).
The leverage ratio was 17.6% at 31 December 2022, up from 9.1% at 31 December
2021. 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 significant increase in the year is due to central bank
balances being excluded from the denominator in the calculation from January
2022 onwards, as per the PRA's review of the UK leverage ratio framework under
Policy Statement 21/21. Metrics for the prior year have not been restated.
At 31 December 2022, neither Rathbones Investment Management nor the Rathbones
Group were subject to a minimum leverage ratio requirement, although
monitoring is undertaken on a regular basis against the minimum leverage
requirement of 3.25% which applies to larger banks.
The business is primarily funded by equity, but also supported by £39.9
million of ten-year tier 2 eligible 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 £635 million at 31 December 2022, up 1.9% from £623 million
at the end of 2021.
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
2022 2021
£m
£m
(unless stated)
(unless stated)
Own funds:
- Common Equity Tier 1 ratio¹ 17.9% 18.7%
- Total own funds ratio² 20.3% 21.4%
- Total retained earnings 297.2 288.8
- Tier 2 subordinated loan notes³ 39.9 39.9
- Total risk exposure amount 1,666.8 1,424.5
- Leverage ratio⁴ 17.6% 9.1%
Other resources:
- Total assets 3,447.2 3,271.8
- Treasury assets⁵ 2,664.1 2,458.5
- Investment Management loan book 159.7 168.0
- Intangible assets from acquired growth⁶ 342.7 361.2
- Tangible assets and software⁷ 26.2 28.0
- Liabilities:
- Due to customers⁸ 2,516.1 2,333.0
- Net defined benefit pension asset/(liability) 9.4 12.3
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 Rathbones Investment
Management as a bank
TABLE 19. GROUP'S Regulatory own funds
2022 2021
£m
£m
Share capital and share premium 313.1 294.1
Reserves 374.2 365.8
Less:
Own shares (52.5) (36.6)
Intangible assets¹ (326.7) (344.8)
Retirement benefit asset² (9.4) (12.3)
Common Equity Tier 1 own funds 298.7 266.2
Tier 2 own funds 40.0 38.5
Total own funds 338.7 304.7
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)
2022 2021
£m
£m
Credit risk requirement 66.3 50.9
Market risk requirement 1.1 0.8
Operational risk requirement 65.9 62.3
Pillar 1 own funds requirement 133.3 114.0
Pillar 2A own funds requirement 40.0 40.1
Total Capital Requirement ('TCR') 173.3 154.1
Combined buffer:
- capital conservation buffer (CCB) 41.6 35.6
- countercyclical capital buffer (CCyB) 13.5 0.0
Total Capital Requirement ('TCR') and Combined buffer 228.4 189.7
2022 2021
£m
£m
Total capital surplus 110.3 115.0
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.
The increase in credit risk to £66.3 million in 2022 was due to a revised
allocation of the group's treasury assets, and a capital deduction under CRDV
(effective from January 2022) for the total value of the group's listed equity
securities.
At 31 December 2022, the group's total risk exposure amount was £1,666.8
million (2021: £1,424.5 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 to 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. See note 10 for
further detail on the movement in the year to the net defined benefit pension
asset.
Pillar 2A
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 potential exposure as a result of the concentration of borrowers
located in the UK than other overseas jurisdictions.
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% (as set by the PRA) of the group's total risk
exposure amount as at 31 December 2022.
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 Financial Policy Committee ('FPC')
(for UK exposures) and other jurisdictions for our exposures to their
locations, and for individual countries where the group has credit
risk exposures.
The buffer rate is currently set by the FPC at 1% for UK exposures (effective
December 2022). The group has relevant credit exposures in other
jurisdictions, some of which have set buffer rates for exposures to those
countries, resulting in a weighted buffer rate of 0.8% as at 31 December 2022.
An increased UK rate of 2% is expected to come into effect from July 2023,
which has been built into our forecasts.
Capital management
In managing the group's regulatory capital position, we 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;
- expected additional increases in the UK countercyclical capital buffer rate;
and
- the demands of future acquisitions which generate intangible assets and,
therefore, directly reduce CET1 resources; and
- regulatory developments.
We keep these issues under review by forecasting capital and liquidity on a
monthly basis, whilst taking into account all known macro-economic and
idiosyncratic changes.
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 2022 were £3.4 billion (2021: £3.3 billion),
of which £2.5 billion (2021: £2.3 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, Rathbones Investment Management Limited holds our
surplus liquidity on its balance sheet together with clients' cash. Cash in
client portfolios held on a banking basis of £2.5 billion (2021:
£2.3 billion) represented 5.3% of total Investment Management funds under
management and administration at 31 December 2022, compared to 4.4% at the end
of 2021. Cash held in client money accounts was £5.7 million (2021: £13.9
million).
During the year, the share of treasury assets held with the Bank of England
reduced to £1.4 billion (2021: £1.5 billion), as investment in certificates
of deposits increased, representing a larger proportion of the treasury book.
The treasury department of Rathbones 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 risk. 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.
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 decreased to £158 million at end of 2022 (2021:
£167 million) as clients' demand for lending towards the end of the year
subsided as interest rates rose and borrowing decreased in favour of drawing
down from investment portfolios.
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 2022, the total carrying value of intangible assets arising
from acquired growth was £342.7 million (2021: £361.2 million). During the
year, client relationship intangible assets of £1.0 million were capitalised
(2021: £8.6 million). Client relationship intangible assets of £79.4 million
and goodwill of £70.8 million were acquired last year in relation to the
Saunderson House acquisition.
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 2022,
including the impact of any lost relationships, was £16.9 million (2021:
£13.9 million); the increase in the year was largely due to a full year of
amortisation for the Saunderson House client relationship intangible.
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. Further detail is provided in note 8.
Capital expenditure
Capital expenditure of £8.0 million in 2022 (excluding amounts payable to
investment managers under earn-out agreements) is down £0.8 million on 2021.
Capital expenditure on the development of our systems fell by £2.2 million to
£5.9 million in the year, continuing a prior year trend. 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.
Property expenditure increased by £1.7 million in 2022 as we continued to
develop our hybrid working capability and invested in new premises in
Edinburgh following the conclusion of the prior lease.
Defined benefit pension schemes
We operate two defined benefit pension schemes. With effect from 30 June 2017,
we closed both schemes, ceasing all future benefit accrual and breaking the
link to salary.
At 31 December 2022 the combined schemes' liabilities, measured on an
accounting basis, had decreased to £94.7 million, down 39.1% from £155.6
million at the end of 2021, primarily reflecting the significant increase in
discount rates during the year, and a small decrease in the assumed future
rate of inflation. The reported position of the schemes as at 31 December 2022
was a surplus of £9.4 million (2021: surplus of £12.3 million).
The funding position of the schemes was volatile towards the end of the third
quarter and start of the fourth quarter of the year as gilt yields rose. The
trustees reviewed the level of hedging in the schemes to protect against the
risk of falls in long term yields. The schemes' investment portfolios now have
a much lower asset allocation to growth assets and a higher allocation to
assets with liability matching characteristics. The level of gearing in the
liability-driven investment ('LDI') portfolio is now much lower, as the LDI
holdings now hold a higher degree of cash and liquid assets, as well as
reflecting the regulatory guidance issued by central banks towards the end of
2022. This has reduced the schemes' exposure to future margin calls. This
lower level of leverage is expected to increase the resilience of LDI holdings
in general terms.
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 in 2020. 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. This schedule will be reviewed
at the next triennial valuations, due 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. 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 £1.4 billion at 31 December 2022
(2021: £1.5 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.
The increase in net cash inflows from operating activities in the year largely
reflects a £182.0 million increase in banking client deposits (2021: £227.4
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, in favour of holding liquid assets such as UK Treasury
Bills.
Table 21. Extracts from the consolidated statement of cash flows
2022 2021
£m
£m
Cash and cash equivalents at the end of the year 1,572.7 1,653.6
Net cash inflows from operating activities 292.9 (169.0)
Net change in cash and cash equivalents (80.9) (403.1)
Cash flows from investing activities also included a net outflow of £278.1
million from the purchase of certificates of deposit (2021: net outflow of
£110.6 million), as we reduced the proportion of treasury assets held with
the Bank of England.
The other significant non-operating cash flows during the year were as
follows:
- outflows relating to the payment of dividends of £48.6 million (2021:
£44.0 million);
- outflows of £10.9 million relating to the payment of deferred consideration
for the acquisition of Saunderson House (2021: £nil);
- outflows relating to payments to acquire intangible assets of £8.8
million (2021: £10.7 million); and
- outflows of £4.3 million relating to capital expenditure on tangible
property, plant and equipment (2021: £2.0 million).
risk management and control
Our approach to risk management is fundamental to supporting the delivery of
our strategic objectives. Our risk governance and risk processes are designed
to enable the firm to manage risk effectively in accordance with our risk
appetite and to support the long-term future of the firm.
MANAGING RISK
The board has overall responsibility for risk management across the group,
regularly assessing the most significant risks and emerging threats to the
group's strategy. The board delegates oversight of risk management activities
to the group risk and audit committees.
Our risk governance and risk management framework supports the chief executive
and executive committee members with their day-to-day responsibility for
managing risk.
RISK CULTURE
The risk culture embedded across the group enhances the effectiveness of risk
management and decision-making. The board promotes a strong risk culture,
reinforced by our executive and senior management team, which encourages
appropriate behaviours and collaboration on managing risk across the group.
Risk management is 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 GOVERNANCE
BOARD
Sets strategy and risk appetite across the group, and is ultimately
accountable for risk management.
AUDIT COMMITTEE
Monitors and reviews the effectiveness of the internal audit function in line
with the group's risk profile on behalf of the board, also oversees
appointment of external auditor.
GROUP RISK COMMITTEE
Oversees effectiveness of the risk management framework and activity across
the group. Advises the board on risk appetite, risk assessment, risk profile
and risk culture.
EXECUTIVE COMMITTEE
EXECUTIVE RISK COMMITTEE
BANKING COMMITTEE
First line committees with responsibility for management of risk and internal
control across the group.
RISK APPETITE
The board approves the firm's risk appetite statement and framework at least
annually to ensure it remains consistent with our strategic objectives and
prudential responsibilities.
Specific risk appetite statements are set and measures established for each
principal risk. The risk appetite framework supports strategic
decision-making, as well as providing a mechanism to monitor our risk
exposures.
The position against our risk appetite statements and 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.
Given 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 in line with our strategy. 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 and strategic risk Business and strategic risks will be identified and actively managed to - Underlying dividend cover
protect the ability to deliver sustainable growth.
- Strategic change delivery
Change initiatives will be orientated towards longer-term client, stakeholder
and societal expectations. - Net zero and diversity targets
Financial risk Financial risks will be actively managed to preserve the group's overall - Prudential ratios (e.g. CET
resilience.
Tier 1, Total Capital)
Credit and market risk exposures will be managed to board approved instruments - Counterparty credit exposures
and limits in order to protect company assets and maintain prudent levels of
liquidity and regulatory own funds. - Liquidity coverage ratio
The group will also continually monitor and respond to risks arising from its
pension scheme obligations.
Non-financial risk (conduct and operational) Conduct and regulatory risks associated with our business are recognised, - Operational losses and near misses
however we have no appetite for intentionally inappropriate behaviour or
action by any entity within the group or employees which could have a material - Regulatory and conduct breaches
detrimental impact on clients, key stakeholders and our reputation.
Operational risks and losses can arise from inadequate or failed internal
processes, people or systems, or from external events. We have an extremely
low appetite for losses and no appetite for systemic or materially high risk
events which could affect the operational resilience of important business
services.
Three lines of defence
We operate a three lines of defence model to support risk governance and risk
management across the group:
First line
Senior management Business operations and control functions
Responsible for managing risk in line with risk appetite by developing and
maintaining an effective framework of internal control.
Second line
Risk, compliance and anti-money laundering functions
Responsible for the independent oversight and challenge of first line risk
management activity.
Third line
Internal audit
Responsible for providing independent assurance to senior management on the
effectiveness of governance, risk management and internal control.
Risk management process
Our risk management process is a defined approach to identify, assess and
respond to risks that could affect delivery of strategic objectives and annual
business plans. The board, executive and senior management are actively
involved in this process.
Risks are identified within a three-tier hierarchy, with the highest level
containing business and strategic, financial, conduct and operational risks.
Risks are assessed on an inherent and residual basis across a three-year
period according to several impact criteria, which include consideration of
the internal control environment and/or insurance mitigation.
We maintain a watch list to identify and evaluate current issues and emerging
risks as a result of business development or changes in the regulatory
landscape, as well as threats and issues in the wider external environment.
This helps inform the view of the firm's current and longer-term risk profile,
and influences managements decisions and actions.
Stress tests are 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.
Risk management process
Identify
- Risks are identified in the context of the group's strategic objectives and
annual business plans
- Risks are identified on a top-down and bottom-up basis from group executive
and business unit risk owners
- A three-tier risk hierarchy is used
- The group risk register contains four Level 1, 20 Level 2 and 52 Level 3
risks
- A watch list is maintained to identify and assess emerging or future risks
and their impact on our risk profile
Assess
- Regular assessment of risks by the board, executive and business risk owners
- Risks are assessed on both an inherent and residual basis considering both
their impact and likelihood
- Impacts are considered through multiple lenses including client, financial,
regulatory and reputational
- Likelihood is considered across a three-year period
- High rated principal risks are those which have potential to impact delivery
of strategic objectives
- Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity
Adequacy Assessment Process (ILAAP) assess and stress test principal risks
across the group
respond
- Risk management response is driven by the assessment of risk and risk
appetite
- Risks will be escalated to senior and business management in line with their
assessment for treatment or acceptance
- Control environment established to mitigate risks to an appropriate level
- ICAAP and ILAAP used to calculate regulatory capital required in the event
that principal risks should crystallise
monitor and report
- Risks are monitored and reported to governance committees across the group
- Risk appetite, which is set by the board annually, is monitored by the
business and risk team with measures in place to drive escalation as required
- Testing and assurance activity undertaken across our three lines of defence
assesses the adequacy and effectiveness of our control environment
- Risk events and control issues are reported through the governance framework
across the group. This informs the ongoing assessment and identification of
risks and management responses
RISK MANAGEMENT FRAMEWORK (RMF) OVERVIEW
A RMF is 'a set of components that supports and sustains risk management by
providing the foundations and organisational arrangements for designing,
implementing, monitoring, reviewing and continually improving risk management
throughout the firm'.
PRINCIPAL RISKS
PROFILE AND MITIGATION OF PRINCIPAL RISKS
Overall we believe the group's underlying risk profile is stable, however
during the last year it has fluctuated as a result of market volatility and
the changing economic and political landscape. We continually assess our risk
profile against both internal and external risk drivers and are investing
further in our people, processes and technology to improve risk management. We
remain focused on client service, the resilience of our business and wellbeing
of our colleagues and we believe our approach continues to be 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
continue to reflect our strategic initiatives and transformation programme,
continual enhancements to the group's business model in response to
environmental, societal and regulatory expectations, the evolving cyber threat
landscape, operational resilience in relation to our supply chain, the
importance of our people and the economic and political environment. The board
remains vigilant to potential risks that could arise from longer-term trends
in society, the economy and markets, and to regulatory risks that, in turn,
may arise from the continuing development of law, regulation and standards in
our sector.
Information about our principal risks is set out below. The risks are mapped
out by their likelihood and impact on a residual risk basis, having considered
the effectiveness of controls in place to mitigate the risk. This assessment
considers a range of outcomes that could be experienced, including the
crystallisation of other risks. For some, the impact of events can also be
influenced by external factors, such as market conditions.
We use ratings of high, medium, low and very low in our risk assessment.
High-risk items are those which have the potential to impact the delivery of
strategic objectives, with medium, low and very low-rated risks having
proportionately less impact on the group. Likelihood is similarly based on a
qualitative assessment.
Risk AND OWNER CONTROL ENVIRONMENT RISK TREND IN 2022
Credit - Banking committee and senior management oversight + Challenging market conditions and economic decisions during the year resulted
in increases to credit spreads across the market. This was closely monitored
The risk that one or more counterparties fail to fulfil contractual - Counterparty limits and credit reviews by the banking committee to ensure the impact did not exceed the group's risk
obligations, including stock settlement
appetite.
- Treasury policy and procedures
Risk owner: Chief Financial Officer
- Client lending policy and procedures
Risk profile: 1
- Active monitoring of exposures
- Annual ICAAP
Pension - Board, senior management and trustee oversight = The group worked with the pension scheme trustees to ensure the scheme was
appropriately hedged during the volatility seen in Q3 2022 following the UK
The risk that the cost of funding our defined benefit pension schemes - Monthly valuation estimates mini budget.
increases, or their valuation affects dividends, reserves and regulatory
own funds - Triennial independent actuarial valuations
Risk owner: Chief Financial Officer - Investment policy
Risk profile: 2 - Senior management review and defined management actions
- Annual ICAAP
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
Risk AND OWNER CONTROL ENVIRONMENT RISK TREND IN 2022
Sustainability - Board, executive and responsible business committee oversight = 2022 has presented challenging market conditions given the external
environment, including a volatile economic and political landscape. We do
The risk that the business model does not respond in an optimal manner to - A documented strategy, including responsible investment policy however have a strong balance sheet and recognised market position.
changing market conditions, including environmental and social factors, such
that sustainable growth, market share or profitability are adversely affected - Monitoring of strategic risks Climate risk has been integrated into our risk management framework to support
the transition to net zero. Our stakeholders will become more demanding in
Risk owner: Group Chief Executive Officer - Annual business targets, subject to regular review and challenge response to evolving expectations of firms to manage climate and other ESG
risks, which remain a key priority of our responsible business agenda.
Risk profile: 2 - Regular reviews of pricing structure
- Continued investment in the investment process, service standards and
marketing
- Regular competitor benchmarking and analysis
- Commitment to diversity and inclusion themes
- Trade body participation
Change - Executive and board oversight of material change programmes + This risk has increased in 2022 as our digital transformation programmes moved
through critical delivery milestones. Executive and senior management
The risk that the change portfolio does not support delivery of the group's - Transformation office programme board oversight and delivery-focused oversight has remained agile and focused on targeted delivery outcomes, and
strategy operating model the impact of change on our risk profile.
Risk owner: Chief Operating Officer - Differentiated governance approach to strategic change programmes and
business projects
Risk profile: 3
- Dedicated change delivery function and use of internal and, where required,
external subject matter experts
- Two-stage assessment, challenge and approval of project plans
- Planning and budgeting, monitoring of variances and actions to address
- Documented project and change procedures
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
Risk AND OWNER CONTROL ENVIRONMENT RISK TREND IN 2022
Regulatory Compliance and Legal - Board and executive oversight = While this risk has remained stable in 2022, the landscape and expectations on
firms and our sector continue to evolve. We have continued to invest in and
The risk of failure by the group or a subsidiary to fulfil its regulatory or - Management oversight and active involvement with industry bodies develop our first and second line oversight teams, including the deployment of
legal requirements and comply with the introduction of new or updated
software to support regulatory compliance. The introduction of Consumer Duty
regulations and laws - Compliance monitoring programme to examine the control of key regulatory in 2023 will be an area of significant regulatory change which we are
risks addressing across the group.
Risk owner: Group Chief Executive Officer and Chief Risk Officer
- Separate anti-money laundering function with specific responsibility
Risk profile: 2
- Oversight of industry and regulatory developments
- Documented policies and procedures
- Employee training and development
Suitability - Board, executive and general managers committee oversight - We have continued to improve processes and oversight of investment and
suitability risk in 2022, focusing on training, management information and new
The risk of an unsuitable client outcome either through service, investment - Investment governance and structured committee oversight ways of working. The successful launch of our 'Reliance on Adviser'
mandate, investment decisions taken, investment recommendations made
proposition in particular has supported the improvement of this risk. Our
or portfolio or fund construction - Management oversight and segregated quality assurance and performance teams ongoing investment in technology will also further improve suitability
processes and controls in 2023.
Risk owner: Managing Director - Performance measurement information and attribution analysis
Rathbones Investment Management
- 'Know your client' (KYC) suitability processes
Risk profile: 1
- Weekly investment management meetings
- Training and competence framework
- Investment manager reviews through supervisor sampling
- Compliance monitoring
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
Risk AND OWNER CONTROL ENVIRONMENT RISK TREND IN 2022
Information Security and Cyber - Board and executive oversight = The threat landscape in 2022 has been influenced by the volatile external
environment. However, we continue to invest in our control environment and
The risk of inappropriate access to, manipulation, or disclosure of, client or - Data governance committee and information security steering group oversight resources to improve our security posture and ensure our infrastructure and
company-sensitive information
employees are well positioned against an ever-changing threat landscape.
- Information security policy, data protection policy and associated
Risk owner: Chief Operating Officer procedures
Risk profile: 2 - System access controls and encryption
- Penetration testing and multi-layer network security
- Training and employee awareness programmes
- Physical security
People - Board and executive oversight = We have continued to operate effectively in spite of a difficult labour market
in 2022. Continued high inflation and cost of living pressures will remain a
The risk of loss of key employees, lack of skilled resources or inappropriate - Succession and contingency planning risk driver into next year. Management action, and our agile approach to
behaviour or actions. This could lead to lack of capacity or capability
support our colleagues, has been positively received, however we continue to
threatening the delivery of business objectives, or to behaviour leading to - Transparent, consistent and competitive remuneration schemes engage frequently through our employee survey tool. Employee engagement
complaints, litigation or regulatory action
continues to be positive.
- Contractual clauses with restrictive covenants
Risk owner: Chief People Officer
- Continual investment in employee training and development
Risk profile: 2
- Employee engagement survey
- Appropriate balanced performance measurement system
- Culture monitoring and reporting
Third-Party Supplier - Board and executive oversight = Our framework for third-party supplier and outsourcing risk management has
continued to be embedded and developed in 2022. We continue to focus on
The risk of one or more third-party suppliers failing to provide or perform - Third-party supplier and outsourcing framework technology enhancements to further improve our controls in this area, which
authorised and/or outsourced services to standards expected by the group,
also supports operational resilience. The change agenda will continue to drive
impacting the ability to deliver core services. This includes intra-group - Senior dedicated relationship managers this work as we on-board new strategic partners.
outsourcing activity.
- Supplier contracts and defined service level agreements/KPIs
Risk owner: Chief Operating Officer and Chief Executive Officer, Rathbone Unit
Trust Management - Supplier due diligence and approval process
Risk profile: 2 - Close liaison, contractual reviews and regular service review meetings
- Documented policy and procedures
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
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 2022 we have continued to develop our approach to monitoring
strategic risks and horizon threats.
Our view for 2023 is that we can reasonably expect current market conditions
and uncertainties to remain, given the wide range of global economic and
political scenarios which could emerge.
Key emerging risks and threats are:
NEAR-TERM
- Global and UK specific political tensions
- UK and global economic challenges
- Cyber threats and supply chain resilience
MEDIUM-TERM
- Changing regulatory expectations
- Climate change transition risk
- Sector consolidation
LONGER-TERM
- Generational wealth change
- Social care financing
- New entrants into the sector
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 was considered for enhanced stress testing: a significant
fall in the value of FUMA, a loss of business/competitive threat from a
reputational event, business expansion and a combined FUMA 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, 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
2025 constitutes an appropriate and prudent period over which to provide its
viability statement given the uncertainties associated with 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 FUMA for a
one-year period, with recovery over the following two years and FX illiquidity
- Idiosyncratic stress (capital & liquidity): a reputation-affecting cyber
event, social media or ESG-related event causing outflow of 20% of FUMA
together with associated compensation and rectification costs
- Combined stress (capital & liquidity): aggregation of the above
stresses, together with 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 2025.
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, Rathbones 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 2022
Note 2022 2021
£'000
£'000
Interest and similar income 46,335 7,710
Interest expense and similar charges (28,032) (3,834)
Net interest income 18,303 3,876
Fee and commission income 462,689 457,696
Fee and commission expense (27,477) (29,062)
Net fee and commission income 435,212 428,634
Other operating income 2,360 3,417
Operating income 455,875 435,927
Charges in relation to client relationships and goodwill (19,544) (15,595)
Acquisition-related costs 5 (13,462) (10,089)
Other operating expenses (358,815) (315,208)
Operating expenses (391,821) (340,892)
Profit before tax 64,054 95,035
Taxation 6 (15,070) (19,806)
Profit after tax 48,984 75,229
Profit for the year attributable to equity holders of the company 48,984 75,229
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit asset/liability 10 (7,083) 17,091
Deferred tax relating to net remeasurement of defined benefit asset/liability 3,361 (3,247)
Other comprehensive income net of tax (3,722) 13,844
Total comprehensive income for the year net of tax attributable to equity 45,262 89,073
holders of the company
Dividends paid and proposed for the year per ordinary share 7 84.0p 81.0p
Dividends paid and proposed for the year 49,317 49,501
Earnings per share for the year attributable to equity holders of the company:
- basic 12 83.6p 133.5p
- diluted 81.6p 129.3p
Consolidated statement of changes in equity
for the year ended 31 December 2022
Note Share Share Merger Own Retained Total
capital
premium
reserve
shares
earnings
equity
£'000
£'000
£'000
£'000
£'000
£'000
At 1 January 2021 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 liability 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:
- cost of share-based payment arrangements¹ 18,969 18,969
- cost of vested employee remuneration and share plans¹ (22,216) (22,216)
- cost of own shares vesting 25,248 (25,248) -
- cost of own shares acquired (15,130) (15,130)
- 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
Profit for the year 48,984 48,984
Net remeasurement of defined benefit asset 10 (7,083) (7,083)
Deferred tax relating to components of other comprehensive income 3,361 3,361
Other comprehensive income net of tax - - - - (3,722) (3,722)
Dividends paid 7 (48,607) (48,607)
Issue of share capital 70 18,944 - 19,014
Share-based payments:
- cost of share-based payment arrangements¹ 25,886 25,886
- cost of vested employee remuneration and share plans¹ (12,776) (12,776)
- cost of own shares vesting 2,678 (2,678) -
- cost of own shares acquired (18,567) (18,567)
- tax on share-based payments 1,340 1,340
At 31 December 2022 3,170 309,970 76,965 (52,515) 297,244 634,834
Consolidated balance sheet
as at 31 December 2022
Note 2022 2021
£'000
£'000
Assets
Cash and balances with central banks 1,412,915 1,463,294
Settlement balances 65,818 69,750
Loans and advances to banks 194,723 203,589
Loans and advances to customers 169,766 179,840
Investment securities:
- fair value through profit or loss 11,214 29,934
- amortised cost 1,045,234 761,654
Prepayments, accrued income and other assets 126,687 115,992
Property, plant and equipment 12,687 13,059
Right-of-use assets 39,087 43,895
Current tax asset (UK) 3,475 2,272
Intangible assets 8 356,193 376,187
Net defined benefit asset 10 9,401 12,287
Total assets 3,447,200 3,271,753
Liabilities
Deposits by banks 1,035 2,212
Settlement balances 69,872 60,075
Due to customers 2,516,116 2,333,011
Accruals and other liabilities 114,288 129,174
Provisions 9 12,907 15,324
Lease liabilities 50,484 54,971
Current tax liabilities (overseas) 247 -
Net deferred tax liability 7,526 13,811
Subordinated loan notes 39,891 39,893
Total liabilities 2,812,366 2,648,471
Equity
Share capital 3,170 3,100
Share premium 309,970 291,026
Merger reserve 76,965 76,965
Own shares (52,515) (36,626)
Retained earnings 297,244 288,817
Total equity 634,834 623,282
Total liabilities and equity 3,447,200 3,271,753
Company registered number: 01000403
Consolidated statement of cash flows
for the year ended 31 December 2022
Note 2022 2021
£'000
£'000
(restated -
note 14)
Cash flows from operating activities
Profit before tax 64,054 95,035
Change in fair value through profit or loss 304 (670)
Net interest income (18,303) (3,876)
Recoveries on financial instruments (96) (712)
Net charge for provisions 9 1,971 3,118
Depreciation, amortisation and impairment 34,942 31,279
Foreign exchange movements (7,077) (519)
Defined benefit pension scheme (credits)/charges 10 (258) 105
Defined benefit pension contributions paid 10 (3,939) (5,086)
Share-based payment charges 25,886 20,132
Interest paid (20,861) (3,208)
Interest received 33,940 9,439
110,563 145,037
Changes in operating assets and liabilities:
- net decrease/(increase) in loans and advances to banks and customers 8,382 (41,409)
- net decrease in settlement balance debtors 3,931 20,624
- net decrease/(increase) in prepayments, accrued income and other assets 1,871 (9,113)
- net increase/(decrease) in amounts due to customers and deposits by banks 181,928 (227,435)
- net increase/(decrease) in settlement balance creditors 9,797 (35,336)
- net (decrease)/increase in accruals, provisions and other liabilities (5,925) 5,827
Cash generated from/(used in) operations 310,547 (141,805)
Tax paid (17,613) (27,207)
Net cash inflow/(outflow) from operating activities 292,934 (169,012)
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (79,736)
Purchase of property, plant, equipment and intangible assets (13,133) (12,702)
Payment of deferred consideration (10,873) -
Purchase of investment securities (1,262,476) (932,386)
Proceeds from sale and redemption of investment securities 984,394 821,790
Net cash used in investing activities (302,088) (203,034)
Cash flows from financing activities
Issue of ordinary shares 14 9,262 59,467
Repurchase of ordinary shares 14 (18,567) (15,132)
Repayment of subordinated loan notes - (20,114)
Net proceeds from the issue of subordinated loan notes - 39,893
Repayment of debt - (45,208)
Dividends paid 7 (48,607) (43,960)
Payment of lease liabilities (8,481) (5,109)
Interest paid (5,320) (895)
Net cash used in financing activities (71,713) (31,058)
Net decrease in cash and cash equivalents (80,867) (403,104)
Cash and cash equivalents at the beginning of the year 1,653,590 2,056,694
Cash and cash equivalents at the end of the year 14 1,572,723 1,653,590
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1 / Principal 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 2022. 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 material estimation uncertainty.
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 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 (note 8). 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 £19.5 million (2021: £15.6 million was charged during the
year). At 31 December 2022, the carrying value of client relationship
intangibles was £175.0 million (2021: £193.6 million).
A reduction of three years in the amortisation period of the group's client
relationship intangible assets would increase the annual amortisation charge
by £7.7 million.
2.2 Retirement benefit obligations (note 10)
Estimation uncertainty
The principal assumptions underlying the reported surplus of £9,401,000
(2021: £12,287,000 surplus) 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 £7,095,000 (2021: £14,966,000). Increasing the future rate of
inflation by 0.5% would increase the schemes' liabilities by £4,990,000
(2021: £12,639,000). A lower or higher movement in these assumptions would
result in multiples of these figures. A 0.5% decrease would have the opposite
effect of a similar magnitude.
2.3 Business combinations (note 4)
Estimation uncertainty
During the prior year, the group acquired the entire share capital of
Saunderson House Limited. The group accounted for the transaction as a
business combination, as set out in note 4.
The purchase price payable in respect of the acquisition was split into a
number of different components. The equity-settled 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.
Fair value of consideration transferred
The Saunderson House management incentive scheme is subject to the achievement
of certain operational and performance targets at 31 December 2024. A profit
or loss charge has been recognised in equity for the expected consideration
payable.
Under the terms of the agreements, the award ranges from a payment of £nil to
a maximum possible payment in shares of £7.2 million, and is dependent on the
value of qualifying funds under management at the test date, which must
achieve a minimum threshold of £5.0 billion, as well as other qualitative
factors.
Management's best estimate of this award at the year end was £4.7 million,
and is 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 2022 of £0.7 million. A payment of
£nil would result in a reversal of the accumulated profit or loss charge
since commencement of the award of £1.7 million in 2022.
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 2022 Investment Management Funds Indirect expenses Total
£'000
£'000
£'000
£'000
Net investment management fee income 274,881 62,158 - 337,039
Net commission income 48,871 - - 48,871
Net interest income 17,779 524 - 18,303
Fees from advisory services and other income 51,393 269 - 51,662
Operating income 392,924 62,951 - 455,875
Staff costs − fixed (109,507) (6,938) (42,035) (158,480)
Staff costs − variable (66,915) (11,240) (8,917) (87,072)
Total staff costs (176,422) (18,178) (50,952) (245,552)
Other direct expenses (41,494) (9,570) (62,199) (113,263)
Allocation of indirect expenses (104,363) (8,788) 113,151 -
Underlying operating expenses (322,279) (36,536) - (358,815)
Underlying profit before tax 70,645 26,415 - 97,060
Charges in relation to client relationships and goodwill (note 8) (19,544) - - (19,544)
Acquisition-related costs (note 5) (10,027) - (3,436) (13,462)
Segment profit before tax 41,074 26,415 (3,436) 64,054
Profit before tax attributable to equity holders of the company 64,054
Taxation (note 6) (15,070)
Profit for the year attributable to equity holders of the company 48,984
Investment Management Funds Total
£'000
£'000
£'000
Segment total assets 3,323,428 114,371 3,437,799
Unallocated assets 9,401
Total assets 3,447,200
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
The following table reconciles underlying operating expenses to operating
expenses:
2022 2021
£'000
£'000
Underlying operating expenses 358,815 315,208
Charges in relation to client relationships and goodwill (note 8) 19,544 15,595
Acquisition-related costs (note 5) 13,462 10,089
Operating expenses 391,821 340,892
Geographic analysis
The following table presents operating income analysed by the geographical
location of the group entity providing the service:
2022 2021
£'000
£'000
United Kingdom 441,977 421,386
Jersey 13,842 14,541
Rest of the World 56 -
Operating income 455,875 435,927
The following is an analysis of the carrying amount of non-current assets
analysed by the geographical location of the assets:
2022 2021
£'000
£'000
United Kingdom 404,604 429,345
Jersey 3,363 3,796
Non-current assets 407,967 433,141
Timing of revenue recognition
The following table presents operating income analysed by the timing of
revenue recognition of the operating segment providing the service:
2022 2021
Investment Management Funds Investment Management Funds
£'000
£'000
£'000
£'000
Products and services transferred at a point in time 41,192 - 44,190 -
Products and services transferred over time 351,732 62,951 327,486 64,251
Operating Income 392,924 62,951 371,676 64,251
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 or loss over the respective vesting
periods. The group continues to provide for related incentivisation awards for
other staff.
The 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 prior
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
earn-out awards for the vendors were payable in two parts in the third and
fourth years following the acquisition date. The second earn-out vested during
the prior year. The incentivisation awards for staff will vest in tranches by
31 March 2025.
The charge recognised in profit or loss for the year ended 31 December 2022
for the above elements is as follows:
2022 2021
£'000
£'000
Initial share consideration - 4,533
Earn-out consideration and incentivisation awards 3,497 1,430
3,497 5,963
These costs are being reported as staff costs within acquisition-related costs
(see note 5).
Saunderson House
On 20 October 2021, the group acquired 100% of the ordinary share capital of
the Saunderson House group.
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 comprised an initial cash payment of £87,981,000, which
was paid on 20 October 2021. The net assets acquired from the Saunderson
House group included third-party debt of £45,208,000. This debt was repaid by
Rathbones Group Plc immediately following completion. The repayment of the
debt did not represent consideration paid to acquire the business.
The deferred cash consideration was paid during the year on the first
anniversary of the acquisition date to vendors not required to remain in
employment with the group. This has been classified within net cash used in
investing activities in the consolidated statement of cash flows, as it was a
payment in respect of acquiring the shares in Saunderson House.
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 or 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 Vesting date
Initial share consideration 5,223 20 October 2021 5,454 20 October 2024
Deferred share consideration 4,052 20 October 2021 4,051 20 October 2022
Management incentive scheme 4,700 20 December 2021 4,100 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 was paid during the year on the
first anniversary of the acquisition date, and was 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).
5 / Acquisition-related costs
2022 2021
£'000
£'000
Acquisition of Speirs & Jeffrey 3,497 6,418
Acquisition of Saunderson House 9,965 3,671
Acquisition-related costs 13,462 10,089
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:
2022 2021
£'000
£'000
Acquisition costs:
- Staff costs 3,497 5,964
- Legal and advisory fees - 5
Integration costs - 449
3,497 6,418
Non-staff acquisition costs of £nil (2021: £5,000) and integration costs of
£nil (2021: £449,000) have not been allocated to a specific operating
segment (note 3).
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:
2022 2021
£'000
£'000
Acquisition costs:
- Staff costs 6,529 1,406
- Legal and advisory fees - 2,265
Integration costs 3,436 -
9,965 3,671
Integration costs of £3,436,000 (2021: £nil) have not been allocated to a
specific operating segment (note 3).
6 / Income tax expense
2022 2021
£'000
£'000
Current tax:
- charge for the year 16,482 23,796
- adjustments in respect of prior years 275 86
Deferred tax:
- credit for the year (1,261) (3,793)
- adjustments in respect of prior years (426) (283)
15,070 19,806
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 (2021: higher) than the
standard rate of corporation tax in the UK of 19.0% (2021: 19.0%).
The differences are explained below:
2022 2021
£'000
£'000
Tax on profit from ordinary activities at the standard rate of 19.0% (2021: 12,170 18,057
19.0%)
Effects of:
- disallowable expenses 904 984
- share-based payments (13) 87
- tax on overseas earnings (170) (56)
- adjustments in respect of prior year (151) (197)
- deferred payments to previous owners of acquired companies (note 5) 1,247 935
- change in corporation tax rate on deferred tax 1,083 (4)
15,070 19,806
£102,000 of current tax on share-based payments was charged to equity during
the year (2021: credit of £62,000).
7 / Dividends
2022 2021
£'000
£'000
Amounts recognised as distributions to equity holders in the year:
- final dividend for the year ended 31 December 2021 of 54.0p (2020: 47.0p) 32,054 25,938
per share
- interim dividend for the year ended 31 December 2022 of 28.0p (2021: 16,553 18,022
27.0p) per share
Dividends paid in the year of 82.0p (2021: 74.0p) per share 48,607 43,960
Proposed final dividend for the year ended 31 December 2022 of 56.0p (2021: 32,764 31,479
54.0p) per share
An interim dividend of 28.0p per share was paid on 4 October 2022 to
shareholders on the register at the close of business on 2 September 2022
(2021: 27.0p).
A final dividend declared of 56p per share (2021: 54.0p) is payable on 9 May
2023 to shareholders on the register at the close of business on 21 April
2023. The final dividend is subject to approval by shareholders at the Annual
General Meeting on 4 May 2023 and has not been included as a liability in
these financial statements.
8 / Intangible assets
2022 2021
£'000
£'000
Goodwill 167,677 167,677
Other intangible assets 188,516 208,510
356,193 376,187
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 2021 96,872 1,954 98,826
Acquired through business combinations (note 4) 70,805 - 70,805
At 1 January 2022 167,677 1,954 169,631
At 31 December 2022 167,677 1,954 169,631
Impairment
At 1 January 2021 - 1,954 1,954
Charge for the year - - -
At 1 January 2022 - 1,954 1,954
Charge for the year - - -
At 31 December 2022 - 1,954 1,954
Carrying amount at 31 December 2022 167,677 - 167,677
Carrying amount at 31 December 2021 167,677 - 167,677
Carrying amount at 1 January 2021 96,872 - 96,872
Goodwill of £70,805,000 acquired through business combinations in the prior
year relates to the acquisition of Saunderson House (see note 4). This was
allocated to the Investment Management group of CGUs.
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, which cover the three year period from the end of the current financial
year. This is extrapolated for five years based on recent historic annual
revenue and cost growth for each group of CGUs (see table below), adjusted for
significant historic fluctuations in industry growth rates where relevant, as
well as the group's expectation of future growth.
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 2022 2021
Discount rate 14.1% 12.0%
Average annual revenue growth rate 4.3% 4.9%
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 2021 216,253 9,793 46,189 272,235
Internally developed in the year - 1,847 - 1,847
Acquired through business combinations (note 4) 79,415 - 5,662 85,077
Purchased in the year 8,620 - 4,988 13,608
Disposals (1,716) - (3,699) (5,415)
At 1 January 2022 302,572 11,640 53,140 367,352
Internally developed in the year - 1,827 - 1,827
Purchased in the year 998 - 1,790 2,788
Disposals (2,643) - (33) (2,676)
At 31 December 2022 300,927 13,467 54,897 369,291
Amortisation and impairment
At 1 January 2021 95,124 7,234 35,606 137,964
Acquired through business combinations (note 4) - - 4,237 4,237
Amortisation charge 15,595 1,302 5,160 22,057
Disposals (1,716) - (3,699) (5,415)
At 1 January 2022 109,003 8,536 41,304 158,843
Amortisation charge 19,544 1,488 3,559 24,591
Disposals (2,643) - (16) (2,659)
At 31 December 2022 125,904 10,024 44,847 180,775
Carrying amount at 31 December 2022 175,023 3,443 10,050 188,516
Carrying amount at 31 December 2021 193,569 3,104 11,836 208,509
Carrying amount at 1 January 2021 121,129 2,559 10,583 134,271
Client relationships of £79,415,000 acquired through business combinations in
the prior year relate to the acquisition of Saunderson House (see note 4).
Purchases of client relationships of £998,000 (2021: £8,620,000) 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 £19,544,000 (2021: £15,595,000).
Purchased software with a cost of £35,191,000 (2021: £32,363,000) has been
fully amortised but is still in use.
9 / provisions
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 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 1 January 2022 8,538 - 2,143 4,643 15,324
Charged to profit or loss - - 843 1,182 2,025
Unused amount credited to profit or loss - - (21) - (21)
Net charge to profit or loss - - 822 1,182 2,004
Other movements 997 - - - 997
Utilised/paid during the year (5,156) - (229) (33) (5,418)
At 31 December 2022 4,379 - 2,736 5,792 12,907
Payable within 1 year 1,032 - 2,736 330 4,098
Payable after 1 year 3,347 - - 5,462 8,809
4,379 - 2,736 5,792 12,907
Deferred, variable costs to acquire client relationship intangibles
Other movements in provisions relate to deferred payments to investment
managers and third parties for the introduction of client relationships, which
have been previously capitalised.
Deferred and contingent consideration in business combinations
During the prior year, the group settled an incentivisation award for Speirs
& Jeffrey support staff in the value of £588,000.
Legal and compensation
During the ordinary course of business the group may, from time to time, be
subject to complaints, as well as threatened and actual legal proceedings
(which may include lawsuits brought on behalf of clients or other third
parties) both in the UK and overseas. Any such material matters are
periodically reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the group incurring a
liability. In those instances where it is concluded that it is more likely
than not that a payment will be made, a provision is established to the
group's best estimate of the amount required to settle the obligation at the
relevant balance sheet date. The group's best estimate is based on legal
advice and management's expectation of the most likely settlement outcome,
which in some cases is calculated by external professional advisers. The
timing of settlement of provisions for client compensation or litigation is
dependent, in part, on the duration of negotiations with third parties.
Property-related
Property-related provisions of £5,792,000 relate to dilapidation provisions
expected to arise on leasehold premises held by the group (2021: £4,643,000).
Dilapidation provisions are calculated using a discounted cash flow model.
During the year, the group utilised £33,000 for the property held in
Edinburgh (2021: £100,000). The impact of discounting led to an additional
charge of £1,182,000 (2021: additional charge of £995,000) being recognised
during the year.
Amounts payable after one year
Property-related provisions of £5,462,000 are expected to be settled within
11 years of the balance sheet date, which corresponds to the longest lease for
which a dilapidations provision is being held. Remaining provisions payable
after one year are expected to be settled within 2 years of the balance sheet
date.
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 were £15,211,000 (2021: £12,006,000). The group also operates a
defined contribution scheme for overseas employees, for which the total
contributions were £80,000 (2021: £82,000).
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
Rathbones 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.
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. Valuations as at
31 December 2022 are currently being undertaken for both schemes.
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
2022 2021 2022 2021
%
%
%
%
(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 3.60 3.70 3.20 3.30
Rate of increase of deferred pensions 3.20 3.40 3.20 3.40
Discount rate 4.70 1.90 4.70 1.90
Inflation* 3.20 3.40 3.20 3.40
Percentage of members transferring out of the schemes per annum 2.00 2.00 2.00 2.00
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 2.8% to reflect an increase in the
yields available on AA-rated corporate bonds
2. the assumed rate of future inflation has decreased by 0.2% 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, where linked
to inflation, has decreased by 0.1% 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 2020
version to the 2021 version.
2% of members not yet in receipt of their pension are assumed to transfer out
of the scheme each year (2021: 2%).
The proportion of members assumed to be married at retirement age is 80%
(2021: 80%).
The assumed duration of the liabilities for the Laurence Keen Scheme is 13
years (2021: 15 years) and the assumed duration for the Rathbone 1987 Scheme
is 16 years (2021: 20 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 2021 tables with a long-term rate of
improvement of 1.5% p.a. The assumed life expectancies on retirement were:
2022 2021
Males Females Males Females
Retiring today: aged 60 28.2 29.9 28.2 29.9
aged 65 23.3 24.9 23.3 24.9
Retiring in 20 years: aged 60 29.9 31.6 29.9 31.6
aged 65 24.9 26.6 24.8 26.6
The amount included in the balance sheet arising from the group's assets in
respect of the schemes is as follows:
2022 2021
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 (7,167) (87,564) (94,731) (11,149) (144,428) (155,577)
Fair value of scheme assets 8,113 96,019 104,132 12,981 154,883 167,864
Net defined benefit asset/(liability) 946 8,455 9,401 1,832 10,455 12,287
The amounts recognised in profit or loss, within operating expenses, are as
follows:
2022 2021
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
Interest income (36) (222) (258) (5) 110 105
(36) (222) (258) (5) 110 105
Remeasurements of the net defined benefit asset have been reported in other
comprehensive income. The actual return on scheme assets was a fall in value
of £4,385,000 (2021: £481,000 rise) for the Laurence Keen Scheme and a fall
in value of £58,806,000 (2021: £11,501,000 rise) for the Rathbone 1987
Scheme.
Movements in the present value of defined benefit obligations were as follows:
2022 2021
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
At 1 January 11,149 144,428 155,577 12,374 153,030 165,404
Service cost (employer's) - - - - - -
Interest cost 206 2,708 2,914 158 1,961 2,119
Contributions from members - - - - - -
Actuarial experience gains 99 3,561 3,660 20 5,793 5,813
Actuarial gains/(losses) arising from: -
- demographic assumptions 4 188 192 (159) (1,200) (1,359)
- financial assumptions (3,640) (59,492) (63,132) (816) (10,761) (11,577)
Past service cost - - - - - -
Benefits paid (651) (3,829) (4,480) (428) (4,395) (4,823)
At 31 December 7,167 87,564 94,731 11,149 144,428 155,577
Movements in the fair value of scheme assets were as follows:
2022 2021
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987 Scheme
£'000
Scheme
1987 Scheme
£'000
£'000
£'000
£'000
£'000
At 1 January 12,981 154,883 167,864 12,592 143,027 155,619
Remeasurement of net defined benefit asset/(liability) -
- interest income 242 2,930 3,172 163 1,851 2,014
- return on scheme assets (excluding amounts included in interest income) (4,627) (61,736) (66,363) 318 9,650 9,968
Contributions from the sponsoring companies 168 3,771 3,939 336 4,750 5,086
Contributions from scheme members - - - - - -
Benefits paid (651) (3,829) (4,480) (428) (4,395) (4,823)
At 31 December 8,113 96,019 104,132 12,981 154,883 167,864
The statements of investment principles set by the trustees of both schemes
were revised in 2022. 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 balance between the Schemes' assets moves in line with market conditions,
and will be periodically reviewed by the Trustees. In addition, the Trustees
will review the asset allocation on a regular basis and look to reduce the
allocation to equities as and when appropriate.
The analysis of the scheme assets, measured at bid prices, at the balance
sheet date was as follows:
Laurence Keen Scheme 2022 2021 2022 2021
Fair
Fair
Current
Current
value
value
allocation
allocation
£'000
£'000
%
%
Equity instruments:
- United Kingdom 146 348
- Eurozone 187 696
- North America 724 2,547
- Other 520 2,244
1,577 5,835 19 46
Debt instruments:
- United Kingdom corporate bonds 4,357 4,854
4,357 4,854 54 37
Liability-driven investments 2,018 1,986 25 15
Cash 102 181 1 1
Other 59 125 1 1
At 31 December 8,113 12,981 100 100
Rathbone 1987 Scheme 2022 2021 2022 2021
Fair
Fair
Current
Current
value
value
allocation
allocation
£'000
£'000
%
%
Equity instruments:
- United Kingdom 4,241 18,035
- Eurozone 2,511 9,107
- North America 13,465 27,980
- Other 6,073 16,823
26,290 71,945 28 47
Debt instruments:
- United Kingdom corporate bonds 37,678 54,370
37,678 54,370 39 35
Liability-driven investments 30,836 26,308 32 17
Cash 1,215 2,260 1 1
Other - - - -
At 31 December 96,019 154,883 100 100
All equity instruments held have quoted prices in active markets. 'Other'
scheme assets comprise only commodities (2021: commodities). Buy and maintain
credit funds held with Legal and General Investment Management have been
classified as UK corporate bonds.
The liability-driven investments held are a selection of pooled funds managed
by Legal & General Investment Management. They are comprised of four
funds which invest in a range of index-linked and fixed-interest investments,
with weightings determined with reference to the profile of the Schemes'
liabilities, such that they provide a suitable hedge against interest rate and
inflation rate changes. The funds are liquid and are valued at their
realisable value as at the relevant date.
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 lower or higher movement in these
assumptions would result in multiples of these 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)/ (Decrease)/
increase
increase
£'000
%
0.5% increase in:
- discount rate (7,095) (7.5)%
0.5% increase in:
- rate of inflation 4,990 5.3%
Reduce allowance for future transfers to nil 367 0.4%
1-year increase to:
- longevity at 60 3,447 3.6%
The total contributions made by the group to the 1987 Scheme during the year
were £3,771,000 (2021: £4,750,000). The group has a commitment to pay
deficit-reducing contributions of £2,750,000 by 31 August 2023 and each
subsequent 31 August up to and including 31 August 2026, unless the funding
position is assessed to be over 100% funded on a self-sufficient basis at the
end of the prior year.
The total contributions made by the group to the Laurence Keen Scheme during
the year were £168,000 (2021: £336,000). The group has a commitment to pay
deficit-reducing contributions of £168,000 by 28 February each year from 2023
to 2026 (inclusive).
Per IAS 19, companies are required to limit the value of any defined benefit
asset to the lower of the surplus in the plan and the defined benefit asset
ceiling, where the asset ceiling is the present value of economic benefits
available in the form of refunds from the plan or reductions in future
contributions to the plan. The company expects to access any surplus assets
remaining in the plan once all members have left after gradual settlement of
the liabilities. Therefore, the net asset is deemed to be recoverable and the
effect of the asset ceiling is £nil.
11 / Fair values
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 2022 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Fair value through profit or loss:
- equity securities 8,068 - 3,146 11,214
- money market funds - - - -
8,068 - 3,146 11,214
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
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 (2021: none).
The fair value of listed equity securities is their quoted price.
The fair values of the group's other financial assets and liabilities are not
materially different from their carrying values, with the exception of the
following:
- Investment debt securities measured at amortised cost comprise bank and
building society certificates of deposit, which have fixed coupons, and
treasury bills. The fair value of the debt securities at 31 December 2022 was
£1,053,460,000 (2021: £761,763,000) and the carrying value was
£1,045,257,000 (2021: £761,682,000). 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 2022 was £41,211,000 (2021: £42,824,000) and the
carrying value was £39,891,000 (2021: £39,893,000). 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 readily available observable market
data is not available.
The valuation of €1,985 per share at 31 December 2022 has been calculated by
reference to the indicative price derived from the most 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 2022, would
have reduced equity and profit after tax by £255,000 (2021: £207,000). 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:
2022 2021
At 1 January 2,558 2,569
Total unrealised gains/(losses) recognised in profit or loss 588 (11)
At 31 December 3,146 2,558
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:
2022 2021
Pre-tax Taxation Post-tax Pre-tax Taxation Post-tax
£'000
£'000
£'000
£'000
£'000
£'000
Underlying profit attributable to shareholders 97,060 (20,384) 76,676 120,719 (23,732) 96,987
Charges in relation to client relationships and goodwill (note 8) (19,544) 3,713 (15,831) (15,595) 2,963 (12,632)
Acquisition-related costs (note 5) (13,462) 1,601 (11,861) (10,089) 963 (9,126)
Profit attributable to shareholders 64,054 (15,070) 48,984 95,035 (19,806) 75,229
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 own shares, of 58,618,521 (2021: 56,334,784).
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.
2022 2021
Weighted average number of ordinary shares in issue during the year - basic 58,618,521 56,334,784
Effect of ordinary share options/Save As You Earn 595,055 521,955
Effect of dilutive shares issuable under the Share Incentive Plan 671 237,776
Effect of contingently issuable shares under the Executive Incentive Plan 563,816 811,508
Effect of contingently issuable shares under Saunderson House initial share 272,952 272,952
consideration (note 4)
Diluted ordinary shares 60,051,015 58,178,975
2022 2021
Earnings per share for the year attributable to equity holders of the company:
- basic 83.6p 133.5p
- diluted 81.6p 129.3p
Underlying earnings per share for the year attributable to equity holders of
the company:
- basic 130.8p 172.2p
- diluted 127.7p 166.7p
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 (2021:
£nil). Further information about the remuneration of individual directors is
provided in the audited part of the directors' remuneration report.
2022 2021
£'000
£'000
Short-term employee benefits 10,221 12,159
Post-employment benefits 272 290
Other long-term benefits 359 1,305
Share-based payments 379 1,997
11,231 15,751
Dividends totalling £216,000 were paid in the year (2021: £229,000) in
respect of ordinary shares held by key management personnel and their close
family members.
At 31 December 2022, key management personnel and their close family members
had gross outstanding deposits of £1,743,000 (2021: £634,000) and gross
outstanding banking loans of £nil (2021: nil). 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. All transactions were made on normal business terms.
Other related party transactions
The group's transactions with the pension funds are described in note 10. At
31 December 2022, no amounts were outstanding with either the Laurence Keen
Scheme or the Rathbone 1987 Scheme (2021: none).
One group subsidiary, Rathbone Unit Trust Management, has authority to manage
the investments within a number of unit trusts. Another group company,
Rathbones Investment Management International, acted as investment manager for
a protected cell company offering unitised private client portfolio services.
During 2022, the group managed 32 unit trusts, Sociétés d'Investissement à
Capital Variable (SICAVs) and open-ended investment companies (OEICs)
(together, 'collectives') (2021: 33 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 2022 2021
£'000
£'000
Total management fees 68,226 68,444
As at 31 December 2022 2021
£'000
£'000
Management fees owed to the group 5,587 6,240
Holdings in unit trusts 8,068 7,376
13,655 13,616
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:
2022 2021
£'000
£'000
Cash and balances at central banks 1,408,000 1,460,001
Loans and advances to banks 164,723 173,589
Fair value through profit or loss investment securities - 20,000
At 31 December 1,572,723 1,653,590
Fair value through profit or loss investment securities are amounts invested
in money market funds, which are realisable on demand.
Following the Financial Reporting Council's ('FRC') Corporate Reporting Review
of the group's 2021 annual report and accounts, a prior year debt repayment by
the group has been reclassified from cash flows from operations to cash flows
from financing activities.
In the prior year, included within the net assets acquired from the Saunderson
House group was third-party debt of £45,208,000, which was repaid to the
third-party shortly after acquisition by Rathbones Group Plc. This amount was
previously included within 'net (decrease)/increase in accruals, provisions
and other liabilities' in the consolidated statement of cash flows. As the
group assumed this debt upon acquisition, the nature of the repayment
indicates it was a financing outflow. The group has therefore restated
comparative information as at 31 December 2021 to report this amount within
net cash used in financing activities.
As a consequence, total cash outflows from operations for the group was
restated from £187,013,000 to £141,805,000, and total cash inflows from
financing activities of £14,150,000 was restated to total cash outflows of
£31,058,000. For Rathbones Group Plc (the 'Company'), total cash outflows
from operations was restated from £1,994,000 to inflows of £43,214,000, and
total cash inflows from financing activities of £35,539,000 was restated to
total cash outflows of £9,669,000. This restatement does not impact the group
or company's closing cash and cash equivalents position.
The review conducted by the FRC was based solely on the Group's published
report and accounts and does not provide any assurance that the report and
accounts are correct in all material respects.
Cash flows arising from the issue/(repurchase) of ordinary shares comprise:
2022 2021
£'000
£'000
Share capital issued 70 226
Share premium on shares issued 18,944 75,934
Merger reserve on shares issued - 5,209
Shares issued in relation to share-based schemes for which no cash (9,752) (21,902)
consideration was received
Proceeds from issue of share capital 9,262 59,467
Shares repurchased and placed into the employee benefit trust (18,567) (15,132)
Net issue/(repurchase) of ordinary shares (9,305) 44,335
During the prior year, £21,902,000 of shares were issued for the vesting of
the Speirs & Jeffrey first earn-out consideration. £5,223,000 of shares
were also issued for the Saunderson House initial share consideration in 2021,
and subsequently placed into the group EBT. There was no cash consideration
received for these transactions. In addition to this, £9,909,000 of shares
were repurchased and placed into the group EBT in 2021.
During the year, £5,700,507 of shares were issued for the vesting of the
Speirs & Jeffrey second earn-out consideration. £4,051,950 of shares were
also issued for the Saunderson House deferred share consideration. There was
no cash consideration received for these transactions. £18,567,000 of shares
were repurchased and placed into the group EBT in the year.
A reconciliation of the movements of financing liabilities and equity to cash
flows arising from financing activities is as follows:
Subordinated loan notes Lease liabilities Liabilities from financing activities Share capital/ Reserves Retained Total equity Total
£'000
£'000
£'000
premium
£'000
earnings
£'000
£'000
£'000
£'000
At 1 January 2022 39,893 54,971 94,864 294,126 40,339 288,817 623,282 718,146
Changes from financing cash flows
Proceeds from issue of share capital - - - 9,262 - - 9,262 9,262
Payments for share repurchases - - - - (18,567) (18,567) (18,567)
Dividends paid - - - - - (48,607) (48,607) (48,607)
Interest charge (2,257) (3,063) (5,320) - - - - (5,320)
Payment for lease liabilities - (8,481) (8,481) - - - - (8,481)
Total financing cash flows (2,257) (11,544) (13,801) 9,262 (18,567) (48,607) (57,912) (71,713)
Total non-cash movements 2,255 7,057 9,312 9,752 2,678 57,034 69,464 78,776
At 31 December 2022 39,891 50,484 90,375 313,140 24,450 297,244 634,834 725,209
Subordinated loan notes Third-party debt Lease liabilities Liabilities from financing activities Share capital/ Reserves Retained Total equity Total
£'000
£'000
£'000
£'000
premium
£'000
earnings
£'000
£'000
£'000
£'000
At 1 January 2021 19,768 - 56,124 75,892 217,966 25,012 270,849 513,827 589,719
Changes from financing cash flows
Proceeds from issue of share capital - - - - 59,467 - - 59,467 59,467
Payments for share repurchases - - - - - (15,132) - (15,132) (15,132)
Issue of loan notes 39,893 - - 39,893 - - - - 39,893
Repayment of loan notes (20,114) - - (20,114) - - - - (20,114)
Dividends paid - - - - - - (43,960) (43,960) (43,960)
Interest charge (895) - - (895) - - - - (895)
Payment for lease liabilities - - (5,109) (5,109) - - - - (5,109)
Repayment of debt - (45,208) - (45,208) - - - - (45,208)
Total financing cash flows 18,884 (45,208) (5,109) (31,433) 59,467 (15,132) (43,960) 375 (31,058)
Total non-cash movements 1,241 - 3,956 5,197 16,693 30,459 61,928 109,080 114,277
At 31 December 2021 39,893 - 54,971 94,864 294,126 40,339 288,817 623,282 718,146
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
There have been no material events occurring between the balance sheet date
and the date of signing this report. 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 2022 or 2021. Statutory financial statements for 2021 have been
delivered to the Registrar of Companies. Statutory financial statements for
2022 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting. The auditor has reported on both the 2022 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 2022 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 Rathbones
Group 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 2022.
The preliminary statement of annual results for the period ended 31 December
2022 includes:
- Disclosures required by the Listing Rules;
- Chair's statement;
- Group Chief Executive's review;
- Financial performance;
- Segmental review;
- Financial position;
- Liquidity and cash flow;
- Risk management and control;
- Principal Risks;
- Consolidated statement of comprehensive income;
- Consolidated statement of changes in equity;
- Consolidated balance sheet;
- Consolidated statement of cash flows; and
- Notes 1 to 17 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 28 February 2023. 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:
Impairment of client relationship intangible assets and goodwill
Key audit matter description
The group holds client relationship intangible assets of £175.0 million
(2021: £193.6 million) and goodwill of £167.7 million (2021: £167.7
million) comprising both relationships acquired through business combinations
and through acquisition of individual investment managers and their client
portfolios.
We have identified this key audit matter as giving rise to a fraud risk, given
the inherent judgement and level of estimation in the assumptions that support
the annual impairment review.
As detailed in the summary of principal accounting policies in notes 1 and 2
in the full annual report (included within note 1 to this announcement),
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 client portfolio, there is a degree of management
judgement. This assessment is based on movements in the value of funds under
management 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 14.1%, 4.3%, and 1.0% respectively as disclosed in note
22 in the full annual report (included within note 8 to this announcement).
How the scope of our audit responded to the 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 relationships and for goodwill. We tested
controls in place over funds under management ("FUM") values which form the
basis of the impairment assessment.
For client relationship intangible assets, we specifically tested the
assumptions used by management as part of the impairment review exercise to
assess whether they meet the requirements of IAS 36 "Impairment of Assets". We
challenged the key assumptions around the impairment triggers identified for
each client portfolio, which we have assessed for reasonableness, and we
evaluated the accuracy of the inputs used by management.
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 through the
calculation of the assets' value-in-use ("VIU"). Our challenge focused
specifically on the assumptions for the growth rate used for assets under
management ("AUM"); organic new business, the client attrition rates, and the
discount rate used.
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 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. We also independently re-performed
management's VIU 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
the impairment of 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 and that
the carrying value of client relationship intangible assets and goodwill as at
31 December 2022 is appropriate.
Defined benefit scheme assumptions
Key audit matter description
The group has recognised a defined benefit pension scheme net asset of £9.4
million (2021: net asset of £12.3 million). The net asset comprises scheme
assets of £104.1 million (2021: £167.9 million) and a defined benefit
obligation of £94.7 million (2021: £155.6 million).
The calculation of the defined benefit 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, disclosed in note 29 in the
full annual report (included within note 10 to this announcement).
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 obligation.
How the scope of our audit responded to the key audit matter
In order to evaluate the appropriateness of the assumptions used by
management, we obtained an understanding of relevant controls over the
determination of assumptions and the calculation of the 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
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.
Key observations
We concluded that each of the key assumptions used by management to estimate
the defined benefit obligation are consistent with the requirements of IAS 19
and that the valuation of the defined pension scheme net asset has been
appropriately determined.
Investment management fee revenue relating to bespoke fees
Key audit matter description
As detailed in the summary of principal accounting policies in note 1 and
segmental information in note 3 in the full annual report (included within
note 3 to this announcement), revenue comprises net investment management fee
income of £337.0 million (2021: £349.4 million), net commission income of
£48.9 million (2021: £53.6 million), net interest income of £18.3 million
(2021: £3.9 million) and fees from advisory services and other income of
£51.7 million (2021: £29.1 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 the scope of our audit responded to the key audit matter
We tested controls over the calculation of IM 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 fee 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 2022.
These matters 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 or draft 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 interim 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
28 February 2023
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