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RNS Number : 7183F Rathbones Group PLC 06 March 2024
Preliminary results for the 12 months ended 31 December 2023
A TRANSFORMATIONAL YEAR
Paul Stockton, Group Chief Executive, said:
"2023 was a transformational year for Rathbones as we announced our
combination with Investec Wealth & Investment (IW&I). Our integration
programme is progressing well and, having spent considerable time with many
new colleagues this year, I am confident that we have brought together a group
of like-minded teams who are excited about the opportunities the combination
provides our enlarged group. Underlying profit before tax increased 30.9% to
£127.1 million, including contribution from IW&I in the final quarter.
Together, we will secure the planned synergies from scale, and provide
stability to clients and colleagues, whilst offering enhanced propositions
that will benefit our clients and deliver value to shareholders.
"We remain resilient and well positioned to withstand some of the challenging
investment market conditions we saw this year and our 2023 results reflect
this. Our priority has always been to provide the reassurance and support that
our clients expect over such periods, and as ever, they will remain a key
consideration in everything that we do."
Financial highlights
- Total FUMA reached £105.3 billion at 31 December 2023 (31 December
2022: £60.2 billion), including £42.2 billion from Investec Wealth &
Investment UK (IW&I).
- Underlying profit before tax increased 30.9% to £127.1 million (2022:
£97.1 million), including a £25.4 million contribution from IW&I in the
final quarter.
- Underlying operating margin increased to 22.3% (2022: 21.3%), including
the planned £14.4 million expenditure on our digital programme.
- Profit before tax reduced by 10.1% to £57.6 million (31 December 2022:
£64.1 million), largely reflecting acquisition and integration costs related
to the combination with IW&I, along with higher amortisation charges
following the transaction.
Operational highlights
- Integration work to combine Rathbones and IW&I is progressing well,
with the consent process that precedes the migration of clients on to the
Rathbones platform expected to be concluded during 2024 with full migration in
early 2025 as planned. To December 2023, we realised £8 million of the £15
million of run-rate synergies that were planned for the first full year
following completion (by October 2024), against the overall stated £60
million annualised synergies. The impact on 2023 results was negligible given
the timing of when the combination completed.
- The operational integration of Saunderson House is nearing completion,
with a high proportion of clients having agreed to receive or proceed with
advice to migrate to Rathbones' investment propositions. We now expect to
complete the migration process during Q2 2024.
- During 2023, we continued to build on our digital programme. Our client
lifecycle management system is now expected to go live by the middle of 2024.
This is later than we anticipated but costs continue to be managed closely and
remain in line with those previously announced in Q3 2023.
2023 comprises
2023 Rathbones excl. IW&I IW&I 2022
£m
£m
£m
£m
(unless stated)
(unless stated)
(unless stated)
(unless stated)
Operating income 571.1 483.2 87.9 455.9
Underlying operating expenses1 (444.0) (381.5) (62.5) (358.8)
Underlying profit before tax1 127.1 101.7 25.4 97.1
Underlying operating margin1 22.3% 21.1% 28.8% 21.3%
Profit before tax 57.6 42.6 15.0 64.1
Underlying earnings per share1 135.8p - - 130.8p
Earnings per share 52.6p - - 83.6p
1 A reconciliation between the underlying measure and its closest IFRS
equivalent is provided in the financial performance section.
Outlook
Whilst we will continue to be impacted by market reactions to political
instability or adverse geopolitical events, as a strong business with
increased scale, Rathbones is well-equipped to manage and navigate these
challenges. Recent indicators that interest rates may fall in the medium term
should be positive for equity markets and increase client confidence to
invest. This in turn should be positive for net organic growth rates and the
group as a whole.
The scale and benefits of the combined business, and the synergies that we
have committed to and are delivering on, mean we are well positioned
to achieve our end state of 30%+ operating margin three years post completion
of the IW&I combination (i.e. from September 2026) however, we now expect
to be at mid-20s% margins in 2024. The primary drivers of this change are the
continuing investment in our digital programme and the time required to
complete the migration of Saunderson House clients, in addition to the impact
of ongoing inflationary pressure. This is based on current market levels and
reflects the continuation of the high inflationary environment.
The successful integration of IW&I is a priority of course, but this is
alongside other important objectives to continue to develop our investment
process, further enhance our client engagement, embrace technology, and build
out our distribution capability.
We remain well positioned to take advantage of both the benefits of scale and
future growth opportunities.
Declaration of final dividend
At our half year results in July, we announced an interim dividend of 29p. We
also brought forward payment of a portion of the final 2023 dividend to
shareholders on the register shortly prior to the completion of the IW&I
combination by way of a second interim dividend of 34p, paid in October.
The board recommends a final dividend of 24p for 2023 (2022: 56p), making a
total of 87p for the year (2022: 84p), an increase of 3.6% on 2022. 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 14 May 2024,
subject to shareholder approval at our 2024 Annual General Meeting on 9 May
2024.
2023 results presentation
A presentation detailing Rathbones' 2023 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
10:00am 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/65c4df2f77117a0c00b39a70/fgerqw
(https://www.investis-live.com/rathbone-brothers/65c4df2f77117a0c00b39a70/fgerqw)
) or by dialling in using the conference
call details below:
United Kingdom (Local): +44 20 3936 2999
United Kingdom (Toll-Free): +44 800 358 1035
Participant access code: 416757
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 6 March 2024
For further information contact:
Rathbones Group Plc
Paul Stockton, Group Chief Executive Officer
Iain Hooley, Group Chief Financial Officer
Shelly Patel, Head of Investor Relations
Tel: 020 7399 0071
Email: shelly.patel@rathbones.com (mailto:shelly.patel@rathbones.com)
Camarco
Ed Gascoigne-Pees
Julia Tilley
Tel: 020 3757 4984
Email: ed.gascoigne-pees@camarco.co.uk
(mailto:ed.gascoigne-pees@camarco.co.uk)
Rathbones Group Plc
Rathbones provides 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 for everyone's tomorrow has been with us from the
beginning and continues to lead us forward.
Rathbones has over 3,500 employees in 23 locations across the UK and Channel
Islands; its headquarters is 8 Finsbury Circus, London, EC2M 7AZ.
www.rathbones.com
Chair's statement
Stronger together
Dear shareholder
Rathbones is a strong and secure business. It is well-equipped to manage and
navigate challenging market conditions.
2023 was a difficult period for the UK economy: global conflicts, rising
interest rates and continued inflation reduced economic growth in many parts
of the world, directly impacting the investment returns of our clients. These
collective challenges have highlighted the importance of our adaptability,
resilience and the reassurance that we provide our stakeholders.
During 2023, we announced a transformational combination with Investec Wealth
& Investment UK (IW&I). This transaction presents a compelling
strategic and financial rationale for our shareholders, whilst it also better
serves our clients, and secures our future as the UK's leading discretionary
wealth manager.
We are delighted to welcome our IW&I colleagues to our business. I look
forward to the year ahead as we work together, as one business, to realise the
significant proposition and financial benefits for all our stakeholders.
CLIENTS
Our clients are at the heart of our strategy and their interests are a key
consideration in everything that we do. In 2023, we continued to prioritise
engaging with clients through a variety of methods including focus groups and
targeted surveys, virtual and in-person conferences and events as well as
regular communications updating them on the business, macro themes, the
IW&I transaction and our investment propositions. We will continue this
dialogue during 2024.
SHAREHOLDER RETURNS AND DIVIDENDS
Rathbones generates long-term value creation for our shareholders. Following
our combination with IW&I, we commit again to our progressive dividend
policy. This has been in place for more than 25 years, over which period we
have never reduced our dividend. Given the strength of our enlarged business,
we are pleased to be able to sustain this dividend commitment, even in the
context of difficult markets.
At our half year results in July, we announced an interim dividend of 29p. We
also brought forward payment of a portion of the final 2023 dividend to
shareholders on the register shortly prior to the completion of the
combination by way of a second interim dividend of 34p, paid in October. The
final dividend in respect of FY23 has therefore been reduced accordingly to
24p per share. This brings the total dividend for the year, for shareholders
on the register prior to the combination, to 87p per share (2022: 84p) a 3.6%
increase on the prior year. The final dividend will be paid on 14 May 2024,
subject to shareholder approval at our 2024 Annual General Meeting on 9 May
2024, for shareholders who are on the register on 19 April 2024.
RESPONSIBLE BUSINESS
Our responsible business programme enables us to deliver on our purpose to
think, act and invest for everyone's tomorrow. We seek to create long-term
value for our stakeholders, built upon the foundations of strong governance.
Our programme ensures we deliver through various initiatives, including our
responsible investment approach, diversity, equality and inclusion (DE&I)
efforts, community investment and reducing the environmental impact of
our operations.
GOVERNANCE AND CULTURE
The board recognises that enduring business success is not possible without a
clear purpose, and that good governance is about more than just complying with
rules. It is about culture, behaviours and how we treat our clients. The board
is committed to ensure that the firm's purpose, values and culture are
embedded throughout the firm. The board regularly reviews its 'culture
dashboard' and, this year, we paid particular attention to the impact on the
organisation from the combination with IW&I. It remains incredibly
important to ensure that the businesses are culturally aligned with client
focus at our core.
More information on the how the board monitored and assessed culture can be
found in the full corporate governance report.
COLLEAGUES
There are tremendous skills across our enlarged group of 3,500 colleagues. In
2023, our management teams and the board continued to engage through employee
engagement surveys and the board's own workforce engagement programme. We
remain committed to improving our colleagues' experience at work, which is
even more important during the period of integration with IW&I.
BOARD COMPOSITION AND SUCCESSION
Because of our combination with IW&I, there has been necessary and
welcome changes to our board. Most notably, Henrietta Baldock and Ruth Leas
are now new shareholder directors, nominated by Investec Group. These
appointments were approved by our nomination committee in September 2023,
reflecting the 29.9% voting rights shareholding owned by Investec Group Plc.
Both have extensive knowledge of the financial services sector and I look
forward to working with them in the years ahead.
Succession planning is vital to ensure the board has the necessary plans in
place for orderly succession to both the board and senior management
positions. The board believes that greater diversity drives better
decision-making and that building a diverse and inclusive workforce will lead
to better outcomes for clients, colleagues and for our business. The board
has aligned its diversity policy for board appointments with new targets set
out in the listing rules and is proud to have met those targets.
At the end of 2023, our board had five female directors out of nine, which
means we exceed the commitment of female board representation for FTSE 350
companies set by the FTSE Women Leaders initiative.
We continue to meet the requirements of the Parker Review as we have at least
one director from an ethnic minority background. We see this as a good
foundation on which to build, but certainly not an end point.
After six years, Sarah Gentleman stepped down as chair of the remuneration
committee in September 2023, to focus on her role as our senior independent
director. I would like to thank her for her leadership on remuneration policy
over this time and am delighted that Dharmash Mistry accepted the role as our
new remuneration committee chair.
In addition, in September 2023 we announced that after four and half years as
group CFO and executive director, Jennifer Mathias would step down from the
Board on 31 December 2023 and transition into the new position of group chief
of staff, working with the executive team across all parts of the combined
business. From January 2024, Iain Hooley took on the group CFO role as
Jennifer's successor. Iain was finance director of IW&I for more than a
decade and was appointed CEO of IW&I in February 2023, where he played a
key role in the success of the business. I am grateful to both Jennifer and
Iain and look forward to working with them as we bring our two businesses
together.
ENGAGING WITH SHAREHOLDERS
We strongly believe in meaningful engagement with shareholders, and I was
pleased to meet many of you this year. We are grateful for the overwhelming
shareholder support for the combination with IW&I, which was an
affirmation of this transformational transaction.
The chair of the remuneration committee consulted with our top shareholders on
proposed changes to our remuneration policy. The consultation exercise
demonstrated that there is strong support for changes that will be put to
shareholders at our AGM in May 2024.
LOOKING AHEAD
IW&I integration planning remains on track. We remain confident that the
enlarged group will deliver efficiencies and benefits to clients, employees
and shareholders. We will continue to update you on our progress as we grow
together as a combined business.
Finally, on behalf of the board, I would like to thank our clients,
shareholders and colleagues - old and new - for your enduring commitment and
collaboration. This remains the foundation of our shared success. Thank you
for being the driving force behind our accomplishments in spite of the
turbulent economic landscape. It has been through your collective efforts,
resilience, and hard work that we have been able to navigate these challenges
and I am confident we will emerge stronger than ever.
Clive C R Bannister
Chair
GROUP CHIEF EXECUTIVE OFFICER'S REVIEW
A TRANSFORMATIONAL YEAR
2023 in review
In a year that continued to offer some challenging market conditions, our 2023
results reflect a resilience and a willingness to step forward and address the
structural challenges that the UK wealth management industry faces. Our
priority has always been to provide the reassurance and support that our
clients expect over such periods. We also continue to look to create
opportunities for future growth and shareholder benefits, whilst managing
expenditure carefully.
The combination with Investec Wealth & Investment UK (IW&I), announced
in April 2023, holds the prospect of being truly transformational. The
integration programme is progressing well, and having spent considerable time
with many new colleagues this year, I am confident that we have brought
together a group of like-minded individuals who are excited about the
opportunities that the combination provides our enlarged group.
We remain committed to delivering the planned synergies from scale, whilst
providing stability to clients and colleagues over what will be a very busy
2024. I also look forward to building enhanced propositions and services that
will benefit our clients and deliver value to shareholders.
INVESTMENT MARKETS AND GROWTH
There appeared little relief from a general investment market malaise in the
early part of 2023, particularly for those with a defensive positioning and UK
bias. This affected investment performance across the group, which remained
somewhat subdued until the final quarter of the year, when both bonds and
equities rallied.
High inflation in the year not only increased operating expenditure, but also
added cost of living pressures on some clients. Investor sentiment moved away
from equities towards cash, and a client preference to use invested capital to
repay increasingly expensive debt emerged. Despite this backdrop, gross
inflows (ex IW&I) of £6.9 billion (2022: £6.5 billion) remained
resilient, representing an annualised growth rate of 11.4% of opening funds
under management and administration (FUMA) (an increase from 9.5% in 2022),
reaping the benefits from ongoing client engagement and closer relationships
with key third-party distributors. Gross outflows (ex IW&I) of £7.4
billion (2022: £6.1 billion) were elevated, however, representing 12.2% of
opening FUMA (8.9% in 2022). Despite these outflows, client retention remained
high at 92.7% (2022: 93.7%).
IW&I was also impacted by similar trends, though net outflows in the final
quarter of the year of £0.3 billion also reflected the impact of known
investment manager departures that predominantly occurred prior to the
announcement of the combination with Rathbones. Investment manager turnover
has been low since then and engagement with colleagues at IW&I continues
to be very positive.
The UK fund industry suffered one of its worst years on record for net
outflows in 2023. Against this backdrop, Rathbones remained resilient
and ranked in fifth position for total net retail sales in the UK in 2023.
(2022: eighth position). Although Rathbones' single strategy funds posted net
outflows of £0.6 billion for the year (FY 2022: net outflows of £0.4
billion), our Global Opportunities and Ethical Bond funds were in the top
quartiles relative to peer groups for performance in the year. Our multi-asset
and FUMA managed via in-house funds (sold directly, or as part of our Managed
Portfolio or Rathbones Select solutions) grew significantly, with net inflows
and transfers of £2.4 billion (FY 2022: £0.6 billion) for the year.
COMBINATION WITH IW&I
The combination with IW&I completed on 21 September 2023, as planned.
Collaboration between the two businesses has been strong and key decisions on
the future structure, systems and policies have been formulated ahead of plan.
This has enabled us to move quickly to establish a robust framework for
integration and begin delivery of key actions and projects that will bring
both businesses together. There has been strong enthusiasm amongst teams
across both businesses, who are working effectively to build momentum and
capture best practices.
In October, we announced the senior leadership and governance structures for
the combined group, and the new executive team is working well and interacting
positively across the group.
Workstreams to effect common proposition standards have advanced, and
investment research and investment risk teams are now under common leadership.
The enlarged Rathbones group has a strong distribution capability working with
an extensive national network of third-party adviser contacts and
counterparties. This adds to our successful existing relationship with Vision
Independent Financial Planning. In October, we created the role of Chief
Distribution Officer to lead and build our distribution capability across
both the wealth and asset management businesses.
Our distribution capability has also been further enhanced by the combination
and strong partnership we have formed with Investec Bank. In December, we
formed a dedicated Strategic Partnership Team to work with them more closely.
To December 2023, we realised £8 million of the £15 million of run-rate
synergies that were planned for the first full year following completion (by
October 2024), against the overall stated £60 million annualised synergies.
The impact on 2023 results was negligible given the timing of when the
combination completed. There is much work to do but I remain confident in our
ability to deliver on these objectives.
In 2024, we expect to let all of our space in 8 Finsbury Circus in London to a
high-quality tenant for the remaining nine-year lease term. Our London-based
teams will be located together in 30 Gresham Street in the latter half
of 2024. We continue to work to consolidate our offices across the country,
where we share locations and to rebrand the IW&I offices we now have in
our portfolio.
Planning for the successful migration of clients on to the Rathbones' platform
is well underway. We continue to expect the client consent process to be
concluded during 2024, using a digital-first and streamlined approach to
minimise disruption to clients and client facing teams. We plan to complete
pilot exercises, ahead of the main migration planned for early 2025.
A dedicated project team is already in place and will ensure that we are able
to seamlessly integrate IW&I, whilst maintaining business as usual. Our
combined resources bring an extensive level of experience of consent and
migration processes, and we will continue to apply these skills as we
progress through the year.
A LEADING FINANCIAL PLANNING CAPABILITY
The group, together with IW&I, Rathbones Financial Planning (RFP) and
Saunderson House (SHL), operates a team comprising a total of 117 financial
planners, delivering a range of leading advice services. SHL and RFP have been
under a common leadership team for most of 2023, and IW&I financial
planning teams offer an excellent opportunity to add further scale and
strength.
The operational integration of SHL and RFP is nearing completion, with a high
proportion of clients having agreed to receive or proceed with advice to
migrate to Rathbones' investment propositions. £2.4 billion of FUMA has
already migrated and we now expect to complete the migration process during Q2
2024.
During the year, both SHL and RFP advisers introduced more than 150 new
clients to the group, with expected new assets of more than £200 million,
demonstrating a distribution reach despite undertaking a time-consuming
migration process. The SHL migration will be completed over the second quarter
of 2024, and thereafter will increase adviser capacity to grow.
Our next objective is to bring Rathbones and IW&I financial planning
businesses together, such that all businesses can operating on one platform to
service both new clients and existing investment clients across our regional
offices.
Vision Independent Financial Planning (Vision) remains an important part of
our financial advice proposition as an independent specialist financial advice
network. We will continue to leverage its strong relationship with the
enlarged group. In 2023, FUMA in Vision was £3.3 billion (2022: £2.6
billion) with 138 financial planners (2022: 131). We anticipate further
adviser recruitment in 2024.
FOCUSING ON GROWTH
In addition to our strategic partnerships with Vision and Investec Bank,
Rathbones pursues growth opportunities via three other key channels:
client-facing teams, third-party advisers and direct marketing.
Firstly, our client facing investment and planning teams represent a valuable
network, and we continue to look for ways to improve capacity. Rathbones
Select was designed as a high-quality, 'self-select' (execution only)
investment service for clients with smaller values to invest, providing a
better value proposition by operating through a dedicated central team.
The service now has more than £2 billion of funds under management (FUM), an
uplift of more than £1.4 billion since the beginning of the year, and client
numbers are expected to increase further in 2024 as we offer the service to
eligible clients of IW&I.
We also continue to build specialist teams to serve target client groups, last
year taking advantage of the IW&I combination to establish a dedicated
ultra-high-net-worth team to operate across the enlarged business.
Secondly, the third-party adviser market continues to be an important channel
for us, generating an annualised net growth rate of 5.0% in 2023 (2022: 4.8%).
We now offer an extensive range of investment solutions and over 340 IFA
firms (2022: 280), are now utilising our Reliance on Adviser (ROA) model
(where responsibility for the suitability of the investment mandate for the
client rests with the adviser, and Rathbones is instructed to manage the
client portfolio to a risk mandate). This service clarification provides a
clear pricing model for clients and advisers and creates internal efficiencies
that make us easier to do business with.
Together with IW&I, our offering to intermediaries is comprehensive and
incorporates a full range of services, from bespoke and managed Discretionary
Fund Management (DFM), through to our third-party Managed Portfolio Services
(MPS) and Rathbones Select service, with ESG, tax and offshore optionality, as
well as our broad range of single strategy funds. This capability will be
central to what we can offer to third-party advisers in 2024 and beyond.
Lastly, in 2023 we have taken some positive steps to improve how we can build
our digital distribution capability. This has been supported by the launch of
a refreshed brand and proposition suite that is much more digestible and
targeted on our key markets. Alongside Rathbones, which has seen website
referrals increase by 100% year on year, we have established Rathbones Asset
Management (RAM) and Greenbank as distinct identities. IW&I has been
incorporated into the group, albeit that full alignment will only occur
following migration in 2025.
EMBRACING TECHNOLOGY
Throughout the year we continued to develop and deploy applications and
technology that improve the way in which we service our clients. The number of
clients using MyRathbones continues to grow, reaching 58% in 2023 (2022: 50%).
The visibility, access to messaging and reporting that this application offers
is an important part of how we interact with clients.
In October 2023, we reported that the time frame associated with our client
lifecycle management (CLM) system development was likely to move to deployment
in the first quarter of 2024. The system is now expected to go live by the
middle of 2024, using the period after go-live and up to the migration of
IW&I clients in early 2025 to deploy further enhancements to the solution
and better align it with IW&I requirements. This is later than we
anticipated but scope has been planned carefully to protect the IW&I
migration, and also ensure that we take best advantage of applications within
IW&I that we can benefit from.
The final phase of implementation of the Charles River Investment Management
solution into Rathbones Asset Management will be completed during the first
half of 2024, adding the functionality to improve investment processes and the
reporting capability that we are confident will deliver operational
efficiency.
While we continue to carefully manage scope, as previously stated in our Q3
2023 results, the expected total costs of our digital project increased from
£40 million to £45 million, with £30.7 million of this incurred up to
31 December 2023.
INSPIRING OUR PEOPLE
We have prioritised this critical strategic objective across the business as
we progress our post-combination integration work. Employee engagement, by
both the board and executive teams, has been extensive, supported by town
halls and meetings across all office locations as well as employee surveys. We
remain committed to a culture that fosters high performance and builds
rewarding careers for our colleagues.
Results from our engagement activity have reaffirmed our expectations of the
skills, capabilities and cultural alignment within IW&I, and has supported
a collaborative approach to working together that will bring out the very
best from both businesses.
Employee wellbeing continues to be high on our agenda, and we have
implemented various measures to promote the mental and physical health of our
people. This year, we continued to offer access to our employee assistance
programme, including a free and confidential phone and online advice service.
Alongside these services, our wellbeing team and inclusion networks have run
awareness sessions on several topics from cancer and menopause awareness to
mental health and neurodiversity.
RESPONSIBLE INVESTMENT
We are proud of our long history of ethical and sustainable investment,
managed by Greenbank, which continues to receive industry recognition. This
year, Greenbank won the 'Best Sustainable Investment Wealth Manager/DFM Group'
at the Investment Week Sustainable Investment Awards, as well as achieving
'Silver' for ESG company of the year at the 2023 Magic Circle Awards.
In addition to Greenbank's bespoke service, RAM offers investment strategies
through the Rathbone Greenbank Global Sustainability Fund, Rathbone Ethical
Bond Fund, Rathbone Greenbank Multi-Asset Portfolios and, more recently,
through the launch of our new Rathbone Greenbank Global Sustainable Bond Fund.
Beyond our investment offerings, Rathbones incorporates ESG considerations,
and the influence they can have on our clients' portfolio returns, into our
investing decisions. By integrating the analysis of ESG factors into our
investment processes, we aim to understand ESG risks and identify
high-quality investments, with attractive financial characteristics, that also
make a positive contribution to society. More information on our approach to
responsible investment can be found in the responsible business review of this
annual report and our standalone responsible business report, which will be
published in full next month.
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 are also carefully
assessing and mitigating the risks associated with our planned change
programmes, including the IW&I integration.
We continue to respond appropriately to regulatory changes and acknowledge
recent FCA and PRA consultation activity and statements.
The FCA's Consumer Duty regime reinforces behaviours and standards that we
have recognised for a long time, and we support the principles that underpin
the rules. Our ethos, whole-of-market approach to investment, flexible
approach to financial planning, and unbundled pricing are all well positioned.
The UK market remains highly competitive from a value perspective and this
is reflected in pricing levels generally, particularly in the third-party
advisers, charities and asset management markets.
The Consumer Duty regime presented a good opportunity to outline our
propositions to the market. As we streamline policies and practices across the
enlarged group, the pillars of Consumer Duty will continue to be a focus for
us well into 2024 and beyond.
outlook for 2024
Whilst we will continue to be impacted by market reactions to political
instability or adverse geopolitical events, as a strong business with
increased scale, Rathbones is well-equipped to manage and navigate these
challenges. Recent indicators that interest rates may fall in the medium term
should be positive for equity markets and increase client confidence to
invest. This in turn should be positive for net organic growth rates and the
group as a whole.
The successful integration of IW&I is a priority of course, but this is
alongside other important objectives to develop our investment process,
further enhance our client engagement, embrace technology and build out our
distribution capability. Rathbones remains well positioned to take advantage
of both the benefits of scale and future growth opportunities, and I would
like to thank our people in our combined group for their unwavering
commitment, which continues to be the driving force behind our success.
Paul Stockton
Group Chief Executive Office
Group chief financial officer's REVIEW
COMMITTED TO DELIVERING SUSTAINABLE VALUE
I am delighted to present my first review since my appointment as group chief
financial officer on 1 January 2024. Having been part of Investec Wealth
& Investment UK ( IW&I) for over 23 years, I look forward to the
exciting opportunities that lie ahead for our combined business, driven by the
core values that the Rathbones and IW&I businesses share, and the
significant benefits that we will bring to our clients and shareholders from
the scale, enhanced propositions and depth of capability that our combined
business will offer.
The group has delivered continued progress in its financial performance
despite challenging market conditions throughout 2023. This has been achieved
alongside the successful delivery of the IW&I and Rathbones combination
during September 2023. Delivering this transaction represents a significant
milestone not only for Rathbones and IW&I but for the UK wealth management
industry. We are now focused on delivering the integration of the businesses
and realising the benefits of the combination.
Underlying profit before tax was £127.1 million (2022: £97.1 million), an
increase of 30.9% in the year, reflecting the contribution of IW&I to the
group's performance in Q4 of an underlying profit before tax of £25.4
million.
The Rathbones group excluding IW&I delivered a 4.7% increase in underlying
profit before tax to £101.7 million. This result is after charging the £14.4
million of planned expenditure on our digital programme that we announced in
February 2022.
Operating income increased 25.3% to £571.1 million (2022: £455.9 million).
Excluding income relating to IW&I of £87.9 million, operating income grew
by 6.0% to £483.2 million. This growth was driven predominantly by increased
interest revenues, reflecting rising interest rates and the benefits of the
group's banking activities. Consequently, net interest income contributed
£51.7 million to operating income in 2023 (2022: £18.3 million).
While interest income increased significantly during the year, recurring
investment management and asset management fees (excluding IW&I fees of
£70.1 million) also reported growth, rising 2.3% to £344.7 million due to
higher FUMA which benefited from an improvement in average market indices.
Expenditure also increased, reflecting the inflationary environment, increased
headcount and investment in our digital programme. The increase in headcount
reflects additional client facing roles and related support in addition to
change and technology resource, including that which is part of our
preparation for delivering the integration of IW&I. The FSCS levy reduced
by £4.6 million in 2023 as a result of one-off factors and we expect the levy
to revert to normal levels in 2024.
HIGHLIGHTS: FINANCIAL PERFORMANCE
FUMa Operating margin
£105.3bn 10.1%
2022: £60.2bn 2022: 14.1%
Underlying ROCE(1) Underlying
operating margin¹
12.1% 22.3%
2022: 11.8% 2022: 21.3%
EPS DIVIDEND per share
52.6p 87p
2022: 83.6p 2022: 84p
Underlying EPS(1) CET1 ratio
135.8p 17.8%
2022: 130.8p 2022: 17.9%
1. This measure is considered an APM. Please refer to financial performance
section for more details on APMs.
Despite the increase in total expenditure the underlying operating margin,
which is calculated as the ratio of underlying profit before tax to
operating income, improved to 22.3% (2022: 21.3%).
The development of our client lifecycle management system has continued
during the year and is now expected to go live mid-way through 2024, albeit
with the overall cost expected to increase from £40.0 million to £45.0
million, as set out in our Q3 2023 statement. The Charles River Investment
Management Solution will be fully implemented into Rathbones Asset Management
in the first half of 2024, adding functionality that will improve investment
processes and reporting capability, that we are confident will deliver
significant operational efficiency.
Statutory profit before tax for 2023 was £57.6 million (2022: £64.1
million). The 10% reduction (2022: 32% reduction) is driven by increased
acquisition execution and integration costs, along with higher amortisation
charges following the IW&I transaction. The majority of the integration
costs incurred during the year relate to IW&I but also include the final
amounts payable in relation to the Saunderson House and Speirs & Jeffrey
acquisitions, which amount to £7.8 million for the year.
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
2023 IW&I Rathbones 2022
excl. IW&I
£m £m
£m £m
(unless stated)
(unless stated) (unless stated)
Operating income 571.1 87.9 483.2 455.9
Underlying operating expenses(1) (444.0) (62.5) (381.5) (358.8)
Underlying profit before tax(1) 127.1 25.4 101.7 97.1
Underlying operating margin(1) 22.3% 28.9% 21.0% 21.3%
Profit before tax 57.6 15.0 42.6 64.1
Effective tax rate 34.9% 23.6%
Taxation (20.1) (15.1)
Profit after tax 37.5 49.0
Underlying earnings per share(1) 135.8 130.8p
Earnings per share 52.6 83.6p
Dividend per share(2) 87.0p 84.0p
Return on capital employed (ROCE)(1) 4.9% 7.7%
Underlying return on capital employed(1) 12.1% 11.8%
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
OUTLOOK and guidance
The Group's financial performance remains closely linked to the behaviour of
global investment markets which, despite making positive progress during the
latter part of 2023, remain sensitive to the continued heightened uncertainty
in the economic and geopolitical environment.
We remain focused on our key strategic priorities to successfully integrate
the IW&I and Rathbones Investment Management businesses, complete the
migration of Saunderson House client assets to Rathbones investment solutions,
and deliver the successful launch of our new client lifecycle management
system. The IW&I integration project is progressing well and while this
project is planned to continue into 2025, synergy realisation for the
combination remains on track and we continue to expect 25% of synergies in the
first full year following completion as guided at the time of the combination,
which will benefit the group's profitability going forward from the point the
synergies are achieved. The one-off costs to achieve the annualised synergies
remain as stated and will predominantly fall under non-underlying costs over
the next two years.
The operational integration of Saunderson House and Rathbones Financial
Planning is nearing completion, with a high proportion of clients having
agreed to receive or proceed with advice to migrate to Rathbones' investment
propositions. £2.4 billion of FUMA has already migrated and we now expect to
complete the migration process during Q2 2024. Assets once migrated are
expected to generate a total revenue margin of c.1%. On a proforma basis, FUMA
of £4 billion would generate annualised revenue of c.£40 million, split
across advice, investment management and asset management income.
As noted above and advised in the reporting of our half year results, the
costs to deliver the client lifecycle management system increased from £40.0
million to £45.0 million, with £30.7 million incurred up to 31 December
2023. The costs of the implementation project continue to be monitored
closely.
The reduction in the rate of UK inflation is welcome and we remain focused on
ensuring a high degree of discipline in managing our cost base to ensure we
mitigate the effects of inflation as far as possible. Employee costs in 2023
will reflect salary inflation of approximately 4% during the year plus the
full impact of recruitment activity in 2023. A lower rate of net recruitment
is expected for 2024 relative to 2023 outside of that directly related to the
IW&I integration project.
We have considered the implications for our business of the FCA's recent 'Dear
CEO' letter to platform and SIPP providers relating to interest revenues. We
consider that the FCA's requirement to cease the charging of fees in respect
of cash assets within a firm's custody which generate interest revenues is
relevant to the small element of our FUMA that is under an execution-only
mandate. We will therefore no longer apply fees to the cash element of these
portfolios from 1 March 2024. We expect the adverse impact on income to be
small at approximately £0.6 million per annum.
We previously guided to a high-20s underlying operating margin for 2024, with
30%+ three years post completion of the IW&I combination (i.e. from
September 2026). The scale and benefits of the combined business and the
synergies that we have committed to, mean we are well positioned to achieve
our end state of 30%+ margin, albeit, the path will now be mid-20% in 2024.
The primary drivers of this change are the continuing investment in our
digital programme and the time required to complete the migration of
Saunderson House clients, in addition to the impact of ongoing inflationary
pressure.
The group maintains a robust financial position and is well placed financially
to support the investment that is required to deliver on our strategic
priorities as we drive forward with our plans during 2024.
Financial performance
BUSINESS PERFORMANCE: FUNDS UNDER MANAGEMENT AND ADMINISTRATION (FUMA)
Total group FUMA at 31 December 2023 was £105.3 billion (2022: £60.2
billion). The increase during the year is driven predominantly by the addition
of £40.8 billion of IW&I FUMA from 30 September 2023, following the
completion of the combination with IW&I during the year. Based on a pro
forma opening position of £101.0 million, FUMA has increased by 4.3% during
the year from an opening position of £101.0 billion (Table 2) despite
challenging market conditions that have placed adverse pressure on net flows.
Rathbones discretionary and managed net inflows of £0.7 billion reflect gross
inflows of £5.1 billion, an increase of 18.6% relative to 2022, as the
business continued to drive strong levels of new business despite the
difficult economic backdrop. In total, net flows relating to Rathbones
discretionary and managed FUMA represented an annual rate of growth of 1.5%
(2022: 2.6%), with the reduction relative to the prior year being the result
of higher gross outflows offsetting the higher level of gross inflows. In
addition to net flows, discretionary and managed FUMA benefited from the
continued migration of Saunderson House client assets into Rathbones
investment solutions.
Gross outflows were elevated throughout the year. Rathbones Investment
Management outflows of £3.8 billion (2022: £2.6 billion) reflected the
effect of higher inflation and interest rates, as existing clients prioritised
reducing debt and meeting cost of living pressures. The increase in outflows
is therefore principally driven by partial withdrawals by existing clients and
not client losses, but does reflect the loss of two large charity mandates
during the year. Direct net flows into our multi-asset fund range, including
that which is managed as part of Investment Management portfolios, remained
robust, reflecting the diversification and efficient offering these funds
provide for smaller portfolios.
IW&I has contributed £0.8 billion of gross inflows during the final
quarter of the year following completion of the combination. These inflows
were offset by elevated gross outflows, resulting in net outflows for the
period of £0.3 billion. The level of gross outflows reflects both the market
backdrop, consistent with the Rathbones discretionary and managed FUMA, along
with expected outflows relating to investment manager departures that
predominantly occurred prior to the announcement of the combination. Since
then, investment manager turnover has been low, supported by positive
engagement as our integration work progresses.
The general backdrop for the asset management industry has been challenging
during 2023, with substantial withdrawals from UK funds being seen across the
industry. Our single strategy funds were not immune from this backdrop but
showed relative resilience with net outflows of £0.5 billion for the year
(2022: £0.4 billion outflow), representing 8.5% of opening FUMA. Investment
returns for these funds were relatively strong during the year, resulting in
total FUMA remaining relatively consistent year-on-year at £6.7 billion
(2022: £6.5 billion).
Table 2 presents separately the FUMA and associated movements in those
services and products which support our wealth management propositions. Wealth
management FUMA incorporates our core 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 both our direct clients and those 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.
TABLE 2. group FUMA AND FLOWS BY SERVICE LEVEL on proforma basis(1)
Year ended Opening FUMA- pro forma basis Gross inflows Gross outflows £bn Net Transfers SHL migrated assets Market & Closing Net
31 December 2023
flows
growth
£bn £bn
£bn £bn investment FUMA
£bn
(flows)
performance £bn
%
£bn
Rathbones Investment Management 44.3 4.2 (3.8) 0.4 (0.2) 2.4 1.9 48.8 0.9%
Bespoke portfolios 42.9 3.8 (3.5) 0.3 (0.9) 1.1 1.6 45.0 0.6%
Managed via in-house funds 1.4 0.4 (0.3) 0.1 0.7 1.3 0.3 3.8 10.1%
Multi-asset funds 2.2 0.9 (0.6) 0.3 − − − 2.5 13.8%
Rathbones discretionary and managed 46.5 5.1 (4.4) 0.7 (0.2) 2.4 1.9 51.3 1.5%
Non-discretionary service 0.7 0.1 (0.1) (0.0) (0.1) − 0.1 0.7 (2.9%)
IW&I1 40.8 0.8 (1.1) (0.3) (0.1) − 1.9 42.3 (0.8%)
Saunderson House 4.1 0.1 (0.5) (0.4) − (2.4) 0.3 1.6 (9.5%)
Total wealth management 92.1 6.1 (6.1) (0.0) (0.4) − 4.2 95.9 (0.0%)
Single-strategy funds 6.5 1.3 (1.8) (0.5) − − 0.7 6.7 (8.5%)
Execution only and banking 2.4 0.3 (0.6) (0.3) 0.4 − 0.2 2.7 (10.4%)
Total group 101.0 7.7 (8.5) (0.8) - - 5.1 105.3 (0.8%)
1. 2023 Group FUMA and flows by service level has been prepared on a proforma
basis, opening FUMA has been uplifted by £40.8 billion to include IW&I
FUMA acquired with effect from 30 September.
Year ended 31 December 2022 Opening FUMA Gross inflows £bn Gross outflows £bn Net Transfers SHL migrated assets Market & Closing Net
flows
growth
£bn
£bn £b investment FUMA
£bn
(flows)
performance £bn
%
£bn
Rathbones Investment Management 49.3 3.5 (2.6) 0.9 (0.2) − (5.7) 44.3 1.9%
Bespoke portfolios 48.0 3.3 (2.5) 0.8 (0.3) − (5.6) 42.9 1.6%
Managed via in-house funds 1.3 0.2 (0.1) 0.1 0.1 − (0.1) 1.4 10.3%
Multi-asset funds 2.0 0.8 (0.4) 0.4 − − (0.2) 2.2 20.0%
Rathbones discretionary and managed 51.3 4.3 (3.0) 1.3 (0.2) - (5.9) 46.5 2.6%
Non-discretionary service 1.0 0.0 (0.1) (0.1) (0.1) − (0.1) 0.7 (7.4%)
Saunderson House 4.9 0.3 (0.5) (0.2) (0.0) − (0.6) 4.1 (4.9%)
Total wealth management 57.2 4.6 (3.6) 1.0 (0.3) - (6.6) 51.3 (8.9%)
Single-strategy funds 8.3 1.7 (2.1) (0.4) − − (1.4) 6.5 (4.5%)
Execution only and banking 2.7 0.2 (0.4) (0.2) 0.3 − (0.4) 2.4 (9.0%)
Total group 68.2 6.5 (6.1) 0.4 - - (8.4) 60.2 0.6%
OPERATING INCOME
Operating income increased by £115.2 million in 2023 to £571.1 million,
predominantly due to the IW&I business contributing £87.9 million of
income for the final quarter of the financial year following completion of the
combination.
Excluding IW&I, the increase in total income is largely driven by higher
interest revenues, reflecting the rising interest rate environment during the
year and the benefit of the group's banking activities. Recurring investment
management fees and asset management income benefited from higher average
markets and the continued migration of Saunderson House client assets into
Rathbones investment solutions, which moved this income £7.7 million (2.3%)
higher. This was offset by a short term reduction in Saunderson House advice
income during the client migration process and lower transaction-based
investment management commission income, as the trend towards cleaner fee-only
charges continued.
OPERATING EXPENSES
Operating expenses of £513.5 million (2022: £391.8 million) comprise
underlying operating expenses discussed below, together with non-underlying
operating expenses explained in Table 3
Underlying operating expenses increased by £85.2 million (23.7%) to £444.0
million (2022: £358.8 million). £62.5 million of this increase is due to
IW&I costs incurred since completion of the combination, consisting of
£29.4 million fixed staff costs, £14.3 million variable compensation, and
£18.8 million non-staff costs.
Underlying operating expenses excluding IW&I increased by 6.3% to £381.4
million (2022: £358.8 million). Underlying staff costs in the year (excluding
IW&I), increased by £24.3 million to £269.9 million (2022: £245.6
million). Some £13.2 million of this increase is the result of higher average
headcount (excluding that relating to Saunderson House and staff engaged on
digital capability). Salary inflation increased costs by £7.3 million. The
balance of the increase reflects the effect of inflation on other
staff-related costs and other specific factors.
Year-on-year decreases in spend within Saunderson House and the strategic
investment in developing our digital capability was partially offset an
increase of £4.8 million (2022: £18.0 million increase) in non-staff costs
excluding IW&I. The cost base of the Saunderson House business decreased
by £3.2 million in 2023 due to the delivery of cost synergies and a reduction
in the Saunderson House FSCS levy. The remainder of the group also benefited
from a one-off reduction in the FSCS levy, which reduced by £4.6 million for
the group overall relative to 2022 prior to an expected return to normal
levels in 2024. Strategic investment in developing our digital capability was
£1.9 million lower than prior year at £14.4 million (2022: £16.3 million).
The Charles River Investment Management Solution was successfully launched in
the Rathbones Asset Management business during the year. The development of
our client lifecycle management system has continued during the year and is
now expected to go live mid-way through 2024, albeit with the overall cost
expected to increase from £40.0 to £45.0 million, as set out in our Q3 2023
statement.
Rathbones average headcount rose by 21.7% to 2,498 (2022: 2,053). Rathbones
headcount excluding IW&I rose by 5.8% to 2,173 in 2023 (2022: 2,053),
reflecting additional client facing roles and related support in addition to
recruiting further change and technology resource, including that which is
part of our preparation for delivering the integration of IW&I.
TABLE 3. RECONCILIATION OF UNDERLYING PERFORMANCE MEASURES TO CLOSEST
EQUIVALENT IFRS MEASURES
2023 comprises
2023 IW&I Rathbones excl. IW&I 2022
£m £m £m £m
(unless stated) (unless stated) (unless stated) (unless stated)
Operating income 571.1 87.9 483.2 455.9
Underlying operating expenses (444.0) (62.5) (381.5) (358.8)
Underlying profit before tax1 127.1 25.4 101.7 97.1
Charges in relation to client relationships and goodwill (25.2) (6.3) (18.9) (19.5)
Acquisition-related and integration costs (44.3) (4.1) (40.2) (13.5)
Profit before tax 57.6 15.0 42.6 64.1
Taxation (20.1) (15.1)
Profit after tax 37.5 49.0
Operating margin 10.1% 14.1%
Underlying operating margin2 22.3% 21.3%
Weighted average number of shares in issue 71.3m 58.6m
Earnings per share (p) 52.6 83.6
Underlying earnings per share (p)3 135.8 130.8
Quarterly average total equity 787.9 632.7
Underlying quarterly average total equity4 798.5 650.4
ROCE5 4.9% 7.7%
Underlying ROCE6 12.1% 11.8%
1. Operating income less underlying operating expenses
2. Underlying profit before tax as a percentage of operating income
3. Underlying profit after tax divided by the weighted average number of
shares in issue
4. Quarterly average equity adjusted for underlying operating expenses
5. Profit after tax as a percentage of quarterly average total equity
6. Underlying profit after tax as a percentage of underlying quarterly average
total equity
ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures (APMs) are a financial measure of historical
or future financial performance, financial position, or cash flow, other than
a financial measure under IFRS.
Charges in relation to client relationships and goodwill (note 8)
Client relationship intangible assets are recognised when we acquire a
business or investment management contracts as a result of the recruitment of
experienced investment managers who have the capability to attract significant
FUMA to the group.
These intangible assets are amortised over the expected duration of the
respective client relationships. The amortisation is charged to the income
statement each year. This represents a significant non-cash profit and loss
item which is therefore excluded from underlying profit in order to present an
alternative measure that represents largely cash-based results of the
financial reporting period. These amortisation charges are therefore excluded
from underlying profit, which otherwise represents largely cash-based earnings
and more directly relates to the financial reporting period. Research analysts
commonly exclude these amortisation costs when comparing the performance
of firms in the wealth management industry.
Acquisition-related AND INTEGRATION costs (note 5)
Acquisition and integration-related costs are significant non-recurring costs
that arise from strategic investments to grow the business rather than from
the business' operating activities and are therefore excluded from underlying
results.
These costs primarily comprise professional fees directly related to the
execution of the relevant transaction, certain elements of deferred
consideration that are conditional upon continuing employment with the group
and the costs of integrating the acquired businesses with those of the
existing group.
Deferred consideration costs are generally significant payments that form part
of the total consideration payable under the terms of the acquisition
agreement and are considered to be capital in nature, reflecting the cost to
acquire the business and the transfer of its ownership. However, in accordance
with IFRS 3, any deferred consideration that is payable to former shareholders
of the acquired business who are required to remain in employment with the
group must be treated as remuneration and are therefore expensed to the income
statement over the period to which the employment condition applies.
During 2023, £36.5 million of acquisition and integration costs have been
incurred as a result of the IW&I transaction. This comprised £21.3
million of one-off legal and professional costs relating to the execution of
the transaction, £6.2 million of costs relating to awards made to key
employees of the business, and £9.0 million of integration costs, which form
part of the total expected costs to deliver the integration and achieve the
related synergies.
Acquisition-related Property costs (note 5)
As part of the process of integrating IW&I with the existing Rathbones
group, it is expected that some leasehold properties will be vacated earlier
than their respective lease expiry dates. The useful lives of these
properties' right-of-use assets and their fixtures and fittings were revised
to reflect the expected exit dates. Consequently, the assets' residual values
were calculated and their depreciable amounts were restated during the year.
The assets were also reviewed for impairment at 31 December 2023 to determine
whether their carrying amounts could be supported by their recoverable
amounts. As a result, the group recognised £4.5 million in relation to
accelerated depreciation and impairment charges on property assets during the
year. These costs represent additional non-recurring costs in excess of the
normal ongoing operating costs incurred in relation to the group's properties
and were recognised as non-underlying operating expenses, and are therefore
not included within underlying operating profit. They form part of the total
acquisition and integration costs of £36.5 million referred to above.
TAXATION
The corporation tax charge for 2023 was £20.1 million (2022: £15.1 million)
(see note 6). The effective tax rate increased to 34.9% in 2023 (2022: 23.5%),
this reflected the increase in the average statutory rate to 23.5% (2022:
19.0%) and the impact of disallowable legal and professional costs incurred in
relation to the IW&I transaction.
In 2024, we expect the effective tax rate to return to 4 to 5 percentage
points above the statutory rate (reflecting disallowable costs for deferred
consideration payments (see note 2.3), as the impact of IW&I disallowable
expenses experienced in 2023 will not be repeated given these costs are
non-recurring.
BASIC EARNINGS PER SHARE
Basic earnings per share for the year ended 31 December 2023 were 52.6p (2022:
83.6p). The decrease in the year reflects the impact of the IW&I
combination costs on statutory profit after tax, the increase in the statutory
rate of tax and the increased number of shares in issue.
On an underlying basis, basic earnings per share were 135.8p in 2023, compared
to 130.8p in 2022 (see note 12). The increase in the year is due to increased
underlying profit after tax that has been partially offset by the increased
number of shares and the increase in the statutory rate of tax.
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 2023, underlying ROCE was 12.1% (2022: 11.8%). Underlying quarterly average
total equity increased by £148.1 million in 2023 compared to 2022, reflecting
the share issue for the IW&I combination with effect from the fourth
quarter.
Segmental review
The group operates through two segments: Wealth Management and Asset
Management.
TABLE 4. RECONCILIATION OF SERVICE LEVELS TO SEGMENTAL PRESENTATION as at 31
December 2023
Wealth Intra-group Wealth Asset Management Group
Management holdings¹ Management FUMA FUMA
FUMA £bn FUMA £bn £bn
(including £bn
intra-group
holdings)
£bn
Rathbones Investment Management 48.8 (4.3) 44.5 4.3 48.8
Bespoke portfolios 45.0 (0.6) 44.4 0.6 45.0
Managed via in-house funds 3.8 (3.7) 0.1 3.7 3.8
Multi-asset funds − − − 2.5 2.5
Rathbones discretionary and managed 48.8 (4.3) 44.5 6.8 51.3
Non-discretionary service 0.7 - 0.7 − 0.7
IW&I 42.3 − 42.3 − 42.3
Saunderson House 1.6 (0.3) 1.3 0.3 1.6
Total wealth management 93.4 (4.6) 88.8 7.1 95.9
Single-strategy funds − − − 6.7 6.7
Execution only and banking 2.7 − 2.7 − 2.7
Total group 96.1 (4.6) 91.5 13.8 105.3
1. Intra-group holdings represent in-house funds held within an Investment
Management portfolio.
WEALTH MANAGEMENT
The results of the Wealth Management segment described below include the
trading results of Rathbones Investment Management, Rathbones Trust Company,
Vision Independent Financial Planning, Saunderson House and IW&I.
Wealth Management income is largely driven by revenue margins earned from
FUMA. 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 Wealth Management
are shown in table 5 (which incorporates IW&I in 2023). Total Wealth
Management FUMA increased by 86.0% to £91.5 billion as at 31 December 2023.
The majority of this increase was driven by the combination with IW&I,
which added £40.8 billion to the Group's FUMA from 30 September 2023
following completion of the combination. Excluding the acquired IW&I FUMA,
Wealth Management FUMA has increased by 3.0% during the year.
TABLE 5. WEALTH MANAGEMENT - KEY PERFORMANCE INDICATORS
2023 2022
FUMA at 31 December £91.5bn £49.2bn
Rate of total net growth (net flows) in Wealth Management funds under 0.3% 1.2%
management and asministration(1)
Average net operating basis point revenue margin(2) 74.3bps 72.4 bps
Number of Investment Management clients3 114 68
Number of investment managers 681 355
1. See table 6 (percentages calculated on unrounded figures)
2. See table 10
3. The basis of this calculation is dependent on the way client data is
structured on the relevant operating systems. It is therefore not practicable
to apply consistent methodologies across the RIM and IW&I businesses until
the migration onto a single system has been completed. We expect the number to
change following migration, but consider the figure disclosed to be
appropriate in the interim period."
TABLE 6. WEALTH MANAGEMENT - FUNDS UNDER MANAGEMENT AND ADMINISTRATION
Year ended Year ended
31 December 31 December
2023 2022
£bn £bn
As at 1 January 49.2 55.2
Inflows 46.3 4.1
- organic(1) 5.5 4.0
- acquired(2) 40.8 0.0
Outflows (6.1) (3.7)
Market adjustment(3) 2.1 (6.3)
Total group 91.5 49.2
Rate of total net growth(4) 0.3% 1.2%
1. Value at the date of transfer in/(out)
2. Value at date of acquisition, includes £42.3bn IW&I FUMA acquired with
effect from 30 September 2023
3. Represents the impact of market movements and investment performance
4. Net new business and acquired inflows as a percentage of opening funds
under management and administration
Table 6 reconciles the movement in FUMA during the year. Organic inflows of
£5.5 billion, 11.2% of opening FUM are dominated by flows into discretionary
bespoke portfolios, with 33% of flows coming from the adviser channel as our
revised 'Reliance on Adviser' proposition rolled out (2022: 30.6%). 'Reliance
on Adviser' is an operating model with which financial advisers can engage
with RIM. It is an approach whereby client suitability rests with the
adviser, affording them total control over their client relationship and the
advice process. Our investment managers retain responsibility for the
suitability of the portfolio and for executing the mandate that has been
requested by the adviser on the client's behalf. Outflows of £6.1 billion,
representing 12.4% of opening FUM are elevated as a result of market
conditions, with existing clients making partial withdrawals of their
investments to repay debt (which has become increasingly expensive in the
environment of higher interest rates) and meet the higher cost of living,
along with those relating to property purchases and inheritance tax planning.
In addition, outflows also reflect the loss of two large charity mandates
during the year.
Saunderson House FUMA stood at £1.3 billion at 31 December 2023 (2022: £4.1
billion). The reduction during the year reflects the continuing progress that
has been made to migrate Saunderson House clients into Rathbones investment
solutions. Once migrated, this FUMA is included with Wealth Management or
Asset Management FUMA depending on the proposition that the FUMA has moved to.
At the year end, FUMA on Vision Independent Financial Planning's discretionary
wealth management platform that was not managed by the group (and is not
therefore included in the Group's FUMA) totalled £0.9 billion (2022: £0.8
billion).
Table 7 (overleaf) provides an analysis of FUMA and new business by channel
and service level. Growth in discretionary and managed net flows is driven by
interactions through financial adviser networks, helped by the impact of
Saunderson House new business flows. £2.4 billion of assets were migrated
from Sanderson House in 2023 and the remaining £1.3 billion of assets are
expected to be migrated in 2024.
Switches into execution-only services largely reflect the transfer of clients'
funds into probate following their death (£0.4 billion).
IW&I net outflows of £0.3 billion include the effect of expected outflows
related to investment manager departures that predominantly occurred prior to
the announcement of the combination. Since then, investment manager turnover
has been low.
TABLE 7. WEALTH MANAGEMENT - NEW BUSINESS BY CHANNEL ON A PROFORMA BASIS(1)
Opening FUMA Gross Gross Net flows Transfers SHL migrated Market 2023 2023 2023 2022
-pro forma basis inflows outflows £bn £bn FUMA movement & performance Gross closing Intra-group Net closing Net FUMA
£bn £bn £bn £bn £bn £bn holdings² FUMA £bn
£bn £bn
Bespoke portfolios 33.0 2.6 (2.7) (0.1) (0.9) - 1.0 33.0 - - -
Managed via in-house funds 0.7 0.1 (0.1) - 0.6 - 0.1 1.4 - - -
Total direct 33.7 2.7 (2.8) (0.1) (0.3) - 1.1 34.4 - - -
Bespoke portfolios 9.9 1.2 (0.8) 0.4 (0.1) 1.1 0.7 12.0 - - -
Managed via in-house funds 0.7 0.3 (0.2) 0.1 0.2 1.3 0.1 2.4 - - -
Total financial adviser linked 10.6 1.5 (1.0) 0.5 0.1 2.4 0.8 14.4 - - -
Total discretionary and managed 44.3 4.2 (3.8) 0.4 (0.2) 2.4 1.9 48.8 (4.3) 44.5 42.0
Execution only and banking 2.4 0.3 (0.6) (0.3) 0.4 - 0.2 2.7 - 2.7 2.4
Non-discretionary service 0.7 0.1 (0.1) - (0.1) - 0.1 0.7 - 0.7 0.7
Total wealth management 47.4 4.6 (4.5) 0.1 0.1 2.4 2.2 52.2 (4.3) 47.9 45.0
Saunderson House 4.1 0.1 (0.5) (0.4) - (2.4) 0.3 1.6 (0.3) 1.3 4.1
IW&I 40.8 0.8 (1.1) (0.3) (0.1) - 1.9 42.3 - 42.3 -
Total Wealth Management for enlarged group 92.3 5.5 (6.1) (0.6) - - 4.4 96.1 (4.6) 91.5 49.1
1. 2023 Group FUMA and flows by service level has been prepared on a proforma
basis, opening FUMA has been uplifted by £40.8 billion to include IW&I
FUMA acquired as at 30 September
2. 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 FUMA is reported
within Funds.
The high inflation rates experienced in 2022 continued into 2023, resulted in
Rathbones adopting a cautious approach on bonds, with a preference for
shorter-dated debt less sensitive to changes in interest rate expectations.
From September we became much more optimistic on longer-dated government
bonds, particularly east of the Atlantic and, indeed, bond markets have
rallied strongly as they look ahead to rate cuts in 2024 following a plunge in
key measures of inflation in the UK and Eurozone.
Overall, 2023 was another strong year for our specialist teams. Rathbone
Greenbank Investments continued to grow its net new business by 3.3%, despite
the difficult market, and reached FUMA of £2.1 billion at 31 December 2023
(2022: £1.9 billion). The Personal Injury and Court of Protection business
ended 2023 with £1.3 billion of FUMA (2022: £1.0 billion).
Rathbone Financial Planning also saw a strong year in 2023, increasing
revenues by 18% from 2022, and growing FUMA to £2.0 billion as at 31 December
2023 (31 December 2022: £1.6 billion).
Vision Independent Financial Planning grew well in 2023, advising on client
assets of £3.3 billion at the year end (2022: £2.6 billion), and seeing a
net growth in the network of IFAs to 138 at the year end (2022: 130).
Saunderson House has made significant progress in migrating assets to the new
Rathbones' proposition. £2.7 billion of Saunderson House clients' assets are
now invested in Rathbones' products (2022: £63 million), with £1.3 billion
(2022: £4.1 billion) of assets remaining under management by Saunderson House
at year end. It is expected that the migration process will be completed by
the end of June 2024.
FINANCIAL PERFORMANCE
Underlying profit before tax in Wealth Management increased by 49.1% in the
year to £105.4 million, this represents an underlying operating margin of
20.9% (2022: 18.0%), which, when adjusted to exclude £14.4 million of
operating expenses incurred in relation to the delivery of digital strategy,
rises to 23.8% (2022: 22.1%).
Net investment management fee income increased by £75.2 million (27.4%) in
2023. £70.1 million of the increase is attributable to the effect of the
IW&I combination in the final quarter of 2023. The remaining £5.1 million
uplift is due to higher FUMA in the Wealth Management segment excluding
IW&I, reflecting the benefit of new revenues generated from the migration
of Saunderson House funds and the favourable market movement, with the average
level of the MSCI PIMFA Balanced index at the quarterly billing dates being
2.2% higher than the prior year.
Net commission income increased by 9.6% to £53.6 million (2022: £48.9
million). A £9.4 million uplift in commission income as a result of the
IW&I combination has been partially offset by a reduction of £4.7 million
in the Wealth Management segment excluding IW&I commission income due to
the continued movement towards a fee-only basis of charging, which is
increasingly replacing transaction-based commission charges.
The increase in the Bank of England Base Rate from 3.5% at the start of 2023
to 5.25% by December 2023 contributed an additional £32.1 million to net
interest income in the year. The rates of interest payable to clients in
respect of the cash element of their portfolios also increased significantly
during the year as we ensured our interest rates remained competitive.
However, the overall increase in our net interest margin illustrates the
benefit of our banking permissions.
Fees from advisory services and other income fell by 2.1% to £50.3 million.
Fees from advisory and other services excluding IW&I fell by 15.8% (2022:
88.3% increase). This expected reduction was partially offset by £7.0 million
of other income from IW&I, as advice fees to Saunderson House clients were
suppressed during the period in light of the extent to which advice was
related to the migration process. We expect advice fee levels relating to
Saunderson House clients to recover once the migration of assets has been
completed.
Underlying operating expenses during the year were £398.5 million (see table
11); an increase of 23.6% on the prior year. When adjusted for Q4 IW&I
underlying expenses of £62.5 million, the year-on-year increase in underlying
expenses for the Wealth Management segment excluding IW&I is £13.7
million (2022: £47.8 million). An £8.3 million increase in fixed staff costs
(2022: £20.2 million) was partially offset by a reduction of £3.0 million
(2022: £5.0 million increase) in variable staff costs due to a number of
profit share schemes vesting in 2022. Other operating expenses of £154.2
million (2022: 145.9 million) include property, depreciation, settlement, IT,
finance and other central support services.
TABLE 8. WEALTH MANAGEMENT - FINANCIAL PERFORMANCE
2023 Comprises
2023 IW&I Rathbones 2022
£m £m excl. IW&I £m
£M
Net investment management fee income(1) 350.1 70.1 280.0 274.8
Net commission income 53.6 9.4 44.2 48.9
Net interest income 49.9 1.4 48.5 17.8
Fees from advisory services(2) and other income 50.3 7.0 43.3 51.4
Operating income 503.9 87.9 416.0 392.9
Underlying operating expenses(3 4) (398.5) (62.5) (336.0) (322.3)
Underlying profit before tax 105.4 25.4 80.0 70.7
Underlying operating margin(5) 20.9% 28.9% 19.2% 18.0%
1. Net investment management fee income is stated after deducting fees and
commission expenses paid to introducers
2. Rathbones excl. IW&I 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 £14.4 million of costs
relating to the group's digital strategy, of which £1.6 million relates to
asset management
5. Underlying profit before tax as a percentage of operating income. Excluding
£14.4 million of expenditure on our digital strategy in the year, the
underlying operating margin was 23.8%
TABLE 9. WEALTH MANAGEMENT - AVERAGE FUNDS UNDER MANAGEMENT AND ADMINISTRATION
2023 2022
£m £m
Valuation dates for billing
- 5 April 45.7 47.9
- 30 June 45.4 43.8
- 30 September 45.4 43.2
- 31 December 48.0 45.1
Quarterly average(1) 46.1 45.0
Average MSCI level(2) 1,721 1,684
IW&I 2023 2022
£bn £bn
Valuation dates for billing
- 30 November 40.7 −
Average MSCI level(2) 1,700 −
1. Rathbones quarterly average FUMA excluding Saunderson House and IW&I
2. MSCI PIMFA Balanced Index considered to reflect Rathbones' composition of
portfolios most closely. Based on the corresponding valuation dates for
billing
TABLE 10. WEALTH MANAGEMENT - REVENUE MARGIN
2023 2022
£m £m
Basis point return(1) from:
- fee income 61.5 61.1
- commission 9.5 10.8
- interest 3.3 0.5
Basis point return on FUMA 74.3 72.4
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)
Other operating expenses of £173.1 million include property, depreciation,
settlement, IT, finance and other central support services costs (2022:
£145.9 million).
The basis point return on fund under management and administration for the
Wealth Management segment excluding IW&I increased by 0.5bps in the year
to 72.9bps, this is predominately due to the increase in interest income,
offset by lower commission as a higher proportion of clients have migrated to
fee-only rates.
TABLE 11. WEALTH MANAGEMENT - UNDERLYING OPERATING EXPENSES
2023 2022
£m £m
Staff costs(1)
- fixed 147.2 109.5
- variable 78.2 66.9
Total staff costs 225.4 176.4
Other operating expenses 173.1 145.9
Underlying operating expenses 398.5 322.3
Underlying cost/income ratio(2) 79.1% 82.0%
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)
ASSET MANAGEMENT
The financial performance of the Asset Management segment is principally
driven by the value of FUM. Year-on-year changes in the key performance
indicators for asset management are shown in table 12.
FUNDS UNDER MANAGEMENT
Following the challenging trading conditions in 2022, 2023 continued to be a
tough environment for the industry. Net redemptions in the asset management
industry to 30 November 2023 totalled £41.6 billion (£49.7 billion in the
full year to December 2022), as reported by the Investment Association (IA),
albeit mainly in the institutional space. Industry-wide funds under management
grew by only 1.5% to £1.4 trillion at the end of November 2023.
Gross inflows in Rathbones Asset Management improved 48% from £3.1 billion to
£4.6 billion in 2023, with Saunderson House assets migrating into Rathbones
funds responsible for a large part of this growth. Continued investor concerns
over inflation, interest rates and equity market valuations have driven
cautious investor sentiment. Despite these macroeconomic impacts on investor
confidence, our range of funds, well balanced between multi-asset and
single-strategy, has helped serve our clients' changing needs and provided
some shelter from the market volatility for our overall FUM. The diverse
nature of our multi-asset investment mix, and thus its obvious continuing
appeal to clients in these tougher times, has ensured that positive net flows
have continued to stream into these funds, creating some offset for the
outflows experienced in the single-strategy space.
Investors continue to exhibit an elevated propensity for withdrawing some of
their investable assets to pay down debt, which has become increasingly
expensive, and meet rising costs of living. These factors have led to a
continuation of the elevated gross outflows experienced in 2022. Strong gross
flows, leading to positive net flows in Multi-asset funds and favourable
investment performance offsetting net outflows in single strategy funds,
ensured total funds under management grew to a record high of £13.8 billion
at the end of 2023, an increase of 25.5% during the year (see table 14).
TABLE 12. ASSET MANAGEMENT - KEY PERFORMANCE INDICATORS
2023 2022
FUM at 31 December(1) £13.8bn £11.0bn
Rate of net growth in Asset Management FUM(1) 13.7% 0.4%
Underlying profit before tax(2) £21.7m £26.4m
1. See table 14
2. See table 16
TABLE 13. ASSET MANAGEMENT - funds under management by product
2023 2022
£bn £bn
Rathbone Global Opportunities Fund 3.6 3.4
Rathbone Multi-Asset Portfolios 5.3 3.0
Rathbone Ethical Bond Fund 2.2 2.2
Rathbone Income Fund 0.7 0.7
Offshore funds 0.6 0.6
Rathbone Active Income Fund for Charities 0.2 0.2
Rathbone High Quality Bond Fund 0.2 0.2
Greenbank Multi-Asset Portfolios 0.4 0.2
Other funds(1) 0.1 0.2
Rathbone Core Investment Fund for Charities 0.2 0.1
Rathbone Strategic Bond Fund 0.1 0.1
Rathbone Global Sustainability Fund 0.1 0.1
Rathbone UK Opportunities Fund 0.1 −
13.8 11.0
1. £213 million of 'Bespoke' other funds transferred out during 2022 post the
switch of Authorised Corporate Director (ACD) from Rathbones Asset 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 2023 as well as
fifth for net retail sales in the full year.
Volatility managed funds (multi-asset portfolios) were the IA's top net seller
in the year up to November 2023 with £5.8 billion of net sales and this trend
was mirrored in Rathbones which accounted for 33% of the industry total, with
net sales in the year, totalling £1.9 billion in the year to November 2023
and £2.1 billion in the full year, up £1.4 billion when compared to 2022.
Rathbones largest fund, Rathbone Global Opportunities Fund, saw a net £305
million outflow over the course of the year.
Rathbone Ethical Bond Fund also suffered from net redemptions in the year
(£187 million), due to the market uncertainty brought on by the volatility in
bond yields. Both funds, however, delivered positive market returns in the
year ensuring that, overall, both funds grew year-on-year.
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 over five years, which is a key factor
in investors' decision-making.
During the year, the total number of investment professionals running the
funds reduced by one to 23 at 31 December 2023 (2022: 24).
TABLE 14. ASSET MANAGEMENT - FUNDS UNDER MANAGEMENT
2023 2022
£bn £bn
As at 1 January 11.0 13.0
Net inflows 1.5 -
- inflows(1) 4.6 3.1
- outflows(1) (3.0) (2.9)
- Bespoke(2) - (0.2)
Market adjustments(3) 1.3 (2.0)
As at 31 December 13.8 11.0
Rate of net growth(4) 13.7% 0.4%
1. Valued at the date of transfer in/(out)
2. Bespoke funds transferred out during 2022 post the switch of Authorised
Corporate Director ('ACD') from Rathbones Asset Management Limited to Evelyn
Partners, an independent ACD
3. Impact of market movements and relative performance
4. Net inflows as a percentage of opening FUM
In 2022 £213.0 million of 'Bespoke' other funds transferred out during the
year post the switch of the Authorised Corporate Director (ACD) from Rathbones
Asset Management Limited to Evelyn Partners, an independent ACD.
TABLE 15. ASSET MANAGEMENT - PERFORMANCE(1, 2, 4)
2023/(2022) Quartile ranking³ over 1 year 3 years 5 years
Rathbone Ethical Bond Fund 1 (2) 2 (2) 1 (1)
Rathbone Global Opportunities Fund 1 (4) 3 (2) 1 (1)
Rathbone Income Fund 3 (2) 2 (2) 2 (2)
Rathbone Strategic Bond Fund 1 (3) 3 (3) 3 (3)
Rathbone UK Opportunities Fund 1 (4) 4 (4) 4 (4)
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 2023 and 2022 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
fund's business
FINANCIAL PERFORMANCE
Asset management's income is primarily derived from annual management charges,
which are calculated on a daily basis on the value of FUM of each fund, net of
rebates payable to intermediaries.
Net annual management charges increased to £64.7 million in 2023, reflecting
the rise in average FUM. Net annual management charges as a percentage of
average FUM fell by 0.9bps to 53.9 bps (2022: 54.8 bps), led by a higher
proportion of FUMA held in S-Class units in the Multi Asset funds, which have
a lower annual management charge. Alongside higher net annual management
charges, interest and other income increased by £1.7 million in the year. As
a result, total operating income as a percentage of average FUM increased to
55.4 bps in 2023 from 54.7 bps in 2022.
Underlying operating expenses detailed in Table 17 increased by £8.9 million
to £45.5 million (2023: £36.6 million). Fixed staff costs of £7.1 million
for the year ended 31 December 2023 were £0.2 million higher than 2022. This
reflects general inflationary rises as well as the impacts of staffing changes
in the period.
Variable staff costs of £13.4 million were 19.6% higher than 2022. These
costs relate to deferred awards which are spread over multiple years, the
current year cost does not solely reflect performance in the current year.
Other operating expenses have increased by 35.9% to £25.0 million in 2023. A
large part of this cost increase relates to direct investment in our core
Charles River system, enhancing functionality and creating an efficient
platform for delivering to existing clients as well as positioning the
business well for future growth. Recurring operational spend in the Asset
Management segment for the Charles River Investment Management Solution is
£1.5 million per annum . The operating margin net of these investment costs
was 37%. Administration costs of £6.1 million were up £0.8 million on 2022,
driven by increasing FUM and flows, as well as inflationary indexing on
third-party supplier contracts, which was also evident on technology costs.
TABLE 16. ASSET MANAGEMENT - FINANCIAL PERFORMANCE
2023 2022
£m £m
Net annual management charges 64.7 62.2
Interest and other income 2.5 0.8
Operating income 67.2 63.0
Underlying operating expenses(1) (45.5) (36.6)
Underlying profit before tax 21.7 26.4
Operating % margin(2) 32.3% 41.9%
1. See table 17
2. Underlying profit before tax divided by operating income
TABLE 17. ASSET MANAGEMENT - UNDERLYING OPERATING EXPENSES
2023 2022
£m £m
Staff costs
- Fixed 7.1 6.9
- Variable 13.4 11.2
Total staff costs 20.5 18.1
Other operating expenses 25.0 18.4
Underlying operating expenses 45.5 36.5
Underlying cost/income ratio(1) 67.5% 57.9%
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 in accordance with the
requirements relating to capital resources and banking exposures prescribed by
the Capital Requirements Regulation, as applied in the UK by the Prudential
Regulation Authority (PRA).
The group is required to ensure it maintains adequate capital resources to
meet its combined pillar 1 and pillar 2 requirements.
At 31 December 2023, the group's regulatory own funds (including verified
profits for the year) were £471.4 million (2022: £338.7 million). The
increase in the year of £132.7 million was the result of the issue of new
share capital to fund the group's acquisition of IW&I. The effect on own
funds of the new shares issued, which resulted in a £2.2 million increase in
share capital and a £747.4 million increase in the merger reserve (net of
£2.2 million of share issue costs) (see table 19) was partly offset by the
£585.1 million increase in goodwill and intangible assets resulting from the
acquisition.
The net increase in own funds was partially offset by an increase in the
group's total capital requirement and combined buffers of £106.4 million,
which reflected the inclusion of IW&I in the group. The resulting in a
capital surplus at the end of 2023 of £134.5 million represents an increase
of £24.2 million relative to the surplus of £110.3 million 31 December 2022.
The CET1 ratio was 17.8%, broadly in line with the 17.9% reported at the
previous year-end. This increase in the Pillar 1 requirement (see table 20) as
a consequence of the enlarged group, was countered by the increased capital
resources (see table 19)
The leverage ratio was 18.7% at 31 December 2023, up from 17.6% at 31 December
2022. The leverage ratio represents our Tier 1 capital (own funds) as a
percentage of the group's total assets (exposure measure), excluding central
bank exposure, intangible assets, plus certain off-balance sheet exposures.
Whilst total assets and tier one capital increased in the year due to the
IW&I combination, assets excluded from the exposure measure (central bank
exposure and regulatory deductions) represented a lower proportion of the
balance sheet. This resulted in an uplift to the leverage ratio.
At 31 December 2023, neither Rathbones Investment Management Limited 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 introduced 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% per annum until the first option call date, and at a rate of 4.893%
over Compound Daily SONIA thereafter.
As a result of the factors set out above, the total equity of the group
(comprising share capital, share premium and reserves, net of own shares held)
was £1,350.2 million at 31 December 2023, up 112.7% from £634.8 million at
the end of 2022.
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 for the consolidated group, which include performing a range
of stress tests to determine the appropriate level of regulatory capital and
liquidity that the group should hold. In addition, we monitor a wide range of
capital and liquidity statistics on a daily, monthly or other frequency basis
as required. Surplus capital levels are forecast on a monthly basis, taking
account of anticipated dividend 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
2023 2022
£m £m
(unless stated) (unless stated)
Own funds
- Common Equity Tier 1 ratio(1) 17.8% 17.9%
- Total own funds ratio(2) 19.4% 20.3%
Total retained earnings 263.7 297.2
- Tier 2 subordinated loan notes(3) 39.9 39.9
Total risk exposure amount 2,425.6 1,666.8
- Leverage ratio(4) 18.7% 17.6%
Other resources:
Total assets 4,224.4 3,447.2
- Treasury assets(5) 2,601.0 2,664.1
- Investment Management loan book 101.7 159.7
- Intangible assets from acquired growth(6) 502.7 342.7
- Tangible assets and software(7) 30.9 26.2
Liabilities:
- Due to customers(8) 2,253.3 2,516.1
Net defined benefit pension asset/(liability) 7.0 9.4
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
2023 2022
£m £m
Share capital and share premium 317.7 313.1
Reserves 1,088.1 374.2
Less:
Own shares (55.6) (52.5)
Intangible assets(1) (911.8) (326.7)
Retirement benefit asset(2) (7.0) (9.4)
Common Equity Tier 1 own funds 431.4 298.7
Tier 2 own funds 40.0 40.0
Total own funds 471.4 338.7
1. Net book value of goodwill, client relationship intangible assets 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)
2023 2022
£m £m
Credit risk requirement 72.3 66.3
Market risk requirement - 1.1
Operational risk requirement 121.7 65.9
Pillar 1 own funds requirement 194.0 133.3
Pillar 2A own funds requirement 39.4 40.0
Total Capital Requirement ('TCR') 233.4 173.3
Combined buffer:
Capital Conservation Buffer (CCB) 60.6 41.6
Countercyclical Capital Buffer (CCyB) 42.9 13.5
Total Capital Requirement ('TCR') and Combined buffer 336.9 228.4
2023 2022
£m £m
Total capital surplus 134.5 110.3
The purpose of each component of the regulatory capital requirement and what
it comprises is set out below.
PILLAR 1 OWN FUNDS REQUIREMENT
Pillar 1 determines a total risk exposure amount (also known as 'risk-weighted
assets') for the group, taking into account expected losses in respect of the
group's exposure to credit, counterparty credit, market and operational risks,
and sets a minimum requirement for the amount of capital the group must hold.
The increase in credit risk to £72.3 million in 2023 was due to a revised
allocation of the group's treasury assets along with the consequences of
including IW&I exposures.
At 31 December 2023, the group's total risk exposure amount was £2,425.6
million (2022: £1,666.8 million). The increase was driven principally by the
inclusion of IW&I exposures.
PILLAR 2A OWN FUNDS REQUIREMENT
The Pillar 2 requirement 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 is set by the PRA as part of its
supervisory review process and the calculation of it remains confidential to
the PRA. The requirement reflects those risks that are specific to the firm
that are not fully captured under the Pillar 1 own funds requirement. The
group-specific risks that are reflected in the Pillar 2A requirement are set
out below:
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.
INTEREST RATE RISK IN THE BANKING BOOK
The group operates on a non-trading book basis, whereby all assets held are
with the intent of holding to maturity. Assets are not actively traded in
secondary markets for speculative purposes. The resulting interest rate risk
represents losses that could arise for a 2% parallel shift in the Bank of
England base rate. The exposure would measure the time to reprice interest
bearing assets and liabilities.
CONCENTRATION RISK
Greater potential exposure as a result of the concentration of borrowers
located in the UK relative to 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 is set by the PRA. The CCB is set at 2.5% of the group's total
risk exposure amount as at 31 December 2023.
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 value of the buffer is
calculated as a percentage of the group's total risk exposure amount. For UK
credit risk exposures, the percentage rate that applies is set by the
Financial Policy Committee ('FPC'). For other jurisdictions where the group
has exposures, the percentage rate applicable to each jurisdiction is applied.
The percentage buffer rate for UK exposures is currently 2.0%. The group has
relevant credit exposures in other jurisdictions where a different rate
applies, resulting in a weighted rate of 1.8% as at 31 December 2023.
CAPITAL MANAGEMENT
In managing the group's regulatory capital position, we take into account:
- potential future volatility in pension scheme valuations that 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 acquisitions which would generate intangible assets and,
therefore, directly reduce CET1 resources; and
- expected and potential regulatory developments.
We keep these issues under review by forecasting capital and liquidity on a
monthly basis, whilst taking into account all known and anticipated
macroeconomic 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 2023 were £4.2 billion (2022: £3.4 billion), of
which £2.3 billion (2022: £2.5 billion) represents the cash element of
client portfolios that is held as a banking deposit.
RIM 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 £2.3 billion (2022: £2.5
billion) represented 4.7% of total Investment Management funds under
management and administration at 31 December 2023, compared to 5.3% at the end
of 2022. Cash held in client money accounts was £8.4 million (2022: £5.7
million). These balances are held off balance sheet in accordance Client Money
Rules of the FCA.
During the year, the share of treasury assets held with the Bank of England
reduced to £1.0 billion (2022: £1.4 billion), as investment in certificates
of deposit and UK treasury bills increased in accordance with our treasury
policy and risk appetite as the environment of rising interest rates presented
greater opportunity for the management of our treasury assets.
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 certain securities issued by a
diversified range of highly-rated 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.
IW&I treasury assets
The manner in which Investec Wealth & Investment Limited (a wholly owned
subsidiary of Rathbones Group Plc) holds its surplus client money is governed
by the CASS rules. In this regard these monies are off-balance sheet.
The IW&I Cash & Credit Management Committee (CCMC) is mandated by the
Operations Committee to consider, approve, and keep under review, the
suitability of financial institutions for the placement of firm's and clients'
cash deposits in accordance with the CASS rules on client money and assets.
Approved institutions are subject to the IW&I Credit Policy and annual due
diligence which is undertaken in accordance with the CASS rules. Total Client
Money held was £1.3 billion as at 31 December 2023 (2022: £1.9 billion)
representing 3.1% of Investment Management funds under management at 31
December 2023 compared to 4.7% at the end of 2022.
Investec Wealth & Investment Limited also hold Firm's money, which is on
balance sheet, also subject to the IW&I Firms Credit Policy Statement and
overseen by the CCMC. Total Firms Money held was £161.9 million as at 31
December 2023 (2022: £209.6 million)
The treasury department of Investec Wealth & Investment Limited are
responsible for the cash management of both the Client and Firm's money,
reporting to the CCMC and operating in accordance with the Treasury Mandate.
Treasury monitor diversification and liquidity on a daily basis. Approved
Institutions, other than group companies, must have a minimum of S&P Short
Term rating of A-2, a S&P Long Term Rating of BBB+ and are reviewed
quarterly by the CCMC.
LOANS TO CLIENTS
Loans are provided as a service to Wealth 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, with a requirement that the
value of the loan is covered two times by the value of the secured portfolio.
Loans 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 to clients
who require bridging finance when buying and selling their homes.
Loans advanced to clients decreased to £101.7 million at end of 2023 (2022:
£159.7 million). As borrowing costs increased, we saw lower demand for new
loans as clients looked to reduce outstanding debt and finance their cash
requirements from other means, including drawing down from investment
portfolios, leading to higher outflows of funds under management and
administration.
INTANGIBLE ASSETS
Intangible assets arise principally from acquired growth in funds under
management and administration relating to business combinations and are
categorised as goodwill and client relationships. Intangible assets reported
on the balance sheet also include purchased and developed software.
At 31 December 2023, the total carrying value of goodwill and client
relationship intangible assets was £1,010.5 million (2022: £342.7 million).
The significant increase in 2023 is principally the result of the IW&I
combination. In addition, other purchases of client relationship intangible
assets of £2.6 million were capitalised during the year (2022: £1.0
million). £2.8 million of client relationship intangible assets were disposed
of in the year, predominately in relation to earn-outs which were paid (2022:
£2.6 million).
Client relationship intangible assets are amortised over the estimated life of
the client relationship, which is generally a period between 10 and 15 years.
Should client relationships be lost, any related intangible asset is
derecognised in the relevant year. The total amortisation charge for client
relationships in 2023, including the impact of any lost relationships, was
£22.4 million (2022: £16.9 million). The increase in the year was the result
of amortisation for the IW&I client relationship intangible asset during
the final quarter following completion of the combination.
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 during 2023 amounted to £4.5 million (2022: £8.0
million).
Expenditure on the development of our systems that was capitalised amounted to
£4.0 million in the year, a reduction of £1.8 million relative to the prior
year. Whilst we have continued our digital investment programme, the portion
of this investment that represents development expenditure that falls to be
capitalised under accounting standards has reduced in line with our increasing
adoption of cloud-based, strategic technology solutions. The costs of
cloud-based solutions are largely charged to profit or loss at the time the
cost is incurred, with the subsequent benefit of a reduction in the level of
depreciation cost in future years.
Property expenditure fell by £1.7 million in 2023. This reflected a pause in
planned office refurbishments as we considered our property strategy for the
newly enlarged group as a result of the IW&I combination.
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 2023 the combined schemes' liabilities, measured on an
accounting basis, had increased to £101.1 million, up 6.8% from £94.7
million at the end of 2022. This increase primarily reflected a reduction in
discount rates at the end of the year, and a small decrease in the assumed
future rate of inflation. The reported position of the schemes as at 31
December 2023 was a surplus of £7.0 million (2022: surplus of £9.4 million).
The funding position of the schemes improved during 2023, with increased gilt
yields driving a reduction in the schemes' liabilities. As a result of this,
the Company supported the Trustees' decision to switch the schemes' assets
into self-sufficiency credit funds in order to better secure the funding
position against future changes in bond yields and inflation expectations.
This switch has further lowered the level of gearing in the scheme's assets
and reduced the exposure to future margin calls.
The triennial funding valuations, with a valuation date of 31 December
2022 were undertaken during the year by the scheme actuary. As for the
previous valuations, a self-sufficiency funding basis was used to calculate
the schemes' liabilities. The valuations were completed in August 2023 and
identified that the shortfall in the schemes' funding position at 31 December
2022 was fully covered by the £2.75m deficit contribution made by the Company
in August 2023. Therefore, no further deficit funding plan was necessary and
the Company is not required to make any further contributions to the scheme at
this time.
During 2023, the Company, working with the Trustees and the Scheme Actuary,
undertook a review of the feasibility of insuring the schemes' liabilities via
an insurance "buy in". In December 2023, a request for quotation was issued to
a shortlist of insurers.
LIQUIDITY AND CASH FLOW
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 amounted to £1.0 billion at 31 December
2023 (2022: £1.4 billion). We continue to hold a substantial portion of the
group's overall liquidity with central banks. The reduction during the year
reflects increased investment in both debt securities issued by high-quality
counterparties, and central government issued short-dated treasury bills,
which was in response to the rising interest rate environment.
Cash and cash equivalents, as defined by accounting standards, includes cash,
money market funds and banking deposits, which had an original maturity of
less than three months. Consequently, cash flows, as reported in the financial
statements, include the impact of capital flows in treasury assets.
Net cash outflows from operating activities in the year largely reflect a
£251.4 million decrease in banking client deposits (2022: £181.9 million
increase). Cash held in client portfolios reduced due to portfolio asset
allocation moving to alternative liquid assets, such as UK Government Treasury
Bills, due to the high interest rate environment. Loans and advances to
banks and customers decreased by £87.4 million in the year, this was partly
attributable to the reclassification of a £14.5 million term deposit (2022:
£30.0 million) that is due to mature within three months of the year end into
cash and cash equivalents.
TABLE 21. EXTRACTS FROM THE CONSOLIDATED STATEMENT OF CASH FLOWS
2023 2022
£m £m
Cash and cash equivalents at the end of the year 1,302.9 1,572.7
Net cash inflows from operating activities (86.4) 292.9
Net change in cash and cash equivalents (269.8) (80.9)
Cash used in investing activities included a net outflow of £241.8 million
from the purchase of certificates of deposit (2022: net outflow of £278.1
million), as we continued to reduce the proportion of treasury assets held
with the Bank of England in favour of UK Government short-dated Treasury Bills
and debt securities. All investment decisions were made under the existing low
risk appetite framework set by the RIM Banking Committee. Included within cash
used in investing activities is cash of £172.6 million acquired from the
acquisition of IW&I in the year.
The other significant non-operating cash flows during the year were as
follows:
- outflows relating to the payment of dividends of £71.4 million (2022:
£48.6 million);
- outflows relating to payments to acquire intangible assets of £5.6
million (2022: £8.8 million), which includes payments in respect of
investment managers under earn-out agreements, and development of client
applications;
- outflows of £5.1 million relating to capital expenditure on tangible
property, plant and equipment (2022: £4.3 million), which relates
predominantly to property fit-out costs; and inflows of £2.9 million from a
partial sale of the group's shareholding in Euroclear.
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 support 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 AND three LINES OF DEFENCE
We operate a three lines of defence model to support risk governance and risk
management across the group
GOVERNANCE
BOARD AUDIT COMMITTEE GROUP RISK COMMITTEE Executive committee
Executive risk committee
Banking committee
Sets strategy and risk appetite across the group, and is ultimately Monitors and reviews the effectiveness of internal controls with oversight of Oversees effectiveness of the First line committees with responsibility for management
accountable for risk management. the internal audit function in line with the group's risk profile on behalf of
risk management framework
of risk and internal control
the board. It also oversees the appointment and relationship with the external
and activity across the group. Advises the board on risk appetite, risk
across the group.
auditor. assessment, risk profile and risk culture.
BUSINESS AREAS and lines of defence
First line of defence SECOND line of defence THIRD line of defence
Senior management Risk, compliance and anti-money laundering functions Internal audit
Business operations and control functions
Responsibility Responsibility Responsibility
Responsible for managing risk in line with risk appetite by developing and Responsible for the risk management framework and the independent oversight Responsible for providing independent assurance to senior management on the
maintaining an effective system of internal control. and challenge of first line risk management activity. effectiveness of governance, risk management and internal control.
RISK MANAGEMENT FRAMEWORK (RMF) OVERVIEW
Our RMF provides the foundation for identifying, evaluating, managing and
reporting risk and continually improving the effectiveness of risk management
throughout the firm.
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.
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 appetite measures and thresholds have been approved by the board for
2024, taking into account the combination between Rathbones and IW&I.
This year's measures reflect the scale of the enlarged group but, other than
this, there have been no other material changes to our appetite for risk. As
the business models integrate, our position against these measures will be
closely monitored and exceptions reported as required.
RISK CATEGORIES RISK APPETITE STATEMENT STRATEGIC ALIGNMENT
BUSINESS AND STRATEGIC RISK Business and strategic risks will be identified and actively managed to Business resilience
protect the ability to deliver sustainable growth.
Supporting and delivering growth
Change initiatives will be orientated towards longer-term client, stakeholder
and societal expectations.
FINANCIAL RISK Financial risks will be actively managed to preserve the group's overall Financial resilience
resilience.
Supporting and delivering growth
Credit and market risk exposures will be managed to board approved instruments
and limits in order to protect company assets and maintain prudent levels of
liquidity and regulatory own funds.
The group will also continually monitor and respond to risks arising from its
pension scheme obligations
NON-FINANCIAL RISK Conduct and regulatory risks associated with our business are recognised; Regulatory and
(CONDUCT AND OPERATIONAL) however, we have no appetite for intentionally inappropriate behaviour or
operational resilience
action by any entity within the group or employees that could have a material
detrimental impact on clients, key stakeholders and our reputation. Enriching the client and adviser
proposition and experience
Operational risks and losses can arise from inadequate or failed internal
processes, people or systems, or from external events. We have an extremely Inspiring our people
low appetite for losses and no appetite for systemic or materially high-risk
events that could affect the operational resilience of important business Operating more efficiently
services.
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 management's 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.
External 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 2023 we have continued to develop our approach to
monitoring strategic risks and horizon threats.
Our view for 2024 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.
NEAR TERM
Global and UK specific political tensions Geopolitical risk remains a significant threat to financial stability. War in
the Middle East and war between Russia and Ukraine as well as tension between
the US and China has driven increased inflation and market volatility. To help
us identify and monitor this risk we've partnered with geopolitical risk
experts to define relevant red flags that will in turn help us to adjust our
portfolios accordingly.
UK and global The UK economy continues to show signs of stress accompanied by falling
economic challenges inflation. The former is mainly a consequence of past increases in interest
rates, while the latter has been helped by easing global price levels,
particularly for energy. Analysts predict the GDP growth for the UK will be
modest and momentum in other economies will be slower.
Cyber threats and supply chain resilience The sophistication of cyber attacks is ever-evolving, especially as our
digital environment advances. Attacks have become far more persistent with a
notable increase in frequency since the invasion of Ukraine. Rathbones is
committed to enhancing the technology infrastructure to help mitigate the
risk.
MEDIUM TERM
Changing regulatory expectations The regulatory landscape is an area of fast paced change centred on client
advocacy, transparency and integrity. Of note Consumer Duty requirements have
successfully been implemented throughout 2023. Work on fair consumer outcomes
will continue following the issuance of the Dear CEO letter FCA Expectations
for Wealth Managers and Stockbroking Firms. The look ahead shows that 2024
will be another busy year with key implementation dates for regulatory change.
Pandemic Whilst operational resilience to a future pandemic is much improved following
the COVID-19 outbreak, a future infectious disease epidemic could emerge and
with that comes the economic repercussions and slow recovery from it.
Climate change Climate and environmental risk is a key focus as we move towards achieving net
transition risk zero emissions by 2050 or sooner. Alongside reviewing our governance
structures, we will continue to integrate data, develop metrics and increase
disclosures in our client reporting.
Digital innovation Developing technology across the wealth management sector poses a continual
threat to maintaining a competitive advantage. Digital capability is less of a
barrier to engaging clients and servicing their needs, in particular younger
generations where there is an expectation of online accessibility. Rathbones
is implementing a strategic programme of change to ensure our digital
technology meets the needs of our prospective and existing clients.
New entrants to the market and artificial intelligence AI The threat of new non-traditional entrants to the investment sector is a
higher probability with Fintech developers challenging established investment
providers with their products and services. In addition, AI capabilities, from
advanced analytics, automation and predictive intelligence is fast becoming
seen as a future competitive advantage within the financial sector.
LONGER TERM
Generational Studies show that the over 45s and especially the post-war 'baby boomers'
wealth change retain a significant portion of the UK wealth in the form of property and
pensions. This wealth will begin to transfer to younger beneficiaries over the
next 30 years. Generational differences could drive changes in behaviours and
appetite towards investments.
Social care financing Accessibility and inequality in the adult social care sector has been a topic
of concern for some time and it continues to be a risk to assets under
management, with clients drawing on their investments to pay for their care
fees.
Principal risks
PROFILE AND MITIGATION OF PRINCIPAL RISKS
Overall, we believe the group's underlying risk profile is stable; however,
during the past 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 that 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
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 that have the potential to impact the delivery of
strategic objectives, with medium, low and very low rated risks having less
impact on the group. Likelihood is similarly based on a qualitative
assessment.
We consider that the growth of the group following the combination with
IW&I has proportionately increased the risk profile. The ratings of the
risks below are relative to the new scale of the organisation.
2023 oVERVIEW
Throughout 2023 the principal risk profile has been relatively stable. We have
reflected on both Rathbones' internal and external environment over the course
of 2023 and have made some adjustments to the principal risks for 2024. We
have removed credit as it is no longer a material concern due to the nature of
our exposures. We have introduced a new risk, integration, in recognition of
the recent completion of the combination with IW&I UK. We foresee this
risk to be ongoing into 2024 and 2025. In light of macroeconomic conditions
and changes in the regulatory landscape the prominence of investment
performance has increased therefore this has been added. Change risk was a
significant risk in 2023 and this remains the case for the year ahead.
Rathbones' digital transformation continues to be a strategic imperative. Our
remaining risks remained stable throughout 2023, with suitability risk
reducing following extensive investment in the development of policies,
procedures and oversight.
RISK AND OWNER CONTROL ENVIRONMENT RISK TREND 2023
CHANGE - Executive and board oversight of material change programmes + This risk has increased in 2023 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 - Differentiated governance approach to strategic change programmes and oversight has remained agile and focused on targeted delivery outcomes,
strategy business projects benefits realisation, budget alignment and the impact of change on our risk
profile.
RISK OWNER: chief operating officer - Dedicated change delivery function and use of internal and, where
required, external subject matter experts
RISK PROFILE: 3
- Two-stage assessment, challenge and approval of project plans
RISK APPETITE MEASURES:
- Planning and budgeting, monitoring of variances and actions to address.
- Priority programmes rated red
- Programme overspend
INTEGRATION - Integration project plan + This is a new risk in 2023 as we begin the process of integrating Rathbones
and IW&I businesses.
The risk that the integration of systems, people and processes fails or is - Executive oversight of integration programme
ineffective
An Integration Management Office (IMO) was established in September to
- Board oversight of programme delivery coordinate the delivery of our integration.
RISK OWNER: chief operating officer
- Transformation office programme board oversight and delivery-focused The impact of integration on other risks will be considered throughout 2024.
RISK PROFILE: 3 operating model
RISK APPETITE MEASURES: - Cost/benefit monitoring
- Budget compliance - KRI tracking
- Cost synergy - External party appointed to provide independent assurance.
INVESTMENT PERFORMANCE - Investment policy + Challenging market conditions are likely to continue in 2024. The position of
client portfolios and investment performance are closely monitored.
The risk that investment performance fails to meet clients' objectives or - Performance versus benchmarking monitoring
expectations
- Defined investment strategy
RISK OWNER: managing Director Rathbones Investment Management
- Exception reporting
RISK PROFILE: 2
- Product and proposition oversight
RISK APPETITE MEASURES:
- Client engagement and portfolio reviews.
- Actual performance versus performance benchmark
- Portfolio alignment
- Assessment of fund value rating
PENSION - Board, senior management and trustee oversight = The group continues to work with the pension scheme trustees and advisers to
manage this risk.
The risk that the cost of funding our defined benefit pension schemes - Monthly valuation estimates
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
RISK APPETITE MEASURES: - Annual ICAAP.
- Pillar 2A Net Stressed deficit
- IFRS deficit
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
N New
RISK AND OWNER CONTROL ENVIRONMENT RISK TREND 2023
REGULATORY COMPLIANCE AND LEGAL - Board and executive oversight = While this risk has remained stable in 2023, 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.
regulations and laws - Compliance monitoring programme to examine the control of key regulatory
risks The introduction of Consumer Duty in 2023 was a key priority and its
RISK OWNER: group chief executive officer and chief risk officer
significance continued as new policies, procedures and governance begun to be
- Separate anti-money laundering function with specific responsibility embedded.
RISK PROFILE: 2
- Oversight of industry and regulatory developments
RISK APPETITE MEASURES:
- Documented policies and procedures
- Compliance monitoring review outcomes
- Employee training and development
- Regulatory review outcomes
- Panel of external legal advisers
- Complaints data
- Whistleblowing policy and process.
SUSTAINABILITY - Board, executive and responsible business committee oversight = 2023 has presented challenging market conditions given the external
environment, including a volatile economic and political landscape.
The risk that the business model does not respond sufficiently to changing - A documented strategy, including responsible investment policy
market conditions, including environmental and social factors, such that
We do, however, have a strong balance sheet and recognised market position.
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
RISK OWNER: group chief executive officer - Annual business targets, subject to regular review and challenge the transition to net zero.
RISK PROFILE: 2 - Regular reviews of pricing structure and client propositions Our stakeholders will become more demanding in response to evolving
expectations of firms to manage climate and other ESG risks, which remain a
RISK APPETITE MEASURES: - Continued investment in the investment process, service standards and key priority of our responsible business agenda.
marketing
- Net organic growth rate
- Regular competitor benchmarking and analysis
- Net organic outflow rate
- Trade body participation
- Climate targets
- ESG factors integrated into the investment process
- Diversity targets
- Dedicated responsible investment project to drive changes to achieve
sustainability goals
- Diversity targets included in risk appetite measures.
INFORMATION SECURITY AND CYBER - Board and executive oversight = The threat landscape in 2023 continues to be influenced by the volatile
external environment. However, we continue to invest in our control
The risk of inappropriate access to manipulation, or disclosure of, client or - Data governance committee and information security steering group environment and resources to improve our security posture and ensure our
company-sensitive information oversight infrastructure and employees are well positioned against an ever-changing
threat landscape.
RISK OWNER: chief operating officer - Information security policy, data protection policy and associated
procedures
RISK PROFILE:2
- System access controls and encryption
RISK APPETITE MEASURES:
- Penetration testing and multi-layer network security
- Number of cyber incidents
- Training and employee awareness programmes
- Number of data privacy events
- Physical security.
- Cyber external threat landscape rating
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
N New
RISK AND OWNER CONTROL ENVIRONMENT RISK TREND 2023
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 2023. 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
Asset Management - Supplier due diligence and approval process
RISK PROFILE: 2 - Close liaison, contractual reviews and regular service review meetings
RISK APPETITE MEASURES: - Documented policy and procedures
- Supplier chain performance - Whistleblowing policy and process.
PEOPLE - Board and executive oversight = We have continued to operate effectively in spite of a difficult labour market
over the past few years. Continued high inflation and cost of living pressures
The risk of loss of key employees, lack of skilled resources or inappropriate - Succession and contingency planning will remain a risk driver into next year. Management action, and our agile
behaviour or actions. This could lead to lack of capacity or capability
approach to support our colleagues, has been positively received however, we
threatening the delivery of business objectives, or to behaviour leading to - Transparent, consistent and competitive remuneration schemes continue to engage frequently through our employee survey tool. Employee
complaints, litigation or regulatory action
engagement continues to be positive with satisfaction scores exceeding the
- Contractual clauses with restrictive covenants industry benchmarks.
RISK OWNER: chief people officer
- Continual investment in employee training and development
RISK PROFILE: 2
- Employee engagement survey
RISK APPETITE MEASURES:
- Appropriate balanced performance measurement system
- Regretted leavers
- Culture monitoring and reporting
- Turnover ratio
- Conduct risk framework and committee
- Employee behaviour
- Training and competence framework
- Whistleblowing policy and process.
SUITABILITY - Board, executive and general managers committee oversight - We have continued to improve processes and oversight of investment and
suitability risk in 2023, 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 or
proposition in particular has supported the improvement of this risk. Our
portfolio or fund construction - Management oversight and segregated quality assurance and performance ongoing investment in technology will also further improve suitability
teams processes and controls in 2024.
RISK OWNER: managing director rathbones investment management
- Performance measurement information and attribution analysis
RISK PROFILE: 1
- 'Know your client' (KYC) suitability processes
RISK APPETITE MEASURES:
- Weekly investment management meetings
- Timely portfolio reviews
- Training and competence framework
- Timely client reviews
- Investment manager reviews through supervisor sampling
- Quality scores
- Compliance monitoring
- Defined investment mandates and tracking
- Exception reporting
- Complaints analysis.
Risk trend Risk profile
+ Increasing 3 High
= Stable 2 Medium
- Decreasing 1 Low
N New
viability statement
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 or liquidity. 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, integration risk, 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.
Since 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 sever but plausible 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 factors 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 2026 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 three years and Foreign
Exchange illiquidity
- Idiosyncratic reputational 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
- Idiosyncratic integration stress (capital): a specific stress relating
to the planned integration of IW&I into the group, resulting in outflow of
15% of FUMA together with additional integration costs and cost synergies not
being achieved
- Combined stress (capital and liquidity): aggregation of the above
market-wide and integration stresses.
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 2026.
GOING CONCERN
Details of the group's business activities, results, cash flow and resources,
together with the risks it faces and other factors likely to affect its future
development, performance and position are set out in the chair's statement,
chief executive's review, financial performance and segmental review.
The group companies are regulated by the Prudential Regulation Authority (PRA)
and/or the Financial Conduct Authority (FCA) and perform annual capital
adequacy and liquidity assessments, which include the modelling of certain
extreme stress scenarios. The company publishes Pillar 3 disclosures annually
on its website which provide detail about its regulatory capital resources and
requirements. In July 2015, Rathbone Investment Management issued £20 million
of 10-year subordinated loan notes to finance future growth which were repaid
in August 2021. In October 2021, Rathbones Group Plc issued £40 million of
10-year subordinated loan notes to finance future growth. The group has no
other external borrowings.
The directors believe that the company is well placed to manage its business
risks successfully despite the continuing uncertain economic and geopolitical
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 2023
Note 2023 2022
£m £m
Interest and similar income 128.8 46.3
Interest expense and similar charges (77.1) (28.0)
Net interest income 51.7 18.3
Fee and commission income 538.6 462.7
Fee and commission expense (29.7) (27.5)
Net fee and commission income 508.9 435.2
Other operating income 10.5 2.4
Operating income 571.1 455.9
Charges in relation to client relationships and goodwill (25.2) (19.5)
Acquisition-related and integration costs 5 (44.3) (13.5)
Other operating expenses (444.0) (358.8)
Operating expenses (513.5) (391.8)
Profit before tax 57.6 64.1
Taxation 6 (20.1) (15.1)
Profit after tax 37.5 49.0
Profit for the year attributable to equity holders of the company 37.5 49.0
Other comprehensive income:
Items that will not be reclassified to profit or loss
Net remeasurement of defined benefit asset/liability 10 (5.8) (7.1)
Deferred tax relating to net remeasurement of defined benefit asset/liability 1.5 3.4
Other comprehensive income net of tax (4.3) (3.7)
Total comprehensive income for the year net of tax attributable to equity 33.2 45.3
holders of the company
Dividends paid and proposed for the year per ordinary share 7 87.0p 84.0p
Dividends paid and proposed for the year 62.9 49.3
Earnings per share for the year attributable to equity holders of the company: 12
- basic 52.6p 83.6p
- diluted 50.8p 81.5p
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Share Share Merger Own Retained Total
capital
premium
reserve
shares
earnings
equity
Note
£m
£m
£m
£m
£m
£m
At 1 January 2022 3.1 291.0 77.0 (36.6) 288.8 623.3
Profit for the year - - - - 49.0 49.0
Net remeasurement of defined benefit liability 10 - - - - (7.1) (7.1)
Deferred tax relating to components of other comprehensive income - - - - 3.4 3.4
Other comprehensive income net of tax - - - - (3.7) (3.7)
Dividends paid 7 - - - - (48.6) (48.6)
Issue of share capital 0.1 19.0 - - - 19.1
Share-based payments:
- cost of share-based payment arrangements - - - - 25.9 25.9
- cost of vested employee remuneration and share plans - - - - (12.8) (12.8)
- cost of own shares vesting - - - 2.7 (2.7) -
- cost of own shares acquired - - - (18.7) (18.7)
- tax on share-based payments - - - - 1.3 1.3
At 31 December 2022 3.2 310.0 77.0 (52.6) 297.2 634.8
Profit for the year - - - - 37.5 37.5
Net remeasurement of defined benefit asset 10 - - - - (5.8) (5.8)
Deferred tax relating to components of other comprehensive income - - - - 1.5 1.5
Other comprehensive income net of tax - - - - (4.3) (4.3)
Dividends paid 7 - - - - (71.4) (71.4)
Issue of share capital 2.2 2.3 747.4 751.9
Share-based payments:
- cost of share-based payment arrangements - - - - 24.0 24.0
- cost of vested employee remuneration and share plans - - - - (6.0) (6.0)
- cost of own shares vesting - - - 13.0 (13.0) -
- cost of own shares acquired - - - (16.0) (16.0)
- tax on share-based payments - - - - (0.3) (0.3)
At 31 December 2023 5.4 312.3 824.4 (55.6) 263.7 1,350.2
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2023
Note 2023 2022
£m
£m
Assets
Cash and balances with central banks 1,038.3 1,412.9
Settlement balances 165.7 65.8
Loans and advances to banks 266.9 194.7
Loans and advances to customers 115.6 169.8
Investment securities:
- fair value through profit or loss 1.2 11.2
- amortised cost 1,294.6 1,045.2
Prepayments, accrued income and other assets 225.3 126.7
Property, plant and equipment 16.1 12.7
Right-of-use assets 64.5 39.1
Current tax asset (UK) 3.9 3.5
Intangible assets 8 1,025.3 356.2
Net defined benefit asset 10 7.0 9.4
Total assets 4,224.4 3,447.2
Liabilities
Deposits by banks 12.4 1.0
Settlement balances 172.1 70.0
Due to customers 2,253.3 2,516.1
Accruals and other liabilities 209.6 114.3
Provisions 9 25.5 12.9
Lease liabilities 74.9 50.5
Current tax liabilities (overseas) 0.5 0.2
Net deferred tax liability 86.0 7.5
Subordinated loan notes 39.9 39.9
Total liabilities 2,874.2 2,812.4
Equity
Share capital 5.4 3.2
Share premium 312.3 310.0
Merger reserve 824.4 77.0
Own shares (55.6) (52.6)
Retained earnings 263.7 297.2
Total equity 1,350.2 634.8
Total liabilities and equity 4,224.4 3,447.2
Company registered number: 01000403
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
Note 2023 2022
£m
£m
Cash flows from operating activities
Profit before tax 57.6 64.1
Change in fair value through profit or loss (1.0) 0.3
Net interest income (51.7) (18.3)
Recoveries on financial instruments 0.1 (0.1)
Net charge for provisions 9 9.4 2.0
Depreciation, amortisation and impairment 47.1 35.0
Foreign exchange movements 3.4 (7.1)
Defined benefit pension scheme (credits)/charges 10 (0.5) (0.3)
Defined benefit pension contributions paid 10 (2.9) (3.9)
Share-based payment charges 24.0 25.9
Interest paid (67.7) (20.9)
Interest received 111.9 33.9
129.7 110.6
Changes in operating assets and liabilities:
- net decrease in loans and advances to banks and customers 87.4 8.4
- net decrease in settlement balance debtors 133.3 3.9
- net (increase)/decrease in prepayments, accrued income and other assets (36.2) 1.9
- net (decrease)/increase in amounts due to customers and deposits by (251.5) 181.9
banks
- net (decrease)/increase in settlement balance creditors (123.6) 9.8
- net increase/(decrease) in accruals, provisions and other liabilities 1.0 (5.9)
Cash (used in)/generated from operations (59.9) 310.5
Tax paid (29.5) (17.6)
Net cash (outflow)/inflow from operating activities (89.4) 292.9
Cash flows from investing activities
Cash acquired on acquisition of subsidiaries 172.6 −
Purchase of property, plant, equipment and intangible assets (10.7) (13.1)
Payment of deferred consideration - (10.9)
Purchase of investment securities (2,059.9) (1,262.5)
Proceeds from sale and redemption of investment securities 1,818.1 984.4
Net cash used in investing activities (79.9) (302.1)
Cash flows from financing activities
Issue of ordinary shares 14 - 9.3
Repurchase of ordinary shares 14 (16.0) (18.6)
Dividends paid 7 (71.4) (48.6)
Payment of lease liabilities (7.5) (8.5)
Interest paid (5.6) (5.3)
Net cash used in financing activities (100.5) (71.7)
Net decrease in cash and cash equivalents (269.8) (80.9)
Cash and cash equivalents at the beginning of the year 1,572.7 1,653.6
Cash and cash equivalents at the end of the year 14 1,302.9 1,572.7
NOTES TO THE CONSOLIDATED STATEMENTS
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 2023. 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 Relationship 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 intangible assets 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 FUMA that relate to the investment management
contract), they are capitalised as client relationship intangible assets (note
8). Otherwise, they are judged to be in relation to the provision of ongoing
services and are expensed as remuneration cost in the period that they are
transferred. Upfront payments made to investment managers upon joining are
expensed as incurred, 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 the
longevity of client relationships. During the year, client relationship
intangible assets were amortised over a period of between 10 and 15 years.
Amortisation of £25.2 million (2022: £19.5 million was charged during the
year). At 31 December 2023, the carrying value of client relationship
intangible assets was £502.7 million (2022: £175 million). A reduction of
one year in the amortisation period of the group's client relationship
intangible assets would increase the annual amortisation charge by £4.0
million.
2.2 RETIREMENT BENEFIT OBLIGATIONS (NOTE 10)
Critical judgements
Key judgement was applied in determining that the group will be eligible to
receive the surplus associated with the pension schemes in recognising a
pension asset.
Estimation uncertainty
The principal assumptions underlying the reported surplus of £7.0 million
(2022: £9.4 million surplus) are set out in note 10.
In order to set these assumptions, the group engages qualified actuaries to
estimate a range of long-term trends and market conditions to determine the
value of the surplus or deficit on the group's retirement benefit schemes,
based on the group's expectations of the future. Long-term forecasts and
estimates are inherently 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 from that recognised.
The sensitivities of the retirement benefit obligations to changes in all of
the underlying estimates are set out in note 29. 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 £7.7 million (2022: £7.1 million). Increasing the future rate
of inflation by 0.5% would increase the schemes' liabilities by £4.4 million
(2022: £5.0 million). A lower or higher movement in these assumptions would
result in multiples of these figures. A 0.5% decrease would reduce the
scheme's liabilities by £4.2 million.
2.3 BUSINESS COMBINATIONS (NOTE 4)
2.3.1 Investec Wealth & Investment
During the year, the group acquired the entire share capital of Investec
Wealth & Investment ('IW&I'). The group has accounted for the
transaction as a business combination. Note 4 contains further detail on the
areas of significant judgement and critical accounting estimates outlined
below.
Estimation uncertainty
Fair value of consideration transferred
Total consideration transferred to Investec Bank Plc comprised 27,056,463
ordinary shares and 17,481,868 convertible non-voting ordinary shares. The
fair value of the ordinary shares issued was determined with reference to the
share price of Rathbones Group Plc at close of business on 20 September 2023
(being the day before legal completion of the transaction), which was £17.22
per share at close. The fair value of the non-voting shares of £16.36 was
calculated by applying a 5.0% discount to the closing share price of £17.22,
to reflect the fact that the shares are non-marketable and non-transferable.
This produced a total value for consideration paid of £751.9 million. A 2.0%
decrease in the discount applied would have resulted in a £6.0 million
increase in the value of the consideration paid; an increase in the discount
would have had an equal and opposite effect.
Fair value of goodwill and net assets acquired
The fair value of net assets acquired was valued at £411.8 million (see note
4 for a detailed breakdown).
Goodwill of £340.1 million was recognised at acquisition, and represents the
future economic benefit expected from an acquired workforce, expected future
growth and future client relationships, as well as operational and revenue
synergies. The allocation of goodwill between the group's cash-generating
units has been based on their respective relative values.
Client relationship intangible assets of £350.3 million were recognised
during the year in relation to the acquisition of IW&I. The multi-period
earnings model used to value the intangible assets used estimates of client
longevity and investment performance to derive a series of discounted cash
flows. This was determined with reference to management's best estimates of
future performance and estimates of the return required to determine an
appropriate discount rate. These assets are being amortised over an average
14-year useful life. A 5.0% increase in the estimated fair value of client
relationship intangible assets would increase client relationship assets by
£17.5 million, with a corresponding increase in deferred tax liabilities of
£4.4 million and a decrease in goodwill of £13.1 million.
The group has applied judgement in determining the allocation of acquired
goodwill to the relevant cash-generating units expected to benefit from the
acquisition. The allocation of goodwill is provisional and shall be reviewed
and completed before the end of the first annual period after the acquisition.
See note 8.
Other areas of focus
The financial statements include other accounting estimates related to the
acquisition of IW&I. While these areas do not meet the definition under
IAS 1 of significant accounting estimates or critical accounting judgements,
the recognition and measurement of certain material balances are based on
assumptions and/or are subject to longer term uncertainties.
Estimation uncertainty
Fair value of equity-settled awards
Share-based incentive awards were granted to certain Investec Wealth &
Investment employees as part of the acquisition (see note 4). These awards
require the recipients to remain in employment for a specific period, and to
achieve certain conditions relating to the integration of IW&I. The awards
will be accounted for as remuneration for ongoing services and will be
expensed over the deferral period. The cumulative expense at year end of £3.1
million reflects the number of equity instruments granted that are expected to
ultimately vest, as based on expected future attrition rates. A decrease of
10% in the total unvested options outstanding at year end would decrease the
profit or loss charge for the last quarter of the year by £0.3 million, and
therefore this is not considered to be a material estimate.
2.3.2 Saunderson House
Estimation uncertainty
In 2021, the group acquired the entire share capital of Saunderson House
Limited as part of a business combination. 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 from employment. The group's estimate of the amounts ultimately
payable will be expensed over the deferral period.
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 is calculated as 0.1% of
funds under management ('FUM') at the test date of 31 December 2024. The FUM
award ranges from a payment of £nil to a maximum possible payment in shares
of £7.5 million; £0.5 million of this pool has already been granted to a
group of employees. In addition to this are integration and discretionary
awards, capped at £1.0 million and £0.5 million, respectively.
The minimum threshold for pay-out of this award was previously £5.0 billion
in FUM; this was reduced to £3.5 billion during the year, following review by
the Group Executive Committee, to rebase the scheme to reflect current market
conditions. Management's best estimate of the FUM award at the year end was
£4.8 million, and is based on expected funds under management at 31 December
2024. The discretionary and integration awards are expected to be paid
in full.
The maximum FUM award of £7.5 million would result in an additional charge to
profit or loss in 2023 of £1.0 million. A payment of £nil would result in a
reversal of the accumulated profit or loss charge since commencement of the
award of £3.7 million in 2023.
3 SEGMENTAL INFORMATION
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the group that are regularly reviewed by the chief
operating decision-maker, which takes the form of the Group Executive
Committee, in order to allocate resources to the segment and to assess its
performance.
For management purposes, the group is organised into two operating segments:
Wealth Management and Asset Management. 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. Wealth
Management Segmental Assets relate to assets held within the Investment
Management, Banking and Trust Business Segments. Asset Management Segmental
Assets are assets held solely within the Asset Management Business Segment.
Unallocated Segmental Assets relate to the Net Defined Benefit Asset held on
the balance sheet.
IW&I has been identified as a separate operating segment of the group. The
results of the segment have been presented in aggregate with the group's
Wealth Management segment, on the basis that their long-term characteristics
are expected to align following the initial integration period of the
business.
31 December 2023 Wealth Management Asset Management Indirect Total
expenses
£m
£m £m
£m
Net investment management fee income 350.1 64.7 - 414.8
Net commission income 53.6 - - 53.6
Net interest income 49.9 1.8 - 51.7
Fees from advisory services and other income 50.3 0.7 - 51.0
Operating income 503.9 67.2 - 571.1
Staff costs − fixed (147.2) (7.1) (51.8) (206.1)
Staff costs − variable (78.2) (13.4) (15.9) (107.5)
Total staff costs (225.4) (20.5) (67.7) (313.6)
Other direct expenses (53.7) (12.2) (64.5) (130.4)
Allocation of indirect expenses (119.4) (12.8) 132.2 -
Underlying operating expenses (398.5) (45.5) - (444.0)
Underlying profit before tax 105.4 21.7 - 127.1
Charges in relation to client relationships and goodwill (note 8) (25.2) - - (25.2)
Acquisition-related and integration costs (note 5) (11.0) - (33.3) (44.3)
Segment profit before tax 69.2 21.7 (33.3) 57.6
Profit before tax attributable to equity holders of the company 57.6
Taxation (note 6) (20.1)
Profit for the year attributable to equity holders of the company 37.5
Wealth Management Asset Management Unallocated Assets £m Total
£m
£m £m
Segment total assets 4,099.6 117.8 7.0 4,224.4
Investec Wealth & Investment has been identified as a separate operating
segment of the group. The results of the segment have been presented in
aggregate with the group's Wealth Management segment, on the basis that their
long-term characteristics are expected to align following the initial
integration period of the business.
31 December 2022 Wealth Management Asset Management Indirect Total
expenses
£m
£m £m
£m
Net investment management fee income 274.8 62.2 − 337.0
Net commission income 48.9 − − 48.9
Net interest income 17.8 0.5 − 18.3
Fees from advisory services and other income 51.4 0.3 − 51.7
Operating income 392.9 63.0 − 455.9
Staff costs - fixed (109.5) (7.0) (42.0) (158.5)
Staff costs - variable (66.9) (11.2) (9.0) (87.1)
Total staff costs (176.4) (18.2) (51.0) (245.6)
Other direct expenses (41.5) (9.6) (62.2) (113.3)
Allocation of indirect expenses (104.4) (8.8) 113.2 -
Underlying operating expenses (322.3) (36.6) − (358.9)
Underlying profit before tax 70.6 26.4 − 97.0
Charges in relation to client relationships and goodwill (note 8) (19.5) − − (19.5)
Acquisition-related and integration costs (note 5) (10.0) − (3.4) (13.4)
Segment profit before tax 41.1 26.4 (3.4) 64.1
Profit before tax attributable to equity holders of the company − − − 64.1
Taxation (note 6) − − − (15.1)
Profit for the year attributable to equity holders of the company − − − 49.0
Wealth Management Asset Management Unallocated Assets £m Total
£m
£m
£m
Segment total assets 3,323.4 114.4 9.4 3,447.2
The following table reconciles underlying operating expenses to operating
expenses:
2023 2022
£m
£m
Underlying operating expenses 444.0 358.8
Charges in relation to client relationships and goodwill (note 8) 25.2 19.5
Acquisition-related and integration costs (note 5) 44.3 13.5
Operating expenses 513.5 391.8
GEOGRAPHIC ANALYSIS
The following table presents operating income analysed by the geographical
location of the group entity providing the service:
2023 2022
£m
£m
United Kingdom 553.4 442.0
Channel Islands 17.7 13.8
Rest of the World - 0.1
Operating income 571.1 455.9
The following is an analysis of the carrying amount of non-current assets
analysed by the geographical location of the assets:
2023 2022
£m
£m
United Kingdom 1,103.0 404.6
Channel Islands 2.9 3.4
Non-current assets 1,105.9 408.0
TIMING OF REVENUE RECOGNITION
The following table presents operating income analysed by the timing of
revenue recognition of the operating segment providing the service:
2023 2022
Wealth Management Asset Management Wealth Management Asset Management
£m £m £m £m
Products and services transferred at a point in time 44.4 - 41.2 -
Products and services transferred over time 459.5 67.2 351.7 63.0
Operating income 503.9 67.2 392.9 63.0
MAJOR CLIENTS
The group is not reliant on any one client or group of connected clients for
generation of revenues.
4 BUSINESS COMBINATIONS
INVESTEC WEALTH & INVESTMENT
On 21 September 2023, the group completed its acquisition of 100% of the
ordinary share capital of Investec Wealth & Investment Limited (IW&I)
from Investec Bank Plc. Investec Wealth & Investment Limited owns 100% of
the ordinary share capital in Investec Wealth & Investment (Channel
Islands) Limited and Murray Asset Management UK Limited. Results were
consolidated with effect from 30 September 2023, as the effect of transactions
and activities in the period from 21 September 2023 to 30 September 2023 on
the consolidated financial statements was not material.
IW&I specialises in the provision of wealth and investment management
services in the UK and Channel Islands, catering to private clients, clients
of professional advisers and charities. The group expects to capture
significant scale benefits from the combination, due to the consolidation of
technology platforms and operations, enablement functions, third party
services and property, in addition to utilising the benefits of the group's
banking licence once IW&I clients are migrated.
Consideration transferred
Total consideration transferred to Investec Bank Plc comprised a share issue
of 27,056,463 ordinary shares and 17,481,868 convertible non-voting ordinary
shares. Based on Rathbones' issued share capital at completion, the total
shares transferred to Investec Bank Plc amounted to an economic interest in
Rathbones Group Plc of 41.25%, but in accordance with the terms of the
acquisition 29.9% of the total voting rights in Rathbones.
The fair value of the ordinary shares issued was determined with reference to
the share price of Rathbones Group Plc at close of business on 20 September
2023, and was assessed to be £17.22 per share. The fair value of the
non-voting shares of £16.36 was calculated by applying a 5.0% discount to
this share price, to reflect the fact the shares are non-marketable and
non-transferable. This produced a total value for consideration paid of
£751.9 million.
As the share issue was in pursuance of the arrangement to acquire 100% of the
shares in IW&I, the premium on the share issue, being £749.8 million,
qualifies for merger relief. This has been recognised within the merger
reserve.
The regulatory announcement for the acquisition on 4 April 2023 used a share
price of £18.84 to derive an implied equity value of £839 million. However,
the group's share price has reduced since the announcement, resulting in a
lower value for the shares issued at the completion date of the acquisition
(21 September 2023).
The convertible non-voting ordinary shares rank pari-passu with the ordinary
shares, except that they do not carry voting rights. Investec Bank Plc may
convert the convertible non-voting ordinary shares into ordinary shares on a
1-for-1 basis, provided that at no time shall Investec group hold more than
29.9% of the Rathbones group's enlarged voting rights. Both the ordinary
shares and convertible non-voting ordinary shares qualify as common equity
tier 1 capital of the Rathbones group.
Deferred Incentive awards
An ancillary matters agreement, which was signed at the time of the
combination announcement in April, includes detail of deferred awards and
contingent payments to be made to a group of Investec W&I employees under
the Rathbones Integration Incentive Scheme. These payments require the
recipients of the awards to remain in employment with the group for the
duration of the respective deferral periods, and therefore these amounts have
not been included in the acquisition accounting. The cost for these
equity-settled awards is being charged to profit or loss and spread over each
vesting period. Details of the share awards are as follows:
Gross Grant date Grant date Vesting date
amount
fair value
£m
£m
Rathbone Integration Incentive Scheme 39.0 6 October 2023 31.2 22 September 2027
The Rathbone Integration Incentive Scheme awards of £39.0 million is payable
in shares, and will vest in three equal tranches annually on the second, third
and fourth anniversary of the completion date, subject to conditions relating
to the client migration process. Vesting of the final one-third of the shares
on the fourth anniversary of the date of grant will be subject to engagement
in the client migration process. The gross amount of £39.0 million represents
management's best estimate as to the extent to which these conditions will be
achieved. These awards are being accounted for as an equity-settled
share-based payment under IFRS 2. The grant date fair value was determined
with reference to the share price at grant less the value of expected
dividends over the period to vesting, as no dividend shares have been granted
on this award. There are no market-related performance conditions attached to
this award.
The group recognised a charge of £3.0 million in relation to this scheme in
2023 and all share options are outstanding at the end of the period.
A Business Enablement award of £6.9 million was also granted during the year
and is payable predominantly in cash to different groups of employees in key
business enablement functions. For those recipients who are classified by the
group as material risk-takers in accordance with remuneration regulations, 50%
of their award will be payable in shares. Approximately 30% of the total award
will vest on 31 March 2024, and the remainder will vest on 31 March 2025,
subject to the recipients remaining employed until this date and other
conditions being met. The group treats the cash element of the award as an
employee benefit under IAS 19, with a corresponding liability recognised for
the services received at the balance sheet date, and the share element of the
awards as equity-settled share-based payments under IFRS 2.
The group recognised a charge of £1.8 million in relation to this scheme in
2023.
These costs are being reported as staff costs within acquisition-related costs
(see note 5).
Identifiable assets acquired and liabilities assumed
The group uses the acquisition method to account for business combinations.
The identifiable net assets of the IW&I group have been remeasured at fair
value at the acquisition date as follows:
21 September 2023 Carrying Fair value Recognised amounts
amounts
£m
£m
£m
Settlement assets 233.3 - 233.3
Property, plant and equipment 5.0 - 5.0
Trade and other receivables 45.5 - 45.5
Loans and advances to customers 0.7 - 0.7
Software assets (note 8) 3.7 - 3.7
Client relationship intangible assets (note 8) 20.0 330.3 350.3
Cash and cash equivalents 172.6 - 172.6
Right-of-use assets 31.8 1.1 32.9
Settlement liabilities (225.7) - (225.7)
Trade and other payables (30.0) - (30.0)
Accruals and deferred income (51.7) - (51.7)
Deferred tax liabilities 4.6 (87.6) (83.0)
Lease liabilities (39.8) 8.7 (31.1)
Provisions (note 9) (10.7) - (10.7)
Total net assets acquired 159.3 252.5 411.8
The fair value of £350.3 million for the client relationship intangible
assets has been measured using a multi-period earnings method (note 8). The
model uses estimates of client longevity and investment performance to derive
a series of cash flows, which are discounted to a present value to determine
the fair value of the client relationships acquired. These assets were valued
separately by client group, being direct private clients, corporates,
intermediaries and charities, to reflect their differing revenue margins and
attrition rates. The average weighted life of the four groups has been
calculated at 14 years.
The deferred tax liability of £87.6 million arising on recognition of the
client relationship intangible assets is equal to its carrying value at the
applicable tax rate and affects the amount of goodwill that is recognised as
part of the business combination.
No brand has been acquired as part of the transaction.
The group measured the acquired lease liabilities using the present value of
the remaining lease payments as if the leases were new leases at the
acquisition date. The corresponding right-of-use assets were measured at an
amount equal to the lease liabilities, adjusted to reflect favourable or
unfavourable terms of the leases when compared to market terms. However, no
off-market terms that required an additional adjustment to the right-of-use
assets were identified. Assumptions of when the group expects to terminate
these leases were reflected in the valuation.
A contingent liability assumed in a business combination is recognised at the
acquisition date even if an outflow of economic benefits is not probable,
provided it is a present obligation arising from past events and its fair
value can be measured reliably. No contingent liabilities have been recognised
at acquisition. Circumstances which potentially exposed certain clients of
IW&I to detriment arose in the ordinary course of business prior to the
date of acquisition. An estimate of the potential outflow has been calculated
at £1.1 million. A liability was not recognised at the year end, however all
economic outflows arising from this were indemnified by Investec Group at
acquisition. The asset relating to the amount receivable under the indemnity
would be measured on the same basis as the related liability and there would
therefore be no impact on acquired goodwill.
Included within other creditors is £8.3 million payable by Investec W&I
to Investec Bank Plc in relation to amounts recharged for the provision of
payroll and other services.
Settlement balances and other receivables are current assets that are deemed
to be collectible with no allowance for doubtful debts required. Trade and
settlement payables are generated through the normal course of business and
are classified as current liabilities expected to be settled through payments
in the short-term. The carrying value of these was therefore determined to
approximate fair value.
The fair value of all other net assets acquired were deemed to be equal to
their carrying value.
Goodwill
Goodwill of £340.1 million arising on the excess of consideration over the
fair value of the net assets acquired represents the future economic benefit
expected from an acquired workforce, expected future growth and future client
relationships, as well as operational and revenue synergies. Where goodwill
arises on consolidation within the group it is not deductible for tax
purposes, and nor is any impairment of goodwill in future periods.
£m
Total consideration 751.9
Fair value of identifiable net assets acquired (see above) 411.8
Goodwill 340.1
If the group had made the acquisition on 1 January 2023, IW&I would have
contributed £358.4 million to group operating income and £85.8 million to
profit before tax, as based on the company's results for the year to 31
December 2023.
SAUNDERSON HOUSE
On 20 October 2021, the group acquired 100% of the ordinary share capital of
the Saunderson House group.
OTHER DEFERRED PAYMENTS
In addition to a total cash consideration of £98.9 million paid in prior
years, 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 is therefore charged to the income statement over the respective vesting
periods. Details of each of these elements is as follows:
Gross Grant date Grant date Vesting date
amount
fair value
£m
£m
Initial share consideration 5.2 20 October 2021 5.5 20 October 2024
Deferred share consideration 4.1 20 October 2021 4.1 20 October 2022
Management incentive scheme 5.5 20 December 2021 4.8 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 £5.2 million was issued on the date of
acquisition, however it 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 £5.2 million on the issuance of
these shares has been recognised within the merger reserve.
- Deferred share consideration of £4.1 million was settled in shares
during the prior 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 £7.5 million (see note 2.3).
These costs are being reported as staff costs within acquisition-related costs
(see note 5).
5 ACQUISITION-RELATED AND INTEGRATION COSTS
During 2023 £44.3 million of acquisition-related and integration costs were
incurred (2022: £13.5 million).
2023 2022
£m
£m
Acquisition of Speirs & Jeffrey 1.0 3.5
Acquisition of Investec Wealth & Investment 36.5 −
Acquisition of Saunderson House 6.8 10.0
Acquisition-related and Integration costs 44.3 13.5
Total acquisition-related staff costs worth £11.0 million (2022: 10.0
million) during the year relate to equity-settled share-based payments.
COSTS RELATING TO THE ACQUISITION OF INVESTEC WEALTH & INVESTMENT
The group has incurred the following costs in relation to the acquisition of
IW&I, summarised by the following classification within the income
statement:
2023 2022
£m
£m
Acquisition costs:
Staff costs 6.2 −
Legal and Advisory Fees 21.3 −
Integration Costs 9.0 −
Acquisition-related and Integration costs 36.5 −
Non-staff acquisition costs of £21.3 million (2022: £nil) and integration
costs of £9.0 million (2022: £nil) have not been allocated to a specific
operating segment (note 3).
The Legal and advisory fees of £21.3 million are one-off costs incurred on
executing the transaction (2022: £nil).
The group incurred costs of £2.2 million in the year that were deemed to be
incremental to the share issue that occurred on 21 September 2023. These costs
have been recognised as a deduction to the merger reserve.
From 30 September 2023 to 31 December 2023, Investec W&I contributed
£87.9 million to the group's total operating income, and £15.0 million to
the group's profit before tax. This excludes integration costs of the acquired
business since acquisition, and amortisation of the acquired client
relationship intangible assets.
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:
2023 2022
£m
£m
Acquisition costs:
Staff costs 1.0 3.5
Acquisition-related and Integration costs 1.0 3.5
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:
2023 2022
£m
£m
Acquisition costs:
Staff costs 3.9 6.5
Legal and advisory fees 0.8 -
Integration costs 2.1 3.4
Acquisition-related and Integration costs 6.8 9.9
Non-staff acquisition costs of £0.8 million (2022: £nil) and Integration
costs of £2.1 million (2022: £3.4 million) have not been allocated to a
specific operating segment (note 3).
Staff costs of £3.9 million (2022: 6.5 million) are related to deferred
remuneration.
6 INCOME TAX EXPENSE
2023 2022
£m £m
Current tax:
- charge for the year 22.8 16.5
- adjustments in respect of prior years 1.1 0.3
Deferred tax: -
- credit for the year (1.9) (1.3)
- adjustments in respect of prior years (1.9) (0.4)
20.1 15.1
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 (2022: higher) than the
standard rate of corporation tax in the UK of 23.5% (2022: 19.0%). 23.5% is a
composite tax rate, since the UK corporation tax rate was 19.0% until the 31st
March 2023 and 25.0% for the remainder of the financial year.
The differences are explained below:
2023 2022
£m £m
Tax on profit from ordinary activities at the standard rate of 23.5% (2022: 13.6 12.2
19.0%)
Effects of:
- disallowable expenses 8.0 0.9
- share-based payments (0.2) −
- tax on overseas earnings (0.7) (0.2)
- adjustments in respect of prior year (0.8) (0.1)
- deferred payments to previous owners of acquired companies (note 5) 0.3 1.2
- change in corporation tax rate on deferred tax (0.1) 1.1
20.1 15.1
£0.4 million of current tax on share-based payments was charged to equity
during the year (2022: £0.1 million).
On 11 July 2023, the United Kingdom government, where the parent company is
incorporated, enacted the Pillar II income taxes legislation effective from 1
January 2024. Under the legislation, the parent company will be required to
pay, in the United Kingdom, top-up tax on profits of its subsidiaries located
in territories outside the United Kingdom that are taxed at an effective tax
rate of less than 15%. The jurisdiction in which an exposure to this tax may
exist is the Channel Islands. The group is continuing to assess the impact of
the Pillar II income taxes legislation on its future financial performance
following the Investec acquisition. Based on our initial evaluations, we do
not expect there to be a material additional Pillar II exposure for the group.
7 DIVIDENDS
2023 2022
£m £m
Amounts recognised as distributions to equity holders in the year:
- final dividend for the year ended 31 December 2022 of 56.0p (2021: 33.4 32.0
54.0p) per share
- interim dividend for the year ended 31 December 2023 of 29.0p (2022: 17.5 16.6
28.0p) per share
20.5 −
- second interim dividend for the year ended 31 December 2023 of 34.0p
(2022:0p) per share
Dividends paid in the year of 119.0p (2022: 82.0p) per share 71.4 48.6
Proposed final dividend for the year ended 31 December 2023 of 34.0p (2022: 24.9 32.8
56.0p) per share
An interim dividend of 29.0p per share was paid on 25 August 2023 to
shareholders on the register at the close of business on 4 August 2023 (2022:
28.0p).
A second interim dividend of 34.0 per share was paid on 11 October 2023 to
shareholders on the register at the close of business on 20 September 2023
(2022: nil).
A final dividend declared of 24.0p per share (2022: 56.0p) is payable on 14
May 2024 to shareholders on the register at the close of business on 19 April
2024. The final dividend is subject to approval by shareholders at the Annual
General Meeting on 9 May 2024 and has not been included as a liability in
these financial statements.
8 INTANGIBLE ASSETS
Goodwill of £340.1 million was recognised as part of the acquisition of
IW&I. (see note 4). This has been provisionally allocated between the
IW&I cash-generating unit ('CGU') and the Wealth Management group of CGUs
in the year, before being reviewed for impairment. This allocation will be
reviewed in 2024.
The group does not believe there are any key assumptions where reasonable
changes could occur which could give rise to a material adjustment in the
carrying value.
Client relationships of £350.3 million were recognised as part of the
acquisition of IW&I (see note 4). An average useful life of 14 years was
assigned to these relationships, based on observed historic attrition rates.
2023 2022
£m
£m
Goodwill 507.8 167.7
Other intangible assets 517.5 188.5
1,025.3 356.2
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:
Wealth Investec W&I Asset Management Total
£m
Management £m £m
£m
Cost
At 1 January 2022 167.7 - 1.9 169.6
Acquired through business combinations (note 4) - - - -
At 1 January 2023 167.7 - 1.9 169.6
Acquired through business combinations (note 4) 82.1 258.0 - 340.1
At 31 December 2023 249.8 258.0 1.9 509.7
Impairment
At 1 January 2022 - - 1.9 1.9
Charge for the year - - - -
At 31 December 2023 - - 1.9 1.9
Carrying amount at 31 December 2023 249.8 258.0 - 507.8
Carrying amount at 31 December 2022 167.7 - - 167.7
Carrying amount at 1 January 2022 167.7 - - 167.7
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 Wealth Management
group of CGUs or to the Investec CGU during the period. The group has
considered any reasonably foreseeable changes to the assumptions used in the
value-in-use calculation for the Wealth 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.
IW&I Wealth management
At 31 December 2023 2023 2022
Discount rate 15.0% 14.1% 14.1%
Average annual revenue growth rate 4.0% 1.1% 4.3%
Average annual profit margin 26.8% 14.3% 25.6%
Terminal growth rate 1.5% 1.5% 1.0%
The increase in the terminal growth rate to 1.5% in 2023 is to align this with
current expectations of long-term UK economic growth. The fall in the average
annual revenue growth rate since the prior year primarily reflects the group's
latest forecasts for the Saunderson House client migration by operating
segment, and lower levels of forecast commission income.
OTHER INTANGIBLE ASSETS
Client Software Purchased Total
relationships
development
software
£m
£m
costs
£m
£m
Cost
At 1 January 2022 302.6 11.7 53.1 367.4
Internally developed in the year − 1.8 − 1.8
Purchased in the year 1.0 − 1.8 2.8
Disposals (2.7) − − (2.7)
At 1 January 2023 300.9 13.5 54.9 369.3
Internally developed in the year - 1.0 - 1.0
Acquired through business combinations (note 4) 350.3 1.7 2.0 354.0
Purchased in the year 2.6 - 2.2 4.8
Disposals (2.8) - - (2.8)
At 31 December 2023 651.0 16.2 59.1 726.3
Amortisation and impairment
At 1 January 2022 109.0 8.5 41.3 158.8
Amortisation charge 19.5 1.5 3.6 24.6
Disposals (2.6) − − (2.6)
At 1 January 2023 125.9 10.0 44.9 180.8
Amortisation charge 25.2 1.8 3.8 30.8
Disposals (2.8) - - (2.8)
At 31 December 2023 148.3 11.8 48.7 208.8
Carrying amount at 31 December 2023 502.7 4.4 10.4 517.5
Carrying amount at 31 December 2022 175.0 3.5 10.0 188.5
Carrying amount at 1 January 2022 193.6 3.1 11.8 208.5
Purchases of client relationships of £2.6 million (2022: £1 million) 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 £25.2 million (2022: £19.5 million).
Purchased software with a cost of £36.4 million (2022: £35.2 million) has
been fully amortised but is still in use.
9 PROVISIONS
Deferred, Deferred Legal and Property- Onerous Contract £m Total
consideration
compensation
related
£m
variable costs
in business
£m
£m
combinations
to acquire client
£m
relationship
intangibles
£m
At 1 January 2022 8.6 - 2.1 4.6 - 15.3
Charged to profit or loss - - 0.8 1.2 - 2.0
Unused amount credited to - - - - - -
profit or loss
Net charge to profit or loss - - 0.8 1.2 - 2.0
Other movements 1.0 - - - - 1.0
Utilised/paid during the year (5.2) - (0.2) - - (5.4)
At 1 January 2023 4.4 - 2.7 5.8 - 12.9
Charged to profit or loss - - 9.1 0.2 1.2 10.5
Unused amount credited to profit or loss - (0.1) (1.1) - - (1.2)
Net charge to profit or loss - (0.1) 8.0 0.2 1.2 9.3
Acquisitions through business combinations (Note 4) - 3.4 1.9 5.4 - 10.7
Other movements 2.6 - - - - 2.6
Utilised/paid during the year (2.3) - (7.7) - - (10.0)
At 31 December 2023 4.7 3.3 4.9 11.4 1.2 25.5
Payable within 1 year 4.2 0.3 4.2 3.8 1.2 13.7
Payable after 1 year 0.5 3.0 0.7 7.6 - 11.8
4.7 3.3 4.9 11.4 1.2 25.5
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.
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.
DEFERRED CONSIDERATION IN BUSINESS COMBINATIONS
Deferred Consideration in Business Combinations relates to Investec Wealth
& Investment's deferred consideration provision on their acquisitions of
Murray Asset Management and The Share Centre.
PROPERTY-RELATED
Property-related provisions of £11.4 million relate to dilapidation
provisions expected to arise on leasehold premises held by the group (2022:
£5.8 million). Dilapidation provisions are calculated using a discounted cash
flow model.
In 2023 the group did not utilise the property provision (2022: £nil). The
impact of discounting led to an additional charge of £0.2 million (2022:
additional charge of £1.2 million) being recognised during the year.
Amounts payable after one year
Property-related provisions of £7.6 million 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 13 years of the balance sheet
date.
ONEROUS CONTRACT
During the year, the group terminated a support agreement with a third-party
service provider. The onerous element of the contract represented a cost of
£1.2 million to the group, which was recognised as a provision at the year
end.
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 £21.0 million (2022: £15.2 million). The group also operates a
defined contribution scheme for overseas employees, for which the total
contributions were £0.1 million (2022: £0.1 million).
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 2022.
In June 2023, the High Court handed down a judgement that casts doubt on the
validity of previous pension scheme amendments made by schemes which were
previously contracted out. This was in the Court Case of Virgin Media Limited
Vs NTL Pension Trustees II Limited, where it was determined that a Deed of
Amendment was not valid because the accompanying written actuarial
confirmation under Section 37 of the Pensions Act 1995 was not present. An
appeal to the ruling is due to be heard this year. In the meantime, there
remains a risk that the benefits of schemes affected by the ruling turn out to
be incorrect. The Rathbone 1987 Scheme was never contracted out and so is not
impacted by this ruling, however there could be a potential impact on the
Lawrence Keen Scheme if any amendments are found to be invalid. The impact is
not known at this time but is not expected to be material for the group based
on information currently available to the Actuary, we will continue to
monitor.
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
2023 2022 2023 2022
%
%
%
%
(unless stated)
(unless stated) (unless stated)
(unless stated)
Rate of increase of salaries n/a n/a n/a n/a
Rate of increase of pensions in payment 3.70 3.60 2.90 3.20
Rate of increase of deferred pensions 3.10 3.20 3.10 3.20
Discount rate 4.40 4.70 4.40 4.70
Inflation* 3.10 3.20 3.10 3.20
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) 52.50 52.50 52.50 52.50
* 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 decreased by 0.3% to reflect a decrease in the
yields available on AA-rated Corporate Bonds;
2. the assumed rate of future inflation has decreased by 0.1% 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, have decreased by 0.3% for the Rathbone 1987 Scheme and,
for the Laurence Keen Scheme increased by 0.1%
Over the year the mortality assumptions have been updated. The CMI model used
to project future improvements in mortality has been updated from the 2021
version to the 2022 version.
2% of members not yet in receipt of their pension are assumed to transfer out
of the scheme each year (2022: 2%).
The proportion of members assumed to be married at retirement age is 80%
(2022: 80%)
The assumed duration of the liabilities for the Laurence Keen Scheme is 12
years (2022: 13 years) and the assumed duration for the Rathbone 1987 Scheme
is 16 years (2022: 16 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 with improvements in line with the CMI 2022 tables with a long-term
rate of improvement of 1.5% p.a. The assumed life expectancies on retirement
were:
2023 2022
Males Females Males Females
Retiring today: aged 60 27.6 29.5 28.2 29.9
aged 65 22.8 24.5 23.3 24.9
Retiring in 20 years: aged 60 29.4 31.2 29.9 31.6
aged 65 24.3 26.1 24.9 26.6
The amount included in the balance sheet arising from the group's assets in
respect of the schemes is as follows:
2023 2022
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987
£m
Scheme
1987
£m
£m
Scheme
£m
Scheme
£m
£m
Present value of defined benefit obligations (7.3) (93.8) (101.1) (7.2) (87.5) (94.7)
Fair value of scheme assets 8.2 99.9 108.1 8.1 96.0 104.1
Net defined benefit asset/(liability) 0.9 6.1 7.0 0.9 8.5 9.4
The amounts recognised in profit or loss, within operating expenses, are as
follows:
2023 2022
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987
£m
Scheme
1987
£m
£m
Scheme
£m
Scheme
£m
£m
Interest expense (0.1) (0.4) (0.5) (0.1) (0.2) (0.3)
(0.1) (0.4) (0.5) (0.1) (0.2) (0.3)
Remeasurements of the net defined benefit asset have been reported in other
comprehensive income. The actual return on scheme assets was a rise in value
of £0.4 million (2022: £4.4 million fall) for the Laurence Keen Scheme and a
rise in value of £3.6 million (2022: £58.8 million fall) for the Rathbone
1987 Scheme.
Movements in the present value of defined benefit obligations were as follows:
2023 2022
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987
£m
Scheme
1987
£m
£m
Scheme
£m
Scheme
£m
£m
At 1 January 7.2 87.5 94.7 11.2 144.4 155.6
Interest cost 0.3 4.1 4.4 0.2 2.7 2.9
Actuarial experience gains 0.1 3.4 3.5 0.1 3.6 3.7
Actuarial gains/(losses) arising from:
- demographic assumptions (0.1) (1.5) (1.6) - 0.1 0.1
- financial assumptions 0.2 2.8 3.0 (3.6) (59.5) (63.1)
Past service cost - - - - - -
Benefits paid (0.4) (2.5) (2.9) (0.7) (3.8) (4.5)
At 31 December 7.3 93.8 101.1 7.2 87.5 94.7
Movements in the fair value of scheme assets were as follows:
2023 2022
Laurence Keen Rathbone Total Laurence Keen Rathbone Total
Scheme
1987
£m
Scheme
1987
£m
£m
Scheme
£m
Scheme
£m
£m
At 1 January 8.1 96.0 104.1 13.0 154.9 167.9
Remeasurement of net defined benefit asset/(liability)
- interest income 0.4 4.5 4.9 0.3 2.9 3.2
- return on scheme assets (excluding amounts included in interest income) - (0.8) (0.8) (4.6) (61.8) (66.4)
Contributions from the sponsoring companies 0.1 2.8 2.9 0.1 3.8 3.9
Benefits paid (0.4) (2.6) (3.0) (0.7) (3.8) (4.5)
At 31 December 8.2 99.9 108.1 8.1 96.0 104.1
The Schemes' assets are fully invested with Legal & General Investment
Management in Self-Sufficiency Credit Funds and Absolute Return Bond Funds and
no assets are invested in Rathbones Funds. The Schemes invest in
self-sufficiency strategies, which aim to fully hedge the interest and
inflation rate risk. The Trustees will review the asset allocation on a
regular basis to ensure the strategy remains appropriate.
The analysis of the scheme assets, measured at bid prices, at the balance
sheet date was as follows:
Laurence Keen Scheme 2023 2022 2023 2022
Fair value
Fair value
Current
£m
£m Current
allocation
allocation
%
%
Equity instruments:
- United Kingdom - 0.2
- Eurozone - 0.2
- North America - 0.7
- Other - 0.5
- 1.6 - 19
Debt instruments:
- United Kingdom corporate bonds 0.4 4.3
0.4 4.3 5 54
Liability-driven investments 7.8 2.0 93 25
Cash 0.1 0.1 2 1
Other - 0.1 - 1
At 31 December 8.3 8.1 100 100
Rathbone 1987 Scheme 2023 2022 2023 2022
Fair value
Fair value
Current
£m
£m Current
allocation
allocation
%
%
Equity instruments:
- United Kingdom - 4.2
- Eurozone - 2.5
- North America - 13.5
- Other - 6.1
- 26.3 - 28
Debt instruments:
- United Kingdom corporate bonds - 37.7
- 37.7 - 39
Liability-driven investments 98.4 30.8 99 32
Cash 1.5 1.2 1 1
Other - - - -
At 31 December 99.9 96.0 100 100
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.
Changes to these assumptions of a different, but similar, magnitude would
result in a broadly proportional change in these figures. Where the changes to
these assumptions are more significant the impact will be more significant,
but potentially not proportional. These events within the sensitivity analysis
are unlikely to occur in isolation. For example, in order to demonstrate the
sensitivity of the results to the discount rate, the actuary has recalculated
the defined benefit obligations for each scheme using a discount rate that is
0.5% higher than that used for calculating the disclosed figures. A similar
approach has been taken to demonstrate the sensitivity of the results to the
other key assumptions. A summary of the sensitivities in respect of the total
of the two schemes' defined benefit obligations is set out below.
Combined impact
on schemes' liabilities
(Decrease)/ (Decrease)/
increase increase
£m
%
0.5% increase in:
- discount rate (7.7) (7.6)
0.5% increase in:
- rate of inflation 4.4 4.4
1-year increase to:
- longevity at 60 4.2 4.1
The total contributions made by the group to the 1987 Scheme during the year
were £2.8 million (2022: £3.8 million).
There have been contributions of £0.2 million (2022: £0.2 million) made by
the group to the Laurence Keen Scheme during the year.
Contributions for the year are in line with those agreed as part of the
actuarial valuation as at 31 December 2023.
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 2023 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Fair value through profit or loss:
equity securities - - 1.2 1.2
- - 1.2 1.2
At 31 December 2022 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Fair value through profit or loss:
equity securities 8.1 - 3.1 11.2
8.1 - 3.1 11.2
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 (2022: 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 2023 was
£1,296.8 million (2022: £1,053.5 million) and the carrying value was
£1,294.6 million (2022: £1,045.3 million). 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 2023 was £37.4 million (2022: £41.2 million)
and the carrying value was £39.9 million (2022: £39.9 million). 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
At 31st December 2023, the group held 517 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. At the prior year-end, the
Group held 1,809 shares which were valued at £3.1 million by reference to the
indicative price derived from the most recent transactions of the shares in
the market. During the year, the group sold 1,292 of its shares in two
separate transactions. The price was used to value the remaining shares at
year-end.
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 £0.1 million (2022: £0.3 million). 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:
2023 2022
At 1 January 3.1 2.5
Total unrealised gains/(losses) recognised in profit or loss 1.0 0.6
Total disposals (2.9) -
At 31 December 1.2 3.1
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:
2023 2022
Pre-tax Taxation Post-tax Pre-tax Taxation Post-tax
£m
£m
£m
£m
£m
£m
Underlying profit attributable to shareholders 127.1 (30.3) 96.8 97.1 (20.4) 76.7
Charges in relation to client relationships and goodwill (note 8) (25.2) 5.9 (19.3) (19.5) 3.7 (15.8)
Acquisition-related and integration costs (note 5) (44.3) 4.3 (40.0) (13.5) 1.6 (11.9)
Profit attributable to shareholders 57.6 (20.1) 37.5 64.1 (15.1) 49.0
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 71,269,129 (2022: 58,618,521). This
includes 17,481,868 convertible non-voting shares issued as consideration for
the IW&I transaction. In total, 44,538,331 shares were issued as a result
of the IW&I transaction on 21 September. This has resulted in a mismatch
between the weighted average number of shares and the total number of shares
of 108,065,997 million due to the shares in the weighted average share
calculation being prorated from 21 September to year end.
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, expected shares to be issued under the KEEP
Support Function award, expected shares to be issued within the Rathbones
Integration Incentive Award Scheme and any dilutive shares to be issued under
the Share Incentive Plan, all weighted for the relevant period.
2023 2022
Weighted average number of ordinary shares in issue during the year - basic 71,269,129 58,618,521
Effect of ordinary share options/Save As You Earn 443,865 595,055
Effect of dilutive shares issuable under the Share Incentive Plan 2,517 671
Effect of contingently issuable shares under the Executive Incentive Plan 294,770 563,816
Effect of contingently issuable shares under Saunderson House initial share 272,952 272,952
consideration (note 4)
Effect of expected shares to be issued under the Key Employee Equity Plan 314,600 −
Support Function Award
Effect of expected shares to be issued under the Rathbones Integration 1,276,744 −
Incentive Scheme Award
Diluted ordinary shares 73,874,577 60,051,015
2023 2022
Earnings per share for the year attributable to equity holders of the company:
- basic 52.6p 83.6p
- diluted 50.8p 81.6p
Underlying earnings per share for the year attributable to equity holders of
the company:
- basic 135.8p 130.8p
- diluted 131.0p 127.7p
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 (2022:
£nil). Further information about the remuneration of individual directors is
provided in the audited part of the directors' remuneration report.
2023 2022
£m
£m
Short-term employee benefits 13.2 10.2
Post-employment benefits 0.3 0.3
Other long-term benefits 1.3 0.3
Share-based payments 2.6 0.4
17.4 11.2
Dividends totalling £0.3 million were paid in the year (2022: £0.2 million)
in respect of ordinary shares held by key management personnel and their close
family members.
At 31 December 2023, key management personnel and their close family members
had gross outstanding deposits of £1.0 million (2022: £1.7 million) and
gross outstanding banking loans of £0.1 million (2022: 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 2023, no amounts were outstanding with either the Laurence Keen
Scheme or the Rathbone 1987 Scheme (2022: none).
As a result of the IW&I transaction on 21 September 2023, Rathbones Group
Plc is an associate of Investec Bank PLC. As at the 31 December there was a
net payable balance with Investec Bank PLC of £8.3 million (2022: £nil).
IW&I outsources payroll to Investec Bank PLC (for which a charge is levied
under the transitional services agreement), the balance outstanding as at the
reporting date is predominantly related to IW&I employee salary costs and
associated payroll taxes. During the period from acquisition, Investec Bank
PLC have provided certain services to IW&I via the transitional services
agreement. The total expense for these services recognised during the period
from 21 September 2023 to 31 December 2023 is £4.8 million (2022: £nil).
These amounts were fully paid as at 31 December 2023. IW&I partially
sublets certain regional office space to Investec Bank PLC companies and
charges Investec Bank PLC for use of research, total fees receivable under
these arrangements 21 September 2023 to 31 December 2023 were £0.1 million
and £0.3 million respectively (2022: nil).
One group subsidiary, Rathbones Asset Management Limited, has authority to
manage the investments within a number of unit trusts. During 2023, the group
managed 28 unit trusts, Sociétés d'Investissement à Capital Variable
(SICAVs) and open-ended investment companies (OEICs) (together, 'collectives')
(2022: 32 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 2023 2022
£m
£m
Total management fees 69.6 68.2
As at 31 December 2023 2022
£m
£m
Management fees owed to the group 6.5 5.6
Holdings in unit trusts - 8.1
6.5 13.7
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:
2023 2022
£m
£m
Cash and balances at central banks 1,036.0 1,408.0
Loans and advances to banks 266.9 164.7
At 31 December 1,302.9 1,572.7
Mandatory reserve deposits of £2.3 million (2022: £5.0 million) are held
with central banks in accordance with statutory requirements. As these
deposits are not held in demand accounts, and are not available to finance the
group's day-to-day operations, they are excluded from cash and cash
equivalents.
Cash flows arising from the issue/(repurchase) of ordinary shares comprise:
2023 2022
£m
£m
Share capital issued 2.2 0.1
Share premium on shares issued 2.3 18.9
Merger reserve on shares issued 747.4 -
Shares issued in relation to share-based schemes and business combinations for (751.9) (9.8)
which no cash consideration was received
Proceeds from issue of share capital - 9.3
Shares repurchased and placed into the employee benefit trust (16.0) (18.6)
Net issue/(repurchase) of ordinary shares (16.0) (9.3)
In 2022, £5.7 million of shares were issued for the vesting of the Speirs
& Jeffrey second earn-out consideration. £4.1 million of shares were also
issued for the Saunderson House deferred share consideration. There was no
cash consideration received for these transactions. £18.6 million of shares
were repurchased and placed into the group EBT in the prior year.
During the year, £751.9 million of shares were issued as consideration for
the IW&I transaction, there was no cash consideration received for this
transaction. In addition to this, £16.0 million of shares were repurchased
and placed into the group EBT.
A reconciliation of the movements of financing liabilities and equity to cash
flows arising from financing activities is as follows:
Subordinated Lease liabilities Liabilities from financing activities Share capital/ Reserves Retained Total Total
loan notes
premium
earnings
equity
£m £m £m
£m £m
£m
£m £m
At 1 January 2023 39.9 50.5 90.4 313.2 24.4 297.2 634.8 725.2
Changes from financing cash flows
Proceeds from issue of share capital - - - 2.3 (2.3) - - -
Payments for share repurchases - - - - (16.0) - (16.0) (16.0)
Dividends paid - - - - - (71.4) (71.4) (71.4)
Interest charge (2.3) (3.3) (5.6) - - - - (5.6)
Payment for lease liabilities - (7.5) (7.5) - - - - (7.5)
Total financing cash flows (2.3) (10.8) (13.1) 2.3 (18.3) (71.4) (87.4) (100.5)
Total non-cash movements 2.3 35.2 37.5 2.2 762.7 37.9 802.8 840.3
At 31 December 2023 39.9 74.9 114.8 317.7 768.8 263.7 1,350.2 1,465.0
Subordinated Lease liabilities Liabilities from financing activities Share capital/ Reserves Retained Total Total
loan notes
premium
earnings
equity
£m £m £m
£m £m
£m
£m £m
At 1 January 2022 39.9 55.0 94.9 294.1 40.3 288.8 623.2 718.1
Changes from financing cash flows
Proceeds from issue of share capital - - - 9.3 - - 9.3 9.3
Payments for share repurchases - - - - (18.6) - (18.6) (18.6)
Dividends paid - - - - - (48.6) (48.6) (48.6)
Interest charge (2.3) (3.1) (5.4) - - - - (5.4)
Payment for lease liabilities - (8.5) (8.5) - - - - (8.5)
Total financing cash flows (2.3) (11.6) (13.9) 9.3 (18.6) (48.6) (57.9) (71.8)
Total non-cash movements 2.3 7.1 9.4 9.8 2.7 57.0 69.5 78.9
At 31 December 2022 39.9 50.5 90.4 313.2 24.4 297.2 634.8 725.2
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 2023 or 2022.
Statutory financial statements for 2022 have been delivered to the Registrar
of Companies. Statutory financial statements for 2023 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. The
auditor has reported on both the 2023 and 2022 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 2023 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 2023.
The preliminary statement of annual results for the period ended 31 December
2023 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 5 March 2024. 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. 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.
Acquisition accounting for Investec Wealth & Investment Limited and
subsidiary entities
Key audit matter description
Rathbones Group acquired 100% of the share capital of Investec Wealth &
Investment Limited and its subsidiary entities ("IW&I") through an
all-share transfer on 21 September 2023. The total consideration was £751.9m
of which £350.3m was attributed to recognition of client relationship
intangible assets, which are being amortised over a weighted average of 14
years, and £340.1m to goodwill.
As detailed in the summary of principal accounting policies in note 1 and note
2 in the full annual report (included within note 1 and note 2 to this
announcement), and as disclosed in note 8 in the full annual report (included
within note 4 and note 8 to this announcement), acquisition accounting
requires management to make a number of judgments to determine the fair value
of acquired identifiable assets. Management have engaged external specialists
to assist with these judgements. We have identified the valuation of the
IW&I client relationship intangible assets as a fraud risk, given the
inherent judgment, complexity and level of estimation involved.
The significant assumptions that underpin the client relationship intangible
assets valuation in management's model include: the forecasted cash flows,
useful economic life and the discount rate.
How the scope of our audit responded to the key audit matter
In order to respond to the key audit matter, we performed the following
procedures:
- obtained an understanding of relevant controls over the acquisition
accounting, in particular the identification and measurement of the client
relationship intangible assets and goodwill and controls over the acquisition
accounting related judgments;
- assessed the competence, capability and objectivity of management's
experts;
- assessed management's accounting analysis of the acquisition and the
accounting treatment in line with the requirements of IFRS 3;
- engaged our in-house valuation specialists to: assist in the evaluation
of the methodology and the key assumptions used in the valuation of the client
relationship intangible assets acquired; independently determine an
appropriate discount rate for the calculation and assessed the methodology
used to establish useful economic lives of assets;
- tested the key data inputs used to determine the useful economic life
for completeness and accuracy;
- challenged the entity's forecast cash flows by comparing with approved
business plans, historical performance and objective macro-economic
indications to assess the achievability of the forecasts;
- tested the completeness and accuracy of the data inputs into the
underlying models used in determining the client relationship intangible
assets valuation and the goodwill value;
- reviewed the share purchase agreement to corroborate the overall deal
structure and transaction price, and agreed the value of the total
consideration to supporting documentation;
- with the assistance of our tax specialists, assessed the tax
implications arising from this acquisition; and
- checked the disclosures included in the financial statements to
determine whether all information has been included for a business combination
under IFRS 3.
Key observations
We conclude that the acquisition accounting in relation to the IW&I
transaction and the related disclosures as at 31 December 2023, is
appropriate.
Impairment of client relationship intangible assets and goodwill
Key audit matter description
The group holds client relationship intangible assets of £517.5 million
(2022: £188.5 million) comprising both client relationships acquired through
business combinations and through acquisition of individual investment
managers and their client portfolios and goodwill of £507.8 million (2022:
£167.7 million).
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 their
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 ("VIU"), calculated using a discounted cash flow method. In
determining the VIU 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 are disclosed in note 22 in the full annual report (included
within note 8 to this announcement).
We have identified this as a key audit matter given the inherent judgement and
level of estimation in the assumptions that support the annual impairment
reviews. In the prior period, we identified this as a fraud risk, however, as
a result of increased headroom on the most material impairment reviews, we did
not deem this to be a fraud risk in the current period.
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.
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
assessed 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 management's 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' VIU. To challenge management's VIU model we
performed the following procedures:
- tested the key data inputs used to determine the useful economic life
for completeness and accuracy;
- recalculated the underlying calculation to ensure mathematical
accuracy;
- stressed management's assumptions to determine the point at which an
impairment would need to be recognised;
- with the involvement of our valuation specialists, we independently
determined an appropriate discount rate for the calculation; and
- with the involvement of our in-house economic specialists reviewed the
growth rate assumptions used for funds under management to challenge whether
they were in line with consensus.
For goodwill, in order to challenge the appropriateness of the income and
expenditure growth assumptions used in the VIU calculation, we have challenged
the assumptions used by management against historical actual 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.
We have checked 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
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 2023 is appropriate.
Defined benefit pension scheme assumptions
Key audit matter description
The group has recognised a defined benefit pension scheme net asset of £7.0
million (2022: net asset of £9.4 million). The net asset comprises scheme
assets of £108.1 million (2022: £104.1 million) and a defined benefit
obligation of £101.1 million (2022: £94.7 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 in the full annual report
(included within note 2 to this announcement) and disclosed in note 29 in the
full annual report (included within note 10 to this announcement). We have
therefore identified this as a key audit matter.
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 assessed each assumption used by management against
independently determined benchmarks derived using market data.
We have checked 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 benefit pension scheme net asset has
been appropriately determined as at 31 December 2023.
Investment management fee revenue relating to bespoke fees
Key audit matter description
As detailed in the summary of principal accounting policies in notes 1 and 3
in the full annual report (included within note 3 to this announcement),
revenue comprises net investment management fee income of £414.8 million
(2022: £337.0 million), net commission income of £53.6 million (2022: £48.9
million), net interest income of £51.7 million (2022: £18.3 million) and
fees from advisory services and other income of £51.0 million (2022: £57.1
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 voluminous. 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. We
identified a risk of potential fraud in respect to bespoke rates.
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 checked 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 2023.
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
5 March 2024
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