6th Mar 2008 07:00
Rathbone Brothers PLC06 March 2008 6 March 2008 Rathbone Brothers PlcPreliminary results for the 12 months to 31 December 2007 Strong organic growth continues at Rathbone Brothers Plc Rathbone Brothers Plc, a leading provider of discretionary fund management andwealth management services for private investors and trustees, announces itspreliminary results for the year ended 31 December 2007. Highlights:___________• Operating income increased by 15.6% to £154.5 million (2006: £133.7 million). • Profits before tax rose by 16.8% to £52.2 million (2006: £44.7 million). o Excluding gains on a part disposal of London Stock exchange shares, underlying profit before tax rose by 22.7% from £41.5 million to £50.9 million. • Funds under management rose by 7.2% over 2007 to £13.12 billion (£12.24 billion). • Organic growth of funds under management in Rathbone Investment Management (in the UK and Jersey) at highest ever level of 7.8%. • Basic earnings per share rose by 14.7% to 87.88p (2006: 76.62p). • Recommended final dividend is 25p, making a total of 41p (2006: 35p) for the year - an overall increase of 17.1%. • Acquisition of Citywall Financial Management adds an office in Exeter. Mark Powell, chairman of Rathbone Brothers Plc, commented: "Record results have been achieved and the rate of net organic growth of fundsunder management, at 7.8 per cent, is the highest that Rathbone InvestmentManagement, in the UK and Jersey, has ever announced. These statistics reflectour continuing commitment to promoting Rathbones as the investment manager ofchoice for private investors and trustees, and we believe it reflects a growingawareness of Rathbones. Particular efforts have been made in promoting ourservices to professional intermediaries, to charity trustees and in theincreasingly important market for self-invested personal pensions. "Despite the uncertainties created by the problems being experienced in creditmarkets and high levels of day-to-day volatility in equity markets, Rathbones iswell placed to continue to grow our investment management and other services. Inpart, this reflects the quality of our client relationships and we are confidentof the long term future." For further information contact: Rathbone Brothers Plc Smithfield020 7399 0000 (Switchboard) 020 7360 4900 (Switchboard)Mark Powell, Chairman Reg HoareAndy Pomfret, Chief Executive Miranda GoodEmily Morris, Marketing Director Notes for editors: Rathbone Brothers Plc Rathbone Brothers Plc specialises in providing, through its subsidiaries, highquality, personalised investment management and wealth management services forprivate investors and trustees, including discretionary fund management, unittrusts, tax planning, trust and company management, pension and bankingservices. It manages £13.12 billion of funds, including £1.89 billion managed byRathbone Unit Trust Management Limited (as at 31 December 2007). Chairman's statement I am delighted to report our results for the year ended 31 December 2007.Despite the tensions and uncertainties associated with the difficulties incredit markets, record results have been achieved. The percentage rate of netorganic growth of funds under management is the highest that Rathbone InvestmentManagement, in the UK and Jersey, has ever announced. Results and dividend Profit before tax for the year to 31 December 2007 was £52.2 million comparedwith £44.7 million in 2006 - an increase of 16.8%. Excluding profits arisingfrom part disposals of our investment in London Stock Exchange Group Plc of £1.3million in 2007 and £3.2 million in 2006, underlying profits have increased by22.7%. Reported earnings per share have risen by 14.7% to 87.88p compared with 76.62pin 2006. Underlying earnings per share have risen from 71.28p to 85.74p, anincrease of 20.3%. It is recommended that the final dividend be increased to 25.0p (2006: 21.5p)making a total of 41.0p for the year (2006: 35.0p), an increase of 17.1%. 2007 can be characterised as a year of two parts. During the first half of theyear, bond and equity markets were firm and made progress. In the second half,the well-publicised difficulties arising from sub-prime mortgage lending in theUSA led to very difficult conditions in credit markets and much more volatileequity markets. July and August saw the FTSE 100 Index fall by over 12%.Although there has been some overall recovery, at the year end the FTSE 100Index had risen by only 3.8% and the FTSE/APCIMS Balanced Index rose by 2.5%. As announced on 10 January 2008, funds under management as a whole have risenduring 2007 by 7.2% to £13.12 billion (2006: £12.24 billion). Adjusting forfunds withdrawn and acquired, and for market movements this represents anunderlying organic growth rate of 7.9%. The value of funds under managementwithin Rathbone Investment Management including Rathbone Investment ManagementInternational (RIMI), rose by 8.2% to £11.23 billion (2006: £10.38 billion) andthe value of funds under management in Rathbone Unit Trusts rose by 1.6% to£1.89 billion (2006: £1.86 billion). Within Rathbone Investment Management (including RIMI) the underlying netorganic growth rate for 2007 was 7.8% compared with 7.2% in 2006 and 5.8% in2005. These statistics reflect our continuing commitment to promoting Rathbonesas the investment manager of choice for private investors and trustees, and webelieve that it reflects a growing awareness of Rathbones. Particular effortshave been made in promoting our services to professional intermediaries, tocharity trustees and in the increasingly important market for self-investedpersonal pensions. Your Board considers that this excellent rate of net organic growth reflects thevalue of our policy of combining the roles of investment management and clientrelationship management. We believe that it is greatly appreciated by clientsand prospective clients, and that it is the way of providing the mostappropriate investment solution for each individual client in the light of theircircumstances and risk appetite. In common with other unit trust managers, Rathbone Unit Trust Managementexperienced difficult trading conditions in the second half of the year andfunds under management for the year as a whole grew by 1.6% compared with theremarkable 55.0% achieved in 2006. The Chancellor of the Exchequer's proposalsfor changes to capital gains tax evidently had some impact on sales andredemptions in UK equity income funds, and the credit crunch clearly had anadverse impact on the confidence of retail investors and intermediary advisers. During 2007, profits from our trust and tax activities grew by 69.6% to £3.9million (2006: £2.3 million) as the benefits of the relocation of our offices inJersey into one building have been felt. This improvement in profitability wasachieved despite a rather unhelpful background in the provision of fiduciary andtrust services from offshore centres and the management of this division hasexpended considerable energies in seeking to control costs and to identify newbusiness opportunities. With this in mind we announced the acquisition of a small, well-establishedtrust business in Singapore in April 2007 which is now headed by a director ofour Jersey operation. "Credit crunch" The "credit crunch" has not had a detrimental impact on Rathbones' ability tofinance its operations, indeed the consequent impact on credit markets in thesecond half of the year has been beneficial for profitability. Our banking licence allows our treasury department to make use of a range ofappropriate instruments issued by counterparties with high ratings when placingfunds in the money markets. Rathbones, as a net provider of liquidity to thebanking markets, has been able to take advantage of historically high short-terminterest rate margins, which has had the effect of increasing interest income inthe last quarter of the year when liquidity in client portfolios rose to £990million (2006: £697 million). Rathbones has no reliance on debt markets to finance its operating activitiesand does not anticipate that this will change. Corporate activity For many years Rathbones has sought to supplement organic growth through theacquisition of suitable businesses and the recruitment of establishedprofessionals from other organisations. 2007 has seen a great deal of enquiry inthis area but it has not proved possible to make suitable acquisitions atvaluations which your Board has considered attractive. Since the year end wehave, however, committed to take over a small investment management businessbased in Exeter and we are delighted to be establishing a presence there. Itwill complement our existing office in Bristol. Our approach to acquisition opportunities is that they must meet the criteria ofinvolving professionals who share our commitment to discretionary investmentmanagement and that they are earnings enhancing within a reasonable timeframe orbroaden the range of services available to our clients. Sue Desborough The tragic and untimely death of our finance director at the end of November hascast a dark shadow over Rathbones. Sue joined Rathbones as group financial controller in 2000 and in October 2004was appointed finance director. During her all too brief time with us she hadmade an enormous contribution to Rathbones as a friend, as a professional and asa greatly admired and respected colleague. She will be sadly missed by us all. Composition of the Board During the year, two of our non-executive directors, Roy Morris and JamieCayzer-Colvin, have retired. Roy first joined Rathbones 50 years ago and waschief executive from 1997 to 2004. He has made a massive contribution toRathbones over a remarkable career. Jamie Cayzer-Colvin has served as anon-executive director for over five years and we have benefited from hisexperience of the financial sector generally and the investment management areain particular. In December we welcomed David Harrel and John May to our Board as newnon-executive directors. They both bring with them wide experience which I amconfident will be of great value to us. Outlook Despite the uncertainties created by the problems being experienced in creditmarkets and high levels of day-to-day volatility in equity markets, Rathbones iswell placed to continue to grow our investment management and other services. Inpart, this reflects the quality of our client relationships and we are confidentof the long term future. Mark PowellChairman5 March 2008 Consolidated income statementfor the year ended 31 December 2007 2007 2006 Note £'000 £'000______________________________________________________________________________________Interest and similar income 52,058 37,335Interest expense and similar charges (32,568) (21,297)______________________________________________________________________________________Net interest income 19,490 16,038______________________________________________________________________________________Fee and commission income 141,929 120,039Fee and commission expense (11,499) (8,365)______________________________________________________________________________________Net fee and commission income 130,430 111,674______________________________________________________________________________________Dividend income 67 117Net trading income 1,676 1,285Net income from sale of available for sale securities 1,297 3,196Other operating income 1,565 1,376______________________________________________________________________________________Operating income 154,525 133,686Operating expenses (102,301) (88,966)______________________________________________________________________________________Profit before tax 52,224 44,720Taxation 5 (14,844) (12,582)______________________________________________________________________________________Profit for the year attributable to equity holders of the company 37,380 32,138______________________________________________________________________________________ Dividends paid and proposed for the year per ordinary 6 share (p) 41.00p 35.00pDividends paid and proposed for the year (£'000) 6 17,479 14,786 Earnings per share attributable to equity holders of the company for the year: 7Basic (p) 87.88p 76.62pDiluted (p) 86.46p 74.71p______________________________________________________________________________________ Consolidated balance sheetas at 31 December 2007 2007 2006 £'000 £'000 restated Note (note 1)_______________________________________________________________________________________AssetsCash and balances at central banks 275 281Settlement balances 21,573 19,628Loans and advances to banks 250,103 119,247Loans and advances to customers 39,380 77,360Investment securities- available for sale 6,948 6,152- held to maturity 765,274 558,368Intangible assets 85,734 81,248Property, plant and equipment 8,131 6,463Deferred tax asset 3,528 5,321Prepayments, accrued income and other assets 45,677 38,551_______________________________________________________________________________________Total assets 1,226,623 912,619_______________________________________________________________________________________ LiabilitiesDeposits by banks 12,460 12,119Settlement balances 19,926 18,078Due to customers 946,608 664,762 Accruals, deferred income, provisions and other liabilities 49,637 39,605Current tax liabilities 6,790 8,143Retirement benefit obligations 9 6,452 10,763_______________________________________________________________________________________Total liabilities 1,041,873 753,470_______________________________________________________________________________________ EquityShare capital 2,134 2,114Share premium 27,758 24,518Other reserves 10 54,181 53,488Retained earnings 10 100,677 79,029_______________________________________________________________________________________Total equity 184,750 159,149_______________________________________________________________________________________Total equity and liabilities 1,226,623 912,619_______________________________________________________________________________________ Consolidated cash flow statementfor the year ended 31 December 2007 2007 2006 £'000 £'000 restated Note (note 1)_______________________________________________________________________________________Cash flows from operating activitiesProfit before tax 52,224 44,720Net interest income (19,490) (16,038)Net income from sale of available for sale securities (1,297) (3,196)Impairment losses on loans and advances 130 323Profit on disposal of plant and equipment (17) (49)Depreciation and amortisation 4,723 3,418Defined benefit pension scheme charges 2,554 3,448Share based payment charges 2,692 2,080Interest paid (31,811) (20,655)Interest received 47,457 30,728_______________________________________________________________________________________ 57,165 44,779Changes in operating assets and liabilities- net decrease in loans and advances to banks and customers 14,280 18,158- net (increase) in settlement balance debtors (1,945) (5,611)- net (increase) in prepayments, accrued income and other assets (2,269) (6,881)- net increase in amounts due to customers and deposits by banks 280,791 129,407- net increase in settlement balance creditors 1,848 1,946- net increase in accruals, deferred income, provisions and other liabilities 8,697 5,296_______________________________________________________________________________________Cash generated from operations 358,567 187,094Defined benefit pension contributions paid (6,595) (5,927)Tax paid (13,773) (10,609)_______________________________________________________________________________________Net cash inflow from operating activities 338,199 170,558_______________________________________________________________________________________ Cash flows from investing activitiesAcquisition of businesses, net of cash acquired (422) (5,786)Purchase of property, equipment and intangible assets (10,199) (5,690)Proceeds from sale of property and equipment 44 113Purchase of investment securities (1,276,420) (1,453,970)Proceeds from sale and redemption of investment securities 1,070,811 1,294,798_______________________________________________________________________________________Net cash used in investing activities (216,186) (170,535)_______________________________________________________________________________________ Cash flows from financing activitiesRepayments of debt securities - (141)Purchase of shares for share-based schemes (3,210) (3,407)Issue of ordinary shares 11 2,963 6,715Dividends paid 6 (15,914) (13,449)_______________________________________________________________________________________Net cash used in financing activities (16,161) (10,282)_______________________________________________________________________________________ Net increase/(decrease) in cash and cash equivalents 105,852 (10,259)Cash and cash equivalents at the beginning of the year 108,343 118,883Effect of exchange rate changes on cash and cash equivalents 25 (281)_______________________________________________________________________________________Cash and cash equivalents at the end of the year 11 214,220 108,343_______________________________________________________________________________________ Consolidated statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 Note £'000 £'000_______________________________________________________________________________________Profit after taxation 37,380 32,138_______________________________________________________________________________________Exchange translation differences 14 (240)Actuarial gain on retirement benefit obligation 9 270 5,468Revaluation of available for sale investment securities:_______________________________________________________________________________________- net gain from changes in fair value 2,069 4,202- net profit on disposal transferred to income during the period (1,297) (3,196)_______________________________________________________________________________________ 772 1,006Deferred tax on equity items:_______________________________________________________________________________________- available for sale investment securities (93) (302)- actuarial gains and losses 34 (1,640)- share-based payments 694 362_______________________________________________________________________________________ 635 (1,580)_______________________________________________________________________________________Net income recognised directly in equity 1,691 4,654_______________________________________________________________________________________Recognised income and expense for the year attributable to equity holders of the company 39,071 36,792_______________________________________________________________________________________ Notes 1. Accounting policies In preparing the financial information included in this statement the Group hasapplied accounting policies which are in accordance with International FinancialReporting Standards as adopted by the European Commission at 31 December 2007.The accounting policies have been applied consistently to all periods presentedin the consolidated accounts, except as noted below. The comparative balances have been restated to be consistent with the currentyear presentation of the Translation Reserve as a component of Other Reserves.In prior years, the Translation Reserve was included as a component of retainedearnings. Comparative balances have also been restated to reflect the exclusionof held to maturity debt securities from cash equivalents and the cash flowstatement. This amendment has had no impact on profit or equity.RathboneBrothers Plc is a public company incorporated in Great Britain. 2. Critical accounting judgements and key sources of estimation and uncertainty The Group makes estimates and assumptions that affect the reported amounts ofassets and liabilities within the next financial year. Estimates and judgementsare continually evaluated and are based on historical experience and otherfactors, including expectations of future events that are believed to bereasonable under the circumstances. Retirement benefit obligations The Group makes estimates about a range of long-term trends and marketconditions to determine the value of the deficit on its retirement benefitschemes, based on the Group's expectations of the future and advice taken fromqualified actuaries. The principal assumptions underlying the reported deficitof £6,452,000 are given in note 9. Long-term forecasts and estimates are necessarily highly judgemental and subjectto risk that actual events may be significantly different to those forecast. Ifactual events deviate from the assumptions made by the Group then the reportedsurplus or deficit in respect of retirement benefit obligations may bematerially different. The history of experience adjustments and information onthe sensitivity of the retirement benefit obligation to changes in underlyingestimates is set out in note 9. Impairment of goodwill The Group makes estimates in relation to the value in use of the cash generatingunits to which goodwill has been allocated in determining whether goodwill isimpaired. The value in use calculation requires the entity to estimate thefuture cash flows expected to arise from the cash-generating unit and a suitablediscount rate in order to calculate present value. The carrying amount ofgoodwill at the balance sheet date was £70,536,000. There has been no impairmentof goodwill in prior years. Share-based payments In determining the fair value of equity settled share-based awards and therelated charge to the income statement, the Group makes assumptions about futureevents and market conditions. In particular, judgements must be formed as to thelikely number of shares that will vest, and the fair value of each awardgranted. The fair value of awards is determined using a valuation model which isdependent on further estimates, including the Group's future dividend policy,employee turnover, the timing with which options will be exercised and futurevolatility in the price of the Group's shares. Such assumptions are based onpublicly available information, where available, and reflect market expectationsand advice taken from qualified actuaries. Different assumptions about thesefactors to those made by the Group could materially affect the reported value ofshare-based payments. Income recognition Revenue in the Trust and Tax business is calculated by reference to theestimated stage of completion of the service rendered. Estimates are also madeas to the recoverability of work in progress and debtors in relation to thisincome. At the year end, total work in progress and debtors for Trust and Taxservices amounted to £13,363,000 (2006: £11,372,000). Conversely, very little judgement is required in the recognition of incomearising from the Investment Management and Unit Trusts businesses due to theclose proximity of billing dates to the year end and the inherentlynon-judgemental nature of interest accrual calculations. 3. Segmental information (a) Business segments For management purposes, the Group is currently organised into three operatingdivisions: Investment Management, Unit Trusts and Trust and Tax Services. Thesedivisions are the basis on which the Group reports its primary segmentinformation. Transactions between the business segments are on normal commercial terms andconditions. Intra-segment income constitutes trail commission. Revenues andexpenses are allocated to the business segment that originated the transaction.Revenues and expenses that are not directly originated by a business segment arereported as unallocated. Centrally incurred expenses are allocated to businesssegments on an appropriate pro-rata basis. Segment assets and liabilitiescomprise operating assets and liabilities, being the majority of the balancesheet, but exclude items such as taxation and borrowings. Trust Investment Unit and tax management trusts services Eliminations Total At 31 December 2007 £'000 £'000 £'000 £'000 £'000_________________________________________________________________________________________External revenues 141,078 30,303 25,914 - 197,295Revenues from other segments 1,606 - - (1,606) -_________________________________________________________________________________________ 142,684 30,303 25,914 (1,606) 197,295Unallocated external revenues 1,297_________________________________________________________________________________________Total gross revenues (note 3c) 198,592_________________________________________________________________________________________ Segment result 40,091 6,880 3,956 50,927Unallocated items 1,297_________________________________________________________________________________________Profit before tax 52,224Taxation (14,844)_________________________________________________________________________________________Profit for the year 37,380_________________________________________________________________________________________ Segment assets 1,115,899 27,837 59,722 1,203,458Unallocated assets 23,165_________________________________________________________________________________________Total assets 1,226,623_________________________________________________________________________________________ Segment liabilities 974,760 21,390 18,462 1,014,612Unallocated liabilities 27,261_________________________________________________________________________________________Total liabilities 1,041,873_________________________________________________________________________________________Other segment items:Capital expenditure 8,718 262 912 9,892Depreciation and amortisation 3,724 148 850 4,722Other non-cash expenses 1,852 256 714 2,822Provisions charged in the year 1,080 - 911 1,991Provisions utilised in the year 5,512 - 922 6,434_________________________________________________________________________________________ Trust Investment Unit and tax management trusts services Eliminations Total At 31 December 2006 £'000 £'000 £'000 £'000 £'000_________________________________________________________________________________________External revenues 115,322 22,652 22,178 - 160,152Revenues from other segments 1,463 - - (1,463) -_________________________________________________________________________________________ 116,785 22,652 22,178 (1,463) 160,152Unallocated external revenues 3,196_________________________________________________________________________________________Total gross revenues (note 3c) 163,348_________________________________________________________________________________________ Segment result 34,119 5,059 2,346 41,524Unallocated items 3,196_________________________________________________________________________________________Profit before tax 44,720Taxation (12,582)_________________________________________________________________________________________Profit for the year 32,138_________________________________________________________________________________________ Segment assets 805,597 17,307 55,193 878,097Unallocated assets 34,522_________________________________________________________________________________________Total assets 912,619_________________________________________________________________________________________ Segment liabilities 689,943 12,654 18,048 720,645Unallocated liabilities 32,825_________________________________________________________________________________________Total liabilities 753,470_________________________________________________________________________________________ Other segment items:Capital expenditure 11,995 194 2,393 14,582Depreciation and amortisation 2,737 143 538 3,418Other non-cash expenses 1,481 208 714 2,403Provisions charged in the year 1,788 - 613 2,401Provisions utilised in the year 6,273 - 457 6,730_________________________________________________________________________________________ Unallocated external revenues comprise gains on disposal of available for salesecurities. (b) Geographical segments The Group's operations are located in the United Kingdom, Jersey, Switzerland,the British Virgin Islands and Singapore. The following table provides ananalysis of the Group's revenues by geographical market, by origin of theservices: Total gross revenues by geographical market 2007 2006 £'000 £'000______________________________________________________________________________________United Kingdom 171,556 140,666Jersey 21,686 18,421Rest of the world 5,350 4,261______________________________________________________________________________________ 198,592 163,348______________________________________________________________________________________ The following is an analysis of the carrying amount of segment assets, andadditions to property, plant and equipment and intangible assets, analysed bythe geographical area in which the assets are located: Assets allocated to business segments 2007 2006 £'000 £'000______________________________________________________________________________________United Kingdom 1,145,684 826,822Jersey 37,123 31,448Rest of the world 20,651 19,827______________________________________________________________________________________ 1,203,458 878,097______________________________________________________________________________________ Additions to property, plant and equipment and intangible assets 2007 2006 £'000 £'000______________________________________________________________________________________United Kingdom 9,790 12,421Jersey 296 2,122Rest of the world 23 39______________________________________________________________________________________ 10,109 14,582______________________________________________________________________________________ (c) Total gross revenues and operating income 2007 2006 £'000 £'000______________________________________________________________________________________Interest and similar income 52,058 37,335Fee and commission income 141,929 120,039Dividend income 67 117Net trading income 1,676 1,285Net income from sale of available for sale securities 1,297 3,196Other operating income 1,565 1,376______________________________________________________________________________________Total gross revenues 198,592 163,348Interest expense and similar charges (32,568) (21,297)Fee and commission expense (11,499) (8,365)Operating income 154,525 133,686______________________________________________________________________________________ 4. Business combinations On 2 April 2007, the Group acquired the entire share capital of Federal Trust(Singapore) Pte Limited for cash consideration of £496,000 and contingent,deferred consideration of up to £249,000. The acquired business' net assets atthe acquisition date were as follows: Recognised Fair value Carrying Values adjustments amounts £'000 £'000 £'000________________________________________________________________________________________Cash and cash equivalents 198 - 198Other current assets 170 - 170Property, plant and equipment 9 - 9Client relationships 93 93 -Current liabilities (293) - (293)________________________________________________________________________________________Net identifiable assets acquired 177 93 84 _________________________Goodwill on acquisition 568_______________________________________________________________Total net assets acquired 745_______________________________________________________________ Included within the consolidated income statement for the year is a loss beforetax, including acquisition costs, of £290,000 relating to the acquired business.If the business had been acquired on 1 January 2007, consolidated profit beforetax for the Group would have been £52,255,000. The goodwill arising on the acquisition is attributable to the anticipatedprofitability of incorporating the business into the Group's operating model. 5. Taxation 2007 2006 £'000 £'000______________________________________________________________________________________Current tax 12,371 10,820Adjustments in respect of previous years 45 64Deferred tax 2,428 1,698______________________________________________________________________________________ 14,844 12,582______________________________________________________________________________________ The tax charge for the year is lower (2006: lower) than the standard rate ofcorporation tax in the UK of 30% (2006: 30%). The differences are explainedbelow: 2007 2006 £'000 £'000______________________________________________________________________________________Tax on profit from ordinary activities at the standard rate of 30% (2006 - 30%) 15,667 13,416Effects of:UK dividend income - (23)Disallowable expenses 617 257Share-based payments (854) (649)Trading losses 83 -Tax relief on purchased goodwill - 79Lower tax rates on overseas earnings (1,161) (719)Under provision for tax in previous years 45 221Effect of change in corporation tax rate 447 -______________________________________________________________________________________Income tax expense 14,844 12,582 In addition to the amount charged to the income statement, deferred tax relatingto actuarial gains and losses, share-based payments and gains and losses arisingon available for sale investment securities amounting to £635,000 has beencredited directly to equity (2006: £1,580,000 charged to equity). 6. Dividends 2007 2006 £'000 £'000______________________________________________________________________________________Amounts recognised as distributions to equity holders in the year:- final dividend for the year ended 31 December 2006 of 21.5p (2005: 18.5p) per share 9,107 7,753- interim dividend for the year ended 31 December 2007 of 16.0p (2006: 13.5p) per share 6,807 5,696______________________________________________________________________________________ 15,914 13,449______________________________________________________________________________________ Proposed final dividend for the year ended 31 December 2007 of 25.0p (2006: 21.5p) per share 10,672 9,090______________________________________________________________________________________ The interim dividend of 16.0p per share was paid on 10 October 2007 toshareholders on the register at the close of business on 21 September 2007. The final dividend declared of 25.0p per share is payable on 14 May 2008 toshareholders on the register at the close of business on 18 April 2008. Thefinal dividend is subject to approval by shareholders at the Annual GeneralMeeting and has not been included as a liability in these financial statements. 7. Earnings per share Basic earnings per share has been calculated by dividing the profitsattributable to shareholders of £37,380,000 (2006: £32,138,000) by the weightedaverage number of shares in issue throughout the year of 42,536,821 (2006:41,946,781). Diluted earnings per share is the basic earnings per share, adjusted for theeffect of contingently issuable shares under the Long Term Incentive Plan,employee share options remaining capable of exercise and any dilutive shares tobe issued under the Share Incentive Plan, weighted for the relevant period (seetable below). 2007 2006______________________________________________________________________________________Weighted average number of ordinary shares in issue during the year - basic 42,536,821 41,946,781Effect of ordinary share options 461,167 580,127Effect of dilutive shares issuable under the Share Incentive Plan 85,535 152,580Effect of contingently issuable ordinary shares under the Long Term Incentive Plan 148,431 334,720______________________________________________________________________________________Diluted weighted average number of ordinary shares 43,231,954 43,014,208______________________________________________________________________________________ 8. Provisions Deferred Contingent Client Litigation consideration compensation related Total £'000 £'000 £'000 £'000___________________________________________________________________________________________At 1 January 2007 6,407 1,525 516 8,448Exchange adjustments (3) - - (3)___________________________________________________________________________________________Charged to the income statement 1,308 683 1,991Unused amount credited to the income statement (134) (86) (220)___________________________________________________________________________________________Net charge to the income statement(i) 1,174 597 1,771Capitalised during the year(ii) 4,377 4,377Utilised/paid during the year (4,938) (724) (772) (6,434)___________________________________________________________________________________________At 31 December 2007 5,843 1,975 341 8,159___________________________________________________________________________________________ Current 3,834 1,935 341 6,110Non-current 2,009 40 - 2,049___________________________________________________________________________________________ 5,843 1,975 341 8,159___________________________________________________________________________________________ (i) In addition to the net charge of £1,771,000 (2006: £1,551,000) to the income statement in the above table, a net credit of £723,000 (2006: £179,000) has been recognised in the income statement during the period in relation to expected insurance recoveries resulting in a net charge to the income statement for other provisions of £1,048,000 (2006: £1,372,000). (ii) Amounts capitalised during the period comprise £249,000 deferred consideration in relation to the acquisition of Federal Trust (Singapore) Pte Limited (see note 4) and £4,128,000 in relation to deferred payments to investment managers under earn-out schemes. The amount of the deferred consideration arising on earn-out schemes is contingent on the value of funds attracted and is payable in cash. At 31 December 2007, anticipated insurance recoverables relating to clientcompensation and litigation related provisions of £477,000 (2006: £436,000) wereincluded within other assets. In the ordinary course of business, the Group receives complaints from clientsin relation to the services provided. Complaints are assessed on a case by casebasis and provisions for compensation are made where judged necessary. Provisions have also been made in relation to a number of cases where legalproceedings are expected to result in loss to the Group. 9. Retirement benefit obligations The Group operates a defined contribution group personal pension scheme andcontributes to various other personal pension arrangements for certain directorsand employees. The total of contributions made to this scheme during the yearwas £697,000 (2006: £594,000). The Group also operates defined contributionschemes for overseas employees, for which the total contributions were £581,000(2006: £517,000). The Group operates two funded pension schemes providing benefits based on finalpensionable pay for executive directors and staff employed by the Company in theUK (the Rathbone 1987 Scheme and the Laurence Keen Scheme). The schemes arecurrently both clients of Rathbone Investment Management Limited, withinvestments managed on a discretionary basis, in accordance with the statementof investment principles agreed by the trustees. Scheme assets are heldseparately from those of the Group. The trustees of the fund are required to act in the best interest of the fund'sbeneficiaries. The appointment of trustees to the fund is determined by theschemes' trust documentation and legislation. The Group has a policy thatone-third of all trustees should be nominated by members of the fund. The scheme operated by Rathbone Stockbrokers Limited (the Laurence Keen Scheme)was closed to new entrants and future pension accrual for the current membershipwith effect from 1 October 1999. As from that date all the active members of theLaurence Keen Scheme were included under the Rathbone 1987 Scheme for accrual ofretirement benefits for further service. The Rathbone 1987 Scheme was closed tonew entrants with effect from 31 March 2002. Both schemes continue on a closedbasis with the existing assets remaining invested thereunder. The schemes are valued by independent actuaries every three years using theprojected unit credit method which looks at the value of benefits accruing overthe years following the valuation date based on projected salary to the date oftermination of services, discounted to a present value using a rate thatreflects the characteristics of the liability. The valuations are updated ateach balance sheet date in between full valuations. The latest full actuarialvaluations were carried out as at: Last full actuarial valuation as at:_________________________________________________________________________________Rathbone 1987 Scheme 31 December 2004Laurence Keen Scheme 31 December 2005_________________________________________________________________________________ The actuarial valuation of the Rathbone 1987 Scheme as at 31 December 2007 is inprogress but has not yet been completed. The assumptions used by the actuaries are the best estimates chosen from a rangeof possible actuarial assumptions which, due to the timescale covered, may notnecessarily be borne out in practice. The principal actuarial assumptions used,which reflect the different membership profiles of the schemes, were: 2007 2006 2007 2006 Laurence Laurence Rathbone Rathbone Keen Keen 1987 1987 Scheme Scheme Scheme Scheme_________________________________________________________________________________________Rate of increase in salaries 4.55% 4.15% 4.55% 4.15%Rate of increase in pensions in payment *3.60% *3.50% *3.20% *2.90%Rate of increase of deferred pensions 3.30% 2.90% 3.30% 2.90%Discount rate 5.70% 5.20% 5.70% 5.20%Expected return on scheme assets 6.10% 6.21% 7.10% 7.09%Inflation assumption 3.30% 2.90% 3.30% 2.90%_________________________________________________________________________________________* 5% for service prior to April 2001 The assumed duration of the liabilities for both schemes is 25 years (2006: 25years). The overall expected return on scheme assets is a weighted average ofthe returns expected on each class of asset held by the scheme, as disclosedbelow. Normal retirement age is 65 for members of the Laurence Keen Scheme and 60 formembers of the Rathbone 1987 Scheme. The assumed life expectancy for themembership of both schemes is based on the PA92 actuarial tables. In 2007, theassumption for life expectancy was updated to take account of recent andexpected future improvements in life expectancy by using the "Medium Cohort"projection, rated up by 2 years. The assumed life expectations on retirementwere: 2007 2007 2006 2006 Males Females Males Females____________________________________________________________________________________ Retiring today - aged 60 24.7 27.7 24.7 27.6 - aged 65 20.0 22.9 20.0 22.9Retiring in 20 years - aged 60 25.9 28.7 25.9 28.7 - aged 65 21.1 23.9 21.1 23.9____________________________________________________________________________________ The amount included in the balance sheet arising from the Group's obligations inrespect of the schemes is as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000___________________________________________________________________________________________Present value of defined benefit obligations (10,301) (60,274) (70,575) (10,423) (53,982) (64,405)Fair value of scheme assets 9,708 54,415 64,123 8,996 44,646 53,642___________________________________________________________________________________________Deficit in schemes (593) (5,859) (6,452) (1,427) (9,336) (10,763)___________________________________________________________________________________________ The amounts recognised in the income statement, within operating expenses, areas follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000___________________________________________________________________________________________Current service cost - 3,083 3,083 - 3,445 3,445Interest cost 532 2,897 3,429 567 2,571 3,138Expected return on scheme assets (551) (3,407) (3,958) (480) (2,655) (3,135)___________________________________________________________________________________________ (19) 2,573 2,554 87 3,361 3,448 Actuarial gains and losses have been reported in the statement of recognisedincome and expense. The actual return on scheme assets was £621,000 (2006:£565,000) for the Laurence Keen Scheme and £3,317,000 (2006: £3,381,000) for theRathbone 1987 Scheme. The cumulative actuarial gains and losses reported in the statement ofrecognised income and expense since the adoption of IFRS is as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000___________________________________________________________________________________________At 1 January 245 201 446 (1,432) (3,590) (5,022)Actuarial gains/(losses) recognised in the year 348 (78) 270 1,677 3,791 5,468___________________________________________________________________________________________At 31 December 593 123 716 245 201 446___________________________________________________________________________________________ Movements in the present value of defined benefit obligations were as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000___________________________________________________________________________________________At 1 January 10,423 53,982 64,405 11,697 50,501 62,198Service cost (employer's part) - 3,083 3,083 - 3,445 3,445Interest cost 532 2,897 3,429 567 2,571 3,138Contributions from members - 1,030 1,030 - 959 959Actuarial gains (278) (12) (290) (1,592) (3,038) (4,630)Benefits paid (376) (706) (1,082) (249) (456) (705)___________________________________________________________________________________________At 31 December 10,301 60,274 70,575 10,423 53,982 64,405___________________________________________________________________________________________ Movements in the fair value of scheme assets were as follows: 2007 2007 2006 2006 Laurence Rathbone Laurence Rathbone Keen 1987 2007 Keen 1987 2006 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000___________________________________________________________________________________________At 1 January 8,996 44,646 53,642 8,118 35,370 43,488Expected return on scheme assets 551 3,407 3,958 480 2,655 3,135Actuarial gains/(losses) 70 (90) (20) 85 753 838Contributions from the sponsoring companies 467 6,128 6,595 562 5,365 5,927Contributions from scheme members - 1,030 1,030 - 959 959Benefits paid (376) (706) (1,082) (249) (456) (705)___________________________________________________________________________________________At 31 December 9,708 54,415 64,123 8,996 44,646 53,642___________________________________________________________________________________________ The analysis of the scheme assets, measured at bid prices, and expected rates ofreturn on those assets at the balance sheet date was as follows: Laurence Keen Scheme 1.1.07 1.1.06 2007 2006 2007 2006 Expected Expected Fair Fair Current Current return return value value allocation allocation % % £'000 £'000 % %________________________________________________________________________________________ Equity instruments 7.60 7.50 5,180 5,047 53 56Debt instruments 4.40 4.30 4,161 3,738 43 42Cash 4.40 4.30 367 211 4 2________________________________________________________________________________________ 9,708 8,996 Rathbone 1987 Scheme 1.1.07 1.1.06 2007 2006 2007 2006 Expected Expected Fair Fair Current Current return return value value allocation allocation % % £'000 £'000 % %________________________________________________________________________________________Equity instruments 7.60 7.50 42,099 35,515 77 80Debt instruments 5.70 5.20 9,323 8,649 17 19Cash 4.40 4.30 2,993 482 6 1________________________________________________________________________________________ 54,415 44,646________________________________________________________________________________________ The expected return on equities was assumed to be 3.20% above the return on longdated Gilts (2006: 3.25% above). The expected rate of return on debt instrumentsis based on long-term yields at the start of the year, with an adjustment forthe risk of default and future downgrade in relation to corporate bonds. Cashhas been assumed to generate a similar return to short dated government bonds. The statement of investment principles set by the trustees requires that theassets of the scheme are invested in a balanced portfolio in the followingsectors and proportions: Laurence Keen Scheme Rathbone 1987 SchemeUK equities 35% - 55% 43% - 57%Overseas equities 0% - 15% 21% - 35%Fixed interest stocks 45% - 65%* 14% - 28%Cash deposits 45% - 65%* 0% - 8% \* The total allocation of assets in the Laurence Keen Scheme to fixed intereststocks and cash deposits is expressed as a combined percentage of the two assetclasses in the statement of investment principles. In the Rathbone 1987 Scheme, not more than 85% of the assets may be held inequities. A maximum of 5% of UK equities may be invested in companies outsidethe FTSE 350 and not more than 5% of total equity assets can be invested inhedge funds. The sensitivities regarding the principal assumptions used to measure theschemes liabilities are set out below: Impact on Scheme Liabilities (Decrease)/ (Decrease)/ Increase Increase £'000 %_______________________________________________________________________________________0.5% increase to:- Discount rate (7,400) (10.50)- Rate of inflation 5,400 7.70- Rate of salary growth 2,600 3.701 year increase to longevity at 60 2,000 2.80_______________________________________________________________________________________ The history of experience adjustments is as follows: Laurence Keen Scheme 2007 2006 2005 2004______________________________________________________________________________________Present value of defined benefit obligations (£'000) (10,301) (10,423) (11,697) (9,552)Fair value of scheme assets (£'000) 9,708 8,996 8,118 6,836______________________________________________________________________________________Deficit in the scheme (£'000) (593) (1,427) (3,579) (2,716)______________________________________________________________________________________Experience adjustments on schemeliabilities: - amount (£'000) 104 1,592 1,864 466 - percentage of scheme liabilities (%) 1% 15% 16% 5%______________________________________________________________________________________ Experience adjustments on scheme assets: - amount (£'000) 70 85 539 359 - percentage of scheme assets (%) 1% 1% 7% 5%______________________________________________________________________________________ Rathbone 1987 Scheme 2007 2006 2005 2004______________________________________________________________________________________Present value of defined benefit obligations (£'000) (60,274) (53,982) (50,501) (38,214)Fair value of scheme assets (£'000) 54,415 44,646 35,370 25,947______________________________________________________________________________________Deficit in the scheme (£'000) (5,859) (9,336) (15,131) (12,267)______________________________________________________________________________________ Experience adjustments on scheme liabilities: - amount (£'000) 1,264 3,038 7,138 1,881 - percentage of scheme liabilities (%) 2% 6% 14% 5%______________________________________________________________________________________ Experience adjustments on scheme assets: - amount (£'000) 90 753 4,297 1,132 - percentage of scheme assets (%) - 2% 12% 4%______________________________________________________________________________________ The total regular contributions made by the Group to The Rathbone 1987 Schemeduring the year were £2,238,000 (2006: £2,365,000) based on 13.9% of pensionablesalaries (1 January to 31 March 2006: 11.5%, 1 April to 24 August 2006: 15.5%,25 August to 31 December 2006: 13.9% of pensionable salaries). Additional lumpsum contributions amounting to £3,890,000 were also paid in 2007 (2006:£3,000,000). After 31 March 2002 the Rathbone 1987 Scheme was closed to newentrants and, consequently, the current pension cost will increase as themembers of the Scheme approach retirement. The total contributions made by the Group to the Laurence Keen Scheme during theyear were £467,000 (2006: 562,000). Annual contributions of £420,000 willcontinue to be made to the Laurence Keen Scheme. As the scheme was closed to newentrants with effect from 1 October 1999, the current pension cost will increaseas the members of the scheme approach retirement. 10. Reserves and retained earnings Available Total Merger for sale Translation other Retained reserve reserve reserve reserves earnings £'000 £'000 £'000 £'000 £'000_______________________________________________________________________________________At 1 January 2006 49,428 3,585 11 53,024 57,843Profit for the year 32,138Translation differences arising in the year (240) (240)Dividends paid (13,449)Actuarial gains and losses 5,468Revaluation of investment securities 4,202 4,202Net gains transferred to net profit on disposal ofavailable for saleinvestment securities (3,196) (3,196)Share-based payments - value of employee services 2,080 - cost of shares issued/purchased (3,773)Tax on equity items (302) (302) (1,278)_______________________________________________________________________________________At 1 January 2007 49,428 4,289 (229) 53,488 79,029Profit for the year 37,380Translation differences arising in the year 14 14Dividends paid (15,914)Actuarial gains and losses 270Revaluation of investment securities 2,069 2,069Net gains transferred to net profit on disposal ofavailable for saleinvestment securities (1,297) (1,297)Share-based payments- value of employee services 2,692- cost of shares issued/ purchased (3,508)Tax on equity items (93) (93) 728_______________________________________________________________________________________At 31 December 2007 49,428 4,968 (215) 54,181 100,677_______________________________________________________________________________________ The Merger Reserve represents share premium that was not recognised on the issueof shares as consideration for an acquisition prior to the adoption of IFRS on 1January 2004, in accordance with the Companies Act. 11. Consolidated cash flow statement For the purposes of the cash flow statement, cash and cash equivalents comprisethe following balances with less than three months' maturity from the date ofacquisition. 2007 2006 £'000 £'000 restated (note 1)_______________________________________________________________________________________Cash and balances at central banks (note 14) 4 5Loans and advances to banks (note 15) 214,216 108,338_______________________________________________________________________________________ 214,220 108,343_______________________________________________________________________________________ Cash flows arising from the issue of ordinary shares in the year comprise: 2007 2006 £'000 £'000Cash inflow - share capital 20 51Cash inflow - share premium 3,240 7,031Cash outflow - financing of shares in relation to share-based schemes (297) (367)_______________________________________________________________________________________ 2,963 6,715_______________________________________________________________________________________ 12. Financial information The financial information set out in this preliminary announcement has beenextracted from the Group's accounts which have been approved by the Board ofDirectors. The financial information set out above does not constitute the Company'sstatutory accounts for the years ended31 December 2007 or 2006. Statutory accounts for 2006 have been delivered to theRegistrar of Companies. Statutory accounts for 2007 will be delivered to theRegistrar of Companies following the Company's Annual General Meeting. Theauditors have reported on both the 2006 and 2007 accounts. Their reports wereunqualified and did not draw attention to any matters by way of emphasis. Theyalso did not contain statements under section 237(2) or (3) of the Companies Act1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Rathbone