1st Mar 2007 07:02
Rathbone Brothers PLC01 March 2007 1 March 2007 Rathbone Brothers Plc Preliminary results for the 12 months to 31 December 2006 "Rathbone Brothers Plc: Record profits and strong funds under management growth in 2006" 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 2006. Highlights: • Operating income increased by 18.1% to £133.7 million (2005: £113.2 million). • Profits before tax rose by 26.6% to £44.7 million (2005: £35.3 million). o 2006 results include profits of £3.2 million (2005: £2.3 million) from a part disposal of the Company's holding in London Stock Exchange Group plc; 2005 results also include £1.4 million of costs in relation to an aborted acquisition. o Unit trust profits increased by 34.2% to £5.1 million (2005: £3.8 million). • Basic earnings per share rose by 27.4% to 76.62p (2005: 60.13p). • Recommended final dividend is 21.5p, making a total of 35p (2005: 30p) for the year - an overall increase of 16.7%. • Successful integration of the acquisition of the investment management and private banking business of Dexia Banque Internationale a Luxembourg S.A., London Branch bringing 11 investment managers and £600 million in funds under management into Rathbone Investment Management. Mark Powell, chairman of Rathbone Brothers Plc, commented: "Record profits and strong funds under management growth of 28.4% to £12.2billion have been achieved in a year which has seen helpful stock marketconditions in the UK and overseas, an important acquisition and some valuablerecruitments. "The year has also seen continuing improvements in the infrastructure ofRathbones and an increase in the underlying rate of net organic growth of fundsunder management to 7.2% within Rathbone Investment Management and 41.7% in ourunit trust business. These statistics reflect the impact of our increasedemphasis on marketing generally and especially marketing to financialintermediaries and, within Rathbone Unit Trust Management, the excellentperformance record of the Rathbone Income Fund in particular. "Subject to market conditions, it seems reasonable to expect a further year ofgrowth in 2007. We face the future with genuine optimism." For further information contact: Rathbone Brothers Plc 020 7399 0000 (Switchboard) Mark Powell, ChairmanAndy Pomfret, Chief ExecutiveEmily Morris, Marketing Director Smithfield Reg Hoare/Miranda Good 020 7360 4900 Notes for editors: Rathbone Brothers Plc Rathbone Brothers Plc specialises in providing, through its subsidiaries,personalised investment management and wealth management services for privateinvestors and trustees, including discretionary fund management, unit trusts,tax planning, trust and company management, pension and banking services. Itmanages £12.2 billion of funds, including £1.9 billion managed by Rathbone UnitTrust Management Limited (as at 31 December 2006). Chairman's statement I am very pleased to present our results for the year ended 31 December 2006.Record profits have been achieved in a year which has seen helpful stock marketconditions in the UK and overseas, an important acquisition and some valuablerecruitments. The year has also seen continuing improvements in theinfrastructure of Rathbones and an increase in the underlying rate of netorganic growth of funds under management. Results and dividend Profits before tax for the year to 31 December 2006 were £44.7m, compared with£35.3m in 2005 - an increase of 26.6%. Adjusting for profits from part disposalsof the Company's investment in London Stock Exchange Group plc of £3.2m in 2006and £2.3m in 2005, and aborted acquisition costs of £1.4m in 2005, underlyingprofits have increased by 20.6%. Reported earnings per share have risen by 27.4% to 76.62p, compared with 60.13pin 2005. Underlying earnings per share have risen from 59.50p to 71.28p, anincrease of 19.8%. It is recommended that the final dividend be increased to 21.5p (2005: 18.5p),making a total of 35.0p (2005: 30.0p) for the year, an increase of 16.7%. The record results achieved in 2006 are in large part attributable to the energyand commitment of our staff to whom a great debt of gratitude is due. Rathbones in 2006 During the year the FTSE 100 Index rose by 10.7% and the FTSE/APCIMS BalancedIndex, which most closely reflects the spread of investments held by ourclients, rose by 6.8%. As we announced on 8 January 2007, funds under managementas a whole have risen by 28.4% to £12.2bn (2005: £9.5bn). The value ofinvestment portfolios under management within Rathbone Investment Managementrose by 24.1% to £10.3bn (2005: £8.3bn) and the value of funds under managementin Rathbone Unit Trust Management rose by 58.3% to £1.9bn (2005: £1.2bn). A key performance indicator for Rathbones is the underlying rate of net organicgrowth of funds under management which in Rathbone Investment Management duringthe year was 7.2%, compared with 5.8% in 2005, and in Rathbone Unit TrustManagement was 41.7% compared with 37.5% in 2005. These statistics reflect theimpact of our increased emphasis on marketing generally and especially marketingto financial intermediaries and, within Rathbone Unit Trust Management, theexcellent performance record of the Rathbone Income Fund in particular. This year has also seen continuing growth in the range and variety of investmentopportunities that are available to private investors and to the managers oftheir investment portfolios. We have seen further growth in the proportion ofour clients' assets which is committed to collective investments, as well asincreased use of funds of alternative assets and the use of structured products.These developments result from increased emphasis on asset allocation decisionsand the understanding of the risk profiles that each of our clients is happy toaccept. Each year your Board takes time outside routine meetings to examine its statedstrategic objectives and consider any developments, changes or enhancements thatare necessary. The revised statement of our strategic ambitions is reproduced inthe annual report. Our focus remains the provision of investment managementservices to private investors and trustees, the management of a range of unittrusts and the provision of trust and tax services in the UK and offshore, aswell as pension services in the UK. During 2006 profits from Rathbone Investment Management, through which weprovide segregated investment management services to private individuals andother investors, and which is a bank authorised and regulated under theFinancial Services and Markets Act 2000, have grown by 24.5% and in RathboneUnit Trust Management they have grown by 34.2%. The results from our trust and tax activities have been less satisfactory,despite some important reorganisation and management changes. A combination ofthe inevitable disruption suffered during the relocation of our three offices inJersey into one building, competition from other providers of trust and taxservices, and the uncertainty connected with some proposed unfavourable changesin trust law announced in the 2006 Budget, have put pressure on this divisionand profits fell by 28.1%. It should be noted, however, that the major part ofthis reduction is directly attributable to one-off property costs in Jersey. Corporate activity During the course of the year we have pursued our policy of seeking attractiveacquisition opportunities and appropriate recruitments of establishedprofessionals from other organisations. In April we completed the purchase ofthe UK investment management and private banking activities of Dexia. Thisbusiness has now been fully integrated into Rathbone Investment Management and,as recently announced, the private banking activity that was acquired has beensold to Butterfield Bank (UK) Limited as it did not fit strategically into ourexisting banking and investment management activities. The integration wasachieved more quickly than had been planned and we now expect this acquisitionto be earnings-enhancing during the whole of 2007. Additionally, we recruited eight new investment managers in Rathbone InvestmentManagement during the year and following the Dexia acquisition and theserecruitments, we now have 160 investment professionals in Rathbones as a whole. We continue to look for suitable acquisition opportunities but only if they meetour strict criteria of involving professionals who share our commitment todiscretionary investment management, are earnings-enhancing within a reasonabletimeframe and/or that they broaden the range of services available to ourclients. James Lifford At the end of the year James Lifford, who has been a director since 1996 andresponsible for our investment management offices outside London and Liverpool,retired from the Board. During the last ten years he has made a majorcontribution to the growth and development of our business and his experienceand wise counsel will be missed on the Board. We are delighted, however, that heis remaining a director of our offshore investment management company and willcontinue to focus on the investment affairs of clients from our Winchesteroffice. Outlook Mergers and acquisitions activity generally and the role of private equity inparticular have clearly had a favourable impact on UK stock markets during theyear. Subject to market conditions, it seems reasonable to expect a further yearof growth in 2007. We face the future with genuine optimism. Mark PowellChairman 28 February 2007 Consolidated income statementfor the year ended 31 December 2006 Note 2006 2005 £'000 £'000________________________________________________________________________________ Interest and similar income 37,335 27,472Interest expense and similar charges (21,297) (15,029)________________________________________________________________________________ Net interest income 16,038 12,443________________________________________________________________________________ Fee and commission income 120,039 102,869Fee and commission expense (8,365) (6,850)________________________________________________________________________________ Net fee and commission income 111,674 96,019________________________________________________________________________________ Dividend income 117 78Net trading income 1,285 1,409Net income from sale of available for sale investment securities 3,196 2,261Other operating income 1,376 975________________________________________________________________________________ Operating income 133,686 113,185________________________________________________________________________________ Operating expenses (88,966) (77,887)Aborted acquisition costs - (1,381)Other operating expenses (88,966) (76,506)Profit before tax 44,720 35,298Profit before aborted acquisition costs and tax 44,720 36,679Aborted acquisition costs - (1,381)Income tax expense 5 (12,582) (10,617)________________________________________________________________________________ Profit for the year attributable to equity holders of the Company 32,138 24,681________________________________________________________________________________ Earnings per share for the year attributable to equity holders of the Company:Basic 7 76.62p 60.13pDiluted 7 74.71p 58.84p Dividends paid and proposed for the year per ordinary share 6 35.00p 30.00pDividends (£'000) 14,786 12,351________________________________________________________________________________ Consolidated balance sheetas at 31 December 2006 Note 2006 2005 £'000 £'000________________________________________________________________________________ AssetsCash and balances at central banks 281 511Settlement balances 19,628 14,017Loans and advances to banks 119,247 144,975Loans and advances to customers 77,360 37,520Investment securities- available for sale 6,152 5,157- held to maturity 558,368 396,000Intangible assets 81,248 60,101Property, plant and equipment 6,463 4,295Deferred tax asset 5,321 8,599Prepayments, accrued income and other assets 38,551 25,093________________________________________________________________________________ Total assets 912,619 696,268________________________________________________________________________________ LiabilitiesDeposits by banks 12,119 1,853Settlement balances 18,078 16,133Due to customers 664,762 493,612Debt securities in issue - 141Accruals, deferred income and other 39,605 27,533liabilitiesCurrent tax liabilities 8,143 7,869Retirement benefit obligations 9 10,763 18,710________________________________________________________________________________ Total liabilities 753,470 565,851________________________________________________________________________________ EquityShare capital 2,114 2,063Share premium 10 24,518 17,487Other reserves 10 53,717 53,013Retained earnings 10 78,800 57,854________________________________________________________________________________ Total equity 159,149 130,417________________________________________________________________________________ Total equity and liabilities 912,619 696,268________________________________________________________________________________ Consolidated cash flow statementfor the year ended 31 December 2006 Note 2006 2005 £'000 £'000 (restated)________________________________________________________________________________ Cash flows from operating activitiesProfit before tax 44,720 35,298Net interest income (16,038) (12,443)Net income from sale of available for sale investment securities (3,196) (2,261)Movement in fair value of derivative financial instruments (30) (12)Impairment losses on loans and advances 323 386Profit on disposal of plant and equipment (49) (160)Depreciation and amortisation 3,418 2,497Defined benefit pension scheme charges 3,448 2,920Share based payment charges 2,080 1,971Interest paid (20,655) (14,781)Interest received 30,728 27,211________________________________________________________________________________ 44,749 40,626Changes in operating assets and liabilities- net decrease/(increase) in loans and advances to banks and customers 18,158 (18,490)- net (increase) in settlement balance debtors (5,611) (2,818)- net (increase) in prepayments, accrued income and other assets (6,851) (2,702)- net increase in amounts due to customers and deposits by banks 129,407 67,509- net increase in settlement balance creditors 1,946 894- net increase in accruals, deferred income, provisions and other liabilities 5,296 4,339________________________________________________________________________________ Cash generated from operations 187,094 89,358Defined benefit pension contributions paid (5,927) (3,359)Tax paid (10,609) (10,246)________________________________________________________________________________ Net cash inflow from operating activities 170,558 75,753________________________________________________________________________________ Cash flows from investing activitiesAcquisition of businesses, net of cash acquired (5,786) -Purchase of property, equipment and intangible assets (5,690) (2,602)Proceeds from sale of property and equipment 113 205Purchase of investment securities (1,363,970) (1,229,307)Proceeds from sale and redemption of investment securities 1,178,798 1,240,609________________________________________________________________________________ Net cash (used in)/generated from investing activities (196,535) 8,905________________________________________________________________________________ Cash flows from financing activitiesRepayments of debt securities (141) (146)Purchase of shares for share based schemes (3,407) (293)Issue of ordinary shares 12 6,715 1,586Dividends paid (13,449) (11,660)________________________________________________________________________________ Net cash used in financing activities (10,282) (10,513)________________________________________________________________________________ Net (decrease)/increase in cash and cash equivalents (36,259) 74,145Cash and cash equivalents at the beginning of the year 234,883 160,517Effect of exchange rate changes on cash and cash equivalents (281) 221________________________________________________________________________________ Cash and cash equivalents at the end of the year 12 198,343 234,883________________________________________________________________________________ Consolidated statement of recognised income and expensefor the year ended 31 December 2006 2006 2005 £'000 £'000________________________________________________________________________________ Profit after taxation 32,138 24,681________________________________________________________________________________ Exchange translation differences (240) 120Actuarial gain/(loss) on retirement benefit obligations 5,468 (4,166)Revaluation of available for sale investmentsecurities:- net gain from changes in fair value 4,202 199- net profit on disposal transferred to income during the period (3,196) (2,261)________________________________________________________________________________ 1,006 (2,062)________________________________________________________________________________Deferred tax on equity items:- available for sale investment securities (302) 619- actuarial gains and losses (1,640) 1,250________________________________________________________________________________ (1,942) 1,869________________________________________________________________________________ Net income/(expense) recognised directly in equity 4,292 (4,239)________________________________________________________________________________ Recognised income and expense for the period attributable to equity holders of the Company 36,430 20,442________________________________________________________________________________ Notes 1. Accounting policies In preparing the financial information included in this statement the Group hasapplied policies which are in accordance with International Financial ReportingStandards as adopted by the European Commission at 31 December 2006. There havebeen no changes to accounting policies adopted during the year except as notedbelow. Full details of the Group's other accounting policies can be found in theGroup's financial statements for the year ended 31 December 2005. Changes in accounting policies and disclosure During the year, the Group has adopted the amendments to IAS 39 FinancialInstruments: Recognition and Measurement and IFRS 4 Insurance Contracts thatrelate to financial guarantees. In accordance with IAS 39, financial guaranteesissued by the Group are initially recognised in the balance sheet at fair value.Guarantees are subsequently measured at the higher of the best estimate of anyamount to be paid to settle the guarantee and the amount initially recognisedless cumulative amortisation, which is recognised over the life of the contract. Adoption of the amendments did not have a material impact on the reportedresults or position of the Group for the years ended 31 December 2005 and 2006. Comparative figures have therefore not been restated. The comparative figures in the cash flow statement have been restated to showseparately interest paid and received. 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 £10,763,000 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 is set out in note9. 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 £69,965,000. 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 pension services amounted to £11,372,000 (2005: £10,753,000). 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. These divisionsare the basis on which the Group reports its primary segment information. Transactions between the business segments are on normal commercial terms andconditions. Intra-segment income constitutes trail commission. Revenues and expenses are allocated to the business segment that originated thetransaction. Centrally incurred expenses are allocated to business segments onan appropriate pro-rata basis. Segment assets and liabilities comprise operatingassets and liabilities, being the majority of the balance sheet, but excludeitems such as taxation and borrowings. At 31 December 2006 Investment Unit Trust and management trusts tax Eliminations Total £'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 revenues 163,348__________________________________________________________________________________ Segment result 34,119 5,059 2,346 41,524Unallocated items 3,196__________________________________________________________________________________ Profit before tax 44,720Tax (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__________________________________________________________________________________ Investment Unit Trust and management trusts tax Eliminations TotalAt 31 December 2005 £'000 £'000 £'000 £'000 £'000__________________________________________________________________________________External revenues 93,927 16,600 22,221 - 132,748Revenues from other segments 1,199 - - (1,199) -__________________________________________________________________________________ 95,126 16,600 22,221 (1,199) 132,748Unallocated external revenues 2,316__________________________________________________________________________________ Total revenues 135,064__________________________________________________________________________________ Segment result 27,383 3,784 3,194 34,361Unallocated items 937__________________________________________________________________________________Profit before tax 35,298Tax (10,617)__________________________________________________________________________________ Profit for the year 24,681__________________________________________________________________________________Segment assets 601,607 11,374 53,617 666,598Unallocated assets 29,670__________________________________________________________________________________Total assets 696,268__________________________________________________________________________________ Segment liabilities 511,966 7,985 17,589 537,540Unallocated liabilities 28,311__________________________________________________________________________________ Total liabilities 565,851__________________________________________________________________________________ Other segment items:Capital expenditure 1,816 93 693 2,602Depreciation and amortisation 1,891 138 467 2,496Other non-cash expenses 1,498 208 785 2,491Provisions charged in the year 1,819 - 704 2,523Provisions utilised in the year 230 - 339 569__________________________________________________________________________________ Unallocated external revenues are principally comprised of gains on disposal ofavailable for sale securities (b) Geographical Segments The Group's operations are located in the United Kingdom, Jersey, Switzerlandand the British Virgin Islands. The following table provides an analysis of theGroup's revenues by geographical market, by origin of the services:Total revenues by geographical market 2006 2005 £'000 £'000________________________________________________________________________________United Kingdom 140,666 113,146Jersey 18,421 17,579Rest of the world 4,261 4,339________________________________________________________________________________ 163,348 135,064________________________________________________________________________________ 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:Carrying amount of segment assets 2006 2005 £'000 £'000________________________________________________________________________________ United Kingdom 826,822 622,115Jersey 31,448 24,132Rest of the world 19,827 20,351________________________________________________________________________________ 878,097 666,598________________________________________________________________________________ Additions to property, plant and equipment and intangible assets 2006 2005 £'000 £'000________________________________________________________________________________United Kingdom 12,421 2,022Jersey 2,122 444Rest of the world 39 136________________________________________________________________________________ 14,582 2,602________________________________________________________________________________ (c) Total revenues Total revenue constitutes the following: 2006 2005 £'000 £'000________________________________________________________________________________Interest and similar income 37,335 27,472Fee and commission income 120,039 102,869Dividend income 117 78Net trading income 1,285 1,409Gains less losses from investment securities 3,196 2,261Other operating income 1,376 975________________________________________________________________________________ Total revenues 163,348 135,064Interest payable (21,297) (15,029)Fees and commission expense (8,365) (6,850)________________________________________________________________________________ Operating income 133,686 113,185________________________________________________________________________________ 4. Business combinations On 6 April 2006, the Group acquired the investment management and privatebanking business of Dexia Banque Internationale a Luxembourg S.A., LondonBranch. The business was transferred to Rathbone Investment Management Limited,a principal subsidiary of the Company, by way of a Court order sanctioning abanking business transfer scheme pursuant to Part VII of the Financial Servicesand Markets Act 2000. Included within the consolidated income statement for the year ended 31 December2006 is a profit before tax of £228,000 relating to the acquired business. Ifthe acquisition had occurred on 1 January 2006, the estimated total revenue forthe Group for the year ended 31 December 2006 would have been £164,642,000 andprofit after tax for the year would have been £32,094,000. The acquired business' net assets at the acquisition date were as follows: Recognised Fair value Carrying values adjustments amounts £'000 £'000 £'000________________________________________________________________________________Cash and cash equivalents 9,101 - 9,101Loans and advances to customers 43,342 - 43,342Property, plant and equipment 91 - 91Client relationships 3,962 3,962 -Other receivables 14 - 14Due to customers (52,443) - (52,443)________________________________________________________________________________Net identifiable assets acquired 4,067 3,962 105 ______________________Goodwill on acquisition 12,230________________________________________________________ Total net assets acquired 16,297________________________________________________________ Total consideration for the acquisition, including directly attributable costs,constitutes the following: Amount paid Amount Total deferred £'000 £'000 £'000 ________________________________________________________________________________ Cash consideration 14,478 1,410 15,888Professional fees 409 - 409________________________________________________________________________________ 14,887 1,410 16,297________________________________________________________________________________ The goodwill arising on the acquisition is attributable to the employees and theanticipated profitability of incorporating the business into the Group'soperating model and utilising existing capacity within its operations. 5. Income tax expense 2006 2005 £'000 £'000________________________________________________________________________________ Current tax 10,820 11,649Adjustments in respect of previous years 64 387Deferred tax 1,698 (1,419)________________________________________________________________________________ 12,582 10,617________________________________________________________________________________ The tax charge for the year is lower (2005: higher) than the standard rate ofcorporation tax in the UK of 30% (2005: 30%). The differences are explainedbelow: 2006 2005 £'000 £'000________________________________________________________________________________ Tax on ordinary activities at the standard rate of 30% (2005: 30%) 13,416 10,590Effects of:UK dividend income (23) (17)Disallowable expenses 257 639Share based payments (649) (101)UK tax on overseas subsidiary dividends - 63Tax relief on purchased goodwill 79 (3)Withholding tax suffered - 3Lower tax rates on overseas earnings (719) (36)Under/(over) provision for tax in previous years 221 (521)________________________________________________________________________________ Income tax expense 12,582 10,617________________________________________________________________________________ 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 £1,580,000 has beencharged directly to equity (2005: £2,800,000 credited to equity). 6. Dividends 2006 2005 £'000 £'000________________________________________________________________________________ Amounts recognised as distributions to equityholders in the year:- final dividend for the year ended 31 December 2005 of 18.5p (2004: 17p) per share 7,754 6,948- adjustment to 2005 final dividend on 4,763 shares in respect of dividends waived (1) -- adjustment to 2004 final dividend on 31,991 shares in respect of dividends waived - (5)- interim dividend for the year ended 31 December 2006 of 13.5p (2005: 11.5p) per share 5,697 4,724- adjustment to 2005 interim dividend on 59,435 shares in respect of dividends waived - (7)- adjustment to 2006 interim dividend on 6,170 shares in respect of dividends waived (1) -________________________________________________________________________________ 13,449 11,660________________________________________________________________________________ Proposed final dividend for the year ended 31 December 2006 of 21.5p (2005: 18.5p) per share 9,090 7,634________________________________________________________________________________ The interim dividend of 13.5p per share was paid on 13 October 2006 toshareholders on the register at the close of business on 22 September 2006. The final dividend declared of 21.5p per share is payable on 10 May 2007 toshareholders on the register at the close of business on 13 April 2007. 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 £32,138,000 (2005: £24,681,000) by the weightedaverage number of shares in issue throughout the year of 41,946,781 (2005:41,046,753). 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). 2006 2005________________________________________________________________________________ Weighted average number of ordinary shares in issue during the year - basic 41,946,781 41,046,753Effect of ordinary share options 580,127 385,312Effect of dilutive shares issuable under the Share Incentive Plan 152,580 163,556Effect of contingently issuable ordinary shares under the Long Term Incentive Plan 334,720 354,242________________________________________________________________________________Diluted ordinary shares 43,014,208 41,949,863________________________________________________________________________________ 8. Provisions Deferred contingent Client Litigation consideration compensation related Total £'000 £'000 £'000 £'000________________________________________________________________________________At 1 January 2006 157 2,072 582 2,811Exchange adjustments - - (13) (13)________________________________________________________________________________Charged to the income statement 1,373 1,028 2,401Unused amount credited to the income statement (676) (174) (850)________________________________________________________________________________Net charge to the income statement(i) 697 854 1,551Capitalised during the year(ii) 10,829 10,829Utilised/paid during the year (4,579) (1,244) (907) (6,730)________________________________________________________________________________At 31 December 2006 6,407 1,525 516 8,448________________________________________________________________________________Current 4,540 1,189 422 6,151Non-current 1,867 336 94 2,297________________________________________________________________________________ 6,407 1,525 516 8,448________________________________________________________________________________ (i) In addition to the net charge of £1,551,000 (2005: £2,523,000) to the incomestatement in the above table, a net credit of £179,000 (2005: £594,000) has beenrecognised in the income statement during the period in relation to expectedinsurance recoveries resulting in a net charge to the income statement for otherprovisions of £1,372,000 (2005: £1,929,000). (ii) Amounts capitalised during the period comprise £5,410,000 deferredconsideration in relation to the acquisition of the investment management andprivate banking business of Dexia Banque Internationale a Luxembourg S.A.,London Branch (see note 4), £4,425,000 in relation to deferred payments toinvestment managers under earn-out schemes and £994,000 in relation to theacquisition of client relationships. Deferred contingent consideration relates to a number of agreements in relationto the attraction of investment management clients. The amount of theconsideration is contingent on the value of funds attracted and is payable incash. 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 £594,000 (2005: £370,000). The Group also operates defined contributionschemes for overseas employees, for which the total contributions were £517,000(2005: £450,000). The Group operates two pension schemes providing benefits based on finalpensionable pay for executive directors and staff employed by the Company (theRathbone 1987 Scheme and the Laurence Keen Scheme). The schemes are currentlyboth clients of Rathbone Investment Management Limited, with investments managedon a discretionary basis. Scheme assets are held separately from those of theGroup. The scheme operated by Rathbone Stockbrokers Limited (the Laurence KeenScheme) was closed to new entrants and future pension accrual for the currentmembership with effect from 1 October 1999. As from that date all the activemembers of the Laurence Keen Scheme were included under the Rathbone 1987 Schemefor accrual of retirement benefits for further service. The Rathbone 1987 Schemewas closed to new entrants with effect from 31 March 2002. Both schemes continueon a closed basis 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 date oftermination of services. The valuations are updated at each balance sheet datein between full valuations. The latest full actuarial valuations were carriedout as at: Latest full actuarial valuation as at:________________________________________________________________________________ Rathbone 1987 Scheme 31 December 2004Laurence Keen Scheme 31 December 2002________________________________________________________________________________ The actuarial valuation of the Laurence Keen Scheme as at 31 December 2005 is inprogress but has not yet been completed. Consideration has been given to thepreliminary results of that valuation in preparing these financial statements. 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: Laurence Keen Scheme Rathbone 1987 Scheme 2006 2005 2006 2005_____________________________________________________________________________Rate of increase in salaries 4.15% 4.05% 4.15% 4.05%Rate of increase in pensions in payment *3.50% *2.80% *2.90% *2.80%Rate of increase of deferred pensions 2.90% 2.80% 2.90% 2.80%Discount rate 5.20% 4.90% 5.20% 4.90%Expected return on scheme assets 6.21% 5.99% 7.09% 7.06%Inflation assumption 2.90% 2.80% 2.90% 2.80%_____________________________________________________________________________ *5% for service prior to April 2001 The overall expected return on scheme assets is a weighted average of thereturns expected on each class of asset held by the scheme, as disclosed below. 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 2006, 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: 2006 2005 2006 2005 Males Males Females Females_________________________________________________________________________Retiring today - aged 60 24.7 24.6 27.6 27.5 - aged 65 20.0 19.9 22.9 22.8Retiring in 20 years - aged 60 25.9 25.8 28.7 28.6 - aged 65 21.1 21.1 23.9 23.9_________________________________________________________________________ The amount included in the balance sheet arising from the Group's obligations inrespect of the schemes is as follows: 2006 2005 Laurence Rathbone Laurence Rathbone Keen 1987 Keen 1987 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000____________________________________________________________________________________Present value of defined benefit obligations (10,423) (53,982) (64,405) (11,697) (50,501) (62,198)Fair value of scheme assets 8,996 44,646 53,642 8,118 35,370 43,488____________________________________________________________________________________Deficit in schemes (1,427) (9,336) (10,763) (3,579) (15,131) (18,710)____________________________________________________________________________________ The amounts recognised in the income statement, within operating expenses, areas follows: 2006 2005 Laurence Rathbone Laurence Rathbone Keen 1987 Keen 1987 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000____________________________________________________________________________________Current service cost - 3,445 3,445 - 2,585 2,585Interest cost 567 2,571 3,138 519 2,182 2,701Expected return on scheme assets (480) (2,655) (3,135) (419) (1,947) (2,366)____________________________________________________________________________________ 87 3,361 3,448 100 2,820 2,920____________________________________________________________________________________ Actuarial gains and losses have been reported in the statement of recognisedincome and expense. The actual return on scheme assets was £565,000 (2005:£958,000) for the Laurence Keen scheme and £3,381,000 (2005: £6,244,000) for theRathbone 1987 scheme. Movements in the present value of defined benefit obligations were as follows: 2006 2005 Laurence Rathbone Laurence Rathbone Keen 1987 Keen 1987 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000____________________________________________________________________________________At 1 January 11,697 50,501 62,198 9,552 38,214 47,766Service cost (employer's part) - 3,445 3,445 - 2,585 2,585Interest cost 567 2,571 3,138 519 2,182 2,701Contributions from members - 959 959 - 778 778Actuarial gains and losses (1,592) (3,038) (4,630) 1,864 7,138 9,002Benefits paid (249) (456) (705) (238) (396) (634)____________________________________________________________________________________ 10,423 53,982 64,405 11,697 50,501 62,198____________________________________________________________________________________ Movements in the fair value of the schemes' assets were as follows: 2006 2005 Laurence Rathbone Laurence Rathbone Keen 1987 Keen 1987 Scheme Scheme Total Scheme Scheme Total £'000 £'000 £'000 £'000 £'000 £'000____________________________________________________________________________________ At 1 January 8,118 35,370 43,488 6,836 25,947 32,783Expected return on scheme 480 2,655 3,135 419 1,947 2,366assetsActuarial gains and losses 85 753 838 539 4,297 4,836Contributions from the sponsoring companies 562 5,365 5,927 562 2,797 3,359Contributions from scheme members - 959 959 - 778 778Benefits paid (249) (456) (705) (238) (396) (634)____________________________________________________________________________________ 8,996 44,646 53,642 8,118 35,370 43,488____________________________________________________________________________________ The analysis of the schemes' assets at the balance sheet date, measured at bidprices, and expected rates of return on those assets was as follows: Laurence Keen Scheme Expected Fair Value Current return allocation 1.1.06 1.1.05 2006 2005 2006 2005 % % £'000 £'000 % %___________________________________________________________________Equity instruments 7.50 7.50 5,047 4,302 56 53Debt instruments 4.30 4.60 3,738 3,342 42 41Cash 4.30 4.50 211 474 2 6___________________________________________________________________ 8,996 8,118___________________________________________________________________ Rathbone 1987 Scheme Expected Fair Value Current return allocation 1.1.06 1.1.05 2006 2005 2006 2005 % % £'000 £'000 % %___________________________________________________________________Equity instruments 7.50 7.50 35,515 27,504 80 78Debt instruments 5.20 5.50 8,649 7,045 19 20Cash 4.30 4.50 482 821 1 2___________________________________________________________________ 44,646 35,370___________________________________________________________________ The expected return on equities was assumed to be 3.25% above the return on longdated Gilts. The expected rate of return on debt instruments is based on longterm yields at the start of the year, with an adjustment for the risk of defaultand future downgrade in relation to corporate bonds. Cash has been assumed togenerate a similar return to short dated government bonds. The history of experience adjustments is as follows: Laurence Keen Scheme 2006 2005 2004_______________________________________________________________________________Present value of defined benefit obligations (£'000) (10,423) (11,697) (9,552)Fair value of scheme assets (£'000) 8,996 8,118 6,836_______________________________________________________________________________Surplus/(deficit) in the scheme (£'000) (1,427) (3,579) (2,716)_______________________________________________________________________________Experience adjustments on schemeliabilities:- amount (£'000) 1,592 1,864 466- percentage of scheme liabilities (%) 15% 16% 5%_______________________________________________________________________________Experience adjustments on schemeassets:- amount (£'000) 85 539 359- percentage of scheme assets (%) 1% 7% 5%_______________________________________________________________________________ Rathbone 1987 Scheme 2006 2005 2004_______________________________________________________________________________Present value of defined benefit (53,982) (50,501) (38,214)obligations (£'000)Fair value of scheme assets (£'000) 44,646 35,370 25,947_______________________________________________________________________________Surplus/(deficit) in the scheme (£'000) (9,336) (15,131) (12,267)_______________________________________________________________________________Experience adjustments on schemeliabilities:- amount (£'000) 3,038 7,138 1,881- percentage of scheme liabilities (%) 6% 14% 5%_______________________________________________________________________________Experience adjustments on schemeassets:- amount (£'000) 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 £2,365,000 (2005: £1,802,000). On 1 April 2006, the Groupincreased its contributions from 11.5% to 15.5% of pensionable salary and on 25August 2006, in accordance with advice received from the scheme actuaries, theGroup's contributions were reduced to 13.9% of pensionable salaries. Additionallump sum contributions amounting to £3,000,000 were also paid in 2006 (2005:£1,000,000). With effect from 1 April 2006, each active member of the scheme wasrequired to elect either to maintain their current rate of contributions butreceive a lower benefit accrual rate or to pay a higher rate of contributionswhilst maintaining their current benefit accrual rate. The Group has committedto make additional payments of up to £7,000,000 to reduce the current fundingdeficit during the course of 2007. After 31 March 2002 the Rathbone 1987 Schemewas closed to new entrants and, consequently, the current pension cost willincrease as the members of the Scheme approach retirement. The total contributions made by the Group to the Laurence Keen Scheme during theyear were £562,000 (2005: £562,000). The level of funding will be reviewed aspart of the process to conclude the triennial valuation as at 31 December 2005As the Scheme was closed to new entrants with effect from 1 October 1999, thecurrent pension cost will increase as the members of the Scheme approachretirement. 10. Reserves and retained earnings Available Share Merger for sale Translation Retained premium reserve reserve reserve earnings £'000 £'000 £'000 £'000 £'000_______________________________________________________________________________________ At 1 January 2005 14,766 49,428 5,029 (109) 46,283Retained profit for the year 24,681Foreign currency translation 120Dividends paid (11,660)Shares issued 2,721Actuarial gains and losses (4,166)Revaluation of investment securities 199Net gains transferred to net profit on disposal of available for saleinvestment securities (2,261)Share based payments- value of employee services 1,971- cost of shares issued/purchased (1,448)Tax on equity items 618 2,182_______________________________________________________________________________________ At 1 January 2006 17,487 49,428 3,585 11 57,843Retained profit for the year 32,138Foreign currency translation (240)Dividends paid (13,449)Shares issued 7,031Actuarial gains and losses 5,468Revaluation of investment securities 4,202Net gains transferred to net profit on disposal of available for saleinvestment securities (3,196)Share based payments- value of employee services 2,080- cost of shares issued/purchased (3,773)Tax on equity items (302) (1,278)_______________________________________________________________________________________ At 31 December 2006 24,518 49,428 4,289 (229) 79,029_______________________________________________________________________________________ 11. Contingent liabilities and commitments (a) The Group is currently carrying out a review of its Rathbone SelfInvested Personal Pension ("Rathbone SIPP") business. The principal aim of thereview is to ascertain whether any of the Rathbone SIPPs arranged for clientswere unsuitable. The review was initiated by the Group in 2004; the Group'sregulator has been consulted in relation to the approach being adopted. To date,the review has identified a small number of cases involving the transfer ofclients' existing pension policies into Rathbone SIPPs where the case files donot contain conclusive evidence of suitability and a provision has been made inrelation to these (see note 8). There remains 1 case requiring furtherinvestigation and, at this stage, it is not practicable to determine what, ifany, financial effect there will be for the Group in respect of that remainingcase. (b) Indemnities are provided to a number of directors and employeesin our Trust Division in connection with them acting as Directors on clientstructures in the normal course of business. (c) Capital expenditure authorised and contracted for at 31 December2006 but not provided in the accounts amounted to £1,016,000 (2005: £1,363,000). (d) The contractual amounts of the Group's commitments to extendcredit to its clients are as follows: 2006 2005 £'000 £'000______________________________________________________________________________Guarantees 411 1,679Undrawn commitments to lend of 1 year or less 14,768 4,990______________________________________________________________________________ 15,179 6,669______________________________________________________________________________ The fair value of the guarantees is £nil (2005: £nil). (e) At 31 December 2006, the Group had outstanding commitments forfuture minimum lease payments under non-cancellable operating leases, which falldue as follows: 2006 2005 £'000 £'000______________________________________________________________________________ No later than 1 year 3,956 3,147Later than 1 year and no later than 5 years 10,918 12,120Later than 5 years 2,936 6,687______________________________________________________________________________ 17,810 21,954______________________________________________________________________________ Minimum lease payments under operating leases recognised in income for the yearwere £3,573,000 (2005: £3,221,000). 12. 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. 2006 2005 £'000 £'000______________________________________________________________________________Cash and balances at central banks 5 197 Loans and advances to banks 108,338 118,686 Debt securities 90,000 116,000 ______________________________________________________________________________ 198,343 234,883______________________________________________________________________________ Cash flows arising from issue of ordinary shares comprise: 2006 2005 £'000 £'000______________________________________________________________________________Cash inflow - share capital 51 20 Cash inflow - share premium 7,031 2,721 Cash outflow - financing of shares in relation to share based schemes (367) (1,155) ______________________________________________________________________________ 6,715 1,586______________________________________________________________________________ 13. Events after the balance sheet date On 5 January 2007 the Group completed the sale of the private banking businessacquired from Dexia Banque Internationale a Luxembourg S.A., London Branch. Thisresulted in derecognition of £33,208,000 of Loans and Advances to Customers fromthe consolidated balance sheet at this date. As part of this agreement£9,552,000 of related amounts Due to Customers will be transferred during 2007. 14. 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 ended 31 December 2006 or 2005. Statutoryaccounts for 2005 have been delivered to the Registrar of Companies. Statutoryaccounts for 2006 will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. The auditors have reported on both the 2005and 2006 accounts. Their reports were unqualified and did not draw attention toany matters by way of emphasis. They also did not contain statements undersection 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Rathbone