4th Aug 2005 16:10
Rathbone Brothers PLC04 August 2005 4 August 2005 FOR IMMEDIATE RELEASE RATHBONE BROTHERS PLCTRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS From 1 January 2005, Rathbone Brothers Plc is required by European Directives toreport its consolidated financial statements under International FinancialReporting Standards (IFRS), as endorsed by the European Union (EU). Thisannouncement explains how the changes in accounting treatment under IFRS impacton the Group's previously reported financial information for the year ended 31December 2004 prepared under UK Generally Accepted Accounting Principles (UKGAAP). All IFRS figures included in this announcement are unaudited. The date oftransition to IFRS is 1 January 2004, being the start of the earliest period ofcomparative information. A summary of the impact on the Group of the transition to IFRS for 2004 isprovided in the table below: UK GAAP IFRS (as previously reported) £'000s £'000s Increase Year ended 31 December 2004:Profit before tax 28,492 20,866 36.6%Profit before goodwill amortisation and 28,492 26,793 6.3%tax Earnings per ordinary share- basic 48.99p 32.23p 52.0%- basic before goodwill amortisation 48.99p 46.79p 4.7% Total equity as at 1 January 2004 106,835 105,902 0.9%Total equity as at 31 December 2004 117,440 110,585 6.2% ----------------------------------- ------- -------- ------- The most significant changes from the transition to IFRS are: • the cessation of goodwill amortisation, which has had the largest impact on profit (IFRS 3) • not accruing a liability for dividends that have not been declared and approved (IAS 10) • the inclusion of fair value charges in respect of outstanding employee share options granted after 7 November 2002 (and not vested by 1 January 2005) spread over the vesting period (IFRS 2) • the replacement of existing charges for other share based payment awards with fair value charges for those awards granted after 7 November 2002 (and not vested by 1 January 2005) spread over the vesting period (which is a revised time period to that adopted under UK GAAP in some instances) (IFRS 2) • the inclusion in the balance sheet of all employee benefit liabilities (largely the defined benefit pension scheme deficits) (IAS 19) • the classification of equity investments as available-for-sale (IAS 39) • the tax effect of the above adjustments for IFRS, where applicable, and provision of deferred tax in relation to unremitted overseas earnings (IAS 12) The appendices included in this announcement contain the following: Appendix 1 - IFRS Primary Statements 1a The Group's consolidated income statement for the year ended 31 December 20041b The Group's consolidated balance sheet at 1 January 20041c The Group's consolidated balance sheet at 31 December 20041d The Group's consolidated cash flow statement for the year ended 31 December20041e The Group's consolidated statement of recognised income and expense for theyear ended 31 December 2004 Appendix 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2a Effect of IFRS on the UK GAAP consolidated income statement for the yearended 31 December 20042b Effect of IFRS on the UK GAAP consolidated balance sheet as at 1 January 20042c Effect of IFRS on the UK GAAP consolidated balance sheet as at 31 December2004 Appendix 3 - Principal Accounting Policies under IFRS The financial information contained in Appendices 1 and 2 has been prepared inaccordance with the standards and interpretations approved by the InternationalAccounting Standards Board and its predecessors, all of which have been approvedby the European Commission, with the exception of the revisions to IAS 19'Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures'where it is assumed that the revisions will be endorsed without amendment. Thestandards in issue are subject to ongoing review and endorsement by the EU,whilst application of the standards continues to be subject to review by theInternational Financial Reporting Interpretations Committee (IFRIC).Modifications to the information presented in this announcement may therefore berequired in the event that further guidance is issued and as practice develops. Transitional arrangementsIFRS 1 'First Time Adoption of International Financial Reporting Standards'permits companies adopting IFRS for the first time to take certain exemptionsfrom the full requirements of IFRS in the transition period. The Group'sapplication of the optional exemptions is as follows: Business combinationsThe Group has chosen not to apply IFRS 3 'Business Combinations' retrospectivelyto business combinations that occurred prior to 1 January 2004. Employee benefitsThe Group has chosen to recognise all cumulative actuarial gains and lossesassociated with the Group's defined benefit schemes at the date of transition. Share based paymentsThe Group has chosen not to apply IFRS 2 'Share-based Payment' to share andshare option awards that were granted on or before 7 November 2002 or to thosegranted after 7 November 2002 which vested before 1 January 2005. Exemption from using IAS 32 and IAS 39 in comparativesThe Group has chosen not to take advantage of the exemption within IFRS 1 thatallows comparative information presented in the first year of adoption of IFRSnot to comply with IAS 32 'Financial Instruments: Disclosure and Presentation'and IAS 39 'Financial Instruments: Recognition and Measurement'. Key impact analysis IFRS 3 - Business Combinations In accordance with the transitional provisions of IFRS 1, the Group has chosento apply IFRS 3 prospectively from the date of transition. This results in thevalue of goodwill arising from previous acquisitions being frozen at the valueheld on the Group balance sheet as at 1 January 2004 and the reversal of anyamortisation charged in the year to 31 December 2004. From 1 January 2004,goodwill is subject to an annual impairment review in accordance with thestandard and will be impaired where there are indications that the carryingvalue may not be recoverable. Under UK GAAP, goodwill was amortised overexpected useful lives of between 8 - 20 years. This change results in the reversal of £5.9 million previously charged to theincome statement under UK GAAP for the year ended 31 December 2004. Closingbalance sheet equity is therefore also increased by £5.9 million. IAS 10 - Events after the Balance Sheet Date Under IAS 10, assets and liabilities should be adjusted for subsequent eventsthat existed at the balance sheet date, but not for events that are indicativeof conditions that arose subsequent to the balance sheet date. The main effectof this is that under IAS 10, entities are not permitted to recognise aliability for dividends declared after the balance sheet date. Under UK GAAPproposed dividends at the half year and year end were accrued although there isno obligation to pay until the dividend is declared. Interim and final dividends are now recorded as an appropriation ofshareholders' funds in the period that they are declared by the Board. Theoverall impact of this change is to increase opening balance sheet equity by£6.5 million and closing balance sheet equity by £6.9 million. IFRS 2 - Share-based Payment The Group recognises a charge to the income statement for the fair value ofoutstanding share options and share awards in relation to the Group's ShareIncentive Plan ('SIP') and Long Term Incentive Plan granted to employees after 7November 2002 and not vested by 1 January 2005. The charges are calculated usinga binomial valuation model or Monte Carlo simulation techniques, as appropriate,and are spread over the relevant vesting periods, taking account of actual andexpected levels of vesting, where appropriate. The levels of vesting aredependent on performance conditions and forfeit rates. Under UK GAAP, there wasno charge in the income statement in relation to share option awards but therewere charges for share awards granted before 7 November 2002. In relation to theSIP free shares, the charge was recognised in the performance year, whereasunder IFRS the charge is spread over the vesting period of 4.25 years. The impact on opening balance sheet equity is an increase of £0.2 million and adecrease of £0.2 million on closing balance sheet equity. There is a positiveimpact of £1.8 million on profit before tax for the year. IAS 19 - Employee Benefits The Group recognises the net liability on defined benefit schemes in the balancesheet and takes all actuarial gains and losses to the statement of recognisedincome and expense, in accordance with the permitted methods of recognition onearly adoption of the amendment to IAS 19, issued in December 2004. Under UKGAAP, the Group accounted for the defined benefit schemes in accordance withSSAP 24 'Accounting for pension costs'. These changes reduce opening balance sheet equity by £14.7 million. The effecton the profit for the year is an increase of £0.2 million. Actuarial losses of£0.9 million have been recognised directly in equity. Closing balance sheetequity is reduced by £15.7 million. IAS 39 - Financial Instruments Recognition and Measurement In considering the options available under IAS 39, the Group has elected toadopt the following classifications for financial assets: - held-to-maturity for certificates of deposit which will therefore continue tobe held in the balance sheet at cost- available-for-sale for equity shares with gains and losses on revaluationbeing taken directly to equity Derivative financial instruments are stated at fair value with gains and losseson revaluation being taken to profit and loss. The impact of the changes is to increase opening balance sheet equity by £5.8million and closing balance sheet equity by £7.2 million. IAS 38 - Intangible Assets The Group capitalises certain software expenditure as intangible assets wherethe expenditure meets the criteria for capitalisation as set out in thestandard. Under UK GAAP, software expenditure was either classified as tangiblefixed assets or expensed in the income statement. The change increases opening and closing balance sheet equity by £0.3 million. IAS 18 - Revenue Under IAS 18, when the outcome of a transaction involving the rendering ofservices can be estimated reliably, revenue associated with the transactionshould be recognised by reference to the stage of completion of the transactionat the balance sheet date. In relation to the Group's work in progress for trustand pension services, valuation will be at the expected recoverable amountrather than the UK GAAP treatment of valuing at the lower of cost and expectedrecoverable amount. The principles of IAS 18 and IAS 39 have also been interpreted as applying tosome of the income streams in the unit trust business. The Group is spreading anelement of its unit trust income over the estimated average life of the relatedunit holdings in line with emerging industry practice which is still evolving.The impact of IAS 18 on the Group is a decrease of £0.1 million in openingbalance sheet equity, £0.4 million in profit and £0.5million in closing balancesheet equity. IAS 12 - Income Taxes The Group's effective tax rate under IFRS is 30.0% compared to 37.1% under UKGAAP. This is principally due to the changed treatment of goodwill referred toearlier and in part, due to the provision of deferred tax for overseas earningsexpected to be remitted in the foreseeable future. Under UK GAAP, no provisionwas made for unremitted overseas earnings in the absence of binding agreementswith the Group's overseas subsidiaries. IAS 7 - Cash Flow Statements The Group has prepared its cash flow statement in accordance with IAS 7. UnderIAS 7, the cash flow statement shows the movement in cash and cash equivalents,being defined as cash on hand, demand deposits and short term highly liquidinvestments that are readily convertible to known amounts of cash and which aresubject to an insignificant risk of change in value. Under UK GAAP, the Group'scash flow statement showed the movement in cash repayable on demand only and inparticular, excluded short term highly liquid investments. This change in definition from cash to cash and cash equivalents results in anincrease of cash under UK GAAP of £17.3 million changing to a decrease in cashand cash equivalents of £3.4 million under IFRS, although it should be notedthat for regulatory solvency purposes, the marketability of the whole portfolioof certificates of deposit is taken into account. All other adjustments made tothe cash flow statement for IFRS represent reclassifications between line itemsand have not impacted actual cash flows. Further CommunicationThe Group will publish its interim results on 1 September 2005. The interimreport will include a description of the nature and effect of all accountingpolicy changes on transition, reconciliations of the Group's financialinformation included in this announcement from UK GAAP to IFRS for the sixmonths ended 30 June 2004, together with notes sufficient to give anunderstanding of the six month period to 30 June 2005. For further information contact: Rathbone Brothers Plc 020 7399 0000 (Switchboard)Sue Desborough, Finance DirectorThe financial information included in this document does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The consolidated statutory accounts for Rathbone Brothers Plc in respect of theyear ended 31 December 2004, on which the auditors made a report under section235 of the Companies Act 1985, have been delivered to the registrar ofcompanies. The auditors' report in respect of the statutory accounts for theyear ended 31 December 2004 was unqualified and did not contain a statementunder section 237(2) or (3) of the Companies Act 1985. Forward looking statementsThis announcement contains certain forward-looking statements and forecasts withrespect to the financial condition, results of operations and businesses ofRathbone Brothers Plc and its subsidiaries. These statements and forecastsinvolve risk and uncertainty because they relate to events and depend oncircumstances that will occur in the future. There are a number of factors thatcould cause actual results or developments to differ materially from thoseexpressed or implied by these forward-looking statements and forecasts. Nothingin this announcement should be construed as a profit forecast. APPENDIX 1 - IFRS Primary Statements 1a CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 £'000sInterest and similar income 20,759Interest expense and similar charges (10,477)Net interest income 10,282 Fee and commission income 86,067Fee and commission expense (4,276)Net fee and commission income 81,791 Dividend income 915Net trading income 919Gains less losses from investment securities 759Other operating income 861 Operating income 95,527 Operating expenses (67,035) Profit before tax 28,492 Tax (8,540) Profit for the year 19,952 Earnings per share for profit attributable to the equity holdersof the Company during the year: - basic 48.99p- diluted 48.07p APPENDIX 1 - IFRS Primary Statements 1b CONSOLIDATED BALANCE SHEETas at 1 January 2004 Unaudited IFRS as at 1 January 2004 £'000 Assets----------------------------------- -----------Cash and balances at central banks 3,205----------------------------------- -----------Settlement balances 13,523----------------------------------- -----------Loans and advances to banks 43,207----------------------------------- -----------Loans and advances to customers 36,353----------------------------------- -----------Investment securities 5,801- available-for-sale 333,002- held-to-maturity----------------------------------- -----------Intangible assets 59,434----------------------------------- -----------Property, plant and equipment 4,787----------------------------------- -----------Deferred tax asset 3,958----------------------------------- -----------Prepayments, accrued income and other assets 20,804----------------------------------- ----------- Total assets 524,074----------------------------------- ----------- Liabilities---------------------------------- ------------Deposits by banks 5,335---------------------------------- ------------Settlement balances 11,376---------------------------------- ------------Due to customers 366,715---------------------------------- ------------Debt securities in issue 898---------------------------------- ------------Accruals, deferred income, provisions and other liabilities 14,624---------------------------------- ------------Current tax liabilities 4,447---------------------------------- ------------Retirement benefit obligations 13,844---------------------------------- ------------ Total liabilities 417,239---------------------------------- ------------ Equity---------------------------------- ------------Share capital 2,033---------------------------------- ------------Share premium 13,791---------------------------------- ------------Other reserves 49,428---------------------------------- ------------Retained earnings 41,583---------------------------------- ------------ Total equity 106,835---------------------------------- ------------Total equity and liabilities 524,074---------------------------------- ------------ APPENDIX 1 - IFRS Primary Statements 1c CONSOLIDATED BALANCE SHEETas at 31 December 2004 Unaudited IFRS as at 31 December 2004 £'000 Assets----------------------------------- ------------Cash and balances at central banks 15,840----------------------------------- ------------Settlement balances 11,199----------------------------------- ------------Loans and advances to banks 57,881----------------------------------- ------------Loans and advances to customers 41,226----------------------------------- ------------Investment securities 7,219- available-for-sale 381,119- held-to-maturity----------------------------------- ------------Intangible assets 59,860----------------------------------- ------------Property, plant and equipment 4,480----------------------------------- ------------Deferred tax asset 4,378----------------------------------- ------------Prepayments, accrued income and other assets 22,155----------------------------------- ------------ Total assets 605,357----------------------------------- ------------ Liabilities----------------------------------- ------------Deposits by banks 3,243----------------------------------- ------------Settlement balances 15,238----------------------------------- ------------Derivative financial instruments 19----------------------------------- ------------Due to customers 425,078----------------------------------- ------------Debt securities in issue 286----------------------------------- ------------Accruals, deferred income, provisions and other liabilities 23,003----------------------------------- ------------Current tax liabilities 6,067----------------------------------- ------------Retirement benefit obligations 14,983----------------------------------- ------------ -------Total liabilities 487,917----------------------------------- ------------ Equity----------------------------------- ------------Share capital 2,043----------------------------------- ------------Share premium 14,766----------------------------------- ------------Other reserves 49,428----------------------------------- ------------Retained earnings 51,203----------------------------------- ------------ Total equity 117,440----------------------------------- ------------Total equity and liabilities 605,357----------------------------------- ------------ APPENDIX 1 - IFRS Primary Statements 1d CONSOLIDATED CASHFLOW STATEMENTfor the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 £'000s Cash flows from operating activitiesProfit before tax 28,492Gain less losses from investment securities (759)Profit on disposal of plant and equipment (130)Depreciation and amortisation 2,629Share based payment charges 1,329 -------- 31,561Changes in operating assets and liabilities- net (increase) in loans and advances to banks and customers (9,793)- net decrease in settlement balance debtors 2,323- net (increase) in prepayments, accrued income and other (1,713)assets- net increase in amounts due to customers and deposits by 56,317banks- net increase in settlement balance creditors 3,862- net decrease in accruals, deferred income, provisions andother 8,151liabilities- net increase in retirement benefit obligations 284 --------Cash generated from operations 90,992Tax paid (7,004) --------Net cash inflow from operating activities 83,988 ========Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (169)Purchase of property, equipment and intangible assets (2,249)Proceeds from sale of property and equipment 211Purchase of investment securities (1,495,420)Proceeds from sale and redemption of securities 1,422,139 --------Net cash used in investing activities (75,488) ========Cash flows from financing activitiesRepayments of debt securities (611)Purchase of shares for share based schemes (1,266)Issue of ordinary shares 745Dividends paid (10,780) --------Net cash used in financing activities (11,912) ========Net decrease in cash and cash equivalents (3,412)Cash and cash equivalents at beginning of year 164,413Effect of exchange rate changes on cash and cash equivalents (203) --------Cash and cash equivalents at the end of the year 160,798 ======== APPENDIX 1 - IFRS Primary Statements 1e CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 December 2004 Unaudited IFRS Year ended 31 December 2004 £'000sProfit after taxation 19,952 Exchange translation differences (109) Share based payments:- credit in relation to IFRS 2 charge (1,845)- debit in relation to cost of shares issued/purchased 1,506 (339) Actuarial loss on retirement benefit obligations (856) Revaluation of available-for-sale investment securities:- net gain from changes in fair value 2,177- net profit on disposal (759) 1,418 Deferred tax 334 Recognised income and expense for the period 20,400Attributable to:Equity holders of the parent 20,400 APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2a Effect of IFRS on the UK GAAP consolidated income statement for the yearended 31 December 2004 UK GAAP Presentation Share- Employee Business Financial 12 of Financial based Benefits Combinations Instruments months Statements Payment (IAS 19) (IFRS 3) (IAS 39) ended (IAS 1) (IFRS £'000 £'000 £'000 31.12.04 £'000 2) £'000 £'000Interest andsimilar income 20,759Interestexpense andsimilarcharges (10,477) Net interestincome 10,282Fee andcommissionincome 83,818 2,681Fee andcommissionexpense (4,276)Net fee andcommissionincome 79,542 2,681Dividendincome 915Net tradingincome 938 (19)Gains lesslosses frominvestmentsecurities 759Otheroperatingincome 4,465 (3,604)Operatingincome 95,204 774 (19)Operatingexpenses (75,097) (15) 1,829 (198) 5,927 Operatingprofit 20,107 759 1,829 (198) 5,927 (19)Exceptionalitem 759 (759)Profit beforetax 20,866 - 1,829 (198) 5,927 (19)Tax (7,737) -Profit for theyear 13,129 - 1,829 (198) 5,927 (19)Earnings per share forprofit attributable tothe equity holders ofthe Company during theyear:- basic 32.23p- diluted 31.63p Intangible Revenue Other Income Unaudited Assets (IAS 18) £'000 Taxes IFRS (IAS 38) £'000 (IAS 12) 12 months £'000 £'000 ended 31.12.04 £'000Interest andsimilar income 20,759Interestexpense andsimilarcharges (10,477)Net interestincome 10,282Fee andcommissionincome (432) 86,067Fee andcommissionexpense (4,276)Net fee andcommissionincome (432) 81,791Dividendincome 915Net tradingincome 919Gains lesslosses frominvestmentsecurities 759Otheroperatingincome 861 Operatingincome (432) 95,527Operatingexpenses 54 465 (67,035)Operatingprofit 54 (432) 465 28,492Exceptional item -Profit beforetax 54 (432) 465 28,492Tax (803) (8,540)Profit for theyear 54 (432) 465 (803) 19,952Earnings per share for profit attributable to theequity holders of theCompany during the year:- basic 48.99p- diluted 48.07p APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2b Effect of IFRS on the UK GAAP consolidated balance sheet as at 1 January 2004 UK GAAP Presentation Events Share- Employee Financial 1.1.04 of Financial after based Benefits Instruments £'000 Statements Balance Payment (IAS 19) (IAS 39) (IAS 1) Sheet (IFRS £'000 £'000 £'000 Date 2) (IAS £'000 10) £'000AssetsCash andbalances atcentral banks 3,205Settlementbalances 13,523Loans andadvances tobanks 43,207Loans andadvances tocustomers 36,353Debtsecurities 333,002 (333,002)Investmentsecurities-available-for-sale 35 5,766- held-to-maturity 333,002Equity shares 35 (35)Intangibleassets 57,702Tangible fixedassets 6,226 (6,226)Property,plant andequipment 6,226Deferredincome taxasset 1,243Prepayments,accrued incomeand otherassets 21,911 (1,243) (842)Total assets 515,164 - - - (842) 5,766LiabilitiesDeposits bybanks 5,335Settlementbalances 11,376Due tocustomers 366,715Debtsecurities inissue 898Accruals,deferredincome,provisions andotherliabilities 24,938 (4,447) (6,507) (167) Current taxliability 4,447Retirementbenefitobligation 13,844Totalliabilities 409,262 - (6,507) (167) 13,844 - EquityShare capital 2,033Share premium 13,791Other reserves 49,428Retainedearnings 40,650 6,507 167 (14,686) 5,766 Total equity 105,902 - 6,507 167 (14,686) 5,766 Total equityandliabilities 515,164 - - - (842) 5,766 Intangible Revenue Other Income Unaudited Assets (IAS 18) £'000 Taxes IFRS (IAS 38) £'000 (IAS 12) 1.1.04 £'000 £'000 £'000AssetsCash andbalances atcentral banks 3,205Settlementbalances 13,523Loans andadvances tobanks 43,207Loans andadvances tocustomers 36,353Debt securities -Investment securities-available-for-sale 5,801- held-to-maturity 333,002Equity shares -Intangibleassets 1,732 59,434Tangible fixed assets -Property,plant andequipment (1,439) 4,787Deferredincome taxasset 2,715 3,958Prepayments,accrued incomeand otherassets 474 504 20,804Total assets 293 474 504 2,715 524,074LiabilitiesDeposits bybanks 5,335Settlementbalances 11,376Due tocustomers 366,715Debtsecurities inissue 898Accruals,deferredincome,provisions andotherliabilities 578 229 14,624Current taxliability 4,447Retirementbenefitobligation 13,844Totalliabilities - 578 229 - 417,239EquityShare capital 2,033Share premium 13,791Other reserves 49,428Retainedearnings 293 (104) 275 2,715 41,583Total equity 293 (104) 275 2,715 106,835 Total equityandliabilities 293 474 504 2,715 524,074 APPENDIX 2 - Reconciliations of UK GAAP Primary Statements to IFRS 2c Effect of IFRS on the UK GAAP consolidated balance sheet as at 31 December2004 UK GAAP Presentation Events Share- Employee Business 31.12.04 of Financial after based Benefits Combinations £'000 Statements Balance Payment (IAS 19) (IFRS 3) (IAS 1) Sheet (IFRS £'000 £'000 £'000 Date 2) (IAS £'000 10) £'000AssetsCash andbalances atcentral banks 15,840Settlementbalances 11,199Loans andadvances tobanks 57,881Loans andadvances tocustomers 41,226Debtsecurities 381,119 (381,119)Investmentsecurities-available-for-sale 35- held-to-maturity 381,119Equity shares 35 (35)Intangibleassets 51,812 5,927Tangible fixedassets 5,625 (5,625)Property,plant andequipment 5,625Deferredincome taxasset 2,132Prepayments,accrued incomeand otherassets 24,010 (2,132) (757)Total assets 588,747 - (757) 5,927LiabilitiesDeposits bybanks 3,243Settlementbalances 15,238Derivative financialinstrumentsDue tocustomers 425,078Debtsecurities inissue 286Accruals,deferredincome,provisions andotherliabilities 34,317 (6,067) (6,948) 242 Current taxliability 6,067Retirementbenefitobligation 14,983Totalliabilities 478,162 - (6,948) 242 14,983 EquityShare capital 2,043Share premium 14,766Other reserves 49,428Retainedearnings 44,348 6,948 (242) (15,740) 5,927 - broughtforward 40,650 6,507 167 (14,686) - currencyadjustments (109)- share basedpayments 1,899 (2,238) - dividendpaid/declared (11,221) 441- actuarialgains/losses (856)- revaluation of AVSsecurities- profit forthe year 13,129 1,829 (198) 5,927Total equity 110,585 - 6,948 (242) (15,740) 5,927 Total equityandliabilities 588,747 - - - (757) 5,927 Financial Intangible Revenue Other Income Unaudited Instruments Assets (IAS 18) £'000 Taxes IFRS (IAS 39) (IAS 38) £'000 (IAS 31.12.04 £'000 £'000 12) £'000 £'000AssetsCash andbalances atcentral banks 15,840Settlementbalances 11,199Loans andadvances tobanks 57,881Loans andadvances tocustomers 41,226Debt securities -Investmentsecurities-available-for-sale 7,184 7,219- held-to-maturity 381,119Equity shares -Intangibleassets 1,492 629 59,860Tangible fixed -assetsProperty,plant andequipment (1,145) 4,480Deferredincome taxasset 2,246 4,378Prepayments,accrued incomeand otherassets 526 508 22,155Total assets 7,184 347 526 1,137 2,246 605,357LiabilitiesDeposits bybanks 3,243Settlementbalances 15,238Derivativefinancialinstruments 19 19Due tocustomers 425,078Debtsecurities inissue 286Accruals,deferredincome,provisions andotherliabilities 1,062 397 23,003Current taxliability 6,067Retirementbenefitobligation 14,983Totalliabilities 19 1,062 397 487,917EquityShare capital 2,043Share premium 14,766Other reserves 49,428Retainedearnings 7,165 347 (536) 740 2,246 51,203- broughtforward 5,766 293 (104) 275 2,715 41,583- currencyadjustments (109)- share basedpayments 503 164- dividendpaid/declared (10,780)- actuarialgains/losses 257 (599)- revaluationof AVSsecurities 1,418 (426) 992- profit forthe year (19) 54 (432) 465 (803) 19,952Total equity 7,165 347 (536) 740 2,246 117,440Total equityandliabilities 7,184 347 526 1,137 2,246 605,357 APPENDIX 3 Principal accounting policies under IFRS Basis of presentationThe financial statements have been prepared in accordance with IFRS for thefirst time in the format prescribed by IAS 30 'Disclosures in the FinancialStatements of Banks and Similar Financial Institutions'. The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of certain financial instruments. The principal accountingpolicies adopted are set out below. Basis of consolidationThe consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries). Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Group. Theyare deconsolidated from the date that control ceases. Unless otherwise stated, the acquisition method of accounting has been adopted.Under this method, the results of subsidiary undertakings acquired or disposedof in the period are included in the consolidated profit and loss account fromthe date of acquisition or up to the date of disposal. Intercompany transactions, balances and unrealised gains on transactions betweengroup companies are eliminated. Unrealised losses are also eliminated unless thetransaction provides evidence of impairment of the asset transferred. Accountingpolicies of subsidiaries have been changed where necessary to ensure consistencywith the policies adopted by the Group. ImpairmentAt each balance sheet date, the Group reviews the carrying amounts of its assetswith finite lives to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of theimpairment loss (if any). Where the asset does not generate cash flows that areindependent from other assets, the Group estimates the recoverable amount of thecash generating unit to which the asset belongs. An intangible asset with anindefinite useful life is tested for impairment annually and whenever there isan indication that the asset may be impaired. Recoverable amount is the higher of fair value less any cost to sell and valuein use. In assessing value in use, the estimated future cash flows arediscounted to their present values using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or cash generating unit is estimated to beless than its carrying amount, the carrying amount of the asset or cashgenerating unit is reduced to its recoverable amount. Impairment losses arerecognised as an expense immediately. Where an impairment loss subsequentlyreverses, the carrying amount of the asset or cash generating unit is increasedto the revised estimate of its recoverable amount, but so that the increasedcarrying amount does not exceed the carrying amount that would have beendetermined had no impairment loss been recognised for the asset or cashgenerating unit in prior years. A reversal of an impairment loss is recognisedas income immediately, unless the relevant asset is carried at a revaluedamount, in which case the reversal of the impairment loss is treated as arevaluation increase. However, impairment losses relating to goodwill may not bereversed. Interest income and expensesInterest income and expense are recognised in the income statement for allinstruments measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of afinancial asset or a financial liability and of allocating the interest incomeor interest expense over the relevant period. The effective interest rate is therate that exactly discounts estimated future cash payments or receipts throughthe expected life of the financial instrument or, when appropriate, a shorterperiod to the net carrying amount of the financial asset or financial liability.When calculating the effective interest rate, the Group estimates cash flowsconsidering all contractual terms of the financial instrument but does notconsider future credit losses. The calculation includes all fees and points paidor received between parties to the contract that are an integral part of theeffective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been writtendown as a result of an impairment loss, interest income is recognised using therate of interest used to discount the future cash flows for the purpose ofmeasuring the impairment loss. Dividend incomeDividend income on equity securities is accounted for on the date the securitybecomes ex-dividend. Fees and commissionsPortfolio and other management advisory and service fees are recognised based onthe applicable service contracts, usually on a time apportionment basis. Assetmanagement fees are recognised rateably over the period the service is provided. Commission receivable is accounted for in the period in which the relatedtransaction takes place. To the extent that retained initial charge income received on the sale of unitsrepresents the provision of ongoing investment management services, this incomeis credited to income on a straight line basis over the estimated average lifeof the unit holding. Clients' depositsThe Group holds money on behalf of some clients in accordance with the ClientMoney Rules of the Financial Services Authority. Such monies and thecorresponding liability to clients are not shown on the face of the balancesheet as the Group is not beneficially entitled thereto. Intangible assets (a) GoodwillGoodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets, liabilities and contingent liabilities of a subsidiary at the date ofacquisition. Goodwill is recognised as an asset and is reviewed for impairment at leastannually, or when other occasions or changes in circumstances indicate that itmight be impaired. Any impairment is recognised immediately in the profit andloss and is not subsequently reversed. Goodwill arising on acquisition isallocated to cash generating units for purposes of impairment testing. On disposal of a subsidiary the attributed amount of unamortised goodwill, whichhas not been subject to impairment is included in the determination of theprofit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. (b) Computer software and software development costsAcquired computer software licenses are capitalised on the basis of the costsincurred to acquire and bring to use the specific software. These costs areamortised on the basis of the expected useful lives (three to four years). Costs associated with developing or maintaining computer software programs arerecognised as an expense as incurred. Costs that are directly associated withthe production of identifiable and unique software products controlled by theGroup, and that will probably generate economic benefits exceeding costs beyondone year, are recognised as intangible assets. Direct costs include softwaredevelopment employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using thestraight-line method over their useful lives (not exceeding four years). Financial instrumentsThe Group classifies its financial assets in the following categories: financialassets at fair value through profit or loss, loans and receivables,held-to-maturity investments and available-for-sale financial assets. Theclassification of financial assets is determined at initial recognition. (a) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading, andthose designated at fair value through profit or loss at inception. A financialasset is classified in this category if acquired principally for the purpose ofselling in the short term or if so designated. Derivatives are also categorisedas held for trading unless they are designated as hedges. (b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. (c) Held-to-maturityHeld-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Group's management has thepositive intention and ability to hold to maturity. (d) Available-for-saleAvailable-for-sale investments are those intended to be held for an indefiniteperiod of time, which may be sold in response to needs for liquidity or changesin interest rates, exchange rates or equity prices. Purchases and sales of financial assets at fair value through profit or loss,held-to-maturity and available -for-sale are recognised on trade date - the dateon which the Group commits to purchase or sell the asset. Loans are recognisedwhen cash is advanced to the borrowers. Financial assets are initiallyrecognised at fair value plus transaction costs for all financial assets notcarried at fair value through profit or loss. Financial assets are derecognisedwhen the rights to receive cash flows from the financial assets have expired orwhere the Group has transferred substantially all risks and rewards ofownership. Available-for-sale financial assets and financial assets at fair value throughprofit or loss are subsequently carried at fair value. Loans and receivables andheld-to-maturity investments are carried at amortised cost using the effectiveinterest method. Gains and losses arising from changes in the fair value of the'financial assets at fair value through profit or loss' category are included inthe income statement in the period in which they arise. Gains and losses arisingfrom changes in the fair value of available-for-sale financial assets arerecognised directly in equity, until the financial asset is derecognised orimpaired at which time the cumulative gain or loss previously recognised inequity should be recognised in profit or loss. However, interest calculatedusing the effective interest method is recognised in the income statement.Dividends on available-for-sale equity instruments are recognised in the incomestatement when the entity's right to receive payment is established. The fair values of quoted investments in active markets are based on current bidprices. If the market for a financial asset is not active (and for unlistedsecurities), the Group establishes fair value by using valuation techniques.Related Shares:
Rathbone