Preliminary Results Progress and Delivery Rathbone Brothers Plc | Preliminary Results Page 1
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CHANGE Rathbone Brothers Plc 2017 Preliminary results Progress and delivery Rathbone Brothers Plc | Preliminary results Page 1 2017 in context — UK and global markets strong during the year — investor sentiment mixed against backdrop of political change — considerable regulatory change continues — results ahead of expectations benefitting from positive investment markets and continued growth — we enter 2018 well-positioned Rathbone Brothers Plc | Preliminary results Page 2 Financial results Paul Stockton Finance Director Rathbone Brothers Plc | Preliminary results Page 3 A strong 2017 Funds under management FTSE100 FTSE100 7143 7688 — Funds under management of £39.1 billion up 14.3% from £34.2 billion, while WMA £39.1 Growth £34.2 +14.3% bn Balanced and FTSE 100 increased 7.2% bn and 7.6% year on year respectively 2016 2017 Underlying² earning per share — Profit before tax grew 17.6% from £50.1m to £58.9m — Underlying profit before tax1 increased Profitability 16.8% from £74.9m to £87.5m +13.7% 138.8p — Underlying operating margin stable at 122.1p 30.6% despite investment 2016 2017 Total dividends per share — Final dividend of 39p, resulting in a total dividend of 61p for the year Capital — Underlying return on capital steady at 61p 19.5% (2016: 19.3%) 57p +7.0% 2016 2017 1 See slide 7 for a reconciliation between profit before tax and underlying profit before tax. Operating profit margin equals underlying profit before tax divided by underlying operating income 2 See slide 24 for a reconciliation between earnings per share and underlying earnings per share Rathbone Brothers Plc | Preliminary results Page 4 Growth in funds under management Investment Unit Investment Management Management Trusts Total Total FY 2017 FY 2017 FY 2017 FY 2016 (£bn) (£bn) (£bn) (£bn) — Net organic growth totalled 3.0% Opening funds under — Outflows increased marginally but include 30.2 4.0 34.2 29.2 management non-discretionary and pension scheme transfers out Inflows 3.4 1.7 5.1 4.0 — 73% of outflows related to accounts that – organic¹ 3.1 1.7 4.8 3.6 stay with us – purchased² 0.3 - 0.3 0.4 Outflow of money (2.2) (0.8) (3.0) (2.2) Unit Trusts – retained accounts (1.6) — 2017 a record year for net inflows – closed accounts (0.6) — Unit Trusts top 20 for net retail sales in Market effect and investment 2.4 0.4 2.8 3.2 performance 2017 and top 10 for Q4 2017 (source: February 2018 Pridham report) Closing funds under 33.8 5.3 39.1 34.2 management — Strong momentum with three funds now over £1 billion (Income, Ethical Bond and Global Opportunities) Net organic inflows 0.9 0.9 1.8 1.4 Underlying rate of net organic 3.0% 21.8% 5.2% 4.5% growth³ Total rate of net growth³ 3.9% 21.8% 6.0% 6.0% ¹ Organic growth excludes income items and represents new business from current clients or from new clients (including those via intermediaries). ² Purchased growth is defined as corporate or team acquisitions, and new business from investment managers who are on an earn-out arrangement. ³ Calculated using unrounded numbers. Rathbone Brothers Plc | Preliminary results Page 5 Income quality Investment Management basis point return on average funds under management¹ 76.2 74.2 72.7 3.4 2.5 2.4 FY 2017 FY 2016 % 16.8 13.8 11.9 (£m) (£m) change 56.0 57.9 58.4 Average FTSE 100 Index (on 7426 6659 11.5 2015 2016 2017 quarterly billing dates) Fees Commissions Interest Net investment management fee 217.5 184.8 17.7 Investment Management fee income now represents income 76.0% of underlying operating income (2016: 73.5%) as the trend towards fee-based income continues Net commission income 38.7 38.9 (0.5) Commission levels consistent with industry trading Net interest income 11.6 11.6 - 8.0m 10.9 10.9 12 8.2 8.7 10 7.5m 8 7.0m 6 (£m) Fees from advisory services and 4 18.2 16.0 13.8 6.5m other income 2 Industry client trades Industryclient 6.0m 0 Q1 Q2 Q3 Q4 commissionsRathbones Underlying operating income 286.0 251.3 13.8 Rathbones Client trade volumes² Advisory and other income in 2017 also includes: — ‘risk-free’ managers box dealing profits of £3.1m — rental income of £0.7m from sub-let of 8 Finsbury ¹Underlying operating income excluding interest on own reserves, interest payable on Tier 2 notes issued, fees from advisory income and other income, divided by the average funds under management on the quarterly billing date. Circus ² Compeer industry quarterly updates. The Compeer index tracks private client trade activity on the LSE. Client trades represent participating firms only. Rathbone Brothers Plc | Preliminary results Page 6 Managing expenditure Expense growth as planned (FTE headcount growth) FY 2017 FY 2016 % 24 1,192 (£m) (£m) change 17 12 Fixed staff costs 87.8 79.8 10.0 16 Average FTE1 employees 22 1,147 1,066 7.6 during the year 1,101 Actual FTE1 employees at the 1,192 1,101 8.3 year end At 31 Dec Investment Financial Strategic IT Central At 31 Dec 2016 teams Planning initiatives² services 2017 Variable staff costs 53.3 45.0 18.4 Variable staff costs reflect performance³ 37.9% 37.5% Other direct expenses 57.4 51.6 11.2 2016 2017 Total underlying operating 198.5 176.4 12.5 Other direct expenses expenses — Other direct expense growth reflects higher IT maintenance and property costs — Unit Trust research costs borne by funds in 2017 were £0.8m 1 Full time equivalent ² Includes RPO, Trust, Vision, Distribution and Unit Trusts support ³ Variable staff costs as a percentage of underlying profit before tax and variable staff costs Rathbone Brothers Plc | Preliminary results Page 7 Profit before tax FY 2017 FY 2016 % (£m) (£m) change Underlying profit before tax 87.5 74.9 16.8 Non-underlying items reflect specific actions Charges in relation to client relationships and (11.7) (11.8) (0.8) goodwill — closure of defined benefit pension schemes on 30 June 2017 Gain on plan amendment of defined benefit 5.5 - — acquisition-related costs include: schemes — expenses associated with the Acquisition-related costs (6.2) (6.0) 3.3 prospective Smith & Williamson transaction Head office relocation costs (16.2) (7.0) 131.4 — remaining deferred consideration Profit before tax 58.9 50.1 17.6 for Vision Independent Financial Planning (that will end in 2019) Profit after tax 46.8 38.2 22.5 — successful London office move Effective tax rate 20.5% 23.8% Total comprehensive income, net of tax 61.3 6.9 788.4 Rathbone Brothers Plc | Preliminary results Page 8 Capital expenditure Capital expenditure is lower in 16 £14.6m 2017, but more money has been 14 directed towards systems and regulatory projects 12 £10.4m — 2016 costs largely reflect the fit out 10 of the London head office 9.7 1.9 — 2017 purchased software costs 8 2.3 include additional expenditure of £ million 6 £2.2m on an upgraded CRM system and £0.8m on MiFID II 4 2.4 6.2 2 2.5 0 2016 2017 Purchased software IT & other Property¹ ¹ Property expenditure in general only includes leasehold improvements from the consolidated financial statements. IT & other expenditure also includes some move-related expenditure such as IT equipment and furniture Rathbone Brothers Plc | Preliminary results Page 9 Balance sheet management 31/12/17 31/12/16 Sources Uses Assets (£m) (£m) Total own funds1 216.8 174.2 Higher capital requirement £32.9m Pillar 1 own funds requirement 78.3 71.5 Profit after tax Surplus before Pillar 2 138.5 102.7 (pre amort'n) £61.9m Pillar 2A requirement 46.1 27.9 Purchased Pillar 2B requirement 18.4 11.5 intangibles £9.8m Surplus after Pillar 2 74.0 63.3 Risk weighted assets (RWAs) 977.2 892.7 Pillar 2 requirement as % of RWAs 6.6% 4.4% Dividends £29.4m Group Common Equity Tier 1 ratio² 20.7% 17.7% Pension deficit £14.3m Retained surplus Shares issued £10.7m £6.6m Consolidated leverage ratio² 7.8% 6.6% Sources Uses Retained surplus ¹ For a reconciliation between total equity and total own funds, see slide 27 ² See slide 37 for definitions of principal banking ratios Rathbone Brothers Plc | Preliminary results Page 10 A progressive dividend Growing profitability Distributable reserves Underlying earnings per share (p) Pension deficit (£m)¹ 9.3 138.8 1.6 117 122.1 (4.5) 102.4 (3.7) (10.8) Dividend per share (p) 86.7 (13.7) (15.6) (20.0) (32.0) 61 55 57 (39.5) 52 49 (58.3) 2013 2014 2015 2016 2017 H1 13 H2 13 H1 14 H2 14 H1 15 H2 15 H1 16 Q3 16 H2 16 H1 17 H2 17 Capital management — Future acquisition opportunities — Increased regulatory buffers in 2018/2019³ 2013 2014 2015 2016 2017 —Jan 2018 - capital conservation buffer increases to Dividend cover² 1.875% of RWA (31 December 2017: 1.25%) —Jan 2019 a further increase to 2.5% 2013 2014 2015 2016 2017 1.6x 1.5x 1.8x 1.4x 1.5x —June 2018 - Countercyclical buffer increases to 0.5% of RWAs (31 December 2017: 0.01%) —November 2018 - a further increase to 1.0% ¹ As at the end of each period ² Full year dividends per share divided by basic earnings per share ³ Using risk weighted assets at 31 December 2017, the increased regulatory buffers in 2018/2019 above can be expected to add c.£16 million to capital requirements by 1 January 2019 Rathbone Brothers Plc | Preliminary results Page 11 Progress and delivery Philip Howell Chief Executive Rathbone Brothers Plc | Preliminary results Page 12 We are close to reaching our £40 billion funds under management aspiration Private client investment management How are we doing? — improve team structures 40 38 — simplify pricing structures 36 34 — grow charities and specialist services 32 30 — recruit high-quality teams and bolt-on 28 Actual Group FUM acquisitions 26 Investment process 24 22 — enhance investment process support 20 Jun-14