Rathbones Group Plc · LSE:RAT
Rathbones — Rathbone Brothers — FY2018 Earnings Presentation
43 slides from Rathbones's earnings presentation, February 2019
Slide 1: 2018 Preliminary results
Rathbone Brothers Plc 2018 Preliminary results February 2019
Slide 2: 2018 in context
Rathbone Brothers Plc | Preliminary results Page 1 2018 in context — financial results resilient — continued growth both organically and through acquisition — delivering on new regulation — board changes
Slide 3: Financial results
Rathbone Brothers Plc | Preliminary results Page 2 Financial results Paul Stockton Finance Director
Slide 4: A resilient year
Rathbone Brothers Plc | Preliminary results Page 3 A resilient year Funds under management and administration FTSE100 FTSE100 7688 (12.5%) 6728 — funds under management and administration of £44.1 billion up 12.8% Growth from £39.1 billion, while the FTSE 100 £44.1 and WMA Balanced decreased 12.5% a
Slide 5: Growing funds under management and administration
Rathbone Brothers Plc | Preliminary results Page 4 Growing funds under management and administration Investment Investment Inflows Management Management FY 2018 FY 2017 — diverse sources of net inflows, with SIPPs and charities (£bn) (£bn) continuing to be strong sources of growth Opening funds unde
Slide 6: Unit Trusts momentum
Rathbone Brothers Plc | Preliminary results Page 5 Unit Trusts momentum Net flows — strong net retail sales in 2018 Unit Trusts Unit Trusts — industry wide net retail sales in 2018 were £7.2 billion FY 2018 FY 2017 compared to £48.5bn in 2017² (£bn) (£bn) Top managers by net retail sales in 2018³ (£
Slide 7: Ongoing income quality
Rathbone Brothers Plc | Preliminary results Page 6 Ongoing income quality Investment Management basis point return on average FY 2018 FY 2017 % funds under management (inc. S&J)¹ 76.2 74.2 72.7 71.4 (£m) (£m) change 3.4 2.5 2.4 3.2 16.8 13.8 11.9 11.7 Average FTSE 100 Index (on 7269 7426 (2.1) quart
Slide 8: Expenditure reflects business growth
Rathbone Brothers Plc | Preliminary results Page 7 Expenditure reflects business growth FY 2018 FY 2017 % Total underlying operating expenses (£m) (£m) change — Reflects underlying growth and £5.9m of S&J operating costs Fixed staff costs 96.0 87.8 9.3 Fixed staff costs (FTE headcount) Average FTE1
Slide 9: Strong underlying margin
Rathbone Brothers Plc | Preliminary results Page 8 Strong underlying margin Non-underlying items — acquisition-related costs in respect of FY 2018 FY 2017 % S&J total £18.4m of which £14.7m is (£m) (£m) change deferred consideration Underlying profit before tax 91.6 87.5 4.7 — amounts capital in nat
Slide 10: Capital expenditure remains steady
Rathbone Brothers Plc | Preliminary results Page 9 Capital expenditure remains steady 12 £11.3m £11.0m 2.0 1.3 10 — expenditure on customer relationship management system and regulatory 1.9 8 2.3 projects 1.5 — expectation for 2019 capex spend in £ million 6 0.8 line with 2018 4 6.2 6.3 2 0 2017 201
Slide 11: Balance sheet management
Rathbone Brothers Plc | Preliminary results Page 10 Balance sheet management Business growth £12.9m Increased Pillar Profit after tax 2B requirement 31/12/18 31/12/17 (pre amort'n & £19.0m Assets (£m) (£m) SBP) £82.6m Total own funds1 251.4 216.8 Pillar 1 own funds requirement 91.3 78.3 Speirs & Jef
Slide 12: Financial outlook for 2019
Rathbone Brothers Plc | Preliminary results Page 11 Financial outlook for 2019 — well positioned going into 2019 — Speirs & Jeffrey — full year profits in 2019 — acquisition-related costs in relation to Speirs & Jeffrey currently expected to be c. £29m largely reflecting ongoing accrual of deferred
Slide 13: Context for 2019…
Rathbone Brothers Plc | Preliminary results Page 12 Context for 2019… Philip Howell Chief Executive
Slide 14: Speirs & Jeffrey: combining businesses with a cultural and strategic fit
Rathbone Brothers Plc | Preliminary results Page 13 Speirs & Jeffrey: combining businesses with a cultural and strategic fit An enhanced A diversified Consideration structure presence in Scotland geographic reach Speirs & Jeffrey Initial consideration (£104m) £79m in cash and £25m1 in shares locked
Slide 15: Update since acquisition
Rathbone Brothers Plc | Preliminary results Page 14 Update since acquisition Progress since September 2018 — clients have so far consented to over 75% of assets being transferred to Rathbones banking terms of business — work to meet operational performance targets proceeding well — completed move of
Slide 16: A look back on the past five years…
Rathbone Brothers Plc | Preliminary results Page 15 A look back on the past five years… Key achievements… How did we do? 2018 Private client investment management 2017 £44.1bn £39.1bn — improved team structures 45 2016 — simplified pricing structures £34.2bn — improved marketing and client event qua
Slide 17: Looking ahead…
Rathbone Brothers Plc | Preliminary results Page 16 Looking ahead… Paul Stockton RIM Managing Director
Slide 18: 2019
Rathbone Brothers Plc | Preliminary results Page 17 2019 — starting in a strong position — a more volatile market backdrop — Brexit — continued focus on growth initiatives — investment in Rathbone Investment Management — transition/new CFO — update on next phase of growth in second half
Slide 19: Looking beyond 2019
Rathbone Brothers Plc | Preliminary results Page 18 Looking beyond 2019 Strategy and organisational review Building capability A quality proposition and driving operational efficiency Pursuing growth Talent, skills and opportunities managing change
Slide 20: Appendix
Rathbone Brothers Plc | Preliminary results Page 19 Appendix
Slide 21: Rathbones at a glance
Rathbone Brothers Plc | Preliminary results Page 20 Rathbones at a glance Rathbone Brothers Plc, through its subsidiaries, is a leading provider of high-quality, personalised investment and wealth management services for private clients, charities and trustees. Our services include discretionary inv
Slide 22: Our business model
Rathbone Brothers Plc | Preliminary results Page 21 Our business model What makes us different How we do it What makes us different A sound investment case Individual relationships with clients For investors — a relationship based approach — our service is delivered directly though investment manage
Slide 23: Leading UK private client wealth managers
Rathbone Brothers Plc | Preliminary results Page 22 Leading UK private client wealth managers Private client AUM (£m) Total Private client AUM (£m) Total 1 St. James's Place Wealth Management 90,700 21 Credit Suisse (UK) Limited 13,825 2 Barclays 50,850 22 Seven Investment Management (7IM) 12,447 3
Slide 24: Working through our strategy
Rathbone Brothers Plc | Preliminary results Page 23 Working through our strategy Client referrals Intermediaries Specialist Unit Trusts Strategic Acquisitions services initiatives — new client — leveraging Vision — charities — investment — Private Office — company or introductions — B2B panels - — G
Slide 25: Analysing the balance sheet
Rathbone Brothers Plc | Preliminary results Page 24 Analysing the balance sheet 31/12/18 31/12/17 31/12/18 31/12/17 Assets (£’000) (£’000) Liabilities (£’000) (£’000) Cash and balances with central banks 1,198,479 1,375,382 Deposits by banks 491 1,338 Settlement balances 39,754 46,784 Settlement bal
Slide 26: Dividend and earnings per share
Rathbone Brothers Plc | Preliminary results Page 25 Dividend and earnings per share 120 100 97.4p 92.7p 80 88.7p 78.9p pence 76.0p 60 66.0p 61.0p 55.0p 57.0p 52.0p 40 20 0 2014 2015 2016 2017 2018 Basic EPS Dividend per share Dividend cover 1.5x 1.8x 1.4x 1.5x 1.3x Dividend payout ratio 68% 56% 72%
Slide 27: Underlying PBT (£m) / EPS (p)
Rathbone Brothers Plc | Preliminary results Page 26 Underlying profits before tax¹ (£m) and EPS (p) 70 68.3 60 53.2 Underlying PBT (£m) / EPS (p) 51.2 51.1 50 43.2 40 44.2 41.6 35.7 30 24.8 20 20.4 10 29.3 32.3 61.6 37.2 33.2 70.4 35.3 39.6 74.9 43.3 44.2 87.5 48.3 43.3 91.6 0 2 2014 2015 2016 2017
Slide 28: Earnings per share
Rathbone Brothers Plc | Preliminary results Page 27 Earnings per share FY 2018 FY 2017 Pre tax Post tax Pre tax Post tax EPS (p)1 EPS (p)1 (£m) (£m) (£m) (£m) Underlying profit attributable to shareholders 91.6 74.2 142.5 87.5 70.1 138.8 Charges in relation to client relationships and goodwill (13.2
Slide 29: Shareholders at 31 December 2018
Rathbone Brothers Plc | Preliminary results Page 28 Shareholders at 31 December 2018 Lindsell Train Investment Mgt Mawer Investment Mgt Current Rathbones staff 14% MFS Investment Mgt¹ 28% Former Rathbones staff Blackrock 9% Aviva Investors Kabouter 8% Vanguard 2% Heronbridge Investment Mgt 2% 2% Tro
Slide 30: Segmental results
Rathbone Brothers Plc | Preliminary results Page 29 Segmental results y/e 31 December 2018 Investment management Unit Trusts Indirect Total (£m) (£m) (£m) (£m) Net investment management fee income 200.5 32.9 - 233.4 Net commission income 41.4 - - 41.4 Net interest income 15.3 - - 15.3 Fees from advi
Slide 31: Reconciliation of equity to total own funds
Rathbone Brothers Plc | Preliminary results Page 30 Reconciliation of equity to total own funds FY 2018 FY 2017 (£m) (£m) Equity Share capital and share premium 233.0 145.7 Reserves 263.9 222.5 Less: - Own shares (32.7) (4.9) - Intangible assets1 (229.3) (161.3) Total common equity tier 1 capital re
Slide 32: Total operating expenses
Rathbone Brothers Plc | Preliminary results Page 31 Total operating expenses 31 December 2018 31 December 2017 5% 4% 3% 4% 5% 10% 8% 38% 38% 9% £250.7m £232.7m 17% 10% 2% 3% 22% 23% Staff - payroll (excluding variable) Staff - variable Staff - other Property Depreciation & amortisation Professional
Slide 33: Other information
Rathbone Brothers Plc | Preliminary results Page 32 Other information FY 2018 FY 2017 % change Investment management Total rate of net growth in funds under management 23.5% 3.9% Revenue margin on FUM (excluding Charities team) (bps)¹ 76.6 75.5 1.5 Revenue margin on Charities team FUM (bps)¹ 47.4 47
Slide 34: Analysis of operating income
Rathbone Brothers Plc | Preliminary results Page 33 Analysis of operating income Basis point return from fees Basis point return from commission 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 0 10 20 30 40 50 60 0.0 5.0 10.0 15.0 20.0 25.0 Basis point return from interest Advisory fee income (£m)
Slide 35: Investment Management client base
Rathbone Brothers Plc | Preliminary results Page 34 Investment Management client base Analysis of funds under management¹ 5.3% Service level Fund type 8.5% 10.3% Private clients Discretionary 10.8% ISAs Advisory 37.0% Charities Execution-only 11.5% Pensions Trusts 13.4% Other 86.2% 17.0% Size of cli
Slide 36: Where our clients’ assets are invested
Rathbone Brothers Plc | Preliminary results Page 35 Where our clients’ assets are invested¹ Direct H1 2016 13.7% 39.1% 31.2% 9.4% 6.6% holdings 51.6% FY 2016 13.4% 38.8% 31.8% 10.0% 6.0% Collectives H1 2017 13.3% 36.9% 33.5% 9.2% 7.1% 48.4% FY 2017 13.1% 36.4% 34.3% 9.7% 6.5% H1 2018 12.8% 35.7% 35.
Slide 37: Offices
Rathbone Brothers Plc | Preliminary results Page 36 Offices Investment Management Number of investment funds under management Office location professionals¹ and administration (£bn at 31/12/18)² London 139 17.1 Glasgow 47 6.8 Liverpool 27 2.0 Edinburgh 25 2.4 Other offices³ 89 11.3 Total 327 39.6 ¹
Slide 38: Annual management fees
Rathbone Brothers Plc | Preliminary results Page 37 Annual management fees¹ Discretionary management fees (subject to VAT) Applied across Main Funds and ISA funds (pa)² First £250,000 1.20% Next £500,000 1.00% Next £750,000 0.75% Balance over £1,500,000 0.50% Illustration of fees (how our management
Slide 39: Performance: retail funds
Rathbone Brothers Plc | Preliminary results Page 38 Performance: retail funds Performance¹ and quartile ranking at Since Size of fund YTD 2018 1 year 3 year 5 year 10 years 31 December 2018 (I-Class units) inception (£m)† Rathbone Global Opportunities Inst Acc in GB -0.52 1 -0.52 1 39.49 1 76.66 1 3
Slide 40: Performance: outcome oriented funds
Rathbone Brothers Plc | Preliminary results Page 39 Performance: outcome oriented funds Discrete year performance1 at Size of fund 1 year 3 years 5 years 31 December 2018 (S-class shares) (£m)† Rathbone Multi Asset Total Return Portfolio S Inc TR in GB 2 -1.71 7.78 18.15 294.3 Offset Instrument : LI
Slide 41: Reference sheet
Rathbone Brothers Plc | Preliminary results Page 40 Reference sheet Common Equity Common Equity Tier 1 capital as a proportion of total risk Tier 1 ratio: exposure amount Leverage ratio: Tier 1 capital resources as a percentage of total assets, excluding intangible assets and investment in associate
Slide 42: Corporate governance at Rathbones
Rathbone Brothers Plc | Preliminary results Page 41 Corporate governance at Rathbones We believe it is in the best interests of our clients for the companies in which we invest to adopt best practice in corporate governance. This provides a framework in which each company can be managed in the long-
Slide 43: Important information
Rathbone Brothers Plc | Preliminary results Page 42 Important information The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance should not be seen as an indication of future performance. Changes in rates of exc