Rathbones Group Plc · LSE:RAT
Rathbones — Rathbone Brothers — FY2013 Earnings Presentation
45 slides from Rathbones's earnings presentation, Feb 20, 2014
Slide 1: Rathbone Brothers Plc Preliminary Results to 31 December 2013
RATHBONE BROTHERS PLC PRELIMINARY RESULTS TO 31 DECEMBER 2013 a(@) 20 FEBRUARY 2014 RATHBONES Established 1742
Slide 2: The Presentation Team
IL oO AN THE PRESENTATION TEAM MARK NICHOLLS ANDY POMFRET PHILIP HOWELL PAUL STOCKTON CHAIRMAN CHIEF DEPUTY CHIEF FINANCE DIRECTOR EXECUTIVE EXECUTIVE
Slide 3: 2013 objectives and achievements
• Continue to grow funds under • 22% increase in funds under management, management new office opened in Newcastle • Develop our charity business • Charity funds under management increased by 29% to £2.7bn • Increase lending to clients • Loans to clients of £89 million, a 37% increase • Invest in fr
Slide 4: Underlying profit, EPS, dividends and funds under management
Underlying profit before tax Rate of total net growth in funds Funds under management under management2 + 12.7% + 22.2% 9.0% £22.0bn £50.5m 6.2% £18.0bn £44.8m 2012¹ 2013 2012 2013 2012 2013 Underlying earnings per share Basic earnings per share Total dividends per share + 12.0% + 14.4% + 4.3% 86.7p
Slide 5: Income statement summary FY 2013
FY 2013 FY 20121 % change (£m) (£m) Average FTSE 100 Index 6419 5734 11.9 Net investment management fee income 113.9 97.8 16.5 Net commission income 42.0 37.4 12.3 Net interest income 8.6 9.9 (13.1) Fees from advisory services and other income 11.9 10.5 13.3 Operating income 176.4 155.6 13.4 Underly
Slide 6: Operating expenses and staff costs
FY 2013 FY 20121 % change (£m) (£m) Staff costs - Fixed 56.9 51.8 9.8 - Variable 27.9 21.1 32.2 Total staff costs 84.8 72.9 16.3 Other operating expenses 41.1 37.9 8.4 Total underlying operating expenses 125.9 110.8 13.6 Total operating expenses 132.2 117.1 12.9 Average FTE² employees during the yea
Slide 7: Operating expenses ratio and one-off costs
35% 32.8% 31.4% 32.2% 30% 29.5% 28.8% 28.6% 25% 20% 2011 2012 2013 (£ million) New office investment 0.8 Legal costs 0.8 0.8 2.7 IAS19 adjustments 0.3 0.3 Intangibles 0.5 CEO retirement 0.7 0.8 1.1 5.0 7
Slide 8: Investment Management FY 2013 funds under management
Investment Unit Total Total Management Trusts FY 2013 FY 2012 FY 2013 FY 2013 (£bn) (£bn) (£bn) (£bn) Opening funds under management 16.7 1.3 18.0 15.9 Inflows 2.7 0.6 3.3 2.4 - Organic¹ 2.1 0.6 2.7 1.9 - Purchased² 0.6 - 0.6 0.5 Outflow of money (1.2) (0.3) (1.5) (1.4) - Retained accounts (0.8) - C
Slide 9: Balance sheet
31/12/13 31/12/12 (£m) (£m) Assets Cash, deposits and investments 966.8 913.2 Loans and advances to customers¹ 95.5 71.7 Prepayments, accrued income and other assets 48.1 42.2 Property, plant and equipment 11.5 12.0 Intangible assets and investment in associates 106.3 98.6 Surplus on retirement bene
Slide 10: Capital expenditure
10 9 8 7 £ million 6 5.2 5 1.7 4 0.9 0.7 3 2.3 1.7 1.6 1.9 2 0.4 0.7 1 1.7 1.7 1.7 1.2 1.4 0 2009 2010 2011¹ 2012 2013 Property² IT & other Purchased software ¹ Property expenditure in 2011 principally in respect of the London office relocation ² Property expenditure in general only includes leaseho
Slide 11: Investment management growth and efficiency
• Growth momentum Average private client portfolio size¹ – Broad based organic growth (>5%) 500 400 – New office in Newcastle £ ‘000 400 438 300 – Taylor Young integration 200 100 – Growing IFA relationship and Vision partnership 0 – Disciplined approach to recruitment and M&A 2012 2013 Average fund
Slide 12: Net organic and purchased inflows by quarter
300 47 250 Net organic inflows (£m) 69 260 200 188 150 97 167 13 57 92 100 123 Organic - Charity 77 50 16 63 Organic - 24 34 Private Client² 250 Purchased - Individual Net purchased inflows (£m) 37 200 79 208 Purchased - 182 Corporate 150 83 129 100 88 82 77 50 62 35 13 11 Q1 2012 Q2 2012 Q3 2012 Q4
Slide 13: Unit trusts review
• Funds under management increased to £1.8bn (2012: £1.3bn) • Good momentum in net sales at £327m (2012: £66m) • Continued strong inflows in 2014 to date • Performance strong – all bar one classified funds in 1st or 2nd quartile over three and five years¹ • Improving profits of £1.4m (2012: £0.6m) •
Slide 14: Marketing, risk management and professional development
• Marketing – New marketing director – Ground work on: • Client survey • Digital strategy • Brand development – Sponsorship • Risk management and control – Continuing development of risk framework and policies – Review of resourcing requirements reflects growth and regulation • Financial discipline
Slide 15: Strategic priorities
• Team approach to • Leverage front end • Strengthen our • Reinforce senior organic growth systems investment risk management to • Expand IFA and • Commence management support strategic professional investment manager capability for scale growth intermediary universe ‘case load’ • Enhance investment
Slide 16: Funds under management, clients and profit since 2004
Total funds under management and number of clients¹ 25 50 Number of clients (’000) • Increase in total FUM (£ billion) 20 40 funds under 15 30 management from 10 20 £7.7 billion to £22 5 10 billion 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • Increase in charity funds under Funds under mana
Slide 17: Key issues
• Balancing three stakeholders – Shareholders – Clients – Employees • Regulation PRA and FCA • Sale of offshore Trust division • Net interest income • Performance data • Growth in investment manager numbers 17
Slide 18: Unit trust growth and dividend history
Growth in unit trust funds under managements 2 1.5 • Progress of Rathbone Unit Trust £ billion 1 Management 0.5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Dividend history 60 47 49 50 44 46 41 42 42 • Maintaining or improving the 40 35 pence 27.5 30 dividend 30 20 10 0 2004 2005 2006 2007 2
Slide 19: Employee share ownership
• Rathbones employee SIP (Share Incentive Plan) Employee shareholding¹ launched in March 2001 • 803 employees hold 1.33 million SIP shares - 2.9% 2.9% of the total voting rights¹ 16% • Maximum contribution since start (plus free shares) = >£110,000 value¹,² • SAYE (Save As You Earn) introduced in 20
Slide 20: Further issues
• Regulation • Legal proceedings update • Value for money • Analyst coverage • Focus on margin • Efficiency of systems • Orphaned clients • Maintaining the Rathbones culture 20
Slide 21: Conclusion and current trading
RATHBONE BROTHERS PLC CONCLUSION AND CURRENT TRADING “WE ARE WELL PLACED TO TAKE ADVANTAGE OF FUTURE GROWTH OPPORTUNITIES IN OUR SECTOR AND CONTINUE TO LOOK TO THE FUTURE WITH OPTIMISM. I VERY MUCH LOOK FORWARD TO WORKING WITH OUR NEW CHIEF EXECUTIVE, PHILIP HOWELL, AND THE BOARD IN THE COMING YEARS
Slide 22: Appendices
APPENDICES 22
Slide 23: Company objectives
By delivering outstanding client service and investment excellence, maintain our significant growth in funds under management over the next five years through a combination of organic growth, acquisition, recruitment and investment performance, while enhancing earnings. • To provide high quality inv
Slide 24: Detailed balance sheet
31/12/13 31/12/12 31/12/13 31/12/12 Assets (£’000) (£’000) Liabilities (£’000) (£’000) Cash and balances with central banks 211,005 116,003 Deposits by banks - 518 Settlement balances 19,611 12,606 Settlement balances 27,626 18,592 Loans and advances to banks 106,327 169,795 Due to customers 891,897
Slide 25: Basic EPS and dividend per share
80.0 70.0 76.1 60.0 66.7 66.5 50.0 49.8 49.0 40.0 46.9 46.0 47.0 42.0 44.0 pence 30.0 20.0 10.0 0.0 2009 2010 2011 2012 1 2013 Basic EPS Dividend per share Dividend cover 1.1x 1.1x 1.5x 1.4x 1.6x Dividend 90% 88% 69% 71% 64% payout ratio Dividend per 5% 5% 2% 4% share growth Inflation growth 4% 4% 3
Slide 26: Underlying PBT and EPS by half year
50.0 40.0 38.6 Underlying PBT (£m) / EPS (p) 34.3 34.6 37.5 30.0 25.5 32.4 31.9 23.9 23.0 24.3 20.0 10.0 15.5 17.0 32.5 18.1 20.4 38.5 24.2 22.0 46.2 23.1 21.7 44.8 26.1 24.4 50.5 0.0 2009 2010 2011 2012 3 2013 1st Half PBT (£m) 2nd Half PBT (£m) Full Year PBT (£m) 1st Half EPS (p) 2nd Half EPS (p)
Slide 27: Underlying to reported profit and EPS
FY 2013 FY20121 Post tax Post tax EPS (p)2 EPS (p)3 (£m) (£m) Underlying profit attributable to shareholders 39.6 86.7 33.8 77.4 Amortisation of acquired client relationships (4.8) (10.6) (4.6) (10.4) Head office relocation costs - - (0.2) (0.5) Profit attributable to shareholders 34.8 76.1 29.0 66.
Slide 28: Shareholder register analysis
Rathbone staff, former staff and directors Lindsell Train¹ 18.9% BlackRock Investment Management² 32.4% MFS Investment Management³ Heronbridge Investment Management Troy Asset Management 12.6% Franklin Templeton Investment Management Legal & General Investment Management 2.4% 11.0% Aviva Investors 2
Slide 29: Board and executive team
Mark Nicholls Chairman Executive directors Non-executive directors Andy Pomfret¹ David Harrel² Chief Executive Philip Howell¹ Oliver Corbett Deputy CEO Paul Stockton James Dean Finance Director Paul Chavasse Kathryn Matthews Head of Investment Management Andy Pomfret Paul Stockton Paul Chavasse Chie
Slide 30: Segmental results
Investment Indirect Management Unit Trusts expenses Total y/e 31 December 2013 (£m) (£m) (£m) (£m) Net investment management fee income 104.2 9.7 113.9 Net commission income 42.0 - 42.0 Net interest income 8.6 - 8.6 Fees from advisory services and other income 10.5 1.4 11.9 Operating income 165.3 11
Slide 31: Underlying profit margin and net interest income
40% 40 34% 35% 35 32% 28% 30% 29% 29% 30% 30 Net interest income (£m) Underlying profit margin 25% 25 20% 20 15% 15 10% 10 5% 5 0% 2008 2009 2010 2011 2012³ 2013 Underlying profit margin Net interest income Headcount1 675 681 699 746 789 833 FUM (£bn)2 11.49 11.41 14.38 15.83 17.18 20.56 1 Average f
Slide 32: Operating expense breakdown
31 December 2013 31 December 20121 3% 4% 2%4% 5% 5% Staff - payroll (excluding variable) 8% Staff - variable 9% Staff - other 43% 44% Property 13% 15% Depreciation & amortisation Professional 3% 3% Settlements 21% IT 18% £132.2m £117.1m 1 Restated for the effect of changes to accounting standards fo
Slide 33: Funds under management growth
3.0 2.0 1.0 0.0 -1.0 -2.0 25.0 £ billion 20.2 20.0 16.7 14.6 14.8 15.0 12.2 10.0 5.0 0.0 2009 2010 2011 2012 2013 Funds under mangement Organic growth¹ Purchased growth Outflows¹ ¹ Organic growth is new business from current clients or from new clients (including those via intermediaries); it exclud
Slide 34: Investment management key performance indicators
FY 2013 FY 20121 % change Investment Management Total rate of net growth in funds under management (%) 9.0 6.2 Basis point return on FUM (excluding Charities) 85 88 (3.4) Basis point return on Charities FUM 45 47 (4.3) Net operating income (£m) 165.3 146.7 12.7 Underlying profit margin (%) 29.7 30.2
Slide 35: Investment management income mix and fees
6% 5% Investment Management Commission² Interest³ Fees 26% Rathbones 100p 100p 100p 63% Cost to client 120p 100p 55p (or 72p) Net investment management fee income Net commission income Net interest income Fees from advisory services and other income ¹ Year ended 31 December 2013 ² Allowable cost for
Slide 36: Basis point returns by income type
Basis point return from fees¹ Basis point return from commission 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 0 10 20 30 40 50 60 0 10 20 30 40 Basis point return from interest Advisory fee income (£m) 2009 2009 2010 2010 2011 2011 2012 2012 H1 2013 2013 H2 0 5 10 15 0 2 4 6 8 10 ¹ 2009 and 201
Slide 37: Investment Management income statement
FY 2013 FY 20121 % change (£m) (£m) Average FTSE 100 Index2 6419 5734 11.9 Net investment management fee income 104.2 89.6 16.3 Net commission income 42.0 37.4 12.3 Net interest income 8.6 9.9 (13.1) Fees from advisory services and other income 10.5 9.8 7.1 Net operating income 165.3 146.7 12.7 Dire
Slide 38: Funds under management by service level and client
Service level Account type Value of client relationship 7.4% 6.2% 10.8% 16.9% 10.9% 14.9% 40.6% 7.6% 13.1% 18.4% 13.5% 31.4% 93.8% 14.5% Discretionary Private client <£250,000 Advisory ISAs £250,000 - £500,000 Trust and settlements £500,000 - £1m Charities £1m - £5m Pensions (including SIPPs) £5m -
Slide 39: Asset allocation of client portfolios
56.3% H1 2011 16.7% 46.9% 23.9% 7.7% 4.8% FY 2011 18.2% 45.4% 22.7% 7.9% 5.8% H1 2012 18.2% 44.8% 23.7% 7.6% 5.7% 56.3% 43.7% FY 2012 18.0% 45.0% 25.1% 7.2% 4.7% Direct holdings Collectives H1 2013 15.8% 45.6% 27.4% 6.5% 4.7% FY 2013 14.6% 47.4% 27.3% 6.5% 4.2% Fixed income UK equities Overseas equi
Slide 40: Investment professionals and funds by office
Number of investment Funds under management Office location professionals¹ (£bn at 31/12/13)² London 91 12.20 Liverpool 25 2.05 Edinburgh 22 2.04 Winchester 16 1.20 Bristol 18 1.15 Other offices³ 37 2.06 Total 209 20.70 ¹ As at 31 December 2013 excluding RUTM fund managers. ² Figures include circa £
Slide 41: Discretionary management fees and dealing charges
Discretionary Management fees (subject to VAT) Main funds (pa) ISA funds (pa) Fixed charge (not applicable for funds valued below £15,000) £100 £100 First £100,000 0.70% 1.00% Next £150,000 0.70% 0.70% Next £250,000 0.30% 0.30% Balance over £500,000 0.25% 0.25% Discretionary dealing charges UK equit
Slide 42: Unit trust performance and quartile ranking
Performance¹ and Quartile Ranking at Size of fund 1 year 3 year 5 year 31 January 2014 (I-Class Units) (£m) † FTSE 100 Index 7.55 N/A 23.92 N/A 88.71 N/A N/A Rathbone Income Fund 17.40 2 45.95 1 124.28 1 656.49 Rathbone Global Opportunities Fund 15.13 1 34.15 1 130.13 1 335.06 Rathbone Ethical Bond
Slide 43: Unit trust discrete year performance
Discrete year performance at Size of fund 2009 2010 2011 2012 2013 31 December 2013 (I-Class Units) (£m) Rathbone Income Fund 24.40 19.60 0.60 15.84 24.88 656.04 Rathbone Global Opportunities Fund 39.00 27.55 -3.96 10.41 27.04 330.33 Rathbone Ethical Bond Fund 19.82 15.22 2.42 18.26 4.87 147.55 Rath
Slide 44: Reference sheet definitions
• Leverage ratio: Tier 1 capital resources on a Basel III basis as a percentage of total assets, excluding intangible assets and investment in associates, plus a proportion of off balance sheet exposures • Portfolio turnover: Overall turnover figures equate to an average of all investment team turno
Slide 45: Rathbone Brothers Plc contact details
Rathbone Brothers Plc 1 Curzon Street London W1J 5FB Telephone +44 (0)20 7399 0000 Facsimile +44 (0)20 7399 0011 www.rathbones.com Issued by Rathbone Brothers Plc for use by professional investors only. Registered office: 1 Curzon Street, London, W1J 5FB. Registered in England No. 01000403 No part o