Rathbone Brothers sees good growth, though pension deficit soars

Rathbone Brothers posted a trading update for the three months to 30 September on Thursday, with total funds under management sitting at £33.2bn at period end - up 8.5% from £30.6bn on 30 June.

The FTSE 250 firm compared it to an increase of 6.1% in the FTSE 100 Index and 5.2% in the FTSE WMA Balanced Index in the three month period.

Net operating income was £65.9m for the period, up 18.5% from £55.6m in the third quarter of 2015.

Total net organic and acquired growth of funds under management in Investment Management was £0.3bn, down from £0.4bn, while net organic inflows were £0.2bn, representing an underlying annualised growth rate of 3.0% for the third quarter compared to 2.5% a year earlier.

Net operating income of £59.2m in Investment Management was 17.2% higher than the £50.5m for the comparable period in 2015.

Net interest income of £3.1m in the third quarter was up 14.8% from £2.7m in the same period in 2015, while funds under management in Unit Trusts at period end were £3.9bn, up 18.2% from £3.3bn at 30 June 2016.

Net inflows for the quarter were £170m compared to £99m a year ago.

“Our total funds under management [reflected] more favourable investment markets and continued business growth,” said chief executive Philip Howell.

“Our Unit Trust business in particular posted strong net inflows of £170m against a challenging industry backdrop for inflows as a whole.

“Our trading outlook for the full year is consistent with market expectations.”

Rathbone Brothers’ board also said it had completed a review of the future of its defined benefit pension schemes, and begun the process of engagement with pension trustees, and planned to consult with affected employees with a view to their closure.

On an IAS19 basis, the pension deficit as at 30 September was £58.3m, an increase of £26.3m compared to 30 June and an increase of £53.8m from 31 December 2015.

“The collapse in long term bond yields was also a key feature of the quarter, re-emphasising the need for the review of our defined benefit pension schemes we announced in July,” Howell explained.

“As a result, we have begun to engage the trustees and affected employees of these schemes with a view to their closure and have today announced a placing, primarily to increase the group's regulatory capital and also to provide additional financial flexibility.”

Rathbones did separately announce plans to raise approximately £38m via a share placing with institutional investors.

The placing will primarily fund the expected near-term higher capital requirement associated with the actions the company is taking in relation to its defined benefit pension schemes and also provide a measure of additional financial flexibility.