Final Results

CLOSE BROTHERS GROUP PLC 27 September 1999 CLOSE BROTHERS GROUP plc The specialist merchant banking group announces record results for the year to 31st July, 1999 Highlights of the year ---------------------- * Profit before tax up 10% to £76.3m (£69.6m) * Earnings per share up 10% to 42.1p (38.2p) * Dividends per share up 11% to 16.0p net (14.4p) * Total assets up 3% to £1.70bn (£1.65bn) * Twenty-fourth consecutive year of increase in profits. * Winterflood Securities - dealing income increased to record levels with strong second half. * Corporate Finance - acted on record number of public bids. * Asset Management - funds under management substantially increased. * Asset Finance - continued growth in a patchy market. * Acquisition of Rea Brothers and Warrior since the year end furthers growth opportunities. Commenting on the results, Michael Morley, Chairman, said: 'The economic outlook has continued to improve and this has been reflected in a particularly buoyant and active UK stock market. Accordingly, the results for our second half showed considerable improvement. Our established businesses have started the new year encouragingly and we remain confident for the future.' Enquiries to: Rod Kent/Peter Winkworth Close Brothers Group plc 0171 426 4000 John Sunnucks Brunswick Group Limited 0171 404 5959 CLOSE BROTHERS GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED GROUP RESULTS AND CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31st JULY, 1999 The following is the full text of the preliminary announcement of results for the financial year ended 31st July, 1999. The financial information in relation to 31st July, 1999 has been extracted from the statutory accounts of the company, which have yet to be adopted by shareholders at general meeting and have yet to be filed with the Registrar of Companies. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31st July, 1999 1999 1998 £'000 £'000 Interest receivable 121,277 117,234 Interest payable (61,422) (61,380) -------- -------- Net interest income 59,855 55,854 -------- -------- Dividend income 398 406 Fees and commissions receivable 66,162 61,559 Fees and commissions payable (9,367) (10,229) Net dealing income - market-making 67,162 55,618 Other operating income 1,341 3,061 ------- ------- Other income 125,696 110,415 ------- ------- Operating income 185,551 166,269 ------- ------- Administrative expenses 97,709 85,769 Depreciation 3,472 3,121 Provisions for bad and doubtful debts 8,028 7,795 Amortisation of goodwill 24 - ------- ------- Total operating expenses 109,233 96,685 ------- ------- Profit on ordinary activities before 76,318 69,584 taxation Taxation on profit on ordinary 24,473 22,410 activities ------- ------- Profit on ordinary activities after 51,845 47,174 taxation Minority interests - equity 982 931 ------- ------- Profit attributable to shareholders 50,863 46,243 ------- ------- Dividends: Interim dividend 5.3p per share 6,410 5,862 (1998 - 4.8p) Proposed final dividend 10.7p per 14,365 11,726 share (1998 - 9.6p) ------- ------- Total dividends 16.0p per share 20,775 17,588 (1998 - 14.4p) ------- ------- Retained profit for the year 30,088 28,655 ======= ======= Earnings per share 42.08p 38.19p ------- ------- Diluted earnings per share 41.88p 37.97p ------- ------- CONSOLIDATED BALANCE SHEET At 31st July, 1999 1999 1998 £'000 £'000 Assets Cash and balances at central banks 64 28 Loans and advances to banks 395,512 228,201 Loans and advances to customers 701,233 653,470 Debt securities - certificates of 208,860 305,937 deposit Debt securities - gilts long 18,473 61,871 positions Settlement accounts 215,628 218,152 Equity shares - long positions 36,549 24,290 Equity shares - investments 19,345 15,025 Intangible fixed assets - goodwill 1,083 - Tangible fixed assets 12,560 9,736 Other assets 83,407 120,160 Prepayments and accrued income 9,004 8,157 --------- --------- Total assets 1,701,718 1,645,027 ========= ========= Liabilities Deposits by banks 89,189 108,529 Customer accounts 535,715 496,233 Bank loans and overdrafts 330,043 284,587 Debt securities in issue - loan notes 54,422 54,422 Debt securities in issue - gilts 20,297 62,530 short positions Settlement accounts 177,119 156,659 Equity shares - short positions 10,822 9,040 Other liabilities 154,581 210,981 Accruals and deferred income 39,323 31,714 Subordinated loan capital 21,937 21,937 Minority interests - equity 2,111 2,042 --------- --------- 1,435,559 1,438,674 ========= ========= Shareholders' funds Called up share capital 32,142 30,538 Share premium account 138,879 94,634 Other reserves - 1,984 Profit and loss account 95,138 79,197 --------- --------- Total equity shareholders' funds 266,159 206,353 --------- --------- Total liabilities and shareholders' 1,701,718 1,645,027 funds ========= ========= Notes: ------ 1. The calculation of earnings per share is based on profit after taxation and minority interests of £50,863,000 (1998 - £46,034,000) and on 120,859,000 (1998 - 120,535,000) ordinary shares, being the weighted average number of shares in issue during the year. The earnings per share for 1999 have been calculated using Financial Reporting Standard No.14 and comparative figures have been restated accordingly. 2. The final ordinary dividend of 10.7p per share is proposed to be paid on 8th November, 1999, to holders of ordinary shares on the register at the close of business on 8th October, 1999. 3. The financial information included in this announcement as regards the group does not constitute statutory accounts for the relevant periods within the meaning of Section 240 of the Companies Act 1985. Statutory accounts of the company for the financial year ended 31st July, 1998, upon which the auditors of the company have given an unqualified report, have been delivered to the Registrar of Companies. CHAIRMAN'S STATEMENT -------------------- Results ------- The year ended 31st July, 1999 was another successful and busy one for the group. Profit before taxation increased by 10 per cent. to £76.3 million from £69.6 million last year and earnings per share increased by 10 per cent. to 42.1p from 38.2p. These results represent our twenty- fourth consecutive year of increase in profits. The board is recommending a final dividend of 10.7p net per share which, together with the interim dividend, makes a total distribution for the year of 16.0p net per share (1998 - 14.4p). This represents an increase of 11 per cent. over last year's total dividend per share and is covered some 2.6 times. Trading ------- Our trading for the year to 31st July, 1999 was a tale of two halves. The period started with signs of a distinct economic slowdown and we were cautious about the outlook. However, by the end of our first half in January 1999 trading was better than we had expected. Since then, the economic outlook has continued to improve and this has been reflected in a particularly buoyant and active UK stock market. Accordingly, the results for our second half showed considerable improvement. These results included a sparkling performance from our market-making division and, consequently, the mix of operating profits between our three main divisions (as shown below) was rather less even than in the previous year. The recent acquisitions of Rea Brothers and Warrior will rebalance this in the medium term. Operating profit 1998 1999 Asset Finance 30% 28% Market-Making 39% 44% City Merchant Banking 31% 28% Our Asset Finance division continued to be the largest component of our lending activities, representing 70 per cent. of our group loan book of £701 million, which itself increased by 7 per cent. during the year. On the commercial side, the market for printing equipment continued to be dull although that for other assets, notably commercial vehicles, showed improvement. On the consumer side, our used car finance business accelerated its development of new branches, particularly in the southern part of the country. More importantly, we have recently made a major strategic move with the acquisition of Warrior, into which we have injected our Armed Services Finance operation. Both of these businesses specialise in the provision of loans and other financial services to the Armed Forces and, together with our new partners, the NAAFI, we intend to re-organise and expand these operations. Our Market-Making division, Winterflood Securities ('WINS'), had a slow start and a strong finish. Dealing income increased by 21 per cent. to £67 million with the second half providing some two-thirds of the total. Since the turn of the year the UK stock market has been active and volatile. The activity fed into the smaller stocks, our chosen sector of the market, where the small cap index has outperformed others since February. In addition, our retail gilts business grew strongly in the second half. With the advent of our corporate finance and IPO capabilities in Europe, WINS is now reviewing the opportunities for its skills in the continental markets. Furthermore, into the new Millennium the influence of technology on financial services will escalate and share dealing on the Internet will open up the retail market further. This, coupled with our expanding automatic execution trading, bodes well for WINS. Our City Merchant Banking division continued to progress. Our Corporate Finance activity had a strong second half acting on a record number of public bids although the year as a whole did not quite match the exceptional performance of 1998. We are now a leading adviser in the UK mid-cap growth market and we are increasingly specialising in certain business sectors, particularly technology and e- commerce, leisure, support services and engineering, where we have a group of fast-growing clients. In addition, we have put in place the structure to develop similar businesses in France and Germany. Our Asset Management activity had a productive year. Funds under management, having repaid some £270 million of maturing Business Expansion Scheme funds on schedule, increased by over £200 million, or 33 per cent., to £835 million. We showed substantial growth in our protected Escalator range of unit trusts, we raised £135 million for our FTSE 100 split level investment trust and we increased significantly the funds managed on our tax sheltered side. Our development capital funds performed well and will shortly be raising further funds. We have initiated a major expansion into the private client market with the launch of Close Wealth Management although, as with all start-ups, this will take some time to mature. Since the year end we have acquired Rea Brothers, which more than doubles our funds under management in the complementary areas of private clients and investment trusts and also provides us with an important entree into the offshore market. Our Treasury operation again showed growth in deposits and bank facilities and Commercial Lending performed strongly, particularly in the first half. PROMPT showed growth in its loan book to over £100 million for the first time, with some evidence that the soft market for business premiums may at last be turning. The launch of PROMPT into the personal lines market is also a significant move. Our Credit Management companies both produced record results and continue to benefit from strong sales and a favourable trading environment. Our factoring company, Close Invoice Finance, produced a particularly fine set of results. Developments ------------ The past year has been a strategically active period for the group and we have initiated a number of developments and add-on acquisitions. In particular, we have: * launched Close Wealth Management, a private client investment management business specialising in the mass affluent market, where we manage portfolios of £25,000 and upwards; * launched PROMPT Personal, a business providing instalment finance for insurance premiums paid by individuals which is complementary to our existing operation covering insurance premiums for businesses; * expanded our Corporate Finance operation in Europe by the acquisitions of: - Freyberg Hambros (now Freyberg Close Brothers) in Germany; - the Paris office of Hambrecht & Quist (now Close Brothers Equity Markets); * entered into a lease for additional office space at 10 Crown Place, London EC2. In addition, since our year end we have: * Acquired the Rea Brothers group, which has significantly increased our funds under management and added an off-shore banking, investment management and trust business; * Acquired Warrior, which provides loan facilities and other financial services to the Armed Forces, particularly in Germany and Cyprus, in conjunction with its other shareholder, the NAAFI. While each of these and some other initiatives are relatively small, in aggregate they significantly expand our business. The cost of such developments will exceed £90 million and has been financed partly by a share placing in July, which raised £45 million, and partly by the issue of some £48 million of new shares for the acquisition of Rea Brothers. Directors --------- As reported in our interim announcement, I will be retiring early at the end of the forthcoming Annual General Meeting on 3rd November, 1999 and Sir David Scholey CBE will be replacing me. Sir David is so well-known as to need little introduction. He was previously the chairman of SBC Warburg (and is still an adviser to Warburg Dillon Read) and he is currently a non-executive director of J Sainsbury and Vodafone AirTouch. I am both delighted that he has accepted this appointment and confident that his wise counsel will be invaluable in the continued development of Close Brothers in the years ahead. Outlook ------- The outlook at the beginning of this financial year is more favourable than it was last year. Our established businesses have started the new financial year encouragingly and we remain confident for the future. We shall have much work to do to integrate our promising new acquisitions, Rea Brothers and Warrior, in order to position them for further growth. The results from these efforts, as well as from our new start-ups, will take time to come through. We shall also continue to review further development and acquisition opportunities. Michael Morley Chairman

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