Final Results

Close Brothers Group PLC 26 September 2005 Embargoed for release 7.00 am on Monday 26th September, 2005 Specialist merchant banking group CLOSE BROTHERS GROUP plc announces results for the year to 31st July, 2005 HIGHLIGHTS 2005 2004 * Profit before taxation and goodwill amortisation Â£131.7m Â£118.9m * Earnings per share before goodwill amortisation 63.1p 57.3p * Profit before taxation Â£108.6m Â£101.3m * Earnings per share 47.2p 45.1p * Dividends per share 28.5p 27.0p * Shareholders' funds Â£540m Â£509m * Total assets Â£4.5bn Â£3.9bn * Overview - 2005 was another successful year with improved results. Dividend up 1.5p. * Investment Banking - Profit increased by 19 per cent. to Â£77.6 million. Asset Management - Record profit of Â£31.8 million. Funds under management grew to Â£7.1 billion. Corporate Finance - Profit Â£10.1 million reflects further progress in the UK supported by improved performances in Europe. Market-Making - After a quiet start activity picked up to produce profit of Â£35.7 million. * Banking - In a year of consolidation the loan book increased by 11 per cent. earning profit of Â£71.1 million. Colin Keogh, Chief Executive, said: "2005 was another year of progress and growth. We are heartened by the momentum in our asset management division and, provided the investment climate remains buoyant, we should also see further growth in our market-making and corporate finance divisions. Our expectation for our banking activity is for continued progress at a modest level. All four divisions have made a good start to the new financial year and we view the future with confidence." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Rupert Young Brunswick Group Limited 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group plc at www.closebrothers.co.uk or www.cantos.com CLOSE BROTHERS GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED GROUP RESULTS AND CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31ST JULY, 2005 The following is the full text of the preliminary announcement of results for the financial year ended 31st July, 2005. The financial information in relation to 31st July, 2005 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, 2005 Year Ordinary Goodwill Total ended activities amortisation ordinary 31st July, before activities 2004 goodwill amortisation Â£'000 Â£'000 Â£'000 Â£'000 Interest receivable 280,827 - 280,827 240,348 Interest payable 140,320 - 140,320 106,757 --------- --------- -------- -------- Net interest income 140,507 - 140,507 133,591 --------- --------- -------- -------- Fees and commissions receivable 230,019 - 230,019 194,453 Fees and commissions payable (35,834) - (35,834) (34,072) Net dealing income - market-making 96,285 - 96,285 99,983 Other operating income 17,019 - 17,019 7,227 --------- --------- -------- -------- Other income 307,489 - 307,489 267,591 --------- --------- -------- -------- Operating income 447,996 - 447,996 401,182 --------- --------- -------- -------- Administrative expenses 283,763 - 283,763 248,622 Depreciation 12,145 - 12,145 10,833 Provisions for bad and doubtful debts 20,349 - 20,349 22,781 Amortisation of goodwill - 23,120 23,120 17,603 --------- --------- -------- -------- Operating expenses 316,257 23,120 339,377 299,839 --------- --------- -------- -------- Operating profit on ordinary activities before taxation 131,739 (23,120) 108,619 101,343 Taxation on profit on ordinary activities 37,865 - 37,865 33,925 --------- --------- -------- -------- Profit on ordinary activities after taxation 93,874 (23,120) 70,754 67,418 Minority interests - equity 2,177 - 2,177 2,209 --------- --------- -------- -------- Profit attributable to shareholders 91,697 (23,120) 68,577 65,209 --------- --------- Dividends: Interim dividend 9.5p per share (2004 - 9.0p) 13,636 12,875 Proposed final dividend 19.0p per share (2004 - 18.0p) 27,301 25,604 -------- -------- Total dividends 28.5p per share (2004 - 27.0p) 40,937 38,479 -------- -------- Retained profit for the year 27,640 26,730 -------------------------------------------------------------------------------- Earnings per share before amortisation of goodwill 63.1p 57.3p -------- -------- Earnings per share on profit attributable to shareholders 47.2p 45.1p -------- -------- Diluted earnings per share 47.0p 45.0p -------- -------- All income and profits are in respect of continuing operations. -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET At 31st July, 2005 2005 2004 Â£'000 Â£'000 Assets Cash and balances at central banks 1,244 844 Loans and advances to banks 786,330 733,029 Loans and advances to customers 1,953,031 1,757,074 Non-recourse borrowings (200,000) (250,000) 1,753,031 1,507,074 Debt securities - long positions 61,345 54,521 Debt securities - other 797,498 777,509 Settlement accounts 604,692 366,213 Equity shares - long positions 40,377 34,714 Equity shares - investments 26,730 26,770 Intangible fixed assets - goodwill 88,863 98,628 Tangible fixed assets 39,949 32,855 Share of gross assets of joint ventures 21,624 21,855 Share of gross liabilities of joint ventures (20,914) (21,358) 710 497 Other assets 267,192 197,824 Deferred taxation 21,591 14,377 Prepayments and accrued income 49,600 35,589 -------- -------- Total assets 4,539,152 3,880,444 -------------------------------------------------------------------------------- Liabilities Deposits by banks 108,101 79,188 Customer accounts 1,818,187 1,681,152 Bank loans and overdrafts 494,363 621,360 Debt securities - loan notes issued 367,130 100,000 Debt securities - short positions 49,628 52,842 Settlement accounts 561,173 301,159 Equity shares - short positions 20,424 14,406 Other liabilities 372,835 313,254 Accruals and deferred income 126,019 106,208 Subordinated loan capital 75,000 96,937 Minority interests - equity 5,971 4,674 -------- -------- 3,998,831 3,371,180 -------- -------- Shareholders' funds Called up share capital 36,168 36,066 Share premium account 252,210 250,430 ESOP trust reserve (3,786) (3,962) Profit and loss account 255,729 226,730 -------- -------- Total equity shareholders' funds 540,321 509,264 -------- -------- Total liabilities and shareholders' funds 4,539,152 3,880,444 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31st July, 2005 2005 2004 Â£'000 Â£'000 Profit attributable to shareholders 68,577 65,209 Exchange adjustment 1,264 (1,554) -------- -------- Total recognised gains 69,841 63,655 -------- -------- -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st July, 2005 2005 2004 Â£'000 Â£'000 Net cash inflow from operating activities 521,521 113,868 --------- --------- Returns on investments and servicing of finance Interest paid on subordinated loan capital (7,743) (7,834) Dividends paid to minority interests (934) (1,419) --------- --------- (8,677) (9,253) --------- --------- Taxation paid (37,821) (32,184) --------- --------- Capital expenditure and financial investment Purchase of assets let under operating leases (11,213) (8,620) Purchase of tangible fixed assets (8,095) (9,993) Sale of tangible fixed assets 1,685 630 Purchase of equity shares held for investment (7,523) (2,839) Sale of equity shares held for investment 19,091 5,677 --------- --------- (6,055) (15,145) --------- --------- Acquisitions and disposals Minority interests acquired for cash (5,134) (2,950) Purchase of loan book (130,530) - Purchase of subsidiaries (29,506) (11,772) --------- --------- (165,170) (14,722) --------- --------- Equity dividends paid (39,240) (37,357) --------- --------- Net cash inflow before financing 264,558 5,207 Financing Issue of ordinary share capital including premium 1,882 966 Repayment of subordinated loan capital (21,937) - --------- --------- Increase in cash 244,503 6,173 --------- --------- In the directors' view, cash is an integral part of the operating activities of the group, since it is a bank's stock in trade. Nevertheless, as required by Financial Reporting Standard No. 1 (Revised), cash is not treated as cash flow from operating activities but is required to be shown separately in accordance with the format above. -------------------------------------------------------------------------------- THE NOTES 1. Consolidated cash flow statement 2005 2004 Â£'000 Â£'000 (a) Reconciliation of operating profit on ordinary activities before taxation to net cash inflow from operating activities Operating profit on ordinary activities before taxation 108,619 101,343 (Increase)/decrease in: Interest receivable and prepaid expenses (13,375) (8,376) Net settlement accounts 21,535 8,773 Net equity shares held for trading 3,904 (15,294) Net debt securities held for trading (10,038) 4,952 Increase in interest payable and accrued expenses 17,064 9,559 Depreciation and amortisation 35,265 28,436 -------- -------- Net cash inflow from trading activities 162,974 129,393 (Increase)/decrease in: Other debt securities (11,483) (233,683) Loans and advances to customers (195) (141,460) Loans and advances to banks not repayable on demand 190,802 19,764 Other assets less other liabilities (22,821) 10,067 Increase/(decrease) in: Deposits by banks 28,913 (28,684) Customer accounts 137,035 279,670 Bank loans and overdrafts (180,834) 3,801 Non-recourse borrowings (50,000) 75,000 Debt securities - loan notes issued 267,130 - -------- -------- Net cash inflow from operating activities 521,521 113,868 -------- -------- (b) Analysis of net cash outflow in respect of the purchase of subsidiaries Cash consideration in respect of current year purchases (38,900) (9,563) Loan stock redemptions and deferred consideration paid in respect of prior year purchases (791) (8,808) Net movement in cash balances 10,185 6,599 -------- -------- (29,506) (11,772) -------- -------- (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 383,433 382,467 Shares issued for cash 1,882 966 Repayment of subordinated loan capital (21,937) - -------- -------- Closing balance 363,378 383,433 -------- -------- (d) Analysis of cash balances Movement in the year Â£'000 Cash and balances at central banks 400 1,244 844 Loans and advances to banks repayable on demand 244,103 380,638 136,535 ------- -------- -------- 244,503 381,882 137,379 -------- -------- -------- -----------------------------------------------------------------------=-------- 2. Basis of preparation The financial information included in this announcement does not constitute the company's statutory accounts for the year ended 31st July, 2005, but is derived from those accounts on which the auditors have yet to sign their report. It has been prepared on the basis of the accounting policies set out in the 2004 statutory accounts. The figures shown for the year ended 31st July, 2004 represent an abridged version of the statutory accounts of Close Brothers Group plc for that year, which have been filed with the Registrar of Companies and on which the auditors have given an unqualified report. -------------------------------------------------------------------------------- 3. Earnings per share Earnings per share before amortisation of goodwill is based on profit of Â£91,697,000 (2004 - Â£82,812,000), being profit after taxation and minority interests but before goodwill amortisation, and on 145,348,000 (2004 - 144,459,000) ordinary shares, being the weighted average number of shares in issue and contingently issuable during the year excluding those held by the employee benefit trust. This earnings per share has been disclosed because, in the opinion of the directors, it reflects operational performance. Earnings per share on profit attributable to shareholders is based on profit after taxation and minority interests of Â£68,577,000 (2004 - Â£65,209,000) and on the same number of shares as above. Diluted earnings per share is based on this same profit after taxation and minority interests, but on 145,831,000 (2004 - 145,047,000) ordinary shares, being the weighted average number of shares in issue disclosed above, plus the weighted dilutive potential on ordinary shares of exercisable employee share options in issue during the year. -------------------------------------------------------------------------------- 4. Dividend The final ordinary dividend of 19.0p per share is proposed to be paid on 1st November, 2005 to holders of ordinary shares on the register at the close of business on 7th October, 2005. -------------------------------------------------------------------------------- CHAIRMAN'S STATEMENT RESULTS The operating profit on ordinary activities before taxation and goodwill amortisation was Â£131.7 million compared to Â£118.9 million last year, an increase of 11 per cent., producing earnings per share of 63.1p compared to 57.3p, an increase of 10 per cent. After deducting a charge for goodwill amortisation of Â£23.1 million (2004 - Â£17.6 million), the operating profit on ordinary activities before taxation was Â£108.6 million (2004 - Â£101.3 million) and earnings per share were 47.2p (2004 - 45.1p). The board recommends a final dividend of 19p per share which, together with the interim dividend, makes a total dividend for the year of 28.5p per share (2004 - 27p) with pre-goodwill cover of 2.2 times (2004 - 2.1 times). This affirms our dividend growth whilst continuing to rebuild dividend cover. OVERVIEW 2005 was another successful year with improved results being achieved in quite difficult conditions. Our investment banking activity posted profit growth of 19 per cent., on top of the 77 per cent. achieved in 2004. Our banking activity did well to show a small increase in profit in a challenging year. The profit before taxation and goodwill amortisation once again reflected an impressive return on operating income, of 29 per cent. (2004 - 30 per cent.) and on opening shareholders' funds, of 26 per cent. (2004 - 25 per cent.). The table below demonstrates the overall balance of our businesses. The growing proportion of our mix coming from the asset management division accords with our strategy and we expect this to continue in the future: Analysis of Operating Profit (before central costs) 2003 2004 2005 % % % Asset Management 8 13 21 Corporate Finance 5 7 7 Market-Making 24 28 24 ----- ----- ----- Investment Banking 37 48 52 Banking 63 52 48 ----- ----- ----- 100 100 100 ===== ===== ===== The increasing momentum in our asset management division that we reported last year has continued. We have achieved much in the past twelve months resulting in a divisional profit improvement of 83 per cent. We have focused our operations on private clients and funds and we have completed the recruitment of our top management team. On the funds side, we have recently made the small but strategically important acquisition of Escher, a process-driven manager-of-managers business, now renamed Close TEAMS. An important event during the year for our market-making division was the purchase of Seydler for an initial â‚¬25 million (Â£17 million), approximately net asset value. This business has some 75 staff, most of whom are located in Frankfurt, and provides an interesting entry to a potentially growing market. On the banking side, we acquired a motor vehicle loan book for the benefit of running it off and a commercial asset finance business. TRADING Investment Banking Asset Management The division achieved another year of significant growth with record pre-tax profit of Â£31.8 million compared to Â£17.4 million last year. The pre-tax operating margin was 27 per cent. and funds under management grew from Â£5.5 billion to Â£7.1 billion. Our private client business has some Â£2.7 billion of investment funds under management. It also administers some Â£5.2 billion of trust assets and has Â£0.7 billion of deposits offshore. Our private banking operations in Jersey, Guernsey and Isle of Man now have a single management structure. This group, together with our mass affluent business, Close Wealth Management, and our onshore bespoke business for high net worth individuals, form the building blocks of our private client business. Each of the three key units in this group made progress during the year and are working closely together. Our funds business has some Â£4.4 billion of funds under management. During the year collective funds, property funds, private equity and fund administration all performed well. The future for this division looks bright. Corporate Finance With operating income up 18 per cent., the pre-tax profit of this division was Â£10.1 million and the operating profit margin was 24 per cent. The emphasis of our business is on the M&A, restructuring and debt advisory markets. In all these we had a good start and finish to our year, but a rather dull patch in the middle. Our early pipeline for 2006 is encouraging. Our French and German interests, now operating solely under the Close Brothers brand, enjoyed some improvement in local market conditions. Our partners in Spain and Italy also made progress. Market-Making In addition to Winterflood Securities ("WINS") this division now includes the renamed Close Brothers Seydler, which made a small yet encouraging profit contribution in the three months since acquisition. However, the vast majority of the profit in the period was earned by WINS. Although pre-tax profit for the division was down somewhat, from Â£37.9 million to Â£35.7 million, WINS' pre-tax operating profit margin at 37 per cent. remained fairly steady. In our financial year we experienced two quiet trading periods, at the start of the year (August/September 2004) and during the second half (April/May 2005). In the remainder of the year, trading was satisfactory, so that overall there was no material difference between the first and second halves. For the whole of the year (unlike the previous year) the SETSmm trading system was operating for some 200 stocks below the top 100. Whilst this led to some margin reduction, it was not material in the context of the whole of WINS' diverse business. Contribution from developments made in earlier years more than filled this space, including some healthy fee income from our specialist investment trust team. Our new financial year has got off to a solid start, significantly better than last year, as the market's mood continues to be positive. Banking As expected our banking activity had a year of consolidation in which the loan book increased by 11 per cent. but profits increased only marginally. The pre-tax profit was Â£71.1 million compared to Â£69.7 million in 2004. We again achieved a commendable pre-tax return on operating income (38 per cent.) and on opening shareholders' funds (31 per cent.). These solid financial statistics demonstrate the effectiveness of our particular lending model. With relatively full employment and low interest rates in the UK, and a calm if unexciting environment for small businesses, conditions have been benign for bad debts. During the year our charge to profit and loss account expressed as a percentage of average gross loans fell to 1.1 per cent. from 1.4 per cent. For the year overall a strong performance in some sectors, namely credit management, property, and transport and engineering, helped by the improving bad debt ratio, more than offset the impact of the costs and associated loss of income resulting from regulatory change and the continuing deflation of commercial insurance premiums. On the funding side, we continue our proven strategy of being able to fund our entire loan book without recourse to short term deposits. In November 2004, we raised â‚¬500 million of three-year finance under a medium term note programme. This funding was achieved at an attractive margin and from a range of continental institutions, most of which were new providers of finance to the group. The new year has started well but will be influenced by the continuing effects of regulatory change and insurance premium deflation. OUTLOOK The General Election changed neither the political landscape nor the economic policies in the UK. With consumer debt remaining high, Government expenditure continuing to rise, and the price of oil recently reaching record levels, the UK economic outlook remains somewhat unsettled. Our expectation for our banking activity is for continued progress at a modest level. Our view of our investment banking activity is more positive. We are heartened by the momentum in our asset management division and, provided the investment climate remains buoyant, we should also see further growth in our market-making and corporate finance divisions. All four divisions have made a good start to the new financial year and we view the future with confidence. Sir David Scholey Chairman This information is provided by RNS The company news service from the London Stock Exchange

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