Interim Results
Close Brothers Group PLC
4 March 2002
Embargoed for release 7.00 am on Monday 4th March, 2002
CLOSE BROTHERS GROUP plc
The specialist merchant banking group
INTERIM RESULTS 2002
HIGHLIGHTS Six months ended
31st January, 31st July, 31st January,
2002 2001 2001
* Operating profit before taxation and goodwill
amortisation £37.4m £36.3m £57.9m
* Operating profit before taxation on ordinary
activities £34.1m £33.5m £56.1m
* Earnings per share (before amortisation of
goodwill) 18.6p 18.5p 28.9p
* Interim dividend per share 9.0p n/a 9.0p
* Shareholders' funds £419m £408m £406m
* Profits at £34.1m are in line with our AGM statement and above the second half of last year.
* Asset Management profits held up reasonably with funds under management increasing.
* Corporate Finance results were sharply down, although Europe was up.
* Banking profits substantially up and no increase in bad debt levels.
* Market-Making recovered after 11th September and was helped by two good months in the Autumn.
* Rod Kent, Managing Director for over 28 years, is to stand down in October 2002. Colin Keogh will
succeed him as Group Chief Executive, with Peter Winkworth and Stephen Hodges being appointed as
Group Managing Directors.
Sir David Scholey, Chairman, commenting on the results said:
"Looking forward the immediate outlook for banking is good but for the other
three divisions it continues to be unclear. We maintain our confidence in the
longer term strength and progress of the group, whilst adopting a cautious
stance for the next six months."
Commenting on the management succession plans, he said:
"Close Brothers is fortunate in having depth of management and the Board
believes that the arrangements which we have announced will make for a seamless
handover to a strong management team to take the business on to its next phase
of development."
Enquiries to:
Rod Kent Close Brothers Group plc 020 7426 4000
Sir David Scholey Close Brothers Group plc 020 7568 2402
John Sunnucks Brunswick Group Limited 020 7404 5959
Webcast video interview with Rod Kent, Managing Director, Close Brothers Group
plc at www.closebrothers.co.uk or www.cantos.com
Notes to editor: CV of Colin Keogh attached.
NOTES FOR EDITORS
COLIN KEOGH, M.B.A, Barrister, A.T.I.I
Colin Keogh (48) was born and brought up in South Africa. He was educated at St
John's College in Johannesburg. In 1970 he came to England and took A levels at
Eton College, following which he read law at Oxford and trained for the Bar in
1976. After a brief spell with Merrill Lynch, he spent four years on the tax
side at Arthur Andersen and then studied for a MBA at INSEAD. From 1983 to
1985, he worked at Saudi International Bank before joining the Corporate Finance
division of Close Brothers in 1985.
At Close Brothers he was promoted to run the Corporate Finance division,
successfully overseeing the integration of the Hill Samuel team acquired in June
1996. Since 1998 he has been responsible for building the Asset Management
division. He has been on the Board of Close Brothers Group since 1995.
DIRECTORS' STATEMENT
Profit and Dividend
The operating profit on ordinary activities before taxation and after deducting
goodwill amortisation of £3.3 million for the six months ended 31st January,
2002 was £34.1 million.
Since our businesses are essentially non-seasonal it is relevant to compare each
half year with the preceding period. The out-turn compares with profits before
taxation of £33.4 million (after deducting goodwill amortisation of £2.9
million) in the previous half year to 31st July, 2001, a modest increase of 2
per cent. However, compared to the half year to 31st January, 2001, which
showed profits before taxation of £56.1 million (after deducting goodwill
amortisation of £1.8 million), these results show a fall of 39 per cent. During
that period, the profits of our Market-Making business, at £25.9 million,
reflected the better stock market conditions at that time.
The directors have declared an interim dividend of 9p net per share, the same
level as last year. This is payable on 17th April, 2002 to shareholders on the
register at the close of business on 15th March, 2002.
Overall Business Review
These results are in line with our statement at the AGM on 30th October, 2001
when we expressed caution on the outlook for the year.
Compared to the second half of last year, our Asset Management division held up
reasonably in the depressed equity markets, whilst our Corporate Finance
division was, inevitably, affected by the very difficult general conditions in
its marketplace. Our Banking division did well, with good volumes at decent
margins and no deterioration in the percentage of bad debts. After the shock of
11th September, our Market-Making division recovered with the market and was
helped by two good months in the Autumn.
The segmental analysis of our income and profits is shown below:
Operating income Profit before taxation
First Second First First Second First
half half half half half half
£ million 2002 2001 2001 2002 2001 2001
Asset Management 33.4 35.4 34.9 8.6 9.9 14.1
Corporate Finance 13.7 26.2 22.1 2.0 6.8 5.1
Banking 65.9 62.1 54.2 26.1 20.8 20.1
Market-Making 25.0 10.4 46.8 9.6 1.5 25.9
Group (0.8) 0.8 (0.2) (8.9) (2.7) (7.3)
Total 137.2 134.9 157.8 37.4 36.3 57.9
Goodwill amortisation (3.3) (2.9) (1.8)
Total 34.1 33.4 56.1
The group expenses include some £1.5 million in respect of the reorganisation
and redundancy costs of our corporate finance business. The divisional net
assets have not changed materially during the first half year.
DIRECTORS' STATEMENT
Divisional Business Review
Asset Management
Despite a fall in the markets during the period, our Asset Management division
increased its funds under management from £3,074 million to £3,321 million.
£143 million of this increase was by acquisition, whilst the balance was from
net new funds raised of £216 million less negative market movement of £112
million. The profits of the division at £8.6 million were down from £9.9
million in the previous half year, mainly because of the lower level of
performance fees.
A substantial part of the division's revenues continues to arise in our offshore
businesses; these performed well and were enhanced during the period by the
acquisition of a small private client fund management business in Jersey.
Markets continue to mark time and the outlook for our second half is neutral.
Corporate Finance
Although our Corporate Finance division started the first half with a reasonable
pipeline, this rapidly evaporated as a number of deals were cancelled or
postponed following the events of 11th September.
In November, we embarked on a mainly voluntary redundancy programme to lower our
costs, reducing our London-based staff by some 27 people and this programme
coincided with changes in the management team. Whilst the results of our Paris
and Frankfurt operations were both up against the comparable period last year,
the overall figures for London were sharply down, even though we were busy on
the restructuring side.
The net overall result was only a modest profit, but we are confident that the
market position of our business remains good. We are now well placed to
increase our share in a market which is still difficult but shows some signs of
stirring into life.
Banking
Our Banking division was the largest contributor to our results in the period,
with profits increasing by some 30 per cent. over the same period last year.
All activities in this division performed well and, in particular, Close Premium
Finance (formerly known as PROMPT) achieved record results and financed some
£600 million of insurance premiums. In addition, Close Invoice Finance expanded
its business by the acquisition of clients from Singer & Friedlander Factors,
and both Warrior and Mortgage Intelligence moved forward into profit.
Notwithstanding our cautious approach to lending in a period of economic
slowdown, our principle of focusing mainly on the nature of the asset financed
rather than the covenant of the borrower is standing us in good stead and our
bad debt level has been contained below the levels of last year. The immediate
outlook for this division continues to be good.
In the past six months our loan book grew by some 9 per cent. from £1.19 billion
to £1.30 billion; a year ago it was £1.09 billion. The mix of assets that we
finance has not changed significantly over the period:
31st January, 31st January,
2002 2001
Insurance 23% 25%
Printing equipment 20% 20%
Cars 18% 15%
Property 9% 12%
Commercial vehicles and aircraft 9% 11%
Debt factoring 6% 6%
Armed services 4% 6%
Other 11% 5%
DIRECTORS' STATEMENT
Market-Making
For our Market-Making division the half year consisted of two distinct periods,
with the majority of the profit being earned in the second. During the first,
trading volumes continued at a comparatively low level with prices falling in
the middle of September. However, in the second period, activity began to pick
up as more confidence returned to the Stock Market.
Noteworthy events for our business were the increase in direct connections to
WINNER (our automatic equity trading platform), the extension of dealing to
include the FTSE-100 stocks, the continued development of Bondscape (our fixed
interest trading platform), and the move to new City premises off Cannon Street.
The immediate outlook is unexciting.
Directors
As already announced, Brian Winterflood retired from the Board on 31st January,
2002 upon reaching his 65th birthday, but we will continue to benefit from his
presence as non-executive chairman of our Market-Making division. Mike Hines,
with David Macnamara as his alternate, was appointed by the Board today. They
are the joint chief executives of our Market-Making division.
John Llewellyn-Lloyd stepped down as head of our Corporate Finance division on
31st December, 2001 by mutual agreement and retired from the Board. We thank
him for his efforts and wish him well in his future career.
Management
Rod Kent has advised the Board that, after more than 28 years as the managing
director of Close Brothers, he intends to pass on the chief executive
responsibility at the conclusion of our next AGM on 31st October, 2002. In
accepting this decision, the Board is mindful of his remarkable contribution to
the creation and development of the present Close Brothers Group and of his
understandable wish to modulate his business and personal interests. The Board
is delighted that Rod Kent will continue as a non-executive director.
Rod Kent will be succeeded by Colin Keogh, who will be appointed chief executive
on 31st October, 2002. Colin Keogh has been with Close Brothers since 1985,
first heading the Corporate Finance division and, then, in 1998, becoming
responsible for the Asset Management division, which he will continue to chair.
The Board will also appoint two group managing directors, namely Peter Winkworth
and Stephen Hodges. Peter Winkworth, who has been with the group for over 25
years, will continue as chief financial officer and a director of the group's
principal operating subsidiaries. Stephen Hodges, who has been with the group
since 1985, will succeed Rod Kent as chairman of Close Brothers Limited, the
banking arm, and continue to oversee our treasury and lending businesses.
On 1st January, 2002, Richard Grainger was appointed chief executive of our
Corporate Finance division, with Stephen Aulsebrook joining Mark Wrightson as
co-chairman of the division.
Close Brothers is fortunate in having depth of management, and the Board
believes that these arrangements will make for a seamless handover to a strong
management team to take the business on to its next phase of development.
Outlook
Looking forward we continue to believe that the outlook for our Banking division
is good. For our other three divisions, which are more geared to the activity
and direction of the Stock Market, the immediate outlook continues to be
unclear. Overall we maintain our confidence in the longer-term strength and
progress of the group, whilst adopting a cautious stance for the next six
months.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended Year ended
31st 31st July, 31st 31st July,
January, January,
2002 2001 2001 2001
(Unaudited) (Unaudited) (Unaudited) (Audited)
(Restated)
£'000 £'000 £'000 £'000
Interest receivable 100,491 107,352 101,630 208,982
Interest payable (46,074) (55,957) (56,641) (112,598)
Net interest income 54,417 51,395 44,989 96,384
Dividend income 14 112 41 153
Fees and commissions receivable 69,945 83,351 70,402 153,753
Fees and commissions payable (13,398) (13,161) (8,381) (21,542)
Net dealing income - market-making 25,680 10,913 47,418 58,331
Other operating income 529 2,239 3,361 5,600
Other income 82,770 83,454 112,841 196,295
Operating income 137,187 134,849 157,830 292,679
Administrative expenses 87,245 84,438 89,294 173,732
Depreciation 3,489 3,661 3,200 6,861
Provisions for bad and doubtful debts 9,058 10,505 7,414 17,919
Amortisation of goodwill 3,325 2,844 1,827 4,671
Total operating expenses 103,117 101,448 101,735 203,183
Operating profit on ordinary activities before
taxation 34,070 33,401 56,095 89,496
Taxation on profit on ordinary activities 11,060 10,829 17,810 28,639
Profit on ordinary activities after taxation 23,010 22,572 38,285 60,857
Minority interests - equity 1,258 394 1,360 1,754
Profit attributable to shareholders 21,752 22,178 36,925 59,103
Interim dividend 12,195 12,121 35,048
Retained profit 9,557 24,804 24,055
Interim dividend per share (net) 9.0p 9.0p 26.0p
Earnings per share before amortisation of 18.6p 18.5p 28.9p 47.4p
goodwill
Earnings per share on profit attributable to 16.1p 16.5p 27.5p 44.0p
shareholders
Diluted earnings per share 16.0p 16.3p 27.3p 43.6p
All income and profits are in respect of continuing operations. The comparative figures for the six months
ended 31st January, 2001 have been restated as a result of the group adopting Financial Reporting Standard
No. 19 on Deferred Taxation for the year ended 31st July, 2001.
CONSOLIDATED BALANCE SHEET
31st January, 31st July,
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
(Restated)
£'000 £'000 £'000
Assets
Cash and balances at central banks 619 362 586
Loans and advances to banks 499,190 562,885 593,894
Loans and advances to customers 1,300,524 1,088,191 1,189,405
Less:- non-recourse borrowings (100,000) - (33,000)
1,200,524 1,088,191 1,156,405
Debt securities - long positions 44,365 31,935 35,764
Debt securities - other 552,184 529,942 481,936
Settlement accounts 271,957 355,212 147,750
Equity shares - long positions 27,821 54,943 33,413
Loans to money brokers against stock advanced 86,217 71,462 60,096
Equity shares - investments 26,974 28,414 27,957
Intangible fixed assets - goodwill 117,152 83,733 114,080
Tangible fixed assets 22,966 20,403 20,468
Other assets 46,683 38,442 58,964
Deferred taxation 10,276 12,121 11,507
Prepayments and accrued income 25,980 24,322 23,863
Total assets 2,932,908 2,902,367 2,766,683
Liabilities
Deposits by banks 103,721 87,042 55,643
Customer accounts 1,150,345 1,055,687 1,144,155
Bank loans and overdrafts 483,843 610,190 607,629
Debt securities - loan notes issued 118,140 36,281 18,140
Debt securities - short positions 40,259 29,247 38,182
Settlement accounts 208,948 298,608 114,174
Equity shares - short positions 13,660 15,897 9,594
Loans from money brokers against stock advanced 90,438 47,174 28,646
Other liabilities 139,167 180,542 168,726
Accruals and deferred income 62,437 74,050 71,910
Subordinated loan capital 96,937 51,937 96,937
Minority interests - equity 5,717 9,928 5,056
Total liabilities 2,513,612 2,496,583 2,358,792
Shareholders' funds
Called up share capital 34,187 34,008 34,055
Share premium account 194,952 192,156 193,253
Profit and loss account 190,157 179,620 180,583
Total equity shareholders' funds 419,296 405,784 407,891
Total liabilities and shareholders' funds 2,932,908 2,902,367 2,766,683
Memorandum items
Contingent liabilities - guarantees 4,847 14,317 3,555
Commitments - other 158,094 138,941 138,903
CONSOLIDATED CASH FLOW STATEMENT
Six months ended Year ended
31st January, 31st July,
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities
(Note 1(a)) (59,174) 40,637 238,063
Returns on investments and servicing of finance:
Dividends paid to minorities (133) (1,307) (1,703)
Taxation:
UK corporation taxation paid (13,828) (17,510) (47,608)
Capital expenditure and financial investment:
Purchase of tangible fixed assets (7,729) (3,210) (8,243)
Sale of tangible fixed assets 1,666 537 2,073
Purchase of equity shares held for investment (3,500) (9,173) (14,885)
Sale of equity shares held for investment 3,381 1,651 5,655
(6,182) (10,195) (15,400)
Acquisitions and disposals:
Minority interests acquired for cash (1,118) (6,374) (22,537)
Purchase of subsidiaries (Note 1(b)) (648) (13,524) (64,424)
(1,766) (19,898) (86,961)
Equity dividends paid (22,927) (22,697) (34,818)
Net cash (outflow)/inflow before financing (104,010) (30,970) 51,573
Financing:
Issue of ordinary share capital including premium 1,831 1,961 2,455
Issue of subordinated loan capital - - 45,000
(Decrease)/increase in cash (102,179) (29,009) 99,028
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 Six months ended Year ended
31st January, 31st July,
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
(a) Reconciliation of profit on ordinary activities before
taxation to net cash (outflow)/inflow from operating
activities
Operating profit on ordinary activities before taxation 34,070 56,095 89,496
(Increase)/decrease in:
Interest receivable and prepaid expenses (2,117) (1,557) (5,510)
Net settlement accounts (29,433) (5,005) 18,023
Net equity shares held for trading 9,658 3,214 18,441
Net debt securities held for trading (6,524) (5,058) 48
(Decrease)/increase in interest payable and accrued (9,473) 7,775 1,468
expenses
Depreciation and amortisation 6,814 5,027 11,532
Net cash inflow from trading activities 2,995 60,491 133,498
(Increase)/decrease in:
Debt securities held for liquidity (70,248) (43,454) 4,552
Loans and advances to customers (111,119) (93,714) (130,104)
Loans and advances to banks not repayable on demand (7,508) 39,803 136,607
Other assets less other liabilities 29,241 21,828 (30,635)
Increase/(decrease) in:
Deposits by banks 48,078 19,660 (11,739)
Customer accounts 6,190 (10,701) 77,767
Bank loans and overdrafts (123,786) 46,819 43,271
Non-recourse borrowings 67,000 - 33,000
Debt securities - loan notes issued 100,000 - (18,141)
Exchange adjustment (17) (95) (13)
Net cash (outflow)/inflow from operating activities (59,174) 40,637 238,063
(b) Analysis of net cash outflow in respect of purchase
of subsidiaries
Cash consideration of purchases (648) (20,780) (73,217)
Net movement in cash balances - 7,256 8,793
(648) (13,524) (64,424)
(c) Analysis of changes in financing
Share capital (including premium) and subordinated loan
capital:
Opening balance 324,245 270,940 270,940
Shares issued for cash 1,831 1,961 2,455
Shares issued other than for cash - 5,200 5,850
Subordinated loan capital issued - - 45,000
Closing balance 326,076 278,101 324,245
(d) Analysis of cash balances Movement
in the period
£'000
Cash and balances at central banks 33 619 362 586
Loans and advances to banks repayable on
demand (102,212) 119,530 93,929 221,742
(102,179) 120,149 94,291 222,328
THE NOTES
2. Basis of preparation
The interim accounts, which are unaudited, have been prepared on the basis of
the accounting policies set out in the 2001 group accounts. The figures shown
for the full year ended 31st July, 2001 represent an abridged version of the
full 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. The financial information contained in this interim report
does not constitute the group's statutory accounts within the meaning of Section
240 of the Companies Act 1985.
3. Earnings per share
The calculation of earnings per share on profit attributable to shareholders is
based on profit after taxation and minority interests of £21,752,000 (2001 -
£36,925,000) and on 135,154,000 (2001 - 134,079,000) ordinary shares, being the
weighted average number of shares in issue during the period excluding those
held by the employee benefit trust.
The diluted earnings per share is based on the same profit after taxation and
minority interests disclosed above, and on 136,265,000 (2001 - 135,087,000)
ordinary shares, being the weighted average number of shares in issue also
disclosed above, plus the weighted number of shares resulting from the dilutive
potential of exercisable employee share options in issue.
INTERIM REVIEW REPORT
Interim Review Report to Close Brothers Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31st January, 2002 which comprises the profit and loss
account, the balance sheet, the cash flow statement and related notes 1 to 3.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31st January, 2002.
Deloitte & Touche
Chartered Accountants
Hill House, 1 Little New Street, London EC4A 3TR
4th March, 2002
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