Interim Results

Close Brothers Group PLC 05 March 2007 Embargoed for release 7.00 am on Monday 5th March, 2007 CLOSE BROTHERS GROUP plc The specialist merchant banking group announces record INTERIM RESULTS 2007 Financial Highlights First half First half 2006 2007 * Profit before tax £76.5m £97.8m +28% * Earnings per share 36.0p 46.8p +30% * Dividend per share 10.5p 12.0p +14% * Shareholders' funds £0.6bn £0.7bn +14% * Total assets £4.9bn £4.8bn Operational Highlights * Asset Management profit a record £42.7 million (2006: £18.6 million), enhanced by some £15 million of unusually high private equity and property investment gains. FUM up 16% to £8.9 billion. * Corporate Finance profit of £7.4 million (2006: £8.8 million). * Securities profit of £20.4 million (2006: £21.8 million). * Banking profit of £37.4 million (2006: £36.9 million) with bad debts remaining at low levels. Colin Keogh, Chief Executive, commenting on the results said: "We have turned in a strong performance with profit at a record level. Our underlying performance has been enhanced by unusually large investment gains. Looking forward we expect a satisfactory underlying trading result in our second half with, again, some profitable investment realisations." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Kate Miller Brunswick Group LLP 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group plc at www.closebrothers.co.uk and www.cantos.com CHIEF EXECUTIVE'S STATEMENT We have turned in a strong performance in the first six months with profit at a record level. A key feature of the period is that our underlying trading performance has been enhanced by an unusually large private equity realisation coupled with a gain on a long-standing property investment. The operating profit on ordinary activities before tax for the six months ended 31st January, 2007 was £97.8 million (2006: £76.5 million), up 28%. Earnings per share increased by 30% to 46.8p (2006: 36.0p). The directors have declared an interim dividend of 12.0p (2006: 10.5p), an increase of 14%. This is payable on 18th April, 2007 to shareholders on the register at the close of business on 16th March, 2007. OVERALL BUSINESS REVIEW Against a backdrop of favourable stock markets our asset management business showed a substantial increase in profits. Our securities, corporate finance and banking businesses held their own. Growth in banking was held back by lack of volume in our premium finance activity, although we saw no increase in bad debts. The table below shows the divisional summary of financial results for the period: Operating income Profit before tax --------------------- --------------------- First First First First half half half half 2006 2007 2006 2007 £m £m £m £m Asset Management 62.0 95.7 18.6 42.7 Corporate Finance 30.5 27.8 8.8 7.4 Securities 62.5 60.4 21.8 20.4 Banking 96.7 97.8 36.9 37.4 Group 0.9 2.3 (9.6) (10.1) ------------------------------------------------------------------------------- 252.6 284.0 76.5 97.8 ------------------------------------------------------------------------------- The net assets of our four operating divisions at 31st January, 2007 have not changed materially from those at our previous year end. Our Funds Under Management ("FUM") rose to £8.9 billion (up 16% on a year ago and 8% on the six months since our year end 2006). Our banking loan book remained almost unchanged at £1.9 billion. Our key performance indicators remained broadly steady with some benefit from investment realisations. Full First First year half half 2006 2006 2007 % % % Operating margin 29 30 34 ------------------------------------------------------------------------------ Expense/income ratio 67 66 62 ------------------------------------------------------------------------------ Compensation ratio 43 44 41 ------------------------------------------------------------------------------ During the period we acquired the minority interest in Close Fund Management Limited and made a further payment for Close Brothers Seydler AG. We also participated in the capital raising by PLUS Markets Group plc, in which we now have a 24.9% shareholding. In total, investments made in the period amounted to £20.2 million. DIVISIONAL BUSINESS REVIEW Asset Management The first half saw a record operating profit of £42.7 million. This strong result includes some £15 million of net capital gain realised from a combination of the sale of our holding in Minova International Limited and of a long-standing joint venture property investment (shown within other operating income) as well as higher than normal performance fees. Private equity has been a core part of our asset management division for more than 20 years but the level of investment gains in this period was unusually high. We see good prospects for further profitable realisations in the second half as our highly successful Fund VI draws to a close, although it would be unrealistic to expect this level of investment gains to be sustainable. FUM grew by £0.7 billion overall in the last six months to £8.9 billion. New funds raised were £1.0 billion, and represented 12% of opening funds six months earlier. Redemptions, realisations and withdrawals were £0.7 billion and market movement was £0.4 billion favourable. FUM was well balanced and well spread with 61% in equity and fixed interest and 39% in alternative asset classes. Our private clients side (FUM £3.2 billion) continued to develop and is being grouped under the Close Wealth Management banner. Our enlarged team dealing with higher net worth clients attracted new FUM at a good rate, whilst our portfolio service for other onshore clients is reaping the benefits of improving net sales. Our offshore business continued to expand. On our funds side (FUM £5.7 billion) we have been reorganising our property activities under the new Close Investments banner. We acquired AON's multi-manager business on 1st February, 2007 and we will be merging this with Close TEAMS under the new name, Close Multi-Manager. Corporate Finance We had a better than expected second quarter which meant that, with profit of £7.4 million, we ended the period on budget, albeit with activity below the record level last year (£8.8 million). We maintained a well spread business in the UK with M&A (58%), debt advisory (17%) and restructuring (25%) all remaining busy. Our offices in Paris and Frankfurt performed well, the former producing a record result for its financial year ended 31st December, 2006. Our pipeline for the third quarter is healthy. Securities In the UK, Winterflood Securities Limited ("WINS") produced a steady result compared to the first half last year on similar revenue, but in Germany, where the new issue market was quiet, Close Brothers Seydler posted lower profits following the exceptional level last year. Overall therefore the operating profit of the division was £20.4 million, compared to £21.8 million last year and the operating margin was 34%. WINS saw some marked variation in monthly trading patterns. The year started quietly but volumes steadily increased in the months leading up to Christmas. Bargain numbers and profit per bargain were broadly steady compared to the first half last year. With MiFID on the horizon and considerable discussion about the growth and value of stock exchanges and other trading platforms, it is worth noting that WINS continues to be comfortably the largest market-maker in the retail sector both by number and value of daily bargains. As such WINS is providing liquidity to and dealing on alternative market platforms such as PLUS Markets. A noticeable and increasing number of our trades are therefore now being executed away from the LSE. There has been a reasonably positive start to our second half although stock markets are currently uncertain. Banking The operating profit of our banking division, at £37.4 million nudged ahead of last year (£36.9 million), and we maintained our healthy operating margin of 38%. Loan quality remained good with our bad debt charge at an historically low level of 1.0%. The loan book, however, remained broadly flat as price deflation in our insurance premium business counterbalanced growth in other lending activities - in particular property and transport and engineering. In the banking market generally liquidity remains high and our experience tells us that at this point in the cycle we should be patient and not seek volume at the expense of margin. Patience, however, does not imply complacency or lack of ambition for growth, and we continue to seek out specialist lending opportunities both in the UK and in Europe. This investment in the future inevitably increases our costs in the short term. DIRECTORS Following the Annual General Meeting, Rod Kent succeeded Sir David Scholey as chairman and Strone Macpherson, the senior independent director, was appointed deputy chairman. OUTLOOK In our first half we achieved a strong headline profit, excellent results in our asset management division and steady underlying performance in each of our other operating businesses. Looking forward we expect a satisfactory underlying trading result in our second half with, again, some profitable investment realisations. C.D. Keogh Chief Executive 5th March, 2007 CONSOLIDATED INCOME STATEMENT for the six months ended 31st January, 2007 Six months ended Year ended 31st January, 31st July, ------------------------- 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Interest and similar income 149,199 143,880 281,926 Interest expense and similar charges 76,806 70,457 137,624 ------------------------------------------------------------------------------ Net interest income 72,393 73,423 144,302 ------------------------------------------------------------------------------ Fees and commissions income 159,365 136,095 302,919 Fees and commissions expense (24,466) (21,508) (48,913) Gains less losses arising from dealing in securities 56,045 59,334 122,339 Other operating income 20,624 5,245 15,627 ------------------------------------------------------------------------------ Other income 211,568 179,166 391,972 ------------------------------------------------------------------------------ Operating income 283,961 252,589 536,274 ------------------------------------------------------------------------------ Administrative expenses 171,038 160,808 346,256 Depreciation and amortisation 6,067 6,187 14,083 Impairment losses on loans and advances 9,062 9,080 18,621 ------------------------------------------------------------------------------ Total operating costs 186,167 176,075 378,960 ------------------------------------------------------------------------------ Operating profit on ordinary activities before tax 97,794 76,514 157,314 Tax 27,118 22,091 45,280 ------------------------------------------------------------------------------ Profit on ordinary activities after tax 70,676 54,423 112,034 Profit attributable to minority interests 1,829 1,615 3,436 ------------------------------------------------------------------------------ Profit attributable to shareholders of the company 68,847 52,808 108,598 ------------------------------------------------------------------------------ Basic earnings per share on profit attributable to shareholders 46.8p 36.0p 74.1p Diluted earnings per share 46.7p 35.9p 73.8p Dividend per share 12.0p 10.5p 32.5p All income and profits are in respect of continuing operations. CONSOLIDATED BALANCE SHEET at 31st January, 2007 31st January, 31st July, -------------------------- 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Assets Cash and balances at central banks 1,384 1,343 1,272 Settlement accounts 551,000 748,247 628,305 Loans and advances to customers 1,863,215 1,862,316 1,862,023 Loans and advances to banks 736,561 756,809 510,691 Money market securities 1,059,590 868,349 1,156,768 Debt securities - long positions 48,988 67,343 67,066 Equity shares - long positions 51,463 48,167 49,623 Loans to money brokers against stock advanced 130,140 172,954 156,420 Investment securities 40,876 39,323 43,682 Intangible assets - goodwill 113,897 97,926 109,807 Intangible assets - other 8,995 2,894 2,623 Property, plant and equipment 43,009 40,024 42,549 Share of gross assets of joint ventures 304 21,905 21,743 Share of gross liabilities of joint ventures (426) (21,026) (20,818) Share of net (liabilities)/assets of joint ventures (122) 879 925 Other receivables 79,023 94,416 87,549 Deferred tax assets 27,014 25,180 25,362 Prepayments and accrued income 77,823 67,787 63,135 Derivative financial instruments 5,662 2,057 5,093 ------------------------------------------------------------------------------- Total assets 4,838,518 4,896,014 4,812,893 ------------------------------------------------------------------------------- Liabilities Settlement accounts 471,296 670,564 573,671 Deposits by customers 2,027,176 1,872,967 1,843,074 Deposits by banks 141,763 189,626 168,378 Debt securities - short positions 47,676 58,247 54,554 Equity shares - short positions 22,423 25,479 21,684 Loans from money brokers against stock advanced 152,499 186,218 157,356 Non-recourse borrowings 150,000 200,000 150,000 Loans and overdrafts from banks 370,962 328,154 363,205 Promissory notes and other debt securities in issue 347,830 357,564 358,014 Other liabilities 153,981 180,432 219,673 Current tax liabilities 27,558 18,012 16,766 Accruals and deferred income 124,065 107,914 136,791 Subordinated loan capital 75,000 75,000 75,000 Derivative financial instruments 24,639 11,848 12,370 ------------------------------------------------------------------------------- Total liabilities 4,136,868 4,282,025 4,150,536 ------------------------------------------------------------------------------- Equity Called up share capital 36,755 36,488 36,603 Share premium account 263,047 257,393 259,783 Profit and loss account 386,298 303,197 346,714 Other reserves 7,296 9,648 11,887 Minority interests 8,254 7,263 7,370 ------------------------------------------------------------------------------- Total equity 701,650 613,989 662,357 ------------------------------------------------------------------------------- Total liabilities and equity 4,838,518 4,896,014 4,812,893 ------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 31st January, 2007 Six months ended Year ended 31st January, 31st July, -------------------------- 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Called up share capital Opening balance 36,603 36,168 36,168 Exercise of options 152 320 435 ------------------------------------------------------------------------------- Closing balance 36,755 36,488 36,603 ------------------------------------------------------------------------------- Share premium account Opening balance 259,783 252,210 252,210 Exercise of options 3,264 5,183 7,573 ------------------------------------------------------------------------------- Closing balance 263,047 257,393 259,783 ------------------------------------------------------------------------------- Profit and loss account Opening balance 346,714 277,455 277,455 Retained profit for the period 68,847 52,808 108,598 Equity dividends paid (31,893) (27,301) (42,524) Transfer from share-based awards reserve 1,704 - - Other reserve movements 926 235 3,185 ------------------------------------------------------------------------------- Closing balance 386,298 303,197 346,714 ------------------------------------------------------------------------------- Other reserves: ESOP trust reserve Opening balance (8,302) (3,786) (3,786) Shares purchased at cost (2,671) (2,150) (4,926) Shares released at cost 241 154 410 ------------------------------------------------------------------------------- Closing balance (10,732) (5,782) (8,302) ------------------------------------------------------------------------------- Share-based awards reserve Opening balance 11,808 7,614 7,614 Charge to the income statement 2,022 1,700 3,307 Transfer to profit and loss account (1,704) - - Movement relating to deferred share awards (436) - 887 ------------------------------------------------------------------------------- Closing balance 11,690 9,314 11,808 ------------------------------------------------------------------------------- Exchange movements reserve Opening balance 938 1,264 1,264 Currency translation differences (657) (178) (326) ------------------------------------------------------------------------------- Closing balance 281 1,086 938 ------------------------------------------------------------------------------- Cash flow hedging reserve Opening balance 133 (1,843) (1,843) Movement on derivatives during the period (405) 987 1,976 ------------------------------------------------------------------------------- Closing balance (272) (856) 133 ------------------------------------------------------------------------------- Available-for-sale reserve Opening balance 7,310 3,431 3,431 Movement on available-for-sale investments (981) 2,455 3,879 ------------------------------------------------------------------------------- Closing balance 6,329 5,886 7,310 ------------------------------------------------------------------------------- Total other reserves 7,296 9,648 11,887 ------------------------------------------------------------------------------- Minority interests Opening balance 7,370 5,870 5,870 Movement during the period 884 1,393 1,500 ------------------------------------------------------------------------------- Closing balance 8,254 7,263 7,370 ------------------------------------------------------------------------------- Total equity 701,650 613,989 662,357 ------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31st January, 2007 Six months ended Year ended 31st January, 31st July, ------------------------- 2007 2006 2006 Note (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Net cash inflow from operating activities 1(a) 176,512 81,028 153,418 ------------------------------------------------------------------------------- Net cash outflow from investing activities: Dividends paid to minority interests (490) (25) (1,669) Purchase of assets let under operating leases (4,116) (7,807) (13,865) Purchase of property, plant and equipment (5,907) (3,318) (8,121) Sale of property, plant and equipment 2,279 2,361 4,155 Purchase of intangible assets (442) (1,472) (2,447) Purchase of equity shares held for investment (8,919) (2,150) (9,911) Sale of equity shares held for investment 26,806 3,286 11,168 Minority interests acquired for cash (4,730) (2,403) (2,853) Purchase of subsidiaries 1(b) (9,411) (736) (11,258) ------------------------------------------------------------------------------- (4,930) (12,264) (34,801) ------------------------------------------------------------------------------- Net cash inflow before financing 171,582 68,764 118,617 Financing activities: Issue of ordinary share capital including premium 3,416 5,503 8,008 Equity dividends paid (31,893) (27,301) (42,524) Interest paid on subordinated loan capital (2,822) (3,058) (5,616) ------------------------------------------------------------------------------- Net increase in cash 140,283 43,908 78,485 ------------------------------------------------------------------------------- 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 International Accounting Standard No. 7, 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, ----------------------- 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 (a) Reconciliation of operating profit on ordinary activities before tax to net cash inflow from operating activities Operating profit on ordinary activities before tax 97,794 76,514 157,314 (Increase)/decrease in: Interest receivable and prepaid expenses (14,688) (3,389) 1,886 Net settlement accounts (25,070) (34,164) (11,115) Net equity shares held for trading (1,101) (2,735) (7,986) Net debt securities held for trading 11,200 2,621 (795) Decrease in interest payable and accrued expenses (12,726) (28,975) (1,877) Depreciation and amortisation 6,067 6,187 14,083 ------------------------------------------------------------------------------- Net cash inflow from trading activities 61,476 16,059 151,510 (Increase)/decrease in: Debt securities held for liquidity 11,005 (253) (10,890) Loans and advances to customers (1,192) 76,887 77,180 Loans and advances to banks not repayable on demand 474 2,732 5,716 Other assets less other liabilities (32,116) 44,108 83,350 Increase/(decrease) in: Deposits by banks (26,615) 81,525 60,277 Customer accounts 184,102 54,780 24,887 Bank loans and overdrafts 7,757 (166,209) (131,158) Non-recourse borrowings - - (50,000) Promissory notes and other debt securities in issue (10,184) (9,566) (9,116) Tax paid (18,195) (19,035) (48,338) ------------------------------------------------------------------------------- Net cash inflow from operating activities 176,512 81,028 153,418 ------------------------------------------------------------------------------- (b) Analysis of net cash outflow in respect of the purchase of subsidiaries Cash consideration in respect of current year purchases (4,880) - (6,797) Loan stock redemptions and deferred consideration paid in respect of prior year purchases (4,531) (736) (4,847) Net movement in cash balances - - 386 ------------------------------------------------------------------------------- (9,411) (736) (11,258) ------------------------------------------------------------------------------- (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 371,386 363,378 363,378 Shares issued for cash 3,416 5,503 8,008 ------------------------------------------------------------------------------- Closing balance 374,802 368,881 371,386 ------------------------------------------------------------------------------- (d) Analysis of cash balances Movement in the period £'000 Cash and balances at central banks 112 1,384 1,343 1,272 Other cash equivalents 140,171 1,785,051 1,610,232 1,644,880 ------------------------------------------------------------------------------- 140,283 1,786,435 1,611,575 1,646,152 ------------------------------------------------------------------------------- 2. Earnings per share Basic earnings per share on profit attributable to shareholders of the company is based on profit after tax and minority interests of £68,847,000 (2006: £52,808,000) and on 147,083,000 (2006: 146,523,000) 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. Diluted earnings per share is based on this same profit after tax and minority interests, but on 147,502,000 (2006: 146,969,000) ordinary shares, being the weighted average number of shares in issue disclosed above, plus the weighted dilutive potential on ordinary shares of exercisable employee options in issue during the year. 3. Basis of preparation This Interim Report, which is unaudited, has been prepared on the basis of the accounting policies set out in the 2006 Annual Report. The financial information contained in this Interim Report does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. However, the information has been reviewed by the company's auditors, Deloitte & Touche LLP, and their report appears at the end of this report. The financial information for the year ended 31st July, 2006 has been derived from the audited financial statements of Close Brothers Group plc for that year, which have been reported on by Deloitte & Touche LLP and delivered to the Registrar of Companies. The report of the auditors on those statutory accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. INDEPENDENT REVIEW REPORT Independent 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, 2007, which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated 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. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report or for the conclusions we have formed. 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 and the requirements of International Accounting Standard 34 "Interim Financial Reporting" which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of Interim Financial Information 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 International Standards on Auditing (UK and Ireland) 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, 2007. Deloitte & Touche LLP Chartered Accountants London 5th March, 2007 This information is provided by RNS The company news service from the London Stock Exchange

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