Preliminary Results

Close Brothers Group PLC 28 September 2000 CLOSE BROTHERS GROUP plc The specialist merchant banking group announces the 25th consecutive year of increasing profits for the year to 31st July, 2000 HIGHLIGHTS 2000 1999 * Profit before taxation, exceptional costs and up 103% to £155.1m £76.3m goodwill amortisation * Earnings per share before exceptional costs and up 85% to 77.8p 42.1p goodwill amortisation * Profit before taxation up 90% to £144.8m £76.3m * Earnings per share up 71% to 71.9p 42.1p * Dividends per share up 56% to 25.0p 16.0p * Total assets up 55% to £2.6bn £1.7bn * Market-making operating profits treble, with some 50 per cent. arising from the recent stock market boom. * Rest of the group's operating profits up 31 per cent. * Corporate Finance: increases international reach; Loans and Deposits: increase markedly; Asset Management: a rapidly growing profit centre. Commenting on the results, Sir David Scholey, Chairman, said: 'We are proud to celebrate 25 years of unbroken profit growth at a compound rate of 25 per cent. per annum under the same leadership. The new financial year has started well and we see continuing organic growth ahead. Close Brothers has a robust and clear strategy.' Enquiries to: Rod Kent/Peter Winkworth Close Brothers Group plc 020 7426 4000 John Sunnucks Brunswick Group Limited 020 7404 5959 CLOSE BROTHERS GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED GROUP RESULTS AND CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31st JULY, 2000 The following is the full text of the preliminary announcement of results for the financial year ended 31st July, 2000. The financial information in relation to 31st July, 2000 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 Year 31 July, 2000 ended 31 July 1999 Ordinary Except- Total activi- ional Ordinary ties costs activi- before and ties except- goodwill ional amorti- costs and sation goodwill amotisa- tion £'000 £'000 £'000 £'000 Interest receivable 166,123 - 166,123 121,277 Interest payable (90,609) - (90,609) (61,422) --------- -------- -------- -------- Net interest income 75,514 - 75,514 59,855 --------- -------- ------- -------- Dividend income 479 - 479 398 Fees and commissions receivable 122,048 - 122,048 66,162 Fees and commissions payable (25,708) - (25,708) (9,367) Net dealing income - market-making 203,954 - 203,954 67,162 Other operating income 6,764 - 6,764 1,341 --------- -------- -------- -------- Other income 307,537 - 307,537 125,696 --------- -------- -------- -------- Operating income 383,051 - 383,051 185,551 --------- -------- -------- -------- Administrative expenses 209,724 8,040 217,764 97,709 Depreciation 5,688 - 5,688 3,472 Provisions for bad and doubtful debts 12,533 - 12,533 8,028 Amortisation of goodwill - 2,305 2,305 24 --------- -------- -------- -------- Total operating expenses 227,945 10,345 238,290 109,233 --------- -------- -------- -------- Operating profit on ordinary activities before taxation 155,106 (10,345) 144,761 76,318 Taxation on profit on ordinary activities 49,239 (2,382) 46,857 24,473 --------- -------- -------- -------- Profit on ordinary activities after taxation 105,867 (7,963) 97,904 51,845 Minority interests - equity 2,789 (121) 2,668 982 --------- -------- -------- -------- Profit attributable to shareholders 103,078 (7,842) 95,236 50,863 --------- -------- -------- -------- Dividends: Interim dividend 8.0p per share (1999 - 5.3p) 10,659 6,410 Proposed final dividend 17.0p per share (1999 - 10.7p) 22,697 14,365 -------- -------- Total dividends 25.0p per share (1999 - 16.0p) 33,356 20,775 -------- -------- Retained profit for the year 61,880 30,088 --------------------------------------------------------------------------- Earnings per share before exceptional costs and amortisation of goodwill 77.79p 42.10p ======== ======== Earnings per share on profit attributable to shareholders 71.88p 42.08p ======== ======== Diluted earnings per share 71.28p 41.88p ======== ======== All income and profits are in respect of continuing operations. CONSOLIDATED BALANCE SHEET At 31st July, 2000 2000 1999 £'000 £'000 Assets Cash and balances at central banks 235 64 Loans and advances to banks 631,824 395,512 Loans and advances to customers 895,334 701,233 Debt securities - gilts long positions 23,521 18,473 Debt securities - other 486,488 208,860 Settlement accounts 301,340 215,628 Equity shares - long positions 52,917 36,549 Equity shares - investments 21,100 19,345 Intangible fixed assets - goodwill 50,264 1,083 Tangible fixed assets 20,817 12,560 Other assets 136,529 81,797 Deferred taxation 6,949 1,610 Prepayments and accrued income 17,508 9,004 --------- --------- Total assets 2,644,826 1,701,718 --------------------------------------------------------------------------- Liabilities Deposits by banks 67,382 89,189 Customer accounts 1,066,388 535,715 Bank loans and overdrafts 453,685 330,043 Debt securities in issue - loan notes 36,281 54,422 Debt securities in issue - gilts short positions 25,891 20,297 Settlement accounts 249,741 177,119 Equity shares - short positions 10,657 10,822 Other liabilities 243,745 150,386 Accruals and deferred income 63,302 43,518 Subordinated loan capital 51,937 21,937 Minority interests - equity 7,975 2,111 ------------ ------------- 2,276,984 1,435,559 ------------ ------------- Shareholders' funds Called up share capital 33,760 32,142 Share premium account 185,243 138,879 Profit and loss account 148,839 95,138 ------------ ------------- Total equity shareholders' funds 367,842 266,159 ------------ ------------- Total liabilities and shareholders' funds 2,644,826 1,701,718 --------------------------------------------------------------------------- Notes: 1. The calculation of earnings per share on profit attributable to shareholders is based on profit after taxation and minority interests of £95,236,000 (1999-£50,863,000) and on 132,501,000 (1999-120,859,000) ordinary shares, being the weighted average number of shares in issue during the year, excluding those held by the employee benefit trust. 2. The final ordinary dividend of 17p per share is proposed to be paid on 7th November, 2000 to holders of ordinary shares on the register at the close of business on 13th October, 2000. 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, 1999, upon which the auditors of the company have given an unqualified report, have been delivered to the Registrar of Companies. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31st July, 2000 2000 1999 £'000 £'000 Profit attributable to shareholders 95,236 50,863 Net investment loss for the year after taxation - (212) Exchange adjustment (80) (78) --------- ---------- Total recognised gains and losses 95,156 50,573 -------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st July, 2000 2000 1999 £'000 £'000 Net cash inflow from operating activities 117,306 67,201 --------- --------- Returns on investments and servicing of finance: Dividends paid to minorities (719) (650) --------- ---------- Taxation: UK corporation taxation paid (36,983) (32,513) --------- ---------- Capital expenditure and financial investment: Purchase of tangible fixed assets (13,033) (6,654) Sale of tangible fixed assets 1,014 735 Purchase of equity shares held for investment (6,279) (6,406) Sale of equity shares held for investment 7,505 1,983 --------- ---------- (10,793) (10,342) --------- ---------- Acquisitions and disposals: Minority interests sold/(acquired) for cash 2,443 (11,015) Purchase and sale of subsidiaries (15,103) 132 --------- --------- (12,660) (10,883) --------- ---------- Equity dividends paid (25,024) (18,136) --------- ---------- Net cash inflow/(outflow) before financing 31,127 (5,323) Financing: Issue of ordinary share capital including premium 2,906 45,849 Issue of subordinated loan capital 30,000 - --------- ---------- Increase in cash 64,033 40,526 ========= ========= 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. --------------------------------------------------------------------------- CHAIRMAN'S STATEMENT OVERVIEW -------- The year ended 31st July, 2000 showed excellent growth and produced another record set of results. Our Market-Making division, Winterflood Securities, performed remarkably, mainly due to the high level of activity in small to medium sized UK stocks. This result should not overshadow the overall growth achieved in the rest of our business where operating profits grew by over 31 per cent. with notable performances from our Corporate Finance and Asset Management activities. These results represent our 25th consecutive year of increasing profits which have grown in excess of 25 per cent. per annum compound over that period - an outstanding record. RESULTS ------- The operating profit on ordinary activities before taxation, exceptional costs and goodwill amortisation increased from £76.3 million last year to £155.1 million, and earnings per share, on the same basis, increased by 85 per cent. from 42.1p to 77.8p. After deducting a charge for exceptional costs of £8.0 million (1999 - £Nil), which relate mainly to the reorganisation of Rea Brothers Group, and goodwill amortisation of £2.3 million (1999 - £Nil), the operating profit on ordinary activities before taxation was £144.8 million (1999 - £76.3 million), and earnings per share, on the same basis, increased by 71 per cent. from 42.1p to 71.9p. The board is recommending a final dividend of 17p per share which, together with the interim dividend, gives a total dividend for the year of 25p per share (1999 - 16p). This represents an increase of 56 per cent. over last year's total dividend and is covered some three times. TRADING ------- The year was dominated by the exceptional increase in the revenues and profits of our Market-Making division, Winterflood Securities ('WINS'). This core business is one of the leading market-makers in small to medium sized stocks in the UK, and its profits are largely influenced by the number of bargains transacted in this sector of the market. This year there has been a marked step-change in such bargain activity, which has been caused, we believe, by the greater amount of information available to private clients and the easier access provided by the execution-only brokers. Average bargain levels for WINS over the past year, other than the five boom months referred to below, were some 100 per cent. above the comparable period last year. On top of this buoyant position, WINS experienced a quite exceptional increase in trading activity in its sector of the market between November 1999 and March 2000. Total volumes of business during this boom period were some three times the level which would have been achieved at the average growth rate of the remainder of the year. We estimate that this period gave rise to additional profits in WINS of approximately £50 million. We are now entering another period of structural change in the European securities markets and, whilst the overall direction towards more international and pan-European markets seems reasonably clear, the precise steps for getting to the objective are very uncertain and we are playing our part in this debate. Amidst this confusion, WINS is well placed and has continuing opportunities for further growth. Our Corporate Finance activity has built up a strong position in the UK middle market continuing to focus on technology/media/telecommunications, business services, leisure and manufacturing. We have broadened the sources of revenue by expanding our UK debt advisory group and establishing a private placement capability. We have also increased the international scope of our operations. In Europe, we are seeking to extend our middle market position into France and Germany, and have increased our holding in Dome Close Brothers S.A. to 50 per cent. Last month we were joined by an experienced team specialising in the Middle Eastern region and we have strengthened our network of associates in other overseas markets, including a fee-sharing and staff-exchanging arrangement with Houlihan Lokey Howard & Zukin in the United States. The new year has started with a strong business pipeline. Our Asset Management activity, which is building up a series of specialised fund management businesses, has now emerged as an important and rapidly growing profit centre for the group. With the purchase and successful integration of Rea Brothers last year and the substantial profits growth from our other investment businesses, this activity is completely transformed from a year ago. Our long established businesses in private equity and tax sheltered products both achieved a good performance, and our quant-based team launched the successful Close FTSE techMARK Fund last autumn and has further new products in the pipeline. We are now managing some top performing Investment Trusts, particularly technology based trusts under the Close Finsbury name and the Close Beacon fund which invests in AIM-listed companies. Our offshore private client operations, based in Guernsey, Isle of Man and Geneva, also made strong progress and our onshore wealth management service is progressing well through its start-up phase. Our Banking activity had a good year. On our Treasury side the level of deposits almost doubled as a result of our acquisition of Rea Brothers and continued organic growth. Our debt factoring and credit management operations both increased profits in line with ambitious plans. PROMPT, our insurance premium financing business, also performed well, as did our property lending operation, the latter being bolstered by the acquisition of Granville Bank. The outlook for these businesses is positive. Our Asset Finance division had mixed fortunes. The commercial side, which includes financing for printing equipment, contractor's plant and commercial vehicles, encountered a difficult patchy market although growth was picking up in the last quarter. In our consumer car finance company, profits fell as a result of the structural changes in the pricing of new cars in the UK. There are now signs that the worst of this situation in the car market may be past. At Warrior, a specialist provider of financial services to the Armed Forces which we purchased last October we are tackling, as sign-posted earlier, inherited problems. This process will continue for the next six months. The prospects appear distinctly brighter for the asset finance division next year. OUTLOOK ------- Whilst we are proud to celebrate 25 years of unbroken profit growth at a compound rate of 25 per cent. per annum under the same leadership, we are not complacent about the future. Each new year presents its own separate challenge. It is unlikely that the hectic stock market conditions seen for five months of our last financial year will recur this year, but leaving the effect of that on one side, the new year has started well and we see continuing organic growth ahead. Close Brothers has a robust and clear strategy, a proven and well supported management team and the motivation to achieve its goals. Sir David Scholey Chairman

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