Final Results

Evolution Group PLC 22 March 2006 22 March 2006 The Evolution Group Plc ( the "Evolution Group", the "Group", the "Company") Preliminary results for the year ended 31 December 2005 Evolution Group, the listed investment bank and retail fund management group, today announces its preliminary results for the year ended 31 December 2005. Financial highlights Total Group income (before fee and commission expenses) increased by 15% to Â£73.5 million (2004: Â£64.1 million). Profit before tax increased by 33% to Â£63.6 million (2004: Â£47.8 million). Clean profit before tax increased by 29% to Â£30.3 million (2004:Â£23.4 million). Basic earnings per share increased by 46% to 26.18p (2004: 17.90p). Clean earnings per share increased by 44% to 11.42p (2004: 7.93p). Strong cash generation across the Group with cash balances at Â£138.0 million (2004: Â£115.2 million), after purchase of own shares for Â£49.6 million and net cash received from disposal of remaining stake in IP2IPO. Increase in annual dividend of 60% after a final dividend proposed of 0.80p per share (2004: 0.58p) following the dividend of 0.40p per share paid in November 2005 (2004: 0.17p). Operational highlights Â£864 million raised for our clients in 2005 (2004: Â£633 million) from 51 transactions (2004: 60), a 36% increase on the previous year. 23% increase in funds under management for Christows to Â£789 million (2004: Â£640 million). Â£52.8 million of cash received from sale of remaining stake in IP2IPO in March 2005 resulting in net profit of Â£35.7 million. Evolution Securities China moves into profit. Commenting on the results and the Group's outlook, Martin Gray, Chairman, said: "The Evolution Group has continued to develop strongly in 2005 and has grown both revenues and operating profitability for the fifth consecutive year. In addition, the Group realised further value from the sale of its remaining stake in IP2IPO Group Plc. I am pleased to report total income (before fee and commission expenses) up by 15% to Â£73.5m from Â£64.1m in the prior year and a profit before tax up 33% to Â£63.6m from Â£47.8m in 2004. We have made significant progress in developing each of our operating businesses. The momentum in the equity markets has continued in 2006. We have a strong balance sheet and a motivated team. The outlook for the Group is extremely positive and your Board is confident of achieving further success in 2006." -Ends- For further information, please contact: The Evolution Group Plc 020 7071 4300 Alex Snow, Chief Executive Officer Graeme Dell, Finance Director Bell Pottinger 020 7861 3232 Charles Cook Sarah Landgrebe Notes to Editors: The Evolution Group Plc The Evolution Group is the holding company of Evolution Securities Limited, Christows Limited and Evolution Securities China Limited. Founded in April 2001 and originally listed on the AIM, the Evolution Group joined the Official List in 2003 and now has a market capitalisation of over Â£399 million. Evolution Securities Limited aims to be the leading investment bank advising small and mid-cap UK public companies. It has approximately 100 retained corporate clients, to whom it provides equity research, institutional sales and trading, market making and corporate finance advice. Evolution Securities Limited is authorised and regulated by the Financial Services Authority. In addition, it operates a US broker-dealer, Evolution Securities (US) Inc., which is registered with the National Association of Securities Dealers and regulated by the Securities Exchange Commission through which it brings US institutional investors access to its UK based corporate clients. Christows Limited is a leading private client stockbroker and fund manager, with offices in Bath, Birmingham, Bournemouth, Exeter and London. Christows is authorised and regulated by the Financial Services Authority. Evolution Securities China Limited is a specialist Chinese investment banking business with offices in London and Shanghai. It offers UK based institutional clients research and trading in listed Chinese stocks. CHAIRMAN'S STATEMENT The Evolution Group has continued to develop strongly in 2005 and has grown both revenues and operating profitability for the fifth consecutive year. In addition, the Group realised further value from the sale of its remaining stake in IP2IPO Group Plc. I am pleased to report total income (before fee and commission expenses) up by 15% to Â£73.5m from Â£64.1m in the prior year and a profit before tax up 33% to Â£63.6m from Â£47.8m in 2004. The Group's principal investment banking business, Evolution Securities Limited ("Evolution Securities" or "ESL") has continued to be the driver of the Group's operational profitability. Its position as the No. 1 ranked broker on the AIM market of the LSE by market share in secondary trading has been achieved in a period when that market has itself seen record volumes. The firm's primary placing capability continued to increase in 2005 with total funds raised for clients of Â£864m, an increase of 36% from 2004. Christows Limited ("Christows"), the Group's private client stockbroking and fund management business has achieved further success in 2005. Funds under management ("FUM") have grown by 23% during 2005, giving total FUM at 31 December 2005 of Â£789m (2004: Â£640m). Christows has continued to operate profitably through this period of growth despite the investment associated with the opening of a new Birmingham office and the strengthening of the business by the recruitment of new account executives. Evolution Securities China Limited ("Evolution Securities China" or "ESCL"), the Group's specialist Chinese investment banking business, has developed strongly in 2005. In only its second full year of operation there has been strong growth, with revenue increasing to Â£2.1m (2004: Â£0.4m), generating a profit before tax of Â£0.1m (2004: loss Â£0.7m). Corporate governance Following my appointment as Non-executive Chairman in May 2005, through my interaction with the Board, discussions with executives and employees, and meetings with a number of shareholders, I recognised the presence of considerable further opportunity for the Group, underpinned by an extremely committed and capable team. At the same time it was clear to me that, following a period of intense growth, there was a need to review and strengthen further our corporate governance. The challenge was to ensure that this was achieved across all the Group's operating businesses so it added measurably to the Group's strengths. Ten months on, I believe that through a number of initiatives at Board level and within the operating businesses, much has been achieved. We are very well placed now to look forward to a period of further growth and development with new standards of governance being implemented and embedded. Board development An important responsibility in chairing the Group is to ensure the effectiveness of the Board as a body and to develop it as necessary. In this regard an initial focus was to ensure a smooth transition of the chairmanship from Richard Griffiths to me. I believe that goal was achieved during the period until Richard left the Board in October. Richard's contribution in the Group's first five years of growth was significant and on behalf of the Board I thank him most warmly for all that he achieved. There will be another change in the constitution of the Board at the Annual General Meeting ("AGM") in May 2006. It is now nine years since Oliver Vaughan first joined the Board at the incorporation of the Company in 1997 and in accordance with best practice he will step down at the AGM. On behalf of the Board I should like to thank Oliver for all that he has contributed to the Board and the Group over the years. We intend to strengthen the Board further in the short term. Dividend The Board recommends the payment of a final dividend of 0.80p per share (2004: 0.58p). This follows the interim dividend payment of 0.40p per share announced in September and paid in November (2004: 0.17p), giving an overall dividend for the year of 1.20p (2004: 0.75p) per share. This 60% increase in the overall dividend for the year is an acknowledgement of our continued confidence of the Group's operating businesses and is in line with our stated progressive dividend policy. Share buyback During 2005 the Company undertook a share buyback programme, purchasing 27.4m shares for cancellation at a total cost of Â£42.5m. Despite this major programme, at the year-end the Group's cash balance had risen to Â£138.0m (2004: Â£115.2m) as a result of the continuing profitability of our businesses and the proceeds arising from our disposal of the remaining investment in IP2IPO Group Plc in March 2005. The Group may continue with an on-market share buyback programme during the remainder of 2006. To facilitate this process we shall be seeking shareholder approval to purchase shares at this year's AGM. Share purchases by the Employee Trust The Trust purchased 5,310,443 shares during the year (2004: 2,559,000) for total consideration of Â£7.1m (2004: Â£3.8m) through the Group's share incentive trust in respect of meeting share incentive awards made to staff and the Company will continue this process in 2006. The Group's employees We have a team of talented employees committed to the successful development of the Group's operating businesses. It is through their efforts that the excellent results have been achieved. I should like to thank them all on behalf of the Board. We believe that the achievement of the Group's long-term strategic objectives is dependent on staff whose interests are aligned with the shareholders. Each operating subsidiary has equity participation as an element of employee reward. Evolution Securities China is an entity where the staff are minority shareholders in this company and there is, therefore a very strong alignment between them and the Group as majority shareholder. At Christows, we have completed an award of options in January 2006 under the Group's 2001 Executive Share Option Plan covering 75% of the employees. Within Evolution Securities, the Key Performers Share Incentive Plan implemented in 2003 was a three-year scheme, which was largely completed with the award made in January 2005 and confirmed at the time of the annual remuneration process in January 2006. This has, I believe, underpinned the success achieved during this time. The Remuneration Committee has been considering the appropriate form of incentive scheme for the next phase of the Group's development to further align the interests of shareholders with the executive directors and employees of Evolution Securities Limited. This scheme will be presented for shareholder approval at the AGM in May 2006 and, in the period between now and then, the Chairman of the Remuneration Committee and I will be consulting shareholders. Outlook We have made significant progress in developing each of our operating businesses. The momentum in the equity markets has continued in 2006. We have a strong balance sheet and a motivated team. The outlook for the Group is extremely positive and your Board is confident of achieving further success in 2006. Martin Gray Chairman 22 March 2006 Chief Executive's Report In 2005, the Evolution Group grew all three operating businesses by both revenue and profitability measures. On a consolidated basis, total Group income (before fee and commission expenses) rose by 15% to Â£73.5m (2004: Â£64.1m). Evolution Securities, Christows and Evolution Securities China have each individually achieved other key goals during the year including: market share and fund raising gains in ESL; funds under management growth in Christows; and a maiden profit for the year in ESCL respectively. As the year ended, all three businesses had very positive opportunities looking forward into 2006 and, in my report, I will give for each a flavour of both historical achievements and future prospects to enable shareholders to have a full understanding of the Group. Performance Breakdown The detailed income analysis by segment and by operating company, is shown below. Operating performance is reported internally to the Board by operating company and the Group's organisational and management structure is set up on this basis. 2005 2004 Income Â£'000 % Â£'000 % Investment banking and markets ESL and Evolution Securities (US) Inc ("ESUS") 59,887 81 54,145 84 ESCL 2,082 3 409 1 --------- --------- Sub-total 61,969 54,554 Stockbroking and fund management Christows 11,503 16 9,345 15 Other Other income 3 - 244 - --------- ------ --------- ------ 73,475 100 64,143 100 Fee and commission expenses (1,500) (1,019) --------- --------- Total income 71,975 63,124 --------- --------- Evolution Securities Evolution Securities has completed another year of strong growth in 2005. Its income (before fee and commission expenses) has increased by 11% from 2004 to Â£59.9m. Its corporate broking, trading, equity distribution and research activities have all achieved success in the year. Corporate broking Corporate broking continued this year to be the significant driver of income growth with an increase of 22% to Â£41.2m (2004: Â£33.7m). We achieved this with record fund raisings for clients of Â£864m (2004: Â£633m) a 36% increase across 51 transactions (2004: 60). This gives an average fund raising deal size of Â£16.9m, an increase of 59% from the level of 2004. At the end of the year we had 100 retained corporate clients with an average market capitalisation of Â£83m. The corporate broking capability has been enhanced during the year by the recruitment to the corporate finance team of a number of talented individuals and the team is well placed for continued success in 2006. Equity distribution Equity distribution is made up of two elements: primary placements and secondary market activity. Our primary placing activity in 2005, associated with the record levels of client fund raisings detailed above, represents a significant achievement and we continue to be recognised as one of the leading brokers when measured by primary placing capability. For secondary markets we have two principal measures of success: secondary commission income and market share. In 2005, commission income grew to Â£9.4m, an overall increase of 9% on 2004, and we saw increased market share across all sector indices. Particularly striking was the fact that we achieved the No. 1 market share on the AIM market of the LSE for agency business which, in a year of record volumes in this market overall, was an extremely satisfying result. Equity research Equity research has continued to play a significant role in the support of the firm's primary and secondary businesses. At the end of December our analysts covered sectors including resources, oil and gas, industrials, building construction, life sciences, leisure and gaming, media, retail, support services, software, technology, and telecoms. It is our intention to strengthen our secondary market research team further in 2006. Market Making The market making business traded profitably again in 2005 with overall trading income of Â£8.9m (2004: Â£11.6m). Following a couple of very difficult trading months in April and May we completed a significant structural change and aligned the market making books on a sectoral and corporate client basis rather than a purely alphabetical basis. We believe this focus leaves us better able to recognise trading patterns within sectors, allowing us to take advantage of profits and mitigate losses, and also to integrate more effectively with the other parts of the Company, which are also organised along a sectoral basis. Market making saw a dramatic increase in transaction numbers and overall value in the year, and when measured by total business, the firm had the No. 1 market share on the AIM market of the LSE, underpinning the contribution the market making business made to the Company's overall AIM franchise. Electronic trading We continue to recognise the importance of connectivity to retail service provider ("RSP") hubs and during the year we increased connectivity, adding retail stockbroker connections across our four RSP hubs, with a number of brokers accounting for significant electronic daily transaction flows. Electronic trading accounted for 40% of our total volumes in the first two months of 2006, compared to the 31% level achieved in 2005 and 25% in 2004. We believe in the growth of electronic and on-line trading in the future and will continue to invest in our trading platforms. US Broker-Dealer Evolution Securities Limited's subsidiary, ESUS, the US broker-dealer registered by the National Association of Securities Dealers ("NASD") began trading in 2005. As stated last year, this enables us to represent our corporate clients to US institutional customers and, where appropriate, to provide US roadshows for them. Thereafter it provides for the effective distribution of secondary UK equities to these US institutional investors. Christows Christows continues with its strategic initiatives of growth in scale and attaining greater profitability each year. I am pleased to report that both of these achievements were met in 2005. Total income (before fee and commission expenses) increased by 24% to Â£11.5m in 2005 (2004: Â£9.3m) which, coupled with continued tight management of costs, produced growth in profits for the fourth consecutive year, despite the investment costs associated with the new Birmingham office, with operating profitability up 33% from 2004. We continue our underlying strategy of growing funds under management ("FUM"). Overall FUM increased 23% and had reached Â£789m (2004: Â£640m) at year-end. This growth was underpinned by the continued strong sales by our professional intermediary sales team, leading to Christows winning new mandates across all its product range. Christows' product range was further developed in the fourth quarter of the year by the addition of EIS and IHT portfolio services, following recruitment of a leading specialised fund manager in this area. This supplements the very successful range of Christows' portfolio products including: Discretionary Service; Private Portfolio account; Private Portfolio Service; and the Multi-Manager products which during the year were re-branded 'Collective Portfolio Accounts'. This enables Christows to service clients across the full range of portfolio sizes typically from Â£50,000 to Â£5 million. During the year, Christows enhanced its research offering by the appointment of an experienced Head of Research. This has provided the opportunity for further refinement of the Christows' core model portfolio range and has resulted in the increased provision of regular equity and collective research to account executives. It has been a year of considerable focus on the growth of the Christows' branch network. Firstly, we increased the scale of the Bath office. This was followed with the opening of a new branch in Birmingham in September 2005, with a strong team of account executives and fund managers. I am confident that, following a period of up-front investment at the early stages of development of these two offices, we will see significant growth in FUM and revenues, and achieve profitability from these branches. Funds received in the last quarter of 2005 and first quarter of 2006 support this view. There has been consolidation and acquisitions amongst the traditional competitors to Christows and in many cases it appears that this may result in a move away from the traditional values of truly bespoke portfolio management which we believe clients continue to value highly and remains at the heart of Christows' offering. With continuing growth in FUM, increased geographical representation, and an enhanced product range, I am confident that we will continue to win new funds, attract like minded account executives and work with an increased range of intermediaries, which together represents an opportunity for continued strong growth of this business over the coming years. Evolution Securities China The Group's specialist Chinese investment banking business, Evolution Securities China, has shown very good progress in 2005. Total income (before fee and commission expenses) increased by 410% from Â£0.4m in 2004 to Â£2.1m in 2005. This led to an operating profit of Â£0.1m, which is a significant turnaround from the loss of Â£0.7m in 2004. During the period ESCL has strengthened its secondary market equities research offering based in Shanghai, adding to its team of analysts and bringing more companies under coverage. This has enabled its equity distribution team based in London to broaden its institutional customer base. ESCL also developed its primary market activity during the year and completed its first two introductions of Chinese companies onto the AIM market. These have established ESCL as the foremost specialist broker to Chinese clients operating in the London market. We remain convinced that there will be substantial opportunities ahead as the Chinese equity markets develop and that ESCL is well positioned to capitalise on these. Investments As previously announced in March 2005, the Group disposed of its remaining holding in IP2IPO for gross proceeds of Â£52.8m in cash. This realised a profit for the Group, after taking into account related expenses of sale of Â£35.7m. This transaction taken together with the previous partial disposals in 2003 and 2004 has created and realised significant value for Evolution's shareholders. As previously reported, the Group has continued to exit from its legacy investment portfolio. The Group seeks to extract value from this portfolio with profit on sale of other available-for-sale investments totalling Â£4.3m in 2005 (2004: Â£6.6m). Set against this the Group has a negative fair value reserve of Â£1.7m against the remaining portfolio of available-for-sale investments (2004: nil). Infrastructure, culture and employees The Group has made excellent progress in the year. This has been achieved against a background of additional challenge as we made it a priority to focus on enhancing the infrastructure and support structure. As a result of these initiatives we have completed the development of a risk function, enhanced systems, performed compliance restructuring, increased management strength in the areas of risk, operations and IT, and implemented additional new business and transaction approval processes. These requirements arose as the scale of growth of the business moved forward dramatically and as we undertook our review of corporate governance on a group wide basis with an objective of achieving best in class amongst our peer group. I am confident the progress made in these areas mean that the business is now extremely well placed for the next stage of development. These initiatives have contributed towards an overall increase in costs of Â£5.4m. These changes highlight our continued emphasis upon the development of a culture of compliance and control across the Group's operations. We believe in today's business climate that, particularly operating in the regulated markets, such a strategy is imperative to achieving long term success. This is one facet of our culture. Another is the process of placing our clients' interests first as our results are determined by the results we obtain for our clients. A third is our continued focus on the encouragement of high levels of individual effort and performance in striving collectively to achieve the Group's operational goals. We are committed, therefore, to a reward structure for employees where there is significant emphasis on performance-based reward. Our performance-based bonuses differ slightly between operating business - in line with market practice and business maturity - but the overriding principle is creating a bonus pool only where profits are being generated for shareholders. Equity incentivisation is the final component of reward and this ensures the employees' interests are fully aligned with shareholders. The profit and loss charge resulting from equity incentivisation, in the form of the fair value of awards granted spread over the life of the awards, equated to Â£6.7m in 2005 (2004: Â£4.9m). I should like to add my own thanks to those made above by Martin regarding the efforts of the Group's employees, through whose efforts the results have been achieved and through whose further endeavours I am confident of the Group achieving continued success this year. Outlook The first quarter of 2006 has been an excellent start to the year with income and profitability strongly ahead of the equivalent period last year. Evolution Securities has completed, or is working on, a number of significant primary transactions, and in the secondary markets we have seen a dramatic increase in transaction volumes. Christows has begun the year well, with good flows of new funds under management being won by both the sales team and the new account executive teams that started in the final quarter of last year. Christows has also seen a marked increase in transaction volumes. The Chinese securities market has started the year very strongly and Evolution Securities China looks well positioned to continue to develop in 2006. Alex Snow Chief Executive Officer 22 March 2006 FINANCIAL REVIEW Adjusted operating profit The statutory operating profit for the overall Group is as shown below. The Board continues to believe a truer reflection of the performance of the Group's on-going operating businesses is afforded by the measure of 'Adjusted operating profit' that excludes items that are one-off or non-recurring, are not part of the on-going business profitability or, in the case of the cost of options, represent non-cash items. This measure is therefore used as the principal performance criteria against which the vesting of stock awards is determined. However, the Board reviews performance against the measure 'Clean profit before tax', which represents adjusted operating profit plus net interest; and also the measure 'Clean earnings', which represents clean profit before tax less tax expense. These measures are also followed by the analyst community as benchmarks for the Group's on-going performance. The following table reconciles these measures and demonstrates the continued strong progress made on a Group basis in increasing adjusted operating profit by 26% to Â£25.3m in 2005 (2004: Â£20.1m): 31 December 2005 31 December 2004 Â£'000 Â£'000 Â£'000 Â£'000 Operating profit 58,583 44,513 Items not included within adjusted operating profit Profit on disposal of available-for-sale investments (40,048) Profit on sale of fixed asset investments (1,225) Release of provision against fixed asset investments (525) Profit on sale of current asset investments (4,813) Profit on part sale of subsidiary - (66) Profit on part sale of associate - (22,286) -------- --------- Adjustment for provisions and profits on investments (40,048) (28,915) Share of results of associated undertaking - (436) Cost of share options granted to employees 6,744 4,928 -------- --------- Non-cash items 6,744 4,492 -------- ------- Adjusted Group operating profit 25,279 20,090 Net interest receivable 5,007 3,322 -------- ------- Clean profit before tax 30,286 23,412 Tax expense (4,524) (3,831) -------- ------- Clean earnings 25,762 19,581 ======== ======= Clean earnings per share 11.42p 7.93p Clean diluted earnings per share 10.19p 7.28p The primary business segments are: Investment banking and markets; Stockbroking and fund management; and Other. Investment banking and markets in the current year refers to the business carried out in Evolution Securities Limited, Evolution Securities China Limited and Evolution Securities (US) Inc. Stockbroking and fund management refers to Private Client Stockbroking and Fund Management under the Christows brand. Other activities refer to the central administrative, shared services and holding company functions, combined with the profits on, and provisions against, the legacy fixed asset investment portfolio and the business carried out in the intellectual property commercialisation field under the IP2IPO group of companies. This holding was disposed of in March 2005. Investment banking and markets 2005 2004 Â£'000 Â£'000 ---------- -------- Income (before fee and commission expenses) 61,969 54,554 Fee and commission expenses (1,126) (747) ---------- -------- Total income 60,843 53,807 Operating expenses (41,446) (36,244) Profit on disposal of available-for-sale investments 117 Profit on sale of fixed asset investments - 21 Profit on sale of current asset investments - 171 ---------- -------- Operating profit 19,514 17,755 ---------- -------- In line with the analysis presented in the Chief Executive Officer's Report above, the Investment banking and markets segment is further divided into Evolution Securities (consisting of ESL and ESUS) and ESCL. The breakout of revenues and costs for these categories is detailed below. It is clear to see the progress made in 2005 from the previous year. Evolution Securities Within the investment banking business of Evolution Securities, there has been continued growth in the scale and profitability of this business resulting in an increase of 21% in adjusted operating profit from Â£19.9m in 2004 to Â£24.0m in 2005. 2005 2004 Â£'000 Â£'000 --------- ---------- Income (before fee and commission expenses) 59,887 54,145 Fee and commission expenses (1,037) (670) --------- ---------- Total income 58,850 53,475 Operating expenses (39,557) (35,204) Profit on disposal of available-for-sale investments 117 Profit on sale of fixed asset investments - 21 Profit on sale of current asset investments - 171 --------- ---------- Operating profit 19,410 18,463 Profit on disposal of available-for-sale investments (117) Profit on sale of fixed asset investments (21) Profit on sale of current asset investments (171) Cost of options 4,701 1,659 --------- ---------- Adjusted operating profit 23,994 19,930 ========= ========== Evolution Securities income analysis The growth in Evolution Securities' income (before fee and commission expenses) has been achieved by particular growth from the activities of corporate finance advice and fundraising. In addition, sales commissions held up well and remain a constant proportion of the overall revenue. Equity trading income was down by approximately 20% in absolute terms, which has therefore had an impact on the balance between primary and secondary income. We would expect this to return to a more balanced basis going forward. 2005 2004 --------- --------- Corporate finance 68% 62% Sales commissions 16% 16% Trading 15% 21% Other 1% 1% Evolution Securities cost analysis The overall cost/income ratio for the Evolution Securities business, excluding cost of options and non-recurring costs, has reduced again this year in line with our plans to 59% (2004: 63%). Staff costs continue to make up the majority of the total cost base, accounting for 54% (2004: 59%) of costs with over 64% (2004: 70%) of this being in the form of performance related bonuses. The other administrative expenses have increased principally as a result of the increase in premises costs, professional fees and direct transaction costs. 2005 2004 --------- --------- Staff costs - Non performance related 19% 17% Staff costs - Performance related 35% 42% Other costs 34% 36% Cost of options 12% 5% Evolution Securities China As this business has reached a larger scale than a year ago, I believe it is useful to break out its results on a standalone basis. There has been significant growth in the scale and profitability of this business resulting in an adjusted operating profit of Â£0.1m in 2005 from a loss of Â£0.7m in 2004. 2005 2004 Â£'000 Â£'000 ---------- ---------- Income (before fee and commission expenses) 2,082 409 Fee and commission expenses (89) (77) ---------- ---------- Total income 1,993 332 Operating expenses (1,889) (1,040) ---------- ---------- Operating profit / (loss) 104 (708) Cost of options 6 - ---------- ---------- Adjusted operating profit / (loss) 110 (708) ========== ========== Evolution Securities China income analysis ESCL's income (before fee and commission expenses) has grown in all areas. Its commission income increased by over 80% and corporate finance revenues by over 600% when compared with the previous year. Given the early stage of development of the business and its relatively small scale overall it is too early to predict the normalised revenue profile. 2005 2004 ------ ------ Corporate finance 66% 46% Sales commissions 19% 54% Trading 13% - Other income 2% - Evolution Securities China cost analysis ESCL's total cost base saw an overall increase of over 80% as the scale of the business changed during the year. There was, however, a consistency in the proportion of staff costs and these were in line with its business model of low fixed employment costs linked with direct equity participation. The Group recognises the importance of maintaining a different business model in this early stage of the business. 2005 2004 --------- --------- Staff costs - Non performance related 53% 56% Staff costs - Performance related 6% - Other Costs 41% 44% Stockbroking and fund management Looking next at Christows, the Group's private client stockbroking and fund manager, 2005 has seen a continuation of the progress of the last three years with an increase of 24% (2004: 137%) in adjusted operating profit from Â£0.9m in 2004 to Â£1.1m in 2005. 2005 2004 Â£'000 Â£'000 ---------- ---------- Income (before fee and commission expenses) 11,503 9,345 Fee and commission expenses (374) (283) ---------- ---------- Total income 11,129 9,062 Operating expenses (10,194) (8,362) ---------- ---------- Operating profit 935 700 Cost of options 146 171 ---------- ---------- Adjusted operating profit 1,081 871 ========== ========== IFRS Impact Christows was the business within the Group upon which IFRS reclassification had the greatest impact. Whilst these had no material impact upon profitability, there were quite major reclassifications. Firstly, commissions shared with individuals, deemed under IFRS to be employees, were reclassified from commission expenses to performance-related staff costs. Secondly, commission expenses to financial intermediaries were reclassified to net off against the relevant income. Thirdly, the policy of immediately matching initial commission earned on the transfer of client funds into Christows and the related initial commission expense paid to intermediaries was replaced with a process of capitalising income and expense, and amortising over the estimated average life of FUM. Stockbroking and fund management income analysis Christows' mix of income has remained constant across the two periods demonstrating the consistency of the business model, as the overall level of funds under management increases, and showing equal growth in its recurring management fees and sales commission income lines. 2005 2004 ------ ------ Corporate finance - 3% Sales commissions 60% 61% Management fees 34% 31% Other income 6% 5% Corporate finance in the prior year relates to nominated broker fees. Stockbroking and fund management cost analysis The overall cost/income ratio, excluding cost of options and non-recurring costs, for Christows has remained stable at 90% (2004: 90%) taking into account the reclassifications under IFRS outlined above. Further examination of the cost structure within Christows shows it continues to be tightly managed and highly predictable. During the second half of 2005 Christows opened a new office in Birmingham and this resulted in a number of up-front costs together with incurring amounts for new staff not as yet fully matched with revenue as they began to build up the business. The process of absorbing this into Christows' results whilst still maintaining forward momentum is testament to the strength of Christows. 2005 2004 --------- --------- Staff costs - Non performance related 31% 35% Staff costs - Performance related 27% 22% Other Costs 41% 41% Cost of options 1% 2% Other activities The Group's other activities are made up of: central group support costs not recovered from the operating businesses; the profits on and provisions against investments; the partial disposals of IP2IPO and other legacy fixed asset investments; and the results of the IP2IPO business whilst it was an associated undertaking of the Group. 2005 2004 Â£'000 Â£'000 ---------- ---------- Income (before fee and commission expenses) 3 244 Fee and commission credit - 11 ---------- ---------- Total income 3 255 Operating expenses (1,800) (3,356) Profit on disposal of available-for-sale investments 39,931 Profit on part sale of subsidiary - 66 Profit on sale of associate - 22,286 Profit on fixed asset investments 1,204 Release of provision on fixed asset investments 525 Profit on current asset investments 4,642 Share of associated undertaking's interest - 252 Share of associated undertaking operating profit - 184 ---------- ---------- Operating profit 38,134 26,058 Profit on part sale of subsidiary - (66) Profit on part sale of associate - (22,286) Profit on disposal of available-for-sale investments (39,931) Profit on sale of fixed asset investments - (1,204) Release of provision against fixed asset investments - (525) Profit on current asset investments - (4,642) Share of associated undertaking's interest - (252) Share of associated undertaking operating profit - (184) Cost of options 1,891 3,099 ---------- ---------- Adjusted operating profit / (loss) 94 (2) ========== ========== IP2IPO On 11 March 2005, the Group disposed of its remaining holding in IP2IPO of 7,502,170 shares for total gross proceeds, before expenses of Â£52.8m. After taking into account related expenses of sale, this resulted in a realised profit of Â£35.7m. Investment portfolio As previously reported, the Group has continued to exit from its legacy investment portfolio. The Group seeks to extract value from this portfolio with profit on sale of other available-for-sale investments totalling Â£4.3m in 2005 (2004: Â£6.6m). Set against this the Group has a negative fair value reserve of Â£1.7m against the remaining portfolio of available-for-sale investments (2004: nil). Balance sheet strength The Group remains focused on maintaining a strong balance sheet. At the year-end it had net assets of Â£156.7m (2004: Â£141.0m) including cash of Â£138.0m (2004: Â£115.2m). Cashflow The Group generated positive cash inflow of Â£22.8m in the year (2004: Â£61.4m). This has been achieved principally from operating activities and the final disposal of IP2IPO in March 2005, offset by purchases of own shares totalling Â£49.6m. Dividend The Board is proposing a final dividend per share for 2005 of 0.80p per share (2004: 0.58p). This dividend is payable on 2 June 2006 to shareholders on the register on 5 May 2006. This follows the dividend paid in November 2005 of 0.40p per share. (2004: 0.17p). Impact of IFRS The conversion of the Group's accounts to IFRS has not materially impacted the continuing operational performance of the Group. The Group's operating profit per the statutory consolidated income statement for the year to 31 December 2004 has been adjusted down by Â£132,000 from a UKGAAP figure of Â£44,645,000 to a figure of Â£44,513,000. This was principally a result of changes to the accounting treatment for share options granted to employees under IFRS 2, 'Share Based Payments', which resulted in an additional charge of Â£660,000 and of changes to the treatment of amortisation under IAS 38, 'Intangible Assets', which resulted in a credit to the income statement of Â£505,000. Neither of these adjustments impact the measure: "Adjusted operating profit", which remains constant due to the exclusion of non-cash items and one-off or non-recurring investment gains and losses. Adjusted operating profit performance is highlighted above. Correspondingly the impact on equity at 31 December 2004 of an increase of Â£4,552,000 following the adoption of IFRS relates to the recognition of deferred tax assets on share options granted to employees, the reversal of dividends as yet unpaid or unapproved and the reversal of amortisation on goodwill. Graeme Dell Finance Director 22 March 2006 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2005 2004 Â£'000 Â£'000 Fee and commission income 63,205 52,289 Fee and commission expenses (1,500) (1,019) ---------- ---------- Net fee and commission income 61,705 51,270 Net trading income 9,206 11,618 Other income 1,064 236 ---------- ---------- Total income 71,975 63,124 Profit on disposal of available-for-sale investments 40,048 Profit on sale of fixed asset investments 1,225 Release of provision against fixed asset investments 525 Profit on sale of current asset investments 4,813 Profit on part sale of subsidiary - 66 Profit on sale of associate - 22,286 Share of results of associate - 436 Operating expenses (53,440) (47,962) ---------- ---------- Operating profit 58,583 44,513 Interest receivable and similar income 5,044 3,329 Interest payable and similar charges (37) (7) ---------- ---------- Profit before tax 63,590 47,835 Tax expense (4,524) (3,831) ---------- ---------- Profit for the year 59,066 44,004 ========== ========== Profit / (loss) attributable to minority interest 25 (174) Profit attributable to equity holders of The Evolution Group Plc 59,041 44,178 ---------- ---------- 59,066 44,004 ========== ========== Basic earnings per ordinary share 26.18p 17.90p Diluted earnings per share 23.35p 16.43p Dividend per share - Interim (paid) 0.40p 0.17p - Final (proposed) 0.80p 0.58p Dividend (Â£'000) - Interim (paid) 859 421 - Final (proposed) 1,772 1,307 CONSOLIDATED BALANCE SHEET As at 31 December 2005 2004 Â£'000 Â£'000 ASSETS Non-current assets Goodwill 9,085 8,990 Other intangible assets 232 242 Property, plant and equipment 3,695 1,330 Investments 583 Deferred tax assets 7,693 5,820 ----------- ----------- Total non-current assets 20,705 16,965 Current assets Trade and other receivables 42,069 Debtors 37,442 Available-for-sale investments 2,027 Trading portfolio assets 13,446 Long trading positions 9,679 Current asset investments 12,148 Cash and cash equivalents 137,973 115,170 ----------- ----------- Total current assets 195,515 174,439 ----------- ----------- Total assets 216,220 191,404 ----------- ----------- LIABILITIES Current liabilities Trade and other payables 51,196 Creditors: amounts falling due within one year 47,923 Trading portfolio liabilities 6,200 Current tax liabilities 1,947 2,382 ----------- ----------- Total current liabilities 59,343 50,305 ----------- ----------- Non-current liabilities Provisions for liabilities 184 78 ----------- ----------- Total liabilities 59,527 50,383 ----------- ----------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,255 2,495 Share premium 27,942 26,223 Capital redemption reserve 274 - Merger reserve 51,230 51,230 Fair value and other reserves (1,652) - Retained earnings 76,592 61,138 ----------- ----------- Parent company's shareholders' equity excluding minority interest 156,641 141,086 Minority interest in equity 52 (65) ----------- ----------- Total equity 156,693 141,021 ----------- ----------- ----------- ----------- Total equity and liabilities 216,220 191,404 ----------- ----------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2005 2004 ----------------- ----------------- Â£'000 Â£'000 Â£'000 Â£'000 Cash flow from operating activities Cash generated from operations 25,749 20,218 Interest received 5,044 3,283 Interest paid (37) (7) Tax paid (5,824) (4,136) -------- ------- Net cash inflow from operating activities 24,932 19,358 Cash flows from investing activities Purchase of subsidiary shares (2) (59) Proceeds from sale of associate - 39,674 Purchase of property, plant and equipment (3,368) (796) Purchase of intangible assets (106) - Purchase of available-for-sale investments (1,074) Net proceeds from sale of available-for-sale investments 52,525 Purchase of investments - (321) Proceeds from sale of investments - 7,260 Dividends received 15 85 -------- ------- Net cash generated from investing activities 47,990 45,843 Cash flows from financing activities Issues of ordinary share capital 1,614 379 Issue of ordinary share capital to minorities 1 219 Dividends paid to the company's shareholders (2,166) (1,037) Purchase of shares held by the Trust (7,111) (3,335) Purchase of treasury shares (42,513) - -------- ------- Net cash used in financing activities (50,175) (3,774) --------- --------- Net increase in cash and bank overdrafts 22,747 61,427 Cash and bank overdrafts at beginning of period 115,170 53,705 Exchange gains on cash and bank overdrafts 56 38 --------- --------- --------- --------- Cash and bank overdrafts at end of period 137,973 115,170 ========= ========= CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2005 2004 Â£'000 Â£'000 Profit for the financial year 59,066 44,004 Available-for-sale investments: Fair value changes taken to equity at 1 January 2005 37,629 Fair value changes taken to equity during the year (2,059) Fair value changes transferred to income statement on disposal (37,222) ---------- ---------- Net losses not recognised in income statement (1,652) - ---------- ---------- Total recognised income and expense for the year 57,414 44,004 ---------- ---------- Effect of changes in accounting policy for the adoption of IAS 32 and 39 Available-for-sale financial assets fair value reserve 37,629 Retained earnings 340 Minority interest - ---------- ---------- 37,969 - ---------- ---------- Attributable to: Minority interest 25 Equity shareholders of the Parent 57,389 ---------- 57,414 ---------- Other information These preliminary results are the first to be prepared under International Financial Reporting Standards ("IFRS"). A summary of the accounting policies adopted by the Group is set out in the half-year results announcement on 7 September 2005. The financial information in this statement does not constitute the Group's statutory accounts for the year ended 31 December 2005 within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for 2005 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Group will be circulating the full annual report and accounts to shareholders and copies will be available from the Registered Office of the Company, 9th Floor, 100 Wood Street, London EC2V 7AN from the date of despatch to shareholders for one month. Annual General Meeting The arrangements for, and notification of business to be transacted at, the Company's Annual General Meeting will be provided with the annual report and accounts to be circulated to shareholders in due course. This information is provided by RNS The company news service from the London Stock Exchange

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Thursday, 23rd May 2024

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HL. QQ. AJB

Another day and another round of takeover talk with Hargreaves Lansdown being eyed by private equity suitors. AJ Bell also advances on upbeat earnings news whilst QinetiQ upgrades its profit guidance, too.

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