Half Yearly Report

RNS Number : 3238L

Evolution Group PLC

29 July 2011

 



The Evolution Group Plc

(the "Evolution Group", the "Group", the "Company")

Half year results for the six months ended 30 June 2011

Evolution Group, the listed Investment Banking and Private Client investment management group, today announces its half yearly financial report for the six months ended 30 June 2011.

Highlights

·      Total Group income £51.6m (2010: £56.1m)

·      Adjusted operating profit¹ £6.5m (2010: £7.0m)

·      Statutory operating profit £4.4m (2010: £4.5m)

·      Statutory profit before tax £4.3m (2010: £3.0m)

·      Balance sheet strength maintained

·      Interim dividend maintained at 1.00p

·      Continued growth in Williams de Broë income, assets under management ("AUM") and profit

·      Investment banking division achieved adjusted operating profit despite difficult market conditions

·      Voted Top European Fixed Income Agency Broker of 2011 by Credit Magazine for third consecutive year

·      StarMine Analyst Awards 2011 - ranked 1^st in both FTSE100 and FTSE250 stock recommendation categories

Financial Highlights	Six months to 30 June 2011		Six months to 30 June 2010
	£m		£m
Total income	51.6		56.1
Operating profit	4.4		4.5
(Adjusted basis)	6.5		7.0
Profit before tax	4.3		3.0
Diluted earnings per share	1.21p		1.24p
Dividend per share	1.00p		1.00p

Commenting on the results and outlook, Alex Snow, Chief Executive of Evolution Group said:

"The first half of 2011 has been good for the Group. We are well on track to fulfil our strategic aim of achieving £10bn assets under management in Williams de Broë through continuing strong growth and development of a first class private client business, and have also taken decisive action to restructure our securities business, managing the cost base to return to profitability. Against the backdrop of vicious market conditions these achievements, together with the Group's continued financial strength, ensure the Group is well positioned to see through the inevitable ongoing turbulence, and also take advantage of further growth opportunities"

Key Performance Indicators

	Six months to 30 June 2011	Six months to 30 June 2010
Private Clients2
Net fund inflows (£m)	204	128
AUM (£bn)	6.0	5.1
Income per average head (£000)	187	182
Income per average front office head4 (£000)	434	387
Core operating costs6 per average front office head (£000)	262	239
Adjusted operating profit1 (£m)	5.5	5.1
Adjusted operating margin	20%	20%
Investment Banking3
Market share by value traded
LSE Market - Total FTSE (%)	1.0%	1.4%
Corporate clients	84	80
Corporate clients won	11	13
Average market capitalisation of corporate clients (£m)	115	92
Funds raised (£m)	1,750	195
Income per average head5 (£000)	212	272
Income per average front office head5&6 (£000)	280	348
Core operating costs5&7 per average front office head (£000)	256	273
Adjusted operating profit1 (£m)	1.3	1.8
Adjusted operating margin	5%	6%

Notes

¹ Adjusted operating profit is defined in the Business Review below.

² The results of Private Clients are defined as those arising from Williams de Broë Limited ("WDB"), WDB Assetmaster Management Company Limited, WDB Asset Management Limited and WDB Capital Limited.

³ The results of Investment Banking are defined as those arising from Evolution Securities Limited ("ESL"), its subsidiary Evolution Securities (US) Inc. ("ESUS") and Darwin Strategic Limited ("Darwin").

⁴ Front office headcount for Private Clients is defined as including investment managers, dealers, financial planners and investment assistants.

⁵ Front office headcount for Investment Banking is defined as including all client facing staff, including corporate finance executives, market makers, sales and sales traders, and research analysts.

⁶ Income per average head, income per average front office head and core operating costs per average front office head based on annualised first half incomes and costs, divided by average first half headcount.

⁷ Core operating costs are defined as adjusted operating expenses excluding performance costs.

For further information, please contact:

The Evolution Group Plc	020 7071 4300
Alex Snow, Chief Executive
Andrew Westenberger, Finance Director
Pelham Bell Pottinger	020 7861 3925
Victoria Geoghegan	079 1755 1155

FORWARD-LOOKING STATEMENTS

This Half Yearly Report contains forward-looking statements with respect to the financial condition, results, operations and businesses of the Evolution Group Plc. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Such statements and forecasts involve risk and uncertainty because they relate to future events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this statement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

BUSINESS REVIEW

	Six months to 30 June 2011 £m	Six months to 30 June 2010 £m
Total income
-  Private Clients	27.1	25.4
-  Investment Banking	24.4	30.7
-  Other	0.1	-
	51.6	56.1
Adjusted operating profit / (loss) 1
-  Private Clients	5.5	5.1
-  Investment Banking	1.3	1.8
-  Other	(0.3)	0.1
	6.5	7.0
Net finance income	0.2	-
Adjusting items 1	(2.1)	(2.5)
Associates	(0.3)	(1.5)
Profit before tax	4.3	3.0
Tax	(1.5)	(0.2)
Profit after tax	2.8	2.8
Earnings per share - diluted	1.21p	1.24p
Dividend proposed / paid per share	1.00p	1.00p

¹ Adjusting items

The Group utilises "adjusted operating profit / (loss)" in addition to statutory operating results to measure the underlying performance of its businesses. In addition to being the basis of performance criteria against which incentive awards are measured it is also a key measure used by research analysts covering the Group. Further information is provided in note 4.

Adjusted operating performance excludes material exceptional items that are non-recurring in nature, together with upfront costs associated with specific growth initiatives. Growth costs relate solely to the initially assessed costs of acquiring, restructuring and integrating businesses and teams, and typically include the cost of acquired customer relationships and upfront cash and deferred share based compensation awards. Additionally, gains or losses on available for sale assets are included in adjusted operating profit / (loss).

OVERVIEW

The Group has achieved a good performance in the first half of 2011, particularly given the extremely difficult backdrop in our core markets.

Overall Group performance has improved from the second half of 2010 and Group adjusted operating profit of £6.5m is only slightly behind the six months to June 2010 result of £7.0m, despite lower income levels. This resilience in underlying performance, together with lower exceptional costs and associate losses, has resulted in an increased Group profit before tax for the six months to 30 June 2011 of £4.3m (2010: £3.0m).

At our private client investment management business, Williams de Broë, the first half saw the extended momentum of the significant growth in funds under management experienced over the previous 5 years (CAGR 46%).  This growth has been matched by significant growth in income and operating profit contribution over the equivalent period.

The first half saw inflows grow significantly.  This growth has been supported by real investment in infrastructure, systems and in the high quality Williams de Broë brand. This fund growth will continue to be developed, alongside high quality recruitment which is at record levels, whilst pursuing an acquisition strategy that is accretive to the business and brand. This is an exciting time for Williams de Broë and the medium term strategy remains very much achievable.

The first half of the year in Investment Banking was extremely difficult.  Conditions remained uncertain, and volatility flared up with one crisis after another. The uncertain environment and lack of conviction reduced turnover and liquidity in all asset classes.  Corporate activity also remained lacklustre, whilst the IPO and secondary placement market has become erratic and at times dormant.

Significant action was taken in the first quarter to reduce cost and headcount that were unable to produce accretive results in such conditions, and the results are clear.  Whilst revenue dropped by 10% in the first half from the second half of 2010, operating expenses dropped by 28% over the same period due not only to discipline on discretionary expenditure but, importantly, measures taken to reduce the cost of overall staff compensation including reduced headcount and strengthened service conditions. This helped to achieve an adjusted operating profit of £1.3m, a significant improvement on the loss of £4.9m in H2 2010.  Furthermore, the full benefits from those cost reductions will only be experienced from the second half of 2011 onwards.

These actions, whilst painful and difficult, have allowed Investment Banking to concentrate on its core offering and reposition its business, and were taken to allow all stakeholders to look to the future with confidence of tenure, but also confident that the service we are offering clients is relevant and not being subsidised or heavily loss-making. The Investment Banking executive has worked tirelessly at refocusing the business, during difficult market conditions and running the business at the same time.  We thank not only them, but also the many extremely high quality staff and clients who have supported the business with their efforts, innovation and loyalty during a most difficult period.

Investment Banking now has a robust business model that is accretive to the Group under these market conditions.  Already the inevitable process of capacity reduction within our sector has started.  We are confident that the action taken in the first quarter was prescient and leaves Investment Banking well positioned and right sized given the continued nervousness of capital markets.

Nonetheless during this period Investment Banking has continued to deliver a high quality service to our clients across both equity and debt markets.  It has been extremely pleasing to have been instrumental in executing a number of innovative and alpha generating transactions for our clients during the period.  This success has led to discussions with a wide range of further clients both corporate and institutional and leads us to have hardening confidence in our deal pipeline for the second half.

PRIVATE CLIENTS

Williams de Broë is one of the UK's leading firms of private client investment managers. Its continued success reflects not only the momentum built up over recent years through acquisition and a growth focused agenda enhanced through significant investment, but also growing external recognition. It is now firmly established as one of the UK's top wealth management firms.

	Six months to 30 June 2011	Six months to 30 June 2010
	£m	£m
Management fees	15.9	14.6
Transactional income	10.9	10.6
Segregated interest income	0.3	0.2
Total income	27.1	25.4
Adjusted operating expenses	(21.6)	(20.3)
Adjusted operating profit	5.5	5.1
Adjusting items	(1.1)	(1.5)
Statutory operating profit	4.4	3.6

Adjusted operating profit grew by 8% in the six months to June 2011 to £5.5m (2010: £5.1m). Total income grew 7% to £27.1m (2010: £25.4m) as a result of continued growth in AUM, which were 18% higher at £6.0bn (2010: £5.1bn). Management fees grew 9% to £15.9m compared to the prior year (£14.6m) and comprised 59% of total income for the period.

The strategic target of £10bn of AUM by the end of 2012 remains in place, with growth targeted through strong organic fund inflows, recruitment and acquisition, and good progress has been made on each part during the period. Underlying net organic fund growth in the period has continued to be strong, adding 3.5% (7.0% annualised) with acquired inflows also contributing significantly, adding a further 2.2% (4.4% annualised). The very strong level of inflows, organic and acquired, has allowed us to accelerate initiatives to rationalise low yielding assets as part of an ongoing review of legacy portfolios acquired in the past three years. As part of this, approximately £130m of client assets has recently been terminated with no material impact on future income.

The growth strategy comprises four key themes and there has been good progress on all fronts. During the period the company has recruited a further 10 senior professionals, each with first rate credentials and proven track records. The business continues to build on its long standing intermediary and IFA relationships as well as attracting new partners. We are also seeing increasing success in the establishment of B2B relationships with formal Discretionary Fund Management agreements signed with a number of retail financial services companies. Finally, as previously announced, we are in exclusive discussions to acquire a private investment management business from BNP Paribas Wealth Management S.A.

INVESTMENT BANKING

	Six months to 30 June 2011	Six months to 30 June 2010
	£m	£m
Corporate Finance	5.0	5.9
Markets
- Equities	13.6	15.4
- Fixed income	5.8	9.4
Total income	24.4	30.7
Adjusted operating expenses	(23.1)	(28.9)
Adjusted operating profit	1.3	1.8
Adjusting items	(2.7)	(0.5)
Statutory operating (loss) / profit	(1.4)	1.3

Total income from Investment Banking was £24.4m for the six months to June 2011, a 21% decline on the first half of 2010 (£30.7m). Trading conditions for the first half remained very poor with low client activity persisting against the backdrop of continuing volatility in financial markets, combined with uncertainty in the broader economic climate, in particular prospects for growth in the UK.

As a result, income declined in all three principal business areas compared to the first half of 2010. However, there is evidence, that the decline in business experienced throughout 2010 as financial market confidence repeatedly failed to take hold, has shown signs of abating and indeed for some areas of our business secondary market activity levels were higher in the period than in the final quarter of 2010.

Despite this challenging income environment, the securities business made a small adjusted profit of £1.3m in the first six months of 2011 (2010: £1.8m) due to significantly reduced operating expenses of £23.1m, down 20% from the first half of 2010 (£28.9m). This was as a result of ongoing discipline on all areas of discretionary expenditure coupled with the restructuring of the business undertaken in early 2011 which yielded material reductions to total staff compensation costs. First half total staff compensation declined not only as a result of the benefit of reduced headcount but also due to the net effect of restructuring compensation between fixed and variable elements allied to strengthened service conditions. As set out at the time, management has set a clear minimum acceptable financial performance for the business to at least cover its total annual operating expenses even in the current poor market conditions. The changes made, the reduced headcount and renewed clarity of strategy were intended to not only meet this objective in the short term but ensure the securities business is accretive to the Group in better market conditions. If early signs that overall corporate and secondary market activity and income levels are stabilising hold, the results for the first six months of the year suggest that the first of those objectives at least may be achievable for 2011.

Whilst the corporate fundraising market remained subdued, corporate finance successfully completed 20 transactions (2010: 17) on behalf of clients, helping to raise £1.7bn (2010: £195m), most notably for Vallares but also for Safestore, Findel and Lombard Medical. During this period we have completed highly successful retail bond issues for Places for People, Tesco Bank and Provident Financial. We continue to win high quality new corporate broking relationships, with the average market capitalisation of our clients being £115m. Overall corporate clients grew by four to 84 in the period. Within Equities, revenues of £13.6m were down on 2010 as market volumes continued to decline and and volatility remained high. Investor concerns over European Sovereign debt markets have not abated and liquidity remains weak. Against this back-drop, fixed income has performed creditably generating revenues of £5.8m which, albeit down on the comparative period in 2010 of £9.4m, represent a 14% increase on the second half of 2010. Our unique brand of independent research and execution continues to be highly regarded by our clients and to gain external recognition as we were once again voted top "European Fixed Income Agency Broker" by Credit Magazine in 2011.

OTHER

	Six months to 30 June 2011	Six months to 30 June 2010
	£m	£m
Income	0.1	-
Adjusted operating expenses	(0.4)	0.1
Adjusted operating (loss) / profit	(0.3)	0.1
Adjusting items	1.7	(0.5)
Statutory operating profit / (loss)	1.4	(0.4)

Other activities encompass the Parent Company and central costs, including the cost of the Group Board, in addition to central support functions which are not directly recharged to the operating divisions. During the period, charges totalling £1.7m in respect of accumulated share-based payment expense were released relating to options granted in earlier years that have not vested.

BALANCE SHEET AND CASH

The Group's balance sheet strength has been maintained, with net assets of £124.4m at the period end (31 December 2010: £126.7m) including cash and cash equivalents of £73.7m (31 December 2010: £90.1m). Cash has reduced in the period as a result of the Group's natural cash cycle where May/June are the historical low point of the year, primarily due to the payment of year-end bonuses and the final dividend.

Associates

The Group's share of associates in the period amounted to a loss of £0.3m compared with a loss of £1.5m in the comparative period. All of the loss relates to Evolution Securities China Limited ("ESCL") in this period, compared to loss relating to ESCL and WDB Capital UK Equity Fund in the comparative period.

Dividend

In the light of these results the Board declares an unchanged interim dividend of 1.00p per share, reflecting the Group's cautious outlook and focus on maintaining a liquid balance sheet. The dividend is payable on 26 September 2011 to shareholders on the register at 12 August 2011.

Going concern

The Group has a strong, liquid balance sheet and its financial forecasts, taking into account the difficult trading environment within its securities business, show ongoing profitability. The Directors therefore believe that the Group is well placed to manage its business risks successfully. Accordingly, the Directors have satisfied themselves that the Group has adequate resources to continue in operational existence for at least the next 12 months and therefore the going concern basis has been used in preparing these interim financial statements.

GROUP OUTLOOK

It is clear that the current financial market uncertainty is unlikely to dissipate in the near future given its root causes and the inability of policy makers to date to agree a decisive plan of action to address them. This will likely provide a continuing challenging trading environment. Nevertheless, we look to the future with some degree of confidence given the Group's resilient performance in similarly poor conditions experienced for some time now. Furthermore, we are increasingly aware that business development opportunities taken at the bottom of the cycle, if done so with discipline, can generate superior long-term shareholder returns when market conditions ultimately improve.

OTHER INTERIM INFORMATION

Group activities

A summary of Group activities can be found on Page 12 of the 2010 Annual Report and Accounts.

Key events and transactions

A summary of the operational highlights and their impact on the performance and financial position of the Group is given in the Chairman's Statement and Financial business review sections above.

Principal risks and uncertainties

Information on the principal risks and uncertainties are included within the 2010 Annual Report and Accounts where the Group's key risks and its risk management framework can be found in the Directors' Report on page 12 to 13 and in Note 3 respectively. The Board believes the Group's principal risks and uncertainties which could have a material impact over the remaining six months of the financial year remain consistent with those disclosed within the 2010 Annual Report and Accounts. Each of the Group's divisions considers strategic and business, market, credit and liquidity and operational, regulatory and reputational risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually.

Related parties

Related party transactions are described in Note 31 of our 2010 Annual Report and Accounts. Additional related party disclosures are given in Note 15 to the Condensed Consolidated Interim Financial Information.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Board of Directors confirm, to the best of their knowledge, that this Condensed Consolidated Interim Financial Information has been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Management Report includes a fair review of the information required by:

§ DTR 4.2.7: an indication of important events that have occurred during the first six months and their impact on the condensed set of Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

§ DTR 4.2.8: material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report and Accounts.

A list of the current Directors is maintained on the Group's website: www.evgplc.com.

The Directors are responsible for the maintenance and integrity of the Group web site, www.evgplc.com. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

By order of the Board

Alex Snow	Andrew Westenberger
Chief Executive	Finance Director

29 July 2011

INDEPENDENT REVIEW REPORT TO THE EVOLUTION GROUP PLC

Introduction

We have been engaged by the Company to review the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report for the six months ended 30 June 2011, which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement and related notes. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

Directors' responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the Annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The Condensed Consolidated Interim Financial Information included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

29 July 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

			Six months to 30 June 2011			Six months to 30 June 2010
			Unaudited			Unaudited
	Note		£m			£m
Total income			51.6			56.1
Net gain on available-for-sale financial assets			0.1			-
Operating expenses			(47.3)			(51.6)
Operating profit			4.4			4.5
Finance income Finance expense			0.2 -			0.1 (0.1)
Net finance income			0.2			-
Share of post tax results of associates			(0.3)			(1.5)
Profit before tax			4.3			3.0
Tax	7		(1.5)			(0.2)
Profit after tax			2.8			2.8
Attributable to:
Non-controlling interests			-			-
Equity holders of The Evolution Group Plc			2.8			2.8
			2.8			2.8
Earnings per share attributable to the equity holders of The Evolution Group Plc during the period:
Basic	5		1.27p			1.30p
Diluted	5		1.21p			1.24p
Dividend proposed / paid per share - Interim	6		1.00p			1.00p

All of the Group's revenue and operating profit were derived from continuing operations.

The above Condensed Consolidated Income Statement should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Six months to 30 June 2011	Six months to 30 June 2010
	Unaudited	Unaudited
	£m	£m
Profit for the period	2.8	2.8
Available-for-sale financial assets, net of tax	(0.1)	(0.1)
Deferred tax debit on share options taken to equity	-	(0.4)
Share of other comprehensive expense of associates	-	0.1
Other comprehensive expense for the period, net of tax	(0.1)	(0.4)
Total comprehensive income for the period	2.7	2.4
Attributable to:
Non-controlling interests	-	-
Equity holders of The Evolution Group Plc	2.7	2.4
	2.7	2.4

The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED BALANCE SHEET

	Note	30 June 2011 Unaudited £m	31 December 2010 Audited £m
ASSETS
Non-current assets
Goodwill		10.7	10.7
Intangible assets		4.9	5.3
Property, plant and equipment	8	5.9	6.1
Deferred tax assets		5.9	6.6
Investments in associates	9	0.2	0.6
Subordinated loan to associate		0.5	0.2
		28.1	29.5
Current assets
Trade and other receivables	10	246.7	80.9
Available-for-sale financial assets		1.7	1.7
Trading portfolio assets	11	21.9	20.6
Current tax assets		-	0.4
Cash and cash equivalents		73.7	90.1
		344.0	193.7
Total assets		372.1	223.2
LIABILITIES
Current liabilities
Trade and other payables	12	229.9	89.3
Trading portfolio liabilities	13	15.8	6.1
Current tax liabilities		0.7	-
		246.4	95.4
Non-current liabilities
Deferred tax liabilities		0.1	0.1
Provisions for other liabilities and charges		1.2	1.0
		1.3	1.1
Total liabilities		247.7	96.5
Net Assets		124.4	126.7
EQUITY
Capital and reserves attributable to equity shareholders
Share capital	14	2.3	2.3
Share premium	14	33.7	33.5
Other reserves		30.0	30.1
Retained earnings		58.3	60.7
Shareholders' equity excluding non-controlling interest		124.3	126.6
Non-controlling interests in equity		0.1	0.1
Total equity		124.4	126.7

The above Condensed Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2011	2.3	33.5	30.1	60.7	126.6	0.1	126.7
Profit for the period	-	-	-	2.8	2.8	-	2.8
Available-for-sale financial assets	-	-	(0.1)	-	(0.1)	-	(0.1)
Deferred tax (debit) on share options taken to equity	-	-	-	-	-	-	-
Share of other comprehensive income of associates	-	-	-	-	-	-	-
Total comprehensive (expense) / income for the period	-	-	(0.1)	2.8	2.7	-	2.7
Issuance of ordinary shares	-	0.2	-	-	0.2	-	0.2
Purchase of trust shares1	-	-	-	-	-	-	-
Dividends paid	-	-	-	(3.8)	(3.8)	-	(3.8)
Share options: value of employee services	-	-	-	(1.0)	(1.0)	-	(1.0)
Tax deductions on options exercised	-	-	-	(0.4)	(0.4)	-	(0.4)
Contribution received on issuance of employee share options	-	-	-	-	-	-	-
Transactions with shareholders	-	0.2	-	(5.2)	(5.0)	-	(5.0)
Balance at 30 June 2011 (unaudited)	2.3	33.7	30.0	58.3	124.3	0.1	124.4

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2010	2.3	33.2	30.0	71.7	137.2	-	137.2
Profit for the period	-	-	-	2.8	2.8	-	2.8
Available-for-sale financial assets	-	-	(0.1)	-	(0.1)	-	(0.1)
Deferred tax (debit) on share options taken to equity	-	-	-	(0.4)	(0.4)	-	(0.4)
Share of other comprehensive expense of associates	-	-	0.1	-	0.1	-	0.1
Total comprehensive income for the period	-	-	-	2.4	2.4	-	2.4
Issuance of ordinary shares	-	0.2	-	-	0.2	-	0.2
Purchase of trust shares1	-	-	-	(8.1)	(8.1)	-	(8.1)
Dividends paid	-	-	-	(3.7)	(3.7)	-	(3.7)
Share options: value of employee services	-	-	-	1.5	1.5	-	1.5
Tax deductions on options exercised	-	-	-	0.1	0.1	-	0.1
Contribution received on issuance of employee share options	-	-	-	1.6	1.6	-	1.6
Transactions with shareholders	-	0.2	-	(8.6)	(8.4)		(8.4)
Balance at 30 June 2010 (unaudited)	2.3	33.4	30.0	65.5	131.2	-	131.2

¹ The Evolution Group Plc Employees' Share Trust (the "Trust") administers The Evolution Group Plc share schemes. The debit shown in retained earnings of £nil (2010: £8.1m) relates to the value of purchases made by the Trust to satisfy these outstanding option and share awards to employees of the Group.

The above Condensed Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

	Six months to 30 June 2011	Six months to 30 June 2010
	Unaudited	Unaudited
	£m	£m
Operating profit	4.4	4.5
Adjustments for:
Non cash items	0.8	3.4
Finance income received	0.2	0.1
Finance expense paid	-	(0.1)
Movement in working capital	(16.7)	(42.0)
Tax received	0.3	-
Net cash flows from operating activities	(11.0)	(34.1)
Cash flows from investing activities:
Investment in subordinated debt of associate	(0.3)	(0.2)
Proceeds from sale of available-for-sale financial assets	0.1	0.1
Purchase of property, plant and equipment and intangible assets	(1.4)	(2.8)
Net cash flows from investing activities	(1.6)	(2.9)
Cash flows from financing activities:
Dividends paid	(3.8)	(3.7)
Purchase of trust shares	-	(8.1)
Contribution received on issuance of employee share options	-	1.6
Net cash flows from financing activities	(3.8)	(10.2)
Net decrease in cash and cash equivalents	(16.4)	(47.2)
Cash and cash equivalents at beginning of period	90.1	109.5
Exchange gain on cash and cash equivalents	-	0.2
Cash and cash equivalents at end of period	73.7	62.5

The above Condensed Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes.

NOTES TO THE INTERIM FINANCIAL INFORMATION

1.     Basis of preparation

The Evolution Group Plc is a UK listed holding company for financial services companies. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is: 9^th floor, 100 Wood Street, London, EC2V 7AN.

This condensed consolidated interim financial information for the six months ended 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority, IAS 34, 'Interim Financial Reporting' as adopted by the European Union, with the 'Accounting Policies' set out in the 2010 Annual Report and Accounts and Note 2 below. The condensed consolidated interim financial information should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2010, which have been prepared in accordance with IFRS as adopted by the European Union.

The condensed consolidated interim financial information in this Half Yearly Financial Report does not constitute the Statutory Accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Accounts for the year ended 31 December 2010 were approved by the Board of Directors on 24 March 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. This condensed consolidated interim financial information has been reviewed, not audited.

These Financial Statements are prepared on a going concern basis as the Directors have satisfied themselves that, at the time of approving the Financial Statements and having taken into consideration the strong cash holdings, absence of long term third party debt and ongoing profitability, the Group has adequate resources to continue in operational existence for at least the next 12 months.

2.     Accounting policies

The accounting policies adopted are consistent with those of the Annual Report and Accounts for the year ended 31 December 2010 except as described below.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

3.     Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2010.

4.     Segmental information

During the period the Group's Board of Directors acted as the Chief Operating Decision Maker ("CODM"). Presented in the table below are the operating segments the CODM regularly reviewed in order to allocate resources and assess the performance of the Group's operating segments. Adjusted operating profit is the measure that the Group uses for employee performance measurement purposes.

The Board monitors and reviews the operating performance of the Group by operating segments per the tables below.

Investment Banking in the current period refers to the business carried out in Evolution Securities Limited, Evolution Securities (US) Inc. and Darwin Strategic Limited. Private Clients refers to the business carried out under the Williams de Broë brand. Other activities principally refer to the central administrative, shared services and holding company functions. 

Six months ended 30 June 2011
	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	24.4	27.1	0.1	51.6
Adjusted operating profit / (loss)	1.3	5.5	(0.3)	6.5
(Charge) / credit for share options granted to employees	(0.2)	(0.2)	1.7	1.3
Amortisation of intangibles	(0.1)	(0.5)	-	(0.6)
Non-recurring operating expenses	(2.4)	(0.4)	(0.1)	(2.9)
Profit on disposal of available-for-sale financial assets	-	-	0.1	0.1
Operating (loss) / profit	(1.4)	4.4	1.4	4.4
Finance income				0.2
Finance expense				-
Share of post tax results of associates				(0.3)
Profit before tax				4.3
Tax charge				(1.5)
Profit after tax				2.8

Six months ended 30 June 2010
	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	30.7	25.4	-	56.1
Adjusted operating profit	1.8	5.1	0.1	7.0
Charge for share options granted to employees	(0.4)	(0.4)	(0.5)	(1.3)
Amortisation of intangibles	(0.1)	(0.7)	-	(0.8)
Non-recurring operating expenses	-	(0.4)	-	(0.4)
Operating profit / (loss)	1.3	3.6	(0.4)	4.5
Finance income				0.1
Finance expense				(0.1)
Share of post tax results of associates				(1.5)
Profit before tax				3.0
Tax charge				(0.2)
Profit after tax				2.8

All revenue and operating profit is derived from external customers.

Total assets

30 June 2011

	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Assets	288.2	42.5	41.2	371.9
Investment in associates	0.2	-	-	0.2
Total assets	288.4	42.5	41.2	372.1

31 December 2010

	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Assets	138.4	41.5	42.7	222.6
Investment in associates	0.6	-	-	0.6
Total assets	139.0	41.5	42.7	223.2

5.     Earnings per share

The calculation of the basic earnings per share is based on the profit for the period (excluding non-controlling interests) divided by the weighted average number of ordinary shares in issue during the period (being 232.4million) less the weighted average number of shares held by The Evolution Group Plc Employees' Share Trust (the "Trust") during the period (being 16.4million).

The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

	Half Year ended 30.06.2011				Half Year ended 30.06.2010
	Profit £m	Weighted average no.	Earnings per share (p)		Profit £m	Weighted average no.	Earnings per share (p)
Basic	2.8	216,020,499	1.27		2.8	215,979,040	1.30
Dilutive effect of share awards		12,202,651				9,055,114
Diluted	2.8	228,223,150	1.21		2.8	225,034,154	1.24

6.     Dividends

	30 June 2011	30 June 2010
	£m	£m
Final paid: 1.75p (2010: 1.70p) per share	3.8	3.7
	3.8	3.7

In addition, the Directors are proposing an interim dividend in respect of the financial year ended 31 December 2011 of 1.00p (2010: 1.00p) per share, which will reduce shareholders' equity by approximately £2.2m (2010: £2.2m). It will be paid on the 26 September 2011 to shareholders on the register of members at 12 August 2011.

7.     Tax expense

Income tax expense is recognised based on the weighted average annual corporation tax rate for the full financial year. The tax charge for the first half of 2011 was £1.5m (2010: £0.2m) representing an effective tax rate of 35% (2010: 7%).

The tax charge in 2011 is higher than the UK tax rate of 26%, primarily due to a deferred tax charge in the period of £0.3m arising from the reduction in the UK corporation tax rate.

The tax charge in 2010 is lower than the UK tax rate of 28%, primarily due to a credit of £1.3m arising from a prior year adjustment on deferred tax of intangible assets, partially offset by a £0.5m debit for disallowable expenses, and a £0.3m debit arising from negative movements in the Group's share price on deferred tax on employee options.

As noted above, the major impact of the UK tax rate change from 28% to 26% has been on the carrying value of the Group's deferred tax assets. On 5 July 2011 a further reduction in the UK tax rate to 25% (effective from 1 April 2012) was substantively enacted. This change is expected to result in a further £0.1m reduction in the Group's deferred tax assets.

8.     Property, Plant and Equipment

During the period the Group spent £1.2m (2010: £1.2) on office and computer equipment.

9.     Investment in associates

	2011 £m	2010 £m
Cost
At 1 January	0.6	13.4
Exchange difference taken to equity	(0.1)	0.1
Share of ESCL's loss for the period	(0.3)	(0.5)
Share of WDB Capital Fund's loss for the period	-	(1.0)
At 30 June	0.2	12.0
Share of ESCL's loss for the period		(0.3)
Share of WDB Capital Fund's loss for the period		(1.6)
Disposal of WDB Capital Fund		(9.5)
At 31 December		0.6

10.  Trade and other receivables

	30 June 2011 £m	31 December 2010 £m
Current
Trade receivables	14.8	11.8
Less: provision for impairment of trade receivables	(0.1)	(0.2)
Trade receivables - net	14.7	11.6
Counterparty receivables	217.9	56.1
Less: provision for impairment of counterparty receivables	-	-
Counterparty receivables - net	217.9	56.1
Other receivables	8.4	7.7
Prepayments and accrued income	5.7	5.5
	14.1	13.2
	246.7	80.9

The increase in counterparty receivables at 30 June 2011 reflects a higher level of trading activity than that experienced over the Group's year end, with counterparty receivables reduced at the year-end due to lower market wide volumes. The increase in counterparty receivables is largely offset by a corresponding increase in counterparty creditors.

11.  Trading portfolio assets

	30 June 2011 £m	31 December 2010 £m
Long positions in market making and dealing operations	21.4	20.0
Options and warrants received in lieu of corporate finance income	0.4	0.5
Other derivatives	0.1	0.1
	21.9	20.6

The long trading portfolio assets include shares listed on LSE Official List, AIM markets and other leading European exchanges.

The long positions balances have been increased by an amount of £2.2m for trading assets (31 December 2010: £5.4m) which were sold with a trade date prior to the 30 June 2011, but had a settlement period which was longer than the standard market convention and straddled the period end. Substantially, all of these trades have now settled. The other derivatives balance relates to the positive or negative market value movement of these trades between the trade date and 30 June 2011.

12.  Trade and other payables

	30 June 2011 £m	31 December 2010 £m
Trade payables	3.9	5.3
Counterparty creditors	210.6	60.9
Other taxation and social security	1.7	2.8
Other payables	1.3	0.8
Accruals and deferred income	12.4	19.5
	229.9	89.3

The increase in counterparty creditors at 30 June 2010 reflects a higher level of trading activity than that experienced over the Group's year end, with counterparty creditors reduced at the year-end due to lower market wide volumes. The increase in counterparty creditors is largely offset by a corresponding increase in counterparty receivables.

13.  Trading portfolio liabilities

	30 June 2011 £m	31 December 2010 £m
Short positions in market making and dealing operations	15.8	2.9
Other derivatives	-	3.2
	15.8	6.1

The short trading portfolio liabilities represent shares listed on LSE Official List, AIM markets and other leading European exchanges.

The short positions balances have been increased by an amount of £6.2m for trading liabilities (31 December 2010: £3.4m) which were sold with a trade date prior to the 30 June 2011, but had a settlement period which was longer than the standard market convention and straddled the period end. Substantially, all of these trades have now settled. 

14.  Share capital and share premium

During the period the Group issued 192,699 shares to match contributions made by employees under the Evolution Group Share Incentive Plan ("SIP"). At 30 June 2011, the total number of shares in issue is 232,584,306.

15.  Related party transactions

Related party transactions are described in the 2010 Annual Report and Accounts. There have been no significant changes in related party transactions during the six months ended 30 June 2011.

16.  Post balance sheet events

There have been no significant events since the balance sheet date.

 

END

 

 

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