Interim Results

Evolution Group PLC 07 September 2005 THE EVOLUTION GROUP PLC ("EVOLUTION GROUP" OR THE "GROUP") Interim results for the six months ended 30 June 2005 Evolution Group, the listed investment bank and retail fund management group, today announces its results for the six months ended 30 June 2005. Financial highlights * Group total income increased by 23% to Â£36.9 m (2004 : Â£30.1 m) * Group profit before tax increased by 40% to Â£51.6 m (2004 : Â£36.9 m) * Interim dividend proposed of 0.40 p per share (2004 : 0.17 p) up 135 % * Strong cash position within the Group with cash balances at Â£102.0 m (2004 : Â£89.6 m) Operational highlights * First half demonstrates continued growth in revenues * Investment banking division has made a strong start to 2005 with revenue growth in all areas * Christows has maintained its profits growth and funds under management have increased by Â£107 m (up 18 %) to Â£695 m since 30 June 2004 * Cash realisation of Â£52.8m on disposal of IP2IPO resulting in net profit of Â£36m Martin Gray, Evolution Group's Chairman, commented: "We have had an excellent start to the year, with good progress across all our businesses. The Board believes that this, together with an exceptional performance in July and August, the strength of our balance sheet and the ability of our staff, positions the Group very well for the future." For further information, please contact The Evolution Group Plc Tel: 020 7071 4300 Alex Snow, Chief Executive Officer Graeme Dell, Finance Director Bell Pottinger Tel: 020 7861 3232 Charles Cook Sarah Landgrebe CHAIRMAN'S STATEMENT Review of the half year ended 30 June 2005 This is my first statement to shareholders of the Evolution Group Plc ("Evolution", the "Company" or the "Group") following my appointment as Chairman in May. I am delighted to be able to report significant progress. During the first half of 2005 the Group has traded strongly, total income has increased 23% to Â£36.9m (2004: Â£30.1m) and profit before income tax has increased by Â£14.6m to Â£51.6m giving the Group a basic earnings per share figure of 20.25p (2004: 13.87p). Investment Banking Evolution Securities, the Group's investment banking business, has continued to grow both revenue and profitability in line with our plans. The conditions so far this year within UK middle market equities have been highly changeable with an aggressive sell-off seen in April and May but with a return to more stable conditions towards the end of the period. Corporate broking and primary distribution Corporate broking in the first half of 2005 has continued to make strong progress. During the period we advised on 22 fundraising transactions, raising Â£379m for our clients. This represents an increase of 58% on the same period last year and there have been a further 9 transactions completed in July and August raising Â£240m for our clients. These primary fundraisings have been successfully placed with institutional investors which demonstrates the ability of our team and its placing power in a market that has at times been difficult and which remains highly competitive. Equity research and secondary distribution Secondary commissions earned by the firm have continued to grow in the period. This, coupled with an increase in the breadth of institutional customers we service, illustrates continued progress in this area which will yield recurring future income. Equity research has continued to make good progress and, at 30 June 2005, the firm had 18 analysts undertaking focused coverage on 199 stocks across 16 sectors. Trading Market making and trading activities have both had a profitable first half overall despite extremely difficult market conditions in the second quarter. Since then, market conditions have improved and we have recently completed a comprehensive reorganisation of our market making activities based on a sectoral structure to align with our other primary and secondary activities. Private Client Stockbroking & Fund Management Christows, the Group's private client stockbroking and fund management business has continued to progress well and has traded in line with our objectives. Total income has increased in line with our growth targets and the operating profit for Christows in the first half of 2005 has exceeded that of the full year in 2004. At 30 June 2005, total funds under management were Â£695m, up from Â£588m at the same time last year, and the strategic funds under management, on which we receive recurring fees, have continued to grow and now represent 87% or Â£603m of this total (2004: 84% or Â£493m). In September 2005, Christows opened a new branch in Birmingham to add to the existing branches in London, Bournemouth, Exeter and Bath. Evolution Securities China Evolution Securities China has had a good start to the year with financial performance in line with our plans. The Board continues to believe that there is a significant opportunity for long-term value creation from this venture. IP2IPO During the period, the Group announced the disposal of the remaining stake in IP2IPO Group Plc for gross proceeds of Â£52.8m in cash, realising a profit for the Group, after taking into account related expenses of sale, of Â£35.9m. This transaction, coupled with the previous two partial disposals has created significant value for Evolution's shareholders. Other items As we have reported previously, we have continued to exit from our legacy investment portfolio. The Group has realised Â£3.1m in profits from the sale of certain of these investments in the six months to 30 June 2005. Board changes At the Company's Annual General Meeting in May, I was appointed Chairman and, since joining, I have spent a significant amount of time working with the Executive directors and meeting many of the Group's employees. I have found a very strong and committed culture amongst a very talented team and I am confident that this bodes well for the future success of the Group. I took over the role from Richard Griffiths and would like to thank him for the significant contribution he made to the Group during his time as Chairman. Richard has now taken on a new role of President where he is concentrating on key clients and business development. I look forward to working with Richard in his new capacity. The Group has announced the appointment of Yew Meng Fong as Company Secretary with effect from 1 August 2005. His appointment will strengthen substantially the working of the Board, Board Committees and the overall governance processes. He takes over from Nigel Gordon who has been Company Secretary since the company was founded in 1997. I should like to thank Nigel on behalf of Board members past and present for his contribution. Dividend The Board declares an interim dividend of 0.4p per share (2004: 0.17p). This reflects the Board's continued commitment to a progressive dividend policy as set out in the 2004 Annual Report. This is payable on 3 November 2005 to shareholders on the register at 7 October 2005. Share buyback At the time of the preliminary results announcement in March 2005 we stated the intention to proceed with a significant on-market share buyback programme. This commenced immediately thereafter with the purchase and cancellation of shares in line with the permissions granted previously. At the AGM in May, shareholders voted overwhelmingly in favour of a resolution to grant permissions to facilitate the purchase of further shares up to 14.9% of the share capital at that time. In total this year the Group has purchased 31.9 million shares (including 4.5 million shares purchased directly by the Group's Employee Benefit Trust ("the Trust")) for total consideration of Â£48.5 million (including Â£6.0 million for those purchased directly by the Trust). The 27.4 million shares purchased as treasury shares by the Group have been cancelled. The shares purchased by the Trust are held to satisfy share awards made to staff in the Group. The shares bought back and cancelled represent over 11% of those in issue at 31 December 2004. We believe that these purchases have represented an optimum combination of capital return and the provision of enhanced EPS for the remaining shareholders. Balance sheet and cash The Group has maintained a policy of balance sheet strength. Even after the completion of the significant share purchases outlined above the Group retains a cash balance of over Â£100 million at 30 June 2005. Employees The performance of all of our businesses is due principally to the efforts and skills of our staff. I should like to take the opportunity to thank all of them for their commitment in helping us achieve a very successful first half to the year. IFRS The Group has moved to reporting its consolidated results under IFRS in line with requirements for all UK listed companies. Full details of the impact of IFRS are given in the accompanying statements which will enable shareholders to gain a broader understanding of the changes. Outlook We have had an excellent start to the year, with good progress across all our businesses. The Board believes that this, together with an exceptional performance in July and August, the strength of our balance sheet and the ability of our staff, positions the Group very well for the future. Martin Gray Chairman 6 September 2005 FINANCIAL INFORMATION Introduction The Evolution Group Plc is a FTSE 250 UK listed holding company for UK based financial services companies. The Company is a public limited company incorporated in the United Kingdom. The address of its registered office is: 100 Wood Street, London, EC2V 7AN. Following the adoption of IAS Regulation EC 1606/2002 on 19 July 2002 by the European Parliament, the Group, along with all other European listed entities, is required to prepare consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union ("EU") for the year beginning 1 January 2005. The Group will apply IFRS for the year ended 31 December 2005, and will prepare one year of comparative figures under IFRS as endorsed by the EU. Accordingly, the Group's date of transition to IFRS is 1 January 2004 and its first reporting period under IFRS is for the six months ended 30 June 2005. This financial information has been prepared for the Group only and consists of the Group's Consolidated Balance Sheet as at 30 June 2005, Consolidated Income Statement, Consolidated Cash Flow Statement and a Consolidated Statement of Recognised Income and Expense each for the six month period to 30 June 2005. This information does not represent a complete set of consolidated statutory accounts prepared under IFRS since it does not fully comply with the requirements of IAS 34, 'Interim Financial Reports', and contains only those items required under the Listing Rules of the Financial Services Authority (revised June 2005), in accordance with which companies listed on the London Stock Exchange are required to prepare their half-yearly reports. The financial information in this Interim Report does not constitute the Group's statutory accounts within the meaning of Section 240 of the Companies Act 1985. These financial statements have been prepared in accordance with the 'Basis of Preparation' Note and the 'Principal Accounting Policies'. The adoption of IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement' has taken effect from 1 January 2005 and 2004 comparative figures have not been restated to reflect these standards. In accordance with S226(2) of the Companies Act 1985, as revised by the Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004, the Board has elected to continue to comply with UK Accounting Standards issued by the UK Accounting Standards Board and the pronouncements of its Urgent Issues Task Force, relevant Statements of Recommended Practice and the Companies Act, 1985 (collectively, "UKGAAP") in accordance with Section 226A for the Company's individual accounts. Hence, all UK subsidiaries within the Group will continue to apply UKGAAP in their individual accounts up to 31 December 2005 as per Section 227C. At the same time as the publication of the Interim Report, the Company will file standalone interim financial statements ("Relevant accounts") under S272 of the Companies Act 1985 in accordance with UKGAAP. The relevant accounts for the Company will form the basis of any potential future distribution. Adjusted operating profit The operating profit per the statutory consolidated income statement for the overall Group is as shown below. In line with our previous reports, the Board believes a truer reflection of the management of the performance of the Group's on-going operating businesses is better reflected by the measure "Adjusted operating profit". This is calculated so as to exclude items from operating profit that are one-off or non-recurring, are not part of the on-going business profitability or, in the case of the cost of share options granted to employees and the share of results of associates, represent non-cash items. Unaudited Unaudited Unaudited 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Operating profit 49,000 35,796 44,513 Items not included within adjusted operating profit Profit on disposal of available-for-sale investments (39,436) Impairment charge on available-for-sale investments 500 Profit on sale of fixed asset investments (451) (1,225) Provision against fixed asset investments - (525) Profit on sale of current asset investments (4,681) (4,813) Profit on part sale of subsidiary (2) (43) (66) Profit on part sale of associate - (22,292) (22,286) ------- ------- ------- Adjustment for provisions and profits on investments (38,938) (27,467) (28,915) Share of results of associated undertaking - (436) (436) Cost of share options granted to employees 3,876 2,159 4,928 ------- ------- ------- Non-cash items 3,876 1,723 4,492 ------- ------- ------- ------- ------- ------- Adjusted Group operating profit 13,938 10,052 20,090 ======= ======= ======= ======= ======= ======= Adjusted earnings 5.92p 4.07p 8.14p per share Adjusted diluted earnings per share 5.29p 3.76p 7.47p Impact of IFRS The conversion of the Group's accounts to IFRS has not and will not materially impact 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. Reconciliations between IFRS and UK GAAP To assist with the understanding of the impact of transition from UKGAAP to IFRS, the Group has presented the reconciliations in Appendix I (i) to (vii) as detailed below. Appendix I The following reconciliations provide a quantification of the effect of the transition to IFRS: (i) - reconciliations of equity at 1 January 2004, 30 June 2004 and 31 December 2004 (ii) - reconciliation of equity at 1 January 2004 (iii)- reconciliation of equity at 30 June 2004 (iv) - reconciliation of equity at 31 December 2004 (v) - reconciliation of profit for the six months ended 30 June 2004 (vi) - reconciliation of profit for the year ended 31 December 2004 (vii)- reconciliation of equity at 1 January 2005 Independent review report of PricewaterhouseCoopers LLP to The Evolution Group Plc (the "Company") Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2005 which comprises the consolidated balance sheet as at 30 June 2005 and the related consolidated income statement, consolidated cash flows and consolidated statement of recognised income and expense for the six months then ended, related notes and IFRS1 First Time Adoption reconciliations. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Report in accordance with the Listing Rules of the Financial Services Authority. As disclosed in Note 1, the next annual financial statements of the Group will be prepared in accordance with accounting standards adopted for use in the European Union. This Interim Report has been prepared in accordance with the basis set out in Notes 1, 3 and 4. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in Note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual financial statements for the first time in accordance with accounting standards adopted for use in the European Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 31 December 2005 are not known with certainty at the time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Listing 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. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2005. PricewaterhouseCoopers LLP Chartered Accountants London 6 September 2005 CONSOLIDATED INCOME STATEMENT (UNAUDITED) Six Twelve Months to Six months months to 31 30 June to 30 June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Fee and commission income 33,705 23,132 52,289 Fee and commission expenses (720) (555) (1,019) --------- --------- --------- Net fee and commission income 32,985 22,577 51,270 Net trading income 3,794 7,523 11,618 Other income 114 45 236 --------- --------- --------- Total income 36,893 30,145 63,124 Profit on disposal of available-for-sale investments 39,436 Profit on sale of fixed asset investments 452 1,225 Release of provision against fixed asset investments - 525 Profit on sale of current asset investments 4,681 4,813 Profit on part sale of subsidiary 2 43 66 Profit on sale of associate - 22,292 22,286 Share of results of associate - 436 436 Operating expenses (27,331) (22,253) (47,962) --------- --------- --------- Operating profit 49,000 35,796 44,513 Interest receivable and similar income 2,559 1,148 3,329 Interest payable and similar charges (4) (13) (7) --------- --------- --------- Profit before income tax 51,555 36,931 47,835 Income tax expense (3,875) (2,656) (3,831) --------- --------- --------- Profit for the period 47,680 34,275 44,004 --------- --------- --------- Profit attributable to equity holders of The Evolution Group Plc 47,680 34,275 44,004 --------- --------- --------- Basic earnings per ordinary share 20.25 13.87 17.83 Diluted earnings per share 18.09 12.83 16.37 Proposed dividend per share - Interim 0.4p 0.17p 0.17p - Final - - 0.58p Dividend declared (Â£'000) - Interim 859 421 421 - Final - - 1,307 The notes form an integral part of these consolidated interim financial statements. CONSOLIDATED BALANCE SHEET (UNAUDITED) 30 June 1 January 31 December 30 June 2005 2005 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Goodwill 8,990 8,990 8,990 8,990 Other intangible assets 224 242 242 108 Property, plant and equipment 2,934 1,330 1,330 1,267 Investments 583 12,649 Deferred income tax assets 6,720 5,820 5,820 5,152 --------- --------- --------- --------- Total non-current assets 18,868 16,382 16,965 28,166 Current assets Trade and other receivables 70,031 36,621 Debtors 37,442 37,535 Available-for-sale investments 2,082 54,338 Trading portfolio assets 35,677 10,043 Long trading positions 9,679 17,420 Investments 12,148 136 Cash and cash equivalents 103,044 115,170 115,170 89,576 --------- --------- --------- --------- Total current assets 210,834 216,172 174,439 144,667 --------- --------- --------- --------- Total assets 229,702 232,554 191,404 172,833 --------- --------- --------- --------- LIABILITIES Current liabilities Trade and other payables 76,291 44,192 Creditors: amounts falling due within one year 47,923 36,576 Trading portfolio liabilities 5,720 2,867 Current income tax liabilities 4,611 2,382 2,382 3,241 --------- --------- --------- --------- Total current liabilities 86,622 49,441 50,305 39,817 --------- --------- --------- --------- Non-current liabilities Provisions for liabilities 130 78 78 529 --------- --------- --------- --------- Total liabilities 86,752 49,519 50,383 40,346 --------- --------- --------- --------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,221 2,495 2,495 2,485 Share premium 26,298 26,223 26,223 26,002 Capital redemption reserve 275 - - - Merger reserve 51,230 51,230 51,230 51,230 Fair value and other reserves (38) 41,929 - - Retained earnings 63,048 61,223 61,138 52,854 --------- --------- --------- --------- Parent company's shareholders' equity excluding minority interest 143,034 183,100 141,086 132,571 Minority interest in equity (84) (65) (65) (84) --------- --------- --------- --------- Total equity 142,950 183,035 141,021 132,487 --------- --------- --------- --------- Total equity and liabilities 229,702 232,554 191,404 172,833 --------- --------- --------- --------- The notes form an integral part of these consolidated interim financial statements. CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) Six months Six months to 30 June to 30 June 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Cash flow from operating activities Cash used in operations (12,088) (8,978) Interest received 2,559 1,148 Interest paid (4) (13) Income tax paid (2,420) (870) ------- ------- Net cash outflow from operating activities (11,953) (8,713) Cash flows from investing activities Proceeds from part sale of subsidiary 10 - Proceeds from sale of associate - 39,690 Purchase of property plant and equipment (2,119) (180) Purchase of intangible assets (50) (73) Purchase of available-for-sale investments (518) Proceeds from sale of available-for-sale investments 51,294 Proceeds from sale of investments - 5,444 Dividends received 15 20 ------- ------- Net cash generated from investing activities 48,632 44,901 Cash flows from financing activities Issues of ordinary share capital 10 270 Issue of ordinary share capital to minorities - 75 Dividends paid to the Company's shareholders (1,307) (618) Purchase of shares held by the Trust (5,969) - Purchase of treasury shares (42,514) - ------- ------- Net cash used in financing activities (49,780) (273) ----------- ----------- Net (decrease) / increase in cash and bank overdrafts (13,101) 35,915 Cash and bank overdrafts at beginning of period 115,170 53,705 Exchange (losses) / gains on cash and bank overdrafts 12 (44) ----------- ----------- Cash and bank overdrafts at end of period 102,081 89,576 ----------- ----------- The notes form an integral part of these consolidated interim financial statements. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) Six Twelve months to Six months months to 31 30 June to 30 June December 2005 2004 2004 Â£'000 Â£'000 Â£'000 Profit for the financial period 47,680 34,275 44,057 Available-for-sale investments: Net gain from changes in fair value 41,339 Amount transferred to income statement on disposal (41,377) --------- --------- --------- Net losses not recognised in income statement (38) - - --------- --------- --------- Total recognised income and expense for the period 47,642 34,275 44,057 --------- --------- --------- The notes form an integral part of these consolidated interim financial statements. NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION First Time Adoption of International Financial Reporting Standards (IFRS) The Group has adopted the requirements of International Financial Reporting Standards and International Accounting Standards as endorsed by the EU (collectively, "IFRSs") for the first time for the purpose of preparing consolidated financial statements for the year ending 31 December 2005. IFRSs comprise accounting standards issued by the International Accounting Standards Board ("IASB") and its predecessor body as well as the interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") and its predecessor body. IFRSs in existence as at the date of these interim consolidated financial statements may differ from endorsed IFRSs actually in effect at 31 December 2005 as a result of decisions taken by the EU on endorsement, interpretive guidance issued by the IASB and IFRIC, and the requirements of the Companies Act 1985. These factors may affect the Group's Annual Report for the year ended 31 December 2005 and the information contained in this document. The financial information in this document has been prepared on the basis of the Group's expectation of the IFRSs that will be applicable as at 31 December 2005. In accordance with the transitional provisions set out in IFRS 1, 'First-time Adoption of International Financial Reporting Standards' and other relevant standards, the Group has applied IFRSs expected to be in force as at 31 December 2005 in its financial reporting with effect from 1 January 2004, with the exception of the standards relating to financial instruments, IAS 32, 'Financial Instruments: Disclosure and presentation' and IAS 39, 'Financial Instruments: Recognition and measurement', which were applied with effect from 1 January 2005. The Principal Accounting Policies set out below have been consistently applied to the period presented. The financial information has been prepared for the Group only and consists of the Group's Consolidated Balance Sheet as at 30 June 2005, Consolidated Income Statement, Consolidated Cash Flow Statement and the Consolidated Statement of Recognised Income and Expense each for the six month period to 30 June 2005. This information does not represent a full set of consolidated statutory accounts prepared fully under IFRS since it does not fully comply with the requirements of IAS 34, 'Interim Financial Reports' and contains only those items required under the Listing Rules of the Financial Services Authority (revised June 2005), in accordance with which companies listed on the London Stock Exchange are required to prepare their half-yearly reports. The financial information in this Interim Report does not constitute the Group's statutory accounts within the meaning of Section 240 of the Companies Act 1985. 2. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (excluding Minority Interest) Fair value Capital and Share Share redemption Merger other Retained Total Capital premium reserve reserve reserves earnings equity Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 2005 (including effect of adoption of IAS32 and 39) 2,495 26,223 - 51,230 41,929 61,223 183,100 Profit for the period - - - - - 47,680 47,680 Held for trading valuation losses taken to retained earnings - - - - - (90) (90) Issue of ordinary share capital 1 75 - - - - 76 Purchase of Trust shares by the Trust - (5,969) (5,969) Purchase of treasury shares - - - - - (42,239) (42,239) Cancellation of treasury shares (275) - 275 - - - - Share option: value of services provided - - - - - 3,876 3,876 Revaluation of available-for- sale investments - - - - (590) - (590) Available-for-sale investments transferred to income statement on sale - - - - (41,377) - (41,377) Deferred tax credit on employee options - - - - - (126) (126) Dividends paid - - - - - (1,307) (1,307) ------- -------- --------- ------- -------- -------- -------- Balance at 30 June 2005 2,221 26,298 275 51,230 (38) 63,048 143,034 ------- -------- --------- ------- -------- -------- -------- 3. TRANSITION TO IFRS The Group has used the provisions of IFRS 1 in arriving at opening balances for the purposes of these financial statements as detailed below. (i) Application of IFRS 1 The Group's Annual Report for the year ended 31 December 2005 will be the first annual consolidated financial statements that comply with IFRS as endorsed for use in the EU. These interim consolidated financial statements have been prepared as described in the Financial Information section and in Note 1. The Group has applied IFRS 1 in preparing these interim consolidated financial statements. The Evolution Group Plc's transition date is 1 January 2004. The Group prepared its opening IFRS balance sheet at that date. The reporting date of these interim consolidated financial statements is 30 June 2005. In preparing these interim consolidated financial statements in accordance with IFRS 1, the Group has applied the mandatory exceptions and elected to apply the following optional exemptions from full retrospective application of IFRS: (ii) Exemptions from full retrospective application elected by the Group The Group has elected to apply the following optional exemptions from full retrospective application. (a) Business combinations exemption The Group has elected not to restate business combinations that took place prior to the 1 January 2004 transition date. (b) Exemption from restatement of comparatives for IAS 32 and IAS 39. The Group elected to apply this exemption and has applied previous UKGAAP rules to derivatives, financial assets and financial liabilities for the 2004 comparative information. The adjustments required for differences between UKGAAP and IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement' are determined and recognised at 1 January 2005. (c) Share-based payment transaction exemption The Group has elected to apply the share-based payment exemption and applied IFRS 2 from 1 January 2004 to equity options that were issued after 7 November 2002 but that had not vested by 1 January 2005. 4. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies of the Group have been applied from 1 January 2004 and used in the preparation of the interim consolidated financial statements. Basis of consolidation The Group's interim consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings. As permitted by IFRS 1, the Group has chosen not to restate, under IFRS, business combinations that took place prior to 1 January 2004, the date of transition to IFRS. Income recognition The Group follows the principles of IAS 18, 'Revenue Recognition', in determining appropriate revenue recognition policies. In principle, therefore, revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group. a) Fee and commission income Fee and commission income includes those amounts receivable from corporate finance transactions by way of fees, commission and retainer income, and fees from asset management activities. In addition, execution and clearing commission from brokerage activities is recognised on the difference between the consideration received on the sale of a security and the purchase of a security. Interest income on segregated client money accounts is included within this category. Fees and commissions are recognised in the income statement when the related services are completed. Commission paid to employees is treated as wages and salaries. Initial commissions charged to clients and paid or payable to intermediaries are capitalised in the balance sheet as assets and liabilities respectively when paid or due. These amounts are amortised over the average holding period of five years, the relevant period in which the relationship between the commission earned (and paid away) and the funds under management to which such commissions relate is believed to exist. b) Net trading income Trading income from market making and principal trading activities comprises all gains and losses from changes in the fair value of financial assets and liabilities held for trading, together with any related dividend income on positions held. c) Other income Other income includes foreign exchange gains and losses resulting from the retranslation and settlement of foreign currency transactions and any other dividend income on available-for-sale investments. Investments in subsidiary undertakings Interests in subsidiary undertakings are presented in accordance with IAS 27, 'Consolidated and Separate Financial Statements'. An undertaking is regarded as a subsidiary undertaking if the Group has the power to exercise control over its operating and financial policies. This generally accompanies a shareholding of greater than 50% of the voting power. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the identifiable assets given, equity instruments issued and liabilities or contingent liabilities incurred or assumed at the date of exchange, together with any costs directly related to the acquisition. The excess of the cost of an acquisition over the Group's share of the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities of the subsidiary acquired, the difference is recognised immediately in the income statement. All intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the consolidation. Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary's equity. The excess, and any further losses applicable to the minority, are allocated to the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority has been recovered. Investment in associated undertaking Interests in associated undertakings are accounted for by the equity method of accounting in accordance with IAS 28, 'Investments in Associates'. An associate is an entity in which the Group exercises significant influence, but not control or where the Group holding is in excess of 20%, but no more than 50%, of the voting rights. The Group's investment in associates is initially recorded at fair value and increased (or decreased) each year by the Group's share of the post acquisition net income (or loss), or other movements reflected directly in the equity of the associated or jointly controlled entity. Goodwill arising on the acquisition of an associate or joint venture is included in the cost of the investment (net of any accumulated impairment loss). When the Group's share of losses in an associate equals or exceeds the recorded interest, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the entity. The Group's share of the results of associates after tax is based on financial statements made up to a date not earlier than three months before the balance sheet date, adjusted to conform with the accounting polices of the Group. Unrealised gains on transactions are eliminated to the extent of the Group's interest in the investee. Unrealised losses are also eliminated unless the transaction provides evidence of impairment in the asset transferred. Intangible assets a) Goodwill Goodwill arises on business combinations, including the acquisition of subsidiaries, associated entities and joint ventures, and represents the excess of the fair value of the purchase consideration and direct costs of making the acquisition, over the fair value of the Group's share of the identifiable assets acquired and the liabilities and contingent liabilities assumed on the date of the acquisition. In accordance with IAS 38, 'Intangible assets', goodwill is capitalised as an intangible asset and reviewed annually for impairment. For the purpose of calculating goodwill, fair values of acquired identifiable assets, liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash flows to present value. This discounting is either performed using market rates or by using risk-free rates and risk adjusted expected future cash flows. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill on the acquisitions of associates and joint ventures is included in the amount of the investments. Goodwill is stated at cost less accumulated impairment losses which are charged to the income statement. Gains and losses on the disposal of an entity include the carrying amount of the goodwill relating to the entity sold. Any excess of the Group's interest in fair value of the identifiable net assets, liabilities and contingent liabilities of an acquired business over the cost to acquire it is recognised immediately in the income statement. b) National Association of Securities Dealers ("NASD") Licence Costs associated with the acquisition of the US Broker Dealer, Evolution Securities US Inc., are deemed to relate to the NASD licence only. The licence is deemed to have an indefinite life and consequently is not being amortised. The carrying value of the licence is reviewed annually for impairment. c) Computer software Acquired computer software licences are stated at cost, including those costs incurred to acquire and bring to use the specific software, less amortisation and provisions for impairment, if any. Costs are amortised on a straight-line basis over the estimated useful life of the software, which is between 3 to 5 years. Costs associated with maintaining or developing the software are recognised as an expense when incurred. Costs associated with the production of internally generated software controlled by the Group, which will probably provide future economic benefits in excess of cost beyond one year, are recognised as intangible assets and amortised over an estimated useful life of 3 - 5 years. Such costs include software development and associated employee costs. Property, plant and equipment All property, plant and equipment (PPE) are shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation on PPE is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: Leasehold improvements Over 5 years Computers and similar equipment Over 3 to 5 years Fixtures and fittings and other equipment Over 3 to 5 years Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is sooner. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its estimated recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount Gains and losses on disposals are determined by comparing proceeds with the carrying amounts. These are included in the income statement. Impairment of PPE, goodwill and intangible assets Goodwill and assets that have an indefinite useful life are not subject to amortisation or depreciation and, together with PPE and other intangible assets, are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. The impairment review comprises a comparison of the carrying amount of the asset with its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. An impairment loss is recognised in the income statement in the period in which it occurs for the amount by which the asset's carrying amount exceeds its recoverable amount. A previously recognised impairment loss relating to a PPE may be reversed in part or in full when a change in circumstances leads to a change in the estimates used to determine the fixed assets recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount it would have been, had the original impairment not been recognised. Impairment losses on goodwill and other intangible assets are not reversed. Financial assets and liabilities From 1 January 2004 to 31 December 2004 Financial assets were previously classified in this period as investments which included investments in equity securities other than subsidiaries and associates, financial receivables held for investment purposes, treasury shares and other securities. Financial fixed assets are recorded at cost, including any additional directly attributable charges, less any adjustment for impairment. Current assets also include investments and securities acquired as a temporary investment, which are valued at the lower of cost and net realisable value. From 1 January 2005 The Group classifies its financial assets as held for trading or available-for-sale investments. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. Trading portfolio assets and liabilities This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current if they are either held for trading or are expected to be realised within twelve months of the balance sheet date. Purchases and sales of investments are recognised on trade date, being the date on which the Group commits to purchase or sell the asset. Available-for-sale financial assets Available-for-sale financial assets that are either designated in this category or not classified in any of the other categories. They are initially recognised at fair value including direct and incremental transaction costs. They are subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate component of equity until sale or when impaired, when the cumulative gain or loss is transferred to the income statement. Measurement For trading portfolio assets and liabilities and available-for-sale investments that are quoted in active markets, fair values are determined by reference to the current quoted bid/offer price, with trading portfolio assets marked to the bid price and trading portfolio liabilities marked at the offer price. Where independent prices are not available, fair values may be determined using valuation techniques with reference to observable market data. These may include comparison to similar instruments where market observable prices exist, discounted cash flow analysis, option pricing models such as Black-Scholes and other valuation techniques commonly used by market participants. The Group makes an assessment at each balance sheet date as to whether there is any objective evidence of impairment, being any circumstance where an adverse impact on estimated future cash flows of the financial asset or group of assets can be reliably estimated. In the case of equity investments classified as available-for-sale, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement) is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on available-for-sale equity investments are not reversed through the income statement. Derivative financial instruments The Group utilises forward exchange contracts to manage the exchange risk on actual transactions related to amounts receivable, denominated in a currency other than the functional currency of the business. The Group's forward exchange contracts do not subject the Group to risk from exchange rate movements because the gains and losses on such contracts offset losses and gains, respectively, on the underlying foreign currency transactions to which they relate. The forward contracts and related amounts receivable are recorded at fair value at each period end. Fair value is estimated using the settlement rates prevailing at the period end. All gains and losses resulting from the settlement of the contracts are recorded within other income in the income statement. The Group does not enter into forward exchange contracts for the purpose of hedging anticipated transactions. The regular way purchase or sale of held for trading financial assets is recognised using trade date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frames established generally by regulation or convention in the marketplace concerned. Purchases or sales that do not fall within the regular way classification (generally beyond 3 days settlement) are treated as derivatives in the period between the trade date and the settlement date, i.e. as a forward purchase or sale of security. The contract value (i.e. the trade date receivable or payable) of such transactions is not recorded on the balance sheet, but the change in fair value is recognised on the balance sheet and income statement in the intervening period between the trade date and settlement date. Stock borrowing The Group enters stock borrowing arrangements with certain institutions which are entered into on a collateralised basis with securities or cash advanced or received as collateral. The transfer of securities to institutions is not reflected on the balance sheet. Where cash collateral is advanced or received, an asset or liability should be recorded at the amount of cash collateral advanced or received. Securities borrowed are not recognised on the balance sheet, unless they are sold to third parties, in which case the obligation to return the securities is recorded as a trading liability and measured at fair value and any gains or losses are included in the income statement. Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. Trade and other payables Trade and other payables are recognised initially at fair value, which is the agreed market price at the time goods or services are provided. The Group accrues for all goods and services consumed but as yet unbilled at amounts representing management's best estimate of fair value. Non-credit risk provisions Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation and it can be reliably estimated. Provisions believed to relate to periods greater than twelve months are discounted to the net present value using an effective discount rate that reliably calculates the present value of the future obligation. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised in the financial statements, however, they are merely disclosed unless remote. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements of the Group are presented in sterling, which is the Group's functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of their fair value gain or loss. Translation differences on non-monetary items, measured at fair value in a foreign currency, such as equities classified as available-for-sale financial assets, are translated into the functional currency using the rate of exchange at the date the fair value was determined. Translation differences are included in the fair value reserve in equity from 1 January 2005. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are normally those with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Share capital a) Share issue costs Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. b) Treasury shares Where the Group purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders. c) Trust shares The Group's Employee Benefit Trust ("the Trust") uses funds provided by the Company to meet the Group's obligations under the employee share option schemes in place. All shares acquired by the Trust are purchased on the open market, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders. d) Dividend distribution Dividend distribution to the Group's shareholders is recognised in equity in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders. Employee share ownership plans The Trust is a separately administered trust which is funded by loans from the Company, and the assets of which comprise shares in the Company. The Group recognises the assets and liabilities of the Trust in its own accounts and shares held by the Trust are recorded at cost as a deduction in arriving at shareholders' funds until such time as the shares vest unconditionally to employees. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held in the Evolution Group Plc Employees' Share Trust which are treated as cancelled. For diluted earnings per share, the weighted number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Income taxes Income taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Valuation allowances are established against deferred tax assets where it is more likely than not that some portion or all of the asset will not be realised. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill, negative goodwill or from the acquisition of an asset, which does not affect either taxable or accounting income. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under UK tax rules. As explained under "Share-based plans" below, a compensation expense is recorded in the Group's income statement over the period from the grant date to the vesting date of the relevant options. As there is a temporary difference between the accounting and tax bases, a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the balance sheet date) with the cumulative amount of the compensation expense recorded in the income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense, at the statutory tax rate, the excess is recorded directly in equity, against retained earnings. As explained under "Share-based plans" below, no compensation charge is recorded in respect of options granted before 7 November 2002 or in respect of those options which have been exercised or have lapsed before 1 January 2005. Nevertheless, tax deductions have arisen and will continue to arise on these options. The tax effects arising in relation to these options are recorded directly in equity, against retained earnings. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Segmental reporting A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns that are different from those of components operating in other economic environments. Employee benefits (a) Pension obligations The Group does not operate any pension schemes. (b) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve months after balance sheet date are discounted to present value. (c) Share-based plans The Group's management awards high-performing employees bonuses in the form of equity-settled share based payments, from time to time, on a discretionary basis. In accordance with IFRS 2, 'Share-based payments', equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes pricing model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. The options are subject to three-year service vesting condition, and their fair value is recognised as an employee benefits expense with a corresponding increase in other reserve equity over the vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Operating leases Rentals applicable to operating leases where substantially all the benefits and risk of ownership remain with the lessor are charged to the profit and loss account on a straight line basis over the lease term. Lease incentives are credited to the income statement and spread over the life of the lease. Provisions for dilapidation on leasehold premises are recognised as a liability in all years from inception to the end of the lease and discounted to fair value at an effective interest rate. Interim measurement note (a) Current income tax Current income tax expense is recognised in these interim consolidated financial statements based on management's best estimates of the annual income tax liability expected for the full financial year. (b) Costs Costs that incur unevenly during the financial year are anticipated or deferred in the Interim Report only if it would also be appropriate to anticipate or defer such costs at the end of the financial year. APPENDIX I RECONCILIATIONS OF EQUITY, NET ASSETS AND PROFIT UNDER UK GAAP TO IFRS (UNAUDITED) The Evolution Group Plc reported under UKGAAP in its previously published financial statements for the year ended 31 December 2004. The analyses below show reconciliations of equity, net assets and profit as reported under UKGAAP as at 31 December 2004 to the revised equity, net assets and profit under IFRS as reported in this Interim Report. In addition, there is a reconciliation of net assets under UKGAAP to IFRS at the transition date for the Group, being 1 January 2004. (i) Summary of equity (Unaudited) 31 1 January 30 June Decmeber 2004 2004 2004 Note Â£'000 Â£'000 Â£'000 Total equity and minority interest under UKGAAP 91,441 126,778 136,469 Reversal of proposed ordinary dividends payable a 616 421 1,428 Deferred tax adjustments b 2,428 5,098 2,649 Cumulative impact of other non material items c (54) 190 475 -------- -------- --------- Total equity under IFRS 94,431 132,487 141,021 -------- -------- --------- Notes to summary of equity a) Reversal of proposed ordinary dividends payable In prior periods, under UKGAAP market practice was for companies to provide for their final dividend in their closing balance sheet and in advance of the dividend being declared and approved by the Annual General Meeting, since it represents an appropriation of profits and therefore an appropriate liability should be recorded. Under IAS 10, 'Events after the balance sheet date', dividends to holders of equity instruments declared after the balance sheet date are not to be recognised as liabilities but should be recognised in the period in which they are paid or ratified by the AGM. As a result, the amounts below were removed from other liabilities, with a corresponding credit to the income statement: 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Reversal of dividend accrued 616 421 1,428 -------- ------- --------- Total impact - decrease in current liabilities 616 421 1,428 -------- ------- --------- b) Deferred tax adjustment Under IAS 12, 'Income Taxes', deferred income tax is provided in full on temporary timing differences arising from the tax bases of assets and liabilities and their carrying amounts in the interim consolidated financial statements. Following the adoption of IFRS2, 'Share Based Payments', the amounts below have been recognised as deferred tax assets in the balance sheet, with a corresponding credit to the income statement: 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Increase in deferred tax under IFRS 2,428 5,098 2,649 -------- ------- ---------- Total impact - increase in non-current assets 2,428 5,098 2,649 -------- ------- ---------- c) Cumulative impact of non-material items 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Reversal of amortisation - 242 485 Increase in profit on disposal of fixed asset investments - 9 - Increase in profit on disposal of current asset investments - - 9 Discounting of dilapidation provision - - 36 Net adjustment on commission income and expense (54) (61) (55) -------- ------ ---------- Total impact - increase in retained earnings (54) 190 475 -------- ------ ---------- ii) Reconciliation of equity at 1 January 2004 (Date of transition to IFRS) (Unaudited) Effect of transition Note to IFRS UK Re- Re- GAAP measurement classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 ASSETS Non-Current assets Goodwill a - - 8,990 8,990 Other intangible assets a,b 8,990 - (8,894) 96 Investments in associates 25,525 - - 25,525 Tangible fixed assets a,b 1,509 (1,509) - Property, plant and equipment a,b - - 1,413 1,413 Investments 851 - - 851 Deferred income tax assets c - 2,428 54 2,482 ---------- ---------- ---------- ---------- Total non-current assets 36,875 2,428 54 39,357 Current assets Debtors c,g 28,171 780 (54) 28,897 Long trading positions 7,207 - - 7,207 Investments 444 - - 444 Cash and cash 53,705 - - 53,705 equivalents ---------- ---------- ---------- ---------- Total current assets 89,527 780 (54) 90,253 ---------- ---------- ---------- ---------- Total assets 126,402 3,208 - 129,610 ---------- ---------- ---------- ---------- LIABILITIES Current liabilities Creditors: amounts falling due within one year d,e,g 34,734 218 (838) 34,114 Current income tax liabilities e - - 838 838 ---------- ---------- ---------- ---------- Total current liabilities 34,734 218 - 34,952 Non-current liabilities Provisions for liabilities 227 - - 227 ---------- ---------- ---------- ---------- Total non-current liabilities 227 - - 227 ---------- ---------- ---------- ---------- Total liabilities 34,961 218 - 35,179 ---------- ---------- ---------- ---------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,478 - - 2,478 Share premium 25,739 - - 25,739 Merger reserve 57,261 - - 57,261 Retained earnings c,d,g 5,996 2,990 - 8,986 ---------- ---------- ---------- ---------- Parent company's shareholders' equity excluding minority interest 91,474 2,990 - 94,464 Minority interest in equity (33) - - (33) ---------- ---------- ---------- ---------- Total equity 91,441 2,990 - 94,431 ---------- ---------- ---------- ---------- Total equity and liabilities 126,402 3,208 - 129,610 ---------- ---------- ---------- ---------- iii) Reconciliation of equity at 30 June 2004 (Unaudited) Effect of transition Note to IFRS UK Re- Re- GAAP measurement classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 ASSETS Non-Current assets Goodwill a,f - 242 8,748 8,990 Other intangible assets a 8,748 - (8,640) 108 Tangible fixed assets a,b 1,375 (1,375) - Property, plant and equipment b - - 1,267 1,267 Investments f 12,640 9 - 12,649 Deferred income tax assets c - 5,098 54 5,152 ---------- ---------- ---------- ---------- Total non-current assets 22,763 5,349 54 28,166 Current assets Debtors c,g 36,695 894 (54) 37,535 Long trading positions 17,420 - - 17,420 Investments 136 - - 136 Cash and cash equivalents 89,576 - - 89,576 ---------- ---------- ---------- ---------- Total current assets 143,827 894 (54) 144,667 ---------- ---------- ---------- ---------- Total assets 166,590 6,243 - 172,833 ---------- ---------- ---------- ---------- LIABILITIES Current liabilities Creditors: amounts falling due within one year d,e,g 39,283 534 (3,241) 36,576 Current income tax liabilities e - - 3,241 3,241 ---------- ---------- ---------- ---------- Total current liabilities 39,283 534 - 39,817 Non-current liabilities Provisions for liabilities 529 - - 529 ---------- ---------- ---------- ---------- Total non-current liabilities 529 - - 529 ---------- ---------- ---------- ---------- Total liabilities 39,812 534 - 40,346 ---------- ---------- ---------- ---------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,485 - - 2,485 Share premium 26,002 - - 26,002 Merger reserve 51,230 - - 51,230 Retained earnings a,c,d,f,g 47,145 5,709 - 52,854 ---------- ---------- ---------- ---------- Parent company's shareholders' equity excluding minority interest 126,862 5,709 - 132,571 Minority interest in equity (84) - - (84) ---------- ---------- ---------- ---------- Total equity 126,778 5,709 132,487 ---------- ---------- ---------- ---------- Total equity and liabilities 166,590 6,243 - 172,833 ---------- ---------- ---------- ---------- iv) Reconciliation of equity at 31 December 2004 (Unaudited) Effect of transition Note to IFRS UK Re- Re- GAAP measurement classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 ASSETS Non-Current assets Goodwill a,f - 485 8,505 8,990 Other intangible assets a 8,565 - (8,323) 242 Tangible fixed assets a,b 1,512 - (1,512) - Property, plant and equipment b - - 1,330 1,330 Investments 583 - - 583 Deferred income tax assets c - 2,649 3,171 5,820 ---------- ---------- ---------- ---------- Total non-current assets 10,660 3,134 3,171 16,965 Current assets Debtors c,g 39,614 999 (3,171) 37,442 Long trading positions 9,679 - - 9,679 Investments f 12,139 9 - 12,148 Cash and cash 115,170 - - 115,170 equivalents ---------- ---------- ---------- ---------- Total current assets 176,602 1,008 (3,171) 174,439 ---------- ---------- ---------- ---------- Total assets 187,262 4,142 - 191,404 ---------- ---------- ---------- ---------- LIABILITIES Current liabilities Creditors: amounts falling due within one year d,e,g 50,679 (374) (2,382) 47,923 Current income tax liabilities e - - 2,382 2,382 ---------- ---------- ---------- ---------- Total current liabilities 50,679 (374) - 50,305 Non-current liabilities Provisions for liabilities 114 (36) - 78 ---------- ---------- ---------- ---------- Total non-current liabilities 114 (36) - 78 ---------- ---------- ---------- ---------- Total liabilities 50,793 (410) - 50,383 ---------- ---------- ---------- ---------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,495 - - 2,495 Share premium account 26,223 - - 26,223 Merger reserve 51,230 - - 51,230 Retained earnings c,d,f,g 56,586 4,552 - 61,138 ---------- ---------- ---------- ---------- Parent company's shareholders' equity excluding minority interest 136,534 4,552 - 141,086 Minority interest in equity (65) - - (65) ---------- ---------- ---------- ---------- Total equity 136,469 4,552 - 141,021 ---------- ---------- ---------- ---------- Total equity and liabilities 187,262 4,142 - 191,404 ---------- ---------- ---------- ---------- Notes to Reconciliations of equity a) Goodwill As a result of the adoption of IAS 38, 'Intangible Assets', Goodwill previously recognised within intangible assets has been re-classed to Goodwill on the face of the balance sheet. In addition, the costs to acquire a US broker dealer with NASD approval have been re-classified as other intangible assets. The table below shows the adjustments in the balance sheet in the relevant periods. 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Goodwill re-classification 8,990 8,748 8,565 Re-classification of licence costs from goodwill to other intangible assets - - (60) Re-classification of software from tangible fixed assets to other intangible assets (96) (108) (182) -------- ------ ---------- 8,894 8,640 8,323 -------- ------ ---------- b) Property, plant and equipment and other intangible assets As a result of the adoption of IAS 16, 'Property, Plant and Equipment' ("PPE"), items previously classified as tangible fixed assets have been re-classified as property, plant and equipment. As a result of the adoption of IAS 38, 'Intangible Assets', computer software such as licenses and capitalised development work have been disclosed within 'Other intangible assets' which is shown as a separate line item on the face of the balance sheet. The table below shows the adjustments in the balance sheet in the relevant periods. 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Re-classification of PPE from tangible fixed assets to PPE 1,509 1,375 1,512 -------- ------ ---------- Property, plant and equipment 1,509 1,375 1,512 -------- --------- ---------- c) Deferred tax Under IAS 12, 'Income Taxes', deferred tax is recognised on the difference between the fair value and the tax base of share based payments accounted for under IFRS 2, 'Share Based Payments'. The following table shows the impact on non-current assets of the recognition of this additional deferred tax asset and the re-classification from current assets of deferred tax of previously recognised: 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Increase in deferred tax under IFRS 2,428 5,098 2,649 Current assets -debtors 54 54 3,171 -------- ------ ---------- Total impact - increase in non-current assets 2,482 5,152 5,820 -------- ------ ---------- d) Current liabilities: Reversal of proposed ordinary dividends payable In prior periods, under UKGAAP market practice was for companies to provide for their final dividend in their closing balance sheet and in advance of the dividend being declared and approved by the Annual General Meeting, since it represents an appropriation of profits and therefore an appropriate liability should be recorded. Under IAS 10, 'Events after the balance sheet date', dividends to holders of equity instruments declared after the balance sheet date are not to be recognised as liabilities but were to be recognised in the period in which they are paid or ratified by the AGM. As a result, the below amounts were removed from creditors, with a corresponding credit to the income statement: 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Reversal of dividends payable 616 421 1,428 -------- ------ ---------- Total impact - decrease in current liabilities 616 421 1,428 -------- ------ ---------- e) Current tax liabilities As a result of the adoption of IAS 12, 'Income Taxes', current tax liabilities are shown as a separate line item on the face of the balance sheet. The table below shows the adjustments in the balance sheet in the relevant periods. 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Re-classification of corporation tax payable 838 3,241 2,382 -------- ------ ---------- 838 3,241 2,382 -------- ------ ---------- f) Amortisation As a result of the adoption of IFRS 3, 'Business Combinations', amortisation of goodwill, previously deducted from goodwill on a straight-line basis has been reversed. The net impact of these adjustments is to either increase goodwill or the carrying value of the remaining investment to which goodwill was originally attributed when the asset was a subsidiary or associate. 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Reversal of amortisation on goodwill allocated to subsidiaries - 242 485 Reversal of amortisation on goodwill allocated to investments - 9 9 -------- ------ ---------- - 251 494 -------- ------ ---------- g) Initial commission income and expense Initial commissions earned on the transfer of client funds into the Group's stockbroking subsidiary entity and the related commission expense are capitalised as accrued income and prepayments respectively. Hence initial commission income and expense in the period has been reversed and capitalized in the balance sheet. These amounts are amortised over the average holding period of five years, the relevant period in which the relationship between the commission earned (and paid away) and the funds under management to which such commissions relate is believed to exist. The table below shows the adjustments to the balance sheet and income statement in the relevant periods: 1 January 30 June 31 December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Accrued commission income liability (834) (955) (1,054) Prepaid commission expense asset 780 894 999 -------- ------ ---------- Decrease in net assets (54) (61) (55) -------- ------ ---------- Net adjustment to commission income - (121) (220) Net adjustment to commission expense - 114 219 -------- ------ ---------- Decrease in net income - (7) (1) -------- ------ ---------- h) Share-based payments Under IFRS 2, 'Share-Based Payments', the cost of share option awards made to employees has been restated to reflect the change in measurement from intrinsic value to fair value. An annual charge is made in the income statement for share options based on the fair value of options granted or shares awarded on the date of the grant or award. This charge is spread over the period the employees' services are received, which is the vesting period. The fair value of the options granted is determined using option pricing models. As a result of this change in accounting treatment the following change has been made between other staff costs in the income statement and retained reserves: 30 31 1 January June December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Increase / (decrease) in other staff costs (2,704) 434 660 Increase / (decrease) in retained reserves 2,704 (434) (660) i) Retained earnings The cumulative effect of all the above adjustments has resulted in an increase in retained earnings in the relevant periods as per the table below. 30 31 1 January June December 2004 2004 2004 Â£'000 Â£'000 Â£'000 Increase in retained earnings 2,990 5,709 4,552 v) Reconciliation of profit for the six months ended 30 June 2004 (Unaudited) Effect of transition Note to IFRS UK Re- Re- GAAP measurement Classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 Operating income a 31,374 - (31,374) - Fee and commission income - (121) 23,253 23,132 Fee and commission expense - 114 (669) (555) -------- ---------- --------- ------- Net fee and commission income - (7) 22,584 22,577 Net trading income - - 7,523 7,523 Other income - - 45 45 Commission payable (1,727) - 1,727 - -------- ---------- --------- ------- Gross profit / total income a 29,647 (7) 505 30,145 Profit on sale of fixed asset investments 452 - 452 Profit on sale of current asset investments 4,681 - - 4,681 Profit on part sale of subsidiary c 54 (11) - 43 Profit on disposal of associate 22,292 - - 22,292 Share of results of associate 436 - - 436 Operating expenses a,b (21,576) (172) (505) (22,253) -------- ---------- --------- ------- Operating profit 35,986 (190) - 35,796 Interest receivable and similar income 1,148 - - 1,148 Interest payable and similar charges (13) - - (13) -------- ---------- --------- ------- Profit before income tax 37,121 (190) 36,931 Income tax expense c (3,273) 617 (2,656) -------- ---------- --------- ------- Profit for the period 33,848 427 34,275 Profit attributable to equity holders of -------- ---------- --------- ------- The Evolution Group Plc 33,848 427 - 34,275 -------- ---------- --------- ------- vi) Reconciliation of profit for the year ended 31 December 2004 (Unaudited) Effect of transition Note to IFRS UK Re- Re- GAAP measurement Classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 Operating income a 65,533 - (65,533) - Fee and commission income - (220) 52,509 52,289 Fee and commission expense - 219 (1,238) (1,019) -------- --------- --------- ------ Net fee and commission income - (1) 51,271 51,270 Net trading income - - 11,618 11,618 Other income - - 236 236 Commission payable (3,303) - 3,303 - -------- --------- --------- ------ Total income a 62,230 (1) 895 63,124 Profit on sale of fixed asset investments 1,225 - - 1,225 Profit on sale of current asset investments b 4,824 (11) - 4,813 Release of provision against fixed asset investments 525 - - 525 Profit on part sale of subsidiary 66 - - 66 Profit on part sale of associate 22,286 - - 22,286 Share of results of associate 436 - - 436 Operating expenses a (46,947) (120) (895) (47,962) -------- --------- --------- ------ Operating profit 44,645 (132) - 44,513 Interest receivable and similar income 3,329 - - 3,329 Interest payable and similar charges (7) - - (7) -------- --------- --------- ------ Profit before income tax 47,967 (132) - 47,835 Income tax expense c (2,564) (1,267) - (3,831) -------- --------- --------- ------ Profit for the period 45,403 (1,399) - 44,004 Profit attributable to equity holders of -------- --------- --------- ------ of The Evolution Group Plc 45,403 (1,399) - 44,004 -------- --------- --------- ------ Notes to Reconciliations of profit a) Revenue and cost recognition Reclassification The adoption of IAS 18, 'Revenue' and IAS 19, 'Employee benefits', has resulted in the re-classification of Operating income and Commission payable as previously reported under UKGAAP, to Fee and commission income, less Fee and commission expense respectively; the net down of commissions received and paid on an agency basis between income and expense; and the re-classification of commission paid to employees, to staff costs within operating expenses. The impact of these re-classifications is shown in the table below: 30 June 31 December 2004 2004 Â£'000 Â£'000 Reversal of Operating income per UKGAAP (31,374) (65,533) Reversal of Commission payable per UKGAAP 1,727 3,303 ------- ---------- (29,647) (62,230) Re-classification to Fee and commission income 23,253 52,509 Re-classification to Fee and commission expense (669) (1,238) ------- ---------- 22,584 51,271 Re-classification to Net trading income 7,523 11,618 Re-classification to Other income 45 236 ------- ---------- 505 895 Re-classification to Operating expenses (505) (895) ------- ---------- - - ------- ---------- Re-measurement Initial commission income and expense recognised in the period has been reversed and posted to deferred income and prepayments respectively in the balance sheet. These balances are then amortised over the estimated life of the funds under management to which these amounts relate. The net impact of these adjustments to the income statement is shown in the table below: 30 June 31 December 2004 2004 Â£'000 Â£'000 Net adjustment to commission income (121) (220) Net adjustment to commission expense 114 219 ------- ----------- Decrease in net income (7) (1) ------- ----------- b) Operating expenses Under IFRS 2, 'Share-Based Payments', the cost of share option awards made to employees has been restated to reflect the change in measurement from intrinsic value to fair value. As a result of the adoption of IFRS 3, 'Business Combinations', amortisation of goodwill, previously deducted from goodwill on a straight-line basis has been reversed. In addition amortisation attributed to the profit on the part disposal of a subsidiary has been reversed. The table below shows the net impact on the income statement in the relevant periods: 30 June 31 December 2004 2004 Â£'000 Â£'000 Total impact of share options granted to employees (434) (660) Reversal of amortisation charges 262 505 Discounting of dilapidation provision - 35 ------- ----------- Decrease in operating expenses (172) (120) ------- ----------- Re-adjustment to carrying value of investment (11) (11) ------- ----------- c) Deferred tax adjustment Deferred tax attributed to the cost of options has resulted in an adjustment to the income statement as below: 30 June 31 December 2004 2004 Â£'000 Â£'000 Income tax adjustment under IFRS 617 (1,267) ------- ----------- vii) Reconciliation of equity at 1 January 2005 (Unaudited) Note Effect of adoption of IAS 32 and 39 IFRS at 31 Re- Re- December 2004 measurement classification IFRS Â£'000 Â£'000 Â£'000 Â£'000 ASSETS Non-Current assets Goodwill 8,990 - - 8,990 Other intangible assets 242 - - 242 Property, plant and equipment 1,330 - - 1,330 Investments a 583 - (583) - Deferred income tax assets 5,820 - - 5,820 ---------- ---------- ---------- ---------- Total non-current assets 16,965 - (583) 16,382 Current assets Trade and other receivables b,f - (821) 37,442 36,621 Debtors b,f 37,442 - (37,442) - Available-for-sale investments a,c - 41,607 12,731 54,338 Trading portfolio assets d,c - 364 9,679 10,043 Long trading positions d 9,679 - (9,679) - Investments a 12,148 - (12,148) - Cash and cash equivalents 115,170 - - 115,170 ---------- ---------- ---------- ---------- Total current assets 174,439 41,150 583 216,172 ---------- ---------- ---------- ---------- Total assets 191,404 41,150 - 232,554 ---------- ---------- ---------- ---------- LIABILITIES Current liabilities Trade and other payables e,f - (497) 44,689 44,192 Creditors: Amounts falling due within one year e 47,923 - (47,923) - Trading portfolio liabilities c,e,f - (367) 3,234 2,867 Current income tax liabilities 2,382 - - 2,382 --------- ---------- ---------- ---------- Total current liabilities 50,305 (864) - 49,441 Non-current liabilities Provisions for liabilities 78 - - 78 ---------- ---------- ---------- ---------- Total non-current liabilities 78 - - 78 ---------- ---------- ---------- ---------- Total liabilities 50,383 (864) - 49,519 ---------- ---------- ---------- ---------- EQUITY Capital and reserves attributable to equity shareholders Share capital 2,495 - - 2,495 Share premium account 26,223 - - 26,223 Merger reserve 51,230 - - 51,230 Fair value and other reserves c - 41,929 - 41,929 Retained earnings c 61,138 85 - 61,223 ---------- ---------- ---------- ---------- Parent company's shareholders' equity excluding minority interest 141,086 42,014 - 183,100 Minority interest in equity (65) - - (65) ---------- ---------- ---------- ---------- Total equity 141,021 42,014 - 183,035 ---------- ---------- ---------- ---------- Total equity and liabilities 191,404 41,150 - 232,554 ---------- ---------- ---------- ---------- Notes to Reconciliation of equity at 1 January 2005 a) Available- for-sale investments As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards, investments previously recorded within non-current or current asset investments as at 31 December 2004 have been re-classified within current assets as available-for-sale investments and fair valued. As at 1 January 2005, Â£12,731,000 has been re-classified in this way with Â£583,000 re-classified from non-current asset investments and Â£12,148,000 re-classified from current asset investments. b) Trade and other receivables As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards, amounts previously recorded as debtors as at 31 December 2004 have been re-classified within current assets as trade and other receivables. As at 1 January 2005, Â£37,442,000 has been re-classified in this way. c) Available-for-sale investments - fair value adjustments As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards, investments previously recorded within non-current or current asset investments as at 31 December 2004 have been re-valued to fair value rather than cost in accordance with the measurement policy set out in the Principal Accounting Policies of the Group. As at 1 January 2005, Â£41,929,000 (representing Â£41,202,000 revaluation for IP2IPO, Â£405,000 on other available-for-sale investments and Â£322,000 on the revaluation of trading portfolio liabilities) has been calculated as the fair value adjustment. A corresponding entry for Â£41,929,000 has been taken to Fair Value and Other reserves within equity. Â£'000 Revaluation of investment in IP2IPO from current asset investments to available-for-sale financial assets 41,202 Revaluation of other available-for-sale investments 405 Trading portfolio assets revaluation 322 ------- Total fair value adjustments 41,929 ------- d) Trading portfolio assets - fair value adjustments As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards, amounts previously recorded as long trading position as at 31 December 2004 have been re-classified within current assets as trading portfolio assets held for trading through the profit and loss account. As at 1 January 2005, Â£9,679,000 has been re-classified in this way. In addition, all other assets held for trading such as options are fair valued as at 1 January 2005 with the fair value adjustment taken to fair value reserves within equity and the reversal of liquidity provisions taken to the income statement. Â£'000 Trading portfolio assets revaluation 322 Reversal of liquidity provision against trading portfolio 85 Non regular way adjustment to trading portfolio liabilities (see (f)) (43) ------ Total fair value adjustments 364 ------ e) Current liabilities As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards, amounts previously recorded as creditors as at 31 December 2004 have been re-classified within current liabilities as trading portfolio liabilities held for trading through the profit and loss account or as trade and other payables. As at 1 January 2005, Â£47,923,000 has been re-classified in this way with Â£44,689,000 treated as trade and other payables and Â£3,234,000 treated as trading portfolio liabilities. f) Financial instruments As a result of the adoption of IAS 39, 'Financial Instruments', from 1 January 2005 onwards purchases or sales that do not fall within the regular way classification (generally beyond 3 days settlement) are treated as derivatives in the period between the trade date and the settlement date, i.e. as a forward purchase or sale of security. The contract value (ie. the trade receivable or payable) of such transactions is not recorded on the balance sheet, but the change in fair value is recognised on the balance sheet and income statement in the intervening period between the trade date and settlement date. The impact of this change in treatment is to reduce trade and other receivables by Â£821,000, reduce short trading portfolio by Â£43,000, reduce trade and other payables by Â£497,000 and reduce short trading portfolio liabilities by Â£367,000. This information is provided by RNS The company news service from the London Stock Exchange

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TheraCryf Plc (TCF)

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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