Interim Results
Evolution Group PLC
12 September 2006
THE EVOLUTION GROUP PLC
("EVOLUTION GROUP" OR THE "GROUP")
Interim results for the six months ended 30 June 2006
Evolution Group, the listed investment bank and retail fund management group,
today announces its results for the six months ended 30 June 2006.
Financial highlights
• Total Group income (before fee and commission expenses) increased by 18%
to £44.3 million (2005: £37.6 million).
• Adjusted operating profit has increased by 10% to £14.7 million (2005:
£13.4 million) with clean profit before tax increasing by 6% to £17.0
million (2005: £16.0 million) 1.
• Profit before tax at £14.7 million (2005: £51.6 million, which included
profit on disposal of assets totaling £39.4 million, principally arising
from sale of IP2IPO).
• Clean earnings per share increased by 7% to 5.49p (2005: 5.15p) 1.
• Basic earnings per share at 4.44p (2005: 20.25p, including significant
contribution from profit on disposal of assets).
• Net assets up by 16% to £164.9 million (2005: £143.0 million) including
cash balances of £63.9 million (2005: £103.0 million).
• Increase in interim dividend of 25% to 0.5p (2005: 0.4p) after a final
dividend paid in June 2006 of 0.8p (2005: 0.58p).
Operational highlights
• £472 million raised for clients from 17 transactions (2005: £379 million
from 22 transactions), an increase of 25% on money raised from the
previous period.
• Christows increased funds under management by 34% to £931 million (2005:
£695 million).
• Acquisition of Williams de Broe on 3 June 2006 - integration progressing
well.
• Evolution Securities China acquisition of Watterson Asia on 14 June 2006
- integration completed.
1 Clean profit before tax clean earnings and adjusted operating profit are
defined in the Financial Information below.
Note: This financial information has been prepared for the Group only and
consists of the Group's Income Statement for the six month period to 30 June
2006, Group Balance Sheet as at 30 June 2006, Group Cash Flow Statement and a
Group Statement of Recognised Income and Expense each for the six month period
to 30 June 2006. The Group is defined as the Evolution Group Plc and its
subsidiaries, as disclosed in the recent annual report, and includes the
recently acquired Watterson Asia Limited but excludes the recently acquired
Williams de Broe entities as described in Note 1, 'Basis of Preparation' and as
referred to in the Chairman's Statement below.
Martin Gray, Evolution Group's Chairman, commented:
"The first half of 2006 saw strong progress in each of our Group businesses,
with significant organic growth. This was complemented, as the period drew to a
close, with substantial acquisitions. We believe that the progress made along
with our acquisitions, provide a platform for future growth across the Group.
As a matter of policy, the Board intends to maintain a strong balance sheet,
even allowing for the share buyback programme. This will enable Evolution to
continue investment in all its operating businesses and recognises their
increasing regulatory capital requirements. Additionally, we do not rule out
further acquisitions if we find opportunities which will enhance shareholder
value."
For further information, please contact
The Evolution Group Plc Tel: 020 7071 4300
Alex Snow, Chief Executive Officer
Graeme Dell, Finance Director
Bell Pottinger Corporate and Financial Tel: 020 7861 3232
Charles Cook
Peter Otero
CHAIRMAN'S STATEMENT
Review of the half year ended 30 June 2006
The Evolution Group ("Evolution, the "Company" or the "Group") has continued its
strong progress with an excellent first six months of 2006. On an operational
level the Group's total income (before fee and commission expenses) has
increased to £44.3m, up by 18% from £37.6m in 2005. Whilst the statutory
operating profit has declined to £12.4m (2005: £49.0m), due to the prior year's
figures benefiting from significant profits arising upon disposals of assets
totaling £39.4m (principally from sale of IP2IPO), the underlying or adjusted
operating profit has increased from £13.4m to £14.7m, an increase of 10%. The
first half also saw significant acquisition activity, which impacted all our
operating businesses. On 3 June 2006 the Group entered into and completed an
agreement to acquire Williams de Broe Plc and its sister company, Williams de
Broe Administration Limited (together "Williams de Broe") from Williams de Broe
Holdings Limited and ING Belgique S.A. This acquisition represents a significant
future opportunity for the Group's investment banking and private client fund
management subsidiaries. The results of Williams de Broe have not been
consolidated with the Group for June. Instead, the preliminary announcement in
March 2007 will include a set of financial statements for the Group as at 30
June 2006 on a fully consolidated basis including Williams de Broe. This means
that its balance sheet has not been included on a line by line basis as at 30
June 2006 nor has its profit contribution to the Group for June been reported,
as required by International Financial Reporting Standards ("IFRS").
In addition, on 14 June 2006, Evolution Securities China Limited ("ESCL")
acquired a corporate finance advisory and securities dealing business based in
Hong Kong named Watterson Asia Limited. This company has been successfully
consolidated within the Group and its results are included for the period to 30
June 2006.
Investment Banking
Evolution Securities, the Group's principal investment banking subsidiary,
continues to be the driver of the Group's overall profitability with total
income (before fee and commission expenses) in the first half of £34.5m an
increase of 11% from the figure of £31.2m in 2005. The primary activity has
increased substantially as we raised funds totaling £472m for our corporate
clients, an increase of 25% from a year ago. Meanwhile, our secondary market
activities of sales and trading have performed strongly, retaining by a
significant margin our number one market position in terms of market share
within the LSE's AIM market and increasing their revenue contribution from the
level of the first half of 2005.
Private Client Fund Management
Christows, the Group's private client fund management business has continued
this year to progress in line with management expectations. The total income
(before fee and commission expenses) of £7.1m is 25% ahead of the £5.7m achieved
in 2005 with growth in both management fee and transactional revenue. At 30 June
2006, total funds under management were £931m, up from £695m at the same time
last year and £789m as at year end. This growth has resulted mainly from a
record six months of new fund sales from Christows' dedicated intermediary sales
team.
Evolution Securities China Limited
ESCL's income growth has continued strongly into 2006 with total income (before
fee and commission expenses) in the period of £2.6m, which already exceeds the
2005 full year result. Whilst the business remains a small part of the Group
overall, it is pleasing to see that it has developed so well in this period with
growth in both primary and secondary activities.
As noted above, following approval from the Hong Kong Securities and Futures
Commission, ESCL completed the acquisition of Watterson Asia. In completing this
acquisition of a regulated corporate finance advisory and securities dealing
business, ESCL has begun to expand its breadth and capability across the London,
Chinese and Hong Kong markets.
Acquisition of Williams de Broe
On 3 June 2006, we completed the acquisition of 100% of the equity of Williams
de Broe Plc (and its subsidiaries, as detailed in Note 1) and its sister company
Williams de Broe Administration Limited ("Williams de Broe") from Williams de
Broe Holdings Limited and ING Belgium SA.
We saw within the Williams de Broe business a clear strategic fit with the
Group. On the institutional side the presence of secondary markets large and
mid-cap sales and research capability and a fixed income agency business are an
ideal complement to our Evolution Securities business. In addition, Williams de
Broe private client business had funds under management broadly equal to those
within Christows and a similar investment philosophy. However, the business
needed substantial restructuring in order to release this potential since it had
experienced significant problems in its recent past. These have been widely
reported and include a significant provision arising from reconciliation work
performed in 2005 and the absence of statutory accounts for the years ended 2004
and 2005. In summary, the restructuring will take the form of the migration of
the two business lines, institutional and private client, out of Williams de
Broe into Evolution Securities and Christows respectively. At the same time a
detailed review of the financial information of Williams de Broe will be
performed including the resolution of the legacy reconciliation and accounting
issues. The closure of the resultant shell companies will then follow, having
first realised all assets and liabilities.
Recognising this potential but also the significant restructuring necessary to
achieve it the Group was able to complete the transaction for a cash
consideration of £15m, equal to the net asset value, which will become due once
completion accounts for Williams de Broe have been prepared. The cash
consideration is subject to a pound for pound adjustment to the extent that the
net assets of Williams de Broe as at 3 June 2006 are greater or less than £15m,
subject only to a maximum cash consideration of £25m. The initial cash
consideration of £15m was met from existing cash resources of the Evolution
Group and has been paid into an escrow account until the completion accounting
process is finalised. In addition, the Group has provided temporary working
capital of £26m to Williams de Broe, previously provided by ING, which will be
returned immediately following the migration out of the business lines and
before calculating the net asset valuation.
Further information regarding the acquisition is outlined in Note 1 to the
accounts, 'Basis of Preparation' .
Following the period end, on 24 July 2006 we completed the migration of the
institutional business into Evolution Securities on time and to plan and we are
very satisfied with the initial results. We are now moving forward with the
migration of the private client business, which is scheduled to occur at the
beginning of October 2006. Work on resolving the reconciliation and accounting
issues is on-going and is expected to be concluded in the final quarter of 2006.
Balance sheet, cash and other items
The Group has maintained a policy of balance sheet strength with net assets of
£165m at the period end (2005: £143m) and retains a cash balance of £64m at 30
June 2006 (2005: £103m).
We have continued to exit from our legacy available for sale investment
portfolio. The Group has realised £0.1m in profits from the sale of certain of
these investments in the six months to 30 June 2006 (2005: £39.4m, principally
arising upon sale of IP2IPO).
Dividend and Share Purchases
Dividend
The Board declares an interim dividend of 0.5p per share (2005: 0.4p). This
reflects the Board's continued commitment to a progressive dividend policy as
set out in the 2005 Annual Report and Accounts. This is payable on 27 October
2006 to shareholders on the register at 29 September 2006.
Share buyback
Following shareholder approval at the AGM in May for continuing share purchases,
the Group intends to continue with its on-market buyback programme during the
period between now and the next AGM.
Share purchases by the Employee Trust
In total this year the Group has purchased an additional 2.4m shares for total
consideration of £3.9m. These shares were purchased by the Trust and are held to
satisfy share awards made to staff in the Group. The Trust now holds 9.1m shares
(2005: 7.3m)
Board changes
At the Company's Annual General Meeting in May, I announced the resignation of
Oliver Vaughan from the Board and would like to reiterate our thanks to him for
the significant contribution he has made to the Group.
The Group announced the appointment of Andrew Umbers to the Board on 7 June
2006. His position as Chief Executive Officer of Evolution Securities Ltd and
appointment to the Board has significantly strengthened the executive team.
As outlined at the year end we intend to further strengthen the Board. We have
undertaken a selection process in respect of further non-executive directors and
hope to be able to announce shortly when this process has reached a conclusion.
Staff
The performance of all of our businesses is due principally to the efforts and
skills of our staff. I extend a warm welcome to our new colleagues from Williams
de Broe and Watterson Asia and to take the opportunity to thank all of our staff
for their commitment in helping us achieve a very successful first half to the
year.
Outlook
The first half of 2006 saw strong progress in each of our Group businesses, with
significant organic growth. This was complemented, as the period drew to a
close, by significant acquisitions.
The focus of our institutional equities business remains on the small and mid
cap markets; however, our secondary business has broadened to encompass many new
sectors and larger cap stocks. The cornerstones of our offering remain:
independence of research, facilitation for our clients, trading, corporate
broking and corporate finance, and an experienced sales team covering equity and
fixed income products. This platform provides the opportunity to re-focus our
business model to one that is more stable and which has a more sector based
focus, allowing us to provide better solutions to all our clients. Having
undertaken a thorough review of the Evolution Securities business, we believe we
are on the right path to achieving our objective of becoming the leading
independent securities firm in the United Kingdom.
Our private client business is extremely well placed for its next stage of
growth. The executive team undertook a branding review and concluded that the
business will operate in the future under the Williams de Broe brand. Christows'
management, culture and ethos coupled with the heritage and brand awareness of
the Williams de Broe name provide the opportunity to build a substantial or
ganisation with innovative investment products and with client service at its
core. The fund management business going forward represents a larger proportion
of the Group overall and our key objective is to grow assets organically from
the current combined level of approximately £2.0 billion to a level of more than
£3 billion over the course of the next 18 months.
Overall, despite the rather more difficult conditions of recent months, progress
has been maintained and the Group is trading in line with expectations.
As a matter of policy, the Board intends to maintain a strong balance sheet,
even allowing for the share buyback programme. This will enable Evolution to
continue investment in all its operating businesses and recognises their
increasing regulatory capital requirements. Additionally, we do not rule out
further acquisitions if we find opportunities which will enhance shareholder
value.
We maintain our confidence for the future.
Martin Gray
Chairman
12 September 2006
FINANCIAL INFORMATION
Adjusted operating profit
The statutory operating profit for the overall Group is shown below. The Board
continues to believe a truer reflection of the performance of the Group's
on-going operating businesses is afforded by the measure of 'Adjusted operating
profit' that excludes items that are one-off or non-recurring, are not part of
the on-going business profitability or, in the case of the cost of options and
share of results of associate companies that are not core to the Group,
represent non-cash items. This measure is also used as the principal performance
criteria against which the vesting of stock awards for the Board is determined.
However, the Board reviews performance against the measure 'Clean profit before
tax', which represents adjusted operating profit plus net interest; and also the
measure 'Clean earnings', which represents clean profit before tax less tax
expense. These measures are also followed by the analyst community as benchmarks
for the Group's on-going performance.
The following table reconciles these measures and demonstrates the continued
progress made on a Group basis in increasing adjusted operating profit by 10% to
£14.7m in 2006 (2005: £13.4m):
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000 £'000 £'000 £'000
Operating profit 12,364 49,000 58,583
Items not included within adjusted
operating profit
Profit on disposal of available-
for-sale investments (96) (39,436) (40,048)
Profit on part sale of subsidiary (610) (2)
----------------------------------------------------------------
Adjustment for provisions
and profits on investments (706) (39,438) (40,048)
Share of results of associate (13) - -
Cost of share options granted
to employees 3,045 3,876 6,744
-----------------------------------------------------------------
Non-cash items 3,032 3,876 6,744
-----------------------------------------------------------------
Adjusted Group operating profit 14,690 13,438 25,279
Net interest receivable 2,288 2,555 5,007
-----------------------------------------------------------------
Clean profit before tax 16,978 15,993 30,286
Tax expense (4,822) (3,875) (4,524)
-----------------------------------------------------------------
Clean earnings 12,156 12,118 25,672
=================================================================
Clean earnings per share 5.49p 5.15p 11.42p
Clean diluted earnings per share 4.93p 4.60p 10.19p
Independent review report of PricewaterhouseCoopers LLP to The Evolution Group
Plc (the "Company")
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 which comprises the Group Income Statement,
Group Balance Sheet, Group Cash Flow and Group Statement of Recognised Income
and Expense and the related notes. 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 Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 1.
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
As explained in Note 1, wholly owned subsidiaries Williams de Broe Plc, Williams
de Broe Administration Limited and their respective subsidiaries (together
"Williams de Broe"), which were acquired on 3 June 2006, have not been
consolidated into these financial statements as required by IAS 27,
'Consolidated and Separate Financial Statements' due to the lack of proper
accounting records at Williams de Broe. As a result, pending reconstruction of
the financial position of Williams de Broe at the date of acquisition and at 30
June 2006, Williams de Broe is shown in the financial statements at the value of
£41 million, representing the fair value of the cash consideration and the
replacement of working capital previously provided by ING Belgique SA. These
amounts are subject to an adjustment mechanism based on actual net assets
acquired from ING Belgique SA. Consequently, at 30 June 2006, the Group Balance
Sheet does not reflect the consolidated assets and liabilities of Williams de
Broe and the Group Income Statement, Group Statement of Recognised Income and
Expense and Group Cash Flow Statement do not reflect any post acquisition profit
or loss, or cash flows of Williams de Broe.
On the basis of our review, with the exception of any adjustments arising from
the matter described in the preceding paragraph, 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 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
12 September 2006
GROUP INCOME STATEMENT (UNAUDITED)
Note Six months Six months Twelve months
to 30 June to 30 June to 31 December
2006 2005 2005
£'000 £'000 £'000
Fee and commission income 35,753 33,705 63,205
Fee and commission expenses (1,422) (720) (1,500)
---------- ---------- --------------
Net fee and commission income 34,331 32,985 61,705
Net trading income 7,979 3,794 9,206
Other income 521 114 1,064
---------- ---------- --------------
Total income 42,831 36,893 71,975
Profit on disposal of
available-for-sale investments 96 39,436 40,048
Profit on part sale of subsidiary 610 2 -
Share of results of associate 13 - -
Operating expenses (31,186) (27,331) (53,440)
---------- ---------- --------------
Operating profit 12,364 49,000 58,583
Interest receivable and similar income 2,338 2,559 5,044
Interest payable and similar charges (50) (4) (37)
---------- ---------- --------------
Profit before tax 14,652 51,555 63,590
Tax expense (4,822) (3,875) (4,524)
---------- ---------- --------------
Profit for the period 9,830 47,680 59,066
========== ========== ==============
Profit attributable to
minority interest 129 (17) 25
Profit attributable to
equity holders of
The Evolution Group Plc 9,701 47,697 59,041
---------- ---------- --------------
9,830 47,680 59,066
========== ========== ==============
Basic earnings per
ordinary share 4 4.44p 20.25p 26.18p
Diluted earnings
per share 4 3.99p 18.09p 23.35p
Proposed dividend per
share
- Interim 5 0.5p 0.4p 0.4p
- Final - - 0.8p
Dividend declared (£'000)
- Interim 5 1,109 859 859
- Final - - 1,781
The notes form an integral part of these consolidated interim financial
statements.
GROUP BALANCE SHEET (UNAUDITED)
Note 30 June 31 December 30 June
2006 2005 2005
£'000 £'000 £'000
ASSETS
Non-current assets
Goodwill 9,877 9,085 8,990
Investment in associate 121 - -
Investment in Williams de Broe 15,000 - -
Other intangible assets 849 232 224
Property, plant and equipment 3,444 3,695 2,934
Deferred tax assets 5,708 7,693 6,720
------- ---------- -------
Total non-current assets 34,999 20,705 18,868
Current assets
Trade and other receivables 102,346 42,069 70,031
Available-for-sale investments 1,966 2,027 2,082
Trading portfolio assets 47,014 13,446 35,677
Temporary working capital
provided to Williams de Broe 26,029 - -
Cash and cash equivalents 63,883 137,973 103,044
------- ---------- -------
Total current assets 241,238 195,515 210,834
------- ---------- -------
Total assets 276,237 216,220 229,702
======= ========== =======
LIABILITIES
Current liabilities
Trade and other payables 98,599 51,196 76,291
Trading portfolio liabilities 10,012 6,200 5,720
Current tax liabilities 2,482 1,947 4,611
------- ---------- -------
Total current liabilities 111,093 59,343 86,622
Non-current liabilities
Provisions for liabilities 276 184 130
------- ---------- -------
Total liabilities 111,369 59,527 86,752
EQUITY
Capital and reserves attributable
to equity shareholders
Share capital 2,307 2,255 2,221
Share premium 28,364 27,942 26,298
Capital redemption reserve 274 274 275
Merger reserve 51,230 51,230 51,230
Fair value and other reserves (1,767) (1,652) (38)
Retained earnings 84,017 76,592 63,048
------- --------- -------
Parent company's shareholders'
equity excluding minority interest 3 164,425 156,641 143,034
Minority interest in equity 443 52 (84)
------- --------- -------
Total equity 164,868 156,693 142,950
------- --------- -------
Total equity and liabilities 276,237 216,220 229,702
======= ========= =======
The notes form an integral part of these consolidated interim financial
statements.
GROUP CASH FLOW STATEMENT (UNAUDITED)
Six months Six months
to 30 June to 30 June
2006 2005
£'000 £'000 £'000 £'000
Cash flow from operating activities
Cash used in operations (53,240) (12,088)
Interest received 2,255 2,559
Interest paid (50) (4)
Income tax paid (1,969) (2,420)
-------- --------
Net cash outflow from operating
activities (53,004) (11,953)
Cash flows from investing activities
Acquisition of subsidiaries (16,001) -
Fees on acquisition of subsidiaries (111) -
Cash acquired with subsidiary 931 -
Proceeds from part sale of subsidiary - 10
Purchase of property plant and
equipment (326) (2,119)
Purchase of intangible assets (103) (50)
Purchase of available-for-sale
investments (289) (518)
Proceeds from sale of available-for
-sale investments 230 51,294
Dividends received - 15
-------- --------
Net cash generated from investing
activities (15,669) 48,632
Cash flows from financing activities
Issues of ordinary share capital 405 10
Dividends paid to the Company's
shareholders (1,781) (1,307)
Purchase of shares held by the Trust (3,906) (5,969)
Purchase of treasury shares - (42,514)
-------- --------
Net cash used in financing activities (5,282) (49,780)
-------- --------
Net (decrease) / increase in cash
and bank overdrafts (73,955) (13,101)
Cash and bank overdrafts at
beginning of period 137,973 115,170
Exchange (losses) / gains on cash
and bank overdrafts (135) 12
-------- --------
-------- --------
Cash and bank overdrafts at end of 63,883 102,081
period ======== ========
The notes form an integral part of these consolidated interim financial
statements.
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)
Note Six months Six months Twelve months
to 30 June to 30 June to 31 December
2006 2005 2005
£'000 £'000 £'000
Profit for the financial period 9,830 47,680 59,066
Available-for-sale investments:
Fair value changes taken to equity
at 1 January 2005 - - 37,629
Fair value changes taken to equity
during the period (123) 41,339 (2,059)
Fair value changes transferred to
income statement on disposal 8 (41,377) (37,222)
--------- -------- --------
Net losses not recognised in
income statement (115) (38) (1,652)
--------- -------- --------
Total recognised income and
expense for the period 9,715 47,642 57,414
--------- -------- --------
Attributable to:
Minority interest 129 (17) 25
Equity shareholders of the Parent 9,586 47,659 57,389
--------- -------- --------
9,715 47,642 57,414
--------- -------- --------
The notes form an integral part of these consolidated interim financial
statements.
1. BASIS OF PREPARATION
This financial information has been prepared for the Group only (excluding
Williams de Broe) and consists of the Group's Balance Sheet as at 30 June 2006,
Group Income Statement, Group Cash Flow Statement and a Group Statement of
Recognised Income and Expense each for the six month period to 30 June 2006.
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
(the "Act").
These financial statements have been prepared in accordance the 'Principal
Accounting Policies' set out in the 2005 Annual Report and Accounts and Note 2
(below), save for the consolidation of Williams de Broe as explained below. The
statutory accounts for the year ended 31 December 2005, which contained an
unqualified audit report under Section 235 of the Act and which did not make any
statements under Section 237 of the Act, have been delivered to the Registrar of
Companies in accordance with Section 242 of the Act.
On 3 June 2006, the Group acquired 100% of the equity of Williams de Broe Plc
and its wholly owned subsidiaries: Williams de Broe Management Company Limited,
Wilbro Nominees Limited, Williams de Broe Investment Management Limited
(dormant), Williams de Broe Suisse SA, and Williams de Broe PTY (dormant);
together with it sister company Williams de Broe Administration Limited
(together referred to as "Williams de Broe").
In line with the structure of the acquisition of Williams de Broe as outlined in
the Chairman's Statement the Directors are undertaking a detailed review of the
financial information of Williams de Broe, including the legacy reconciliation
and statutory accounting issues. The statutory accounts for the year 2005 will
be completed after this review, following which the financial information will
be converted to the accounting policies adopted by the Group, including IFRS. It
is anticipated that this exercise will be completed in the final quarter of
2006. Until that time the Directors do not feel it is appropriate to include the
financial results and position of Williams de Broe within those of the Group
since the Directors believe that the timely reporting of the Group's results and
financial position and cash flows is critical to market participants.
The value of the cash consideration is subject to a pound for pound adjustment
to the extent that the net assets of Williams de Broe as at 3 June 2006 are
greater or less then £15m as measured under UK generally accepted accounting
principles, subject only to a maximum cash consideration of £25m. Accordingly
the value of the cash investment totalling £15m has been included in the balance
sheet as "Investment in Williams de Broe", and the results and cash flows of
that business have not been included in these financial statements. In addition
the Group has provided working capital to Williams de Broe totalling £26m, which
was previously provided by ING, in the form of a £5m subordinated loan and a
£21m cash facility. This balance is shown in the balance sheet as "Temporary
working capital provided to Williams de Broe". Subsequent to 30 June 2006
Williams de Broe has repaid £4.5m of this balance.
This treatment is not in accordance with IAS 27, 'Consolidated and Separate
Financial Statements'. In the opinion of the directors, based on the information
available as at 12 September 2006, there would have been no material adjustment
to the net assets included in the Group Balance Sheet, to Group Profit
Attributable to Shareholders of the Group, or to the Statement of Reported
Income and Expense, had this standard been complied with. However, individual
lines within each financial statement would be different.
Following the completion of the review of the financial information of Williams
de Broe, the fair values attributed to goodwill and intangibles will be
determined. The Directors do not know at this stage what impact, if any, there
will be on the Consolidated Income Statement arising from this review.
The preliminary announcement in March 2007 will include a set of financial
statements for the Group as at 30 June 2006 on a fully consolidated basis. In
addition, it will include the disclosures required by International Financial
Reporting Standard 3, 'Business Combinations' detailing the fair value of assets
acquired and the related goodwill.
The Evolution Group Plc is a 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.
2. ACCOUNTING POLICIES
There have been no significant accounting policy changes to those described in
the 2005 Annual Report and Accounts, therefore the information in this report
has been prepared using the accounting policies and presentation applied in
2005, save for the accounting treatment applied to the acquisition of Williams
de Broe as described in Note 1.
Consideration will be given during 2006 to the implications, if any, of the
following new standards, amendments to standards and interpretations that have
been issued but are not effective for 2006 and have not been early adopted:
• IFRIC 7, 'Applying the Restatement Approach under IAS 29', effective for
annual periods beginning on or after 1 March 2006;
• IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after
1 May 2006;
• IFRIC 9, 'Reassessment of Embedded Derivatives', effective for annual periods
beginning on or after 1 June 2006 and;
• IFRS 7, 'Financial instruments: Disclosures', effective for annual periods
beginning on or after 1 January 2007 and IAS 1, 'Amendments to capital
disclosures', effective for annual periods beginning on or after 1 January
2007.
3. GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(excluding Minority Interest)
Share Share Capital Merger Fair Retained Total
capital premium Redemption Reserve value earnings equity
reserve and
other
reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2006 2,255 27,942 274 51,230 (1,652) 76,592 156,641
Profit for the period - - - - - 9,701 9,702
Issue of ordinary
share capital 52 422 - - - - 474
Purchase of Trust shares
by the Trust - - - - - (3,906) (3,906)
Share option: value of
services provided - - - - - 3,045 3,045
Revaluation of available-
for-sale investments - - - - (123) - (123)
Available-for-sale
investments transferred to
income statement on sale - - - - 8 - 8
Deferred tax credit on
employee options - - - - - 366 366
Dividends paid - - - - - (1,781) (1,781)
------------------------------------------------------------------------------
Balance at 30 June 2006 2,307 28,364 274 51,230 (1,767) 84,017 164,425
------------------------------------------------------------------------------
4. EARNINGS PER ORDINARY SHARE
The calculation of the basic earnings per ordinary share is based on the profit
on ordinary activities after tax and on the weighted average number of ordinary
shares in issue during the year. 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.
Six months ended 30 June 2006 Six months ended 30 June 2005
Profit Weighted Earnings Profit Weighted Earnings
£000's average no. per share £000's average no. per share
(p) (p)
Basic earnings per share 9,830 221,616,119 4.44 47,680 235,475,710 20.25
Dilutive effect of
securities - 24,882,484 - - 28,084,352 -
Diluted earnings -------------------------------- ---------------------------------
per share 9,830 246,498,603 3.99 47,680 263,560,062 18.09
-------------------------------- ---------------------------------
The dilutive effect of securities issued to minority option holders in ESCL is
not considered material to the calculations of dilutive earnings per share.
5. DIVIDENDS
30 June 2006 30 June 2005
£'000 £'000
Prior year final paid: 0.80p (2005: 0.58p) per 1p share 1,781 1,307
------------- -------------
In addition, the Directors are proposing an interim dividend in respect of the
financial year ending 31 December 2006 of 0.50p (2005: 0.40p) per share, which
will absorb an estimated £1,109,000 (2005: £859,000) of shareholders' funds. It
will be paid on 27 October 2006 to shareholders on the register of members on
29 September 2006.
6. BUSINESS COMBINATION
Watterson Asia
On 14 June 2006 the Group acquired 100% of the share capital of Watterson Asia,
a Hong Kong regulated company, for a consideration of £2,183,000.
The acquired business contributed revenues of £10,000 and nil profit to the
Group for the period from acquisition to 30 June 2006. If the acquisition had
occurred on 1 January 2006, consolidated revenue and consolidated profit for the
half-year ended 30 June 2006 would have been £321,000 and £90,000 respectively.
On 29 June 2006, Watterson Asia Limited changed its name to Evolution Watterson
Securities Limited.
Details of net assets acquired and goodwill are as follows:
£'000
Purchase consideration
- cash paid 1,000
- acquisition expenses 111
- deferred cash consideration payable in December 2006 200
- shares issued (885 shares @ £985/share) 872
-------------
Total purchase consideration 2,183
- fair value of net identifiable assets acquired (1,390)
-------------
Goodwill 793
-------------
The goodwill is attributable to Watterson Asia's strong position and
profitability in its market and the significant synergies expected to arise
after its acquisition by the Group.
The assets and liabilities arising from the acquisition are as follows:
Acquirees's
carrying
amount Fair value
£'000 £'000
Cash and cash equivalents 931 931
Property, plant and equipment 11 11
Customer relationships - 491
Brand - 16
Receivables 75 75
Payables (132) (132)
Net deferred tax assets (2) (2)
=========== ==========
Net identifiable assets acquired 883 1,390
=========== ==========
Outflow of cash to acquire business, net of cash acquired:
£'000
- cash consideration 1,000
- cash and cash equivalents in subsidiary acquired (931)
---------
Cash outflow on acquisition 69
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