Interim Results
Evolution Group PLC
11 September 2007
Embargoed until 7.00am 11 September 2007
The Evolution Group Plc
(the "Evolution Group", the "Group", the "Company").
Interim results for the six months ended 30 June 2007.
Strong first half performance, funds under management over £2.5 billion.
Evolution Group, the listed investment bank and private client fund management
group, today announces its interim results for the six months ended 30 June
2007.
Financial highlights:
Six months Six months
Six months to to 30 June to 31 December
30 June 2006 2006
2007 (Restated) (Restated)
£'000 £'000 £'000
------ ------ ------
Total income (before fee and
commission expense) 51,890 47,763 37,030
Adjusted profit before tax(1) 15,824 17,560 7,680
Profit before tax 3,079 22,035 (5,347)
Adjusted earnings(1) 12,021 11,549 4,887
Profit / (loss) for the
period 1,117 15,431 (8,585)
Adjusted basic EPS(1) 5.63p 5.15p 2.23p
Basic EPS 0.43p 6.91p (3.90p)
•Record half total Group income(2) of £51.9m, up 40% compared with H2 06 of
£37.0m (up 9% on H1 06: £47.8m).
•Increase in interim dividend of 34% to 0.67p (2006: 0.5p) after a final
dividend paid in June 2007 of 1.00p (2006: 0.80p).
Operational highlights:
•Williams de Broe integration completed successfully.
•Evolution Securities' total income(2) up 39% to £32.2m compared to H2 06
£23.2m (H1 06: £36.9m). Re-balancing of business model demonstrated by 53%
increase in secondary income to £23.0m from H2 06 at £15.0m (H1 06: £13.4m).
•Williams de Broe increased funds under management by 16% from £2,184m at
31 December 2006 to £2,531m (up 172% from 30 June 2006: £931m). Total
income(2) increased by 34% to £17.0m from £12.7m in the six months to 31
December 2006 (H1 06: £7.9m).
•Evolution Securities China continues to demonstrate strong growth in
both primary and secondary activities, with total income(2) up 42% to £3.7m
(H1 06: £2.6m), only marginally below the 2006 full year result of £4.1m.
Commenting on the results and the Group's outlook, Martin Gray, Chairman, said:
"This has been a good first half for the Group. We have successfully completed
the integration of Williams de Broe and re-balanced Evolution Securities to
strengthen our secondary market franchise, while successfully maintaining its
number one ranking on AIM. Evolution Securities China has also experienced a
strong first half with total income only marginally below the full year result
for last year.
We are particularly pleased with the performance of Williams de Broe, our
private client fund management business, which achieved strong growth in both
management fees and transactional income as funds under management were
increased to over £2.5 billion, compared with £0.9 billion at the same stage
last year, making it one of the leading players in this market.
We believe that the Group is now extremely well positioned to prosper in its
chosen markets, notwithstanding the current volatile and uncertain environment.
Our strategic restructuring of the business over the past year has created a
Group which now has two strong core businesses - each of which is a leader in
its own field - and a strong balance sheet. The Board considers that this
structure will serve the Group well and looks forward with confidence to the
future."
Notes:
(1) Adjusted operating profit, adjusted profit before tax (formerly clean profit
before tax) and adjusted earnings (formerly clean earnings) are defined in the
Financial Information section.
(2) Represents total income before fee and commission expenses.
- Ends -
For further information, please contact:
The Evolution Group Plc 020 7071 4300
Alex Snow, Chief Executive Officer
Graeme Dell, Finance Director
Bell Pottinger Corporate and Financial 020 7861 3232
Charles Cook
Mike Davies
Victoria Geoghegan
Notes to Editors:
The Evolution Group Plc
The Evolution Group is the holding company of Evolution Securities Limited,
Williams de Broe Limited and Evolution Securities China Limited. Founded in
April 2001 and originally listed on the AIM, the Evolution Group joined the
Official List in 2003 and now has a market capitalisation of over £290 million.
Evolution Securities Limited is a leading investment bank focused on mid-cap and
small cap UK public companies. It provides a full range of investment banking
services including equity research, institutional sales and trading, market
making, fixed income and corporate finance advice. Evolution Securities Limited
has approximately 100 retained corporate clients. It is authorised and regulated
by the Financial Services Authority.
Williams de Broe Limited is a leading private client fund manager, with offices
in Bath, Birmingham, Bournemouth, Exeter, Guildford and London. Williams de Broe
is authorised and regulated by the Financial Services Authority.
Evolution Securities China Limited is a specialist Chinese investment banking
business with offices in London, Hong Kong and Shanghai. It offers UK based
institutional clients research and trading in Chinese stocks and Chinese
corporates access to the markets in London and Hong Kong
CHAIRMAN'S STATEMENT
Review of the half year ended 30 June 2007
The Evolution Group's ("Evolution", the "Company" or the "Group") objective has
been to achieve a real balance in revenues between those of a recurring nature
and those that are cyclical in type and to improve the quality of revenue
streams. I am pleased to report that in the first half the majority of the
Group's income came from recurring sources. Fundamental to the achievement of
this strategy was the acquisition of W Deb MVL Plc (formerly Williams de Broe
Plc) completed in June 2006. Since the integration of this business within the
Group's investment banking and private client fund management businesses was
only completed in July and October 2006 respectively it is clear that the more
appropriate comparative period for the Group's principal businesses is the
second half of 2006.
The Group's total income (before fee and commission expenses) increased to a
record level of £51.9m, up by 40% from £37.0m in H2 06 (up 9% from £47.8m in H1
06).
Investment Banking
Evolution Securities ("ESL"), the Group's principal investment banking business,
has achieved total income (before fee and commission expenses) in the first half
of £32.2m, up by 39% from £23.2m in H2 06 (down 13% from £36.9m in H1 06).
Primary - During the period ESL has executed one IPO and thirteen secondary
placings, which together with other advisory fees and retainers have generated
£9.0m in H1 of 2007 (2006 - H2: £9.8m; H1: £23.3m;). The level of primary fees
has decreased in H1 07 due to the restructuring of this business completed in H2
06 and we expect a return to normalised levels going forward. IPOs transacted by
ESL since 2006 have continued to perform well since issue, outperforming the
market, and on a weighted average basis have shown a 30% increase, demonstrating
the strength of our procedures in the primary issues we have completed.
Secondary - Our secondary franchise has continued to develop. Total income from
equity sales commissions, trading and fixed income has increased by 53% to
£23.0m from £15.0m in H2 06 (H1 06: £13.4m). ESL has seen a continuous
improvement in its secondary market share across all sectors since June 2006,
attaining top 10 agency commission market share in each of the FTSE 100, FTSE
250 and AIM sectors whilst maintaining our leading position within AIM by market
share in total business. We have also maintained our number two position on the
principal electronic retail platform in the UK. Our research coverage has
enjoyed greater market penetration and we have strengthened our targeted
franchises through the recruitment of analysts in Aerospace/Defence, Leisure/
Gaming, Utilities, and Telecoms, Media and Technology. We firmly believe that
research across small, mid and large capitalised sectors is the cornerstone of a
securities business. Our research teams now cover nine broad sectors and during
the first half we have also strengthened our sales and trading teams.
We aim to be a leading UK only securities business, covering specialist sectors
principally in the small and mid cap markets, but also encompassing large cap
stock research and trading. Trading, research, sales and corporate finance are
all aligned on these same sector lines. We will strive to keep a balance between
primary and secondary revenues recognising the relative volatility of both at
certain points in any cycle. This balance has been achieved in the first half
with Primary income accounting for only approximately 30% of ESL's income.
Private Client Fund Management
Williams de Broe ("WdB"), the Group's private client fund management
business, has seen continued momentum in growth this year on all metrics. Total
income (before fee and commission expenses) for the first half was £17.0m, up by
34% from £12.7m achieved in H2 06 (up 115% from £7.9m in H1 06), following the
growth in both management fees and transactional revenue.
At 30 June 2007, total funds under management were £2.5bn, an increase of 16%
from the £2.2bn as at last year end (increase of 172% on the £0.9bn at 30 June
2006). Total discretionary funds continue to account for over 85% of total funds
with recurring management fees now a significant source of stable income for the
Group. We have seen continued growth in funds under management into our
discretionary portfolio management services and also into our other fund based
products and services, including WdB Assetmaster and the specialist EIS and IHT
products. This follows a record six months of new fund sales in 2007 (£0.3bn)
from WdB's dedicated intermediary sales team (H2 06: £0.1bn; H1 06: £0.1bn).
We were delighted that three years after launch the WdB Assetmaster range of
multi-manager funds was awarded top quartile status by Lipper Hindsight and
achieved an S&P 'A' ranking in all four funds: Cautious, Balanced, Growth and
International Growth. In addition, it is our intention in the remainder of the
year to launch two new fund products: a UK equity hedge fund with an absolute
return strategy and a long only UK alpha fund.
WdB has continued to recruit further high quality individual managers over the
course of this year, and this has continued to strengthen our team, and will
prove to provide another important source of growth in our business. With the
developments outlined above this business has become significant, both within
the Group and by reference to external benchmarks, and we look forward to
providing details of the compelling growth strategy for WdB at the forthcoming
investor briefings.
Evolution Securities China Limited
Evolution Securities China ("ESCL") income growth has continued strongly in 2007
with total income (before fee and commission expenses) in the period of £3.7m,
only marginally below the 2006 full year result of £4.1m (H1 06: £2.6m; H2 06
£1.5m). Whilst the business remains a small part of the overall Group, it is
pleasing to see that it has developed well in this period with growth in both
primary and secondary activities.
Balance sheet, cash and other items
The Group has a long term policy of balance sheet strength, with net assets of
£155.8m at the period end (31 December 2006: £154.0m) and retains a cash balance
of £54.3m at 30 June 2007 (31 December 2006: £88.6m). The shape of our balance
sheet at 30 June 2007 now reflects the significant investment in the business by
way of working capital used in the secondary market franchise of ESL and the
significant increase in bargain volumes and market shares that have been
achieved here.
Dividend
The Board declares an interim dividend of 0.67p per share (2006: 0.5p). This
reflects the Board's continued commitment to a progressive dividend policy as
set out in the 2006 Annual Report and Accounts. This is payable on 26 October
2007 to shareholders on the register at 28 September 2007.
Board changes
I am pleased to announce that the Board has approved the appointment of Peter
Gibbs to be a Non-executive Director with effect from 1 October 2007. We see his
appointment as an important and significant strengthening of the Board.
Staff
This is a business whose results are based on the significant efforts of its
people. I thank each of them most warmly for their contribution to the Group's
performance.
Outlook
The Board believes that the Group is now extremely well positioned to prosper in
its chosen markets, notwithstanding the current volatile and uncertain
environment. Our strategic restructuring of the business over the past year has
created a Group which now has two strong core businesses - each of which is a
leader in its own field - and a strong balance sheet. The Board considers that
this structure will serve the Group well and looks forward with confidence to
the future.
Martin Gray
Chairman
11 September 2007
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'. This excludes items that are one-off or non-recurring (including items
that fall to be treated as exceptional), are not part of the on-going business
profitability or, in the case of the income statement charge for share options
and amortisation of intangible assets, which we view in the same manner as
goodwill and the share of results of associate companies that are not core to
the Group, represent non-cash items.
The Board reviews performance against the measure 'Adjusted profit before tax'
(formerly 'Clean profit before tax'), which represents adjusted operating profit
plus net interest; and also the measure 'Adjusted earnings' (formerly 'Clean
earnings'), which represents adjusted profit before tax less tax expense. These
measures are also followed by the analyst community as benchmarks for the
Group's on-going performance.
Whilst statutory operating profit has declined from £19.8m to £1.8m, this
compares with a loss of £7.1m in H2 06. The difference resulted principally from
the profit of £10.2m arising from negative goodwill associated with the
acquisition of W Deb MVL Plc in H1 06 and further exceptional items in this half
year of £6.1m following last year's acquisitions. The remaining difference
results from the continued investment in the people and systems within our
operating businesses, an investment that we believe makes the Group well placed
for the remainder of 2007 and beyond.
Adjusted operating profit is £14.5m. This has reduced slightly from the £15.3m
in the equivalent period last year but has shown a significant improvement
against H2 06 of £6.0m, an increase of 143%. The addition of interest of £1.3m
to adjusted operating profit results in adjusted profit before tax of £15.8m for
the period. This is 105% above H2 06 of £7.7m (down 10% from £17.6m in H1 06).
Interest has fallen by £0.4m or 24% from H2 06 as a result of the increased
working capital used within the business (down £0.9m or 40% from H1 06 of
£2.2m). Adjusted earnings have increased by 146% from £4.9m in H2 06 to £12.0m
(up 4% from £11.5m in H1 06).
The following table reconciles these measures:
UNAUDITED
---------------------------------------------------
6 months to 6 months to 6 months to
30 June 2007 30 June 2006 31 December 2006
(Restated) (Restated)
£'000 £'000 £'000 £'000 £'000 £'000
Operating profit/(loss) 1,768 19,824 (7,059)
Items not included within adjusted
operating profit
Profit on disposal of available
-for-sale investments - - (5)
Profit on part sale of
subsidiary - (610) (477)
----------------------------------------------------
Adjustment for profits on
investments - (610) (482)
Amortisation of
intangibles 270 - 213
Share of results of
associated undertakings (29) (13) 12
Income statement charge
for share options granted
to employees(1) 6,594 3,045 4,778
-----------------------------------------------------
Non-cash items 6,835 3,032 5,003
Exceptional and
non-recurring items
Exceptional (gain)/loss
arising on disposal of
available-for-sale
-investments (226) (96) 533
Negative goodwill arising
on acquisition - (10,237) (1,857)
Operating expenses 6,136 3,436 9,052
Impairment of intangibles - - 778
-----------------------------------------------------
Adjustment for items that
are one off or non-recurring 5,910 (6,897) 8,506
Adjusted Group operating profit 14,513 15,349 5,968
Net interest receivable 1,311 2,211 1,712
-------- ------- -------
Adjusted profit before tax 15,824 17,560 7,680
Tax expense(2) (3,803) (6,011) (2,793)
-------- ------- -------
Adjusted earnings for the period 12,021 11,549 4,887
======== ======= =======
Adjusted earnings attributable
to minority interest 211 129 (18)
Adjusted earnings attributable
to equity holders of The
Evolution Group Plc 11,810 11,420 4,905
------- ------- -------
12,021 11,549 4,887
======= ======= =======
Adjusted basic earnings
per share 5.63p 5.15p 2.23p
Adjusted diluted earnings
per share 4.76p 4.81p 2.06p
Notes:
(1)Represents the income statement charge for the fair value of options granted
to employees. The Group continues to purchase shares through the Trust to
satisfy obligations in respect of share options and call rights granted to
employees.
(2)Excludes the tax effect of exceptional items.
Update on W Deb MVL Plc net asset valuation and exceptional items
Following the finalisation of the fair value of net assets arising on the
acquisition of W Deb MVL Plc on 3 June 2006, final adjustments have been made to
the provisional acquired balance sheet numbers disclosed in the 2006 Annual
Report. Further details on the impact of this review, which has affected the
prior year financial information, are disclosed in Note 2.
As detailed in Note 8 exceptional operating expenses of £6.1m have been incurred
in the period (2006 - H2:£9.1m; H1: £3.4m). These were the final operating costs
incurred prior to closing the business of W Deb MVL Plc and the costs to
actually close down this business and retain key staff following the
acquisition. Management do not expect any further material exceptional costs to
be incurred in the remainder of 2007.
Share purchases by the Employee Trust
This year the Group has purchased an additional 4.8m shares for total
consideration of £6.8m. These shares were purchased by the Trust and are held to
satisfy share awards made to staff in the Group. The Trust held 11.7m shares at
30 June 2007 (31 December 2006: 9.6m; 30 June 2006: 9.1m). Subsequent to the
period end and up to the date of this report the Group has purchased a further
1.8m shares for a total cost of £2.5m. At the date of this report the Trust
holds 13.6m shares.
The treatment of option costs within the income statement, at £6.6m for the six
months to 30 June 2007 (H1 06: £3.0m) arising on the award of options to key
staff, continues to be consistent with prior periods. These costs are added back
to the measure of adjusted operating profit.
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 2007 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated 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.
The maintenance and integrity of The Evolution Group Plc web-site is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web-site. Legislation in the United
Kingdom governing the preparation and dissemination of financial information may
differ from legislation in other jurisdictions.
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 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 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
London
11 September 2007
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Twelve months
Six months to to 31
Six months to 30 June 2006 December 2006
30 June 2007 (Restated) (Restated)
Note £'000 £'000 £'000
Fee and commission income 37,370 39,348 71,395
Fee and commission expenses (1,456) (1,735) (1,788)
--------- --------- ---------
Net fee and commission income 35,914 37,613 69,607
Trading income 14,469 7,940 13,146
Other income 51 475 252
--------- --------- ---------
Total income 50,434 46,028 83,005
Profit/(loss) on disposal of
available-for-sale investments 226 96 (432)
Profit on part sale of subsidiary - 610 1,087
Share of results of associate 29 13 1
Negative goodwill arising on acquisition - 10,237 12,094
-------------------------------------------------------------------------------
Operating expenses (42,785) (33,724) (70,502)
Exceptional operating expenses 8 (6,136) (3,436) (12,488)
-------------------------------------------------------------------------------
Total operating expenses (48,921) (37,160) (82,990)
--------- --------- ---------
Operating profit 1,768 19,824 12,765
Interest receivable and similar income 1,401 2,361 4,097
Interest payable and similar charges (90) (150) (174)
--------- --------- ---------
Profit before tax 3,079 22,035 16,688
-------------------------------------------------------------------------------
Tax expense (3,803) (6,011) (8,804)
Exceptional tax credit/(expense) 1,841 (593) (1,038)
-------------------------------------------------------------------------------
Total tax expense 5 (1,962) (6,604) (9,842)
--------- --------- ---------
Profit for the period 1,117 15,431 6,846
======== ========= =========
Profit attributable to minority interest 211 129 111
Profit attributable to equity holders of
The Evolution Group Plc 906 15,302 6,735
--------- --------- ---------
1,117 15,431 6,846
========= ========= =========
Basic earnings per ordinary share 3 0.43p 6.91p 3.06p
Diluted earnings per share 3 0.37p 6.44p 2.83p
Proposed dividend per share
- Interim 4 0.67p 0.50p 0.50p
- Final - - 1.00p
Dividend declared (£'000)
- Interim 4 1,408 1,107 1,107
- Final - - 2,094
CONSOLIDATED BALANCE SHEET (UNAUDITED)
31 December 30 June
30 June 2006 2006
2007 (Restated) (Restated)
Note £'000 £'000 £'000
ASSETS
Non-current assets
Goodwill 9,931 9,956 9,877
Other intangible assets 2,813 2,745 3,391
Property, plant and equipment 3,941 4,337 3,444
Deferred tax assets 11,828 10,973 13,030
Investment in associate 138 109 121
Trade and other receivables 34 35 -
--------- --------- --------
Total non-current assets 28,685 28,155 29,863
Current assets
Trade and other receivables 528,221 132,992 290,385
Available-for-sale investments 964 1,926 2,030
Trading portfolio assets 82,666 27,716 51,146
Cash and cash equivalents 54,276 88,565 68,972
--------- --------- ---------
Total current assets 666,127 251,199 412,533
--------- --------- ---------
Total assets 694,812 279,354 442,396
========= ========= =========
LIABILITIES
Current liabilities
Trade and other payables 514,178 107,269 256,841
Trading portfolio
liabilities 20,346 14,728 10,119
Current tax liabilities 3,637 2,579 4,106
--------- --------- --------
Total current liabilities 538,161 124,576 271,066
Non-current liabilities
Deferred tax liabilities 406 459 587
Provisions for liabilities 414 333 276
--------- --------- --------
Total non-current liabilities 820 792 863
--------- --------- --------
Total liabilities 538,981 125,368 271,929
--------- --------- --------
EQUITY
Capital and reserves attributable to
equity shareholders
Share capital 2,218 2,214 2,307
Share premium 28,682 28,445 28,364
Capital redemption reserve 373 373 274
Merger reserve 51,230 51,230 51,230
Fair value and other reserves (1,477) (1,491) (1,767)
Retained earnings 73,425 72,061 89,616
---------- --------- --------
Parent company's shareholders' equity
excluding minority interest 6 154,451 152,832 170,024
Minority interest in equity 1,380 1,154 443
--------- --------- --------
Total equity 155,831 153,986 170,467
--------- --------- --------
Total equity and liabilities 694,812 279,354 442,396
========= ========= =========
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Six months to
Six months to 30 June 2006
30 June 2007 (Restated)
------------------ -----------------
£'000 £'000 £'000 £'000
Cash flow from operating activities
Cash used in operations (28,431) (40,882)
Interest received 1,803 2,278
Interest paid (90) (150)
Income tax recovered/(paid) 414 (1,976)
-------- -------- -------- --------
Net cash outflow from
operating activities (26,304) (40,730)
Cash flows from investing activities
Acquisition of subsidiaries - (27,030)
Fees on acquisition of subsidiaries - (1,057)
Cash acquired with subsidiary - 5,570
Purchase of property
plant and equipment (396) (326)
Purchase of intangible assets (578) (103)
Purchase of available-for-sale
investments - (138)
Proceeds from sale of
available-for-sale investments 1,242 230
-------- -------- -------- --------
Net cash generated /
(absorbed) from investing activities 268 (22,854)
Cash flows from financing activities
Issues of ordinary share capital 127 405
Dividends paid to the
Company's shareholders (2,094) (1,781)
Purchase of shares held by the Trust (6,235) (3,906)
------- -------- -------- --------
Net cash used in financing activities (8,202) (5,282)
-------- --------
Net decrease in cash and bank overdrafts (34,238) (68,866)
Cash and bank overdrafts at beginning of period 88,565 137,973
Exchange gains/(losses)on cash and
bank overdrafts (51) (135)
--------- --------
Cash and bank overdrafts at end of period 54,276 68,972
========= ========
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)
Twelve months
Six months to to 31 December
Six months to 30 June 2006 2006
June 2007 (Restated) (Restated)
£'000 £'000 £'000
Profit for the financial period 1,117 15,431 6,846
Available-for-sale investments:
Fair value changes taken
to equity during the period 280 (123) (151)
Exchange differences (40) - (88)
Deferred tax on share
options taken to equity 2,055 (1,653) (1,188)
-------- -------- --------
Net profit/(loss) not
recognised in income statement 2,295 (1,776) (1,427)
-------- -------- --------
Total recognised income and
expense for the period 3,412 13,655 5,419
======== ======== ========
Attributable to:
Minority interest 211 129 111
Equity shareholders of the Parent 3,201 13,526 5,308
-------- -------- --------
3,412 13,655 5,419
======== ======== ========
1. BASIS OF PREPARATION
This information does not represent a complete set of consolidated interim
financial statements 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 with the 'Principal
Accounting Policies' set out in the 2006 Annual Report and Accounts and Note 2
below. The statutory accounts for the year ended 31 December 2006, 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.
The prior half year interim financial statement comparatives have been extracted
from The Evolution Group Plc revised Interim Financial Information (Unaudited)
distributed to shareholders with the Annual Report and Accounts for 2006. This
information has been restated to reflect the revised fair value of net assets
described in Note 2 below and the prior period adjustments described in Note 7
below. In addition, the 2006 full year end comparatives have been restated to
reflect the revised fair value of net assets described in Note 2 below and the
prior period adjustments described in Note 7 below.
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 2006 Annual Report and Accounts, save for the adoption of IFRS 7, as
described below, and therefore the information in this report has been prepared
using the accounting policies and presentation applied in 2006.
In accordance with IFRS 3, 'Business Combinations', the provisional allocation
of the purchase consideration to the assets acquired from W Deb MVL Plc has been
reviewed based on additional information up to 3 June 2007. Listed below are the
individual adjustments arising following this review. Note 9 provides the
revised analysis for the W Deb MVL Plc acquisition following this review.
Following a review of the fair value of assets and liabilities arising on the
acquisition of W Deb MVL Plc, further trading assets have been identified which
on disposal are to be shared 50:50 with the vendor. This review has resulted in
prior year trading portfolio assets increasing by £1,696,000 and other creditors
increasing by £848,000, reflecting the amount to be paid away to the vendor, in
both the 30 June 2006 and 31 December 2006 balance sheets. The offset to this is
an increase in negative goodwill of £848,000. The fair value of the remaining
portfolio of assets has been reduced by £327,000, in both the 30 June 2006 and
31 December 2006 balance sheets, reflecting the final valuation adjustment to
the assets acquired. The offset to this is a reduction in negative goodwill of
£327,000.
In addition other debtors and other creditors within the balance sheet at both
30 June 2006 and 31 December 2006 have each been reduced by £306,000, reflecting
the reversal of accrued professional fees, indemnified by the vendor, which are
no longer payable. Finally, the fair value of other creditors at acquisition has
been reduced by £226,000, in both the 30 June 2006 and 31 December 2006 balance
sheets, reflecting the over accrual for professional fees at the acquisition
date. The offset to this is an increase in negative goodwill of £226,000.
The income statement for the year ended 31 December 2006 has been restated to
reflect additional trading income arising on the revaluation of trading assets
in the period. This adjustment has resulted in an increase in trading income of
£104,000 with a corresponding increase in trading portfolio assets within the
balance sheet.
The net effect of the above is an increase in negative goodwill arising on
acquisition of £747,000 in both the 30 June 2006 and 31 December 2006 income
statements.
During the year IFRS 7, 'Financial Instruments Disclosures' has been adopted by
the Group. This has no impact on these financial statements. The annual report
for the year ending 31 December 2007 will show the required disclosures under
this standard.
3. EARNINGS PER ORDINARY SHARE
As per Note 7, earnings per share for 2006 have been adjusted to reflect the
income statement restatements arising on the revision of fair values to the net
assets acquired and from the other adjustments detailed in that note. The
calculation of the basic earnings per ordinary share is based on the profit for
the period (excluding minority interest) 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 2007 Six months ended 30 June 2006
(Restated)
Earnings Weighted Earnings Earnings Weighted Earnings
ave. no. per share ave. no. per share
Statutory £000's (p) £000's (p)
------------------------------- ------------------------------
Basic 906 209,813,406 0.43 15,302 221,616,119 6.91
Dilutive effect
of share awards - 38,243,816 - - 15,913,979 -
------ ----------- ----- ------- ----------- -----
Diluted 906 248,057,222 0.37 15,302 237,530,098 6.44
------ ----------- ----- ------- ----------- -----
Six months ended 30 June 2007 Six months ended 30 June 2006
(Restated)
Earnings Weighted Earnings Earnings Weighted Earnings
ave. no. per share ave. no. per share
Adjusted £000's (p) £000's (p)
-------------------------------- -----------------------------
Basic 906 209,813,406 0.43 15,302 221,616,119 6.91
Profit on
investments - - - (610) - (0.28)
Exceptional
items 5,910 - 2.81 (6,897) - (3.10)
Exceptional tax
(credit)
/expense (1,841) - (0.87) 593 - 0.26
Non-cash
items 6,835 - 3.26 3,032 - 1.36
-------------------------------- ---------------------------
Adjusted
basic 11,810 209,813,406 5.63 11,420 221,616,119 5.15
Dilutive effect of
share awards - 38,243,816 - - 15,913,979 -
-------------------------------- -----------------------------
Adjusted
diluted 11,810 248,057,222 4.76 11,420 237,530,098 4.81
-------------------------------- -----------------------------
4. DIVIDENDS
30 June 2007 30 June 2006
£'000 £'000
Prior year final paid: 1.00p (2006: 0.80p) per
1p share 2,094 1,781
-------- --------
In addition, the Directors are proposing an interim dividend in respect of the
financial year ending 31 December 2007 of 0.67p (2006: 0.50p) per share, which
will absorb an estimated £1,408,000 (2006: £1,107,000) of shareholders' funds.
It will be paid on 26 October 2007 to shareholders on the register of members on
28 September 2007.
5. TAX EXPENSE
Six months to Six months to Twelve months
30 June 2007 30 June 2006 to 31 December
£'000 (Restated) 2006 (Restated)
£'000 £'000
Current tax:
UK Corporation tax on profit 3,727 5,646 8,879
Corporation tax on
exceptional items (1,841) 593 (2,122)
Adjustments in respect of
prior years (1,287) - -
Foreign tax 215 33 252
--------- --------- ---------
Current year tax charge 814 6,272 7,009
Deferred tax:
Current year movement 1,148 332 2,833
--------- --------- ---------
Tax on profit 1,962 6,604 9,842
--------- --------- ---------
The tax assessed for the period is higher (2006: lower) than the standard rate
of corporation tax in the UK (30%). The differences are explained below. The
effective rate of tax for the period is 30% (2005: 30%)
Factors affecting the current tax charge for the period are explained below:
Six months to Twelve months
Six months to 30 June 2006 to 31 December
30 June 2007 (Restated) 2006 (Restated)
£'000 £'000 £'000
Profit before tax 3,079 22,035 16,688
Profit multiplied by the
standard rate of corporation
tax in the UK of 30% (2006:30%) 924 6,61 5,006
Effects of:
Expenses not deductible for
tax purposes 5,961 7,495 10,519
Schedule 23 deduction on
options exercised (3,750) (9,557) (10,495)
Utilisation of losses (1,106) (102) 47
Non taxable income (69) (183) (361)
Adjustments in respect of prior years (1,287) - -
Higher tax rates on overseas earnings (27) (5) 132
Stock options taken to equity reserves 168 2,013 2,161
------- ------- --------
Current tax charge 814 6,272 7,009
------- ------- --------
Deferred tax 303 332 (328)
Exceptional deferred tax - - 3,161
Adjustment in respect of prior years 845 - -
------- ------- --------
Current year movement 1,148 332 2,833
------- ------- --------
Total tax charge 1,962 6,604 9,842
------- ------- --------
The exceptional tax credit of £1,841,000 (30 June 2006: debit of £593,000)
relates to the 30% tax credit estimated to arise on the £6,136,000 (2006:
£3,436,000) of exceptional operating expenses, offset in the prior period by the
£1,624,000 of tax estimated to arise on the £5,413,000 consideration received
from the vendor for the net assets of W Deb MVL Plc.
The prior year end exceptional tax credit of £2,122,000 relates to the 30% tax
credit estimated to arise on the £12,488,000 exceptional operating expenses,
offset by the £1,624,000 tax estimated to arise on the consideration as detailed
above. The prior year exceptional deferred tax debit of £3,161,000 relates to
the write off of deferred tax assets on pension contributions made by the vendor
of W Deb MVL Plc prior to acquisition.
The 2007 adjustment in respect of prior years relates to the utilisation of
losses claimed for the years ended 31 December 2005 and 2006.
6. GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(excluding Minority Interest)
Fair
Capital value and Retained
Share Share redemption Merger other Earnings Total
capital premium reserve Reserve reserves (Restated) equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1
January 2007 2,214 28,445 373 51,230 (1,491) 72,061 152,832
Profit for the
period - - - - - 906 906
Issue of ordinary
share capital 4 237 - - - - 241
Purchase of
Trust shares
by the Trust - - - - - (6,235) (6,235)
Share option:
value of services
provided - - - - - 6,583 6,583
Revaluation of
available-for-sale
investments - - - - 280 - 280
Available-for-sale
investments transferred to
income statement
on sale - - - - (226) - (226)
Deferred tax credit on
employee options - - - - - 2,204 2,204
Exchange
differences - - - - (40) - (40)
Dividends paid - - - - - (2,094) 2,094)
----- ------ ------ ------ ------- ------- -------
Balance at 30
June 2007 2,218 28,682 373 51,230 (1,477) 73,425 154,451
----- ------ ------ ------ ------- ------- -------
7. OTHER ADJUSTMENTS
The income statements in the prior periods have been restated to reflect the
re-classification of interest on client assets more appropriately as fee and
commission income rather than other income. This adjustment has resulted in the
other income figure for the six months to 30 June 2006 and for the year to 31
December 2006 decreasing by £347,000 and £1,101,000 respectively and fee and
commission income increasing by an equivalent amount.
The income statements in the prior periods have been restated to reflect the
re-classification of taxation credits on exceptional operating expenses as
exceptional tax expense rather than tax expense. This adjustment has resulted in
the ordinary tax expense figure for the six months to 30 June 2006 and for the
year to 31 December 2006 increasing by £1,031,000 and £3,746,000 respectively
with the exceptional tax expense amount decreasing by an equivalent amount. In
addition, the exceptional tax expense for the six months to 30 June 2006 has
increased by £1,624,000, with the ordinary tax expense decreasing by an
equivalent amount, reflecting the estimated tax arising on the £5,413,000
consideration receivable from the vendor for net assets acquired in June 2006.
The balance sheet at 30 June 2006 has been restated to reflect the
reclassification of non-current deferred tax liabilities from current tax
liabilities to non-current deferred tax liabilities. This adjustment has
resulted in a re-classification of £587,000.
The prior year end tax expense figure has been restated to reflect the
correction to deferred tax expense on employee options which had been
overstated. This adjustment has resulted in a decrease in tax expense of
£2,161,000 in the income statement for the year ended 31 December 2006 with an
offsetting decrease in retained earnings. There is no impact on net assets
arising from this adjustment.
As a result of the fair value adjustments in Note 2 and the other adjustments
presented above, the prior year profit for the period within the income
statement has decreased by £877,000 for the six months to 30 June 2006 and has
increased by £3,012,000 for the year ended 31 December 2006. The adjustments to
the profit figures for the prior periods results in basic and diluted EPS
figures decreasing from 7.30p and 6.81p respectively to 6.91p and 6.44p for the
six months to 30 June 2006 and increasing from 1.69p and 1.56p respectively to
3.06p and 2.83p for the year ended 31 December 2006.
8. EXCEPTIONAL ITEMS
As indicated in the annual report for 2006 the Group has incurred significant
costs during the period which it considers to be exceptional. A summary of all
exceptional items for 2007 together with the comparative figures for 2006 is
provided below:
Six months to
Six months to 31 December Total
Six months to 30 June 2006 2006 2006
30 June 2007 (Restated) (Restated) (Restated)
Exceptional items £'000 £'000 £'000 £'000
Goodwill arising on acquisition
Negative goodwill - 10,237 1,857 12,094
Operating expenses
Retention and loyalty bonuses (2,824) (2,249) (3,930) (6,179)
Costs to close down business (1,780) (1,187) (2,262) (3,449)
Other operating expenses (1,532) - (2,860) (2,860)
-------- -------- -------- --------
(6,136) (3,436) (9,052) (12,488)
Exceptional tax
credit/(expense) 1,841 (593) (445) (1,038)
-------- -------- -------- --------
Total Exceptional items (4,295) 6,208 (7,640) (1,432)
-------- -------- -------- --------
Costs to close down the business include redundancy and provisions to terminate
the systems and leases following closure of the acquired businesses. Other
operating expenses include those expenses incurred for wages and salaries,
premises and systems which are not expected to recur.
9. BUSINESS COMBINATION
W Deb MVL Plc (formerly Williams de Broe Plc) and Williams de Broe
Administration Limited
As previously reported, on 3 June 2006 the Company acquired 100% of the share
capital of the W Deb MVL Plc and Williams de Broe Administration Limited.
Adjustments to the fair value of identifiable net assets acquired in the year to
3 June 2007 are as detailed below.
Provisional Final
£'000 £'000
Purchase consideration
Intercompany debts assumed by the Company 26,029 26,029
Acquisition expenses 1,609 1,609
Amount recoverable for negative net assets (5,413) (5,413)
Amount recoverable from indemnities received (5,927) (5,621)
-------- --------
Total purchase consideration 16,298 16,604
Fair value of net identifiable assets acquired 27,645 28,698
-------- --------
Negative goodwill arising (11,347) (12,094)
-------- --------
The assets and liabilities arising from the acquisition are as follows:
Provisional Final
Fair value Fair value
£'000 £'000
Cash and cash equivalents 5,654 5,654
Investments 70 70
Customer relationships 1,125 1,125
Brand 1,066 1,066
Distribution channels 351 351
Receivables (including trading portfolio assets) 263,248 263,995
Payables (250,750) (250,444)
Deferred tax asset 7,469 7,469
Deferred tax liability (588) (588)
---------- --------
Net identifiable assets acquired 27,645 28,698
---------- --------
The payables figure in the table above includes an amount of £1,014,000 in
respect of bank overdraft balances.
Please refer to Note 2 for an explanation of the movements from the provisional
to the final fair values detailed above and the impact these have on the
negative goodwill arising.
This information is provided by RNS
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