Final Results

Close Brothers Group PLC 29 September 2003 Embargoed for release 7.00 am on Monday 29th September, 2003 CLOSE BROTHERS GROUP plc The specialist merchant banking group announces results for the year to 31st July, 2003 HIGHLIGHTS 2003 2002 * Profit before taxation and goodwill amortisation Â£85.4m Â£75.1m * Earnings per share before goodwill amortisation 41.1p 37.2p * Profit before taxation Â£77.9m Â£68.4m * Earnings per share 35.8p 32.3p * Dividends per share 26.0p 26.0p * Shareholders' funds Â£487m Â£472m * Total assets Â£3.6bn Â£3.1bn * Overview - Another good performance from banking and a stronger second half from investment banking. * Banking - Solid progress, profit and loan book up 14%, bad debts unchanged. * Investment Banking - Year on year up 6% due mainly to market recovery. Asset Management - A difficult year with profit sharply down. FUM up 19% - all new money. Corporate Finance - Profit doubled after a busy last quarter. Market-Making - Profit up 40% on increased activity levels and market share. Sir David Scholey, Chairman, said: "The long storm in the Stock Market appears to have blown out, presenting a more positive outlook for our three investment banking divisions. However, the general economic situation remains uncertain. In these circumstances, we remain prudently cautious about the prospects for our investment banking activity, while expecting some improvement in the immediate trading environment in which we operate. With regard to our lending businesses, there is as yet no evidence of any significant adverse change in the bad debt environment; indeed interest rates remain at historically low levels, consumer spending continues quite strongly and unemployment remains low. Against this background the outlook for our banking activity remains good. Our clear strategy of diversification and specialisation has seen us through what was, hopefully, the worst of the market downturn and, whilst retaining our natural caution, we look forward with considerably more confidence than for some time." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Rupert Young Brunswick Group Limited 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group plc at www.closebrothers.co.uk or www.cantos.com CLOSE BROTHERS GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED GROUP RESULTS AND CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31ST JULY, 2003 The following is the full text of the preliminary announcement of results for the financial year ended 31st July, 2003. The financial information in relation to 31st July, 2003 has been extracted from the statutory accounts of the company, which have yet to be adopted by shareholders at general meeting and have yet to be filed with the Registrar of Companies. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31st July, 2003 Year Ordinary Goodwill Total ended activities amortisation ordinary 31st July, before activities 2002 goodwill amortisation Â£'000 Â£'000 Â£'000 Â£'000 Interest receivable 219,948 - 219,948 198,890 Interest payable (93,464) - (93,464) (88,449) Net interest income 126,484 - 126,484 110,441 Fees and commissions 152,536 - 152,536 140,795 receivable Fees and commissions (25,505) - (25,505) (24,740) payable Net dealing income - 66,711 - 66,711 48,365 market-making Other operating income 3,113 - 3,113 1,493 Other income 196,855 - 196,855 165,913 Operating income 323,339 - 323,339 276,354 Administrative expenses 207,515 - 207,515 174,383 Depreciation 8,471 - 8,471 7,614 Provisions for bad and 21,962 - 21,962 19,256 doubtful debts Amortisation of goodwill - 7,469 7,469 6,681 Total operating expenses 237,948 7,469 245,417 207,934 Operating profit on 85,391 (7,469) 77,922 68,420 ordinary activities before taxation Taxation on profit on 25,332 - 25,332 21,839 ordinary activities Profit on ordinary 60,059 (7,469) 52,590 46,581 activities after taxation Minority interests - equity 1,514 - 1,514 2,252 Profit attributable to 58,545 (7,469) 51,076 44,329 shareholders Dividends: Interim dividend 9.0p per 12,839 12,195 share (2002 - 9.0p) Proposed final dividend 24,482 24,214 17.0p per share (2002 - 17.0p) Total dividends 26.0p per 37,321 36,409 share (2002 - 26.0p) Retained profit for the 13,755 7,920 year Earnings per share before 41.1p 37.2p amortisation of goodwill Earnings per share on 35.8p 32.3p profit attributable to shareholders Diluted earnings per share 35.6p 32.0p All income and profits are in respect of continuing operations. CONSOLIDATED BALANCE SHEET At 31st July, 2003 2003 2002 Â£'000 Â£'000 Assets Cash and balances at central banks 878 671 Loans and advances to banks 746,586 443,175 Loans and advances to customers 1,615,614 1,410,998 Non-recourse borrowings (175,000) (175,000) 1,440,614 1,235,998 Debt securities - long positions 60,744 64,352 Debt securities - other 543,826 712,380 Settlement accounts 391,684 246,456 Equity shares - long positions 24,385 15,971 Equity shares - investments 30,497 28,484 Intangible fixed assets - goodwill 106,003 113,065 Tangible fixed assets 23,853 24,667 Share of gross assets of joint ventures 20,636 14,331 Share of gross liabilities of joint ventures (20,182) (13,905) 454 426 Other assets 164,215 134,684 Deferred taxation 12,443 10,345 Prepayments and accrued income 27,213 22,956 Total assets 3,573,395 3,053,630 Liabilities Deposits by banks 107,872 83,159 Customer accounts 1,401,482 1,222,541 Bank loans and overdrafts 617,559 505,655 Debt securities - loan notes issued 100,000 100,000 Debt securities - short positions 54,113 52,231 Settlement accounts 317,857 202,343 Equity shares - short positions 19,371 7,589 Other liabilities 274,060 228,068 Accruals and deferred income 91,487 77,105 Subordinated loan capital 96,937 96,937 Minority interests - equity 6,124 6,079 3,086,862 2,581,707 Shareholders' funds Called up share capital 36,003 35,920 Share premium account 249,527 248,456 Profit and loss account 201,003 187,547 Total equity shareholders' funds 486,533 471,923 Total liabilities and shareholders' funds 3,573,395 3,053,630 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st July, 2003 2003 2002 Â£'000 Â£'000 Net cash inflow/(outflow) from operating activities 51,275 (29,611) Returns on investments and servicing of finance: Interest paid on subordinated loan capital (7,825) (7,825) Dividends paid to minorities (280) (178) (8,105) (8,003) Taxation: Taxation paid (21,080) (25,586) Capital expenditure and financial investment: Purchase of tangible fixed assets (8,318) (14,396) Sale of tangible fixed assets 756 2,416 Purchase of equity shares held for investment (7,921) (5,173) Sale of equity shares held for investment 7,090 2,647 (8,393) (14,506) Acquisitions and disposals: Minority interests acquired for cash (1,734) (1,194) Purchase of subsidiaries (3,547) (6,685) (5,281) (7,879) Equity dividends paid (37,053) (35,122) Net cash outflow before financing (28,637) (120,707) Financing: Issue of ordinary share capital including premium 1,154 57,068 Decrease in cash (27,483) (63,639) In the directors' view, cash is an integral part of the operating activities of the group, since it is a bank's stock in trade. Nevertheless, as required by Financial Reporting Standard No. 1 (Revised), cash is not treated as cash flow from operating activities but is required to be shown separately in accordance with the format above. THE NOTES 1. The calculation of earnings per share on profit attributable to shareholders is based on profit after taxation and minority interests of Â£51,076,000 (2002 - Â£44,329,000) and on 142,613,000 2002 - 137,244,000) ordinary shares, being the weighted average number of shares in issue during the year excluding those held by the employee share benefit trust. 2. The final ordinary dividend of 17.0p per share is proposed to be paid on 4th November, 2003 to holders of ordinary shares on the register at the close of business on 10th October, 2003. 3. The financial information included in this announcement does not constitute the company's statutory accounts for the years ended 31st July, 2003 or 2002, but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. CHAIRMAN'S STATEMENT RESULTS The operating profit on ordinary activities before taxation and goodwill amortisation was Â£85.4 million, compared to Â£75.1 million last year, an increase of 14 per cent. Earnings per share, on the same basis, were 41.1p compared to 37.2p, an increase of 10 per cent. After deducting a charge for goodwill amortisation of Â£7.5 million (2002 - Â£6.7 million), the operating profit on ordinary activities before taxation was Â£77.9 million (2002 - Â£68.4 million) and earnings per share, on the same basis, were 35.8p (2002 - 32.3p). The board is recommending a final dividend of 17p per share which, together with the interim dividend, gives a total dividend for the year of 26p per share. This is the same as last year's total dividend and, based on earnings per share of 41.1p, is covered some 1.6 times. OVERVIEW Trading conditions for most of our financial year continued to be testing, particularly for our investment banking businesses. Falling stock markets in the second half of 2002 and early 2003 preceded the war in Iraq and continued the long bear phase. However, since the spring, there has been a healthy and, so far, sustained bounce in market confidence and activity, which has benefited our results. The better market conditions have led to a noticeable fillip in the last quarter in particular for our market-making division. They also meant that our corporate finance division progressed during the year. However, although our asset management division has benefited from the recent market upturn, its profits are significantly down year on year. Overall the profit of our investment banking activity was 6 per cent. ahead of that for last year. Our banking activity has once again had a good year, with profit, loan book and customer deposits all up 14 per cent. The division performed well in almost all key areas with another particularly strong showing from our insurance premium financing business. Bad debt levels remain broadly unchanged from last year. The resilience of our profit once again demonstrates the soundness of our strategy of specialisation and diversification. Analysis of Operating Profit 2001 2002 2003 % % % Asset Management 23 18 8 Corporate Finance 12 2 5 Market-Making 26 19 24 Investment Banking 61 39 37 Banking 39 61 63 100 100 100 TRADING Investment Banking Asset Management The profit of Â£8.1 million was sharply down from last year's Â£15.9 million, although the second half of the current year was level with the first half. Whilst this result was disappointing, if understandable, it was pleasing that our funds under management held steady at the half year (Â£3.1 billion) and advanced to Â£3.7 billion at the year end. Almost all of this increase of 19 per cent. arose from net new funds raised, some Â£450 million, with the remainder coming from market movement. In addition to generally difficult market conditions, there are specific reasons behind the fall in profit which we foreshadowed last year. First, in the Channel Islands, in addition to increased costs for new premises and a new computer system (now installed and operational), we suffered from the more difficult business environment generally including lower margins in our cash management business. Secondly, although we did well in raising new money this came with a lower up front margin than historically. However, there were some bright spots. We benefited from a strong performance by our private equity business, and from the continued growth of our property funds. A few weeks prior to the year end Jonathan Sieff joined us from Old Mutual-Gerrard as head of our asset management division, with a mission to expand its scope, scale and profitability. As a first step we have recently purchased, subject to Financial Services Authority approval, Nelson Money Managers, which operates in the "mass affluent" market. With more than Â£900 million of funds under management, this business complements the activities of Close Wealth Management and is a substantial boost for our onshore private client business. Corporate Finance Trading conditions for this division were subdued for much of the year but we experienced increased activity in the last quarter, when a number of deals which had been long in gestation completed ahead of the summer holiday period. This was particularly noticeable in the UK, where debt advice and restructuring accounted for a large segment of our work. In France too we had a good end to the year but in Germany our business was depressed. All of this resulted in operating income increasing by 27 per cent. to Â£33.3 million and profits more than doubling to Â£5.3 million. We continue to focus on mid-market companies with growth potential and there are signs that the worst may be behind us. Richard Grainger, head of our corporate finance division, has joined our new Management Board. Market-Making After approximately three years of severe bear market conditions, both the UK and world markets picked up significantly in the spring of this year. Our broader business base (developed during the bear market) meant that we were able to take full advantage of improving market conditions. As a result, profit increased by 40 per cent. from Â£16.8 million to Â£23.5 million, with the second half representing some 60 per cent. (2002 - 43 per cent.) of the total. During the year we steadily increased our market share, with the result that, by number and value of deals executed, we were consistently among the top three most active transactors of principal to agent business in the London equity market. Part of this increase arose from the continued development of our FTSE-100 business which, whilst at lower margins than our traditional small-cap business, nevertheless broadened the service that we are providing to the retail investor. Our fixed interest business also expanded and, in addition, the investment trust team which joined at the beginning of the year has had a positive impact. This division has made an encouraging start to the new financial year. Banking The good progress of our lending businesses in recent years, continued throughout the year. Profit again grew steadily, by 14 per cent., from Â£55.1 million to Â£62.9 million. At the same time our gross loan book grew by a similar percentage, from Â£1.4 billion to Â£1.6 billion, as did our customer deposits. This commendable performance was achieved in reasonably benign market conditions where, in particular, bad debt levels remained steady - in our case demonstrated by the charge to profit, once again, of 1.5 per cent. of our average loan book. Our insurance premium financing business was the outstanding performer, increasing its profits by 48 per cent. This business benefited from strong organic growth, from our increasing move into the personal lines market, and from the continued hardening of commercial insurance premiums - which may not persist for much longer. Against the background of a somewhat less buoyant market, especially in Central London, our property lending business has continued its good performance with a well spread and well secured loan book. Our invoice finance and credit management businesses have done well, as has our mortgage broking business which had a record year arranging some Â£4.9 billion (2002 - Â£2.2 billion) of mortgages for 35,000 (2002 - 25,000) borrowers. Our central treasury, whilst finding the low interest rate environment challenging, has been active in raising additional facilities at attractive rates to provide for our planned future growth. Our asset financing businesses, representing 44 per cent. of the banking division's profit, on the whole continued to prosper with a particularly good performance from our car finance company, where profits increased 83 per cent., and from our specialist finance company in Jersey, which had a record year. We saw encouraging levels of growth and profitability in the machine tool, transport and healthcare sectors. Conversely the market for printing machinery was as difficult as it has been for some while, and the outlook for this segment remains patchy. Our military services business had a more testing year, particularly in the last few months with many of its customers on duty in Iraq. Mike Barley, who joined us in 1999 from Wagon Finance-Abbey National, has joined our Management Board having been appointed chief executive of our asset finance division on 31st July, 2003 on the retirement of David Hardisty. DIRECTORS AND MANAGEMENT Following the appointment of our new chief executive last November, we have made some changes to our management structure. We have created a Management Board whose main function is to assist the chief executive both in developing strategy and business objectives, and with the day to day management of the group. The Management Board is chaired by Colin Keogh, and includes Mike Barley, Richard Grainger, Mike Hines, Stephen Hodges, David Pusinelli and Peter Winkworth, all executives of the group. On 31st July, 2003, David Hardisty retired as a director of the company and David Macnamara, while remaining joint chief executive of Winterflood Securities, ceased to be an alternate director. David Hardisty has been the team leader of our asset financing division, which we backed in 1987 with initial capital of Â£1.2 million. Then specialising in print finance and employing some nine people, the business is now broadly based, with 140 employees and a loan book of almost Â£600 million. We thank him for his energetic commitment and look forward to continuing to benefit from his wisdom and experience as a consultant on asset finance. We welcome Strone Macpherson who was appointed a non-executive director on 3rd March, 2003. OUTLOOK The long storm in the Stock Market appears to have blown out, presenting a more positive outlook for our three investment banking divisions. However, the general economic situation remains uncertain. In these circumstances, we remain prudently cautious about the prospects for our investment banking activity, while expecting some improvement in the immediate trading environment in which we operate. With regard to our lending businesses, there is as yet no evidence of any significant adverse change in the bad debt environment; indeed interest rates remain at historically low levels, consumer spending continues quite strongly and unemployment remains low. Against this background the outlook for our banking activity remains good. A key challenge is the development of our asset management division. This will take time and, while we continue to encourage and review all relevant acquisition opportunities, we shall approach this task in our usual careful and thorough way. Our clear strategy of diversification and specialisation has seen us through what was, hopefully, the worst of the market downturn and, whilst retaining our natural caution, we look forward with considerably more confidence than for some time. Sir David Scholey Chairman This information is provided by RNS The company news service from the London Stock Exchange

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