Interim Results
Close Brothers Group PLC
01 March 2004
Embargoed for release 7.00 am on Monday 1st March, 2004
CLOSE BROTHERS GROUP plc
The specialist merchant banking group
INTERIM RESULTS 2004
HIGHLIGHTS Six months ended Year ended
31st January, 31st January, 31st July,
2004 2003 2003
* Operating profit before taxation and
goodwill amortisation £57.8m £39.6m £85.3m
* Operating profit before taxation on
ordinary activities £53.4m £36.2m £77.8m
* Earnings per share (before amortisation
of goodwill) 27.7p 19.3p 41.0p
* Interim dividend per share 9.0p 9.0p n/a
* Shareholders' funds £504m £479m £482m
* Profits up 46%
* Banking profits increased by 10%. No increase in bad debt charge.
* Investment Banking profits more than doubled compared to first half last year.
Asset Management has improved. FUM increased to £5 billion.
Corporate Finance had a reasonable number of deals complete.
Market-Making has benefited from increased stock market activity.
Sir David Scholey, Chairman, commenting on the results said:
"The results demonstrate the continued steady organic growth of our banking
activity, where the outlook continues to be good and the improved fortunes of
our investment banking activity since the end of the long bear market, where the
outlook is much improved".
Enquiries to:
Colin Keogh Close Brothers Group plc 020 7426 4000
Rupert Young Brunswick Group LLP 020 7404 5959
Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group
plc at www.closebrothers.co.uk or www.cantos.com
DIRECTORS' STATEMENT
Profit and Dividend
The operating profit on ordinary activities before taxation and goodwill
amortisation was £57.8 million compared with £39.6 million last year, an
increase of 46 per cent. The earnings per share before goodwill amortisation
was 27.7p compared with 19.3p, up 44 per cent.
After deducting a charge for goodwill amortisation of £4.4 million (2003 - £3.4
million), the operating profit on ordinary activities before taxation was £53.4
million (2003 - £36.2 million), up 48 per cent. Earnings per share also
increased by 46 per cent. to 24.6p (2003 - 16.9p).
The directors have declared an interim dividend of 9.0p per share, the same
level as last year. This is payable on 14th April, 2004 to shareholders on the
register at the close of business on 12th March, 2004.
Overall Business Review
The results demonstrate the continued steady organic growth of our banking
activity and the improved fortunes of our investment banking activity since the
end of the long bear market.
Our Banking profits increased by 10 per cent. compared to the same period last
year. During the last twelve months our loan book grew by 11 per cent. and the
bad debt charge, expressed as a percentage of the average loan book, reduced
somewhat to 1.3 per cent.
Investment Banking profits more than doubled compared to the first half last
year. All three divisions showed good growth. Asset Management has begun to
pick up and the recent Nelson acquisition did well. Corporate Finance built
upon the improved result in the last months of last year and Market-Making moved
forward on the back of continued buoyancy in the stock market.
The table below sets out our divisional analysis:
Operating income Profit before taxation
£million First First First First
half half half half
2003 2004 2003 2004
Investment Banking
Asset Management 31.2 38.3 4.0 7.2
Corporate Finance 12.3 16.9 1.4 4.5
Market-Making 26.6 53.0 9.3 19.9
70.1 108.2 14.7 31.6
Banking 76.7 85.5 31.4 34.4
Group 1.2 0.8 (6.5) (8.2)
Total 148.0 194.5 39.6 57.8
Goodwill amortisation (3.4) (4.4)
Total 36.2 53.4
The divisional net assets have not changed materially during the first half
year.
Divisional Business Review
Banking
The steady growth of our banking division continued. This activity utilised
some 48 per cent. of our capital and contributed 52 per cent. of our operating
profits before group central costs.
Profits increased by nearly 10 per cent. over the same period last year on a
loan book growing to £1.7 billion. Bad debts were well contained at 1.3 per
cent. of our average loan book (2003 - 1.5 per cent.).
We continue to specialise in asset backed finance and the analysis of our loan
book at the half year once again indicates fairly level growth across the asset
sectors, none of which dominates our business:
31st January, 31st January,
2003 2004
Insurance premiums 27% 29%
Cars 19% 20%
Printing machinery 18% 16%
Transport and engineering
13% 12%
Healthcare, armed services and other
9% 10%
Property 9% 8%
Debt factoring 5% 5%
100% 100%
Close Premium Finance had another successful period and again achieved a record
half year profit. We have observed a slowing in the pace of commercial
insurance premium increases but our volume of loan applications continues to
grow. Close Motor Finance also had a fine period of trading, producing another
record result. Close Asset Finance, which deals mainly with commercial assets,
produced an improved result. Its printing market shows signs of re-awakening
and businesses in the healthcare and contractors' plant markets grew.
Close Property Finance produced solid results, in a market that remains buoyant
but in which we continue to be prudent. Our Credit Management businesses also
made progress as did our Mortgage Broking operation. In addition the central
Treasury benefited from the movement in interest rates, after a fairly flat
period. We continue to have substantial undrawn committed facilities to fund
future growth.
Overall the outlook for our banking activity remains good.
Investment Banking
Asset Management
Following the low point reached last year, the profits of our asset management
division have improved. This was achieved on the back of rising stock markets
and a further increase in funds under management, to £5.0 billion as follows:
Funds under management
£bn
At 31st July, 2003 3.7
New funds (net) 0.3
Acquired funds 0.9
Market movement 0.1
At 31st January, 2004 5.0
Our private client businesses onshore and offshore both made progress. Offshore
we completed the infrastructure reorganisation and now have in place new
management, new premises and new systems in the Channel Islands. The challenge
is to focus our product and service offerings and strengthen our business
development efforts. Onshore the key development was our acquisition of Nelson
and we are well ahead with our plans to integrate this with Close Wealth
Management, where the administrative centre will be located in the North West.
Our funds businesses also made progress. The two businesses specialising in
unquoted investments - tax sheltered products, including property investments,
and private equity - both continued to do well. Our other businesses,
concentrating mainly on quoted investments, did better and we are actively
seeking ways for them to strengthen their distribution.
The present stock market outlook means that the prospects for this business are
improving.
Corporate Finance
Towards the end of our last financial year the business of Close Brothers
Corporate Finance recovered from its low point when the bear market was at its
most severe. The latest half year started with higher levels of enquiry flow
and ended with a satisfactory number of deals being completed. Activity has
continued in the restructuring arena and is improving in M&A. Our forward
pipeline is in reasonable shape but whilst there has been some pick up in our
German and Spanish operations, for our French operation the market remains flat.
We are cautiously optimistic for the future.
Market-Making
After some three years of a bear phase, the UK stock market has been in a more
bullish phase for the past eleven months. The much improved activity for our
business in the last part of our previous financial year continued into the
early months of our first half. The market finished calendar 2003 on a strong
note and has held its own since then. Our activity levels have been healthy and
private clients appear to be regaining confidence.
These conditions enabled our market-making business to generate rapidly rising
profits which more than doubled over the same period last year.
Outlook
The UK economy continues to show growth and the stock market has emerged from
the doldrums. These more favourable conditions for us have been reflected in
the results of our investment banking activity, where the outlook is much
improved. The outlook for our banking activity continues to be good.
1st March, 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Six months ended Year ended
31st January, 31st July,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
£'000 £'000 £'000
Interest receivable 116,243 109,931 219,948
Interest payable (50,828) (47,747) (93,464)
Net interest income 65,415 62,184 126,484
Fees and commissions receivable 86,568 65,760 152,536
Fees and commissions payable (13,675) (10,652) (25,505)
Net dealing income - market-making 54,683 28,014 66,711
Other operating income 1,529 2,709 3,113
Other income 129,105 85,831 196,855
Operating income 194,520 148,015 323,339
Administrative expenses 121,961 93,830 207,639
Depreciation 4,387 3,958 8,471
Provisions for bad and doubtful debts 10,365 10,669 21,962
Amortisation of goodwill 4,451 3,389 7,469
Total operating expenses 141,164 111,846 245,541
Operating profit on ordinary activities before
taxation 53,356 36,169 77,798
Taxation on profit on ordinary activities 16,794 11,377 25,332
Profit on ordinary activities after taxation 36,562 24,792 52,466
Minority interests - equity 1,092 665 1,514
Profit attributable to shareholders 35,470 24,127 50,952
Interim dividend 12,875 12,839 37,321
Retained profit 22,595 11,288 13,631
Dividend per share 9.0p 9.0p 26.0p
Earnings per share before amortisation of 27.7p 19.3p 41.0p
goodwill
Earnings per share on profit attributable
to shareholders 24.6p 16.9p 35.7p
Diluted earnings per share 24.5p 16.9p 35.5p
All income and profits are in respect of continuing operations. The
comparative figures for both the six months ended 31st January, 2003 and the
year ended 31st July, 2003 have been restated as a result of the group
adopting Urgent Issues Task Force ("UITF") Abstract 38 on Accounting for ESOP
trusts.
CONSOLIDATED BALANCE SHEET
31st January, 31st July,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
£'000 £'000 £'000
Assets
Cash and balances at central banks 970 759 878
Loans and advances to banks 631,192 679,307 746,586
Loans and advances to customers 1,684,206 1,520,476 1,615,614
Non-recourse borrowings (225,000) (175,000) (175,000)
1,459,206 1,345,476 1,440,614
Debt securities - long positions 50,297 53,643 60,744
Debt securities - other 790,760 521,750 543,826
Settlement accounts 437,675 238,166 391,684
Equity shares - long positions 41,338 30,419 24,385
Loans to money brokers against stock advanced 106,175 87,054 102,424
Equity shares - investments 24,585 22,705 25,763
Intangible fixed assets - goodwill 104,413 109,707 106,003
Tangible fixed assets 32,607 24,031 23,853
Share of gross assets of joint ventures 21,637 18,208 20,636
Share of gross liabilities of joint ventures (21,079) (18,000) (20,182)
558 208 454
Other assets 68,146 59,405 61,791
Deferred taxation 12,813 9,514 12,443
Prepayments and accrued income 32,072 25,071 27,213
Total assets 3,792,807 3,207,215 3,568,661
Liabilities
Deposits by banks 116,894 87,269 107,872
Customer accounts 1,527,004 1,317,314 1,401,482
Bank loans and overdrafts 621,275 585,802 617,559
Debt securities - loan notes issued 100,000 100,000 100,000
Debt securities - short positions 47,930 46,144 54,113
Settlement accounts 354,680 188,261 317,857
Equity shares - short positions 10,307 7,378 19,371
Loans from money brokers against stock advanced 136,746 85,679 110,125
Other liabilities 176,772 145,008 163,935
Accruals and deferred income 93,226 62,807 91,487
Subordinated loan capital 96,937 96,937 96,937
Minority interests - equity 6,704 5,881 6,124
Total liabilities 3,288,475 2,728,480 3,086,862
Shareholders' funds
Called up share capital 36,033 35,971 36,003
Share premium account 249,935 249,148 249,527
ESOP trust reserve (4,116) (4,734) (4,734)
Profit and loss account 222,480 198,350 201,003
Total equity shareholders' funds 504,332 478,735 481,799
Total liabilities and shareholders' funds 3,792,807 3,207,215 3,568,661
Memorandum items
Contingent liabilities - guarantees 3,083 2,892 2,330
Commitments - other 190,229 160,481 179,654
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months ended Year ended
31st January, 31st July,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
£'000 £'000 £'000
Profit attributable to shareholders 35,470 24,127 50,952
Exchange adjustment (1,488) (609) (299)
Total recognised gains and losses 33,982 23,518 50,653
The comparative figures for both the six months ended 31st January, 2003 and the
year ended 31st July, 2003 have been restated as a result of the group adopting
Urgent Issues Task Force ("UITF") Abstract 38 on Accounting for ESOP trusts.
CONSOLIDATED CASH FLOW STATEMENT
Six months ended Year ended
31st January, 31st July,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Net cash inflow/(outflow) from operating activities
(Note 1(a)) 180,985 41,729 51,275
Returns on investments and servicing of finance:
Interest paid on subordinated loan capital (3,917) (3,945) (7,825)
Dividends paid to minorities (743) (170) (280)
(4,660) (4,115) (8,105)
Taxation:
Taxation paid (12,063) (9,039) (21,080)
Capital expenditure and financial investment:
Purchase of tangible fixed assets (5,253) (3,608) (8,318)
Sale of tangible fixed assets 223 248 756
Purchase of equity shares held for investment (763) (2,475) (7,921)
Sale of equity shares held for investment 2,377 5,253 7,090
(3,416) (582) (8,393)
Acquisitions and disposals:
Minority interests acquired for cash (36) (1,467) (1,734)
Purchase of subsidiaries (Note 1(b)) (7,956) (1,775) (3,547)
(7,992) (3,242) (5,281)
Equity dividends paid (24,482) (24,214) (37,053)
Net cash inflow/(outflow) before financing 128,372 537 (28,637)
Financing:
Issue of ordinary share capital including premium 438 743 1,154
Increase/(decrease) in cash 128,810 1,280 (27,483)
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. Consolidated cash flow statement Six months ended Year ended
31st January, 31st July,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
(Restated) (Restated)
£'000 £'000 £'000
(a) Reconciliation of operating profit on ordinary
activities before taxation to net cash inflow from
operating activities
Operating profit on ordinary activities before 53,356 36,169 77,798
taxation
(Increase)/decrease in:
Interest receivable and prepaid expenses (4,859) (2,115) (4,257)
Net settlement accounts (9,168) (5,792) (29,714)
Net equity shares held for trading (26,017) (14,659) 3,368
Net debt securities held for trading 4,264 4,622 5,490
(Decrease)/increase in interest payable and accrued (3,423) (14,298) 14,382
expenses
Depreciation and amortisation 8,838 7,347 15,940
Net cash inflow from trading activities 22,991 11,274 83,007
(Increase)/decrease in:
Debt securities held for liquidity (246,934) 190,630 168,555
Loans and advances to customers (68,592) (109,478) (204,616)
Loans and advances to banks not repayable on demand 244,112 (234,940) (331,101)
Other assets less other liabilities 41,148 5,213 19,872
Increase in:
Deposits by banks 9,022 4,110 24,713
Customer accounts 125,522 94,773 178,941
Bank loans and overdrafts 3,716 80,147 111,904
Non-recourse borrowings 50,000 - -
Net cash inflow from operating activities 180,985 41,729 51,275
(b) Analysis of net cash outflow in respect of purchase
of subsidiaries
Cash consideration in respect of current year (9,565) - -
purchases
Loan stock redemptions and deferred consideration (4,990) (1,775) (3,547)
paid in respect of prior year purchases
Net movement in cash balances 6,599 - -
(7,956) (1,775) (3,547)
(c) Analysis of changes in financing
Share capital (including premium) and subordinated
loan capital:
Opening balance 382,467 381,313 381,313
Shares issued for cash 438 743 1,154
Closing balance 382,905 382,056 382,467
(d) Analysis of cash balances Movement
in the period
£'000
Cash and balances at central 92 970 759 878
banks
Loans and advances to banks 128,718 259,046 159,210 130,328
repayable on demand
128,810 260,016 159,969 131,206
THE NOTES
2. Basis of preparation
The interim accounts, which are unaudited, have been prepared on the basis
of the accounting policies set out in the 2003 group accounts, except with
regard to Close Brothers Group plc equity shares held by the employee
benefit trust. Previously the group's policy was to hold these at cost with
realised surpluses and deficits taken to the profit and loss account. In
accordance with UITF Abstract 38 Accounting for ESOP trusts, equity shares
held by the employee benefit trust are now deducted in arriving at
shareholders' funds. Realised surpluses and deficits are not taken to the
profit and loss account. Prior year adjustments are described in note 4
below.
The figures shown for the full year ended 31st July, 2003 represent an
abridged version of the full accounts of Close Brothers Group plc for that
year, which have been filed with the Registrar of Companies and on which
the auditors have given an unqualified report. The financial information
contained in this interim report does not constitute the group's statutory
accounts within the meaning of Section 240 of the Companies Act 1985.
3. Earnings per share
The calculation of earnings per share on profit attributable to
shareholders is based on profit after taxation and minority interests of
£35,470,000 (2003 - £24,127,000) and on 144,272,000 (2003 - 142,516,000)
ordinary shares, being the weighted average number of shares and
contingently issuable shares in issue during the period excluding those
held by the employee benefit trust.
The diluted earnings per share is based on the same profit after taxation
and minority interests disclosed above, and on 144,856,000 (2003 -
143,114,000) ordinary shares, being the weighted average number of shares
disclosed above, plus the weighted dilutive potential on ordinary shares of
exercisable employee share options in issue during the period.
4. Prior year adjustment
As a result of the adoption of UITF Abstract 38 both the profit and loss
account and balance sheet prior year comparatives have been restated.
Profit and loss account - the retained profit for the six months ended 31st
January, 2003 and the year ended 31st July, 2003 have both decreased by
£124,000.
Balance sheet - shareholders' funds as at 31st January, 2003 and 31st July,
2003 have both decreased by £4,734,000.
INDEPENDENT REVIEW REPORT
Independent Review Report to Close Brothers Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31st January, 2004 which comprises the profit and loss
account, the statement of total recognised gains and losses, the balance sheet,
the cash flow statement and related notes 1 to 4. 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.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which 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.
Review work performed
We conducted our review in accordance with the 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 accounting policies and presentation
have been consistently applied unless otherwise disclosed. 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
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
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 31st January, 2004.
Deloitte & Touche LLP
Chartered Accountants
London
1st March, 2004
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