Final Results

RNS Number : 5235D

Evolution Group PLC

24 March 2011

 



The Evolution Group Plc

(the "Evolution Group", the "Group", the "Company")

Preliminary statement for the year ended 31 December 2010

Evolution Group, the listed Investment Banking and Private Clients investment management group, today announces its audited preliminary statement for the year ended 31 December 2010.

Financial and Operational Highlights

·      Total Group income £109.5m (2009: £129.4m)

·      Adjusted operating profit¹ £5.2m (2009: £20.8m)

·      Statutory operating profit £0.2m (2009: £11.1m)

·      Statutory loss before tax £2.6m (2009: Statutory profit before tax £11.1m)

·      Dividend increased 10% year on year to 2.75p

Private Clients²

·      Assets under management ("AUM") up 12% to a record level of £5.8bn (2009: £5.2bn)

·      Income up 21% to £51.5m (2009: £42.4m)

·      Adjusted operating profit¹ of £8.8m increased by 115% from £4.1m in 2009

Investment Banking³

·      Income down 33% to £57.9m (2009: £87.0m)

·      Adjusted operating loss¹ £3.1m compared with an adjusted operating profit of £18.5m in 2009

·      Equity commissions increased to £34.0m from £23.2m

·      Corporate clients increased to 77 from 76

·      Voted Top European Fixed Income Agency Broker of 2010 by Credit Magazine

·      Starmine Analyst Awards - ranked 1^st in both FTSE100 and FTSE250 stock recommendation categories

Financial Highlights	2010 £m		2009 £m
Total income	109.5		129.4
Operating profit from continuing operations	0.2		11.1
(Adjusted basis)	5.2		20.8
(Loss) / profit before tax	(2.6)		11.1
Diluted EPS	(0.97)p		3.87p
Dividend	2.75p		2.50p

Commenting on the results and outlook, Martin Gray, the Chairman of The Evolution Group Plc said:

"Against a background of difficult and volatile markets, we will remain totally focused on ensuring profitability, gearing the cost base to ensure we meet that objective … your Board remains confident that the actions we have taken to invest in and develop our businesses whilst ensuring a continuing focus on productivity, efficiency and governance will, over time, deliver appropriate returns to our shareholders."

Key Performance Indicators

	2010	2009
Private Clients2
Gross fund inflows (£m)	452	466
AUM (£bn)	5.8	5.2
Income per average head (£000)	183	163
Income per average front office head4 (£000)	395	337
Core operating costs6 per average front office head (£000)	256	240
Adjusted operating profit1 (£m)	8.8	4.1
Adjusted operating margin	17%	10%
Investment Banking3
Market share by value traded
LSE Market - Total FTSE (%)	1.5%	1.8%
Corporate clients	77	76
Corporate clients won	20	24
Average market capitalisation of corporate clients (£m)	123	64
Transactional volumes (millions)	3.0	3.0
Institutional clients	1,076	942
Funds raised(£m)	1,157	451
Income per average head (£000)	252	486
Income per average front office head5 (£000)	328	640
Core operating costs6 per average front office head (£000)	257	280
Adjusted operating (loss) / profit1 (£m)	(3.1)	18.5
Adjusted operating margin	n/m	21%

Notes

¹ Adjusted operating profit is defined in the Business Review below.

² The results of Private Clients are defined as those arising from Williams de Broë Limited ("WDB"), WDB Assetmaster Management Company Limited, WDB Asset Management Limited and WDB Capital Limited.

³ The results of Investment Banking are defined as those arising from Evolution Securities Limited ("ESL"), its subsidiary Evolution Securities (US) Inc. ("ESUS") and Darwin Strategic Limited ("Darwin").

⁴ Front office head count for Private Clients is defined as including investment managers, dealers, financial planners and investment assistants.

⁵ Front office head count for Investment Banking is defined as including all client facing staff, including corporate finance executives, market makers, sales and sales traders, and research analysts.

⁶ Core operating costs are defined as adjusted operating expenses excluding performance costs

For further information, please contact:

The Evolution Group Plc	020 7071 4300
Alex Snow, Chief Executive Office
Andrew Westenberger, Finance Director
Attila Consultants	020 7776 8825
Charles Cook, Senior Partner

FORWARD-LOOKING STATEMENTS

This Annual Financial Report contains forward-looking statements with respect to the financial condition, results, operations and businesses of the Evolution Group Plc. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Such statements and forecasts involve risk and uncertainty because they relate to future events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this statement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CHAIRMAN'S STATEMENT

Against a background of difficult economic and market conditions, much of 2010 was spent integrating the significant investments of recent years and developing further our Private Clients and Investment Banking businesses.

In Private Clients, the growing returns from the successful integration of our recent acquisitions has allowed us to invest further in the business to ensure we have the best quality systems and client service to underpin future growth opportunities whilst increasing profitability in the short term.

In Investment Banking, despite incredibly tough market conditions the business has made huge progress in integrating its new expanded research, distribution and execution teams and has added highly skilled and experienced people to our corporate teams, including building from scratch a primary and debt advisory business. This qualitative transformation is only partially reflected in our corporate client wins, groundbreaking retail debt issues, research awards and institutional rankings. Against a background of difficult and volatile markets, we will remain totally focused on ensuring profitability, gearing the cost base to ensure we meet that objective.

People are at the heart of all our businesses and as I spend much of my time meeting and listening to them I am increasingly proud of the excellence for which everyone at Evolution strives and the quality of what we seek to offer our clients. That we are in tough economic times is in no doubt. Against this backdrop, and at a time when financial services businesses are under ever greater scrutiny over their role in the economy and society, I believe we should all be proud of the quality of our people and the businesses they are developing based on integrity, excellence and client service.

Board Changes

As stated this time last year, Philip Howell joined the Group as Chief Executive Officer for Williams de Broë in February 2010. I was delighted to welcome Philip to the Group Board as an Executive Director in June 2010 and the contribution he has made is already showing in the results of our Private Clients division. Roger Perkin joined the Group as a Non-Executive Director in January 2010. His wealth of experience from Ernst and Young LLP has proved invaluable as Chairman of the Group's Audit Committee.

Lord MacLaurin has provided wise counsel to the Group since 2004 bringing his vast experience to bear on the many developments the Group has witnessed in that time. He has expressed his wish to retire from the Board after our Annual General Meeting in May. I am pleased that he will remain available to the Board as our adviser. In November Mark Nicholls resigned from the Board after four years as a Director to take on a different role in the sector. We wish them both well and thank them for their significant contributions to the success of the Group over recent years.

Outlook

Despite continuing difficult and uncertain market conditions your Board remains confident that the actions we have taken to invest in and develop our businesses whilst ensuring a continuing focus on productivity, efficiency and governance will, over time, deliver appropriate returns to our shareholders.

Martin Gray

Chairman

24 March 2011

BUSINESS REVIEW

2010 Strategic Developments

Our strategy remains the delivery of sustainable earnings growth over time by diversifying our business base and building recurring revenue streams where possible. As we have highlighted before, the creation of shareholder value in this way will be despite, not as a result of, short term volatility in markets and performance. The relatively poor financial returns to shareholders in 2010 bear witness to this. In truth, 2010 was the third year of the post credit crunch down cycle for the financial markets to which our businesses are all fundamentally geared. In hindsight it is clear that 2009 offered temporary returns in certain areas as the almost total risk aversion of late 2008 abated and was combined with worldwide monetary stimuli to reflate the price of risk assets such as equities and to generate liquidity and volume in credit markets. However, the undercurrent of a gradual worsening economic picture combined with fiscal tightening since 2008 has dealt a blow to both consumer and business confidence. Risk asset prices may have recovered from the lows of 2009, however lack of conviction from institutional buyers and corporates alike has resulted in a third consecutive year of low equity market activity levels.

As the Group was well positioned going into the downturn, relative to many peers, we were able to complete three business initiatives in a short period from late 2008 to mid 2009. One of these, the expansion of our agency fixed income business, secured shareholders some of the exceptional returns available in 2009 as financial markets returned from a state of total dislocation towards balance. This was achieved with little or no upfront investment. The second, the acquisition of the 'Singer and Friedlander' investment management business, was a further example of the Group's disciplined approach to investing whereby our strong balance sheet combined with our ability to successfully integrate businesses allowed us to acquire high quality assets at a reasonable price, thereby creating significant shareholder value. Finally, we were able to initiate the wholesale transformation of our securities business by hiring quality teams in research, sales and trading with established track records and meaningful profile with institutional investors.

This was part of our strategy. To build and expand our corporate finance and broking businesses in the UK beyond our historic small cap AIM focus, we first needed to develop our institutional distribution ability and research product. It is clear to us that the financial returns from this strategy are ahead of us, as we will be able to capitalise on the vastly improved quality of our institutional distribution ability and significantly re-rated research product. Having initiated improvements to our distribution and research in 2009, 2010 saw the beginnings of a meaningful development of our corporate business, together with the development of a debt capital markets ("DCM") and advisory business.

In summary, we are still in the negative part of the cycle for our businesses. Over the three years to date in this downcycle, the Group has invested well - some of these investments such as fixed income and, more crucially for long term value creation, Private Clients acquisitions have already generated returns for shareholders.

We have invested cautiously into the Securities business through the downcycle. The evidence of the qualitative improvements and success to date are manifest: we were rated No.1 in the FTSE 100 and 250 Starmine Research Awards, No.1 Agency Fixed Income broker, and have seen a significant improvement in the quality of our corporate client relationships. The financial rewards for shareholders remain achievable when, as history suggests it ultimately will, the current downcycle in financial markets turns resolutely upwards.

The Group now has a track record and a decade of growth, both organic and through value creating acquisitions, but always with patience, discipline and focused execution. 

Through the cycle returns and value creation for long term shareholders underlined by an increased dividend each year, have been achieved to date and remain the focal point of our strategy for the future.

2010 results overview

Operating conditions remained poor throughout the year for the Group's businesses, in particular Investment Banking. Overall Group profitability declined significantly during 2010 from the strong performance in 2009. The Group's adjusted operating profit declined to £5.2m (2009: £20.8m) primarily as a result of a much weaker performance from Investment Banking. This significantly impacted Group income and therefore profitability, although the increasing contribution of the more resilient Private Client business cushioned the overall impact. The Group's principal operating businesses had strongly contrasting results: Private Clients achieved very strong profit growth with adjusted operating profit increasing to £8.8m (2009: £4.1m), whilst Investment Banking suffered an adjusted operating loss of £3.1m (2009: £18.5m profit).

With the ongoing roll-off of costs from recent years' acquisitions and expansion, and after accounting for the Group's share of associate losses, this resulted in a Group statutory loss before tax of £2.6m (2009: profit before tax £11.1m).

	2010 £m	2009 £m
Total income
-  Private Clients	51.5	42.4
-  Investment Banking	57.9	87.0
-  Other	0.1	-
	109.5	129.4
Adjusted operating profit / (loss) 1
-  Private Clients	8.8	4.1
-  Investment Banking	(3.1)	18.5
-  Other	(0.5)	(1.8)
	5.2	20.8
Net finance income	0.6	0.3
Adjusting items 1	(5.0)	(9.7)
Associates	(3.4)	(0.3)
(Loss) / profit before tax from continuing operations	(2.6)	11.1
Tax	0.6	(1.9)
(Loss) / profit after tax from continuing operations	(2.0)	9.2
Discontinued operations	-	(2.3)
(Loss) / profit for the year	(2.0)	6.9
(Loss) / earnings per share - from continuing operations	(0.97)p	3.87p
Dividend - final	1.75p	1.70p
Dividend - total	2.75p	2.50p

¹ Adjusting items

The Group utilises "adjusted operating profit/(loss)" in addition to statutory operating results to measure the underlying performance of its businesses. In addition to being the basis of performance criteria against which incentive awards are measured it is also a key measure used by research analysts covering the Group. Further information is provided in note 3.

Adjusted operating performance excludes material exceptional items that are non-recurring in nature, together with upfront costs associated with specific growth initiatives. Growth costs relate solely to the initially assessed costs of acquiring, restructuring and integrating businesses and teams, and typically include the cost of acquired customer relationships and upfront cash and deferred share based compensation awards.

Private Clients

	2010	2009
	£m	£m
Management fees	29.8	24.4
Transactional income	21.2	17.0
Segregated interest income	0.5	1.0
Total income	51.5	42.4
Adjusted operating expenses	(42.7)	(38.3)
Adjusted operating profit	8.8	4.1
Adjusting items	(2.3)	(4.3)
Interim FSCS levy	(1.4)	-
Statutory operating profit / (loss)	5.1	(0.2)

The Private Clients business delivered record results, capitalising on previous acquisition and growth initiatives. This performance continued the momentum built up over recent years and resulted mainly from continued fund inflows driving top line income, together with further margin improvement.

Despite challenging market conditions, the business ended the year with assets under management and administration ("AUM") up 12% to £5.8bn (2009: £5.2bn) confirming Williams de Broë as one of the UK's top firms in a wealth management sector of over 200 market participants, with rapidly improving brand recognition.

Total income reached a record high of £51.5m (2009: £42.4m), an increase of 21%. This comprised recurring management fee income increasing by 22% to £29.8m (2009: £24.4m) whilst an 18% increase in transaction volumes drove transactional income higher by 25% to £21.2m (2009: £17.0m). It is pleasing to note that over 72% of AUM are now subject to a recurring management fee.

Furthermore, the record income levels were achieved against the backdrop of a benign interest rate environment in which the average Bank of England base rate was close to half the average rate through 2009. This caused a fall in interest margin revenue to £0.5m (2009: £1.0m).

The business demonstrated strong underlying operational leverage - cost growth was contained at 11% with adjusted operating expenses of £42.7m (2009: £38.3m). This resulted from disciplined cost management, the completing of prior year integration costs following the acquisitions of the Singer & Friedlander and Edinburgh teams, combined with the increasing economies of scale built into the business mode. There was, therefore, a healthy improvement in adjusted operating margin to 17% (2009: 10%).

Notwithstanding the uncertain economic conditions and a continuing tendency for existing and prospective clients to cautiously maintain higher than normal cash deposits and/or pay down debt, the business won £452m of gross new AUM (2009: £466m). We also took the opportunity to rationalise low yielding assets as part of an ongoing review of the legacy portfolios acquired in the past three years.

Interim FSCS Levy

Post year end, the Financial Services Compensation Scheme ("FSCS") announced an interim levy on the investment management industry to remedy the cost of major investment failures, primarily relating to the Keydata Investment Services and Wills &Co. Whilst in no way implicated in these failures, the share of the industry levy for Williams de Broë amounted to £1.4m which has been provided as a one off cost in the 2010 results.

Reinvestment Programme

The increasingly strong operating profits and positive cashflows that are being achieved by Williams de Broë also enable management to reinvest to improve operational efficiency and to anticipate the demands of future scale. This disciplined programme is focused on improving our client experience, developing the brand and enhancing our investment management processes.

During 2010 this programme included major premises upgrades and relocations in London, Bournemouth, Guildford and Birmingham. The business has also made a significant investment in developing its operational and risk management capabilities.

Technology continues to provide a major source of competitive differentiation within the wealth management sector both in terms of client service and application of enhanced investment management techniques. Accordingly, in 2009, the business entered into a strategic alliance with a specialist solutions company, Third Financial Software, towards the development of a proprietary and fully integrated CRM and Investment Management system. Implementation of the new "Tercero" system commenced at the end of 2010 with all core modules scheduled to be operational by the end of this year.

Investment Management Performance

Delivering consistent investment performance is the key mantra of the business. High quality research combined with a dynamic approach to asset allocation is fundamental to achieving that consistency, particularly in the testing conditions that defined the past year. We have continued to invest in our dedicated research department with the added benefit of support from Evolution Securities' extensive research capability.

We were therefore proud to see our Head of Research, Jim Wood-Smith, recognised by the Daily Telegraph as Analyst of the Year, whilst Evolution Securities research was ranked 1st for FTSE 100 and FTSE 250 coverage in the global FT / Starmine Awards.

Whilst we do not impose 'model portfolios' on our clients, our research portfolios form the backbone to individual client portfolio construction.  These portfolios now have a 10 year track record and are the most accurate indication of our overall investment performance. We are pleased to report that all these portfolios have continued to outperform their respective benchmarks, notably the industry composite APCIMS indices. Similarly, all four of the Williams de Broë Assetmaster range of multi-manager investment funds produced top quartile performance in the IMA sector and two were top decile.  All four funds are rated 'A' or 'AA' by Standard & Poors.

Outlook

We are clearly operating in an environment of constrained wealth generation in the UK. Over the past five years, Williams de Broë has proved to be one of the fastest growing Private Client Investment Managers in an intensively competitive sector.

The business has demonstrated its ability to deliver both organic growth and to successfully execute acquisitions with the advantages of a flexible and scalable operating platform. The leadership team is not complacently relying on market beta, but is acutely focused on initiatives to win further market share and measures to improve operating leverage via technology and operational efficiencies.

The business will continue to invest for growth in four key themes:

-     selective recruitment of high calibre investment and business development professionals;

-     building upon our long established support base in the professional intermediary market;

-     extension of the B2B and alliance strategy commenced in 2010 which we see as a growing opportunity in the context of the Retail Distribution Review; and

-     being alert to M&A opportunities in the knowledge that our investment management framework, operational platform and brand recognition represent genuine synergy for prospective partners.

The record results and wider achievements of 2010 demonstrate that the business is well on course to achieving its objective of £10bn AUM in the medium term.

Investment Banking

	2010	2009
	£m	£m
Corporate finance	12.6	15.5
Markets
- Equity sales commission	34.0	23.2
- Equity market making	(3.2)	13.0
- Total equities	30.8	36.2
- Fixed income	14.5	35.3
Total income	57.9	87.0
Adjusted operating expenses	(61.0)	(68.5)
Adjusted operating (loss) / profit	(3.1)	18.5
Adjusting items	(0.3)	(4.1)
Statutory operating (loss) / profit	(3.4)	14.4

The poor market conditions experienced in the first half of 2010, though showing some improvement towards the end of the year, remained for most of the second half.

Despite tight control of adjusted operating expenses per front office headcount (including variable staff compensation), which declined significantly from 2009, the decrease in total income for the year (down 33% from £87.0m to £57.9m) led to an adjusted loss for the year of £3.1m (2009: £18.5m profit).

Profitability was particularly impacted by the steep fall in agency fixed income revenues from the exceptional levels achieved in 2009. Market wide institutional activity levels in secondary fixed income remained subdued for large periods of the year as market participants lacked clarity on the resolution of European Sovereign debt problems.

Despite the corporate fundraising market being subdued for another year, corporate finance successfully completed 20 transactions (2009: 20) on behalf of clients, helping to raise £1.2bn (2009: £451m) on behalf of clients.

The development of our corporate business continued with good progress on our plans to expand into the mid market. The average market capitalisation of our clients almost doubled in the year to £123m.  Notable new corporate broking relationships included Safestore, Bodycote, European Goldfields, Speedyhire, Cineworld and 888 Holdings.

Our financial strength combined with our credibility as unconflicted, independent advisers has raised our profile with corporates significantly. Our market presence, increasing blend of advisory as well as debt and equity capital market skills and strong research and institutional reach puts us in a strong position to fulfil our aims of being one of the major independents serving the UK corporate sector.

Significant progress was made during the year in the debt advisory and origination business. Limited bank debt funding since the credit crunch has led many of our clients to seek independent advice on funding to manage both existing facilities and to look at a growing range of alternatives available from the debt markets. Our DCM team offers high quality advice and delivery in the investment and non-investment grade wholesale bond markets as well as UK and offshore private placements and targeted retail offerings. Since the year end we acted as lead manager and joint bookrunner for Tesco Bank's £125m debut retail bond issue.

The equity agency broking business continued to make good progress during the year with sales commissions growing to £34.0m (2009: £23.2m) despite the continuing market wide decline in trading volumes. This underlines the qualitative transformation achieved in this business from 2009 onwards and reflects the quality of our research, sales and trading. We have recently been awarded No1 ranking in the FTSE 100 and FTSE 250 stock recommendations Starmine Analyst awards. This is the second consecutive year Evolution has won an award in the FTSE 100 category and the first time it has been recognised in the FTSE 250 category.

Capitalising on the vastly improved quality of our institutional distribution ability and research profile is at the heart of our future growth strategy to expand corporate coverage beyond our historical small cap focus into the mid market sector.

Overall, equity revenue generation was impacted by market making losses incurred entirely during the first half of 2010 during the periods of extreme market volatility and illiquidity.

Outlook

Evolution Securities has transformed over the past two years. The market positioning and capabilities of the firm have fundamentally changed and have become meaningfully more relevant to both our institutional and corporate clients.

The fact that this transformation has been achieved in the midst of the ongoing lull in market activity (primary and secondary) and with little or no net investment to date from shareholders should be a source of pride to all our staff. In particular this transformation has been because of the quality of the people at the heart of our business.

The experience and calibre of our people across the business from corporate broking and finance, debt advisory and origination to our distribution, execution and research teams is evident to our growing list of corporate and institutional clients. The recent Starmine equity research awards and corporate client wins serve to underline how we have developed a reputation for value generating research.

However, over the course of 2010, and particularly evident in recent weeks, overall financial performance has been lacklustre, notwithstanding the qualitative improvements highlighted above and the industry awards that have been gained. We have therefore made the decision not to pursue a strategy of pan-European coverage, but instead to concentrate our resources and efforts on our key home markets, where we will focus the business on high quality sector research strengths, fully aligned with distribution and corporate broking and advisory services.

The recent changes, the reduced headcount and the renewed clarity of strategy, have been made in order to achieve a securities business which is accretive to the Group. In better market conditions, this accretion should be meaningful, however even in continued tough market conditions, management has set a clear minimum acceptable performance standard for the business to at least cover its total annual operating expenses. This should be the minimum performance standard demanded by all stakeholders.

The continued growth in secondary commissions generated as a result of our market leading equity research, coupled with our growing corporate client list and strong transactional pipeline including several IPOs, should give us confidence that an even better performance is achievable.

Group

Net finance income

Net finance income increased to £0.6m in 2010 from £0.3m in 2009. Underlying net finance income remained low as interest rates stayed at record lows. However, the Group recognised £0.4m interest receivable from HMRC.

Associates

The Group's share of the results of its associates for the year amounted to a loss of £3.4m (2009: £0.3m loss). The loss in the year is split between Evolution Securities China Limited ("ESCL") £0.8m (2009: £0.7m loss) and WdB Capital UK Equity Fund ("WdB Capital Fund") £2.6m loss (2009: £0.4m profit). The Group's share of results from WdB Capital Fund stems from the performance of the fund which was down 17% to the end of September, at which point the managers of the fund decided to close it and return capital to investors.

Taxation

The Group generated a net tax credit of £0.6m for the year. This arose due to the effect of prior year adjustments, primarily in relation to deferred tax on intangible assets, more than offsetting the negative effect on the tax rate of disallowable expenses and share price movements in the year.

Balance Sheet

The Group's balance sheet remains strong and the Group continues to carry capital significantly in excess of the minimum regulatory requirements.

	2010	2009
	£m	£m
Non-current assets	29.5	42.1
Other current assets / (liabilities)	8.2	(12.3)
Non-current liabilities	(1.1)	(2.1)
Cash	90.1	109.5
Total net assets	126.7	137.2

Non-current assets

Non-current assets fell significantly in the year as the Group ceased to have any financial interest in WDB Capital Fund.

Other current assets / (liabilities)

	2010	2009
	£m	£m
Available-for-sale financial assets	1.7	1.7
Net Investment Banking secondary markets working capital	9.7	10.2
Net trade and other balances	(3.2)	(24.2)
Total net assets	8.2	(12.3)

Net Investment Banking secondary markets working capital

Net Investment Banking secondary markets working capital is made up as follows:

	2010	2009	2010 Average
	£m	£m	£m
Trading Positions
Trading portfolio assets	20.6	13.3
Trading portfolio liabilities	(6.1)	(2.9)
	14.5	10.4	13.2
Net Counterparty Balances
Counterparty receivables	56.1	57.8
Counterparty payables	(60.9)	(58.0)
	(4.8)	(0.2)	16.0
Net Investment Banking secondary markets working capital	9.7	10.2	29.2

Average Investment Banking secondary markets working capital balances during 2010 were £29.2m, consistent with 2009 average balances of £30.4m.

Net trade and other balances

The settlement of the 2009 performance cost accrual coupled with a significantly lower accrual for 2010 resulted in a much reduced net trade and other balances at the end of 2010.

Cash

Cash balances remain strong with cash and cash equivalents of £90.1m at the end of 2010, a decrease of £19.4m (2009: £109.5m). The Group maintains its policy of maintaining a highly liquid Balance Sheet at all times. Cash balances at 31 December 2010 represent 71% of shareholder funds (2009: 80%) and are held in call or overnight cash deposits.

Cash flows

Group cash resources declined by £19.4m (2009: £5.9m inflow) during the year. Although operating cash earnings were £7.7m (2009: £21.9m), the net operating cash outflow of £11.9m (2009: £33.8m inflow) was after significant negative working capital movements. This primarily resulted from the higher performance cost accruals at the end of 2009 compared with 2010.

Significantly reduced purchases of Group shares, £8.3m in 2010 (2009: £23.7m), together with cash received from the divestment of Group's stake in the WdB Capital Fund helped minimise the overall net outflow after having covered higher capital expenditure and dividend costs in the year.

Principal risks and uncertainties

The Group has implemented a risk framework for the identification, measurement and management of its principal risks. These are categorised broadly as:

·      strategic and business risks;

·      market, credit and liquidity risks; and

·      operational, regulatory and reputational risks

Within the Group's risk framework, the Board has responsibility for determining an appropriate risk appetite for each of these risks and the risk governance mechanism is then charged with monitoring actual exposures and changes in the risk profile and assessing the degree of adherence to the Board's risk appetite. The Board's risk appetite includes a tolerance for unexpected losses and this forms the basis for the Group's capital adequacy assessment (ICAAP) to the FSA. The Group holds substantial excess capital against its risks. Further details regarding capital adequacy can be found in the Group's Pillar 3 disclosures which are available at www.evgplc.com/reports-presentations.  

Strategic and Business Risks

The markets for both institutional brokerage and private wealth management services remain highly competitive, against a backdrop of relatively limited levels of market activity since the financial crisis.

The Investment Banking business, in particular, is exposed to volume and margin pressures on its agency brokerage activities. To mitigate this, it maintains a highly variable cost base but also seeks to balance revenues between its fixed income and equity businesses, and between corporate broking, origination and distribution activities.

The Private Clients business has a more annuity-driven revenue stream. The business is, however, exposed to the impact of changes in the regulatory environment such as the FSA's Retail Distribution Review or indeed the cost of regulation such as its participation in the Financial Services Compensation Scheme. Private Clients may also be affected by changes in inheritance, capital gains or other tax rules that might affect its client portfolios. Such changes may also, in some circumstances, represent opportunities as well as risks for the business.

Both Investment Banking and Private Clients rely on third party software providers for some client facing technology. Whilst this is generally effective from a cost perspective it may sometimes constrain the businesses in terms of their ability to offer new or bespoke products or differentiated services to their clients. To mitigate this risk, Private Clients has been building an internal system to improve the interface with clients and provide value-added portfolio information and reporting capability.

The Group continually seeks to attract and retain top talent but remains exposed to the risk that key staff may leave and may prove difficult to replace. The Group seeks to align the interests of senior staff and shareholders and offers a long-term incentive plan whereby key staff may be offered discretionary stock or option awards on a three year deferral basis.

Market, Credit and Liquidity Risks

The Group operates predominantly in listed and cash securities markets in the UK and Europe and is exposed to market and credit risk in both the products it trades and the clients or counterparties with whom it deals.

Market risk arises from market-making and trading activities predominantly in UK stocks. Exposures against limits are monitored intraday and daily risk reports analyse exposures by sector for stocks and by maturity and credit rating for fixed income positions. Further sensitivity analysis and stress tests are performed regularly and formally reviewed monthly between the risk function and trading management.

Counterparty credit exposures are limited in view of the short-dated settlement required in these markets - products typically settle for cash within three working days, although in some markets settlement of up to twenty five working days may be allowed. The Group regularly reviews the creditworthiness of its clients and counterparties and each is subject to an internal rating which determines its limit for credit exposure and potential future exposure.

The Group and its major subsidiaries have substantial excess liquidity. Liquidity risk may theoretically arise in Investment Banking where there are settlement mismatches or fails. Investment Banking has intraday facilities to mitigate such risks and monitors its cash position daily. A limit is set on working capital usage prior to use of surplus cash. Liquidity is also stress tested regularly and the Group maintains a minimum liquidity buffer based on the stress test results.

Operational, Regulatory and Reputational Risks

Operational risks broadly include exposures to financial crime, failures of business practice, or failures in processes or technology. Whilst these risks can never be eliminated, the Group mitigates its exposure by a system of strong internal controls and a well embedded risk management culture. Operational risk exposures are mapped out and quantified for each major business area, and risk information is regularly collected to determine whether these risks are being effectively managed and controls are operating satisfactorily. Further reassurance is provided by Internal Audit who test key controls and provide recommendations for improvements to the control environment. For the year ended December 2010, the Audit Committee has determined that there were no material failings or weaknesses in the internal controls of the Group.

The Group operates in highly regulated markets and its principal business subsidiaries are all regulated entities. Regulatory risk may arise as a consequence of operational risk events or due to changes in regulatory rules or guidance to which the Group needs to respond promptly. To mitigate this risk, as part of the risk governance mechanism, reports are provided regularly to the Boards of the major regulated entities on new regulatory requirements and the results of compliance investigations, reviews and monitoring programmes.

Reputational risk is seen as a consequential risk in that it may arise from a failure to manage any of the risks outlined above, where the failure is transparent to the market or the client base. Its impact occurs over a period of time in terms of lost revenues and potentially increased costs to regain the confidence of counterparties and clients. Responsibility for communication in the event of a reputational problem rests with the Chief Executive Officer and the Board. It is the intention of the Board to minimise the potential impact of a reputational issue by communicating proactively with its clients, the marketplace and regulatory authorities, and to remediate the underlying risk management failure effectively and in a transparent way.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the business review above and the principal risks and uncertainties facing the Group are also set out above.

The Group prepares detailed budgets and forecasts for both one year and in the form of a medium term plan. These forecasts show the Group returning to overall profit during 2011. Coupled with the Group's liquid balance sheet and strong cash resources of £90.1m the Directors believe that the Group is well placed to manage its business risks successfully.

Accordingly, the Directors have satisfied themselves that the Group and Company have adequate resources to continue in operational existence for at least the next twelve months and therefore the going concern basis has been used in preparing the annual report and accounts.

Dividend

In light of these results the Board declares a final dividend of 1.75p per share, an increase of 3% from the prior year final dividend of 1.70p. The total dividend for 2010 of 2.75p is 10% higher than the total 2009 dividend of 2.50p. This reflects the Board's ongoing commitment to a progressive dividend policy. The final dividend is payable on 19 May 2011 to shareholders on the register at 1 April 2011.

Group Outlook

Signs of renewed confidence seen towards the end of 2010 and early 2011 taking hold and gathering momentum look to have been short lived as the current renewed market instability underlines.

This ongoing uncertainty in market conditions looks unlikely to resolve itself in the short term and will provide a continuing challenging trading environment.

Nonetheless, the current pipeline of transactions and opportunities to win mandates is strong and, although subject to the risk of severe market-wide dislocation and renewed risk aversion, when combined with a relentless focus on cost discipline and productivity provides us the opportunity to grow shareholder returns in the short term.

We will also continue to examine opportunities to develop the business through disciplined investment with a view to maximising the opportunity of long term returns when market conditions ultimately do improve.

Alex Snow	Andrew Westenberger
Chief Executive	Finance Director

24 March 2011

CONSOLIDATED INCOME STATEMENT

	Year Ended 31.12.10	Year Ended 31.12.09
	£m	£m
Fee and commission income	114.0	115.6
Fee and commission expense	(2.3)	(0.8)
Net fee and commission income	111.7	114.8
Trading income	(3.2)	13.6
Other income	1.0	1.0
Total income	109.5	129.4
Net loss on available-for-sale financial assets	-	(1.7)
Operating expenses	(109.3)	(116.6)
Operating profit from continuing operations	0.2	11.1
Finance income Finance expense	0.8 (0.2)	1.4 (1.1)
Net finance income	0.6	0.3
Share of post tax results of associates	(3.4)	(0.3)
(Loss) / profit before tax from continuing operations	(2.6)	11.1
Tax credit / (charge)	0.6	(1.9)
(Loss) / profit after tax from continuing operations	(2.0)	9.2
Discontinued operations	-	(2.3)
(Loss) / profit for the year	(2.0)	6.9
Attributable to:
Non-controlling interests	0.1	(0.4)
Equity holders of The Evolution Group Plc	(2.1)	7.3
	(2.0)	6.9
(Loss) / earnings per share attributable to the equity holders of the Evolution Group Plc during the year:
From continuing operations	(0.97)p	4.10p
From discontinued operations	-	(0.86p)
Diluted
From continuing operations	(0.97)p	3.87p
From discontinued operations	-	(0.86p)
Dividend proposed / paid per share - Interim (paid)	1.00p	0.80p
- Final (proposed)	1.75p	1.70p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Year Ended 31.12.10	Year Ended 31.12.09
	£m	£m
(Loss) / profit for the year	(2.0)	6.9
Available-for-sale financial assets, net of tax	0.2	2.3
Deferred tax debit on share options taken to equity	(0.4)	(0.2)
Share of other comprehensive expense of associates	(0.1)	(0.1)
Other comprehensive (expense) / income for the year, net of tax	(0.3)	2.0
Total comprehensive (expense) / income for the year	(2.3)	8.9
Attributable to:
Non-controlling interests	0.1	(0.4)
Equity holders of The Evolution Group Plc	(2.4)	9.3
	(2.3)	8.9

CONSOLIDATED BALANCE SHEET

	31.12.10 £m	31.12.09 £m
ASSETS
Non-current assets
Goodwill	10.7	10.7
Intangible assets	5.3	6.2
Property, plant and equipment	6.1	3.3
Deferred tax assets	6.6	8.5
Investments in associates	0.6	13.4
Other non-current assets	0.2	-
	29.5	42.1
Current assets
Trade and other receivables	80.9	78.8
Available-for-sale financial assets	1.7	1.7
Trading portfolio assets	20.6	13.3
Current tax assets	0.4	-
Cash and cash equivalents	90.1	109.5
	193.7	203.3
Total assets	223.2	245.4
LIABILITIES
Current liabilities
Trade and other payables	89.3	102.4
Trading portfolio liabilities	6.1	2.9
Current tax liabilities	-	0.8
	95.4	106.1
Non-current liabilities
Deferred tax liabilities	0.1	1.4
Provisions for other liabilities and charges	1.0	0.7
	1.1	2.1
Total liabilities	96.5	108.2
Net Assets	126.7	137.2
EQUITY
Capital and reserves attributable to equity shareholders
Share capital	2.3	2.3
Share premium	33.5	33.2
Other reserves	30.1	30.0
Retained earnings	60.7	71.7
Shareholders' equity excluding non-controlling interest	126.6	137.2
Non-controlling interests in equity	0.1	-
Total equity	126.7	137.2

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2010	2.3	33.2	30.0	71.7	137.2	-	137.2
(Loss) / profit for the year	-	-	-	(2.1)	(2.1)	0.1	(2.0)
Available-for-sale financial assets	-	-	0.2	-	0.2	-	0.2
Deferred tax (debit) on share options taken to equity	-	-	-	(0.4)	(0.4)	-	(0.4)
Share of other comprehensive income of associates	-	-	(0.1)	-	(0.1)	-	(0.1)
Total comprehensive (expense) / income for the year	-	-	0.1	(2.5)	(2.4)	0.1	(2.3)
Issuance of ordinary shares	-	0.3	-	-	0.3	-	0.3
Purchase of trust shares1	-	-	-	(8.3)	(8.3)	-	(8.3)
Dividends paid	-	-	-	(5.6)	(5.6)	-	(5.6)
Share options: value of employee services	-	-	-	3.6	3.6	-	3.6
Tax deductions on options exercised	-	-	-	0.1	0.1	-	0.1
Contribution received on issuance of employee share options	-	-	-	1.7	1.7	-	1.7
Transactions with shareholders	-	0.3	-	(8.5)	(8.2)	-	(8.2)
Balance at 31 December 2010	2.3	33.5	30.1	60.7	126.6	0.1	126.7

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2009	2.2	29.8	27.8	86.5	146.3	0.9	147.2
Profit / (loss) for the year	-	-	-	7.3	7.3	(0.4)	6.9
Available-for-sale financial assets	-	-	2.3	-	2.3	-	2.3
Deferred tax (debit) on share options taken to equity	-	-	-	(0.2)	(0.2)	-	(0.2)
Share of other comprehensive expense of associates	-	-	(0.1)	-	(0.1)	-	(0.1)
Total comprehensive income / (expense) for the year	-	-	2.2	7.1	9.3	(0.4)	8.9
Issuance of ordinary shares	0.1	3.4	-	-	3.5	-	3.5
Purchase of trust shares1	-	-	-	(23.7)	(23.7)	-	(23.7)
Dividends paid	-	-	-	(4.7)	(4.7)	-	(4.7)
Share options: value of employee services	-	-	-	4.7	4.7	-	4.7
Disposal of subsidiaries' deferred tax and share options	-	-	-	0.2	0.2	-	0.2
Tax deductions on options exercised	-	-	-	1.6	1.6	-	1.6
Non-controlling interest disposed with subsidiary	-	-	-	-	-	(0.5)	(0.5)
Transactions with shareholders	0.1	3.4	-	(21.9)	(18.4)	(0.5)	(18.9)
Balance at 31 December 2009	2.3	33.2	30.0	71.7	137.2	-	137.2

¹ The Evolution Group Plc Employees' Share Trust (the "Trust") administers The Evolution Group Plc share schemes. The debit shown in retained earnings of £8.3m (2009: £23.7m) relates to the value of purchases made by the trust to satisfy these outstanding option and share awards to employees of the Group.

CONSOLIDATED CASH FLOW STATEMENT

	Year Ended 31.12.10 £m	Year Ended 31.12.09 £m
Cash flows from operating activities from continuing operations:
Cash (used in) / generated from operations	(11.7)	32.6
Finance income received	0.4	1.4
Finance expense paid	(0.2)	(1.1)
Tax (paid) / received	(0.4)	0.7
Cash flows generated from discontinued operations	-	0.2
Net cash flows (used in) / generated from operating activities	(11.9)	33.8
Cash flows from investing activities from continuing operations:
Fees in relation to disposal of subsidiaries	-	(0.1)
Divestment of associate	9.5	-
Proceeds from sale of available-for-sale financial assets	0.2	0.3
Purchase of property, plant and equipment	(4.5)	(1.8)
Purchase of intangible assets	(0.7)	(0.9)
Net cash generated from / (used in) investing activities	4.5	(2.5)
Cash flows from financing activities from continuing operations:
Issue of ordinary share capital	-	3.2
Dividends paid	(5.6)	(4.7)
Purchase of trust shares	(8.3)	(23.7)
Contribution received on issuance of employee share options	1.7	-
Net cash used in financing activities	(12.2)	(25.2)
Net (decrease) / increase in cash and cash equivalents	(19.6)	6.1
Cash and cash equivalents at beginning of year	109.5	103.6
Exchange gain on cash	0.2	-
Less: cash deconsolidated during the year from discontinued operations	-	(0.2)
Cash and cash equivalents at end of year from continuing operations	90.1	109.5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of preparation

In preparing the financial information in this statement the Group has applied policies in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through the profit or loss. The accounting policies are the same as those detailed within the 2009 Report and Accounts, which are available on the Group's website www.evgplc.com.

The financial information in this statement does not constitute the Group's statutory accounts for the years ended 31 December 2010 or 2009, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) Companies Act 2006.

As discussed further in the Business Review, these Financial Statements have been prepared on the going concern basis.

The Board of Directors approved this preliminary announcement on 24 March 2011.

2.     Critical accounting estimates and judgements

The preparation of the Financial Statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Financial Statements are disclosed below.

Intangible assets and goodwill impairment

Goodwill and other intangible assets, such as customer relationships and distribution channels, are tested for impairment based on the higher of value-in-use or fair values less costs to sell. The calculations require management's assumptions and estimates of future cash flows and discount rates. Based on the outcomes of the above prescribed analysis the Group believes the remaining carrying values of its intangible assets and goodwill are held at appropriate levels and do not require impairment.

During the year the Group has reviewed the average life of client relationships as part of its test for impairment.  As a result of this review, it was determined that the average client life has increased from five to seven years. The impact of this change in average life is to reduce the amortisation charge recognised in the Consolidated Income Statement by £0.5m, with a similar impact expected in 2011. This adjustment has been applied prospectively from 1 January 2010. No adjustment has been made in respect of 2009 or previous years. A reduction in the average amortisation period of 1 year would increase the amortisation charge by approximately £0.2m per annum.

Income taxes

The Group is subject to income taxes. Judgement is required in determining the extent that it is probable that taxable profits will be available in the future against which deferred tax assets can be utilised. Based on forecasts the Group expects to recover its deferred tax assets within the next five years.

3.     Segmental information

During the year the Group's Board of Directors acted as the Chief Operating Decision Maker ("CODM"). Presented in the table below are the operating segments the CODM regularly reviewed in order to allocate resources and assess the performance of the Group's operating segments. Adjusted operating profit is the measure that the Group uses for employee performance measurement purposes. The Board monitors and reviews the operating performance of the Group by operating segments per the tables below. Investment Banking in the current year refers to the business carried out in Evolution Securities Limited, Evolution Securities (US) Inc. and Darwin Strategic Limited. Private Clients refers to the business carried out under the Williams de Broë brand. Other activities principally refer to the central administrative, shared services and holding company functions. 

Year ended 31 December 2010
	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	57.9	51.5	0.1	109.5
Adjusted operating (loss) / profit	(3.1)	8.8	(0.5)	5.2
Charge for share options granted to employees	(0.2)	(0.8)	(1.1)	(2.1)
Amortisation of intangibles	(0.2)	(0.8)	-	(1.0)
Non-recurring operating expenses	0.2	(2.1)	-	(1.9)
Impairment of available-for-sale financial assets	(0.1)	-	-	(0.1)
Profit on disposal of available-for-sale financial assets	-	-	0.1	0.1
Operating (loss) / profit from continuing operations	(3.4)	5.1	(1.5)	0.2
Finance income				0.8
Finance expense				(0.2)
Share of post tax results of associates				(3.4)
Loss before tax from continuing operations				(2.6)
Tax credit				0.6
Loss after tax from continuing operations				(2.0)

Year ended 31 December 2009
	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	87.0	42.4	-	129.4
Adjusted operating profit / (loss)	18.5	4.1	(1.8)	20.8
Charge for share options granted to employees	(1.5)	(1.0)	(1.3)	(3.8)
Amortisation of intangibles	(0.2)	(1.3)	-	(1.5)
Non-recurring operating expenses	(0.4)	(2.0)	(0.3)	(2.7)
Profit on disposal of available-for-sale financial assets	-	-	0.3	0.3
Impairment of available-for-sale financial assets	(2.0)	-	-	(2.0)
Operating profit / (loss) from continuing operations	14.4	(0.2)	(3.1)	11.1
Finance income				1.4
Finance expense				(1.1)
Share of post tax results of associates				(0.3)
Profit before tax from continuing operations				11.1
Tax charge				(1.9)
Profit after tax from continuing operations				9.2
Loss after tax from discontinued operations				(2.3)

4.     Earnings per share

The calculation of the basic (loss) / earnings per share is based on the (loss) / profit for the year for continuing and discontinuing operations (excluding non-controlling interest) and on the weighted average number of ordinary shares in issue during the year. The calculation of the diluted (loss) / earnings per share is based on the basic (loss) / earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. As at 31 December 2010 there were 10,505,973 potential ordinary shares which have been disregarded in the calculation of diluted loss per share since they were considered to be anti-dilutive at this date.

Continuing operations

	Year ended 31.12.2010				Year ended 31.12.2009
	Loss £m	Weighted average no.	Loss per share (p)		Profit £m	Weighted average no.	Earnings per share (p)
Basic	(2.1)	215,668,043	(0.97)		9.2	221,642,318	4.10
Dilutive effect of share awards		-				13,044,555
Diluted	(2.1)	215,668,043	(0.97)		9.2	234,686,873	3.87

Discontinued operations

		Year ended 31.12.2009
		Loss £m	Weighted average no.	Loss per share (p)
Basic		(1.9)	221,642,318	(0.86)
Dilutive effect of share awards		-	13,044,555	-
Diluted		(1.9)	234,686,873	(0.86)

These calculations exclude shares held by the employee benefit trusts on behalf of the Group.

5.     Dividends

	2010	2009
	£m	£m
Prior year final paid: 1.7p (2009: 1.27p) per share	3.7	2.9
Current year interim paid: 1p (2009: 0.80p) per share	1.9	1.8
	5.6	4.7

In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2010 of 1.75p (2009: 1.70p) per share, which will reduce shareholders equity by approximately £3.9m. It will be paid on the 19 May 2011 to shareholders on the register of members at 1 April 2011.

6.     Staff costs

	2010 £m	2009 £m
Employee remuneration expense
Wages and salaries	52.8	62.9
Social security costs	6.5	9.0
Redundancy costs	1.0	1.0
Pension costs	0.2	0.2
Cost of share options	3.6	4.8
Other staff costs	0.3	0.3
Employee remuneration expense	64.4	78.2

7.     Tax expense

	2010 £m	2009 £m
Current tax:
UK Corporation income tax on profit	(0.2)	(0.1)
Adjustments in respect of prior years	0.9	0.1
Total current tax credit	0.7	-
Deferred tax:
Current year movement	(0.1)	(1.9)
Total tax credit / (charge)	0.6	(1.9)

Factors affecting the tax credit / (charge) for the year are explained below:

	2010 £m	2009 £m
(Loss) / profit before tax from continuing operations	(2.6)	11.1
(Loss) / profit multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28.0%)	0.7	(3.1)
Tax effects of:
Expenses not deductible for tax purposes	(1.9)	(3.1)
Tax deduction on options exercised	1.2	5.4
Utilisation of losses	0.6	1.9
Non taxable income	(0.7)	0.1
Adjustment in respect of prior years	0.9	0.1
Share options taken to equity reserves	(0.1)	-
Capital allowances	0.5	0.5
Current year tax losses not utilised	(0.5)	(1.8)
Current tax credit	0.7	-
Deferred tax expense	(0.1)	(1.9)
Current year movement	(0.1)	(1.9)
Tax credit / (expense)	0.6	(1.9)

The standard rate of corporation tax in the UK for the year ended 31 December 2010 remained unchanged throughout the year at 28% (2009: 28%).

Deferred tax on items charged to the income statement:

	2010 £m	2009 £m
Deferred tax expense on share options	(1.0)	(1.0)
Deferred tax (expense) / credit on capital allowances	(0.1)	0.2
Deferred tax expense on trade losses	(0.3)	(1.5)
Deferred tax credit on intangibles	1.3	0.4
Total deferred tax credited to Income Statement	(0.1)	(1.9)

8.     Investment in associates

	2010 £m	2009 £m
Cost
At 1 January	13.4	-
Transfer from subsidiary undertakings of ESCL	-	2.1
Transfer from subsidiary undertakings of WDB Capital Fund	-	11.7
Exchange difference taken to equity	0.1	(0.1)
Share of ESCL's loss for the period	(0.8)	(0.7)
Share of WDB Capital Fund's (loss) / profit for the period	(2.6)	0.4
Disposal of WDB Capital Fund	(9.5)	-
At 31 December	0.6	13.4

9.     Trade and other receivables

	2010 £m	2009 £m
Current
Trade receivables	11.8	10.4
Less: provision for impairment of trade receivables	(0.2)	(0.2)
Trade receivables - net	11.6	10.2
Counterparty receivables	56.1	57.8
Less: provision for impairment of counterparty receivables	-	-
Counterparty receivables - net	56.1	57.8
Other receivables	7.7	6.4
Prepayments and accrued income	5.5	4.4
	13.2	10.8
At 31 December	80.9	78.8

10.  Trading portfolio assets

	2010 £m	2009 £m
Long positions in market making and dealing operations	20.0	13.2
Options and warrants received in lieu of corporate finance income	0.5	0.1
Other derivatives	0.1	-
At 31 December	20.6	13.3

11.  Trade and other payables

	2010 £m	2009 £m
Trade payables	5.3	3.3
Counterparty creditors	60.9	58.0
Other taxation and social security	2.8	2.6
Other payables	0.8	0.8
Accruals and deferred income	19.5	37.7
At 31 December	89.3	102.4

12.  Trading portfolio liabilities

	2010 £m	2009 £m
Short positions in market making and dealing operations	2.9	2.7
Other derivatives	3.2	0.2
At 31 December	6.1	2.9

13.  Cash flows from operating activities

Reconciliation of operating profit from continuing operations to net cash flow from operating activities:

Cash flows from operating activities - continuing operations	2010 £m	2009 £m
Operating profit from continuing operations	0.2	11.1
Adjustments for:
Depreciation and write down of property, plant and equipment	2.0	1.7
Amortisation and write down of intangibles	1.6	2.4
Impairment of available-for-sale financial assets	0.1	2.0
Share options charge	3.6	4.7
Cost of matching shares issued under Share Incentive Plan	0.3	0.3
Profit on sale of available-for-sale financial assets	(0.1)	(0.3)
	7.5	10.8
Changes in working capital:
Decrease / (increase) in trade and other receivables	(4.1)	(1.2)
(Decrease) / increase in trade and other payables	(16.1)	17.9
Decrease in net market counterparties	4.6	4.1
Decrease / (increase) in net derivative positions	2.5	(0.5)
(Decrease) / increase in provisions for liabilities and charges	0.3	(0.1)
(Increase) / decrease in net trading portfolio positions	(6.6)	(9.5)
	(19.4)	10.7
Cash (used in ) / generated from operating activities - continuing operations	(11.7)	32.6

14.  Post balance sheet events

There have been no significant events since the balance sheet date.

 

END

 

 

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