Final Results

Evolution Group PLC 22 March 2005 22 March 2005 The Evolution Group Plc ("Evolution Group", the "Group") Preliminary results for the year ended 31 December 2004 Evolution Group, the listed investment bank and retail fund management group, today announces its preliminary results for the year ended 31 December 2004. Financial highlights •Total Group operating income increased by 61% to £65,533,000 (2003: £40,796,000) •Profit before tax of £47,967,000 (2003: £17,899,000) •Basic earnings per share of 18.5p (2003: 6.7p) •Strong cash generation across the Group with cash balances at £115 million (2003: £54 million) •Payment of final dividend of 0.58p (2003: 0.25p) following the interim dividend of 0.17p paid in November 2004 (2003: Nil) Operational highlights •The Board is pleased to announce that we will be performing a significant on-market share buyback programme during the remainder of 2005. •We raised £633m for our clients in 2004 (2003: £271m), a 134% increase on the previous year as we advised on 60 (2003: 60) transactions. •34% increase in funds under management for Christows to £640 million (2003: £477 million) •£40.5 million of cash raised from part disposal of holding in IP2IPO in May 2004 Commenting on the results and the Group's outlook, Richard Griffiths, Evolution Group's Chairman, said: "It is now four years since we created Evolution, and during 2004 the Group continued to develop strongly, despite sometimes testing markets, with both revenues and operating profits growing significantly. These results are a credit to the commitment and skill of our team. As we approach the end of the first quarter of 2005 we have successfully placed the rest of our stock in IP2IPO, raising nearly £52.8m of additional cash, and I am pleased to announce that all our businesses continue to progress well. Your Board is confident of further success in 2005." -Ends- For further information, please contact: The Evolution Group Plc 020 7071 4300 Alex Snow, Chief Executive Officer Graeme Dell, Finance Director Bell Pottinger 020 7861 3232 Charles Cook Sarah Landgrebe Notes to Editors: The Evolution Group Plc Evolution Group is the holding company of Evolution Securities Limited, Christows Limited and Evolution Securities China Limited. Founded in April 2001 and originally listed on the AIM, Evolution joined the Official List in 2003, became a member of the FTSE 250 Index in 2004, and now has a market capitalisation of over £420 million. Evolution Securities Limited aims to be the leading investment bank advising small and mid-cap UK public companies. It has over 100 retained corporate clients, to whom it provides equity research, institutional sales and trading, market making and corporate finance advice. Its principal operating subsidiary, Evolution Securities Limited, is authorised and regulated by the Financial Services Authority. In addition, it operates a US broker/dealer, Evolution Securities (US), Inc., which is regulated by the National Association of Securities Dealers, through which it brings US institutional investors access to its UK based corporate clients. Christows Limited is a leading private client stockbroker and fund manager, with offices in London, Bournemouth, Exeter and Bath. Christows is authorised and regulated by the Financial Services Authority. Evolution Securities China Limited is a specialist Chinese investment banking business with offices in London and Shanghai. It offers UK based institutional clients research and trading in Chinese listed stocks. CHAIRMAN'S STATEMENT During 2004, the Group has continued to develop strongly and has grown significantly its revenues and operating profitability. Additionally, the Group realised significant further value from the partial sale of its stake in IP2IPO Group Plc. Overall, I am pleased to report overall operating income up 61% to £65.5m from £40.8m in the prior year and a profit before tax up 168% to £48.0m from £17.9m in 2003. Total Shareholder Return, (defined as the growth in the value of a hypothetical £100 holding in over five years including dividend re-investment) rose 54% during 2004, 33% ahead of the FTSE Mid-cap Index (excluding Investment Trusts). The Group's investment banking business, Evolution Securities Limited (formerly Evolution Beeson Gregory Limited) ("Evolution Securities" or "ESL") has contributed strongly to the Group's ongoing progress. The financial performance of this business has been the key driver of the Group's overall operational profitability. Progress is also reflected by the rebranding that we undertook in September, recognising that the business had, in the two years since acquisition, developed a strong, well recognised and respected brand identity with its corporate clients and institutional customers. This has been created by the development of a very strong corporate culture and work ethos. We have continued to gain market share in the sectors in which we specialise and were named "AIM Broker of the Year 2004" by Growth Company Investor in a period when the development of the AIM market was acknowledged by market commentators to have been one of the outstanding contributors to the success of the London equity markets. Christows Limited ("Christows"), the Group's private client stockbroking and fund management business, had a third consecutive profitable year with operating profit up 626% from the previous year. It continues to increase its funds under management, reaching £640m as at 31 December 2004 (2003: £477m), an increase of 34%. This growth has been driven by the further development of its core discretionary portfolio management services where it has been successful in winning new clients and attracting new account executives. The Group's specialist Chinese investment banking business, Evolution Securities China Limited ("Evolution Securities China"), has also made good progress during this its first full year of operation. We believe that there is a real opportunity to become London's leading China specialist broker, introducing institutional investors to the rapidly growing sector of listed Chinese businesses in the future. Board development In 2004, I have been delighted to welcome two very experienced Non-executive directors to the Board. The appointment of Lord Maclaurin of Knebworth, DL as senior independent Non-executive director and Nicholas Irens as Chairman of the Audit Committee have contributed significantly to the Board's effectiveness in managing a growing business against the background of significant external change in the area of corporate governance. I am confident that the Board is now stronger than ever before in meeting these challenges and would expect to develop the Board further in the future to ensure that it continues to achieve these goals. Dividend The Board recommends the payment of a final dividend of 0.58p per share (2003: 0.25p). This follows the inaugural interim dividend payment of 0.17p announced in September and paid in November, giving an overall dividend for the year of 0.75p per share. This trebling of the overall dividend for the year is an acknowledgement of our growth in confidence of the Group's operating business and is exactly in line with our stated progressive dividend policy. Share buyback At the time of our pre-close statement in January we highlighted that the Board was actively considering the most effective way to reward shareholders in light of the balance sheet strength. At the year end, the Group's cash balance had risen to £115m (2003: £54m) and we recognise that this, together with the proceeds from our recent disposal of our remaining investment in IP2IPO, represent a significant proportion of the Group's market capitalisation. As a result of our detailed analysis, in conjunction with our legal and financial advisors, the Board is pleased to announce that we will be performing a significant on-market share buyback programme during the remainder of 2005. We believe that this is the most efficient way of providing shareholders with the option of capital return which will result in long term EPS enhancement for remaining shareholders. To facilitate this process we shall of course be seeking shareholder approval through the extension of the existing permission to purchase shares provided at last year's AGM Share purchases by the trust The Group has used the approval granted at the AGM in 2004 to carry out purchases in the year. We have purchased 2,559,000 shares through the Group's share incentive trust in respect of meeting share incentive awards made to staff and we will be continuing this process in 2005 alongside the share buyback program. The Group's employees I would like to reiterate that the results of our operating businesses are determined largely by the efforts and commitment of our staff, who are one of the principal assets of the Group. I would like to thank everyone for their efforts last year, which contributed to a very successful 2004 for the Evolution Group. These individuals' interests are aligned well with shareholders through the significant performance related elements of reward and various share incentive programs that the Group has put in place to motivate and retain its key employees and I am confident of their ability and desire to repeat the successes of 2004 this year. Outlook As the first quarter of 2005 comes towards a conclusion, I am pleased to announce that our businesses are all continuing to progress well and your Board is confident of further success in 2005. As announced on 11 March 2005, the Group disposed of its remaining investment in IP2IPO for gross proceeds, before expenses of £52.8m. This represents significant value for shareholders and increases the cash available to the Group for its future development. Richard Griffiths Chairman 22 March 2005 CHIEF EXECUTIVE'S REPORT The Group continued during 2004 to build upon the platform established within its operating businesses and overall this resulted in a significant increase in revenues and profitability. Market conditions for UK equities continued to be challenging during much of the year and it is therefore a testament to the strength of the business models that we have built to produce results showing very clear progress from the previous period. Our two key operating businesses, Evolution Securities and Christows, both performed extremely well at the revenue and profitability levels and in the achievement of key operating objectives. This, together with further significant asset realisations in the period resulted in the Group ending 2004 extremely well positioned to achieve further success in the coming period. Performance Breakdown 2004 2003 Operating Income £'000 % £'000 % ESL 54,145 83 32,171 79 Christows 10,724 16 8,327 20 Other income 664 1 298 1 ----------- ----------- ----------- ---------- 65,533 100 40,796 100 ----------- ----------- ----------- ---------- Corporate finance 34,088 52 17,317 42 Sales commissions 14,939 23 9,067 22 Trading 11,575 18 10,994 27 Management fees 3,907 6 2,851 7 Other income 1,024 1 567 2 ----------- ----------- ----------- ---------- 65,533 100 40,796 100 ----------- ----------- ----------- ---------- Evolution Securities The investment banking business continues to represent the major part of the Group's operating activities. Two years after the business was created by the combination of Evolution Capital and Beeson Gregory it operates in a very different manner from the businesses of its founding constituents by many measures. The majority of its current staff have joined the organisation since this time, similarly the majority of our retained corporate clients have been won in that time, and institutional customers and market counterparties have performed significantly higher transaction volumes leading to increased market share. This was recognised in September 2004 by the rebranding of the business to Evolution Securities Limited and this has paved the way for further success as the year concluded. Overall, Evolution Securities' results for the year are an increase of 68% in operating income to £54.1m (2003: £32.2m). The company operates in the space which has now become defined as middle-market equities, representing not simply a measure of market capitalisations but more a function of the uniqueness of the relationships, knowledge, ethos and commitment required to be successful in servicing companies in this area. Corporate broking The corporate broking track record in 2004 has been the key driver of our success, overall income increased by 98% to £33.7m (2003: £17.0m). We raised £633m for our clients in 2004 (2003: £271m), a 134% increase on the previous year as we advised on 60 (2003: 60) transactions. To provide this service successfully requires a team able to source, research, structure and price transactions in a manner attractive to investors and our results are clear proof of this. At the end of the year we have 105 retained corporate clients to whom we believe ESL continues to be best placed to provide innovative advisory, investor relations and equity finance solutions. In this vein Growth Company Investor voted Evolution Securities AIM Broker of the year in 2004 recognising the company's performance in advising companies on AIM, Europe's most active market for new issues in 2004 Equity distribution In this area of business, success is achieved by the depth of the relationship with our institutional customer base and the ability to offer them access to, and advice on, research ideas, corporate broking transactions and trading prices. In 2004, the equity sales team has made a significant step up in revenue terms from its historic levels with secondary commissions up 110% to £8.6m. Driving this has been agency business market share gains in the small-cap, mid-cap and AIM sectors. Coupled with the distribution responsibility for the record level of fundraisings from our corporate broking activities this is a tremendous performance. New members of the team within all functions of the equity distribution process have contributed to this success and the establishment of a genuine Evolution Securities equity sales franchise. Equity research ESL has continued to broaden and deepen coverage in 2004, with 216 companies under coverage at the year end (2003: 190). These cover sectors including health, pharmaceutical and biotech, household and general retail, consumer, leisure and hotels, media and entertainment, support services, electronics, software, mining, oil and gas, construction/building and industrials, which broadly represent the middle market waterfront. The research remains as one of the cornerstone outputs in serving a corporate client through its lifecycle from pathfinder research pre-IPO into the regular coverage and updates once listed. ESL's research continues to be well received by institutional investors and we believe this has significantly contributed to our secondary market share gains. Market-making and Trading Market making and trading continued the process that we had commenced in the previous year of growing their footprint profitably. During 2004, we increased the number of stocks in which we make prices to 778, an increase of over 30% on the prior year. In addition, we doubled the number of Retail Service Provider ("RSP") hub connections and this gave us direct connection overall via our 4 RSP hubs at the year end to 62 retail stockbrokers. This resulted in a growth in volumes of 118% from the previous year. In November 2004, we saw a conclusion of the Financial Services Authority's investigation into Room Service short selling that occurred a year earlier and this resulted in a fine of £500,000. Following this we have made significant organisational changes in this area, which we believe will provide us with a more robust framework with a strengthened compliance culture that will facilitate further profitable development of the business. US Broker/Dealer In December 2004 we completed the acquisition and regulatory approval process of Evolution Securities US Inc. This US broker dealer is registered by the National Association of Securities Dealers ("NASD"). In order to facilitate this, a number of our existing UK based staff have completed the training and examinations necessary to become registered with the NASD and we have rented an office in New York. This will enable us to represent our corporate clients to US institutional customers, providing US roadshows where appropriate for them, and perform the effective distribution of secondary UK equities to these US institutional investors, which we believe to be a significant market opportunity. In summary, 2004 has seen Evolution Securities' businesses develop further and we are confident of continuing income and profitability growth in 2005. Christows In 2004, we established a plan for Christows of continuing its growth in scale and attaining a greater profitability. I am pleased to report that both of these achievements were met. Total operating income increased by 29% to £10.7m which, coupled with continued tight management of costs, produced a third consecutive profitable year with a growth in operating profitability of 626% over 2003. Our strategy of growing funds under management, particularly those strategic funds upon which recurring management fees are received, also proved successful. Strategic funds under management increased by 39% over the prior year to £552m (2003: £398m) making up 86% (2003: 83%) of total funds under management at the year end. This growth in funds under management was underpinned by record sales, for the third consecutive year, by our professional intermediary sales team, leading to Christows winning new mandates across all its product range but particularly in the Private Portfolio Account where Christows saw new funds introduced by this team of £70m (2003: £56m) and these have been won at increased average portfolio sizes. Overall funds under management stood at £640m (2003: £477m) at year end, an increase of 34% over last year. As a result of this growth in funds under management the recurring management fees received increased to £3.9m from £2.9m in 2003, and transaction based income increased by 24% over the same period to £6.1m with good performance across all offices and product areas. During the year we have continued to successfully integrate the new account executives and develop the Bath office in order to maximise the contribution in these areas that we highlighted last year. The private client fund management market environment in which Christows operates has seen considerable consolidation during the last 18 months. I believe that Christows will continue to be able to grow successfully as it demonstrates a commitment to continued high standards of truly bespoke client service across its core discretionary portfolio management products. In summary, in 2004 Christows has achieved its objectives and we look forward to continued progress in the coming year. Evolution Securities China Evolution Securities China completed its first year of activity in August 2004 and in that time it had principally focused on developing its research and sales functions in line with its stated strategy of providing a specialist Chinese securities analysis, sales support and trade execution offering. We believe that the opportunity to be London's leading specialist China broker is an achievable goal. We have continued to develop this new business, which in this its first full year of operation had a net loss before tax of £0.7m, since we foresee the potential for profitable operation in the near term and for long term value creation. Investments In 2004 IP2IPO completed the transition to complete independence from the Group, which commenced at its IPO in 2003. In May 2004, the Group sold 9,000,000 shares in IP2IPO reducing our percentage ownership in the process from 40.6% to 18.5%. At this point, reflecting the change in status from an associated company to a fixed asset investment, I stepped down from the board of IP2IPO. This sale realised gross proceeds of £40.5m in cash and generated a net profit of £22.3m. The remaining holding in IP2IPO was subsequently disposed of in March 2005 for gross proceeds of £52.8m, before expenses. As previously reported, the Group has continued to exit from its legacy investment portfolio. The Group has not made any provision against the remaining portfolio of investments (2003: £6.1m). The Group continues to seek to extract value from this portfolio with profits on sale of investments and release of provisions totalling £6.6m in 2004 (2003: £2.5m) Compliance, culture and employees We seek to ensure that our clients' interests are always put first, since we believe this will deliver our long term success. Throughout the Group we operate in regulated markets and our principal regulator is the Financial Services Authority. With these in mind we endeavour to ensure that our businesses are conducted in a manner that achieves the highest standards of compliance and we adopt a zero tolerance policy for non-compliance. During 2004 we invested resource in the further enhancement of our compliance, risk management and operations areas. This investment took the form of increasing the number and quality of the headcount in these areas and developing our systems and procedures. We take these matters very seriously since we believe them to be paramount in ensuring the long-term growth in profitability. Our culture is one where we encourage high individual effort to achieve our stated corporate performance targets. Our employees, in all subsidiaries, are rewarded on a performance basis with a high element of performance related reward in place and this aligns their interests with shareholders. In addition, part of the reward structure is based upon equity participation, which further reinforces shareholder alignment, and we ensure this incorporates a framework of vesting conditions based upon the achievement of challenging individual and corporate performance targets. The use of such arrangements resulted in a profit and loss impact across the Group during 2004 of £4.3m (2003: £3.0m), principally in the form of a charge for the cost of options. Alex Snow Chief Executive Officer 22 March 2005 FINANCIAL REVIEW Adjusted operating profit The statutory operating profit for the overall Group is as shown below. The Board believes a truer reflection of the performance of the Group's on-going operating businesses is afforded by the measure "adjusted operating profit". This is calculated so as to exclude items from operating profit that are one-off or non-recurring, are not part of the on-going business profitability or, in the case of the cost of options and amortisation of goodwill, represent non-cash items. The following table reconciles these two measures and demonstrates the significant progress made on a Group basis in moving from an adjusted operating profit of £10.6m in 2003 to an adjusted operating profit of £20.1m in 2004. 31 December 31 December 2004 2003 £'000 £'000 £'000 £'000 ------- --------- ------ --------- Operating profit 22,041 1,553 Items not included within "adjusted operating profit" Profit on sale of (1,225) (2,379) fixed asset investments Profit on sale of (4,824) (99) current asset investments (Release) / charge (525) 6,114 of provision ------- ------ against fixed asset investments Adjustment for (6,574) 3,636 provisions and profits on investments Non-recurring - 1,113 costs IP2IPO subsidiary - 599 operating loss ------- ------ Non-recurring - 1,712 items Amortisation of 505 567 goodwill Share of associated undertaking's operating (profit) / loss (184) 186 Cost of options 4,268 2,963 ------- ------ Non-cash items 4,589 3,716 --------- --------- Adjusted operating 20,056 10,617 profit --------- --------- Looking at the two principal operating businesses individually, it is clear to see the progress made in both Evolution Securities and Christows in 2004 from the previous period. Investment banking Within the investment banking business of Evolution Securities, there has been significant growth in the scale and profitability of this business resulting in a near doubling of adjusted operating profit from £10.6m in 2003 to £19.9m in 2004. 2004 2003 £'000 £'000 --- ---------- --------- Operating income 54,145 32,171 Commissions payable (660) (433) ---------- --------- Gross profit 53,485 31,738 Administrative expenses (35,288) (22,412) Profit on sale of fixed asset investments 21 - Profit on sale of current asset investments 171 99 ---------- --------- Operating profit 18,389 9,425 Profit on sale of fixed asset investments (21) - Profit on sale of current asset investments (171) (99) Non-recurring and exceptional costs - 713 Cost of options 1,707 571 ---------- --------- Adjusted operating profit 19,904 10,610 ========== ========= Non-recurring and exceptional costs in the prior year relate to costs of redundancy and relocation expenses for new offices. Investment banking revenue analysis The growth in investment banking revenue has been achieved by particular growth from the activities of corporate finance fundraising and advice. In addition, sales commissions have performed strongly. Equity trading income was up year on year but represented a smaller proportion of the overall income. There remains a good balance overall between primary and secondary income. 2004 2003 --------- --------- Corporate finance 62% 53% Sales commissions 16% 13% Trading 21% 34% Other 1% - Investment banking cost analysis The overall cost/income ratio for the investment banking business (excluding cost of options and non-recurring costs) is 62% (2003: 66%). Staff costs continue to make up the majority of the total cost base, accounting for 59% (2003: 62%) of costs with over 70% (2003: 49%) of this being in the form of performance related bonuses. The other administrative expenses have increased principally as a result of the increase in premises costs and provisions. 2004 2003 --- --------- --------- Staff costs - Non performance related 17% 24% Staff costs - Performance related 42% 38% Other costs 36% 33% Cost of options and non-recurring costs 5% 5% Private client stockbroking and fund management Turning to Christows, the Group's private client stockbroking and fund manager, 2004 has seen an acceleration of the progress of the last two years with an increase of 137% in adjusted operating profit from £0.4m in 2003 to £0.9m in 2004. 2004 2003 £'000 £'000 ---------- --------- Operating income 10,724 8,327 Commissions payable (2,566) (2,201) ---------- --------- Gross profit 8,158 6,126 Administrative expenses (7,301) (6,008) ---------- --------- Operating profit 857 118 Non-recurring and exceptional costs - 174 Cost of options 5 71 ---------- --------- Adjusted operating profit 862 363 ========== ========= Non-recurring and exceptional costs in the prior year relate to costs of redundancy and search expenses related to the acquisition of new account executive teams. Private client stockbroking and fund management revenue analysis Christows' mix of income has remained constant across the two periods demonstrating the consistency of the business model, as the overall level of funds under management increases, and showing equal growth in its recurring management fees and sales commission income lines. 2004 2003 ------ ------ Corporate finance 2% 2% Sales commissions 57% 59% Management fees 36% 34% Other income 5% 5% Private client stockbroking and fund management cost analysis The overall cost/income ratio (excluding cost of options and non-recurring costs) for Christows has remained stable at 68% (2003: 69%) Further examination of the cost structure within Christows shows it continues to be tightly managed and highly predictable. 2004 2003 --------- --------- Staff costs - Non performance related 38% 37% Staff costs - Performance related 14% 9% Other Costs 48% 50% Cost of options and non-recurring costs 0% 4% Other activities The Group's other activities are made up of central group support costs not recovered from the operating businesses, the profits on, and provisions against, legacy fixed asset investments, and the results of the IP2IPO business whilst it was an associated undertaking of the Group. In addition, the results of Evolution Securities China Limited are included in this category as they are not material to disclose separately. 2004 2003 £'000 £'000 ------ ------- Operating income 664 298 Commissions payable (77) (22) ------ ------- Gross profit 587 276 Administrative expenses (4,358) (4,345) Profit on fixed asset investments 1,204 2,379 Release / (charge) of provision on fixed asset 525 (6,114) investments Profit on current asset investments 4,653 - Share of associated undertaking operating profit / 184 (186) (loss) ------ ------- Operating profit / (loss) 2,795 (7,990) Profit on sale of fixed asset investments (1,204) (2,379) (Release) / charge of provision against fixed asset (525) 6,114 investments Profit on current asset investments (4,653) - IP2IPO subsidiary operating loss - 599 Non-recurring costs - 226 Amortisation of goodwill 505 567 Share of associated undertaking operating (profit) / (184) 186 loss Cost of options 2,556 2,321 ------ ------- Adjusted operating loss (710) (356) ====== ======= Non-recurring costs in the prior year represent costs for loss of office and the costs in relation to taking the Group to the Official List. IP2IPO As at 31 December 2004, the Group retained 18.2% of IP2IPO Group Plc following the part disposal of the Group's interest in May 2004. The Group has recognised its share of operating profit, interest and tax in the profit and loss account to May 2004 in accordance with FRS 9. From this date and as at the year end this investment was then treated as an investment within the Group and Company accounts and stated at historical cost less provision for impairment value. The overall impact of the partial disposal in 2004 is a total gross profit of £26.4 million from which transaction costs and incentive awards are deducted resulting in a net profit of £22.3m. Under FRS 3, Reporting Financial Performance, this profit falls within the definition of "exceptional items" and is thus disclosed separately after operating profit. On 11 March 2005, the Group disposed of its remaining holding in IP2IPO of 7,502,170 shares for total gross proceeds, before expenses of £52.8m. Due to this disposal, this investment has been reclassified as current asset investments as at 31 December 2004. Investment portfolio As previously reported the Group has continued to exit from its legacy investment portfolio. The Group has not made any provision against the remaining legacy portfolio of investments (2003: £6.1m). The Group continues to seek to extract value from this portfolio with profits on sale of investments and release of provisions totalling £6.6m in 2004 (2003: £2.5m). At the year end, the remaining fixed asset investment portfolio has a carrying value of £0.6m (2003: £0.9 million) and current asset investments held at a carrying value of £12.1m (2003: £0.4m), including £11.8m for IP2IPO. Balance sheet strength The Group remains focused on maintaining a strong balance sheet. At the year end it had net assets of £136.5m (2003: £91.4m) including cash of £115.2m (2003: £53.7m). Cashflow The Group generated positive cash inflow of £61.5m in the year (2003: £21.7m). This has been achieved principally by operating profitability and the partial disposal of IP2IPO in May 2004. Dividend The Board is proposing a final dividend per share for 2004 of 0.58p (2003 of 0.25p). This dividend is payable on 2 June 2005 to shareholders on the register on 6 May 2004. This follows the Interim dividend paid in November 2004 of 0.17p per share. (2003: Nil) Graeme Dell Finance Director 22 March 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2004 2003 (Restated) £'000 £'000 Operating income 65,533 40,796 Commissions payable (3,303) (2,656) ------- ------- Gross profit 62,230 38,140 Administrative expenses (46,947) (32,765) Profit on sale of fixed asset investments 1,225 2,379 Profit on sale of current asset investments 4,824 99 Release / (charge) of provision against fixed 525 (6,114) asset investments ------- ------ Group operating profit 21,857 1,739 Share of associated undertaking's operating 184 (186) profit / (loss) ------- ------- Total operating profit 22,041 1,553 Profit on part sale of subsidiary 66 15,085 Profit on part sale of associate 22,286 - Interest receivable and similar income 3,329 1,156 Share of associated undertaking's interest 252 126 receivable Interest payable and similar charges (7) (21) ------- ------- Profit on ordinary activities before taxation 47,967 17,899 Tax on profit on ordinary activities (2,564) (1,851) ------- ------- Profit on ordinary activities after taxation 45,403 16,048 Minority interest - equity 175 146 ------- ------- Profit for the financial year 45,578 16,194 Dividends (1,849) (616) ------- ------- Retained profit for the financial year 43,729 15,578 ------- ------- ------- ------- Basic earnings per ordinary share 18.5p 6.7p Diluted earnings per share 17.0p 6.3p All recognised gains and losses are included in the profit and loss account. There is no difference between the result disclosed in the profit and loss account and the result on a historical cost basis. CONSOLIDATED BALANCE SHEET As at 31 December 2004 2003 (Restated) £'000 £'000 Fixed assets Intangible assets 8,565 8,990 Investment in associated undertakings - 25,525 Tangible assets 1,512 1,509 Investments 583 851 --------- ---------- 10,660 36,875 Current assets Debtors 39,614 28,171 Long trading positions 9,679 7,207 Investments 12,139 444 Cash at bank and in hand 115,170 53,705 --------- ---------- 176,602 89,527 Creditors: Amounts falling due within one (50,679) (34,734) year --------- ---------- Net current assets 125,923 54,793 --------- ---------- Total assets less current liabilities 136,583 91,668 Provisions for liabilities and charges (114) (227) --------- ---------- Net assets 136,469 91,441 --------- ---------- --------- ---------- Capital and reserves Called up share capital 2,495 2,478 Share premium account 26,223 25,739 Merger reserve 51,230 57,261 Profit and loss account 56,586 5,996 --------- ---------- Total shareholders' funds 136,534 91,474 --------- ---------- Shareholders' funds - Equity 136,534 91,474 Minority interests - Equity (65) (33) --------- ---------- Minority interests & shareholders' funds 136,469 91,441 --------- ---------- --------- ---------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2004 2003 £'000 £'000 £'000 £'000 Net cash inflow from operating 20,134 11,832 activities Returns on investments and servicing of finance Interest received 3,283 1,159 Interest paid (7) (13) Income from fixed asset 85 8 investments -------- -------- Net cash inflow from returns on 3,361 1,154 investments and servicing of finance Taxation Corporation tax paid (4,136) (979) Capital expenditure and financial investments Purchase of investments (321) (2,649) Sale of investments 7,260 2,611 Purchase of tangible fixed (796) (1,353) assets -------- -------- Net cash outflow from capital 6,143 (1,391) expenditure and financial investments Equity dividends paid to shareholders Dividends paid (1,037) - Acquisitions and disposals Part disposal of subsidiary - 15,015 Disposal of associated 40,500 - undertaking Costs of disposal (826) (1,616) Purchase of subsidiaries (59) - Net cash (disposed) with - (8,738) subsidiaries -------- -------- Net cash inflow from acquisitions and disposals 39,615 4,661 -------- -------- Cash inflow before financing 64,183 15,277 Financing Issue of ordinary share 501 1,413 capital Issue of shares to minorities 219 5,252 Purchase of own shares (3,335) - Expenses of share issue - (225) -------- -------- Net cash (outflow) / inflow from (2,615) 6,440 financing -------- -------- Increase in cash in the year 61,465 21,717 -------- -------- Other information The financial information in this statement has been prepared on the historical cost basis, modified by the revaluation of certain assets held for trading purposes. A change in accounting policy arose from the adoption in 2004 of the Urgent Issues Task Force Abstract 38, 'Accounting for ESOP Trusts' ("UITF 38"). UITF 38 requires The Evolution Group Plc's equity shares held in the Share Incentive Trust to be accounted for as a deduction in arriving at shareholders' funds, rather than as assets. The balance sheet for 31 December 2003 has been restated accordingly, and own shares and shareholders' funds have both been reduced by £492,000. The impact of UITF 38 on the 31 December 2003 profit and loss account was immaterial, and the comparatives have not been restated. Provisions for bad and doubtful debts are charged to other administrative expenses. Amounts of £45,000 previously charged against operating income have been reclassified to conform with current year presentation. The financial information in this statement does not constitute the Group's statutory accounts for the year ended 31 December 2004 within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for 2004 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Group will be circulating the full annual report and accounts to shareholders and copies will be available from the Registered Office of the Company, 9th Floor, 100 Wood Street, London EC2V 7AN from the date of despatch to shareholders for one month. Annual General Meeting The arrangements for, and notification of business to be transacted at, the Company's Annual General Meeting will be provided in the annual report and accounts to be circulated to shareholders in due course. This information is provided by RNS The company news service from the London Stock Exchange PKBKNKBKKFNB

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