Half Yearly Report

RNS Number : 7324R

Evolution Group PLC

27 August 2010

 



The Evolution Group Plc

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

Half Year results for the six months ended 30 June 2010

INTERIM MANAGEMENT REPORT - 2010

Evolution Group, the listed Investment Bank and Private Client group, today announces its half yearly financial report for the six months ended 30 June 2010.

Highlights

·      Total Group income of £56.1m, up 7% on 2009.

·      Statutory operating profit of £4.5m, up 22% on 2009.

·      Interim dividend increased 25% to 1.00p.

·      Continued strong growth in Private Client income, up 35% to £25.4m.

·      Investment banking division remained profitable despite very difficult market conditions.

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

·      Balance sheet strength and liquidity maintained.

	Half Year Ended 30.06.10		Half Year Ended 30.06.09
	£m		£m
Total income	56.1		52.6
Operating profit	4.5		3.7
Profit before tax	3.0		3.6
Diluted earnings per share	1.24p		1.23p
Dividend per Share	1.00p		0.80p

Commenting on the results and outlook, Alex Snow, Chief Executive of Evolution Group said:

"These interim results reflect a creditable performance for the Group as a whole. Growing income and operating profit in the period, in what have been very tough trading conditions, is a good achievement. We remain focused on our long term strategy to create shareholder value through growing a quality recurring earning stream. This value will be created despite, not as a result of, short term volatility in markets and performance. The Group remains in a significant investment build out phase, both developing recent investments and new opportunities for future growth.

Despite the evident short term challenges due to market conditions, we see real opportunities to generate future growth from the base of our diversified businesses, financial strength and commitment to excellence. The significant increase in dividend underscores the Group's confidence in the success of its strategy."

Key Performance Indicators

		Half Year Ended 30.06.10		Half Year Ended 30.06.09
Private Clients1
Net fund inflows (£m)		128		123
No. of clients		16,000		13,000
Income per average head5 (£000)		182		147
Income per average front office head3 & 5 (£000)		387		301
Core operating costs per average front office head5 (£000)		239		215
Operating profit / (loss) (£m)		3.6		(1.7)
Operating margin (%)		14%		-
AUM (£bn)		5.1		4.2
Net increase in headcount since year end		16		1
Investment Banking2
Market share by value traded
LSE Market - FTSE 100 (%)		1.3%		1.1%
LSE Market - Total FTSE (%)		1.4%		1.2%
LSE Market - AIM (%)		5.4%		5.6%
Corporate clients		80		76
Transactional volumes (millions)		1.4		1.3
Institutional clients		1,134		796
Funds raised (£m)		195		104
Income per average head5 (£000)		272		454
Income per average front office head4 & 5 (£000)		348		610
Core operating costs per average front office head5 (£000)		273		279
Operating profit (£m)		1.3		6.4
Operating margin (%)		4%		19%
Net increase in headcount since year end		9		64
1The results of Private Clients are defined as those arising from Williams de Broë ("WDB") Limited, WDB Assetmaster   Management Company Limited, WDB Asset Management Limited and WDB Capital Limited. 2The results of Investment Banking are defined as those arising from Evolution Securities Limited ("ESL") and its subsidiary Evolution Securities (US) Inc. ("ESUS"), and from Darwin Strategic Limited. 3 Front office head count for Private Clients is defined as including investment managers, dealers, financial planners and investment assistants. 4 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. 5 Income per average head, income per average front office head and Core operating costs per average front office head are based on annualised first half incomes and costs, divided by average first half headcount.

The Evolution Group Plc

The Evolution Group Plc is the ultimate holding Company of companies including: Evolution Securities Limited, Williams de Broë Limited, Evolution Securities (US) Inc, WDB Asset Management Limited, WDB Capital Limited and WDB Assetmaster Management Company Limited. The Company also owns 52% of the issued share capital of Darwin Strategic Limited.

Evolution Securities Limited is a leading investment bank focused on UK and pan European mid cap public companies. It provides a full range of investment banking services including equity research, institutional sales and trading, market making and corporate finance advice. It is authorised and regulated by the Financial Services Authority.

Williams de Broë Limited is one of the UK's leading retail investment managers, with offices in Bath, Birmingham, Bournemouth, Edinburgh, Exeter, Guildford and London. Williams de Broë Limited is authorised and regulated by the Financial Services Authority.

For further information, please contact:

The Evolution Group Plc Alex Snow, Chief Executive Officer Andrew Westenberger, Finance Director	020 7071 4300
Merlin Charles Cook Toby Bates	020 7726 8400

FORWARD-LOOKING STATEMENTS

This Half Yearly 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.

BUSINESS REVIEW

RESULTS SUMMARY

		Half year ended  30.06.10		Half year ended    30.06.09
		£m		£m
Total income
- Private Client		25.4		18.8
- Investment Banking		30.7		33.9
- Other		-		(0.1)
		56.1		52.6
Operating profit from continuing operations
- Private Client		3.6		(1.7)
- Investment Banking		1.3		6.4
- Other		(0.4)		(1.0)
		4.5		3.7
Net finance income		-		0.3
Share of post tax results of associates		(1.5)		(0.4)
Profit before tax from continuing operations		3.0		3.6
Tax		(0.2)		(0.7)
Profit after tax from continuing operations		2.8		2.9
Discontinued operations		-		(2.3)
Profit for the period		2.8		0.6
Diluted Earnings per Share from continuing operations		1.24p		1.23p
Dividend proposed / paid per share - Interim		1.00p		0.80p

OVERVIEW

Evolution Group performed well in the first half of 2010, delivering robust results in an extremely difficult environment.  Prompted by the European sovereign debt crisis, financial markets (both equities and fixed income) have suffered a series of aggressive sell-offs, followed by subsequent rallies without a clear pattern. This seriously undermined investor confidence and risk appetite. Furthermore, beneath the big moves in equity market indices, this lack of investor conviction, evidenced by little sizeable flow or liquidity, has created a challenging environment for corporate capital raising.

Against this background, a 7% increase in Group income, and 22% increase in Group operating profit, is a result of the strategy to diversify the range of businesses by developing new and recurring income streams. The Group now has a level of recurring  income, in particular from the private client business, which should allow it to remain profitable during difficult market conditions.

PRIVATE CLIENTS

		Half year ended 30.06.10		Half year ended 30.06.09
			£m		£m
Management fees			14.6		10.8
Transactional income			10.6		7.3
Segregated interest income			0.2		0.7
Total income			25.4		18.8
Expenses			(20.3)		(17.6)
Adjusted operating profit			5.1		1.2
Charge for share options granted to employees			(0.4)		(0.9)
Amortisation of intangibles			(0.7)		(0.7)
Non-recurring operating expenses			(0.4)		(1.3)
Operating profit / (loss)			3.6		(1.7)
Headcount			284		261
Assets Under Management (£bn)			5.1		4.2
Net fund inflows (£m)			128		123

The combination of a differentiated service, high calibreteam of investment professionals, respected brand and increasingly sophisticated technology infrastructure, positions Williams de Broë limited as one of the leading investment managers in the UK.

The Private Client business has reached the scale to make a material profit contribution of £3.6m (2009: £1.7m loss) to the Group. This excellent result reflects:

·      The reduction in integration costs relating to the successful acquisition of the Edinburgh team and Singer & Friedlander investment managers which were taken in 2009, resulting in both teams now contributing strongly to the performance of the business; 

·      Ongoing initiatives to improve operating margin;

·      Organic growth momentum with both the sales team and investment managers continuing to win significant levels of new client assets.

Total income grew to a record level of £25.4m in the period, an increase of £6.6m (or 35%), primarily as a result of assets under management and administration increasing to £5.1bn compared with £4.2bn in the comparative period for 2009 (an increase of 21%).

Recurring management fee income of £14.6m (2009: £10.8m) increased by 35% in the period. The exceptional growth has been driven by the continued focus on growing managed assets resulting in management fee income now accounting for 57% of total income.

Transactional volumes increased by 30% to 99,000 (2009: 76,000), as early signs of market recovery witnessed during Q1 2010 increased retail investor confidence, delivering a record first quarter for volumes and income. Momentum was maintained during Q2 2010 generating £10.6m in the first half, an increase of 45% on the comparative period (2009: £7.3m).

As a result of the sharp decline in interest rates over the past 18 months segregated interest income declined to £0.2m (2009: £0.7m).

Growth in expenses was limited, resulting in a total charge of £20.3m in the period (2009: £17.6m). A number of cost efficiency measures initiated in the fourth quarter of 2009, combined with a reduction in integration costs, curbed cost growth and improved the operating margin.

This performance was achieved despite severe market volatility which has seen the FTSE All Share index fall 8%, and the FTSE APCIMS balanced index fall 3% since 31 December 2009. In these challenging markets, assets under management and administration ("AUM") declined by only 2% to £5.1bn, down from £5.2bn at 31 December 2009. This AUM outperformance was achieved by the business continuing to gain new clients through its discretionary sales team and investment managers along with sound investment decision processes on behalf of clients.

		£bn		%
Assets under management and administration - 31 December 2009		5.2
Assets under administration - 31 December 2009		(1.0)
Managed assets under management - 31 December 2009		4.2
AUM Performance		(0.2)		(4.8%)
Fund Sales		0.2		4.8%
Redemptions		(0.1)		(2.4%)
Managed assets under management - 30 June 2010		4.1
Assets under administration - 30 June 2010		1.0
Assets under management and administration - 30 June 2010		5.1

Williams de Broë Limited continues to differentiate itself from many of its peers by offering a "personal and bespoke" service to  clients on an individual basis. This service is delivered via a disciplined investment strategy process which is informed by an in-house research capability. This core proposition continues to create value for clients and in turn for the business. It is also the key driver to winning new clients, receiving referrals from existing clients and retaining the trust of 16,000 clients through exceptionally volatile and uncertain market conditions.

The business continues to make significant investment within its infrastructure, back office and compliance departments. By the end of the year the business will have relocated, and substantially upgraded, its Birmingham, London, Bournemouth and Guildford offices. In addition, the business continues to invest in developing operational processes and technology that will further enhance client service.

Private Clients -Outlook

The growth opportunity for the Private Client division is significant. Williams de Broë has a strategic target to achieve £10 billion of AUM by the end of 2012. This growth will be achieved through continued strong organic fund inflows together with recruitment and acquisitions. 

Continued focus will be on offering value for money to our clients, consistent investment performance and ongoing improvements to operational efficiency. This should fulfill a clear objective of market share gains, which, together with further margin improvements, will support ongoing investment for growth in the business and deliver meaningful value creation to shareholders.

INVESTMENT BANKING

		Half year  ended 30.06.10		Half year  ended 30.06.09
			£m		£m
Corporate finance income			5.9		3.5
Markets
- Equity sales commission			18.6		6.6
- Equity market making			(3.2)		7.8
Total equities			15.4		14.4
Fixed income commission			9.4		16.0
Total income			30.7		33.9
Expenses			(28.9)		(25.6)
Adjusted operating profit			1.8		8.3
Charge for share options granted to employees			(0.4)		(1.8)
Amortisation of intangibles			(0.1)		(0.1)
Operating profit			1.3		6.4
Headcount			229		189
Corporate clients			80		76
Transactional volumes (millions)			1.4		1.3

The volatile and illiquid financial market conditions of the first half of 2010 have presented extremely challenging trading conditions. Although the consequent impact of turbulent market conditions inevitably led to a decline in total income for the period to £30.7m (2009: £33.9m), the division remained profitable, albeit at a significantly reduced level of £1.3m (2009: £6.4m). This was achieved through continued vigilance and discipline over expenses evidenced by the further fall in core operating costs per front office head to £273,000 per annum (2009: £279,000). After the significant investment in Large-cap equity and agency fixed income businesses during 2009, net headcount growth slowed to a modest increase of 9 in the period. This stemmed primarily from initiatives to build out our primary corporate business, including debt advisory, DCM and equity corporate finance, offset by some decline in Fixed Income.

Corporate Finance & Corporate Broking

Despite the Corporate fundraising market being subdued in the period, with fundraisings being deferred and valuations reduced in the face of deteriorating market sentiment and investor risk appetite, we acted on 17 transactions on behalf of our clients, raising in excess of £195m (H1 2009 £104m), including fundraisings for EMIS (being the second largest AIM IPO in 2010), Central Rand Gold, Lombard Medical, African Aura and Coal of Africa. Corporate Finance revenue of £5.9m, although ahead of the first half of 2009 declined from the levels seen in the second half of 2009 reflecting the delay in transactional pipelines.

Since the period end  we have already acted on a further 9 transactions, including fundraisings for Vallar (being the second largest full listing in 2010), Argos (IPO), Circle Oil, Monitise and Nautical Petroleum with a significant pipeline of further transactions in place for the remainder of the year.

The development of our corporate business continued with several notable new corporate broking relationships added: Safestore, Bodycote, European Goldfields and SpeedyHire. Overall corporate clients grew from 76 to 80 in the period. We expect to announce a number of additional appointments during the remainder of 2010.

The success of the corporate finance and corporate broking business in servicing our corporate clients through advice and capital raising ability has always been the core of the division. Our long track record of fundraising has ensured that in the current difficult market conditions clients have confidence in our ability to raise substantial funds. Our future growth strategy is founded on expanding our corporate coverage beyond our historical focus into the mid market sector to align with, and capitalise on the vastly improved quality of our institutional distribution ability in both equity and debt. Ongoing investment through additional hiring into both our debt capital markets and equity capital corporate finance and broking has therefore occurred through the period to develop our ability to service and advise our expanding corporate client list.

Equities

The large-cap agency broking business continued to make good progress during the period with sales commissions continuing to grow to £18.6m (2009: £6.6m), despite the market wide decline in trading volumes. This underlines the qualitative transformation achieved in this business in 2009 and reflects the quality of our research, sales and trading. Further investment in our equity business was focused on filling out distribution capability within our overseas offices opening in 2009 in North America and Madrid, both of which are now making good contributions.

Overall, equity revenue growth in the period was limited by market making losses incurred during the periods of extreme market volatility and illiquidity.

Fixed Income

Steep declines in fixed income market volumes and spreads were experienced in May following the resurfacing fear of European Sovereign defaults. Investor appetite, which had been progressively increasing in fixed income, almost fell away completely from May onwards, resulting in the almost total loss of liquidity in all but the most highly rated Government debt. The broader product coverage developed in 2009 away from investment grade has provided some cushion to this market wide decline, resulting in fixed income revenues of £9.4m, a decline of £6.6m when compared with a very strong comparative period (2009: £16.0m).

Fixed income remains a key long term growth opportunity for the division. Through the early expansion of the agency model from late 2008 onwards the business has succeeded in establishing itself as one of the top independent agency fixed income brokers, evidenced once again by being voted the top "European Fixed Income Agency Broker" by Credit Magazine in 2010. The combination of quality research and execution has ensured that the agency broking model is still highly rated as a source of liquidity and price transparency by our institutional clients.

A tougher trading environment, due to market conditions and renewed competitive pressures from larger balance sheet led banking businesses undoubtedly makes for a tougher comparison with 2009, which witnessed unprecedented benign conditions. However, from a position of comparative strength and with the continued backing and financial resources of the Group, the business has significant potential to expand, both through further recruitment and other consolidation opportunities.

Investment Banking - Outlook

The transformation of the investment banking business, begun in 2009 with the expansion of the agency fixed income and large-cap equities, continues. The quality of both Corporate and Institutional clients and the people in the division continues to improve, which will ultimately form the basis of long term shareholder value creation. The growth strategy remains, and is fundamentally framed in a disciplined investment approach. Investment to grow the business has continued, but necessarily with caution given the short term uncertainties that exist in markets in which the division operates.  Looking through the short term uncertainty, but ever mindful of risks, opportunities are continually being examined to grow the business further.

BALANCE SHEET AND CASH

The Group's Balance Sheet strength is being maintained, with net assets of £131.2m at the period end (31 December 2009: £137.2m) including cash and cash equivalents of £62.5m (31 December 2009: £109.5m). Cash has reduced in the period due to the Group's natural cash cycle where June is historically a low point of the year, primarily due to the payment of  year end bonuses.  In addition the Group has purchased 6.3million of own shares at an aggregate consideration of £8.1m. These shares were purchased in order to satisfy the final outstanding share option awards under the Group's 2002 and 2001 executive share options schemes in addition to the joint share ownership plans.

ASSOCIATES

The Group's share of associates in the period amounted to a loss of £1.5m compared with a loss of £0.4m in the comparative period. The loss in the period is split between Evolution Securities China Limited ("ESCL") £0.5m and WDB Capital UK Equity Fund £1.0m. ESCL's financial performance is expected to improve in the second half of 2010 as its corporate pipeline improves. The Group's share of results from WDB Capital UK Equity Fund stems from the performance of the fund, being down 8% over the period.

DIVIDEND

In light of these results the Board declares an interim dividend of 1.00p per share, up 25% from the prior year dividend of 0.80p. This reflects the Board's continuing commitment to a progressive dividend policy as set out in the 2009 Annual Report and Accounts. The dividend is payable on 8 October 2010 to shareholders on the register at 10 September 2010.

OUTLOOK

The possibility of further bouts of financial market volatility, triggered by the unresolved economic outlook, with knock on effects to client confidence is likely to remain for the foreseeable future. While the transaction pipeline and ongoing improving client flows across our businesses give us grounds for confidence that second half financial performance will improve on the first half, it clearly remains at risk to such events.

The significant quality improvements across the Group in terms of clients and earnings are enhancing its existing core strengths, namely diversified businesses, financial strength and a proven track record of accretive investments. From this strong base, the opportunity to create long term shareholder value is greater than ever, and indeed continued difficult trading conditions could present opportunities for the Group to accelerate its strategy to that end.

OTHER INTERIM INFORMATION

Group activities

A summary of Group activities can be found on Page 22 of the 2009 Annual Report and Accounts.

Key events and transactions

A summary of the operational highlights and their impact on the performance and financial position of the Group is given in the Chairman's Statement and Financial business review sections above.

Principal risks and uncertainties

Information on the principal risks and uncertainties are included within the 2009 Annual Report and Accounts where the Group's key risks and its risk management framework can be found in the Directors' Report on page 22 to 23 and in Note 3 respectively. The Board believes the Group's principal risks and uncertainties which could have a material impact over the remaining six months of the financial year remain consistent with those disclosed within the 2009 Annual Report and Accounts. Each of the Group's divisions considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually.

Related parties

Related party transactions are described in Note 35 of our 2009 Annual Report and Accounts. Additional related party disclosures are given in Note 14 to the Condensed Consolidated Interim Financial Information.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Board of Directors confirm, to the best of their knowledge, that this Condensed Consolidated Interim Financial Information has been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Management Report includes a fair review of the information required by:

§ DTR 4.2.7: an indication of important events that have occurred during the first six months and their impact on the condensed set of Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

§ DTR 4.2.8: material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report and Accounts.

A list of the current Directors is maintained on the Group's website: www.evgplc.com.

The Directors are responsible for the maintenance and integrity of the Group web site, www.evgplc.com. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

By order of the Board

Alex Snow

Chief Executive Officer

27 August 2010

INDEPENDENT REVIEW REPORT TO THE EVOLUTION GROUP PLC

Introduction

We have been engaged by the Company to review the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report for the six months ended 30 June 2010, which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement and related notes. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.

Directors' responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the Annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The Condensed Consolidated Interim Financial Information included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Condensed Consolidated Interim Financial Information in the Half Yearly Financial Report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 August 2010

INTERIM FINANCIAL INFORMATION

CONDENSED CONSOLIDATED INCOME STATEMENT (Unaudited)

		Half year ended  30.06.10		Half year ended    30.06.09
	Note	£m		£m
Total income		56.1		52.6
Operating expenses		(51.6)		(48.9)
Operating profit from continuing operations		4.5		3.7
Finance income		0.1		0.5
Finance expense		(0.1)		(0.2)
Net finance income		-		0.3
Share of post tax results of associates		(1.5)		(0.4)
Profit before tax from continuing operations		3.0		3.6
Tax	6	(0.2)		(0.7)
Profit after tax from continuing operations		2.8		2.9
Discontinued operations	13	-		(2.3)
Profit for the period		2.8		0.6
Attributable to:
Non-controlling interests		-		(0.4)
Equity holders of The Evolution Group Plc		2.8		1.0
		2.8		0.6
Earnings / (loss) per share attributable to the equity holders of The Evolution Group Plc during the period:
Basic
From continuing operations	4	1.30p		1.28p
From discontinued operations	4	-		(0.86p)
Diluted
From continuing operations	4	1.24p		1.23p
From discontinued operations	4	-		(0.86p)
Dividend proposed / paid per share - Interim	5	1.00p		0.80p

The above Condensed Consolidated Income Statement should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

	Half year ended 30.06.10		Half year ended 30.06.09
	£m		£m
Profit for the period	2.8		0.6
Deferred tax (debit) / credit on share options taken to equity	(0.4)		1.2
Available-for-sale financial assets, net of tax	(0.1)		-
Share of other comprehensive income of associates	0.1		(0.2)
Other comprehensive (expense) / income for the period, net of tax	(0.4)		1.0
Total comprehensive income for the period	2.4		1.6
Attributable to:
Non-controlling interests	-		(0.4)
Equity holders of The Evolution Group Plc	2.4		2.0
	2.4		1.6

The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

	Note	30.06.10 £m		31.12.09 £m
ASSETS
Non-current assets
Goodwill		10.7		10.7
Intangible assets		5.5		6.2
Property, plant and equipment		4.9		3.3
Deferred tax assets		7.2		8.5
Investment in associates	7	12.0		13.4
Subordinated loan		0.2		-
		40.5		42.1
Current assets
Trade and other receivables	8	450.0		78.8
Available-for-sale financial assets		1.5		1.7
Trading portfolio assets	9	37.9		13.3
Cash and cash equivalents		62.5		109.5
		551.9		203.3
Total assets		592.4		245.4
LIABILITIES
Current liabilities
Trade and other payables	10	443.2		102.4
Trading portfolio liabilities	11	15.8		2.9
Current income tax liabilities		1.2		0.8
		460.2		106.1
Non-current liabilities
Deferred tax liabilities		0.1		1.4
Provisions for other liabilities and charges		0.9		0.7
		1.0		2.1
Total liabilities		461.2		108.2
Net assets		131.2		137.2
EQUITY
Capital and reserves attributable to equity shareholders
Share capital		2.3		2.3
Share premium		33.4		33.2
Other reserves		30.0		30.0
Retained earnings		65.5		71.7
Shareholders' equity		131.2		137.2

The above Condensed Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interest	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
Profit for the period	-	-	-	2.8	2.8	-	2.8
Deferred tax debit on share options taken to equity	-	-	-	(0.4)	(0.4)	-	(0.4)
Available-for-sale financial assets, net of tax	-	-	(0.1)	-	(0.1)	-	(0.1)
Share of other comprehensive income of associates	-	-	0.1	-	0.1	-	0.1
Total comprehensive income for the period	-	-	-	2.4	2.4	-	2.4
Issuance of ordinary shares	-	0.2	-	-	0.2	-	0.2
Purchase of Trust shares1	-	-	-	(8.1)	(8.1)	-	(8.1)
Dividends paid	-	-	-	(3.7)	(3.7)	-	(3.7)
Share options: value of employee services	-	-	-	1.5	1.5	-	1.5
Tax deductions on options exercised	-	-	-	0.1	0.1	-	0.1
Contribution received on issuance of employee share options	-	-	-	1.6	1.6	-	1.6
Transactions with shareholders	-	0.2	-	(8.6)	(8.4)	-	(8.4)
Balance at 30 June 2010	2.3	33.4	30.0	65.5	131.2	-	131.2

	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interest	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 for the period	-	-	-	1.0	1.0	(0.4)	0.6
Deferred tax credit on share options taken to equity	-	-	-	1.2	1.2	-	1.2
Share of other comprehensive income of associates	-	-	(0.2)	-	(0.2)	-	(0.2)
Total comprehensive income for the period	-	-	(0.2)	2.2	2.0	(0.4)	1.6
Issuance of ordinary shares	0.1	0.2	-	-	0.3	-	0.3
Purchase of Trust shares1	-	-	-	(2.4)	(2.4)	-	(2.4)
Dividends paid	-	-	-	(2.8)	(2.8)	-	(2.8)
Share options: value of employee services	-	-	-	3.4	3.4	-	3.4
Disposal of subsidiaries' deferred tax and share options	-	-	-	0.2	0.2	-	0.2
Tax deductions on options exercised	-	-	-	0.1	0.1	-	0.1
Non-controlling interest disposed with subsidiary	-	-	-	-	-	(0.5)	(0.5)
Transactions with shareholders	0.1	0.2	-	(1.5)	(1.2)	(0.5)	(1.7)
Balance at 30 June 2009	2.3	30.0	27.6	87.2	147.1	-	147.1

¹ The Evolution Group Plc Employees' Share Trust (the "Trust") administers The Evolution Group Plc share schemes. The debit shown in retained earnings of £8.1m (2009: £2.4m) relates to the value of purchases made by the Trust to satisfy these outstanding option awards to employees of the Group.

The above Condensed Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (Unaudited)

		Half year ended 30.06.10 £m		Half year ended 30.06.09 £m
Operating profit from continuing operations		4.5		3.7
Adjustments for:
Non cash items		3.4		4.6
Finance income received		0.1		0.5
Finance expense paid		(0.1)		(0.2)
Movement in working capital		(42.2)		(36.2)
Tax paid		-		(0.6)
Cash flows generated from discontinued operations		-		0.1
Net cash flows from operating activities - total		(34.3)		(28.1)
Cash flows from investing activities from continuing operations:
Net proceeds from sale of available-for-sale financial assets		0.1		-
Purchase of property, plant and equipment and intangible assets		(2.8)		(1.3)
Net cash flows from investing activities - total		(2.7)		(1.3)
Cash flows from financing activities from continuing operations:
Dividends paid		(3.7)		(2.8)
Purchase of trust shares		(8.1)		(2.4)
Contribution received on issuance of employee share options		1.6		-
Net cash flows from financing activities - total		(10.2)		(5.2)
Net decrease in cash and cash equivalents		(47.2)		(34.6)
Cash and cash equivalents at beginning of period		109.5		103.6
Exchange gain on cash		0.2		-
Less: cash deconsolidated during the period from discontinued operations		-		(0.2)
Cash and cash equivalents at end of period		62.5		68.8

The above Condensed Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes.

NOTES TO THE INTERIM FINANCIAL INFORMATION

1.     BASIS OF PREPARATION

This condensed consolidated interim financial information for the six months ended 30 June 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority, IAS 34, 'Interim Financial Reporting' as adopted by the European Union, with the 'Accounting Policies' set out in the 2009 Annual Report and Accounts and Note 2 below. The condensed consolidated interim financial information should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

The condensed consolidated interim financial information in this Half Yearly Financial Report does not constitute the Statutory Accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Accounts for the year ended 31 December 2009 were approved by the Board of Directors on 25 March 2010 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. This condensed consolidated interim financial information has been reviewed, not audited.

These Financial Statements are prepared on a going concern basis as the Directors have satisfied themselves that, at the time of approving the Financial Statements and having taken into consideration the strong cash holdings, absence of long term third party debt and ongoing profitability, the Group has adequate resources to continue in operational existence for at least the next 12 months.

The Evolution Group Plc is a UK listed holding company for financial services companies. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is: 9^th floor, 100 Wood Street, London, EC2V 7AN.

2.     ACCOUNTING POLICIES

The accounting policies adopted are consistent with those of the Annual Report and Accounts for the year ended 31 December 2009, except as set out below.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010:

·      IAS 27 (revised), 'Consolidated and separate financial statements'. The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control, and these transactions will no longer result in goodwill or gains and losses. There have been no transactions in the period whereby an interest in an entity is retained after the loss of control of that entity; there have been no transactions with non-controlling interests;

·      IFRS 3 (revised), 'Business combinations' The Group will apply IFRS 3 (revised) to all Business Combinations from 1 January 2010. During the period there have been no Business Combinations made by the Group;

·      IAS 38 (amendment), 'Intangible assets'. The amendment defines a prepayment as being recognised only if payment has been made in advance of receiving the right to goods or receipt of services. The Group's historical accounting policy for intangible assets was in-line with these amendments, therefore there has been no impact on the Group's Interim Financial Statements; and

·      IFRS 2 (amendments), 'Group cash-settled share-based payment transaction'. In addition to incorporating IFRIC 8, 'Scope of IFRS 2 and IFRIC 11', 'IFRS 2 - Group and treasury share transactions' the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. The Group's subsidiary Financial Statements have been prepared on this basis. On a consolidated basis there is no impact to the Group's Interim Financial Statements.

The following new interpretations are mandatory for the first time for the financial year beginning 1 January 2010, but are not currently relevant for the Group:

·      IFRIC 17, 'Distributions of non cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions;

·      IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received assets from customers;

·      IFRS 5 (amendment), 'Non-current assets held-for-sale and discontinued operations'. This is not currently applicable to the Group, as it does not have any non-current assets held-for-sale or discontinued operations; and

·      IAS 1 (amendment), 'Presentation of financial statements'. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. This is not currently applicable to the Group as there has been no settlement of liability by an issue of equity.

3.     SEGMENTAL INFORMATION

By business segment

During the period 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 has historically used 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 Client refers to the business carried out under the Williams de Broë brand. Other activities principally refer to the central administrative, shared services, holding company functions. 

	Half Year Ended 30.06.10
Income statement	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	30.7	25.4	-	56.1
Adjusted operating profit	1.8	5.1	0.1	7.0
Charge for share options granted to employees	(0.4)	(0.4)	(0.5)	(1.3)
Amortisation of intangibles	(0.1)	(0.7)	-	(0.8)
Non-recurring operating expenses	-	(0.4)	-	(0.4)
Operating profit / (loss) from continuing operations	1.3	3.6	(0.4)	4.5
Finance income				0.1
Finance expense				(0.1)
Share of post tax results of associates				(1.5)
Profit before tax from continuing operations				3.0
Tax				(0.2)
Profit after tax from continuing operations				2.8

	Half Year Ended 30.06.09
Income statement	Investment banking	Private clients	Other	Total
	£m	£m	£m	£m
Total income	33.9	18.8	(0.1)	52.6
Adjusted operating profit / (loss)	8.3	1.2	(0.4)	9.1
Charge for share options granted to employees	(1.8)	(0.9)	(0.6)	(3.3)
Amortisation of intangibles	(0.1)	(0.7)	-	(0.8)
Non-recurring operating expenses	-	(1.3)	-	(1.3)
Operating profit / (loss) from continuing operations	6.4	(1.7)	(1.0)	3.7
Finance income				0.5
Finance expense				(0.2)
Share of post tax results of associates				(0.4)
Profit before tax from continuing operations				3.6
Tax				(0.7)
Profit after tax from continuing operations				2.9
Loss after tax from discontinued operations				(2.3)

3.   SEGMENTAL INFORMATION

The Group's total assets are disclosed by segment below:

Total Assets	30.06.10
	Investment banking	Private client	Other	Total
	£m	£m	£m	£m
Assets	506.8	36.7	36.9	580.4
Investment in associates				12.0
Total assets				592.4

Total Assets	31.12.09
	Investment banking	Private client	Other	Total
	£m	£m	£m	£m
Assets	122.1	34.4	75.5	232.0
Investment in associates				13.4
Total assets				245.4

4.     EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the profit for the period from continuing operations (excluding non-controlling interests) divided by the weighted average number of ordinary shares in issue (being 232.1million) less the weighted average number of shares held by The Evolution Group Plc Employees' Share Trust (the "Trust") during the period (being 16.1million).

The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. 

Continuing operations

Statutory	Half Year Ended 30.06.10				Half Year Ended 30.06.09
	Profit £m	Weighted average no.	Earnings per share(p)		Profit £m	Weighted average no.	Earnings   per share(p)
Basic	2.8	215,979,040	1.30		2.9	221,838,249	1.28
Dilutive effect of share awards	-	9,055,114	-		-	13,080,818	-
Diluted	2.8	225,034,154	1.24		2.9	234,919,067	1.23

5.     DIVIDENDS

	30.06.10		30.06.09
	£m		£m
Final paid	3.7		2.8
	3.7		2.8

In addition, the Directors are proposing an interim dividend in respect of the financial year ended 31 December 2010 of 1.00p (2009: 0.80p) per share, which will absorb an estimated £2.2m (2009: £1.9m) of shareholders' funds. It will be paid on 8 October 2010 to shareholders on the register of members on 10 September 2010.

6.     TAX EXPENSE

Income tax expense is recognised based on management's determination of the weighted average annual income tax rate expected for the full financial year. The tax charge for the first half of 2010 was £0.2m (2009: £0.7m) representing an effective tax rate of 7% (2009: 19%).

The first half tax charge includes a one-off prior year adjustment of £1.3m (disclosed below). Without this non-recurring adjustment and excluding the impact of losses in the period arising from associates (£1.5m), the Group's effective tax rate would have been 33%.

The tax charge in 2010 is lower than the UK tax rate of 28%, primarily due to a credit of £1.3m arising from a prior year adjustment on deferred tax of intangible assets, partially offset by a £0.5m debit for disallowable expenses, and a £0.3m debit arising from negative movements in the Group's share price on deferred tax on employee options.

The tax charge in 2009 is lower than the UK tax rate of 28% primarily due to a £0.9m credit arising from positive movements in the Group's share price on deferred tax on employee options, more than partially offsetting the impact of disallowable expenses of £0.6m in the period.

The UK tax rate change from 28% to 27% is not expected to have a material impact on the full year tax charge.

7.     INVESTMENT IN ASSOCIATES

	30.06.10
	£m
At 1 January 2010	13.4
Share of ESCL's loss for the period	(0.5)
Share of WDB Capital Fund's loss for the period	(1.0)
Exchange differences taken to equity	0.1
At 30 June 2010	12.0

8.     TRADE AND OTHER RECEIVABLES

	30.06.10 £m		31.12.09 £m
Current
Trade receivables	6.8		10.4
Less: provision for impairment of trade receivables	-		(0.2)
Trade receivables - net	6.8		10.2
Counterparty receivables	425.3		57.8
Counterparty receivables - net	425.3		57.8
Other receivables	7.4		6.4
Prepayments and accrued income	10.5		4.4
	17.9		10.8
	450.0		78.8

The increase in counterparty receivables at 30.06.10 reflects a higher level of trading activity than that experienced over the Group's year end, with counterparty receivables reduced at the year end due to lower market wide volumes. The increase in counterparty receivables is largely offset by a corresponding increase in counterparty creditors.

9.     TRADING PORTFOLIO ASSETS

	30.06.10		31.12.09
	£m		£m
Long positions in market making and dealing operations	37.2		13.2
Options and warrants received in lieu of corporate finance income	0.5		-
Other derivatives	0.2		0.1
	37.9		13.3

The long trading portfolio assets include shares listed on LSE Official List, AIM markets and other leading European exchanges.

The long positions balances have been impacted by an amount of £10.6m for trading assets (31 December 2009: £0.7m) which were sold with a trade date prior to the 30 June 2010, but had a settlement period which was longer than the standard market convention and straddled the period end. All of these trades have now settled. The other derivatives balance relates to the positive or negative market value movement of these trades between the trade date and 30 June 2010.

10.  TRADE AND OTHER PAYABLES

	30.06.10 £m		31.12.09 £m
Trade payables	5.0		3.3
Counterparty creditors	423.1		58.0
Other taxation and social security	1.4		2.6
Other payables	0.9		0.8
Accruals and deferred income	12.8		37.7
	443.2		102.4

The increase in counterparty creditors at 30.06.10 reflects a higher level of trading activity than that experienced over the Group's year end, with counterparty creditors reduced at the year end due to lower market wide volumes. The increase in counterparty creditors is largely offset by a corresponding increase in counterparty receivables.

11.  TRADING PORTFOLIO LIABILITIES

	30.06.10		31.12.09
	£m		£m
Short positions in market-making and dealing operations	13.5		2.7
Other derivatives	2.3		0.2
	15.8		2.9

The short trading portfolio liabilities represent shares listed on LSE Official List, AIM markets and other leading European exchanges.

The short positions balances have been impacted by an amount of £5.9m for trading liabilities (31 December 2009: £0.3m) which were sold with a trade date prior to the 30 June 2010, but had a settlement period which was longer than the standard market convention and straddled the period end. All of these trades have now settled. 

12.  SHARE CAPITAL

The Evolution Group Plc Employees' Share Trust (the "Trust") administers The Evolution Group Plc share schemes and the Share Incentive Trust and is managed by the Capita Trustee Limited.

In the six months to 30 June 2010 the Group purchased an additional 6,279,723 shares (30 June 2009: 2,321,920) for total consideration of £8.1m (30 June 2009: £2.4m). These shares were purchased by the Trust and are held to satisfy share awards made to employees of the Group. The Trust held 17,032,367 shares (30 June 2009: 3,315,739) which had a market value of £14.9m (30 June 2009: £4.8m). Included within the total shares held by the Trust are 6,600,000 shares to satisfy awards made in 2010 under the Group's Joint Share Ownership plan. All of these shares were acquired in the open market. The shares held represent 7.34% (30 June 2009: 1.46%) of the issued share capital of the Company as at 30 June 2010. The Trust used funds provided by the Company to meet the Group's obligations under the share option and incentive schemes in place. Share options are granted to employees at the discretion of the Company and shares are awarded to employees by the Trust in accordance with the recommendations of the Company.  

13.  DISCONTINUED OPERATIONS

ESCL

On 18 December 2008, the Board gave approval for the Group to enter into an investment agreement with First Eastern Financial Holdings Limited, which resulted in a partial disposal of the Group's interest in ESCL. The investment agreement was formally signed on 31 March 2009, and was disclosed in detail in Note 36 of the 2008 Annual Report and Accounts. As a result of this transaction the Group's interest in ESCL has fallen to 48.5%. Prior to the completion of this transaction on 31 March 2009 the Group continued to consolidate and present ESCL as a discontinued operation. From 1 April 2009 onwards ESCL and its subsidiary are accounted for by the equity method of accounting in accordance with IAS 28.

The results of ESCL and its subsidiary are shown as discontinued per the table below:

			Period  ended
			31.03.09
			£m
Total income			0.1
Impairment			(0.4)
Other operating expenses			(0.7)
(Loss) before tax from discontinued operations			(1.0)
Tax (expense)			(0.3)
(Loss) arising on disposal			(1.0)
(Loss) after tax  from discontinued operations			(2.3)
Attributable to:
Minority interest			0.4
Equity holders of The Evolution Group Plc			(1.9)

14.  RELATED PARTY TRANSACTIONS

Related party transactions are described in the 2009 Annual Report and Accounts. 

There have been no significant changes in related party transactions described in the 2009 Annual Report and Accounts.

 

END

 

 

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