Interim Results

RNS Number : 2712C

Evolution Group PLC

29 August 2008

 



The Evolution Group Plc

(the 'Evolution Group', the 'Group', the 'Company')

Half Year results for the six months ended 30 June 2008

Evolution Group, the listed investment bank and private client investment management group, today announces its half yearly financial report for the six months ended 30 June 2008.

INTERIM MANAGEMENT REPORT

Financial and Operational Highlights

	Unaudited six months to  30 June 2008	Unaudited six months to  30 June 2007	Unaudited twelve months to 31 December 2007
	£'000	£'000	£'000
Total income (before fee and commission expenses)	37,578	51,890	93,274
Adjusted profit before tax1	6,265	15,824	22,843
(Loss) / profit before tax	(315)	3,079	3,757
Adjusted earnings1	5,276	12,021	18,376
(Loss) / profit for the period	(1,304)	1,117	3,202
Adjusted basic earnings per Share1	2.38p	5.63p	8.65p
Basic (Loss) / earnings per Share	(0.73p)	0.43p	1.42p

• Total Group income2 of £37.6m for the six month period to 30 June 2008, down 28% compared with 30 June 2007: £51.9m.

• Balance sheet strength maintained, with net assets at £160.9m (30 June 2007: £155.8m; 31 December 2007: £155.3m).

• Cash balance of £119.5m (30 June 2007: £54.3m; 31 December 2007: £122.7m).

• Williams de Broë assets under management of £2.8bn have increased by 12% from £2.5bn at 30 June 2007, despite a 16% decline in FTSE All Share Index over the same period, and are in-line with the balance of £2.8bn at 31 December 2007.

• Williams de Broë total income2 for the six month period to 30 June 2008, up 14% to £17.8m compared to £15.6m to 30 June 2007.

• Investment banking3 total income2 for the six month period to 30 June 2008, down 45% to £19.7m compared to 30 June 2007: £35.9m.

• Increase in interim dividend of 12% to 0.75p (2007: 0.67p).

1 Adjusted profit before tax, adjusted earnings and adjusted earnings per share are defined in the Financial Information section below.

2 Represents total income before fee and commission expenses.

3 Represents investment banking and markets segment as defined in Segment Information in Note 3.

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

'While the challenging economic environment has impacted our securities business, our investment banking activities have delivered a solid performance and our asset management business continues to grow in line with expectations. We have adopted a very prudent approach to managing our cost base. Our strategy of re-aligning the business to achieve a better balance between our revenue streams has proved successful. Today, Evolution has a greater focus on international markets and access to capital in those markets; our balance sheet is strong, providing us with the flexibility to take advantage of sensibly priced and strategic opportunities as they arise; and we have good recurring revenue streams.

We believe the business is well positioned to weather the current economic downturn, and remain confident in the prospects of the Group for the full year.'

For further information, please contact:

The Evolution Group Plc Alex Snow, Chief Executive Officer Tony Lee, Company Secretary	020 7071 4300
Bell Pottinger Corporate and Financial Charles Cook Mike Davies	020 7861 3232

Notes to Editors:

The Evolution Group Plc

The Evolution Group is the holding company of Evolution Securities Limited, Williams de Broë Limited and Evolution Securities China Limited. Founded in April 2001 and originally listed on AIM, the Evolution Group joined the Official List in 2003 and now has a market capitalisation of over £220 million.

Evolution Securities Limited is a leading investment bank focused on mid-cap UK public companies. It provides a full range of investment banking services including equity research, institutional sales and trading, market making and corporate finance advice. Evolution Securities Limited has over 60 retained corporate clients. It is authorised and regulated by the Financial Services Authority.

Williams de Broë Limited is a leading private client investment manager, with offices in Bath, Birmingham, Bournemouth, Edinburgh, Exeter, Guildford and London. Williams de Broë is authorised and regulated by the Financial Services Authority.

Evolution Securities China Limited is a specialist Chinese investment banking business with offices in London, Hong Kong and Shanghai. It offers UK based institutional clients research and trading in listed Chinese stocks and provides Chinese companies access to the markets in London and Hong Kong. Evolution Securities China Limited is authorised and regulated by the Financial Services Authority.

CHAIRMAN'S STATEMENT

Review of the half year ended 30 June 2008

Given the prevailing tough economic climate during the period, we believe that Evolution Group's ('Evolution' or the 'Group') performance has been satisfactory. Within this climate the Group continues to trade profitably on an adjusted basis (as defined below). The Group's investment management activities have performed well and assets under management and income have continued to grow when compared to the six month period to 30 June 2007 by 12% and 14% respectively. This supports the strategy of re-aligning the Group's business model to one of a better balance between our revenue streams. However, 2008 has seen continued UK equity market volatility and weaker IPO markets across all sectors. As a result of these conditions, the Group has experienced a fall in the first half in fee income from investment banking activities.

The Group's total income (before fee and commission expenses) for six months to 30 June 2008 decreased to £37.6m, down 28% from £51.9m in the period to 30 June 2007, with adjusted earnings (as defined below) of £5.3m (30 June 2007: £12.0m). Despite these results we have a strong corporate pipeline in the second half of the year and remain confident in the prospects of the Group for the full year.   

Investment Banking

Evolution Securities ('ESL'), the Group's principal investment banking business, has achieved total income (before fee and commission expenses) in the first half of the year of £17.6m, down 45% from £32.2m to 30 June 2007. ESL continues to trade profitably on an adjusted basis (as defined below) with adjusted earnings of £1.4m (30 June 2007: £8.5m).

Secondary sales and trading income account for £12.0m, which is 68% of total income (30 June 2007: £23.0m, 72% of total income). Sales and trading transaction volumes of 781,000 for the period to 30 June 2008 are down 15% from the same period last year (30 June 2007: 914,000). This is in line with the market as evidenced by the maintenance of our market shares across all sectors.  Trading income has decreased to £1.9m (30 June 2007: £13.3m) as a result of the significant market volatility and reduced volumes. Trading income remains positive up to the date of this report.  

During the period ESL executed one IPO and four secondary placings, (30 June 2007: one IPO and thirteen secondary placings) which together with other advisory fees and retainers have generated income of £5.6m in the period to 30 June 2008 (30 June 2007: £9.2m). This level of primary fee income has been impacted by the prevailing market conditions and the timing of some transactions that have slipped into the second half of the year and beyond.

Our corporate pipeline remains strong. We have also continued to strengthen our business with the recruitment of high calibre individuals in the financial, mining and consumer related sectors, in addition to new hires in distribution, corporate finance and fixed income, whilst overall headcount numbers have fallen. We believe that the market place is now right for ESL to significantly strengthen its franchise, and position itself for the changes that are now upon us in our market place. This includes a greater focus on international opportunities in growth sectors with strong prospects. In response to the present market conditions we are managing our cost base prudently and have reduced our recurring expenses across the business by £6.5m or 20% on an annualised basis from 2007. We also continue to monitor working capital closely. The securities business is well capitalised and well placed to exploit the future opportunities in the market. We continue to invest in high quality people and systems, and following a strategic review of our equity trading platform, we have added additional trading venues including Chi-x and Turquoise in order that we achieve our clients' execution goals in a timely manner.

Evolution Securities China ('ESCL') achieved total income in the period (before fee and commission expenses) of £2.1m (30 June 2007: £3.7m). Whilst the business remains a small part of the overall Group it is well placed to take advantage of the significant growth opportunities that remain within China. Results from the UK based corporate finance division have been subdued in common with the wider UK primary market. However, the Hong Kong based corporate finance franchise increased revenues. The combined business continues to act on a number of mandates and we remain confident in the prospects for the full year, though mindful of the risk to completing these this year under current market conditions.

Private Client Investment Management

Williams de Broë ('WdB'), the Group's private client investment management business, has again delivered a robust performance. Total income (before fee and commission expenses) for the first six months of 2008 was £17.8m, up by 14% from £15.6m to 30 June 2007, as a result of growth in both management fees and transactional revenue. 

At 30 June 2008, total assets under management were £2.8bn, up by 12% from £2.5bn at 30 June 2007 and remain consistent with the balance of £2.8bn at 31 December 2007. This growth comes despite the decline in the FTSE All Share Index of 16% from June 2007 and demonstrates our continuing success in growing assets under management. We have seen further growth in assets under management in our discretionary portfolio management services and also in our other fund based products and services, including WdB Assetmaster, WDB Capital and the specialist EIS and IHT products. In addition WdB's dedicated intermediary sales team continued to deliver strong new asset sales in the first six months of 2008 of £0.3bn (30 June 2007: £0.3bn). 

WdB has continued to attract new high quality customers across the branch network over the period. The strength of our brand and cautious management style has contributed to our growth, as demonstrated by the significant increase in assets and a 29% increase in management fee income in the six month period to 30 June 2008 compared to 30 June 2007. All current indicators suggest this growth will continue and we expect another period of significant growth in new customers. 

The recent office opening in Edinburgh provides a major growth opportunity for this business and new assets transferred in to date are in line with our expectations. In addition, we have continued to recruit further high quality individual managers over the course of this year and anticipate that this expanded team will deliver further growth. 

On 29 July 2008 we announced the appointment of David Howard as Chief Operating Officer of WdB who will be responsible for management and development of operations, IT, Risk and Facilities. He will be joining the Company on 15 September 2008. He joins us from Bank Insinger de Beaufort where he was the Chief Operating Officer and Finance Director.

Balance sheet, cash and other items

The Group's balance sheet strength is being maintained, with net assets of £160.9m at the period end (30 June 2007: £155.8m; 31 December 2007: £155.3m) including cash and cash equivalents of £119.5m (30 June 2007: £54.3m; 31 December 2007: £122.7m). The structure of our balance sheet at 30 June 2008 reflects the continued tighter management of working capital across our businesses in the current markets. 

Dividend 

The Board declares an interim dividend of 0.75p per share, up 12% from the prior year dividend of 0.67p. This reflects the Board's continued commitment to a progressive dividend policy as set out in the 2007 Annual Report and Accounts. This is payable on 24 October 2008 to shareholders on the register at 26 September 2008. 

Staff

The Group continues to recruit high quality individuals, but has restricted overall headcount growth to asset management. Under the most difficult of market conditions the Group's results are satisfactory and the opportunities for the future are encouraging. I would like to thank all our staff for their continuing efforts in the face of such conditions and in maintaining their skill and professionalism.

Outlook

Despite the continuing challenging economic environment we believe the Group is well positioned, with a strong and liquid Balance Sheet, to ride out these uncertain and volatile market conditions and to take advantage of opportunities should they present themselves. In addition, we have taken the appropriate actions to adjust our cost base in the light of the current market conditions, including the initial set-up costs and asset gathering activities of the new Williams de Broë Edinburgh office, which are in line with our expectations.

In line with all equity market participants our Group faces significant challenges in executing its corporate transactions and maintaining its historic growth record. However, on the basis of existing mandates within the Evolution Securities and Evolution Securities China businesses, we are confident of a stronger second half of the year for corporate finance fees. Although we recognise how difficult it is in the present market conditions to predict how many of these mandates will result in successful completion or the level and timing of income arising from them, nevertheless we believe that these businesses are well placed for further opportunities in 2008 and beyond. In particular Williams de Broë is well positioned for further significant growth in assets under management and the resultant revenue gains this will provide. 

The Group is well capitalised, well managed and resourced to cope with these current conditions.

Martin Gray

Chairman

29 August 2008

GROUP ACTIVITIES

A summary of Group Activities can be found on Page 22 of the 2007 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 above.

PRINCIPAL RISKS AND UNCERTAINTIES

Information on the principal risks and uncertainties are included within the 2007 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 and in Note 2 respectively. 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. The principal risks and uncertainties which could have a material impact over the remaining six months of the financial year are discussed in the outlook section of the Chairman's statement above. 

RELATED PARTIES

Related party transactions are described in Note 44 of our 2007 Annual Report and Accounts. Additional related party disclosures are given in Note 13 of this report.

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 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. 

FINANCIAL INFORMATION 

Adjusted operating profit

Statutory operating profit declined in the period to 30 June 2008 to a loss of £2.8m (30 June 2007: profit of £1.8m) despite the absence of exceptional costs in the period (30 June 2007: £6.1m). This was due to the further decline in primary revenues compared to the prior period in our securities' businesses and to the decline in secondary trading income in ESL due to extremely difficult market conditions. 

The Board continues to believe that a truer reflection of the performance of the Group's operating businesses is afforded by the measure of 'Adjusted operating profit'. This excludes items that are one-off or non-recurring (including items treated as exceptional), are not part of the on-going business profitability, or in the case of the cost of share options granted to employees and amortisation of intangible assets which we view in the same manner as goodwill and represent non-cash items. This measure is therefore used as the principal performance criteria against which the vesting of stock awards is determined. In addition, the Board reviews performance against the measure 'Adjusted profit before tax', which represents adjusted operating profit plus net finance income; and also the measure 'Adjusted earnings', which represents Adjusted profit before tax less tax expense (excluding exceptional tax expense). The analyst community also follows these measures as benchmarks for the Group's on-going performance.  

The following table reconciles these measures and shows a reduction in adjusted operating profit by 74% to £3.8m in the period to 30 June 2008 (30 June 2007: £14.5m) which is principally due to continued pressure on corporate finance fee income and trading income, since market conditions have deteriorated. The adjusted profit before tax for the period to 30 June 2008 is £6.3m (30 June 2007: £15.8m) and adjusted earnings are £5.3m (30 June 2007: £12.0m). In the light of this performance we have reduced our underlying operating expense base in ESL by £6.5m on an annualised basis and will address our cost base in the remaining parts of the Group during the remainder of the year.

The following table reconciles the measures mentioned above:

	Note	Unaudited six months to 30 June 2008		Unaudited six months to 30 June 2007		Unaudited  twelve months to 31 December 2007
		£'000	£'000	£'000	£'000	£'000	£'000
Group Operating (loss) / profit			(2,784)		1,768		884
Items not included within adjusted operating profit:
Profit on disposal of available-for-sale investments		(20)		(226)		(299)
Adjustment for profits on investments			(20)		(226)		(299)
Amortisation of intangibles		229		270		497
Share of results of associated undertakings		-		(29)		(29)
Income statement charge for share options granted to employees1		6,371		6,594		11,289
Non-cash items			6,600		6,835		11,757
Exceptional operating expenses		-		6,136		7,628
Adjustment for items that are one off or non-recurring			-		6,136		7,628
Adjusted Group operating profit			3,796		14,513		19,970
Net finance income			2,469		1,311		2,873
Adjusted profit before tax			6,265		15,824		22,843
Tax expense2			(989)		(3,803)		(4,467)
Adjusted earnings for the period			5,276		12,021		18,376
Adjusted earnings attributable to minority interests			236		211		233
Adjusted earnings attributable to equity holders of The Evolution Group Plc			5,040		11,810		18,143
			5,276		12,021		18,376
Adjusted basic earnings per share	4		2.38p		5.63p		8.65p
Adjusted diluted earnings per share	4		2.01p		4.76p		7.28p

1Represents the Income Statement charge for the fair value of options granted to employees. The Group continues to purchase shares through the Trust to satisfy obligations in respect of share options and call rights granted to employees.

2Excludes the tax effect of exceptional items.

STATEMENT OF DIRECTORS' RESPONSIBILITIES 

The Directors confirm 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.

The Directors of the Group are listed in the 2007 Annual Report and Accounts; there have been no changes in the period to 30 June 2008. A list of the current Directors is maintained on the Group's website: www.evgplc.com.

By order of the Board

Alex Snow

Chief Executive Officer

29 August 2008

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 2008, which comprises the Income Statement, Balance Sheet, Cash Flow Statement, Consolidated Statement of Recognised Income and Expense 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 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 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 2008 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 and Registered Auditors

London

29 August 2008

CONSOLIDATED INCOME STATEMENT 

	Note	Unaudited Six months to  30 June 2008	Unaudited Six months to  30 June 2007	Audited  Twelve months to 31 December 2007
		£'000	£'000	£'000
Fee and commission income		34,348	37,370	75,810
Fee and commission expenses		(905)	(1,456)	(2,068)
Net fee and commission income		33,443	35,914	73,742
Trading income		3,037	14,469	17,237
Other income		193	51	227
Total income		36,673	50,434	91,206
Profit on disposal of available-for-sale investments		20	226	299
Share of post tax results of associate		-	29	29
Operating expenses		(39,477)	(42,785)	(83,022)
Exceptional operating expenses	12	-	(6,136)	(7,628)
Total operating expenses		(39,477)	(48,921)	(90,650)
Operating (loss) / profit		(2,784)	1,768	884
Finance income		2,737	1,401	3,194
Finance expense		(268)	(90)	(321)
(Loss) / profit before tax		(315)	3,079	3,757
Tax expense		(989)	(3,803)	(4,467)
Exceptional tax credit	12	-	1,841	3,912
Total tax expense	6	(989)	(1,962)	(555)
(Loss) / profit for the period		(1,304)	1,117	3,202
Profit attributable to minority interests		236	211	233
(Loss) / profit attributable to equity holders of The Evolution Group Plc		(1,540)	906	2,969
		(1,304)	1,117	3,202
Basic (loss) / earnings per share	4	(0.73p)	0.43p	1.42p
Diluted (loss) / earnings per share	4	(0.61p)	0.37p	1.19p
Proposed / paid dividend per share - Interim	5	0.75p	0.67p	0.67p
- Final		-	-	1.25p
Dividend declared / paid (£'000) - Interim	5	1,603	1,402	1,402
- Final		-	-	2,658

The notes below form an integral part of this condensed consolidated interim information.

CONSOLIDATED BALANCE SHEET 

	Note	Unaudited 30 June 2008 £'000	Unaudited 30 June 2007 £'000	Audited 31 December 2007 £'000
ASSETS
Non-current assets
Goodwill		10,009	9,931	9,932
Other intangible assets		2,667	2,813	2,706
Property, plant and equipment		3,419	3,941	3,616
Deferred tax assets		9,132	11,828	9,300
Investment in associate		-	138	-
Trade and other receivables		6	34	35
Total non-current assets		25,233	28,685	25,589
Current assets
Trade and other receivables		249,562	528,221	92,299
Available-for-sale investments		1,550	964	680
Trading portfolio assets	7	44,292	82,666	19,171
Cash and cash equivalents		119,507	54,276	122,743
Total current assets		414,911	666,127	234,893
Total assets		440,144	694,812	260,482
LIABILITIES
Current liabilities
Trade and other payables		258,839	514,178	96,082
Trading portfolio liabilities	8	16,732	20,346	6,744
Current tax liabilities		2,688	3,637	1,519
Total current liabilities		278,258	538,161	104,345
Non-current liabilities
Deferred tax liabilities		288	406	340
Provisions for liabilities		693	414	525
Total non-current liabilities		981	820	865
Total liabilities		279,240	538,981	105,210
EQUITY
Capital and reserves attributable to equity shareholders
Share capital		2,243	2,218	2,232
Share premium		29,638	28,682	28,795
Capital redemption reserve		373	373	373
Merger reserve		51,230	51,230	51,230
Fair value and other reserves		(1,794)	(1,477)	(1,687)
Retained earnings		72,376	73,425	72,389
Shareholders' equity excluding minority interests	9	154,066	154,451	153,332
Minority interests in equity	11	6,838	1,380	1,940
Total equity		160,904	155,831	155,272
Total equity and liabilities		440,144	694,812	260,482

The notes below form an integral part of this condensed consolidated interim information.

CONSOLIDATED CASH FLOW STATEMENT 

	£'000	Unaudited Six months to 30 June  2008 £'000	£'000	Unaudited Six months  to 30 June  2007 £'000
Operating (loss) / profit	(2,784)		1,768
Adjustments for:
Depreciation of property, plant and equipment	1,332		1,019
Amortisation of intangibles	229		270
(Profit) / loss on sale of available-for-sale investments	(20)		(226)
Provisions for share options	6,371		6,594
Foreign exchange (loss) / gain	(149)		51
Cost of matching shares issued under SIP	634		110
Operating gain / (loss) on associates	249		(29)
Changes in working capital:
Increase in operating assets	(182,432)		(450,577)
Decrease in operating liabilities	172,774		412,589
Cash absorbed by operations		(3,796)		(28,431)
Cash flow from operating activities:
Cash absorbed by operations	(3,796)		(28,431)
Interest received	2,737		1,803
Interest paid	(268)		(90)
Tax (paid) / recovered	(252)		414
Net cash absorbed by operating activities		(1,579)		(26,304)
Cash flows from investing activities:
Net proceeds from sale of available-for-sale investments	20		1,242
Purchase of available-for-sale investments	(1,000)		-
Purchase of property, plant and equipment	(693)		(396)
Purchase of intangible assets	(720)		(578)
Net cash (absorbed by) / from investing activities		(2,393)		268
Cash flows from financing activities:
Issues of ordinary share capital	220		127
Proceeds from issue of investment shares in the WDB Equity Capital Fund to third parties	4,642		-
Dividends paid to the Company's shareholders	(2,658)		(2,094)
Purchase of shares held by the Trust	(1,617)		(6,235)
Net cash from / (absorbed by) financing activities		587		(8,202)
Net decrease in cash and cash equivalents		(3,385)		(34,238)
Cash and cash equivalents at beginning of period		122,743		88,565
Exchange gains / (losses)		149		(51)
Cash and cash equivalents at end of period		119,507		54,276

The notes below form an integral part of this condensed consolidated interim information.

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 

	Unaudited Six months to 30 June 2008	Unaudited Six months to 30 June 2007	Audited Twelve months to 31 December 2007
	£'000	£'000	£'000
(Loss) / profit for the financial period	(1,304)	1,117	3,202
Available-for-sale investments:
Fair value (loss) / gain changes taken to equity during the period	(131)	280	139
Exchange differences	24	(40)	(36)
Deferred tax (charge) / credit on share options taken to equity	(737)	2,058	(991)
Net (loss) / profit not recognised in Income Statement	(844)	2,298	(888)
Total recognised (expense) / income for the period	(2,148)	3,415	2,314
Attributable to:
Minority interests	236	211	233
Equity shareholders of the Parent	(2,384)	3,204	2,081
	(2,148)	3,415	2,314

The notes below form an integral part of this condensed consolidated interim information.

1.  BASIS OF PREPARATION

This condensed consolidated financial information for the six months ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34, 'Interim financial reporting' as adopted by the European Union and with the 'Accounting Policies' set out in the 2007 Annual Report and Accounts and Note 2 below. The interim condensed consolidated financial information should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.

The condensed consolidated financial information in this Half Yearly Financial Report does not constitute the Group's Annual Report and Accounts within the meaning of Section 240 of the Companies Act 1985. The Annual Report and Accounts for the year ended 31 December 2007 were approved by the Board of directors on 16 April 2008 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 237 of the Companies Act 1985.

This condensed consolidated interim financial information has been reviewed, not audited.

The Evolution Group Plc is a UK listed holding company for UK based financial services companies. The Company is a public limited company incorporated in the United Kingdom. The address of its registered office is: 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 2007, as described in those annual financial statements. There are a number of interpretations to existing standards which are mandatory for the first time for the financial year ending 31 December 2008. However, except for IFRIC 11, 'IFRS 2 - Group and treasury share transactions', which clarifies the existing accounting treatment adopted by the Group, the other interpretations are not relevant and do not have an impact on the Group's Financial Statements.

3.  SEGMENT INFORMATION (UNAUDITED)

Investment banking and markets refers to the business carried out in Evolution Securities Limited, Evolution Securities China Limited, Evolution Watterson Securities Limited and Evolution Securities (US) Inc. Private client and asset management refers to private client investment management under the Williams de Broë brand. Other activities refer to the central administrative, shared services and holding company functions, combined with the profits on the legacy fixed asset investment portfolio.

By business segment

	30 June 2008		30 June 2007		31 December 2007
Total assets	£'000	%	£'000	%	£'000	%
Investment banking and markets	308,963	70%	621,974	90%	157,684	60%
Private client and asset management	44,567	10%	24,735	3%	38,073	15%
Other	86,614	20%	48,103	7%	64,725	25%
	440,144	100%	694,812	100%	260,482	100%

	30 June 2008		30 June 2007		31 December 2007
Total liabilities	£'000	%	£'000	%	£'000	%
Investment banking and markets	(264,332)	95%	(550,179)	102%	(89,916)	83%
Private client and asset management	(12,576)	4%	(10,717)	2%	(13,474)	13%
Other	(2,332)	1%	21,915	(4%)	(4,820)	4%
	(279,240)	100%	(538,981)	100%	(105,210)	100%

The capital expenditure on property, plant and equipment and on intangible assets is disclosed below:

	Six months to  30 June 2008	Six months to  30 June 2007	Twelve months to  31 December 2007
	£'000	£'000	£'000
Investment banking and markets	371	122	1,377
Private client and asset management	905	223	412
Other	-	2	15
	1,276	347	1,804

Profit before tax	Six months to 30 June 2008
	Investment banking and markets	Private client and asset management	Other	Total
	£'000	£'000	£'000	£'000
Fee and commission income	17,770	16,578	-	34,348
Fee and commission expenses	(310)	(595)	-	(905)
Net fee and commission income	17,460	15,983	-	33,443
Trading income	1,787	1,167	83	3,037
Other income	141	47	5	193
Total income	19,388	17,197	88	36,673
Profit on disposal of available-for-sale investments	-	-	20	20
Depreciation	(1,034)	(292)	(6)	(1,332)
Amortisation of intangibles	(149)	(80)	-	(229)
Other operating expenses	(23,137)	(14,538)	(241)	(37,916)
Operating (loss) / profit	(4,932)	2,287	(139)	(2,784)
Finance income	359	826	1,552	2,737
Finance expense	(480)	(239)	451	(268)
(Loss) / profit before tax	(5,053)	2,874	1,864	(315)

Profit before tax	Six months to 30 June 2007
	Investment banking and markets	Private client and asset management	Other	Total
	£'000	£'000	£'000	£'000
Fee and commission income	21,794	15,629	(53)	37,370
Fee and commission expenses	(1,064)	(391)	(1)	(1,456)
Net fee and commission income	20,730	15,238	(54)	35,914
Trading income	14,021	-	448	14,469
Other income	56	18	(23)	51
Total income	34,807	15,256	371	50,434
Profit on disposal of available-for-sale investments	29	-	197	226
Share of post tax results of associate	-	-	29	29
Depreciation	(783)	(227)	(9)	(1,019)
Amortisation of intangibles	(149)	(79)	(42)	(270)
Other operating expenses	(28,918)	(12,175)	(403)	(41,496)
Exceptional operating expenses	(814)	(356)	(4,966)	(6,136)
Operating profit / (loss)	4,172	2,419	(4,823)	1,768
Finance income	474	137	790	1,401
Finance expense	(947)	(140)	997	(90)
Profit / (loss) before tax	3,699	2,416	(3,036)	3,079

Profit before tax	Twelve months to 31 December 2007
	Investment banking and markets	Private client and asset management	Other	Total
	£'000	£'000	£'000	£'000
Fee and commission income	43,732	32,131	(53)	75,810
Fee and commission expenses	(1,212)	(856)	-	(2,068)
Net fee and commission income	42,520	31,275	(53)	73,742
Trading income	16,448	497	292	17,237
Other income	269	(22)	(20)	227
Total income	59,237	31,750	219	91,206
Profit on disposal of available-for-sale investments	68	-	231	299
Share of post tax results of associate	-	-	29	29
Depreciation	(1,257)	(417)	(12)	(1,686)
Amortisation of intangibles	(678)	(215)	(48)	(941)
Other operating expenses	(53,858)	(25,600)	(937)	(80,395)
Exceptional operating expenses	(814)	(1,572)	(5,242)	(7,628)
Operating profit / (loss)	2,698	3,946	(5,760)	884
Finance income	1,061	692	1,441	3,194
Finance expense	(2,304)	(367)	2,350	(321)
Profit / (loss) before tax	1,455	4,271	(1,969)	3,757

4.  EARNINGS PER ORDINARY SHARE (UNAUDITED) 

The calculation of the basic earnings per ordinary share is based on the profit for the period (excluding minority interest) and on the weighted average number of ordinary shares in issue during the period. 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.

	Earnings £000's	Weighted average no.	(Loss) / earnings per share (p)
Six months to 30 June 2008
Basic	(1,540)	211,421,102	(0.73)
Dilutive effect of share awards	-	39,325,213	-
Diluted	(1,540)	250,746,315	(0.61)
Basic	(1,540)	211,421,102	(0.73)
Non-recurring items	(20)	-	(0.01)
Non-cash items	6,600	-	3.12
Adjusted basic	5,040	211,421,102	2.38
Dilutive effect of share awards	-	39,325,213	-
Adjusted diluted	5,040	250,746,315	2.01

	Earnings £000's	Weighted average no.	Earnings / (Loss) per share (p)
Six months to 30 June 2007
Basic	906	209,813,406	0.43
Dilutive effect of share awards	-	38,243,816	-
Diluted	906	248,057,222	0.37
Basic	906	209,813,406	0.43
Exceptional and non-recurring items	5,910	-	2.81
Exceptional tax (credit)	(1,841)	-	(0.87)
Non-cash items	6,835	-	3.26
Adjusted basic	11,810	209,813,406	5.63
Dilutive effect of share awards	-	38,243,816	-
Adjusted diluted	11,810	248,057,222	4.76

	Earnings £000's	Weighted average no.	Earnings / (Loss) per share (p)
Twelve months to 31 December 2007
Basic	2,969	209,745,385	1.42
Dilutive effect of share awards	-	39,446,913	-
Diluted	2,969	249,192,298	1.19
Basic	2,969	209,745,385	1.42
Exceptional and non-recurring items	7,329	-	3.50
Exceptional tax (credit)	(3,912)	-	(1.87)
Non-cash items	11,757	-	5.60
Adjusted basic	18,143	209,745,385	8.65
Dilutive effect of share awards	-	39,446,913	-
Adjusted diluted	18,143	249,192,298	7.28

5.  DIVIDENDS (UNAUDITED)

	30 June 2008	30 June 2007	31 December 2007
	£'000	£'000	£'000
Final paid: 1.25p (30 June 2007: 1.00p) per 1p share	2,658	2,094	2,094
Interim paid 0.67p	-	-	1,402
	2,658	2,094	3,496

In addition, the Directors are proposing an interim dividend in respect of the financial year ending 31 December 2008 of 0.75p per share, which will absorb an estimated £1,603,000 of shareholders' funds. It will be paid on 24 October 2008 to shareholders on the register of members on 26 September 2008.

6.  TAX EXPENSE (UNAUDITED)

	Six months to  30 June 2008 £'000	Six months to  30 June 2007 £'000	Twelve months to 31 December 2007  £'000
Current tax:
UK Corporation tax on profit	1,305	3,727	4,716
Corporation tax credit on exceptional items	-	(1,841)	(2,288)
Adjustments in respect of prior periods	95	(1,287)	(1,223)
Adjustments in respect of prior periods - exceptional tax	-	-	(1,624)
Foreign tax	211	215	408
Current year tax charge	1,611	814	(11)
Deferred tax:
Current year movement	(174)	303	(279)
Adjustments in respect of prior periods	(448)	845	845
Deferred tax	(622)	1,148	566
Total tax	989	1,962	555

The tax assessed for the period is higher (2007: higher) than the standard rate of corporation tax in the UK (28%). The differences are explained below. The effective rate of tax for the period is 29% (2007: 30%).

Factors affecting the current tax charge for the period are explained below:

	Six months to  30 June 2008 £'000	Six months to  30 June 2007 £'000	Twelve months to 31 December 2007  £'000
(Loss) / profit before tax	(315)	3,079	3,757
(Loss) / profit multiplied by the standard rate of corporation tax in the UK of 29% (2007: 30%)	(92)	924	1,127
Effects of:
Expenses not deductible for tax purposes	2,027	5,960	5,523
Schedule 23 deduction	(1,638)	(3,750)	(1,742)
Utilisation of losses	(371)	(1,106)	(2,127)
Current year tax losses not utilised	1,576	-	-
Non taxable income	-	(69)	-
Adjustments in respect of prior years	95	(1,287)	(2,847)
Higher tax rates on overseas earnings	(175)	(27)	(141)
Stock options taken to equity reserves	189	169	196
Current tax charge	1,611	814	(11)
Deferred tax charge / (credit) on stock options	1,192	(689)	(228)
Deferred tax (credit) on current year tax losses not utilised	(1,521)	-	-
Deferred tax charge / (credit) - other	155	992	(581)
Deferred tax adjustment in respect of prior years	(448)	845	845
Change of rate from 30% to 28%	-	-	530
Deferred tax (credit) / charge	(622)	1,148	566
Total tax charge	989	1,962	555

There is an additional unrecognised deferred tax asset as at 30 June 2008 of £13.4m (30 June 2007: £2.4m).  This entirely relates to timing differences arising on capital losses. This asset has not been recognised in the accounts due to current uncertainties as to how the Group will utilise the reversal of the underlying timing differences.  

7.  TRADING PORTFOLIO ASSETS (UNAUDITED)

	30 June 2008	30 June 2007	31 December 2007
	£'000	£'000	£'000
Long positions in market-making and dealing operations	42,524	78,412	17,752
Options and warrants received in lieu of corporate finance income	1,322	1,882	1,404
Other derivatives	446	2,373	15
	44,292	82,667	19,171

The long trading portfolio assets represent shares listed on both the LSE Official List and AIM markets.

The long positions balances have been inflated to include an amount of £23.6m for trading assets (30 June 2007: £39.7m, 31 December 2007: £0.8m) which were sold with a trade date prior to the 30 June 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 the period end.

8.  TRADING PORTFOLIO LIABILITIES (UNAUDITED)

	30 June 2008	30 June 2007	31 December 2007
	£'000	£'000	£'000
Short positions in market-making and dealing operations	12,818	18,470	6,713
Other derivatives	3,914	1,876	13
	16,732	20,346	6,744

The short trading positions relate to shares listed on both the LSE Official List and AIM markets.

The short positions balance have been inflated to include an amount of £8.3m for trading liabilities (30 June 2007: £7.7m, 31 December 2007: £2.5m) which were bought with a trade date prior to the 30 June 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 the period end.

9.  GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (excluding Minority Interests) (UNAUDITED)

	Share capital	Share premium	Capital redemption reserve	Merger reserve	Fair value and other reserves	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2008	2,232	28,795	373	51,230	(1,687)	72,389	153,332
Loss for the period	-	-	-	-	-	(1,540)	(1,540)
Issue of ordinary share capital	11	843	-	-	-	-	854
Current tax charge on employee options	-	-	-	-	-	189	189
Purchase of Trust shares	-	-	-	-	-	(1,617)	(1,617)
Share options: value of services provided	-	-	-	-	-	6,371	6,371
Minority interest element of share options: value of services provided	-	-	-	-	-	(9)	(9)
Revaluation loss of available-for-sale investments	-	-	-	-	(131)	-	(131)
Deferred tax credit on employee options	-	-	-	-	-	(737)	(737)
Minority interest element of deferred tax credit on employee options	-	-	-	-	-	(12)	(12)
Exchange differences	-	-	-	-	24	-	24
Dividends paid	-	-	-	-	-	(2,658)	(2,658)
Balance at 30 June 2008	2,243	29,638	373	51,230	(1,794)	72,376	154,066

	Share capital	Share premium	Capital redemption reserve	Merger reserve	Fair value and other reserves	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2007	2,214	28,445	373	51,230	(1,491)	72,061	152,832
Profit for the period	-	-	-	-	-	906	906
Issue of ordinary share capital	4	237	-	-	-	-	241
Current tax charge on employee options	-	-	-	-	-	169	169
Purchase of Trust shares	-	-	-	-	-	(6,235)	(6,235)
Share options: value of services provided	-	-	-	-	-	6,594	6,594
Minority interest element of share options: value of services provided	-	-	-	-	-	(11)	(11)
Revaluation gain of available-for-sale investments	-	-	-	-	280	-	280
Available-for-sale investments transferred to Income Statement on sale	-	-	-	-	(226)	-	(226)
Deferred tax charge on employee options	-	-	-	-	-	2,058	2,058
Minority interest element of deferred tax credit on employee options	-	-	-	-	-	(23)	(23)
Exchange differences	-	-	-	-	(40)	-	(40)
Dividends paid	-	-	-	-	-	(2,094)	(2,094)
Balance at 30 June 2007	2,218	28,682	373	51,230	(1,477)	73,425	154,451

	Share capital	Share premium	Capital redemption reserve	Merger reserve	Fair value and other reserves	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2007	2,214	28,445	373	51,230	(1,491)	72,061	152,832
Profit for the period	-	-	-	-	-	2,969	2,969
Issue of ordinary share capital	18	350	-	-	-	-	368
Current tax charge on employee options	-	-	-	-	-	196	196
Purchase of Trust shares	-	-	-	-	-	(9,620)	(9,620)
Share options: value of services provided	-	-	-	-	-	11,289	11,289
Minority interest element of share options: value of services provided	-	-	-	-	-	(10)	(10)
Revaluation loss of available-for-sale investments	-	-	-	-	139	-	139
Available-for-sale investments transferred to Income Statement on sale	-	-	-	-	(299)	-	(299)
Deferred tax credit on employee options	-	-	-	-	-	(991)	(991)
Minority interest element of deferred tax credit on employee options	-	-	-	-	-	(9)	(9)
Exchange differences	-	-	-	-	(36)	-	(36)
Dividends paid	-	-	-	-	-	(3,496)	(3,496)
Balance at 31 December 2007	2,232	28,795	373	51,230	(1,687)	72,389	153,332

10.  SHARE CAPITAL (UNAUDITED)

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 Sanne Trust. 

In the six months to 30 June 2008 the Group has purchased an additional 1,500,000 shares for total consideration of £1.6m. These shares were purchased by the Trust and are held to satisfy share awards made to staff in the Group. The Trust held 10,543,460 (30 June 2007: 11,743,786) and a market value of £9.8m (30 June 2007: £15.9m). All of these shares were acquired in the open market. The shares held represent 4.70% (30 June 2007: 5.29%) of the issued share capital of the Company as at 30 June 2008. 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. Subsequent to the period end and up to the date of this report the Group has purchased no further shares. 

11.  MINORITY INTERESTS (UNAUDITED)

	Six months to  30 June 2008	Six months to  30 June 2007	Twelve months to  31 December 2007
	£'000	£'000	£'000
At 1 January	1,940	1,154	1,154
Investment by third parties in WDB fund	4,642	-	549
Share of profits of WDB Capital UK Equity fund	368	-	24
Deemed disposal of ESCL	-	(1)	-
Share of (losses) / profits of ESCL	(133)	208	209
Minority interests element of share options: value of services provided	12	23	10
Minority interests element of deferred tax credit on employee options in ESCL	9	11	9
ESCL foreign currency translation reserve	-	(15)	(15)
At 30 June (31 December)	6,838	1,380	1,940

The investment by minorities in WDB Fund above is due to further investors entering the fund with the Groups' stake in the WDB Capital UK Equity fund decreasing from 94.06% at 31 December 2007 to 66.31% at 30 June 2008. 

12.  EXCEPTIONAL ITEMS (UNAUDITED)

There have been no exceptional items in 2008. An analysis of the 2007 exceptional items is given below:

	Six months to  30 June 2008	Six months to  30 June 2007	Twelve months to  30 December 2007
Exceptional items	£'000	£'000	£'000
Operating expenses
Retention and loyalty bonuses	-	(2,824)	(2,824)
Costs to close down business	-	(1,780)	(1,923)
Other operating expenses	-	(1,532)	(2,881)
	-	(6,136)	(7,628)
Exceptional tax credit	-	1,841	3,912
Total exceptional items	-	(4,295)	(3,716)

13.  RELATED PARTY TRANSACTIONS (UNAUDITED)

Related party transactions are described in the 2007 Annual Report and Accounts.  

There have been no significant changes in related party transactions described in the 2007 Annual Report and Accounts that could have a material effect on the financial position and performance of the Group in the period to 30 June 2008, save for a bonus of £2.0m (30 June 2007: nil) paid to certain key management of Evolution Securities Limited during the period to 30 June 2008.

 

END

 

 

IR IFFSITAITFIT