Preliminary Results

RNS Number : 3167Q
Evolution Group PLC
08 April 2009
 



 

The Evolution Group Plc

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

Preliminary results for the year ended 31 December 2008


Evolution Group, the listed investment bank and private client investment management group, today announces its preliminary results for the year ended 31 December 2008.


Financial and Operational Highlights


  • Strong progress in developing the Group and rebalancing income streams to produce recurring revenues

  • Robust performance against peer group in exceptionally challenging markets

  • Total Group income (before fee and commission expenses)1 of £65.2m, down 25% from £87.5m in 2007.

  • Adjusted profit before tax from continuing operations2 of £1.9m down 91% from £22.1min 2007. Statutory loss before income tax from continuing operations £12.7m (2007: Statutory profit before tax £3.2m6). 

  • Continued Balance Sheet strength with net assets at £147.2m (2007: £155.3m) of which cash is £125.3m (2007: £122.7m)and of this £125.3m £10.4m relates to third party investors within the WDB Capital UK Equity Fund Limited.

  • In March 2009, the Group re-entered the FTSE 250.

  • Increase in final dividend of 2% to 1.27p (2007: 1.25p) following an interim dividend paid on 24 October 2008 of 0.75p (2007: 0.67p), giving a total dividend for the year of 2.02p, which has increased by 5% from prior year (2007: 1.92p).

  • We believe the Group is capable of riding out the continuing difficult conditions and is well positioned for the future.


Williams de Broë3


  • Assets under management up 21to a record level of £3.4bn (2007:£2.8bn) and income1 up 10% to £35.7m (2007:£32.6m)

  • Completed the acquisition of Singer & Friedlander investment management business on 21 October 2008 acquiring over £1bn of clients under management. 

  • The new Edinburgh office was opened in April 2008 which has seen strong growth in assets under management; that is expected to continue into 2009.

  • Adjusted profit before tax2 of £4.8decreased by 28% from £6.7m in 2007. The decline in profitability during the year was primarily due to higher initial costs relating to the new Edinburgh and Singer & Friedlander teams.

  • Despite the exceptionally challenging environment, the WDB Capital UK Equity Fund Limited3 fund achieved a net positive return of 14.26% since inception in September 2007, and a net positive return of 9.53% in 2008. Based on this performance the fund was nominated in the "New Fund of the Year" Category at the 2008 EuroHedge awards.

Evolution Securities4


  • Continued successful rebalancing of primary and secondary market activities - realigning profile towards mid-cap brokerage with increased market share in both FTSE 100 and FTSE 250 stocks.
  • With a back drop of the third worst year in stock market history seeing the FTSE All-Share fall by 32.78% Evolution Securities' achieved income1 of £29.8m down 46% from £54.7m in 2007.
  • Expansion of the fixed income franchise saw income1 increase by 97% to £7.1m from £3.6m. During the first few months of 2009 the expansion of this desk has continued with further key hires.
  • The business reduced its annualised cost base by £7.2m or 14% during the year as part of an ongoing programme to drive efficiency through to the bottom line and streamline the business. The fully annualised benefit of these savings will not been seen until 2009

Evolution Securities China5


  • The results of Evolution Securities China  (loss after tax £2.5m) (2007: profit £0.4m6) are shown as discontinued in the Consolidated Financial Statements.
  • On 31 March 2009 the Group completed an agreement with First Eastern Financial Holdings Limited ("First Eastern") whereby First Eastern holds no less than 51% of the ordinary share capital of Evolution Securities ChinaThe Group retains approximately 48.5% of the ordinary share capital. The agreement combines the strengths of the Company's well financed and independent position in London with First Eastern's considerable experience and proprietary deal flow in the Chinese market.
  • We look forward to capitalising on this unique combination of proven expertise, in both the UK & Far East, that this joint relationship has to offer and which is expected to yield significant opportunities between China and Europe in 2009 and beyond.


Current Trading Update

  • Very encouraging trading in the first quarter, which has been achieved almost completely from our recurring based revenue streams.
  • We continue to recruit and retain quality people to grow the business, while managing Group costs effectively.


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


The market conditions for most of 2008 were the most demanding for generations. The Group's businesses have not been immune from the effect of those challenges. The Group has operated against the backdrop of significant volatility in the UK Equity market and weak IPO markets across all sectors, especially AIM.  


Total income (before fee and commission expenses) for the Evolution Group Plc fell from £87.5m to £65.2m, a decrease of 25%.


In spite of very challenging market conditions the Group has made significant progress and has continued to restructure its businesses. This restructuring will ensure we can withstand the economic downturn and also capitalise on opportunities that arise both now and as economic conditions improve and markets recover.


Our long established policy of maintaining a very strong and liquid Balance Sheet has been validated, and during the year has enabled us to make a significant acquisition and to continue the recruitment of quality people to position our businesses for future growth. As we have done that, we have taken a conscious decision to reward (both to retain and motivate) those people we need for the future. Equally, we have continued to significantly reduce our cost base where appropriate.


Summary of Key Information


 


 

31 December

2008


 

     Restated6

31 December

 2007



£'000


£'000






Total income1 (before fee and commission expenses)


65,161


87,475






Adjusted profit before tax from continuing operations2


1,894


22,131

Statutory (loss) / profit before income tax from continuing operations


(12,698)


3,182






Adjusted earnings from continuing operations2


2,902


17,791

(Loss) / profit for the year from total operations 


(13,496)


3,202






Adjusted basic earnings per Share from continuing operations2


1.36p


8.48p

Basic / (loss) earnings per Share from total operations


(6.02p)


1.42p


                            


Notes

1 Represents total income before fee and commission expenses. 

2Adjusted operating profit from continuing operations, adjusted profit before tax from continuing operations, adjusted earnings from continuing operations and adjusted basic earnings per share are defined in the Financial Review section.

3The results of Williams de Broë are defined as those arising from Williams de Broë Limited ("WdB"), Williams de Broë Management Company Limited and from WDB Capital Limited, including the consolidated results of the WDB Capital UK Equity Fund Limited.

4The results of Evolution Securities are defined as those arising from Evolution Securities Limited ("ESL") and its subsidiary Evolution Securities (US) Inc. ("ESUS").

5The results of Evolution Securities China are defined as those arising from Evolution Securities China Limited ("ESCL") and its subsidiary Evolution Watterson Securities Limited ("EWSL").

2007 results have been restated due to ESCL results being treated as discontinued operation in 2008 following the Board's decision to partly dispose of a controlling interest in the business (See Note 2 accounting policies for details of restatements).



 



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

Emma Kent

Victoria Geoghegan

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 £210 million.


Evolution Securities Limited aims to be the leading investment bank, advising small and mid cap UK public companies to who it provides corporate finance advice and corporate broking services. Its increasing secondary markets business is focused on servicing institutional investors through its teams in equity research, sales and sales trading, market making and fixed income. Evolution Securities is authorised and regulated by the Financial Services Authority.


Williams de Broë Limited is one of the UK's leading firms of investment managers with a business built on core values of personal service, bespoke portfolio services, a sound investment process, true independence and professional partnerships. Williams de Broë has offices in BathBirmingham, Bournemouth, ExeterEdinburghGuildford 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 institutional clients research and trading in listed Chinese stocks, as well as providing Chinese corporates access to the capital markets in London and Hong Kong. Evolution Securities China Limited is authorised and regulated by the Financial Services Authority.


 



CHAIRMAN'S STATEMENT


The market conditions for most of 2008 were the most demanding for generations. The Group's businesses have not been immune from the effect of those challenges. The Group has operated against the backdrop of significant volatility in the UK Equity market and weak IPO markets across all sectors, especially AIM.   


Total income (before fee and commission expenses) for the Evolution Group Plc fell from £87.5m to £65.2m, a decrease of 25%.


In spite of very challenging market conditions the Group has made significant progress and has continued to restructure its businesses. This restructuring will ensure we can withstand the economic downturn and also capitalise on opportunities that arise both now and as economic conditions improve and markets recover.


Our long established policy of maintaining a very strong and liquid Balance Sheet has been validated, and during the year has enabled us to make a significant acquisition and to continue the recruitment of quality people to position our businesses for future growth. As we have done that, we have taken a conscious decision to reward (both to retain and motivate) those people we need for the future. Equally, we have continued to significantly reduce our cost base where appropriate.


Evolution Securities continued to make a significant contribution to the Group, achieving total income (before fee and commission expenses) of £29.8m (2007: £54.6m). Achieving a better balance between primary and secondary market activities has been a priority for this business. This was achieved in 2008 despite the disruptions caused to the primary issuance sector.


Williams de Broë, the private client investment management business, has continued to invest and has grown assets under management both organically and through acquisition.  


Assets under management have increased by 21from £2.8bn to £3.4bn at the end of 2008. Income (before fee and commission expenses) increased to £35.7m in 2008 from £32.6m in 2007.


The Group acquired the Singer & Friedlander Investment Management business on 21st October 2008. That acquisition, for a consideration of £4.4m, is proving very successful, and over £1bn of assets under management have been transferred. We expect the acquisition to be accretive in 2009.


Evolution Securities China is shown as a discontinued business. As announced on the 9 March 2009, the Group entered into an agreement with First Eastern to acquire a controlling interest in ESCLOn 1 April 2009, the Company announced the completion of the investment which included subscription for shares whereby First Eastern now holds 51% of the ordinary share capital of ESCL, with The Group retaining 48.5%. We believe this partnership will combine Evolution Group's well financed and independent position in London with First Eastern's considerable experience and proprietary deal flow in the Chinese market. We believe the partnership will provide the opportunity for ESCL to be First Eastern's principal partner in the UK and Hong Kong for a wide range of capital market opportunities.


Balance Sheet strength and cash balances


Current market conditions support our long standing strategy of maintaining a strong and liquid Balance Sheet. At the year end, the Group had net assets of £147.2m (2007: £155.3m) and, of this, the Group's cash balances were £125.3m (2007: £122.7m). £10.4of this cash balance relates to third party investors within the WDB Capital UK Equity Fund LimitedThis strategy provides strength in times of market uncertainty and supports our ability to grasp opportunities should they present themselves. Cash balances are maintained through the effective management of working capital in trading portfolio assets and net trade receivables.


Adjusted Profit


Results have been impacted by the continued presence of non-recurring costs of £2.3m (2007: £7.6m) relating to the acquisition, restructuring and integration of Singer & Friedlander and the new Edinburgh teams, as well as redundancy costs in existing operations. The Board believea truer reflection of profitability for the year is afforded by the measure of adjusted operating profit, including the exclusion of share options costsAs defined within the Financial review


Dividend


The Board recommends the payment of a final dividend of 1.27p per share (2007: £1.25p). This follows the interim dividend payment of 0.75p per share paid on the 24 October 2008 to shareholders on the register at 26 September 2008 (2007: 0.67p). The overall dividend increased by 5% and is consistent with our progressive dividend policy. This confirms our continued confidence in the Group's businesses, but at the same time recognises the existing business environment.


Share buyback 


The Board wishes to maintain the capability to continue this programme during the remainder of 2009 and will be seeking approval from shareholders at this year's Annual General Meeting.


The Group employees


We can only prosper if we have people of the highest quality employed in our businesses. During the year we have continued to recruit very high calibre people and will continue to do so.  We have also taken a conscious decision to reward (both to retain and motivate) those people we need for the future.  Our staff have managed our business in a very impressive way through unprecedented market conditions. I thank them all for their professionalism.


Outlook


We believe the challenging market and economic conditions will continue for some time, certainly over the course of this year and probably into 2010. However, the Group has made significant strategic and operational progress and has maintained a strong and liquid Balance Sheet and a more stable income base. This will enable us to take advantage of opportunities as they arise, continue to recruit quality people and invest in new income streams.


We will continue to follow this strategic policy and believe the Group is capable of riding out the challenging economic environment and is well positioned for the future.




Martin Gray

Chairman

8 April 2009


 




Chief Executive's Report 


I am pleased to report that the Group has performed well during the year and we have achieved a number of our strategic objectives.


The Group has delivered income (before fee and commission expenses) in 2008 of £65.2m, down 25% from the level achieved in 2007 of £87.5m. There is a better balance of these revenues between institutional investment banking at 46% (2007: 62%) and private client investment management at 54% (2007: 38%).


Income breakdown


The detailed income analysis by segment and by operating company is shown below: 





2008


Restated

2007




£'000

%

£'000

%

Institutional investment banking






Evolution Securities1


29,774

46

54,650

62







Private client investment management






Williams de Broë2


35,727

54

32,606

38

Other






Other income


(340)

-

219

-



65,161

100

87,475

100

Commissions paid away


(1,257)


(2,007)


Total income


63,904


85,468



Note


1The results of Evolution Securities are defined as those arising from Evolution Securities Limited ("ESL") and its subsidiary Evolution Securities (US) Inc. ("ESUS").

2The results of Williams de Broë are defined as those arising from Williams de Broë Limited ("WdB"), Williams de Broë Management Company Limited and from WDB Capital Limited, including the consolidated results of the WDB Capital UK Equity Fund Limited.

 

 

Evolution Securities 

Evolution Securities provides equity and fixed income research, institutional sales and trading, equity market making, corporate finance and corporate broking advice. Within Evolution Securities, the core strategic objective is to maintain a balanced business, between equities and fixed income, servicing the needs of Institutional and Corporate customers in both of these product areas. 

 

2008 presented an extraordinary business environment. Capital markets all but ceased to exist with well-publicised significant falls in all FTSE indices, especially in AIM and the small cap indices as well as in Official List Initial Public Offerings ("IPO"). In addition, secondary volumes on all indices fell between 30-65% with a corresponding impact on share prices. Despite this backdrop, Evolution Securities continued to maintain significant market shares in both agency business and total transactional share across all UK indices. 

 

Faced with these conditions, Evolution Securities reduced its headcount and costs in its equities division and strategically took the decision to further invest in people within fixed income and align this business to the opportunities that prevail in its market place. This latter point, in particular, refers to the servicing of the customer at both the institutional and corporate level.

 

Results for the year have been affected by the prevailing market conditions in equities, especially in the second half of the yearwhich significantly impacted equity market making. For the year to 31 December 2008 Evolution Securities traded at a loss, recording an adjusted operating loss (as defined in the Financial Review) of £5.4m (2007: profit £13.0m). Total income before fee and commission expenses was £29.8m (2007: £54.6m), with secondary sales and trading for equity and fixed income holding up, despite market factors, at £19.8m (2007: £19.7m).  The business reduced its annualised cost base by £7.2m (14%) during the year as part of an ongoing programme to drive efficiency through to the bottom line and streamline the business. The fully annualised benefit of these savings will not been seen until 2009.

 

Our objective for 2008 has been the reduction of costs, streamlining the business and positioning our fixed income and equities businesses for 2009. We are very confident about our prospects in both.


Secondary market activities


Research

Strength in equity research lies at the heart of a strong equities franchise, it helps brand the business. Our research teams are highly experienced, with in-depth knowledge and a strong reputation across a broad range of UK sectors and industries. Our research offering covers small, mid and large sized capitalised companies. In total, we research approximately 200 stocks. 

A notable award in 2008 was from Starmine (sponsored by The Sunday Times) where we achieved the No 1 ranking in FTSE 100 research recommendations across our industry.


Fixed Income

Changing working capital practises within the major Investment Banks, a changing regulatory environment as well as a redirection of risk appetite have all produced a changing picture for fixed income markets. We believe that these changes are permanent and here to stay.


During 2008 Evolution Securities has adapted to these changes as well as investing in the talent pools in the market place and iexecution technology. Our business in this area has changed considerably in 2008, with further expansion in the first quarter of 2009, which is expected to continue throughout the year. We now service a global client base and in terms of an offering, we price over 4,000 bonds, have a first class and independent research team, and offer services in fixed income products across Government Bonds, Investment Grade, High Yield, Distressed and Asset Backed Securities areas


In conclusion, we believe that we offer a service that is independent and is broadly unique to many of our competitors.

Whilst these new initiatives were not fully operational or complete in 2008, we are delighted to report a robustness in our performance where income grew by 97% to £7.1m (2007: £3.6m).


Institutional Sales & Sales Trading

Evolution Securities' UK Equities sales team has strong franchise across the UK listed markets from AIM to FTSE100 and is a significant participant in the mid cap and small cap markets, in both primary and secondary issues. Our fundraising record is well respected throughout the industry, and our depth of expertise and wide range of international contacts enables the department to provide services to a broad range of UK, European and US based investors. Equally important is that our sales teams are conduits for passing on the message of our research analysts and the corporates that we advise on to our various institutional relationships.


As a result of the prevailing economic conditions the performance from these teams in 2008 has suffered with total secondary commission income decreasing by 23% to £12.7m (2007: £16.4m). This was in face of the FTSE 100 index falling by 36%, AIM index falling by 65% and the small cap index falling by 54%.


Equity Market Making

With 14 market makers covering a total of 772 stocks, Evolution Securities has one of the largest market making operations in the City of London. The team makes markets in stocks from a variety of sectors ranging from AIM and small cap right through to the FTSE 100, providing real facilitation and execution services to both institutional and retail clients. 


In 2008, Evolution Securities reduced the number of stocks in which we made markets to a total of 772 stocks (2007: 916 stocks), whilst still covering the entire FTSE 250 and FTSE 100. 2008 also saw a greater focus on the efficient use of capital away from some of the smaller capitalised and less liquid stocks to larger capitalised companies. This matched the greater research and sales coverage in these stocks. Performance of our market making operationshas been impacted by significant falls in all UK equity indices and also the significant deterioration in the underlying liquidity of quoted companies which made 2008 the most difficult year that this operation has ever seen. Its performance, against this backdrop, has been good when compared to FTSE falls


Primary market activities


As previously mentioned, 2008 was an exceptionally tough year for corporate finance activity. Evolution Securities participated in transactions raising in excess of £470m during 2008 (2007: £2.9bn). Fundraising activities included 20 transactions from existing listed clients (2007: 41 transactions) and one of the largest IPOs of the year (2007: five IPOs), raising in total £157m (2007: £437m). 


Corporate Finance

Evolution Securities has 21 highly experienced corporate finance executives, based in London and Leedsworking in teams with a predominantly sector based focus, in line with the research structure. This business has an extensive track record in IPO's, secondary fundraisings and public and private merger and acquisition activity. We act for corporate clients across both the Full List and AIM in a number of sectors. Throughout 2008 we continued to improve our internal controls via committees dealing with new business, commitment, underwriting and pricing. We believe our procedures remain at the leading edge of those within our peer group.

 


Corporate Broking

We offer advice on market facing issues through our corporate broking team. This can either be a separate service or can be included as part of our overall corporate finance service. The department draws on the significant resources of Evolution Securities within the regulatory framework to ensure that we act as our client's best advocate in the market.


We advise our corporate clients at all stages of their development, becoming involved in the flotation process and developing our relationship with them post-IPO on both a day-to-day and transactional basis. Providing a market facing service for our corporate clients is very important to us. Knowing what the market thinks of a stock helps us position our clients' story in the market. 


 

 

Evolution Securities China


Evolution Securities China is a specialist Chinese investment banking and securities operation based in the UK, Hong Kong and Shanghai. It holds regulated status in both regions. This business completed its fifth year of operation during the summer of 2008. Income (before fee and commission expense) fell to £2.7m (2007: £5.8m), a decrease of 53%. 


On 9 March 2009, the Company entered into an Investment Agreement with First Eastern. Under the terms of the Investment Agreement First Eastern and Evolution Group will between them invest an aggregate £900,000 by way of a subscription for new Ordinary Shares in ESCL.

 

On the 1 April 2009 the Company announced the completion of the investment which included subscription for shares whereby First Eastern now holds 51% of the Ordinary Shares upon completion and the Company holding will reduce from 70.94% to 48.5%. The balance will be held by those remaining existing minority shareholders who elect to retain their interests, although an opportunity is being provided for those minority shareholders to realise their investment on completion of the Investment Agreement, should they so wish. Although First Eastern will have a majority shareholding, Evolution Group will continue to be represented on the Board of ESCL.

 

We believe this is an extremely exciting joint venture with China's largest direct investment group and their decision to enter into a partnership with Evolution Group is a significant endorsement of our capabilities. First Eastern has an unrivalled track record and experience, and this combined with our expertise and strength in the UK and the Far East region will deliver real opportunities between China and Europe.

 

Private Client Investment Management


Williams de Broë 


Notwithstanding arguably the most difficult trading conditions in our sectors for a generation, 2008 witnessed significant growth for our private client investment management business, Williams de Broë. Despite the stock market performance we were very active in this division last year where we:


  • Announced on the 21 October the acquisition of the investment management team of Singer & Friedlander Investment Management Limited ("SFIM"). The acquisition is proving very successful, and over £1bn of assets under management have been transferred onto the existing Williams de Broë regulatory platform.
  • We opened a further office in Edinburgh which during the year has seen strong inflow of new clients; that is expected to continue into 2009. Williams de Broë now operates across seven offices in BathBirmingham, Bournemouth, EdinburghExeter, Guildford and London.   
  • Despite the difficult market conditions of 2008, Williams de Broë's total income (before fee and commission expenses) increased by 10% to £35.7m in 2008 (2007: £32.6m) demonstrating the impact of our organic growth despite weaker transaction volumes in our sector. Adjusted profit before tax of £4.8m decreased by 28% from £6.7m in 2007. The decline in profitability during the year was primarily due to higher initial costs relating to the new Edinburgh and Singer and Friedlander teams.


  • Growth in assets under management ("AUM"), as with 2007, remains a core focus within Williams de Broë. At 31 December 2008, total assets under management reached a record level of £3.4bn, an increase of 21% from the £2.8bn at end of 2007. The acquisition of the SFIM team and the new office in Edinburgh were instrumental in achieving this growth.

     

  • The successful migration of the SFIM business was supplemented by another record performance from our discretionary sales team - further vindicating our philosophy of discretionary intermediary distribution by geographic location, which together with our investment managers, won and introduced new assets under management totalling £493m (2007: £471m) an increase of 5%. 



Products

With a heritage dating back to 1869, Williams de Broë is one of the UK's leading firms of investment managers and has successfully established a business that has been built on the following core values: 


  • Personal service - we have a personal service driven culture and our ethos is to maintain investment managers dedicated to our individual client's needs;

     

  • Bespoke by nature - we tailor our services to fulfil our individual client's specific investment objectives and risk criteria; 


  • Sound investment process - we maintain a significant resource in our investment process and have a strong focus to achieve investment excellence;


  • True independence - we select best of breed investments, which are appropriate for our clients, without conflicts of interest. We also develop close relationships with our professional intermediary partners; and 


  • Continues to improve the businesses infrastructure, back office and compliance departments. 


We were also delighted to receive the Five Star service award in November 2008 at the Financial Advisor Magazine Awards. The service award is recognised as a benchmark for service standards.


However, at the start of 2009 the difficult market conditions still prevail, and whilst we remain differentiated from many of our competitors, there is no room for complacency. Accordingly we are reviewing every aspect of the Williams de Broë's business in order to improve our performance for the remainder of 2009 and beyond.  


WDB Capital


The Group's investment in the WDB Capital UK Equity Fund Limited reduced from 94.79% to 50.20% during 2008. The fund is expected to be deconsolidated in 2009 as the Group's investment falls below 50%, as a result the assets and liabilities of the fund are presented as held-for-sale.  


WDB Capital's principal activity is that of investment fund manager to WDB Capital UK Equity Fund LimitedFrom the initial seeding of £10m by, the Group made on the 24 September 2007 to the 31 December 2008 the fund returned a net positive net return of 14.26% and in the calendar year 2008 a positive net return of 9.53%. In light of the exceptionally challenging environment for equity markets the Group is pleased with the funds performance. Reflecting the funds success, WDB Capital UK Equity Fund Limited was nominated in the "New Fund of the Year" Category at the 2008 EuroHedge awards. The fund has seen significant inflows throughout 2008 and continues to in 2009.


Infrastructure, culture and employees 


2008 continued to create significant challenges for our infrastructure as we responded to the increased market volatility, whilst managing organic and acquisitive growth and the re-balancing across our business model. It is due in no small part to the continued professionalism of our employees that the Group has weathered such conditions whilst delivering a robust performance. I would like to express my continuing thanks to all our employees who continue to work hard through the current difficult market conditions. 


 


Outlook


"The Board has stressed the need for a strong and liquid Balance Sheet for some considerable time, the Group retains this asset and has protected stakeholders interests by doing so. In the environment which we all face, I believe this liquidity provides your group with substantial opportunity


It is very firmly my belief that the Group will have opportunities to exercise this leverage, whether through acquisition as demonstrated at the end of 2008 with the demise of Kaupthing and the unique opportunity this provided to acquire Singer & Friedlander investment management, or indeed through even more dynamic opportunities that will inevitably occur as our industry changes further in the coming months.


I firmly believe the Group can and will extend itself to capitalise on these opportunities, whilst continuing to pay an increasing dividend year on year to shareholders.


am pleased to report very encouraging trading in the first quarter, which has been achieved almost completely from our recurring based revenue streamsWilliams de Broë is now one of the fastest-growing private client fund management businesses in the UK, and Evolution Securities is also expanding its business, most recently with the creation of a strong Fixed Income trading capability.


I would like to thank my Non-executive Board colleagues who have remained supportive of this strategy over the past two years."


 


Alex Snow

Chief Executive Officer

8 April 2009  

 

 

FINANCIAL REVIEW


Adjusted operating profit


Statutory operating profit from continuing operations declined in 2008 to a loss of £17.3m (2007: £0.4m Profit). This was primarily due to the decline in primary & trading revenues from the prior year and in part due to the Singer & Friedlander acquisition and Edinburgh office expansion.


The Board continues to believe a truer reflection of the performance of the Group's operating businesses is afforded by the measure of 'Adjusted operating profit from continuing operations' that excludes items that are one-off or non-recurring (including items that fall to be treated as exceptional), and are not part of the on-going business profitability (including discontinued operations), the cost of share options granted to employees or in the case of amortisation of intangible assets 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 from continuing operations', which represents adjusted operating profit from continuing operations plus net interest; the measure 'Adjusted earnings from continuing operations', which represents adjusted profit before tax from continuing operations less tax expense (excluding exceptional tax expense) and the measure 'Adjusted basic earnings per share'. The analyst community also follows these measures as benchmarks for the Group's on-going performance.  


The following table reconciles these measures and demonstrates a reduction in adjusted operating profit from continuing operations from £19.3m in 2007 to an adjusted operating loss from continuing operations of £2.7m in 2008. This reduction is principally due to continued pressure on corporate finance fee income, particularly within the final quarter when market conditions deteriorated. The adjusted profit before tax from continuing operations for 2008 is £1.9m (2007: £22.1m) and adjusted earnings from continuing operations are £2.9m (2007: £17.8m).



 

2008


Restated4

2007



£'000



£'000

 

Group operating (loss) / profit from continuing operations


 

(17,277)



 

398







 

Items not included within adjusted operating profit: 






 

Profit on disposal of available-for-sale financial assets


 

(20)



 

(299)

 

Amortisation of intangibles excluding computer software


551



396

 

Share of post tax results of associates


-



 

(29)

 

Income Statement charge for share options granted to employees1


 

11,729



 

11,253

 

Non-recurring and 2007 exceptional operating expenses2


 

2,332



 

7,628







Adjusted Group operating (loss) / profit from continuing operations


(2,685)



19,347







 

Net finance income


 

4,579



 

2,784







 

Adjusted profit before tax from continuing operations


 

1,894



 

22,131







 

Tax credit / (expense)3


 

1,008



 

(4,340)







 

Adjusted earnings from continuing operations


 

2,902



 

17,791







 

Adjusted basic earnings per share 


1.36



8.48

 

Adjusted diluted earnings per share


1.17



7.14



Represents 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.

2 Non-recurring and exceptional operating expenses are detailed below.

Excludes the tax effect of non-recurring and 2007 exceptional operating expenses. 

2007 results have been restated due to ESCL results being treated as discontinuing operations following the Board's decision to partially dispose of the business (See Note 2 accounting policies for details of restatements).






Earnings per share on total operations


Statutory

Year ended 31 December 2008


Year ended 31 December 2007


Loss

£'000

Weighted average no.

Earnings per share (p)


Profit

£'000

Weighted average no.

Earnings 

per share (p)









Basic Earnings per share

(12,844)

213,195,385

(6.02)


2,969

209,745,385

1.42









Dilutive effect of share awards

-

34,680,832

-


-

39,446,913

-









Diluted 

(12,844)

247,876,217

(5.18)


2,969

249,192,298

1.19



Adjusted


Year ended 31 December 2008


Restated

Year ended 31 December 2007


(Loss) / profit

£'000

Weighted average no.

Earnings per share (p)


Profit

£'000

Weighted average no.

Earnings 

per share (p)









Basic 

(12,844)

213,195,385

(6.02)


2,969

209,745,385

1.42









Profit on investments

(20)

-

(0.01)


(299)

-

(0.14)

Non-recurring and 2007 exceptional operating expenses

2,332

-

1.09


7,628

-

3.64

Related tax (credit)

(653)

-

(0.31)


(3,912)

-

(1.87)

Amortisation of intangibles

551

-

0.26


396

-

0.19

Share of post tax result of associates

-

-

-


(29)

-

(0.01)

Income Statement charge for share options granted

11,729

-

5.50


11,253

-

5.36

Loss / (profit) of discontinued operations

2,459

-

1.15


(448)

-

(0.21)

Minority interest on discontinued operations

(652)

-

(0.30)


233

-

0.10

Adjusted basic

2,902

213,195,385

1.36


17,791

209,745,385

8.48









Dilutive effect of share awards

-

34,680,832

-


-

39,446,913

-









Adjusted diluted 

2,902

247,876,217

1.17


17,791

249,192,298

7.14


 



Non-recurring and 2007 exceptional items 


A summary of all non-recurring items for 2008, together with exceptional and non-recurring items for 2007 is provided below: 



2008


2007 


£'000


£'000





Non-recurring items




 

Acquisition of Singer & Friedlander 

(790)


-

 

Investment in Edinburgh teams

(509)


-

 

Redundancy costs on continuing operations

(1,033)


-


(2,332)


-





 

Statutory exceptional operating expenses




 

Retention and loyalty bonuses on acquisition of W Deb MVL Plc

-


(2,824)

 

Costs to close down business

-


(1,923)

 

Other operating expenses

-


(2,881)


-


(7,628)





 

Total exceptional and non-recurring items

(2,332)


(7,628)




Segmental reporting


Our primary business segments are institutional investment banking, private client investment management and other activities.


Investment Banking

 

Within the investment banking business of Evolution Securities the overall level of income has declined between 2007 and 2008.


As a result, and as disclosed below, adjusted operating profit has fallen from £13.0m in 2007 to a loss of £5.4m in 2008.


Investment Banking

2008


Restated1

2007 


£'000


£'000





Income (before fee and commission expenses)

 

29,774


54,650

Fee and commission expenses 

 

(37)


(1,151)

Total income

 

29,737


53,499

Operating expenses

 

(45,475)


(51,355)

Profit on disposal of available-for-sale financial assets

 

-


68

Operating (loss) / profit

 

(15,738)


2,212





Profit on disposal of available-for-sale financial assets

 

-


(68)

Amortisation of intangibles

 

196


196

Non-recurring and 2007 exceptional operating expenses

 

578


814

Income Statement charge for share options granted to employees

 

9,605


9,855

Adjusted operating (loss) / profit 

 

(5,359)


13,009





Net finance expense

 

(495)


(1,332)





(Loss) / profit before income tax from continuing activities

 

(5,854)


11,677


1 2007 results have been restated due to ESCL results being treated as a discontinued operation in 2008 following the Board's decision to partially dispose of the business (See Note 2 accounting policies for details of restatements).





 



Evolution Securities' income analysis


Evolution Securities' total income (before fee and commission expenses) has clearly been impacted in 2008 from a weaker primary performance with total primary income (before fee and commission expenses) in 2008 lower at £9.2m (2007: £18.6m). Equity commissions of £12.7m (2007: £16.4m) and trading revenues of £0.1m (2007: £15.8m) have also fallen significantly following the decline in market conditions, however this was partially offset by a 97% increase in fixed income revenues at £7.1m (2007: £3.6m). Secondary income therefore fell in total to £19.9m (2007: £35.8m). 



2008

2007

Corporate finance

  31%

34%

Sales commissions

  43%

30%

Trading

    -

29%

Fixed Income

    24%

7%

Other

  2%

-


Evolution Securities' cost analysis


In view of deteriorating revenue opportunities during the year, Evolution Securities underwent a thorough cost reduction exercise. Costs1 have therefore decreased in 2008 by over 11% or £5.9m. This was achieved through two redundancy rounds, supplier re-negotiations and suspension of phased development programmes. Staff costs this year continue to make up a similar proportion of the total cost base as in 2007. The other costs have remained stable and relate principally to premises, direct transactions, systems and market data.  



2008

2007

Staff costs 

42%

41%

Other costs

36%

38%

Income Statement charge for share options granted to employees 

and non-recurring and 2007 exceptional expenses

22%

21%


Excludes the impact of the cost of options and non-recurring and 2007 exceptional items.


Evolution Securities China

 

Following the announcement of the proposed transaction entered into with First Eastern, Evolution Securities China (which was previously shown as separate geographical segment) has been treated as discontinued in both 2008 and 2007. As a result the Consolidated Income Statement shows a loss for the year from discontinued operations of £2.5m (2007: £0.4m profit).


At 31 December 2008, £4.8m of assets (including cash of £0.8m) and £0.6m of liabilities to third party's outside the Group have been reclassified as assets and liabilities of disposal group held-for-sale.


 



Private client investment management


Looking next at Williams de Broë (including the results of the WDB Capital UK Equity Fund Limited), the Group's private client investment management business, 2008 has seen an expansion of this business both in terms of an increase in the number of the investment managers and growth in the assetunder management. At the same time the decline in market conditions has had a detrimental impact on the core revenues of the business.  In addition the upfront costs of acquiring the team of investment managers from Singer & Friedlander and establishing the new office in Edinburgh has resulted in a decrease of 43% in adjusted operating profit from £6.3m in 2007 to £3.6m in 2008.  



2008


2007 


£'000


£'000





Income (before fee and commission expenses)

35,727


32,606

Fee and commission expenses 

(1,220)


(856)

Total income

34,507


31,750

Operating expenses

(34,343)


(27,804)

Operating profit

164


3,946





Amortisation of intangibles

355


158

Non-recurring and 2007 exceptional operating expenses

1,747


1,572

Income Statement charge for share options granted to employees

1,362


653

Adjusted operating profit

3,628


6,329





Net finance income

1,139


325





Profit before income tax from continuing operations

4,767


6,654


Private client investment management income analysis


Williams de Broë's mix of income has showed a continued shift towards more reliable management fee income and away from sales commissions. Income has benefited from the additional revenues of the business acquired from Singer & Friedlander since its acquisition on the 21 October 2008. As the overall level of assets under management increases, recurring management fees are becoming a more significant source of stable income for the Group. Sales commissions suffered in absolute terms as a result of the current market conditions. Commissions have fallen from £15.3m in 2007 to £12.9m in 2008, a fall of 16%. However, management fees have increased from £16.6m in 2007 to £20.3m in 2008, an increase of 22despite the market conditions. 



2008

2007

Sales commissions

36%

47%

Management fees

57%

51%

Trading income

5%

2%

Other income

2%

-


Private client investment management cost analysis


The overall cost/income1 ratio for Williams de Broë has increased significantly to 88% (2007: 78%). This has been in large part due to the significant costs incurred in acquiring the Private client business from Singer & Friedlander and establishing the new office in Edinburgh



2008

2007

Staff costs 

48%

50%

Other costs

43%

41%

Income Statement charge for share options granted to employees 

and non-recurring and 2007 exceptional expenses

9%

9%


Excludes the impact of the cost of options and non-recurring and 2007 exceptional items.





Other activities


The Group's other activities consist of the central support costs not recovered from the operating businesses.



 2008


2007 


£'000


£'000

Total (income) / expense

(340)


219

Operating expenses

(1,383)


(6,239)

Profit on available-for-sale financial assets

20


231

Share of post tax results of associates

-


29

Operating loss

(1,703)


(5,760)





Profit on available-for-sale financial assets

(20)


(231)

Share of post tax results of associates 

-


(29)

Amortisation of intangibles

-


42

Non-recurring and 2007 exceptional operating expenses

7


5,242

Income Statement charge for share options granted to employees

762


745

Adjusted operating (loss) / profit

(954)


9





Net finance income

3,935


3,791





Profit before income tax from continuing operations

2,981


3,800


Investment portfolio


The Group has continued to exit from its legacy investment portfolio. The Group seeks to extract value from this portfolio, and recorded a profit on sale of available-for-sale financial assets of £20,000 in 2008 (2007 Profit: £231,000). The fair value of the Group's remaining portfolio of available-for-sale financial assets is £1,056,000 (2007: £680,000).


Shares purchased by the Employee Trust


The Trust purchased 1,500,000 shares during the year (2007: 6,998,506) for total consideration of £1.6m (2007: £9.7m) through the Group's share incentive trust to meet awards made to staff. The Company has and will continue this process in 2009. 


Balance Sheet strength and cashflow


The Group remains focused on maintaining a strong Balance Sheet. At the year end the Group had net assets of £147.2m (2007: £155.3m) including cash of £125.3m (£10.4of this cash balance relates to third party investors within the WDB Capital UK Equity Fund Limited) compared with £122.7m in 2007During 2008 there were decreased working capital requirements compared with the previous year, with net trade receivables and net trading portfolio assets in Evolution Securities Limited being lower on average than 2007. Working capital has been monitored carefully during the year and was actively managed at the end of the year in line with Group policy and in response to the more volatile markets. Largely, as a result of the management of working capital, there is an overall net inflow of cash from operating activities of £15.6(2007: £47.2m). When taken together with the £5.9m (2007: £13.1m) outflow from own share purchases and dividends paid, as well as the £4.4m paid on the acquisition of Singer & Friedlander, there is a resultant overall increase in cash for 2008 of £1.8m (2007: £34.3m).


Dividend


The Board is proposing a final dividend per share for 2008 of 1.27p per share (2007: 1.25p). This dividend is payable on the 22 May 2009 to shareholders on the register at 24 April 2009. This follows the interim dividend paid on the 24 October 2008 of 0.75p per share (2007: 0.67p).

 



Alex Snow

8 April 2009

  

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2008



Note

2008

Restated

2007



£'000

£'000





Fee and commission income

3

62,066

70,650

Fee and commission expenses

3

(1,257)

(2,007)

Net fee and commission income

3

60,809

68,643

Trading income

4

1,978

16,595

Other income


1,117

230

Total income


63,904

85,468





Profit on disposal of available-for-sale financial assets


20

299

Share of post tax results of associate


-

29

Operating expenses


(81,201)

(77,770)

Exceptional operating expenses


-

(7,628)

Total operating expenses


(81,201)

(85,398)





Operating (loss) / profit from continuing operations


(17,277)

398





Finance income


5,576

3,094

Finance expense


(997)

(310)





(Loss) / profit before income tax from continuing operations


(12,698)

3,182





Income tax credit / (expense)


1,661

(4,340)

Exceptional income tax credit


-

3,912

Total income tax credit / (expense)

7

1,661

(428)





(Loss) / profit after tax from continuing operations


(11,037)

2,754





(Loss) / profit from discontinued operations

5

(2,459)

448





 

 (Loss) / profit for the year from total operations


(13,496)

3,202





 

Attributable to:



 


 

Minority interest


(652)

233

 

Equity holders of The Evolution Group Plc


(12,844)

2,969



 

(13,496)

 

3,202









(Loss) / Earnings per share attributable to the equity holders of The

Evolution Group Plc during the year:




Basic (loss) / earnings per share from continuing operations

6

(4.87p)

1.21p

Basic (loss) / earnings per share from discontinuing operations

6

(1.15p)

0.21p


6

(6.02p)

1.42p





Diluted (loss) / earnings per share from continuing operations

6

(4.19p)

1.01p

Diluted (loss) / earnings per share from discontinuing operations

6

(0.99p)

0.18p


6

(5.18p)

1.19p





Dividend proposed / paid per share - Interim (paid)

8

0.75p

0.67p

                                                           - Final (proposed)

8

1.27p

1.25p





Dividend proposed / paid (£'000) - Interim (paid)

8

1,607

1,402

                                                       - Final (proposed)

8

2,985

2,655





  CONSOLIDATED BALANCE SHEET 

As at 31 December 2008



Note

2008

£'000


2007

£'000

ASSETS





Non-current assets





Goodwill


10,447


9,932

Intangible assets


7,586


2,706

Property, plant and equipment


3,383


3,616

Deferred income tax assets


9,380


9,300

Trade and other receivables


-


35

Total non-current assets


30,796


25,589






Current assets





Trade and other receivables


58,713


92,299

Available-for-sale financial assets


1,056


680

Trading portfolio assets


5,034


19,171

Cash and cash equivalents


103,639


122,743

Assets of disposal groups classified as held-for-sale:





Cash and cash equivalents 

5

21,692


-

Other assets

5

6,360


-

Total current assets


196,494


234,893






Total assets


227,290


260,482






LIABILITIES





Current liabilities





Trade and other payables


60,251


96,082

Trading portfolio liabilities


4,260


6,744

Current income tax liabilities


133


1,519

Liabilities of disposal groups classified as held-for-sale

5

12,878


-

Total current liabilities


77,522


104,345






Non-current liabilities





Deferred income tax liabilities


1,791


340

Provisions for other liabilities and charges


763


525

Total non-current liabilities


2,554


865






Total liabilities


80,076


105,210






EQUITY





Capital and reserves attributable to equity shareholders





Share capital

10

2,245


2,232

Share premium 

10

29,762


28,795

Capital redemption reserve

10

373


373

Merger reserve

10

29,332


51,230

Available-for-sale and other reserves

 

10

(1,891)


(1,687)

Retained earnings

10

86,524


72,389

Shareholders' equity excluding minority interest

10

146,345


153,332

Minority interests in equity


869


1,940

Total equity


147,214


155,272






Total equity and liabilities


227,290


260,482









CONSOLIDATED CASH FLOW STATEMENT 

For the year ended 31 December 2008

   




 

 2008

£'000

Restated

2007

£'000





Cash flows from operating activities from continuing operations:




Cash generated from operations


13,509

45,470

Finance income received


5,576

3,496

Finance expense paid


(997)

(311)

Income tax paid


(754)

(719)





Cash flows (absorbed by) operating activities from discontinued operations


(1,702)

(767)

Net cash generated from operating activities - total


15,632

47,169





Cash flows from investing activities from continuing operations:




Acquisition of business 


(4,431)

-

Net proceeds from sale of available-for-sale financial assets


-

1,385

Fees in relation to acquisition of subsidiaries


-

(11)

Purchase of property, plant and equipment


(1,554)

(746)

Purchase of intangible assets


(704)

(864)

Purchase of available-for-sale financial assets


(1,025)

-





Cash flows (absorbed by) investing activities from discontinued operations


(447)

(237)

Net cash (absorbed by) investing activities - total


(8,161)

(473)





Cash flows from financing activities from continuing operations:




Proceeds from issuance of ordinary shares


219

151

Proceeds from issuance of shares to third parties in the WDB UK Equity Capital Fund Limited



-


550

Dividends paid to the Company's shareholders


(4,262)

(3,496)

Purchase of shares held by the Trust


(1,607)

(9,557)





Cash flows from financing activities from discontinued operations


-

-

Net cash (absorbed by) financing activities - total


(5,650)

(12,352)





Net increase in cash and cash equivalents


1,821

34,344

Cash and cash equivalents at beginning of year


122,743

88,565

Exchange (loss) on cash


767

(166)

Less: cash and cash equivalents as held-for-sale


(21,692)

-





Cash and cash equivalents at end of year from continuing operations 


103,639

122,743



.







  CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 31 December 2008



2008


2007


£'000


£'000





(Loss) / profit for the financial year

(13,496)


3,202





Revaluation of available-for-sale financial assets

(651)


139

Fair value changes transferred to Income Statement on disposal

447


(36)

Deferred income tax (debit) on share options taken to equity

(996)


(991)





Net expense recognised directly in equity

(1,200)


(888)





Total recognised (expense) / income for the year

(14,696)


2,314





Attributable to:




Minority interest

(652)


233

Equity holders of The Evolution Group Plc

(14,044)


2,081


(14,696)


2,314






 



 

1.  BASIS OF PREPARATION



In preparing the financial information in this statement the Group has applied policies in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and IFRIC interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through the profit or loss. 


The financial information in this statement does not constitute the Group's statutory accounts for the year ended 31 December 2008 within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for 2008 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.


The Group will be circulating the full annual report and accounts to shareholders and copies will be available from the Registered Office of the Company, 9th Floor, 100 Wood StreetLondon EC2V 7AN from the date of despatch to shareholders for one month.

 

 

2.    DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD-FOR-SALE


When the Group is committed to dispose of a business segment that represents a separate major line of business, and it is intended that such a disposal will be completed within one year of the decision to sell, it classifies such a business segment as a discontinued operation, in accordance with IFRS 5 'Non-current assets held-for-sale and discontinued operations'. The assets of disposal groups are presented separately from other assets on the Group Balance Sheet and the liabilities of disposal groups are presented separately from other liabilities on the Group Balance Sheet. The assets and liabilities of the disposal groups classified as held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. The comparative Balance Sheet is not restated. The post-tax result of the discontinued operation is shown as a single amount on the face of the Group Income Statement, with a restatement of the comparative period. In determining the post-tax result of the discontinued operation only those central costs that will be eliminated on disposal are allocated to the discontinued operation.


The Group has disclosed Evolution Securities China Limited ("ESCL") as a discontinued operation following the Board's decision to dispose of a controlling interest in the business on 18 December 2008. In addition the Company has classified its subsidiary WDB Capital UK Equity Fund Limited as held-for-sale based on the Group Board's intention to reduce its holding below 50% during 2009.

 

 

3.   NET FEE AND COMMISSION INCOME




2008

£'000

Restated

2007 

£'000

Fee and commission income:



Corporate finance fees 

9,228

18,565

Fixed income commission

7,100

3,598

Management fees

20,233

16,741

Sales commission

25,505

31,746


62,066

70,650




Fee and commission expenses

(1,257)

(2,007)




Net fee and commission income

60,809

68,643

 

 

 

4.   TRADING INCOME




2008

£'000

Restated

2007 

£'000




Trading income

2,247

16,880

Fair value loss on options taken through profit or loss

(269)

(285)





1,978

16,595


 

 


 

5.   ASSETS AND LIABILITIES OF DISPOSAL GROUPS CLASSIFIED AS HELD-FOR-SALE AND DISCONTINUED OPERATIONS



2008

£'000

2007 

£'000

(a) Assets of disposal groups classified as held-for-sale






Goodwill

1,171

-

Property, plant and equipment

501

-

Intangible assets

323

-

Deferred tax assets

830

-

Other non current assets

144

-

Trade and other receivables

2,927

-

Other current assets

464

-

Cash and cash equivalents1 

21,692

-




Total

28,052

-




(b) Liabilities of disposal groups classified as held-for-sale






Trade and other payables

12,788

-

Other current liabilities

18

-

Other non current liabilities

72

-

Total

12,878

-


1 Of the £21.7m of cash and cash equivalents shown above £0.8m relates to ESCL, the balance of £20.9m relates to WDB Capital UK Equity Fund Limited of which 49.8% (£10.4m) is held by third party investors outside of the Group.


Group

The assets and liabilities related to ESCL and its subsidiary and WDB Capital Fund UK Equity Limited have been presented as held-for-sale.


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 will result in a partial dilution of the Group's interest in ESCL. The investment agreement was formally signed on the 31 March 2009, and is disclosed in detail in Note 36. At 31 December 2008 the assets and liabilities of ESCL and its subsidiary are classified as held-for-sale and their operations as discontinued.


WDB Fund

The Group Board's intention is to reduce the Group's interest in WDB Capital UK Equity Fund Limited by way of a deemed disposal, to be effected by bringing in new investors into WDB Capital UK Equity Fund Limited. At 31 December 2008, the assets and liabilities of WDB Capital UK Equity Fund Limited were classified as held-for-sale. On the 1 January 2008 the Groups investment in WDB Capital UK Equity Fund Limited was 94.79% during the year this was reduced to 50.20%.


 


 


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



2008

£'000

2007 

£'000




Fee and commission income

3,093

5,160

Fee and commission expenses

(365)

(62)

Net fee and commission income

2,728

5,098

Net trading (expense) / income

(405)

642

Other income / (expense)

12

(2)

Total income

2,335

5,738




Employee remuneration expense

(3,017)

(3,094)

Depreciation - owned assets

(144)

(75)

Management recharge: depreciation

(132)

(91)

Management recharge: amortisation

(11)

(4)

Management recharge: operating lease charges 

(432)

(226)

Amortisation of intangibles

(101)

(102)

Legal costs

(66)

(100)

Auditors' remuneration

(83)

(94)

Other operating expenses

(1,656)

(1,466)

Total operating expenses

(5,642)

(5,252)




Operating (loss) / profit from discontinued operations

(3,307)

486




Net finance income

9

89




(Loss) / profit before income tax from discontinued operations

(3,298)

575




Total income tax credit / (expense)

839

(127)




(Loss) / profit after tax from discontinued operations

(2,459)

448




 

6.   EARNINGS PER ORDINARY SHARE


The calculation of the basic (loss) / earnings per ordinary share is based on the (loss) / profit for the period for continuing and discontinuing operations (excluding minority interest) and on the weighted average number of ordinary shares in issue during the year. The calculation of the diluted (loss) / earnings per share is based on the basic (loss) / earnings per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.


Continuing operations

Statutory


Year ended 31 December 2008


Restated

Year ended 31 December 2007


Loss

£'000

Weighted average no.

Loss 

per share (p)


Profit

£'000

Weighted average no.

Earnings 

per share (p)









Basic 

(10,385)

213,195,385

(4.87)


2,521

209,745,385

1.21









Dilutive effect of share awards

-

34,680,832

-


-

39,446,913

-









Diluted 

(10,385)

247,876,217

(4.19)


2,521

249,192,298

1.01


Discontinued operations

Statutory

 

Year ended 31 December 2008


Restated

Year ended 31 December 2007


Loss

£'000

Weighted average no.

Loss 

per share (p)


Profit

£'000

Weighted average no.

Earnings 

per share (p)









Basic 

(2,459)

213,195,385

(1.15)


448

209,745,385

0.21









Dilutive effect of share awards

-

34,680,832

-


-

39,446,913

-









Diluted 

(2,459)

247,876,217

(0.99)


448

249,192,298

0.18

 

 

7.   INCOME TAX EXPENSE




2008

£'000


Restated

2007 

£'000

Current tax:




UK Corporation income tax on profit

204


4,654

Corporation income tax on exceptional items

-


(2,288)

Adjustments in respect of prior years

(690)


(1,225)

Adjustments in respect of prior years - exceptional tax

-


(1,624)

Foreign tax

155


314

Current year tax credit

(331)


(169)





Deferred tax:




Current year movement

(876)


(248)

Adjustments in respect of prior years

(454)


845

Total income tax (credit) / expense

(1,661)


428


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



2008

£'000


Restated

2007

£'000





(Loss) / profit before income tax from continuing operations

(12,698)


3,182





(Loss) / profit multiplied by the standard rate of corporation tax in the UK of 28.5% (2007: 30%)

(3,619)


954





Tax effects of:




Expenses not deductible for tax purposes

4,989


5,932

Schedule 23 deduction on options exercised

(1,854)


(1,742)

Utilisation of losses

(49)


(2,127)

Trade losses carried back

874


-

Non taxable income

(621)


-

Adjustment in respect of prior years

(690)


(2,849)

 (Lower) tax rates on overseas earnings

(125)


(113)

Stock options taken to equity reserves

197


196

Overseas tax credit

(132)


-

Small companies tax relief

(20)


-

Capital allowances 

(590)


(420)

Current year tax losses not utilised

1,309


-





Current income tax credit

(331)


(169)





Deferred income tax

(876)


(776)

Deferred income tax adjustment in respect of prior periods

(454)


845

Change of rate from 30% to 28%

-


528

Current year movement

(1,330)


597





Total income tax (credit) / expense

(1,661)


428


 




8.   DIVIDENDS



2008


2007


£'000


£'000





Prior year final paid: 1.25p (2007: 1.00p) per share

2,655


2,094

Current year interim paid: 0.75p (2007: 0.67p) per share

1,607


1,402


4,262


3,496






In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2008 of 1.27p (20071.25p) per share, which will reduce shareholders equity by £2,708,000. It will be paid on the 22 May 2009 to shareholders on the register of members at 24 April 2009.


Dividends amounting to £53,990 (2007: £170,615) in respect of the Company's shares held by an employee share trust have been waived and accordingly deducted in arriving at the aggregate dividends proposed.



9.   BUSINESS COMBINATIONS 


On 21 October 2008, the Company acquired the private client investment management business from Kaupthing Singer & Friedlander Limited (In Administration) ("KSF") for a total consideration of £4,431,435.  


Details of net assets acquired and goodwill are as follows:


£'000

Purchase consideration


Cash paid

4,250

Acquisition expenses

181

Total purchase consideration

4,431



Fair value of net identifiable assets acquired

(3,068)



Goodwill

1,363


The assets and liabilities arising from the acquisition are as follows:


 Provisional

Fair value £'000

Intangible assets


Distribution channels

1,455

Customer relationships

4,481

Accruals

(1,206)

Deferred tax liability on initial recognition of distribution channels and customer relationships

(1,662)

Net identifiable assets acquired

3,068


The revenue included in the Consolidated Income Statement since 21 October 2008 contributed by Singer & Friedlander was £1,711,561, generating a profit of £178,037.




 



10.   CONSOLIDATED MOVEMENT IN SHAREHOLDERS' EQUITY 

 

 
Share
capital
Share
premium
Capital redemption reserve
Merger
reserve
Available-for-sale
 and other reserves
Retained
earnings
Total
equity
 
 
2008
£’000
2008
£’000
2008
£’000
2008
£’000
2008
£’000
2008
£’000
2008
£’000
 
 
 
 
 
 
 
 
Balance at 1 January
2,232
28,795
373
51,230
(1,687)
72,389
153,332
 
 
 
 
 
 
 
 
Loss for the year
-
-
-
-
-
(12,844)
(12,844)
Issuance of ordinary shares
13
967
-
-
-
-
980
Transfer of merger reserve to retained earnings
-
-
-
(21,898)
-
21,898
-
Purchase of Trust shares
-
-
-
-
-
(1,607)
(1,607)
Share options: value of services provided
-
-
-
-
-
11,709
11,709
Minority interest element of share options: value of services provided
-
-
-
-
-
6
6
Revaluation of available-for-sale financial assets
-
-
-
-
(651)
-
(651)
Deferred income tax (debit) on share options taken to equity
-
-
-
-
-
(996)
(996)
Dividends paid
-
-
-
-
-
(4,262)
(4,262)
Foreign exchange revaluations
-
-
-
-
654
(13)
641
Minority interest element of exchange differences
-
-
-
-
(207)
-
(207)
Schedule 23 deduction on options exercised
-
-
-
-
-
197
197
Minority interest element of deferred tax credit on employee options
-
-
-
-
-
47
47
 
 
 
 
 
 
 
 
Balance at 31 December
2,245
29,762
373
29,332
(1,891)
86,524
146,345



The balance of £21,898,000 has been transferred from the Group's merger reserve to retained earnings following the liquidation and disposal of entities which were acquired under the acquisition of Beeson Gregory Group on the 11th July 2002.


The merger reserve within the Group arose on the acquisition of the Beeson Gregory Group, which was accounted for under acquisition accounting using merger relief under Section 131 of The Companies Act 1985. The adoption of this method resulted in the premium arising on the acquisition being taken to the merger reserve.


 

 

11.   POST BALANCE SHEET EVENTS


On 6 March 2009, The Evolution Group plc, the Parent Company of ESCL, entered into an investment agreement with First Eastern Financial Holdings Limited ("First Eastern"). Under the terms of the Investment Agreement, First Eastern and The Evolution Group plc will between them invest an aggregate £900,000 by way of a subscription for new Ordinary Shares in ESCL.


On 1st April 2009, the Company announced the completion of the investment which included subscription for shares whereby First Eastern now holds 51% of the ordinary share capital of ESCL with the Company holding approximately 48.5%. The balance will be held by those existing minority shareholders who elect to retain their interests, although an opportunity is being provided for those minority shareholders to realise their investment on completion of the Investment Agreement, should they so wish. Although First Eastern will have a majority shareholding, The Evolution Group plc will continue to be represented on the Board of ESCL. The new shares represent 90% of the enlarged issued share capital. 


In addition to the funds now being invested, each of First Eastern and The Evolution Group plc will enter into a financial commitment to ESCL pursuant to which they may each be called upon (at the discretion of the ESCL Board) to provide an aggregate of up to £500,000 by way of additional funding in each of the three years following completion of this transaction on the basis of 51% from First Eastern and 49% from The Evolution Group plc.


The financial effect this transaction will have on the future profits and losses of the Group cannot be accurately estimated. 


It is expected that once the transaction is completed the Group's remaining investment in ESCL will be classified as an investment in associate.



This information is provided by RNS
The company news service from the London Stock Exchange
 
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