Interim Results

Close Brothers Group PLC 03 March 2003 Embargoed for release 7.00 am on Monday 3rd March, 2003 CLOSE BROTHERS GROUP plc The specialist merchant banking group INTERIM RESULTS 2003 HIGHLIGHTS Six months ended Year ended 31st January, 31st January, 31st July, 2003 2002 2002 * Operating profit before taxation and goodwill amortisation Â£39.7m Â£37.4m Â£75.1m+ * Operating profit before taxation on ordinary activities Â£36.3m Â£34.1m Â£68.4m * Earnings per share (before amortisation of goodwill) 19.4p 18.6p 37.2p+ * Interim dividend per share 9.0p 9.0p n/a * Shareholders' funds Â£483m Â£419m Â£472m +After exceptional costs * Profits at Â£36.3 million are 6 per cent. up on the first half of last year - and ahead of the second half - a resilient performance. * Banking profits up 20 per cent., loan book up 17 per cent. and no increase in bad debts rate. * Investment Banking activity held up well in the face of falling markets. Asset Management difficult period, FUM hold steady at Â£3.1 billion. Corporate Finance held its own. Market-Making a creditable result. * Strone Macpherson joins the board as a non-executive director. Sir David Scholey, Chairman, commenting on the results said: "As expected, we have achieved continued growth in both assets and profits in our specialist banking activity. Despite falling markets our investment banking activity held up well. Against a tough background the near term outlook for investment banking remains uncertain though for banking it continues to be positive. We retain our cautious stance overall. " Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 John Sunnucks Brunswick Group Limited 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group plc at www.closebrothers.co.uk or www.cantos.com. Note to editor: CV of Strone Macpherson attached. NOTE FOR EDITORS STRONE MACPHERSON Strone Macpherson (54) gained an MBA from INSEAD and joined Flemings in 1975. He became a Director in 1979 and worked in London and New York till 1989 when he joined the Board of Misys plc. He became Executive Deputy Chairman in 1991 and stepped down from this role in the autumn of last year. He is a non-executive Director of AXA UK plc, and British Empire Securities and General Trust plc and is on the Investment Committee and General Council of the King's Fund. He is Chairman of the Misys Charitable Foundation and of JP Morgan Fleming Smaller Companies Investment Trust plc. DIRECTORS' STATEMENT Profit and Dividend The operating profit on ordinary activities before taxation and goodwill amortisation was Â£39.7 million compared with Â£37.4 million last year. The earnings per share before goodwill amortisation was 19.4p compared with 18.6p. After deducting a charge for goodwill amortisation of Â£3.4 million (2002 - Â£3.3 million), the operating profit on ordinary activities before taxation was Â£36.3 million (2002 - Â£34.1 million), up 6 per cent., and earnings per share increased by 5 per cent. to 17.0p (2002 - 16.1p). These results have benefited from the absence of exceptional costs in the period although earnings per share growth has been constrained by the dilutive impact of last Spring's share placing. In the face of difficult market conditions, and over a six month period in which the FTSE All Share Index fell by 16%, our performance continues to be resilient, as demonstrated by comparison of the last four half-year periods: Operating Profit before EPS* income taxation* Â£million Â£million P July 01 135 36.3 18.5 January 02 137 37.4 18.6 July 02 139 37.7 18.6 January 03 148 39.7 19.4 *Before goodwill amortisation The directors have declared an interim dividend of 9p net per share, the same level as last year. This is payable on 16th April, 2003 to shareholders on the register at the close of business on 14th March, 2003. Overall Business Review The results continue to be consistent with the statement made at our AGM in October 2002, when we expressed caution about the current year. We have achieved continued growth in both assets and profits in our specialist Banking activity. The loan book at the end of the period increased 17 per cent. over the past year, margins were maintained and there has been no deterioration in the bad debt charge as a percentage of the average loan book. Our Investment Banking activity held up well despite the falling markets although profits have not moved forward since the previous half year. The results of our Asset Management division suffered with the general market malaise, but Corporate Finance held its own. Market-Making achieved a creditable result in a period of continuing low levels of retail activity in trading outside the FTSE-100, with the upturn in the market indices in late Autumn proving short lived. The table below sets out our segmental analysis: Operating income Profit before taxation First Second First First Second First half half half half half half Â£million 2002 2002 2003 2002 2002 2003 Investment Banking Asset Management 33.4 32.6 31.2 8.6 7.3 4.0 Corporate Finance 13.7 12.5 12.3 2.0 0.1 1.4 Market-Making 25.0 21.6 26.6 9.6 7.2 9.3 72.1 66.7 70.1 20.2 14.6 14.7 Banking 65.9 71.2 76.7 26.1 29.0 31.4 Group (0.8) 1.3 1.2 (8.9) (5.9) (6.4) Total 137.2 139.2 148.0 37.4 37.7 39.7 Goodwill amortisation (3.3) (3.4) (3.4) Total 34.1 34.3 36.3 The divisional net assets have not changed materially during the first half year. Divisional Business Review Banking Our banking division, which utilises around 45 per cent. of our shareholders' funds, had a strong six months, producing some 52 per cent. of our income and 68 per cent. of our operating profits before group central costs. Profits were up 20 per cent. on the same period last year and the group loan book increased by 17 per cent., to Â£1.5 billion from Â£1.3 billion a year ago. This gratifying rate of growth was achieved without compromising our firm underwriting criteria and, as a result our net bad debt charge, representing 1.5 per cent. of our average loan book, remained at the same level as last year. The analysis of our specialist loan book at the half year stage indicates a similar position to last year. We achieved excellent growth in our insurance premium financing business, where the level of outstandings was up 35 per cent. from a year ago. This reflected both significant organic growth and also the hardening of insurance premiums. Our other process-driven operations, namely our credit management businesses, performed satisfactorily although our debt factoring side is operating in a harsh climate for its small and medium-sized corporate clients. The mix of assets by sector which we finance is shown in the table below: 31st January, 31st January, 2002 2003 Insurance premiums 23% 27% Printing equipment 20% 18% Cars 18% 19% Transport and engineering 14% 13% Healthcare, armed services and other 10% 9% Property 9% 9% Debt factoring 6% 5% Our property lending business contributed another steady result but we remain cautious, in view of the well publicised concerns about the residential property market. Our asset finance businesses had a steady result and there was a particularly pleasing performance from our motor finance operation. Our healthcare, transport and engineering businesses also performed well, as did our operation in the Channel Islands. However, the printing equipment market continued to be weak and shows no signs of pick-up. Our treasury operation had another good result and continues to have substantial undrawn committed funding available to finance future loan book growth. Overall the outlook for the division remains favourable. Investment Banking Asset Management The past six months has been a difficult period. Falling markets have restricted fund raising and have resulted in lower initial and recurring fees from clients. In the circumstances we were pleased that our funds under management remained steady at Â£3.1 billion. Our private client businesses onshore and offshore were not immune to these conditions. Offshore, margins in our deposit business suffered as a result of continuing low interest rates. Furthermore, in the Channel Islands we are making a significant investment in new premises and a new computer system. This will increase our efficiency and capacity although in the short term profitability is affected. Our two businesses managing unquoted funds performed well, although the current ISA/VCT fund raising season is muted. There was a particularly strong showing from our private equity business, which had some good realisations in the period. Our remaining businesses, largely managing quoted equities, had mixed fortunes, our smaller units with relatively high fixed costs suffering the most. As a result, although period turnover held up reasonably well, the operational gearing of this division contributed to a significant fall in profits. Although short term the outlook is sombre, we believe that we have the appropriate building blocks to move forward when market conditions improve and retail investor confidence returns. Corporate Finance For most of calendar 2002, our corporate finance division was at a low ebb as the levels of activity reflected the falling stock market. However, towards the end of that year, there was a small increase in our business levels and this, together with a reduced cost base, has enabled us to report a modest first half profit. The result is near to that for the first half last year and shows improvement from that in the second half. The restructuring team is particularly active in the troubled corporate climate. Looking forward, however, our market-place continues to be subdued. During the period we have continued to refocus our efforts and plan for the future. In Europe we have doubled our shareholding in Atlas Capital Close Brothers (Spain) to 20 per cent. and expanded our network of associates into Switzerland and Italy. In the US we have also entered into associate relationships with Harris Williams and Chanin Capital Partners covering, respectively, M&A and corporate restructuring. Market-Making The UK stock market has now been in a bear phase for over three years and suffered sharp falls both in Summer 2002 and in the early part of 2003. There was a rally in late Autumn but, for the second year running, this soon fizzled out. In these circumstances we have achieved a creditable result, broadly in line with that for the first half of last year and an improvement over the second half. Over the period our costs, which now include those of the investment trust team who joined us from HSBC last August, have been well controlled. This new team is beginning to build up its business and at the half year end had been appointed corporate broker to 26 investment trusts. The market remains edgy and volatile, and the immediate outlook for this business is unexciting. However the withdrawal of some firms from the market should benefit us in an upturn. Board As previously announced at our AGM on 31st October, 2002 Colin Keogh was appointed group chief executive on the retirement of Rod Kent, and Peter Winkworth and Stephen Hodges were appointed group managing directors. Strone Macpherson was appointed a non-executive director on 3rd March, 2003. Mr. Macpherson has been a senior board member of Misys plc from 1989 until recently, when he stepped down as executive deputy chairman. He is currently the chairman of J P Morgan Fleming Smaller Companies Investment Trust plc and a non-executive director of AXA UK plc and British Empire Securities and General Trust plc. Outlook The long bear market continues with the stock market notably weak since the turn of the year and no sign of investor confidence returning. The political situation in the Middle East and elsewhere is very concerning. This, coupled with the deteriorating economic environment in the UK, may begin to undermine consumer confidence. Against this tough background, the near term outlook for our investment banking activity remains uncertain although for our specialist banking activity it continues to be positive. For the remainder of calendar 2003 we retain our cautious stance overall. CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months ended Year ended 31st January, 31st July, 2003 2002 2002 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Interest receivable 109,931 100,491 198,890 Interest payable (47,747) (46,074) (88,449) Net interest income 62,184 54,417 110,441 Fees and commissions receivable 65,760 69,945 140,795 Fees and commissions payable (10,652) (13,398) (24,740) Net dealing income - market-making 28,014 25,680 48,365 Other operating income 2,709 543 1,493 Other income 85,831 82,770 165,913 Operating income 148,015 137,187 276,354 Administrative expenses 93,706 87,245 174,383 Depreciation 3,958 3,489 7,614 Provisions for bad and doubtful debts 10,669 9,058 19,256 Amortisation of goodwill 3,389 3,325 6,681 Total operating expenses 111,722 103,117 207,934 Operating profit on ordinary activities before taxation 36,293 34,070 68,420 Taxation on profit on ordinary activities 11,377 11,060 21,839 Profit on ordinary activities after taxation 24,916 23,010 46,581 Minority interests - equity 665 1,258 2,252 Profit attributable to shareholders 24,251 21,752 44,329 Interim dividend 12,839 12,195 36,409 Retained profit 11,412 9,557 7,920 Interim dividend per share (net) 9.0p 9.0p 26.0p Earnings per share before amortisation of goodwill 19.4p 18.6p 37.2p* Earnings per share on profit attributable to shareholders 17.0p 16.1p 32.3p Diluted earnings per share 16.9p 16.0p 32.0p All income and profits are in respect of continuing operations. *After exceptional costs CONSOLIDATED BALANCE SHEET 31st January, 31st July, 2003 2002 2002 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Assets Cash and balances at central banks 759 619 671 Loans and advances to banks 679,307 499,190 443,175 Loans and advances to customers 1,520,476 1,300,524 1,410,998 Non-recourse borrowings (175,000) (100,000) (175,000) 1,345,476 1,200,524 1,235,998 Debt securities - long positions 53,643 44,365 64,352 Debt securities - other 521,750 552,184 712,380 Settlement accounts 238,166 271,957 246,456 Equity shares - long positions 30,419 27,821 15,971 Loans to money brokers against stock advanced 87,054 86,217 90,385 Equity shares - investments 27,439 26,537 28,484 Intangible fixed assets - goodwill 109,707 117,152 113,065 Tangible fixed assets 24,031 22,966 24,667 Share of gross assets of joint ventures 18,208 13,209 14,331 Share of gross liabilities of joint ventures (18,000) (12,772) (13,905) 208 437 426 Other assets 59,405 46,683 44,299 Deferred taxation 9,514 10,276 10,345 Prepayments and accrued income 25,071 25,980 22,956 Total assets 3,211,949 2,932,908 3,053,630 Liabilities Deposits by banks 87,269 103,721 83,159 Customer accounts 1,317,314 1,150,345 1,222,541 Bank loans and overdrafts 585,802 483,843 505,655 Debt securities - loan notes issued 100,000 118,140 100,000 Debt securities - short positions 46,144 40,259 52,231 Settlement accounts 188,261 208,948 202,343 Equity shares - short positions 7,378 13,660 7,589 Loans from money brokers against stock advanced 85,679 90,438 84,299 Other liabilities 145,008 139,167 143,769 Accruals and deferred income 62,807 62,437 77,105 Subordinated loan capital 96,937 96,937 96,937 Minority interests - equity 5,881 5,717 6,079 Total liabilities 2,728,480 2,513,612 2,581,707 Shareholders' funds Called up share capital 35,971 34,187 35,920 Share premium account 249,148 194,952 248,456 Profit and loss account 198,350 190,157 187,547 Total equity shareholders' funds 483,469 419,296 471,923 Total liabilities and shareholders' funds 3,211,949 2,932,908 3,053,630 Memorandum items Contingent liabilities - guarantees 2,892 4,847 2,412 Commitments - other 160,481 158,094 166,512 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months ended Year ended 31st January, 31st July, 2003 2002 2002 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Profit attributable to shareholders 24,251 21,752 44,329 Exchange adjustment (609) 17 (978) Total recognised gains and losses 23,642 21,769 43,351 CONSOLIDATED CASH FLOW STATEMENT Six months ended Year ended 31st January, 31st July, 2003 2002 2002 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Net cash inflow/(outflow) from operating activities (Note 1(a)) 41,729 (54,707) (29,611) Returns on investments and servicing of finance: Interest paid on subordinated loan capital (3,945) (3,945) (7,825) Dividends paid to minorities (170) (133) (178) (4,115) (4,078) (8,003) Taxation: Taxation paid (9,039) (13,828) (25,586) Capital expenditure and financial investment: Purchase of tangible fixed assets (3,608) (7,729) (14,396) Sale of tangible fixed assets 248 1,666 2,416 Purchase of equity shares held for investment (2,475) (2,500) (5,173) Sale of equity shares held for investment 5,253 2,381 2,647 (582) (6,182) (14,506) Acquisitions and disposals: Minority interests acquired for cash (1,467) (1,118) (1,194) Purchase of subsidiaries (Note 1(b)) (1,775) (1,170) (6,685) (3,242) (2,288) (7,879) Equity dividends paid (24,214) (22,927) (35,122) Net cash inflow/(outflow) before financing 537 (104,010) (120,707) Financing: Issue of ordinary share capital including premium 743 1,831 57,068 Increase/(decrease) in cash 1,280 (102,179) (63,639) In the directors' view, cash is an integral part of the operating activities of the group, since it is a bank's stock in trade. Nevertheless, as required by Financial Reporting Standard No. 1 (Revised), cash is not treated as cash flow from operating activities but is required to be shown separately in accordance with the format above. THE NOTES 1. Consolidated cash flow statement Six months ended Year ended 31st January, 31st July, 2003 2002 2002 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 (a) Reconciliation of operating profit on ordinary activities before taxation to net cash inflow/(outflow) from operating activities Operating profit on ordinary activities before 36,293 34,070 68,420 taxation (Increase)/decrease in: Interest receivable and prepaid expenses (2,115) (2,117) 907 Net settlement accounts (5,792) (29,433) (10,537) Net equity shares held for trading (14,659) 9,658 15,437 Net debt securities held for trading 4,622 (6,524) (14,539) (Decrease)/increase in interest payable and (14,298) (9,473) 4,911 accrued expenses Depreciation and amortisation 7,347 6,814 14,295 Net cash inflow from trading activities 11,398 2,995 78,894 (Increase)/decrease in: Debt securities held for liquidity 190,630 (70,248) (230,444) Loans and advances to customers (109,478) (111,119) (221,593) Loans and advances to banks not repayable on (234,940) (7,508) 86,995 demand Other assets less other liabilities 5,089 33,691 28,749 Increase/(decrease) in: Deposits by banks 4,110 48,078 27,516 Customer accounts 94,773 6,190 78,386 Bank loans and overdrafts 80,147 (123,786) (101,974) Non-recourse borrowings - 67,000 142,000 Debt securities - loan notes issued - 100,000 81,860 Net cash inflow/(outflow) from operating 41,729 (54,707) (29,611) activities (b) Analysis of net cash outflow in respect of purchase of subsidiaries Cash consideration in respect of current year - (648) (1,150) purchases Loan stock redemptions and deferred consideration paid in respect of prior year purchases (1,775) (522) (6,865) Net movement in cash balances - - 1,330 (1,775) (1,170) (6,685) (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 381,313 324,245 324,245 Shares issued for cash 743 1,831 57,068 Closing balance 382,056 326,076 381,313 (d) Analysis of cash balances Movement in the period Â£'000 Cash and balances at central 88 759 619 671 banks Loans and advances to banks repayable on demand 1,192 159,210 119,530 158,018 1,280 159,969 120,149 158,689 THE NOTES 2. Basis of preparation The interim accounts, which are unaudited, have been prepared on the basis of the accounting policies set out in the Annual Report 2002. The figures shown for the full year ended 31st July, 2002 represent an abridged version of the audited financial statements of Close Brothers Group plc for that year, which have been filed with the Registrar of Companies and on which the auditors have given an unqualified report which did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. The financial information contained in this interim report does not constitute the group's statutory accounts within the meaning of Section 240 of the Companies Act 1985. 3. Earnings per share The calculation of earnings per share on profit attributable to shareholders is based on profit after taxation and minority interests of Â£24,251,000 (2002 - Â£21,752,000) and on 142,516,000 (2002 - 135,154,000) ordinary shares, being the weighted average number of shares in issue during the period excluding those held by the employee share benefit trust. The diluted earnings per share is based on the same profit after taxation and minority interests disclosed above, and on 143,114,000 (2002 - 136,265,000) ordinary shares, being the weighted average number of shares in issue also disclosed above, plus the weighted dilutive potential on ordinary shares of exercisable employee share options in issue during the period. INDEPENDENT REVIEW REPORT Independent Review Report to Close Brothers Group plc Introduction We have been instructed by the company to review the financial information for the six months ended 31st January, 2003 which comprises the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 3. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31st January, 2003. Deloitte & Touche Chartered Accountants London 3rd March, 2003 This information is provided by RNS The company news service from the London Stock Exchange

Companies

Close Brothers Group (CBG)

Full Archive

UK 100

Latest directors dealings

All directors dealings today