Interim Results

Close Brothers Group PLC 01 March 2004 Embargoed for release 7.00 am on Monday 1st March, 2004 CLOSE BROTHERS GROUP plc The specialist merchant banking group INTERIM RESULTS 2004 HIGHLIGHTS Six months ended Year ended 31st January, 31st January, 31st July, 2004 2003 2003 * Operating profit before taxation and goodwill amortisation Â£57.8m Â£39.6m Â£85.3m * Operating profit before taxation on ordinary activities Â£53.4m Â£36.2m Â£77.8m * Earnings per share (before amortisation of goodwill) 27.7p 19.3p 41.0p * Interim dividend per share 9.0p 9.0p n/a * Shareholders' funds Â£504m Â£479m Â£482m * Profits up 46% * Banking profits increased by 10%. No increase in bad debt charge. * Investment Banking profits more than doubled compared to first half last year. Asset Management has improved. FUM increased to Â£5 billion. Corporate Finance had a reasonable number of deals complete. Market-Making has benefited from increased stock market activity. Sir David Scholey, Chairman, commenting on the results said: "The results demonstrate the continued steady organic growth of our banking activity, where the outlook continues to be good and the improved fortunes of our investment banking activity since the end of the long bear market, where the outlook is much improved". Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Rupert Young Brunswick Group LLP 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Group plc at www.closebrothers.co.uk or www.cantos.com DIRECTORS' STATEMENT Profit and Dividend The operating profit on ordinary activities before taxation and goodwill amortisation was Â£57.8 million compared with Â£39.6 million last year, an increase of 46 per cent. The earnings per share before goodwill amortisation was 27.7p compared with 19.3p, up 44 per cent. After deducting a charge for goodwill amortisation of Â£4.4 million (2003 - Â£3.4 million), the operating profit on ordinary activities before taxation was Â£53.4 million (2003 - Â£36.2 million), up 48 per cent. Earnings per share also increased by 46 per cent. to 24.6p (2003 - 16.9p). The directors have declared an interim dividend of 9.0p per share, the same level as last year. This is payable on 14th April, 2004 to shareholders on the register at the close of business on 12th March, 2004. Overall Business Review The results demonstrate the continued steady organic growth of our banking activity and the improved fortunes of our investment banking activity since the end of the long bear market. Our Banking profits increased by 10 per cent. compared to the same period last year. During the last twelve months our loan book grew by 11 per cent. and the bad debt charge, expressed as a percentage of the average loan book, reduced somewhat to 1.3 per cent. Investment Banking profits more than doubled compared to the first half last year. All three divisions showed good growth. Asset Management has begun to pick up and the recent Nelson acquisition did well. Corporate Finance built upon the improved result in the last months of last year and Market-Making moved forward on the back of continued buoyancy in the stock market. The table below sets out our divisional analysis: Operating income Profit before taxation Â£million First First First First half half half half 2003 2004 2003 2004 Investment Banking Asset Management 31.2 38.3 4.0 7.2 Corporate Finance 12.3 16.9 1.4 4.5 Market-Making 26.6 53.0 9.3 19.9 70.1 108.2 14.7 31.6 Banking 76.7 85.5 31.4 34.4 Group 1.2 0.8 (6.5) (8.2) Total 148.0 194.5 39.6 57.8 Goodwill amortisation (3.4) (4.4) Total 36.2 53.4 The divisional net assets have not changed materially during the first half year. Divisional Business Review Banking The steady growth of our banking division continued. This activity utilised some 48 per cent. of our capital and contributed 52 per cent. of our operating profits before group central costs. Profits increased by nearly 10 per cent. over the same period last year on a loan book growing to Â£1.7 billion. Bad debts were well contained at 1.3 per cent. of our average loan book (2003 - 1.5 per cent.). We continue to specialise in asset backed finance and the analysis of our loan book at the half year once again indicates fairly level growth across the asset sectors, none of which dominates our business: 31st January, 31st January, 2003 2004 Insurance premiums 27% 29% Cars 19% 20% Printing machinery 18% 16% Transport and engineering 13% 12% Healthcare, armed services and other 9% 10% Property 9% 8% Debt factoring 5% 5% 100% 100% Close Premium Finance had another successful period and again achieved a record half year profit. We have observed a slowing in the pace of commercial insurance premium increases but our volume of loan applications continues to grow. Close Motor Finance also had a fine period of trading, producing another record result. Close Asset Finance, which deals mainly with commercial assets, produced an improved result. Its printing market shows signs of re-awakening and businesses in the healthcare and contractors' plant markets grew. Close Property Finance produced solid results, in a market that remains buoyant but in which we continue to be prudent. Our Credit Management businesses also made progress as did our Mortgage Broking operation. In addition the central Treasury benefited from the movement in interest rates, after a fairly flat period. We continue to have substantial undrawn committed facilities to fund future growth. Overall the outlook for our banking activity remains good. Investment Banking Asset Management Following the low point reached last year, the profits of our asset management division have improved. This was achieved on the back of rising stock markets and a further increase in funds under management, to Â£5.0 billion as follows: Funds under management Â£bn At 31st July, 2003 3.7 New funds (net) 0.3 Acquired funds 0.9 Market movement 0.1 At 31st January, 2004 5.0 Our private client businesses onshore and offshore both made progress. Offshore we completed the infrastructure reorganisation and now have in place new management, new premises and new systems in the Channel Islands. The challenge is to focus our product and service offerings and strengthen our business development efforts. Onshore the key development was our acquisition of Nelson and we are well ahead with our plans to integrate this with Close Wealth Management, where the administrative centre will be located in the North West. Our funds businesses also made progress. The two businesses specialising in unquoted investments - tax sheltered products, including property investments, and private equity - both continued to do well. Our other businesses, concentrating mainly on quoted investments, did better and we are actively seeking ways for them to strengthen their distribution. The present stock market outlook means that the prospects for this business are improving. Corporate Finance Towards the end of our last financial year the business of Close Brothers Corporate Finance recovered from its low point when the bear market was at its most severe. The latest half year started with higher levels of enquiry flow and ended with a satisfactory number of deals being completed. Activity has continued in the restructuring arena and is improving in M&A. Our forward pipeline is in reasonable shape but whilst there has been some pick up in our German and Spanish operations, for our French operation the market remains flat. We are cautiously optimistic for the future. Market-Making After some three years of a bear phase, the UK stock market has been in a more bullish phase for the past eleven months. The much improved activity for our business in the last part of our previous financial year continued into the early months of our first half. The market finished calendar 2003 on a strong note and has held its own since then. Our activity levels have been healthy and private clients appear to be regaining confidence. These conditions enabled our market-making business to generate rapidly rising profits which more than doubled over the same period last year. Outlook The UK economy continues to show growth and the stock market has emerged from the doldrums. These more favourable conditions for us have been reflected in the results of our investment banking activity, where the outlook is much improved. The outlook for our banking activity continues to be good. 1st March, 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months ended Year ended 31st January, 31st July, 2004 2003 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Interest receivable 116,243 109,931 219,948 Interest payable (50,828) (47,747) (93,464) Net interest income 65,415 62,184 126,484 Fees and commissions receivable 86,568 65,760 152,536 Fees and commissions payable (13,675) (10,652) (25,505) Net dealing income - market-making 54,683 28,014 66,711 Other operating income 1,529 2,709 3,113 Other income 129,105 85,831 196,855 Operating income 194,520 148,015 323,339 Administrative expenses 121,961 93,830 207,639 Depreciation 4,387 3,958 8,471 Provisions for bad and doubtful debts 10,365 10,669 21,962 Amortisation of goodwill 4,451 3,389 7,469 Total operating expenses 141,164 111,846 245,541 Operating profit on ordinary activities before taxation 53,356 36,169 77,798 Taxation on profit on ordinary activities 16,794 11,377 25,332 Profit on ordinary activities after taxation 36,562 24,792 52,466 Minority interests - equity 1,092 665 1,514 Profit attributable to shareholders 35,470 24,127 50,952 Interim dividend 12,875 12,839 37,321 Retained profit 22,595 11,288 13,631 Dividend per share 9.0p 9.0p 26.0p Earnings per share before amortisation of 27.7p 19.3p 41.0p goodwill Earnings per share on profit attributable to shareholders 24.6p 16.9p 35.7p Diluted earnings per share 24.5p 16.9p 35.5p All income and profits are in respect of continuing operations. The comparative figures for both the six months ended 31st January, 2003 and the year ended 31st July, 2003 have been restated as a result of the group adopting Urgent Issues Task Force ("UITF") Abstract 38 on Accounting for ESOP trusts. CONSOLIDATED BALANCE SHEET 31st January, 31st July, 2004 2003 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Assets Cash and balances at central banks 970 759 878 Loans and advances to banks 631,192 679,307 746,586 Loans and advances to customers 1,684,206 1,520,476 1,615,614 Non-recourse borrowings (225,000) (175,000) (175,000) 1,459,206 1,345,476 1,440,614 Debt securities - long positions 50,297 53,643 60,744 Debt securities - other 790,760 521,750 543,826 Settlement accounts 437,675 238,166 391,684 Equity shares - long positions 41,338 30,419 24,385 Loans to money brokers against stock advanced 106,175 87,054 102,424 Equity shares - investments 24,585 22,705 25,763 Intangible fixed assets - goodwill 104,413 109,707 106,003 Tangible fixed assets 32,607 24,031 23,853 Share of gross assets of joint ventures 21,637 18,208 20,636 Share of gross liabilities of joint ventures (21,079) (18,000) (20,182) 558 208 454 Other assets 68,146 59,405 61,791 Deferred taxation 12,813 9,514 12,443 Prepayments and accrued income 32,072 25,071 27,213 Total assets 3,792,807 3,207,215 3,568,661 Liabilities Deposits by banks 116,894 87,269 107,872 Customer accounts 1,527,004 1,317,314 1,401,482 Bank loans and overdrafts 621,275 585,802 617,559 Debt securities - loan notes issued 100,000 100,000 100,000 Debt securities - short positions 47,930 46,144 54,113 Settlement accounts 354,680 188,261 317,857 Equity shares - short positions 10,307 7,378 19,371 Loans from money brokers against stock advanced 136,746 85,679 110,125 Other liabilities 176,772 145,008 163,935 Accruals and deferred income 93,226 62,807 91,487 Subordinated loan capital 96,937 96,937 96,937 Minority interests - equity 6,704 5,881 6,124 Total liabilities 3,288,475 2,728,480 3,086,862 Shareholders' funds Called up share capital 36,033 35,971 36,003 Share premium account 249,935 249,148 249,527 ESOP trust reserve (4,116) (4,734) (4,734) Profit and loss account 222,480 198,350 201,003 Total equity shareholders' funds 504,332 478,735 481,799 Total liabilities and shareholders' funds 3,792,807 3,207,215 3,568,661 Memorandum items Contingent liabilities - guarantees 3,083 2,892 2,330 Commitments - other 190,229 160,481 179,654 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months ended Year ended 31st January, 31st July, 2004 2003 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Profit attributable to shareholders 35,470 24,127 50,952 Exchange adjustment (1,488) (609) (299) Total recognised gains and losses 33,982 23,518 50,653 The comparative figures for both the six months ended 31st January, 2003 and the year ended 31st July, 2003 have been restated as a result of the group adopting Urgent Issues Task Force ("UITF") Abstract 38 on Accounting for ESOP trusts. CONSOLIDATED CASH FLOW STATEMENT Six months ended Year ended 31st January, 31st July, 2004 2003 2003 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Net cash inflow/(outflow) from operating activities (Note 1(a)) 180,985 41,729 51,275 Returns on investments and servicing of finance: Interest paid on subordinated loan capital (3,917) (3,945) (7,825) Dividends paid to minorities (743) (170) (280) (4,660) (4,115) (8,105) Taxation: Taxation paid (12,063) (9,039) (21,080) Capital expenditure and financial investment: Purchase of tangible fixed assets (5,253) (3,608) (8,318) Sale of tangible fixed assets 223 248 756 Purchase of equity shares held for investment (763) (2,475) (7,921) Sale of equity shares held for investment 2,377 5,253 7,090 (3,416) (582) (8,393) Acquisitions and disposals: Minority interests acquired for cash (36) (1,467) (1,734) Purchase of subsidiaries (Note 1(b)) (7,956) (1,775) (3,547) (7,992) (3,242) (5,281) Equity dividends paid (24,482) (24,214) (37,053) Net cash inflow/(outflow) before financing 128,372 537 (28,637) Financing: Issue of ordinary share capital including premium 438 743 1,154 Increase/(decrease) in cash 128,810 1,280 (27,483) 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, 2004 2003 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 (a) Reconciliation of operating profit on ordinary activities before taxation to net cash inflow from operating activities Operating profit on ordinary activities before 53,356 36,169 77,798 taxation (Increase)/decrease in: Interest receivable and prepaid expenses (4,859) (2,115) (4,257) Net settlement accounts (9,168) (5,792) (29,714) Net equity shares held for trading (26,017) (14,659) 3,368 Net debt securities held for trading 4,264 4,622 5,490 (Decrease)/increase in interest payable and accrued (3,423) (14,298) 14,382 expenses Depreciation and amortisation 8,838 7,347 15,940 Net cash inflow from trading activities 22,991 11,274 83,007 (Increase)/decrease in: Debt securities held for liquidity (246,934) 190,630 168,555 Loans and advances to customers (68,592) (109,478) (204,616) Loans and advances to banks not repayable on demand 244,112 (234,940) (331,101) Other assets less other liabilities 41,148 5,213 19,872 Increase in: Deposits by banks 9,022 4,110 24,713 Customer accounts 125,522 94,773 178,941 Bank loans and overdrafts 3,716 80,147 111,904 Non-recourse borrowings 50,000 - - Net cash inflow from operating activities 180,985 41,729 51,275 (b) Analysis of net cash outflow in respect of purchase of subsidiaries Cash consideration in respect of current year (9,565) - - purchases Loan stock redemptions and deferred consideration (4,990) (1,775) (3,547) paid in respect of prior year purchases Net movement in cash balances 6,599 - - (7,956) (1,775) (3,547) (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 382,467 381,313 381,313 Shares issued for cash 438 743 1,154 Closing balance 382,905 382,056 382,467 (d) Analysis of cash balances Movement in the period Â£'000 Cash and balances at central 92 970 759 878 banks Loans and advances to banks 128,718 259,046 159,210 130,328 repayable on demand 128,810 260,016 159,969 131,206 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 2003 group accounts, except with regard to Close Brothers Group plc equity shares held by the employee benefit trust. Previously the group's policy was to hold these at cost with realised surpluses and deficits taken to the profit and loss account. In accordance with UITF Abstract 38 Accounting for ESOP trusts, equity shares held by the employee benefit trust are now deducted in arriving at shareholders' funds. Realised surpluses and deficits are not taken to the profit and loss account. Prior year adjustments are described in note 4 below. The figures shown for the full year ended 31st July, 2003 represent an abridged version of the full accounts 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. 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£35,470,000 (2003 - Â£24,127,000) and on 144,272,000 (2003 - 142,516,000) ordinary shares, being the weighted average number of shares and contingently issuable shares in issue during the period excluding those held by the employee benefit trust. The diluted earnings per share is based on the same profit after taxation and minority interests disclosed above, and on 144,856,000 (2003 - 143,114,000) ordinary shares, being the weighted average number of shares disclosed above, plus the weighted dilutive potential on ordinary shares of exercisable employee share options in issue during the period. 4. Prior year adjustment As a result of the adoption of UITF Abstract 38 both the profit and loss account and balance sheet prior year comparatives have been restated. Profit and loss account - the retained profit for the six months ended 31st January, 2003 and the year ended 31st July, 2003 have both decreased by Â£124,000. Balance sheet - shareholders' funds as at 31st January, 2003 and 31st July, 2003 have both decreased by Â£4,734,000. 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, 2004 which comprises the profit and loss account, the statement of total recognised gains and losses, the balance sheet, the cash flow statement and related notes 1 to 4. 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, 2004. Deloitte & Touche LLP Chartered Accountants London 1st March, 2004 This information is provided by RNS The company news service from the London Stock Exchange

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