19th Mar 2008 07:01
Evolution Group PLC19 March 2008 The Evolution Group Plc (the "Evolution Group", the "Group", the "Company") Preliminary results for the year ended 31 December 2007 Evolution Group, the listed investment bank and private client investmentmanagement group, today announces its preliminary results for the year ended 31December 2007. Financial and Operational Highlights •Record total Group income(1) of £93.3m, up 10% compared with 2006 of £84.8m. •Adjusted profit before tax(2) of £22.8m, down 10% from 2006 of £25.2m. Statutory profit before tax of £3.8m (2006: £16.7m). •Continued balance sheet strength with net assets at £155.3m (2006: £154.0m) of which cash balance was £122.7m (2006: £88.6m). •Increase in final dividend of 25% to 1.25p (2006: 1.0p) following an interim dividend paid in October 2007 of 0.67p (2006: 0.50p), giving a total dividend for the year of 1.92p, increased by 28% from prior year (2006:1.5p). Williams de Broe(3) •Williams de Broe total income(1) increased by 58% to £32.6m (2006: £20.6m). •Assets under management increased by 27% from £2.2 billion at 31 December 2006 to £2.8 billion. •New Edinburgh office expected to significantly grow assets under management and be earnings enhancing from 2009 onwards. Evolution Securities(4) •Re-balancing of Evolution Securities' business model continued as evidenced by 34% increase in secondary income to £35.8m (2006: £26.7m), representing 66% of total income (2006: 45%). •Participated in deals raising £2.9 billion (2006: £1.7 billion). •Trading volumes increased by 50% to 1.8m (2006: 1.2m). •Continues to hold No.1 position by market share for agency and total business on the AIM market of the LSE (2006: No.1). Evolution Securities China(5) •Evolution Securities China total income increased by 41% to £5.8m (2006: 4.1m). Commenting on the results and outlook, Martin Gray, Chairman of Evolution Groupsaid: "I am pleased to report continued growth in total income from £84.8m to £93.3m,an increase of 10%. This continues the trend of headline income growth in linewith our plans over the past seven years. Williams de Broe, in particular, had a very strong year, growing funds undermanagement by 27%, and is comfortably on track to achieve our target of £3.0billion assets under management by April 2008. Our businesses have continued to trade profitably in 2008 and are developing inline with our plans. We believe the Group, with a strong balance sheet andincreasing levels of recurring income, is well placed to ride out the currentvolatility in financial markets, and to take advantage of the opportunitieswhich may arise from this volatility." Summary of Key Information 31 December 31 December 2007 2006 (Restated)(6) £'000 £'000 Total income (before fee and commission expenses) 93,274 84,793 Adjusted operating profit(2) 19,970 21,317Operating profit 884 12,765 Adjusted profit before tax(2) 22,842 25,240Profit before tax 3,757 16,688 Adjusted earnings(2) 18,376 16,436Profit for the year 3,202 6,846 Adjusted basic EPS(2) 8.65p 7.42pBasic EPS 1.42p 3.06p -Ends- Notes (1) Represents total income before fee and commission expenses.(2) Adjusted operating profit, adjusted profit before tax (formerly clean profitbefore tax), adjusted earnings (formerly clean earnings) are defined in theFinancial Review section below and adjusted basic EPS is defined in Note 4.(3) The results of Williams de Broe are defined as those arising from Williams de Broe Limited ("WdB"), Williams de Broe Management Company Limited and from WDB Capital Limited, including the consolidated results of the WDB Capital UK Equity Fund.(4) The results of Evolution Securities are defined as those arising from Evolution Securities Limited ("ESL") and its subsidiary Evolution Securities (US) Inc.("ESUS").(5) The results of Evolution Securities China are defined as those arising fromEvolution Securities China Limited ("ESCL") and its subsidiary EvolutionWatterson Securities Limited ("EWSL").(6) See Note 3 for details of restatements. For further information, please contact: The Evolution Group Plc 020 7071 4300Alex Snow, Chief Executive OfficerTony Lee, Company Secretary Bell Pottinger Corporate and Financial 020 7861 3232Charles CookMike Davis Notes to Editors: The Evolution Group Plc is the holding company of Evolution Securities Limited,Williams de Broe Limited and Evolution Securities China Limited. Founded inApril 2001 and originally listed on AIM, the Evolution Group joined the OfficialList in 2003 and now has a market capitalisation of over £240 million. Evolution Securities Limited is a leading investment bank focused on mid-cap UKpublic companies. It provides a full range of investment banking servicesincluding equity research, institutional sales and trading, market making andcorporate finance advice. Evolution Securities Limited has over 70 retainedcorporate clients. It is authorised and regulated by the Financial ServicesAuthority. Williams de Broe Limited is a leading private client investment manager, withoffices in Bath, Birmingham, Bournemouth, Exeter, Guildford and London. Williamsde Broe is authorised and regulated by the Financial Services Authority. Evolution Securities China Limited is a specialist Chinese investment bankingbusiness with offices in London, Hong Kong and Shanghai. It offers UK basedinstitutional clients research and trading in listed Chinese stocks and providesChinese companies access to the markets in London and Hong Kong. EvolutionSecurities China Limited is authorised and regulated by the Financial ServicesAuthority. CHAIRMAN'S STATEMENT I am pleased to report continued growth in total income (before fee andcommission expenses) for the Evolution Group Plc (the "Group" or the "Company")from £84.8m to £93.3m, an increase of 10%. This continues the trend of headlineincome growth over the past seven years. While our businesses are not immune to the current market volatility arisingfrom the international credit crisis, our performance in 2007 met expectationsand it supports the strategy to move the business to a better balanced revenuemodel. I can report that the Group has performed commendably in all three of itsbusinesses against the backdrop of significant volatility in the UK equitymarkets and weaker IPO markets across all sectors, especially AIM. Evolution Securities continued to make a significant contribution to the Group,achieving total income (before fee and commission expenses) of £54.6m (2006:£60.2m). Achieving a better balance between primary and secondary marketactivities has been a priority for this business. This was achieved during 2007despite the disruptions caused to the primary issuance sector in the second halfof the year. Williams de Broe, the private client investment management business, completedthe year with a record quarter for total income and profitability. Assets undermanagement increased by 27% to £2.8 billion from £2.2 billion at the end of2006. Williams de Broe is well on track to achieve its target of £3.0 billionfunds under management by April 2008. The growth in assets under management,together with the full year impact of the W Deb MVL Plc business acquired in2006, contributed to an overall increase in total income (before fee andcommission expenses) from £20.6m in 2006 to £32.6m in 2007. Evolution Securities China completed an excellent year in 2007 with total incomeincreasing by 41% to £5.8m compared with £4.1m for 2006. The business wasstrengthened both by the full year's results for Evolution Watterson SecuritiesLimited in Hong Kong, where income (before fee and commission expenses)increased by 133% to £1.4m (2006: £0.6m), and by improved secondary trading outof London, which increased by 71% to £1.2m (2006: £0.7m). Balance sheet strength and cash balances Current market conditions support our strategy of maintaining a strong balancesheet. At the year-end, the Group had net assets of £155.3m (2006: £154.0m) and,of this, the Group's cash balances were £122.7m (2006: £88.6m). Maintaining astrong and liquid balance sheet is core Group policy. It provides strength intimes of market uncertainty and supports our ability to grasp opportunitiesshould they present themselves. Cash balances are maintained through theeffective management of working capital in trading portfolio assets and nettrade receivables. Exceptional costs Results have been impacted by the continued presence of exceptional costs of£7.6m (2006: £12.5m) related to the acquisition, restructuring and integrationof W Deb MVL Plc. Board development On 1 October, Peter Gibbs was appointed as a non-executive director and has madea valuable contribution to the Board, with his significant senior experience inthe asset management business at both executive and non-executive directorlevel. This appointment has maintained our strategy of strengthening the Board.We intend to continue that strategy. On 25 October, Graeme Dell (Finance Director) resigned from the Group. The Board would like to thank Graeme for his significant contribution to the Group over the past six years. We wish him all the very best for the future. In the period since his resignation the role of Finance Director has remained vacant and its responsibilities have been absorbed within Finance, with a reporting line to the Group CEO. We expect to announce the appointment of a new Finance Director in the near future. Dividend The Board recommends the payment of a final dividend of 1.25p per share (2006:1.0p). This follows the interim dividend payment of 0.67p per share announced inSeptember and paid in October (2006: 0.5p). This increase in the overalldividend is in line with our progressive dividend policy and our continuedconfidence in the Group's operating businesses. Share buyback The Board wishes to maintain the capability to continue this programme duringthe remainder of 2008 and will be seeking approval from shareholders at thisyear's Annual General Meeting. The Group Employees We are a service business and can only prosper through the efforts of highlyskilled executives and teams of highly professional and committed staff. Duringthe year we strengthened our businesses with the recruitment of very highquality individuals throughout the Group. We will continue to strengthen ourbusiness in this way in the future. The way that our staff have integrated thebusinesses we have acquired, managed the growth we have achieved, managed thesignificant changes we have made to our business model whilst dealing withvolatile market conditions, has been highly impressive. I thank them all fortheir skill and professionalism. Outlook Our businesses have continued to develop and are trading profitably in 2008whilst also developing in line with our plans. We are continuing to experiencestrong growth in our private client investment management business, Williams deBroe, both in terms of the growth in assets under management and total incomegenerated. The re-balancing of Evolution Securities' revenue mix has beenachieved in 2007 and will continue, with good progress being made in oursecondary market franchise, whilst our primary business has been subdued in linewith market conditions. Evolution Securities China is gaining the critical massto benefit from the substantial opportunities presented in this market. Webelieve the Group, with a strong balance sheet and increasing levels ofrecurring income, is well placed to ride out the current volatility in financialmarkets and to take advantage of the opportunities which may arise out of thisvolatility. Martin GrayChairman19 March 2008 Chief Executive's Report I am pleased to report that the Group has performed well during the year. Wehave achieved a great number of the strategic objectives that were set out inthis report last year. Once again, the Group has achieved record income (before fee and commissionexpenses) in 2007 of £93.3m, up 10% from the level achieved in 2006 of £84.8m.There is also a better balance of these revenues between institutionalinvestment banking at 65% (2006: 76%) and private client investment managementat 35% (2006: 24%). Income breakdown The detailed income analysis by segment and by operating company is shown below. 2007 2006 (Restated)(4) £'000 % £'000 %Institutional investment bankingEvolution Securities(1) 54,649 59 60,153 71Evolution Securities China(2) 5,800 6 4,077 5 -------- --------Sub-total 60,449 64,230 Private client investment managementWilliams de Broe(3) 32,606 35 20,621 24 OtherOther income 219 - (58) - -------- ----- -------- ---- 93,274 100 84,793 100Commissions paid away (2,068) (1,788) -------- --------Total income 91,206 83,005 -------- -------- Note(1) The results of Evolution Securities are defined as those arising from Evolution Securities Limited ("ESL") and its subsidiary Evolution Securities (US) Inc.("ESUS").(2) The results of Evolution Securities China are defined as those arising fromEvolution Securities China Limited ("ESCL") and its subsidiary EvolutionWatterson Securities Limited ("EWSL").(3) The results of Williams de Broe are defined as those arising from Williams de Broe Limited ("WdB"), Williams de Broe Management Company Limited and from WDB Capital Limited, including the consolidated results of the WDB Capital UK Equity Fund.(4) See Note 3 on Other Restatements for details. Institutional Investment Banking Evolution Securities Evolution Securities has an integrated approach to investment banking and isacknowledged as one of the leading and most active investment banks in the UKfor smaller and mid-sized public companies. We provide equity research, fixedincome sales and research, institutional sales and trading, market making,corporate finance and corporate broking advice. Within Evolution Securities, thecore strategic objective remains to maintain a well-balanced business, withrevenues from our activities in the secondary capital fundraising marketplacecomplementing the more volatile income from our primary market transactions. In 2007, this strategy worked well for us. Despite the well-publicised fall inAIM Initial Public Offerings ("IPOs") and significant market volatility in thesecond half of the year, we achieved significant market share growth in oursecondary franchise. In terms of sales and trading, Evolution Securitiescontinued to maintain significant market shares in both agency business andtotal transactional share across all UK indices. During the year Evolution Securities traded profitability, with adjustedoperating profit (as defined in the Financial Review) of £13.0m (2006: £20.1m).Total income before fee and commission expenses was £54.6m (2006: £60.2m), withsecondary sales and trading income increasing by 34% to £35.8m (2006: £26.7m).Secondary sales and trading now account for 66% of Evolution Securities totalincome (2006: 45%). Secondary market activities ResearchStrength in equity research lies at the heart of a strong secondary marketbusiness. Our research teams are highly experienced, with in-depth knowledge anda formidable reputation across a broad range of UK sectors and industries.During 2007 we re-focused our research offering even further towards the largecap sector and our 25 (2006: 24) analysts covered over 210 (2006: 270) small,mid and large cap stocks. Each analyst is encouraged to think creatively, producing ideas and commentarythat stand up to interrogation. The result is a continuous flow of sought-afterreporting including: • First take - morning meeting notes with initial views on breaking news andcompany announcements;• Company and sector research reports - in depth analysis on sectors, companies,their business and prospects;• Monthly estimates book - a summary of all our current forecasts together withtopical commentaries. Fixed IncomeEvolution Securities offers institutional clients a unique service ininternational bond trading, including government and corporate issues, from AAAto high yield and emerging market debt. Our ability to price a wide variety ofcredits throughout international markets and execute efficiently to the bestadvantage of the customer are key features of our bond service. Our research offering comprises in-depth analysis of the Sterling credit marketas well as government and inflation indexed bond markets. Our in-houseEurosterling Spread Monitor covers about 500 of the more liquid investment gradeEurosterling bonds, giving a good picture of sector as well as individual bondmoves. This is of use both as a guide to market moves and to spot tradingopportunities. We produce daily reports with trade recommendations, on gilts andindex linked bonds, investment grade credits and preference shares as well asproviding a daily summary of our Sterling Spread Monitor. We believe that we offer a service not obtainable elsewhere in the investmentcommunity, and we will continue to build on our existing platform to offerinstitutional customers the service which best suits their bond market needs.The fixed income division increased its income by 125% in 2007 to £3.6m (2006:£1.6m) and is well placed to capitalise on current market conditions. Institutional Sales & Sales TradingEvolution Securities' UK Equities sales team has strong franchises across the UKlisted markets from AIM to FTSE100 and is a significant participant in themid-cap and small-cap markets, in both primary and secondary issues. Ourfundraising record is well respected throughout the industry, and our depth ofexpertise and wide range of international contacts enables the department toprovide services to a broad range of UK, European and USA based investors. Evolution Securities supports the electronic routing of orders from clients toour sales traders via FIX. Connections are already in place to most majortrading hubs allowing clients to benefit from increased levels of automation andefficiency in the trading process. Performance from these teams in 2007 has been strong with total sales commissionincome increasing by 16% to £16.4m (2006: £14.1m) despite the difficult marketconditions. Equity Market MakingWith 17 market makers covering over 900 stocks, Evolution Securities has one ofthe largest market making operations in the City of London. The team makesmarkets in stocks from a variety of sectors ranging from AIM and Small Cap rightthrough to the FTSE 100. In an increasingly online environment it is not merely a question of accessingthe Retail Service Provider ("RSP") to support trading via the request for aquote model. The quality of the RSP is important and Evolution Securities hasconsistently been among the leaders in terms of its breadth of stock coverage,execution size, flexible settlement and ability to support this trading via thetelephone in a timely fashion. Our RSP execution engine provides our client basewith immediacy of execution and a guarantee of dealing at London Stock Exchange("LSE") prices or improving these further for a standard settlement trade. Asone of the leading and fastest growing RSPs in the UK we have an approach andcommitment to best results that fully reflects our pursuit of superior levels ofservice for our clients. We transact via both traditional voice based method andincreasingly through the RSP market providing direct access to the retailclients of other member firms. In 2007 our total RSP volume was 316,000 trades,a 46% increase on the prior year (2006: 217,000), representing 17% of our totalbusiness (2006: 18%). In 2007, Evolution Securities reduced the number of stocks in which we makemarkets to a total of 996 stocks (2006: 1,214) including the entire FTSE250 andFTSE100 and we are now the 2nd largest market maker of UK equities. 2007 hasseen a greater focus on the efficient use of capital away from some of thesmaller capitalised, less liquid stocks to larger capitalised companies. Thismatches the greater research and sales coverage in these stocks. Primary market activities Evolution Securities participated in transactions raising in excess of £2.9billion during 2007 (2006: £1.7 billion). Our overall fundraising activitiesfrom IPOs and fundraisings from existing listed clients raised £437m (2006:£659m). This was achieved through 41 transactions (2006: 42 transactions) ofwhich five were IPOs (2006: twelve). The primary activities of the business areprincipally conducted within the corporate finance and corporate broking areas.2007 was an exceptionally tough year for corporate finance activity, especiallythe final quarter of the year, during which we were still able to complete threeIPOs and three secondary fundraisings, raising £116m for our clients. Corporate FinanceEvolution Securities has 24 highly experienced corporate finance executives,based in London and Leeds, arranged into teams with a predominantly sector basedfocus, in line with the research structure. This business has an extensive trackrecord in IPOs, secondary fundraisings and public and private merger andacquisition activity. We act for corporate clients across both the Full List andAIM in a number of sectors. Throughout 2007 we continued to improve our internalcontrols via committees dealing with new business, commitment, underwriting andpricing. We believe our procedures remain at the leading edge of those withinour peer group. Corporate BrokingWe offer advice on market facing issues through our Corporate Broking team. Thiscan either be a separate service or can be included as part of our overallCorporate Finance service. The department draws on the significant resources ofEvolution Securities within the regulatory framework to ensure that we act asour client's best advocate in the market. We advise our corporate clients at all stages of their development, becominginvolved in the flotation process and developing our relationship with thempost-IPO on both a day-to-day and transactional basis. Providing a market facingservice for our corporate clients is very important to us. Knowing what themarket thinks of a stock helps us position our clients' story in the market. Evolution Securities China Evolution Securities China is a specialist, fully integrated investment bankingand securities operation based in the UK and the People's Republic of China("PRC"). It holds regulated status in both countries. This business completedits fourth year of operation during the summer of 2007. This marks a significantstage in the development of the business and comes as the financial results forthe year once again improved. Headline income grew to £5.8m (2006: £4.1m), anincrease of 41%. Our aim is to meet the growing demand from professional investors for attractiveinvestment opportunities in China at acceptable levels of risk. We also servecompanies operating in China seeking to raise capital in the internationalequity markets. To meet these aims we provide a comprehensive range ofinvestment banking services designed to identify, structure and execute diverseand innovative market transactions for both corporate and institutional clients. Private Client Investment Management Our private client investment management business, Williams de Broe continuedthe momentum started during 2007, and I believe, continues to increase its valueto the Evolution Group. Total income (before fee and commission expenses)increased by 58% to £32.6m in 2007 (2006: £20.6m), in part reflecting the fullyear impact arising from the business acquired from W Deb MVL Plc when comparedto the 7 months in 2006. Assets under management ("AUM")Growth in AUM remains a core focus within Williams de Broe. On this measurement,2007 was a period of continued strong organic growth together with therecruitment of new investment management teams. At 31 December 2007, totalassets under management were £2.8 billion, an increase of 27% from the £2.2billion at the 2006 year end. We have seen continued strong growth in AUM intoour discretionary portfolio management services and also into our other fundbased products and services, including WdB Assetmaster and the specialistEnterprise Investment Schemes ("EIS") and Inheritance Tax ("IHT") products.There are still considerable opportunities for our AUM to grow further in 2008and we are on target to achieve our aim of £3.0 billion by April 2008. Intermediary distributionCentral to the strategy in this business has been the extension of thephilosophy of a specialist intermediary sales team focusing by geographiclocation, which in 2007, together with our investment managers, won andintroduced new funds under management totalling £471m (2006: £245m) an increaseof 92%. We have continued to grow our sales capability, in scale and in terms ofproduct offering, which has continued to produce significantly higher AUM salesin each of the last three years. ProductsWith a heritage dating back to 1869, Williams de Broe is one of the UK's leadingfirms of investment managers and has successfully established a business thathas 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; and• 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. We were delighted that in the three years to 31 December 2007 the WdBAssetmaster range of multi-manager funds was awarded the highest ranking byLipper Hindsight for Total Return and Consistent Return and also achieved an S&P'A' ranking in all four funds: Cautious, Balanced, Growth and InternationalGrowth. In addition, during the year we launched two new fund products: a UKequity hedge fund (the WDB Capital UK Equity Fund) with an absolute returnstrategy and a long only UK alpha fund. Finally, there has been considerableinterest in the specialist EIS and IHT tax efficient portfolio services thatwere launched at the end of 2005 providing products which have a national reach. WDB Capital The Group has invested £10m seed capital into the WDB Capital UK Equity Fund,managed by WDB Capital Limited, a wholly owned subsidiary of the Group. Theresults from the fund since launch in September 2007 to 31 December 2007 havebeen encouraging with a return on investment of 4.4% compared to a fall in theFTSE All share index of 0.7% over the same period. There has continued to bestrong performance from this fund in 2008 with good inflows into it from thirdparty investors. Infrastructure, culture and employees 2007 continued to create significant challenges for our infrastructure, throughthe increased market volatility, significant volume increases and on-goingorganic growth and re-balancing across our businesses. It is due in no smallpart to the continued professionalism of our people that the Group has weatheredsuch conditions while continuing to create record income levels and significantunderlying profitability. I would like to express my continuing thanks to allour employees who continue to work hard through the current difficult marketconditions. Outlook The end of 2007 was characterised by significant volatility in UK equities, withweaker IPO markets across all sectors but especially AIM. This volatilityappears set to continue for the foreseeable future. This makes it increasinglydifficult to accurately forecast revenues and profits, but we will take anynecessary steps to adjust our costs and, as previously outlined, the Group hasre-balanced its revenue mix towards recurring fee income. Evolution Securitiescontinues to demonstrate its primary placing power and secondary marketstrengths, and is trading profitably in all areas, whilst maintaining its marketshares. Williams de Broe has continued the trend of organic growth with stronginflows of new funds, which will continue in 2008 and we look forward tocommencing our private client activities in Edinburgh. We are experiencing extraordinary events in financial markets at present. It isunclear whether there is a banking crisis or indeed a central banking crisis.What is clear is that the price of risk and liquidity is rising rapidly asmarkets de-leverage. We have seen sellers of distressed assets become distressedsellers of assets - we find this process engaging and have positioned the Groupwith approximately half of its market capitalisation in cash. Our track recordover seven years has been to acquire financial assets at reasonable prices tocreate shareholder value. We believe the Group is extremely well positioned atthis time. Alex SnowChief Executive Officer19 March 2008 FINANCIAL REVIEW Adjusted operating profit Statutory operating profit declined in 2007 to £0.9m (2006: £12.8m). This wasdue in part to the continued presence of exceptional costs of £7.6m (2006:£12.5m) related to the acquisition, restructuring and integration of W Deb MVLPlc and the absence of any negative goodwill arising during the year (2006:£12.1m), but also to the decline in primary revenues from the prior year. The Board continues to believe a truer reflection of the performance of theGroup's operating businesses is afforded by the measure of 'Adjusted operatingprofit' that excludes items that are one-off or non-recurring (including itemsthat fall to be treated as exceptional), are not part of the on-going businessprofitability or, in the case of the cost of share options granted to employeesand amortisation of intangible assets which we view in the same manner asgoodwill, represent non-cash items. This measure is therefore used as theprincipal performance criteria against which the vesting of stock awards isdetermined. In addition, the Board reviews performance against the measure'Adjusted profit before tax', which represents adjusted operating profit plusnet interest; and also the measure 'Adjusted earnings', which representsAdjusted profit before tax less tax expense (excluding exceptional tax expense).The analyst community also follows these measures as benchmarks for the Group'son-going performance. The following table reconciles these measures and demonstrates a reduction inadjusted operating profit by 6% to £20.0m in 2007 (2006: £21.3m) which isprincipally due to continued pressure on corporate finance fee income,particularly within the final quarter when market conditions deteriorated. Theadjusted profit before tax for 2007 is £22.8m (2006: £25.2m) and adjustedearnings are £18.4m (2006: £16.4m). 2007 2006 Restated)(3) £'000 £'000 £'000 £'000 ------ ------ ------- -------Operating profit 884 12,765 Items not included within adjustedoperating profit:Profit on disposal ofavailable-for-sale investments (299) (5) Profit on part sale of subsidiary - (1,087) ------ ------ ------- -------Adjustment for provisions and profitson investments (299) (1,092) Amortisation of intangibles 497 213Share of post tax results of associates (29) (1)Income statement charge for shareoptions granted to employees(1) 11,289 7,823 ------ ------ ------- -------Non-cash items 11,757 8,035 Exceptional and non-recurring itemsLoss arising on disposal ofavailable-for-sale investments - 437Negative goodwill arising on acquisition - (12,094)Exceptional operating expenses 7,628 12,488Impairment of intangibles - 778 ------ ------ ------- -------Adjustment for items that are one offor non-recurring 7,628 1,609 Adjusted operating profit 19,970 21,317Net interest income 2,873 3,923 ------ ------ ------- ------- Adjusted profit before tax 22,843 25,240Tax expense(2) (4,467) (8,804) ------ -------Adjusted earnings for the year 18,376 16,436 ------ ------- Earnings attributable to minority interest 233 111Adjusted earnings attributable to equity holders of The Evolution Group Plc 18,143 16,325 ------ ------- 18,376 16,436 ------ -------Adjusted earnings per share 8.65p 7.42pAdjusted diluted earnings per share 7.28p 6.85p (1) Represents the income statement charge for the fair value of options grantedto employees. The Group continues to purchase shares through the Trust tosatisfy obligations in respect of share options and call rights granted toemployees.(2) Excludes the tax effect of exceptional items.(3) See Note 3 for details of restatements. Exceptional and non-recurring items During 2007 the Group has incurred significant further costs arising from thepurchase of W Deb MVL Plc in 2006. These arose from the restructuring andintegration of the businesses acquired and from addressing various controlrelated weaknesses and issues inherited within the businesses. A summary of all exceptional (excluding tax) and non-recurring items for 2007,together with those of 2006 is provided below: Exceptional and non-recurring items 2007 2006 (Restated) £'000 £'000 ---------- ----------Goodwill arising on acquisitionNegative goodwill arising on acquisition - 12,094 Available-for-sale investmentsLoss arising on disposal of available-for-saleinvestments - (437) Operating expensesRetention and loyalty bonuses on acquisition of W Deb MVL Plc (2,824) (6,179)Costs to close down business (1,923) (3,449)Other operating expenses (2,881) (2,860)Impairment of intangibles - (778) ---------- ---------- (7,628) (13,266) ---------- ---------- ---------- ----------Total exceptional and non-recurring items (7,628) (1,609) ---------- ---------- Costs to close down the business include redundancy and provisions to terminatethe systems and leases following closure of the acquired businesses. Otheroperating expenses include those expenses incurred for wages and salaries,premises and systems which as a result of the integration of W Deb MVL Plc arenot expected to recur. In addition, they include a net amount of £1,216krelating to the settlement and rectification of errors and control relatedissues arising prior to the final integration of the W Deb MVL Plc businessesacquired. Segmental reporting Our primary business segments are Institutional investment banking, Privateclient investment management and Other activities. Institutional investment banking 2007 2006 (Restated) £'000 £'000 ---------- --------- Income (before fee and commission expenses) 60,449 64,126Fee and commission expenses (1,212) (1,259) ---------- ---------Total income 59,237 62,867Operating expenses (56,607) (51,022)Profit on disposal of available-for-sale investments 68 5 ---------- ---------Operating profit 2,698 11,850 Profit on disposal of available-for-sale investments (68) (5)Amortisation of intangibles 297 133Exceptional operating expenses 814 2,443Income statement charge for share options granted toemployees 9,891 6,440 ---------- ---------Adjusted operating profit 13,632 20,861 ========== ========= In line with the analysis presented in the Chief Executive Officer's Reportabove, the Institutional investment banking segment is further divided intoEvolution Securities (consisting of ESL, ESUS) and Evolution Securities China(consisting of ESCL and EWSL). The breakout of revenues and costs for thesecategories is detailed below. Evolution Securities Within the investment banking business of Evolution Securities the overall levelof income has declined between 2006 and 2007. As a result, and as disclosed below, adjusted operating profit has fallen from£20.1m in 2006 to £13.0m in 2007. 2007 2006 (Restated) £'000 £'000 --------- ---------- Income (before fee and commission expenses) 54,649 60,153Fee and commission expenses (1,150) (1,177) --------- ----------Total income 53,499 58,976Operating expenses (51,356) (47,763)Profit on disposal of available-for-sale investments 68 5 --------- ----------Operating profit 2,211 11,218 Profit on disposal of available-for-sale investments (68) (5)Amortisation of intangibles 196 82Exceptional operating expenses 814 2,443Income statement charge for share options granted toemployees 9,855 6,391 --------- ----------Adjusted operating profit 13,008 20,129 ========= ========== Evolution Securities' income analysis Evolution Securities' total income (before fee and commission expenses) hasclearly been impacted in 2007 from a weaker primary performance with totalprimary income (before fee and commission expenses) in 2007 lower at £18.6m(2006: £33.1m) which was offset to some extent by a stronger secondary incomecontribution. Sales commissions have grown following the increased market sharesand volumes in larger capitalisation stocks. Secondary income was up by 34% to£35.8m (2006: £26.7m), which has therefore had a greater impact on the balancebetween primary and secondary income. 2007 2006 --------- ---------Corporate finance 34% 55%Sales commissions 37% 24%Trading 29% 21% Evolution Securities' cost analysis With the total income declining in 2007 the cost/income(1) ratio for the Evolution Securities business has increased to 74% (2006: 66%). Costs have increased due principally to the increased scale of the operation following the acquisition of W Deb MVL Plc in 2006. Part of this cost increase occurred when we continued to operate two separate platforms in 2007 following the acquisition. Staff costs this year continue to make up a similar proportion of the total cost base as in 2006. The other costs have remained stable and relate principally to premises, direct transactions, systems and market data. 2007 2006 --------- ---------Staff costs - Non performance related 24% 25%Staff costs - Performance related 17% 18%Other costs 38% 38%Income statement charge for share options granted toemployees and exceptional staff costs 21% 19% (1) Excludes the impact of the cost of options and exceptional items. Evolution Securities China This business has continued to be profitable during 2007 and achieved anadjusted operating profit of £0.6m in 2007 compared to £0.8m in 2006, withincome (before fee and commission expenses) increasing by 41% to £5.8m (2006:£4.1m). 2007 2006 (Restated) £'000 £'000 ---------- ---------- Income (before fee and commission expenses) 5,800 4,077Fee and commission expenses (62) (82) ---------- ----------Total income 5,738 3,995Operating expenses (5,251) (3,259) ---------- ----------Operating profit 487 736 Amortisation of intangibles 101 51Income statement charge for share options granted toemployees 36 49 ---------- ----------Adjusted operating profit 624 836 ========== ========== Evolution Securities China income analysis Evolution Securities China's total income (before fee and commission expenses)has grown in all areas. The driver of this growth has been corporate financeincome, principally reflecting the interest from Chinese companies for Londonlistings, and due to strong fee income earned in Hong Kong. This business isstill at an early stage of development but we continue to believe growthopportunities remain. 2007 2006 --------- ----------Corporate finance 78% 83%Sales commissions 11% 10%Trading 11% 7% Evolution Securities China cost analysis Evolution Securities China's total cost(1) base increased by over 60% as thebusiness continued to change during the year. This cost increase occurred mainlyas a result of the hiring of staff in London and Shanghai coupled with furtherinvestment in its offices and technology platform. The level of performancerelated staff costs decreased in line with operating profit as bonuses arecalculated based on a percentage of profits. 2007 2006 --------- ----------Staff costs - Non performance related 44% 47%Staff costs - Performance related 13% 21%Other costs 42% 31%Income statement charge for share options granted to employees 1% 1% (1) Excludes the impact of the cost of options. Private client investment management Looking next at Williams de Broe (including the results of the WDB Capital UKEquity Fund), the Group's private client investment management business, 2007has seen a continuation of the progress of the last four years with an increaseof 232% in adjusted operating profit from £1.9m in 2006 to £6.3m in 2007. Itsoverall costs have increased in part due to the increase in the scale of thebusiness and the extended period that it has taken to integrate the businesstransferred from W Deb MVL Plc. 2007 2006 (Restated) £'000 £'000 ---------- -----------Income (before fee and commission expenses) 32,606 20,621Fee and commission expenses (856) (529) ---------- -----------Total income 31,750 20,092Operating expenses (27,804) (19,568) ---------- -----------Operating profit 3,946 524 Amortisation of intangibles 158 39Exceptional operating expenses 1,572 910Income statement charge for share options granted toemployees 653 453 ---------- -----------Adjusted operating profit 6,329 1,926 ---------- ----------- Private client investment management income analysis Williams de Broe's mix of income has shown a shift towards more reliablemanagement fee income and away from sales commissions. Income has benefited fromthe full year impact of the business acquired from W Deb MVL Plc compared to the7 months in 2006. As the overall level of assets under management increases,recurring management fees are becoming a more significant source of stableincome for the Group. Sales commissions also have a good degree of dependabilityas a result of the vast majority of funds being managed on a discretionarybasis. 2007 2006 --------- ---------Sales commissions 47% 54%Management fees 51% 45%Trading income 2% -Other income - 1% Private client fund management cost analysis The overall cost/income(1) ratio for Williams de Broe Limited has declinedsignificantly to 78% (2006: 93%). This has been in large part due to thesignificant income growth but also to a well defined cost base. The coststructure within Williams de Broe Limited is highly predictable and wellmanaged. As stated in the prior year, the increased scale of the business hasresulted in significantly enhanced levels of profitability and it is expected tocontinue to demonstrate this in the future. 2007 2006 --------- ---------Staff costs - Non performance related 27% 31%Staff costs - Performance related 24% 20%Other costs 47% 42%Income statement charge for share options granted toemployees and exceptional staff costs 2% 7% (1) Excludes the impact of the cost of options and exceptional items. Other activities The Group's other activities consist of the central support costs not recoveredfrom the operating businesses, the profits on, and provisions against,available-for- sale investments and the remaining costs to close down the W DebMVL Plc entities (acquired in 2006) during 2007. 2007 2006 (Restated)(1) £'000 £'000 ----------- ----------Total income 219 (58)Operating expenses (6,239) (306)Profit / (loss) on available-for-sale investments 231 (437)Profit on part sale of subsidiary - 1,087Share of post tax results of associates 29 1 ----------- ----------Operating (loss) / profit (5,760) 287 (Profit) / loss on available for sale investments (231) 437Profit on part sale of subsidiary - (1,087)Share of post tax results of associates (29) (1)Impairment of intangibles - 778Amortisation of intangibles 42 41Negative goodwill arising on acquisition - (12,094)Exceptional operating expenses 5,242 9,135Income statement charge for share options granted to employees 745 930 ----------- ----------Adjusted operating profit / (loss) 9 (1,574) =========== ========== (1)See Note 3 for details of restatements. Investment portfolio As previously reported, the Group has continued to exit from its legacyinvestment portfolio. The Group seeks to extract value from this portfolio andrecorded a profit on sale of available-for-sale investments of £0.3m in 2007(2006 loss: £0.4m). The fair value of the Group's remaining portfolio ofavailable-for-sale investments is £0.7m (2006: £1.9m). Shares purchased by the Employee Trust The Trust purchased 6,998,506 shares during the year (2006: 3,159,465) for totalconsideration of £9.7m (2006: £4.9m) through the Group's share incentive trustto meet awards made to staff. The Company has and will continue this process in2008. Balance sheet strength and cashflow The Group remains focused on maintaining a strong balance sheet. At the year-endthe Group had net assets of £155.3m (2006: £154.0m) including cash of £122.7m(2006: £88.6m). During 2007 there were increased working capital requirementscompared with the previous year, with net trade receivables and net tradingportfolio assets, in Evolution Securities Limited being higher on average than2006. Working capital has been monitored carefully during the year and wasactively managed at the end of the year in line with Group policy and inresponse to the more volatile markets. Largely as a result of the management ofworking capital there is an overall net inflow of cash from operating activitiesof £47.2m (2006: decrease £4.9m). When taken together with the £13.1m (2006:£20.2m) outflow from own share purchases and dividends paid, there is aresultant overall increase in cash for 2007 of £34.3m (2006: decrease of£49.4m). Dividend The Board is proposing a final dividend per share for 2007 of 1.25p per share(2006: 1.00p). This dividend is payable on 2 June 2008 to shareholders on theregister on 2 May 2008. This follows the interim dividend paid in October 2007of 0.67p per share (2006: 0.50p). Alex Snow19 March 2008 CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 2006 (Restated) £'000 £'000 Fee and commission income 75,810 71,395Fee and commission expenses (2,068) (1,788) -------- ----------Net fee and commission income 73,742 69,607Trading income 17,237 13,146Other income 227 252 -------- ----------Total income 91,206 83,005 Profit / (loss) on disposal of available-for-sale investments 299 (432)Profit on part sale of subsidiary - 1,087Share of post tax results of associate 29 1Negative goodwill arising on acquisition - 12,094--------------------------------------------------------------------------------Operating expenses (83,022) (70,502)Exceptional operating expenses (7,628) (12,488)--------------------------------------------------------------------------------Total operating expenses (90,650) (82,990) -------- ----------Operating profit 884 12,765 Interest income 3,194 4,097Interest expense (321) (174) -------- ----------Profit before tax 3,757 16,688--------------------------------------------------------------------------------Tax expense (4,467) (8,803)Exceptional tax credit / (expense) 3,912 (1,039)--------------------------------------------------------------------------------Total tax expense (555) (9,842) -------- ----------Profit for the year 3,202 6,846 -------- ---------- Profit attributable to minority interest 233 111Profit attributable to equity holders of The EvolutionGroup Plc 2,969 6,735 -------- ---------- 3,202 6,846 -------- ---------- Basic earnings per ordinary share 1.42p 3.06pDiluted earnings per share 1.19p 2.83p Dividend per share - Interim (paid) 0.67p 0.50p - Final (proposed) 1.25p 1.00p Dividend (£'000) - Interim (paid) 1,408 1,107 - Final (proposed) 2,626 2,094 CONSOLIDATED BALANCE SHEETAs at 31 December 2007 2006 (Restated) £'000 £'000ASSETS Non-current assetsGoodwill 10,002 9,956Other intangible assets 2,636 2,745Property, plant and equipment 3,617 4,337Deferred tax assets 9,300 10,973Investment in associate - 109Trade and other receivables 34 35 ------------ ------------Total non-current assets 25,589 28,155 ------------ ------------Current assetsTrade and other receivables 92,299 132,992Available-for-sale investments 680 1,926Trading portfolio assets 19,171 27,716Cash and cash equivalents 122,743 88,565 ------------ ------------Total current assets 234,893 251,199 ------------ ------------Total assets 260,482 279,354 ------------ ------------LIABILITIES Current liabilitiesTrade and other payables 96,082 107,269Trading portfolio liabilities 6,744 14,728Current tax liabilities 1,519 2,579 ------------ ------------Total current liabilities 104,345 124,576 ------------ ------------Non-current liabilitiesDeferred tax liabilities 340 459Provisions for liabilities 525 333 ------------ ------------Total non-current liabilities 865 792 ------------ ------------Total liabilities 105,210 125,368 ------------ ------------ EQUITY Capital and reserves attributable to equity shareholdersShare capital 2,232 2,214Share premium 28,795 28,445Capital redemption reserve 373 373Merger reserve 51,230 51,230Fair value and other reserves (1,687) (1,491)Retained earnings 72,389 72,061 ------------ ------------Shareholders' equity excluding minority interest 153,332 152,832Minority interest in equity 1,940 1,154 ------------ ------------Total equity 155,272 153,986 ------------ ------------ ------------ ------------Total equity and liabilities 260,482 279,354 ------------ ------------ CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 2006 (Restated) £'000 £'000 £'000 £'000 Cash flow from operating activitiesCash generated from / (absorbed by) operations 44,746 (4,229)Interest received 3,596 3,695Interest paid (322) (174)Tax paid (851) (4,241) ------- ------- ------- ------- Net cash generated from / (absorbed by)operating activities 47,169 (4,949) Cash flows from investing activitiesNet proceeds from sale ofavailable-for-sale investments 1,385 525Purchase of available-for-sale investments - (94)Acquisition of subsidiary, net of cash acquired - (21,684)Fees in relation to acquisition of subsidiaries (11) (1,820)Purchase of property, plant and equipment (983) (2,232)Purchase of intangible assets (864) (733)Dividends received - 17 ------- ------- ------- ------- Net cash absorbed by investing activities (473) (26,021) Cash flows from financing activitiesIssues of ordinary share capital 151 436Issue of ordinary share capital to minorities - 1,318Issue of investment shares to thirdparties in the WDB UK Equity Capital fund 550 -Dividends paid to the Company's shareholders (3,496) (2,888)Purchase of shares held by the Trust (9,557) (17,277) ------- ------- ------- -------Net cash absorbed by financing activities (12,352) (18,411) ------- -------Net increase / (decrease) in cashand cash equivalents 34,344 (49,381)Cash and cash equivalents at beginning of year 88,565 137,973Exchange losses (166) (27) ------- -------Cash and cash equivalents at end of 122,743 88,565year ------- ------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2007 2006 (Restated) £'000 £'000 Profit for the financial year 3,202 6,846 Available-for-sale investments:Fair value changes taken to equity during the year 139 (151)Exchange differences (36) (120)Deferred tax on share options taken to equity (990) (1,188) ---------- ----------Net losses not recognised in income statement (887) (1,459) ---------- ----------Total recognised income for the year 2,315 5,387 ---------- ----------Attributable to:Minority interest 233 111Equity shareholders of the Parent 2,082 5,276 ---------- ---------- 2,315 5,387 ---------- ---------- 1. BASIS OF PREPARATION In preparing the financial information in this statement the Group has appliedpolicies which are in accordance with International Financial ReportingStandards ("IFRS") as adopted by the European Union at 31 December 2007 andthose parts of the Companies Act 1985 applicable to companies reporting underIFRS. Details of the Group's accounting policies can be found in the Group's2006 Annual Report. The financial information in this statement does not constitute the Group'sstatutory accounts for the year ended 31 December 2007 within the meaning ofSection 240 of the Companies Act 1985. The statutory accounts for 2007 will befinalised on the basis of the financial information presented by the Directorsin this preliminary announcement and will be delivered to the Registrar ofCompanies following the Company's Annual General Meeting. The Group will be circulating the full annual report and accounts toshareholders and copies will be available from the Registered Office of theCompany, 9th Floor, 100 Wood Street, London EC2V 7AN from the date of despatchto shareholders for one month. 2. RESTATEMENTS ARISING FROM THE ACQUISITION OF W DEB MVL PLC In accordance with IFRS 3, 'Business Combinations', the provisional allocationof the purchase consideration to the assets acquired from W Deb MVL Plc has beenreviewed based on additional information up to 3 June 2007. Listed below are theindividual adjustments arising following this review. These adjustments have notchanged since they were first disclosed in the Interim Report and Accounts. Following a review of the fair value of assets and liabilities arising on theacquisition of W Deb MVL Plc, further trading assets have been identified whichon disposal are to be shared 50:50 with the vendor. This review has resulted inprior year trading portfolio assets increasing by £1,696,000 and other creditorsincreasing by £848,000, reflecting the amount to be paid away to the vendor, inthe 31 December 2006 balance sheet. The offset to this is an increase innegative goodwill of £848,000. The fair value of the remaining portfolio ofassets has been reduced by £327,000, in the 31 December 2006 balance sheet,reflecting the final valuation adjustment to the assets acquired. The offset tothis is a reduction in negative goodwill of £327,000. In addition other receivables and other payables within the balance sheet at 31December 2006 have each been reduced by £306,000, reflecting the reversal ofaccrued professional fees, indemnified by the vendor, which are no longerpayable. Finally, the fair value of other payables at acquisition has beenreduced by £226,000, in the 31 December 2006 balance sheet, reflecting the overaccrual for professional fees at the acquisition date. The offset to this is anincrease in negative goodwill of £226,000. The net effect of the above is an increase in negative goodwill arising onacquisition of £747,000 in the 31 December 2006 income statement. 3. OTHER RESTATEMENTS As referred to in the Interim Report and Accounts, the Income Statement for theyear ended 31 December 2006 has also been restated to reflect the followingadjustments: • Recognition of additional trading income arising on the revaluation of trading assets in the year. This adjustment has resulted in an increase in trading income of £104,000 with a corresponding increase in trading portfolio assets within the balance sheet. • Re-classification of interest on client assets more appropriately as fee and commission income rather than other income. This adjustment has resulted in the other income figure for the year to 31 December 2006 decreasing by £1,101,000 with fee and commission income increasing by an equivalent amount. • Re-classification of taxation credits on exceptional operating expenses as exceptional tax expense rather than tax expense. This adjustment has resulted in the ordinary tax expense figure for the year to 31 December 2006 increasing by £3,746,000 with the exceptional tax expense amount decreasing by an equivalent amount. • Correction to deferred tax expense on employee options which had been overstated. This adjustment has resulted in a decrease in tax expense of £2,161,000 in the income statement for the year ended 31 December 2006 with an offsetting decrease in retained earnings. There is no impact on net assets arising from this adjustment. As a result of the other restatements above, the profit for the prior yearwithin the income statement has increased by £2,265,000 for the year ended 31December 2006. 4. EARNINGS PER ORDINARY SHARE The calculation of the basic earnings per ordinary share is based on the profiton ordinary activities after tax excluding minority interest and on the weightedaverage number of ordinary shares in issue during the year. The calculation ofthe diluted earnings per share is based on the basic earnings per share adjustedto allow for the issue of shares on the assumed conversion of all dilutiveoptions. As per Notes 2 and 3, Earnings per share for 2006 have been restated to reflectthe adjustments to the profit figure for the prior year. These result in basicand diluted EPS figures increasing from 1.69p and 1.56p respectively to 3.06pand 2.83p for the year ended 31 December 2006. Statutory Year ended 31 December 2007 Year ended 31 December 2006(Restated) ----------------------------------------------------------------------- Profit Weighted Earnings Profit Weighted Earnings £'000 average no. per £'000 average no. per share(p) share(p) Basic 2,969 209,745,385 1.42 6,735 220,130,070 3.06 Dilutive effect ofshare awards - 39,446,913 - - 18,262,950 - ------- ----------- ------ ----- ----------- -----Diluted 2,969 249,192,298 1.19 6,735 238,393,020 2.83 ------- ----------- ------ ----- ----------- ----- Adjusted Year ended 31 December 2007 Year ended 31 December 2006(Restated) ------------------------------------------------------------------- Profit Weighted Earnings Profit Weighted Earnings £'000 average no. per £'000 average no. per share(p) share(p) Basic 2,969 209,745,385 1.42 6,735 220,130,070 3.06 Profit oninvestments (299) - (0.14) (1,092) - (0.49)Exceptionaland non-recurringitems(1) 7,628 - 3.64 1,609 - 0.73Exceptional tax(credit)/expense (3,912) - (1.87) 1,039 - 0.47Non-cash items 11,757 - 5.60 8,034 - 3.65 ------- ----------- ---- ------ ----------- -----Adjusted basic 18,143 209,745,385 8.65 16,325 220,130,070 7.42 Dilutive effectof share awards - 39,446,913 - - 18,262,950 - ------- ------------ ---- ------ ----------- -----Adjusted diluted 18,143 249,192,298 7.28 16,325 238,393,020 6.85 ------- ------------ ---- ------ ----------- ----- (1)See analysis of Exceptional and non-recurring items within the Financial Review section above. 5. DIVIDENDS 2007 2006 £'000 £'000 Prior year final paid: 1.00p (2006 0.80p) per 1p share 2,094 1,781Current year interim paid: 0.67p (2006: 0.50p) per 1p 1,408 1,107share ---------- --------- 3,502 2,888 ---------- --------- In addition, the directors are proposing a final dividend in respect of thefinancial year ended 31 December 2007 of 1.25p (2006: 1.00p) per share, whichwill absorb an estimated £2,626,000 of shareholders' funds. It will be paid on 2 June 2008 to shareholders on the register of members on 2 May 2008. 6. TAX EXPENSE 2007 2006 (Restated) £'000 £'000Current tax:UK Corporation tax on profit 4,716 8,879Corporation tax on exceptional items (2,288) (2,122)Adjustments in respect of prior years (1,223) -Adjustments in respect of prior years- exceptional tax (1,624) -Foreign tax 408 252 ---------- ---------Current year tax charge (11) 7,009 Deferred tax:Current year movement (279) 2,833Adjustments in respect of prior years 845 - ---------- ---------Tax on profit 555 9,842 ---------- --------- The tax assessed for the year is lower (2006: higher) than the standard rate ofcorporation tax in the UK (30%). The differences are explained below. Factors affecting the current tax charge for the year are explained below: 2007 2006 (Restated) £'000 £'000 Profit before tax 3,756 16,688 Profit multiplied by the standard rate of corporation taxin the UK of 30% (2006: 30%) 1,127 5,006 Effects of:Expenses not deductible for tax purposes 5,523 10,519Schedule 23 deduction on options exercised (1,742) (10,495)Utilisation of losses (2,127) (67)Non taxable income - (247)Adjustment in respect of prior years (2,847) -(Lower) / higher tax rates on overseas earnings (141) 132Stock options taken to equity reserves 196 2,161 --------- ---------Current tax charge (11) 7,009 --------- --------- Deferred tax (809) (328)Exceptional deferred tax - 3,161Deferred tax adjustment in respect of prior periods 845 -Change of rate from 30% to 28% 530 - --------- ---------Current year movement 566 2,833 --------- --------- --------- ---------Total tax charge 555 9,842 --------- --------- The exceptional tax credit of £3,912,000 (2006: expense of £1,039,000) includesa prior period adjustment of £1,624,000 on the £5,413,000 considerationreceivable from ING for the net assets of W Deb MVL Plc and £2,288,000 whichrelates to the 30% tax credit estimated to arise on the £7,628,000 ofexceptional operating expenses. The prior year exceptional deferred tax charge of £3,161,000 relates to thewrite off of deferred tax assets on pension contributions made by the vendor ofW Deb MVL Plc prior to acquisition. The 2007 adjustment in respect of prior years relates to the recognition ofadditional tax losses claimed for the years ended 31 December 2004 to 31December 2006. 7. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(excluding Minority Interest) Capital Fair value Retained Total Share Share redemption Merger and other Earnings Equity capital premium reserve reserve (Restated)(Restated) 2007 2007 2007 2007 2007 2007 2007 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------ ------- ------- ------- --------- ------- -------- Balance at 1January 2,214 28,445 373 51,230 (1,491) 72,061 152,832 Profit for the year - - - - - 2,968 2,968Issue of ordinary share capital 18 350 - - - - 368Current tax chargeon employee options - - - - - 196 196Purchase of Trust shares - - - - - (9,619) (9,619)Share option:value of servicesprovided - - - - - 11,279 11,279Revaluation ofavailable-for-saleinvestments - - - - 139 - 139Available-for-saleinvestmentstransferred toIncome Statement on sale - - - - (299) - (299)Deferred taxdebit on employeeoptions - - - - - (1,000) (1,000)Exchangedifferences - - - - (36) - (36)Dividends paid - - - - - (3,496) (3,496) ------ ------ ---- ------ -------- ------- -------Balance at 31December 2,232 28,795 373 51,230 (1,687) 72,389 153,332 ------ ------ ---- ------ -------- ------- ------- 8. EXCEPTIONAL OPERATING EXPENSES 2007 2006 (Restated) £'000 £'000Exceptional items Goodwill arising on acquisitionNegative goodwill - 12,094 Operating expensesRetention and loyalty bonuses on acquisition of W Deb MVL Plc (2,824) (6,179)Costs to close down business (1,923) (3,449)Other operating expenses (2,881) (2,860) --------- --------- (7,628) (12,488) --------- ---------Total exceptional items (7,628) (394) --------- --------- Costs to close down the business include redundancy and provisions to terminatethe systems and leases following closure of the acquired businesses. Otheroperating expenses include those expenses incurred for wages and salaries,premises and systems which as a result of the integration of the acquiredbusiness are not expected to recur. In addition, they include a net amount of£1,216k relating to the settlement and rectification of errors and controlrelated issues arising prior to the final integration of the W Deb MVL Plc businesses acquired. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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