22nd Mar 2006 07:02
Evolution Group PLC22 March 2006 22 March 2006 The Evolution Group Plc ( the "Evolution Group", the "Group", the "Company") Preliminary results for the year ended 31 December 2005 Evolution Group, the listed investment bank and retail fund management group,today announces its preliminary results for the year ended 31 December 2005. Financial highlights Total Group income (before fee and commission expenses) increased by 15% to £73.5 million (2004: £64.1 million). Profit before tax increased by 33% to £63.6 million (2004: £47.8 million). Clean profit before tax increased by 29% to £30.3 million (2004:£23.4 million). Basic earnings per share increased by 46% to 26.18p (2004: 17.90p). Clean earnings per share increased by 44% to 11.42p (2004: 7.93p). Strong cash generation across the Group with cash balances at £138.0 million (2004: £115.2 million), after purchase of own shares for £49.6 million and net cash received from disposal of remaining stake in IP2IPO. Increase in annual dividend of 60% after a final dividend proposed of 0.80p per share (2004: 0.58p) following the dividend of 0.40p per share paid in November 2005 (2004: 0.17p). Operational highlights £864 million raised for our clients in 2005 (2004: £633 million) from 51 transactions (2004: 60), a 36% increase on the previous year. 23% increase in funds under management for Christows to £789 million (2004: £640 million). £52.8 million of cash received from sale of remaining stake in IP2IPO in March 2005 resulting in net profit of £35.7 million. Evolution Securities China moves into profit. Commenting on the results and the Group's outlook, Martin Gray, Chairman, said: "The Evolution Group has continued to develop strongly in 2005 and has grownboth revenues and operating profitability for the fifth consecutive year. Inaddition, the Group realised further value from the sale of its remaining stakein IP2IPO Group Plc. I am pleased to report total income (before fee andcommission expenses) up by 15% to £73.5m from £64.1m in the prior year and aprofit before tax up 33% to £63.6m from £47.8m in 2004. We have made significant progress in developing each of our operatingbusinesses. The momentum in the equity markets has continued in 2006. We have astrong balance sheet and a motivated team. The outlook for the Group isextremely positive and your Board is confident of achieving further success in2006." -Ends- For further information, please contact: The Evolution Group Plc 020 7071 4300Alex Snow, Chief Executive OfficerGraeme Dell, Finance Director Bell Pottinger 020 7861 3232Charles CookSarah Landgrebe Notes to Editors: The Evolution Group Plc The Evolution Group is the holding company of Evolution Securities Limited,Christows Limited and Evolution Securities China Limited. Founded in April 2001and originally listed on the AIM, the Evolution Group joined the Official Listin 2003 and now has a market capitalisation of over £399 million. Evolution Securities Limited aims to be the leading investment bank advisingsmall and mid-cap UK public companies. It has approximately 100 retainedcorporate clients, to whom it provides equity research, institutional sales andtrading, market making and corporate finance advice. Evolution SecuritiesLimited is authorised and regulated by the Financial Services Authority. Inaddition, it operates a US broker-dealer, Evolution Securities (US) Inc., whichis registered with the National Association of Securities Dealers and regulatedby the Securities Exchange Commission through which it brings US institutionalinvestors access to its UK based corporate clients. Christows Limited is a leading private client stockbroker and fund manager, withoffices in Bath, Birmingham, Bournemouth, Exeter and London. Christows isauthorised and regulated by the Financial Services Authority. Evolution Securities China Limited is a specialist Chinese investment bankingbusiness with offices in London and Shanghai. It offers UK based institutionalclients research and trading in listed Chinese stocks. CHAIRMAN'S STATEMENT The Evolution Group has continued to develop strongly in 2005 and has grown bothrevenues and operating profitability for the fifth consecutive year. Inaddition, the Group realised further value from the sale of its remaining stakein IP2IPO Group Plc. I am pleased to report total income (before fee andcommission expenses) up by 15% to £73.5m from £64.1m in the prior year and aprofit before tax up 33% to £63.6m from £47.8m in 2004. The Group's principal investment banking business, Evolution Securities Limited("Evolution Securities" or "ESL") has continued to be the driver of the Group'soperational profitability. Its position as the No. 1 ranked broker on the AIMmarket of the LSE by market share in secondary trading has been achieved in aperiod when that market has itself seen record volumes. The firm's primaryplacing capability continued to increase in 2005 with total funds raised forclients of £864m, an increase of 36% from 2004. Christows Limited ("Christows"), the Group's private client stockbroking andfund management business has achieved further success in 2005. Funds undermanagement ("FUM") have grown by 23% during 2005, giving total FUM at 31December 2005 of £789m (2004: £640m). Christows has continued to operateprofitably through this period of growth despite the investment associated withthe opening of a new Birmingham office and the strengthening of the business bythe recruitment of new account executives. Evolution Securities China Limited ("Evolution Securities China" or "ESCL"), theGroup's specialist Chinese investment banking business, has developed stronglyin 2005. In only its second full year of operation there has been strong growth,with revenue increasing to £2.1m (2004: £0.4m), generating a profit before taxof £0.1m (2004: loss £0.7m). Corporate governance Following my appointment as Non-executive Chairman in May 2005, through myinteraction with the Board, discussions with executives and employees, andmeetings with a number of shareholders, I recognised the presence ofconsiderable further opportunity for the Group, underpinned by an extremelycommitted and capable team. At the same time it was clear to me that, followinga period of intense growth, there was a need to review and strengthen furtherour corporate governance. The challenge was to ensure that this was achievedacross all the Group's operating businesses so it added measurably to theGroup's strengths. Ten months on, I believe that through a number of initiativesat Board level and within the operating businesses, much has been achieved. Weare very well placed now to look forward to a period of further growth anddevelopment with new standards of governance being implemented and embedded. Board development An important responsibility in chairing the Group is to ensure the effectivenessof the Board as a body and to develop it as necessary. In this regard an initialfocus was to ensure a smooth transition of the chairmanship from RichardGriffiths to me. I believe that goal was achieved during the period untilRichard left the Board in October. Richard's contribution in the Group's firstfive years of growth was significant and on behalf of the Board I thank him mostwarmly for all that he achieved. There will be another change in the constitution of the Board at the AnnualGeneral Meeting ("AGM") in May 2006. It is now nine years since Oliver Vaughanfirst joined the Board at the incorporation of the Company in 1997 and inaccordance with best practice he will step down at the AGM. On behalf of theBoard I should like to thank Oliver for all that he has contributed to the Boardand the Group over the years. We intend to strengthen the Board further in the short term. Dividend The Board recommends the payment of a final dividend of 0.80p per share (2004:0.58p). This follows the interim dividend payment of 0.40p per share announcedin September and paid in November (2004: 0.17p), giving an overall dividend forthe year of 1.20p (2004: 0.75p) per share. This 60% increase in the overalldividend for the year is an acknowledgement of our continued confidence of theGroup's operating businesses and is in line with our stated progressive dividendpolicy. Share buyback During 2005 the Company undertook a share buyback programme, purchasing 27.4mshares for cancellation at a total cost of £42.5m. Despite this major programme, at the year-end the Group's cash balance had risento £138.0m (2004: £115.2m) as a result of the continuing profitability of ourbusinesses and the proceeds arising from our disposal of the remaininginvestment in IP2IPO Group Plc in March 2005. The Group may continue with anon-market share buyback programme during the remainder of 2006. To facilitatethis process we shall be seeking shareholder approval to purchase shares at thisyear's AGM. Share purchases by the Employee Trust The Trust purchased 5,310,443 shares during the year (2004: 2,559,000) for totalconsideration of £7.1m (2004: £3.8m) through the Group's share incentive trustin respect of meeting share incentive awards made to staff and the Company willcontinue this process in 2006. The Group's employees We have a team of talented employees committed to the successful development ofthe Group's operating businesses. It is through their efforts that the excellentresults have been achieved. I should like to thank them all on behalf of theBoard. We believe that the achievement of the Group's long-term strategicobjectives is dependent on staff whose interests are aligned with theshareholders. Each operating subsidiary has equity participation as an elementof employee reward. Evolution Securities China is an entity where the staff areminority shareholders in this company and there is, therefore a very strongalignment between them and the Group as majority shareholder. At Christows, wehave completed an award of options in January 2006 under the Group's 2001Executive Share Option Plan covering 75% of the employees. Within EvolutionSecurities, the Key Performers Share Incentive Plan implemented in 2003 was athree-year scheme, which was largely completed with the award made in January2005 and confirmed at the time of the annual remuneration process in January2006. This has, I believe, underpinned the success achieved during this time.The Remuneration Committee has been considering the appropriate form ofincentive scheme for the next phase of the Group's development to further alignthe interests of shareholders with the executive directors and employees ofEvolution Securities Limited. This scheme will be presented for shareholderapproval at the AGM in May 2006 and, in the period between now and then, theChairman of the Remuneration Committee and I will be consulting shareholders. Outlook We have made significant progress in developing each of our operatingbusinesses. The momentum in the equity markets has continued in 2006. We have astrong balance sheet and a motivated team. The outlook for the Group isextremely positive and your Board is confident of achieving further success in2006. Martin GrayChairman22 March 2006 Chief Executive's Report In 2005, the Evolution Group grew all three operating businesses by both revenueand profitability measures. On a consolidated basis, total Group income (beforefee and commission expenses) rose by 15% to £73.5m (2004: £64.1m). EvolutionSecurities, Christows and Evolution Securities China have each individually achieved other key goals during the year including: market share and fund raising gains in ESL; funds under management growth in Christows; and a maiden profit for the year in ESCL respectively. As the year ended, all three businesses had very positive opportunities lookingforward into 2006 and, in my report, I will give for each a flavour of bothhistorical achievements and future prospects to enable shareholders to have afull understanding of the Group. Performance Breakdown The detailed income analysis by segment and by operating company, is shownbelow. Operating performance is reported internally to the Board by operatingcompany and the Group's organisational and management structure is set up onthis basis. 2005 2004Income £'000 % £'000 % Investment banking and marketsESL and Evolution Securities (US) Inc ("ESUS") 59,887 81 54,145 84ESCL 2,082 3 409 1 --------- ---------Sub-total 61,969 54,554Stockbroking and fund managementChristows 11,503 16 9,345 15OtherOther income 3 - 244 - --------- ------ --------- ------ 73,475 100 64,143 100Fee and commission expenses (1,500) (1,019) --------- ---------Total income 71,975 63,124 --------- --------- Evolution Securities Evolution Securities has completed another year of strong growth in 2005. Itsincome (before fee and commission expenses) has increased by 11% from 2004to £59.9m. Its corporate broking, trading, equity distribution and researchactivities have all achieved success in the year. Corporate broking Corporate broking continued this year to be the significant driver of incomegrowth with an increase of 22% to £41.2m (2004: £33.7m). We achieved this withrecord fund raisings for clients of £864m (2004: £633m) a 36% increase across 51transactions (2004: 60). This gives an average fund raising deal size of £16.9m,an increase of 59% from the level of 2004. At the end of the year we had 100retained corporate clients with an average market capitalisation of £83m. The corporate broking capability has been enhanced during the year by therecruitment to the corporate finance team of a number of talented individualsand the team is well placed for continued success in 2006. Equity distribution Equity distribution is made up of two elements: primary placements and secondarymarket activity. Our primary placing activity in 2005, associated with therecord levels of client fund raisings detailed above, represents a significantachievement and we continue to be recognised as one of the leading brokers whenmeasured by primary placing capability. For secondary markets we have twoprincipal measures of success: secondary commission income and market share. In2005, commission income grew to £9.4m, an overall increase of 9% on 2004, and wesaw increased market share across all sector indices. Particularly striking wasthe fact that we achieved the No. 1 market share on the AIM market of the LSEfor agency business which, in a year of record volumes in this market overall,was an extremely satisfying result. Equity research Equity research has continued to play a significant role in the support of thefirm's primary and secondary businesses. At the end of December our analystscovered sectors including resources, oil and gas, industrials, buildingconstruction, life sciences, leisure and gaming, media, retail, supportservices, software, technology, and telecoms. It is our intention to strengthenour secondary market research team further in 2006. Market Making The market making business traded profitably again in 2005 with overall tradingincome of £8.9m (2004: £11.6m). Following a couple of very difficult tradingmonths in April and May we completed a significant structural change and alignedthe market making books on a sectoral and corporate client basis rather than apurely alphabetical basis. We believe this focus leaves us better able torecognise trading patterns within sectors, allowing us to take advantage ofprofits and mitigate losses, and also to integrate more effectively with theother parts of the Company, which are also organised along a sectoral basis.Market making saw a dramatic increase in transaction numbers and overall valuein the year, and when measured by total business, the firm had the No. 1 marketshare on the AIM market of the LSE, underpinning the contribution the marketmaking business made to the Company's overall AIM franchise. Electronic trading We continue to recognise the importance of connectivity to retail serviceprovider ("RSP") hubs and during the year we increased connectivity, addingretail stockbroker connections across our four RSP hubs, with a number ofbrokers accounting for significant electronic daily transaction flows.Electronic trading accounted for 40% of our total volumes in the first twomonths of 2006, compared to the 31% level achieved in 2005 and 25% in 2004. Webelieve in the growth of electronic and on-line trading in the future and willcontinue to invest in our trading platforms. US Broker-Dealer Evolution Securities Limited's subsidiary, ESUS, the US broker-dealerregistered by the National Association of Securities Dealers ("NASD") begantrading in 2005. As stated last year, this enables us to represent our corporate clients to US institutional customers and, where appropriate, to provide US roadshows for them. Thereafter it provides for the effectivedistribution of secondary UK equities to these US institutional investors. Christows Christows continues with its strategic initiatives of growth in scale andattaining greater profitability each year. I am pleased to report that both ofthese achievements were met in 2005. Total income (before fee and commissionexpenses) increased by 24% to £11.5m in 2005 (2004: £9.3m) which, coupledwith continued tight management of costs, produced growth in profits for the fourth consecutive year, despite the investment costs associated with the new Birmingham office, with operating profitability up 33% from 2004. We continue our underlying strategy of growing funds under management ("FUM").Overall FUM increased 23% and had reached £789m (2004: £640m) at year-end. Thisgrowth was underpinned by the continued strong sales by our professionalintermediary sales team, leading to Christows winning new mandates across allits product range. Christows' product range was further developed in the fourth quarter of the yearby the addition of EIS and IHT portfolio services, following recruitment of aleading specialised fund manager in this area. This supplements the verysuccessful range of Christows' portfolio products including: DiscretionaryService; Private Portfolio account; Private Portfolio Service; and theMulti-Manager products which during the year were re-branded 'CollectivePortfolio Accounts'. This enables Christows to service clients across the fullrange of portfolio sizes typically from £50,000 to £5 million. During the year, Christows enhanced its research offering by the appointment ofan experienced Head of Research. This has provided the opportunity for furtherrefinement of the Christows' core model portfolio range and has resulted in theincreased provision of regular equity and collective research to accountexecutives. It has been a year of considerable focus on the growth of the Christows' branchnetwork. Firstly, we increased the scale of the Bath office. This was followedwith the opening of a new branch in Birmingham in September 2005, with a strongteam of account executives and fund managers. I am confident that, following aperiod of up-front investment at the early stages of development of these twooffices, we will see significant growth in FUM and revenues, and achieveprofitability from these branches. Funds received in the last quarter of 2005and first quarter of 2006 support this view. There has been consolidation and acquisitions amongst the traditionalcompetitors to Christows and in many cases it appears that this may result in amove away from the traditional values of truly bespoke portfolio managementwhich we believe clients continue to value highly and remains at the heart ofChristows' offering. With continuing growth in FUM, increased geographicalrepresentation, and an enhanced product range, I am confident that we willcontinue to win new funds, attract like minded account executives and work withan increased range of intermediaries, which together represents an opportunityfor continued strong growth of this business over the coming years. Evolution Securities China The Group's specialist Chinese investment banking business, Evolution SecuritiesChina, has shown very good progress in 2005. Total income (before fee andcommission expenses) increased by 410% from £0.4m in 2004 to £2.1m in 2005.This led to an operating profit of £0.1m, which is a significant turnaroundfrom the loss of £0.7m in 2004. During the period ESCL has strengthened its secondary market equities researchoffering based in Shanghai, adding to its team of analysts and bringing morecompanies under coverage. This has enabled its equity distribution team based inLondon to broaden its institutional customer base. ESCL also developed itsprimary market activity during the year and completed its first twointroductions of Chinese companies onto the AIM market. These have establishedESCL as the foremost specialist broker to Chinese clients operating in theLondon market. We remain convinced that there will be substantial opportunities ahead as theChinese equity markets develop and that ESCL is well positioned to capitalise onthese. Investments As previously announced in March 2005, the Group disposed of its remainingholding in IP2IPO for gross proceeds of £52.8m in cash. This realised a profitfor the Group, after taking into account related expenses of sale of £35.7m.This transaction taken together with the previous partial disposals in 2003 and2004 has created and realised significant value for Evolution's shareholders. As previously reported, the Group has continued to exit from its legacyinvestment portfolio. The Group seeks to extract value from this portfolio withprofit on sale of other available-for-sale investments totalling £4.3m in 2005(2004: £6.6m). Set against this the Group has a negative fair value reserveof £1.7m against the remaining portfolio of available-for-sale investments(2004: nil). Infrastructure, culture and employees The Group has made excellent progress in the year. This has been achievedagainst a background of additional challenge as we made it a priority to focuson enhancing the infrastructure and support structure. As a result of theseinitiatives we have completed the development of a risk function, enhancedsystems, performed compliance restructuring, increased management strength inthe areas of risk, operations and IT, and implemented additional new businessand transaction approval processes. These requirements arose as the scale ofgrowth of the business moved forward dramatically and as we undertook our reviewof corporate governance on a group wide basis with an objective of achievingbest in class amongst our peer group. I am confident the progress made in theseareas mean that the business is now extremely well placed for the next stage ofdevelopment. These initiatives have contributed towards an overall increase incosts of £5.4m. These changes highlight our continued emphasis upon the development of a cultureof compliance and control across the Group's operations. We believe in today'sbusiness climate that, particularly operating in the regulated markets, such astrategy is imperative to achieving long term success. This is one facet of ourculture. Another is the process of placing our clients' interests first as ourresults are determined by the results we obtain for our clients. A third is ourcontinued focus on the encouragement of high levels of individual effort andperformance in striving collectively to achieve the Group's operational goals.We are committed, therefore, to a reward structure for employees where there issignificant emphasis on performance-based reward. Our performance-based bonusesdiffer slightly between operating business - in line with market practice andbusiness maturity - but the overriding principle is creating a bonus pool onlywhere profits are being generated for shareholders. Equity incentivisation isthe final component of reward and this ensures the employees' interests arefully aligned with shareholders. The profit and loss charge resulting fromequity incentivisation, in the form of the fair value of awards granted spreadover the life of the awards, equated to £6.7m in 2005 (2004: £4.9m). I should like to add my own thanks to those made above by Martin regarding theefforts of the Group's employees, through whose efforts the results have beenachieved and through whose further endeavours I am confident of the Groupachieving continued success this year. Outlook The first quarter of 2006 has been an excellent start to the year with incomeand profitability strongly ahead of the equivalent period last year. EvolutionSecurities has completed, or is working on, a number of significant primarytransactions, and in the secondary markets we have seen a dramatic increase intransaction volumes. Christows has begun the year well, with good flows of newfunds under management being won by both the sales team and the new accountexecutive teams that started in the final quarter of last year. Christows hasalso seen a marked increase in transaction volumes. The Chinese securitiesmarket has started the year very strongly and Evolution Securities China lookswell positioned to continue to develop in 2006. Alex SnowChief Executive Officer22 March 2006 FINANCIAL REVIEW Adjusted operating profit The statutory operating profit for the overall Group is as shown below. TheBoard continues to believe a truer reflection of the performance of the Group'son-going operating businesses is afforded by the measure of 'Adjusted operatingprofit' that excludes items that are one-off or non-recurring, are not part ofthe on-going business profitability or, in the case of the cost of options,represent non-cash items. This measure is therefore used as the principalperformance criteria against which the vesting of stock awards is determined. However, the Board reviews performance against the measure 'Clean profit beforetax', which represents adjusted operating profit plus net interest; and also themeasure 'Clean earnings', which represents clean profit before tax less taxexpense. These measures are also followed by the analyst community as benchmarksfor the Group's on-going performance. The following table reconciles these measures and demonstrates the continuedstrong progress made on a Group basis in increasing adjusted operating profit by26% to £25.3m in 2005 (2004: £20.1m): 31 December 2005 31 December 2004 £'000 £'000 £'000 £'000 Operating profit 58,583 44,513 Items not included withinadjusted operating profit Profit on disposal of available-for-sale investments (40,048)Profit on sale of fixed asset investments (1,225)Release of provision against fixed asset investments (525)Profit on sale of current asset investments (4,813)Profit on part sale of subsidiary - (66)Profit on part sale of associate - (22,286) -------- ---------Adjustment for provisions and profits on investments (40,048) (28,915) Share of results of associated undertaking - (436)Cost of share options granted to employees 6,744 4,928 -------- ---------Non-cash items 6,744 4,492 -------- -------Adjusted Group operating profit 25,279 20,090Net interest receivable 5,007 3,322 -------- -------Clean profit before tax 30,286 23,412Tax expense (4,524) (3,831) -------- -------Clean earnings 25,762 19,581 ======== ======= Clean earnings per share 11.42p 7.93pClean diluted earnings per share 10.19p 7.28p The primary business segments are: Investment banking and markets; Stockbrokingand fund management; and Other. Investment banking and markets in the current year refers to the businesscarried out in Evolution Securities Limited, Evolution Securities China Limitedand Evolution Securities (US) Inc. Stockbroking and fund management refers to Private Client Stockbroking and FundManagement under the Christows brand. Other activities refer to the central administrative, shared services andholding company functions, combined with the profits on, and provisions against,the legacy fixed asset investment portfolio and the business carried out in theintellectual property commercialisation field under the IP2IPO group ofcompanies. This holding was disposed of in March 2005. Investment banking and markets 2005 2004 £'000 £'000 ---------- -------- Income (before fee and commission expenses) 61,969 54,554Fee and commission expenses (1,126) (747) ---------- --------Total income 60,843 53,807Operating expenses (41,446) (36,244)Profit on disposal of available-for-sale investments 117Profit on sale of fixed asset investments - 21Profit on sale of current asset investments - 171 ---------- --------Operating profit 19,514 17,755 ---------- -------- In line with the analysis presented in the Chief Executive Officer's Reportabove, the Investment banking and markets segment is further divided intoEvolution Securities (consisting of ESL and ESUS) and ESCL. The breakout ofrevenues and costs for these categories is detailed below. It is clear to seethe progress made in 2005 from the previous year. Evolution Securities Within the investment banking business of Evolution Securities, there has beencontinued growth in the scale and profitability of this business resulting inan increase of 21% in adjusted operating profit from £19.9m in 2004 to £24.0min 2005. 2005 2004 £'000 £'000 --------- ---------- Income (before fee and commission expenses) 59,887 54,145Fee and commission expenses (1,037) (670) --------- ----------Total income 58,850 53,475Operating expenses (39,557) (35,204)Profit on disposal of available-for-sale investments 117Profit on sale of fixed asset investments - 21Profit on sale of current asset investments - 171 --------- ----------Operating profit 19,410 18,463 Profit on disposal of available-for-sale investments (117)Profit on sale of fixed asset investments (21)Profit on sale of current asset investments (171)Cost of options 4,701 1,659 --------- ----------Adjusted operating profit 23,994 19,930 ========= ========== Evolution Securities income analysis The growth in Evolution Securities' income (before fee and commissionexpenses) has been achieved by particular growth from the activities of corporate finance advice and fundraising. In addition, sales commissionsheld up well and remain a constant proportion of the overall revenue. Equitytrading income was down by approximately 20% in absolute terms, which has therefore had an impact on the balance between primary and secondary income.We would expect this to return to a more balanced basis going forward. 2005 2004 --------- ---------Corporate finance 68% 62%Sales commissions 16% 16%Trading 15% 21%Other 1% 1% Evolution Securities cost analysis The overall cost/income ratio for the Evolution Securities business, excludingcost of options and non-recurring costs, has reduced again this year in linewith our plans to 59% (2004: 63%). Staff costs continue to make up the majorityof the total cost base, accounting for 54% (2004: 59%) of costs with over 64%(2004: 70%) of this being in the form of performance related bonuses. The otheradministrative expenses have increased principally as a result of the increasein premises costs, professional fees and direct transaction costs. 2005 2004 --------- ---------Staff costs - Non performance related 19% 17%Staff costs - Performance related 35% 42%Other costs 34% 36%Cost of options 12% 5% Evolution Securities China As this business has reached a larger scale than a year ago, I believe it isuseful to break out its results on a standalone basis. There has beensignificant growth in the scale and profitability of this business resulting inan adjusted operating profit of £0.1m in 2005 from a loss of £0.7m in 2004. 2005 2004 £'000 £'000 ---------- ---------- Income (before fee and commission expenses) 2,082 409Fee and commission expenses (89) (77) ---------- ----------Total income 1,993 332Operating expenses (1,889) (1,040) ---------- ----------Operating profit / (loss) 104 (708)Cost of options 6 - ---------- ----------Adjusted operating profit / (loss) 110 (708) ========== ========== Evolution Securities China income analysis ESCL's income (before fee and commission expenses) has grown in all areas. Itscommission income increased by over 80% and corporate finance revenues by over 600% when compared with the previous year. Given the early stage of developmentof the business and its relatively small scale overall it is too early to predict the normalised revenue profile. 2005 2004 ------ ------Corporate finance 66% 46%Sales commissions 19% 54%Trading 13% -Other income 2% - Evolution Securities China cost analysis ESCL's total cost base saw an overall increase of over 80% as the scale of thebusiness changed during the year. There was, however, a consistency in theproportion of staff costs and these were in line with its business model of lowfixed employment costs linked with direct equity participation. The Grouprecognises the importance of maintaining a different business model in thisearly stage of the business. 2005 2004 --------- ---------Staff costs - Non performance related 53% 56%Staff costs - Performance related 6% -Other Costs 41% 44% Stockbroking and fund management Looking next at Christows, the Group's private client stockbroking and fundmanager, 2005 has seen a continuation of the progress of the last three yearswith an increase of 24% (2004: 137%) in adjusted operating profit from £0.9m in2004 to £1.1m in 2005. 2005 2004 £'000 £'000 ---------- ---------- Income (before fee and commission expenses) 11,503 9,345Fee and commission expenses (374) (283) ---------- ----------Total income 11,129 9,062Operating expenses (10,194) (8,362) ---------- ----------Operating profit 935 700Cost of options 146 171 ---------- ----------Adjusted operating profit 1,081 871 ========== ========== IFRS Impact Christows was the business within the Group upon which IFRS reclassification hadthe greatest impact. Whilst these had no material impact upon profitability,there were quite major reclassifications. Firstly, commissions shared withindividuals, deemed under IFRS to be employees, were reclassified fromcommission expenses to performance-related staff costs. Secondly, commissionexpenses to financial intermediaries were reclassified to net off against therelevant income. Thirdly, the policy of immediately matching initial commissionearned on the transfer of client funds into Christows and the related initialcommission expense paid to intermediaries was replaced with a process ofcapitalising income and expense, and amortising over the estimated average lifeof FUM. Stockbroking and fund management income analysis Christows' mix of income has remained constant across the two periodsdemonstrating the consistency of the business model, as the overall level offunds under management increases, and showing equal growth in its recurringmanagement fees and sales commission income lines. 2005 2004 ------ ------Corporate finance - 3%Sales commissions 60% 61%Management fees 34% 31%Other income 6% 5% Corporate finance in the prior year relates to nominated broker fees. Stockbroking and fund management cost analysis The overall cost/income ratio, excluding cost of options and non-recurringcosts, for Christows has remained stable at 90% (2004: 90%) taking into accountthe reclassifications under IFRS outlined above. Further examination of the coststructure within Christows shows it continues to be tightly managed and highlypredictable. During the second half of 2005 Christows opened a new office inBirmingham and this resulted in a number of up-front costs together withincurring amounts for new staff not as yet fully matched with revenue as theybegan to build up the business. The process of absorbing this into Christows'results whilst still maintaining forward momentum is testament to the strengthof Christows. 2005 2004 --------- ---------Staff costs - Non performance related 31% 35%Staff costs - Performance related 27% 22%Other Costs 41% 41%Cost of options 1% 2% Other activities The Group's other activities are made up of: central group support costs notrecovered from the operating businesses; the profits on and provisions againstinvestments; the partial disposals of IP2IPO and other legacy fixed assetinvestments; and the results of the IP2IPO business whilst it was an associatedundertaking of the Group. 2005 2004 £'000 £'000 ---------- ---------- Income (before fee and commission expenses) 3 244Fee and commission credit - 11 ---------- ----------Total income 3 255Operating expenses (1,800) (3,356)Profit on disposal of available-for-sale investments 39,931Profit on part sale of subsidiary - 66Profit on sale of associate - 22,286Profit on fixed asset investments 1,204Release of provision on fixed asset investments 525Profit on current asset investments 4,642Share of associated undertaking's interest - 252Share of associated undertaking operating profit - 184 ---------- ----------Operating profit 38,134 26,058 Profit on part sale of subsidiary - (66)Profit on part sale of associate - (22,286)Profit on disposal of available-for-sale investments (39,931)Profit on sale of fixed asset investments - (1,204)Release of provision against fixed asset investments - (525)Profit on current asset investments - (4,642)Share of associated undertaking's interest - (252)Share of associated undertaking operating profit - (184)Cost of options 1,891 3,099 ---------- ----------Adjusted operating profit / (loss) 94 (2) ========== ========== IP2IPO On 11 March 2005, the Group disposed of its remaining holding in IP2IPO of7,502,170 shares for total gross proceeds, before expenses of £52.8m. Aftertaking into account related expenses of sale, this resulted in a realised profitof £35.7m. Investment portfolio As previously reported, the Group has continued to exit from its legacyinvestment portfolio. The Group seeks to extract value from this portfolio withprofit on sale of other available-for-sale investments totalling £4.3m in 2005(2004: £6.6m). Set against this the Group has a negative fair value reserve of £1.7m against the remaining portfolio of available-for-sale investments (2004: nil). Balance sheet strength The Group remains focused on maintaining a strong balance sheet. At the year-endit had net assets of £156.7m (2004: £141.0m) including cash of £138.0m (2004:£115.2m). Cashflow The Group generated positive cash inflow of £22.8m in the year (2004: £61.4m).This has been achieved principally from operating activities and the finaldisposal of IP2IPO in March 2005, offset by purchases of own shares totalling£49.6m. Dividend The Board is proposing a final dividend per share for 2005 of 0.80p per share(2004: 0.58p). This dividend is payable on 2 June 2006 to shareholders on theregister on 5 May 2006. This follows the dividend paid in November 2005 of 0.40p per share. (2004: 0.17p). Impact of IFRS The conversion of the Group's accounts to IFRS has not materially impacted thecontinuing operational performance of the Group. The Group's operating profitper the statutory consolidated income statement for the year to 31 December 2004has been adjusted down by £132,000 from a UKGAAP figure of £44,645,000 to afigure of £44,513,000. This was principally a result of changes to theaccounting treatment for share options granted to employees under IFRS 2, 'ShareBased Payments', which resulted in an additional charge of £660,000 and ofchanges to the treatment of amortisation under IAS 38, 'Intangible Assets',which resulted in a credit to the income statement of £505,000. Neither of theseadjustments impact the measure: "Adjusted operating profit", which remainsconstant due to the exclusion of non-cash items and one-off or non-recurringinvestment gains and losses. Adjusted operating profit performance ishighlighted above. Correspondingly the impact on equity at 31 December 2004 of an increase of£4,552,000 following the adoption of IFRS relates to the recognition of deferredtax assets on share options granted to employees, the reversal of dividends asyet unpaid or unapproved and the reversal of amortisation on goodwill. Graeme DellFinance Director22 March 2006 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2005 2004 £'000 £'000 Fee and commission income 63,205 52,289Fee and commission expenses (1,500) (1,019) ---------- ----------Net fee and commission income 61,705 51,270Net trading income 9,206 11,618Other income 1,064 236 ---------- ----------Total income 71,975 63,124 Profit on disposal of available-for-sale investments 40,048Profit on sale of fixed asset investments 1,225Release of provision against fixed asset investments 525Profit on sale of current asset investments 4,813Profit on part sale of subsidiary - 66Profit on sale of associate - 22,286Share of results of associate - 436Operating expenses (53,440) (47,962) ---------- ----------Operating profit 58,583 44,513 Interest receivable and similar income 5,044 3,329Interest payable and similar charges (37) (7) ---------- ----------Profit before tax 63,590 47,835Tax expense (4,524) (3,831) ---------- ----------Profit for the year 59,066 44,004 ========== ========== Profit / (loss) attributable to minority interest 25 (174)Profit attributable to equity holders of The Evolution Group Plc 59,041 44,178 ---------- ---------- 59,066 44,004 ========== ========== Basic earnings per ordinary share 26.18p 17.90pDiluted earnings per share 23.35p 16.43p Dividend per share - Interim (paid) 0.40p 0.17p - Final (proposed) 0.80p 0.58p Dividend (£'000) - Interim (paid) 859 421 - Final (proposed) 1,772 1,307 CONSOLIDATED BALANCE SHEET As at 31 December 2005 2004 £'000 £'000ASSETS Non-current assets Goodwill 9,085 8,990 Other intangible assets 232 242 Property, plant and equipment 3,695 1,330 Investments 583 Deferred tax assets 7,693 5,820 ----------- -----------Total non-current assets 20,705 16,965 Current assets Trade and other receivables 42,069 Debtors 37,442 Available-for-sale investments 2,027 Trading portfolio assets 13,446 Long trading positions 9,679 Current asset investments 12,148 Cash and cash equivalents 137,973 115,170 ----------- -----------Total current assets 195,515 174,439 ----------- -----------Total assets 216,220 191,404 ----------- ----------- LIABILITIES Current liabilities Trade and other payables 51,196 Creditors: amounts falling due within one year 47,923 Trading portfolio liabilities 6,200 Current tax liabilities 1,947 2,382 ----------- -----------Total current liabilities 59,343 50,305 ----------- ----------- Non-current liabilities Provisions for liabilities 184 78 ----------- -----------Total liabilities 59,527 50,383 ----------- ----------- EQUITY Capital and reserves attributable to equityshareholders Share capital 2,255 2,495Share premium 27,942 26,223Capital redemption reserve 274 -Merger reserve 51,230 51,230Fair value and other reserves (1,652) -Retained earnings 76,592 61,138 ----------- -----------Parent company's shareholders' equity excluding minority interest 156,641 141,086Minority interest in equity 52 (65) ----------- -----------Total equity 156,693 141,021 ----------- ----------- ----------- -----------Total equity and liabilities 216,220 191,404 ----------- ----------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2005 2004 ----------------- ----------------- £'000 £'000 £'000 £'000 Cash flow from operating activitiesCash generated from operations 25,749 20,218Interest received 5,044 3,283Interest paid (37) (7)Tax paid (5,824) (4,136) -------- ------- Net cash inflow from operating activities 24,932 19,358 Cash flows from investing activitiesPurchase of subsidiary shares (2) (59)Proceeds from sale of associate - 39,674Purchase of property, plant and equipment (3,368) (796)Purchase of intangible assets (106) -Purchase of available-for-sale investments (1,074)Net proceeds from sale of available-for-sale investments 52,525Purchase of investments - (321)Proceeds from sale of investments - 7,260Dividends received 15 85 -------- ------- Net cash generated from investing activities 47,990 45,843 Cash flows from financing activitiesIssues of ordinary share capital 1,614 379Issue of ordinary share capital to minorities 1 219Dividends paid to the company's shareholders (2,166) (1,037)Purchase of shares held by the Trust (7,111) (3,335)Purchase of treasury shares (42,513) - -------- ------- Net cash used in financing activities (50,175) (3,774) --------- ---------Net increase in cash and bank overdrafts 22,747 61,427Cash and bank overdrafts at beginning of period 115,170 53,705Exchange gains on cash and bank overdrafts 56 38 --------- --------- --------- ---------Cash and bank overdrafts at end of period 137,973 115,170 ========= ========= CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2005 2004 £'000 £'000 Profit for the financial year 59,066 44,004 Available-for-sale investments:Fair value changes taken to equity at 1 January 2005 37,629Fair value changes taken to equity during the year (2,059)Fair value changes transferred to income statement on disposal (37,222) ---------- ----------Net losses not recognised in income statement (1,652) - ---------- ----------Total recognised income and expense for the year 57,414 44,004 ---------- ---------- Effect of changes in accounting policy for the adoption of IAS 32 and 39Available-for-sale financial assets fair value reserve 37,629Retained earnings 340Minority interest - ---------- ---------- 37,969 - ---------- ---------- Attributable to:Minority interest 25Equity shareholders of the Parent 57,389 ---------- 57,414 ---------- Other information These preliminary results are the first to be prepared under InternationalFinancial Reporting Standards ("IFRS"). A summary of the accounting policiesadopted by the Group is set out in the half-year results announcement on 7September 2005. The financial information in this statement does not constitute the Group'sstatutory accounts for the year ended 31 December 2005 within the meaning ofSection 240 of the Companies Act 1985. The statutory accounts for 2005 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. Annual General Meeting The arrangements for, and notification of business to be transacted at, theCompany's Annual General Meeting will be provided with the annual report andaccounts to be circulated to shareholders in due course. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EVG.L