26th Sep 2005 07:01
Close Brothers Group PLC26 September 2005 Embargoed for release 7.00 am on Monday 26th September, 2005 Specialist merchant banking group CLOSE BROTHERS GROUP plc announces results for the year to 31st July, 2005 HIGHLIGHTS 2005 2004 * Profit before taxation and goodwill amortisation £131.7m £118.9m * Earnings per share before goodwill amortisation 63.1p 57.3p * Profit before taxation £108.6m £101.3m * Earnings per share 47.2p 45.1p * Dividends per share 28.5p 27.0p * Shareholders' funds £540m £509m * Total assets £4.5bn £3.9bn * Overview - 2005 was another successful year with improved results. Dividend up 1.5p. * Investment Banking - Profit increased by 19 per cent. to £77.6 million. Asset Management - Record profit of £31.8 million. Funds under management grew to £7.1 billion. Corporate Finance - Profit £10.1 million reflects further progress in the UK supported by improved performances in Europe. Market-Making - After a quiet start activity picked up to produce profit of £35.7 million. * Banking - In a year of consolidation the loan book increased by 11 per cent. earning profit of £71.1 million. Colin Keogh, Chief Executive, said: "2005 was another year of progress and growth. We are heartened by the momentum in our asset management division and, providedthe investment climate remains buoyant, we should also see further growth inour market-making and corporate finance divisions. Our expectation for ourbanking activity is for continued progress at a modest level. All four divisions have made a good start to the new financial year and we viewthe future with confidence." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Rupert Young Brunswick Group Limited 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Groupplc at www.closebrothers.co.uk or www.cantos.com CLOSE BROTHERS GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED GROUP RESULTS AND CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31ST JULY, 2005 The following is the full text of the preliminary announcement of results forthe financial year ended 31st July, 2005. The financial information in relation to 31st July, 2005 has been extracted from the statutory accounts of the company, which have yet to be adopted by shareholders at general meeting and have yet to be filed with the Registrar of Companies. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31st July, 2005 Year Ordinary Goodwill Total ended activities amortisation ordinary 31st July, before activities 2004 goodwill amortisation £'000 £'000 £'000 £'000 Interest receivable 280,827 - 280,827 240,348Interest payable 140,320 - 140,320 106,757 --------- --------- -------- -------- Net interest income 140,507 - 140,507 133,591 --------- --------- -------- -------- Fees and commissions receivable 230,019 - 230,019 194,453Fees and commissions payable (35,834) - (35,834) (34,072)Net dealing income - market-making 96,285 - 96,285 99,983Other operating income 17,019 - 17,019 7,227 --------- --------- -------- -------- Other income 307,489 - 307,489 267,591 --------- --------- -------- -------- Operating income 447,996 - 447,996 401,182 --------- --------- -------- -------- Administrative expenses 283,763 - 283,763 248,622Depreciation 12,145 - 12,145 10,833Provisions for bad and doubtful debts 20,349 - 20,349 22,781Amortisation of goodwill - 23,120 23,120 17,603 --------- --------- -------- -------- Operating expenses 316,257 23,120 339,377 299,839 --------- --------- -------- -------- Operating profit on ordinary activities before taxation 131,739 (23,120) 108,619 101,343Taxation on profit on ordinary activities 37,865 - 37,865 33,925 --------- --------- -------- -------- Profit on ordinary activities after taxation 93,874 (23,120) 70,754 67,418Minority interests - equity 2,177 - 2,177 2,209 --------- --------- -------- -------- Profit attributable to shareholders 91,697 (23,120) 68,577 65,209 --------- --------- Dividends: Interim dividend 9.5p per share (2004 - 9.0p) 13,636 12,875Proposed final dividend 19.0p per share (2004 - 18.0p) 27,301 25,604 -------- -------- Total dividends 28.5p per share (2004 - 27.0p) 40,937 38,479 -------- -------- Retained profit for the year 27,640 26,730-------------------------------------------------------------------------------- Earnings per share before amortisation of goodwill 63.1p 57.3p -------- -------- Earnings per share on profit attributable to shareholders 47.2p 45.1p -------- -------- Diluted earnings per share 47.0p 45.0p -------- -------- All income and profits are in respect of continuing operations. --------------------------------------------------------------------------------CONSOLIDATED BALANCE SHEET At 31st July, 2005 2005 2004 £'000 £'000AssetsCash and balances at central banks 1,244 844Loans and advances to banks 786,330 733,029Loans and advances to customers 1,953,031 1,757,074Non-recourse borrowings (200,000) (250,000) 1,753,031 1,507,074Debt securities - long positions 61,345 54,521Debt securities - other 797,498 777,509Settlement accounts 604,692 366,213Equity shares - long positions 40,377 34,714Equity shares - investments 26,730 26,770Intangible fixed assets - goodwill 88,863 98,628Tangible fixed assets 39,949 32,855Share of gross assets of joint ventures 21,624 21,855Share of gross liabilities of joint ventures (20,914) (21,358) 710 497Other assets 267,192 197,824Deferred taxation 21,591 14,377Prepayments and accrued income 49,600 35,589 -------- -------- Total assets 4,539,152 3,880,444-------------------------------------------------------------------------------- LiabilitiesDeposits by banks 108,101 79,188Customer accounts 1,818,187 1,681,152Bank loans and overdrafts 494,363 621,360Debt securities - loan notes issued 367,130 100,000Debt securities - short positions 49,628 52,842Settlement accounts 561,173 301,159Equity shares - short positions 20,424 14,406Other liabilities 372,835 313,254Accruals and deferred income 126,019 106,208Subordinated loan capital 75,000 96,937Minority interests - equity 5,971 4,674 -------- -------- 3,998,831 3,371,180 -------- -------- Shareholders' fundsCalled up share capital 36,168 36,066Share premium account 252,210 250,430ESOP trust reserve (3,786) (3,962)Profit and loss account 255,729 226,730 -------- -------- Total equity shareholders' funds 540,321 509,264 -------- -------- Total liabilities and shareholders' funds 4,539,152 3,880,444 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31st July, 2005 2005 2004 £'000 £'000 Profit attributable to shareholders 68,577 65,209Exchange adjustment 1,264 (1,554) -------- -------- Total recognised gains 69,841 63,655 -------- -------- -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT For the year ended 31st July, 2005 2005 2004 £'000 £'000 Net cash inflow from operating activities 521,521 113,868 --------- --------- Returns on investments and servicing of financeInterest paid on subordinated loan capital (7,743) (7,834)Dividends paid to minority interests (934) (1,419) --------- --------- (8,677) (9,253) --------- --------- Taxation paid (37,821) (32,184) --------- --------- Capital expenditure and financial investmentPurchase of assets let under operating leases (11,213) (8,620)Purchase of tangible fixed assets (8,095) (9,993)Sale of tangible fixed assets 1,685 630Purchase of equity shares held for investment (7,523) (2,839)Sale of equity shares held for investment 19,091 5,677 --------- --------- (6,055) (15,145) --------- --------- Acquisitions and disposalsMinority interests acquired for cash (5,134) (2,950)Purchase of loan book (130,530) -Purchase of subsidiaries (29,506) (11,772) --------- --------- (165,170) (14,722) --------- ---------Equity dividends paid (39,240) (37,357) --------- --------- Net cash inflow before financing 264,558 5,207 FinancingIssue of ordinary share capital including premium 1,882 966Repayment of subordinated loan capital (21,937) - --------- --------- Increase in cash 244,503 6,173 --------- --------- In the directors' view, cash is an integral part of the operating activities ofthe group, since it is a bank's stock in trade. Nevertheless, as required byFinancial Reporting Standard No. 1 (Revised), cash is not treated as cash flowfrom operating activities but is required to be shown separately in accordancewith the format above.-------------------------------------------------------------------------------- THE NOTES 1. Consolidated cash flow statement 2005 2004 £'000 £'000 (a) Reconciliation of operating profit on ordinary activities before taxation to net cash inflow from operating activities Operating profit on ordinary activities before taxation 108,619 101,343 (Increase)/decrease in: Interest receivable and prepaid expenses (13,375) (8,376) Net settlement accounts 21,535 8,773 Net equity shares held for trading 3,904 (15,294) Net debt securities held for trading (10,038) 4,952 Increase in interest payable and accrued expenses 17,064 9,559 Depreciation and amortisation 35,265 28,436 -------- -------- Net cash inflow from trading activities 162,974 129,393 (Increase)/decrease in: Other debt securities (11,483) (233,683) Loans and advances to customers (195) (141,460) Loans and advances to banks not repayable on demand 190,802 19,764 Other assets less other liabilities (22,821) 10,067 Increase/(decrease) in: Deposits by banks 28,913 (28,684) Customer accounts 137,035 279,670 Bank loans and overdrafts (180,834) 3,801 Non-recourse borrowings (50,000) 75,000 Debt securities - loan notes issued 267,130 - -------- -------- Net cash inflow from operating activities 521,521 113,868 -------- -------- (b) Analysis of net cash outflow in respect of the purchase of subsidiaries Cash consideration in respect of current year purchases (38,900) (9,563) Loan stock redemptions and deferred consideration paid in respect of prior year purchases (791) (8,808) Net movement in cash balances 10,185 6,599 -------- -------- (29,506) (11,772) -------- -------- (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 383,433 382,467 Shares issued for cash 1,882 966 Repayment of subordinated loan capital (21,937) - -------- -------- Closing balance 363,378 383,433 -------- -------- (d) Analysis of cash balances Movement in the year £'000 Cash and balances at central banks 400 1,244 844 Loans and advances to banks repayable on demand 244,103 380,638 136,535 ------- -------- -------- 244,503 381,882 137,379 -------- -------- -------------------------------------------------------------------------------=-------- 2. Basis of preparation The financial information included in this announcement does not constitute thecompany's statutory accounts for the year ended 31st July, 2005, but is derivedfrom those accounts on which the auditors have yet to sign their report. It hasbeen prepared on the basis of the accounting policies set out in the 2004statutory accounts. The figures shown for the year ended 31st July, 2004 represent an abridgedversion of the statutory accounts of Close Brothers Group plc for that year,which have been filed with the Registrar of Companies and on which the auditorshave given an unqualified report. -------------------------------------------------------------------------------- 3. Earnings per share Earnings per share before amortisation of goodwill is based on profit of£91,697,000 (2004 - £82,812,000), being profit after taxation and minorityinterests but before goodwill amortisation, and on 145,348,000 (2004 -144,459,000) ordinary shares, being the weighted average number of shares inissue and contingently issuable during the year excluding those held by theemployee benefit trust. This earnings per share has been disclosed because, inthe opinion of the directors, it reflects operational performance. Earnings per share on profit attributable to shareholders is based on profitafter taxation and minority interests of £68,577,000 (2004 - £65,209,000) and onthe same number of shares as above. Diluted earnings per share is based on this same profit after taxation andminority interests, but on 145,831,000 (2004 - 145,047,000) ordinary shares,being the weighted average number of shares in issue disclosed above, plus theweighted dilutive potential on ordinary shares of exercisable employee shareoptions in issue during the year. -------------------------------------------------------------------------------- 4. Dividend The final ordinary dividend of 19.0p per share is proposed to be paid on 1stNovember, 2005 to holders of ordinary shares on the register at the close ofbusiness on 7th October, 2005.-------------------------------------------------------------------------------- CHAIRMAN'S STATEMENT RESULTS The operating profit on ordinary activities before taxation and goodwillamortisation was £131.7 million compared to £118.9 million last year, anincrease of 11 per cent., producing earnings per share of 63.1p compared to57.3p, an increase of 10 per cent. After deducting a charge for goodwill amortisation of £23.1 million (2004 -£17.6 million), the operating profit on ordinary activities before taxation was£108.6 million (2004 - £101.3 million) and earnings per share were 47.2p (2004 -45.1p). The board recommends a final dividend of 19p per share which, together with theinterim dividend, makes a total dividend for the year of 28.5p per share (2004 -27p) with pre-goodwill cover of 2.2 times (2004 - 2.1 times). This affirms ourdividend growth whilst continuing to rebuild dividend cover. OVERVIEW 2005 was another successful year with improved results being achieved in quitedifficult conditions. Our investment banking activity posted profit growth of 19per cent., on top of the 77 per cent. achieved in 2004. Our banking activity didwell to show a small increase in profit in a challenging year. The profit before taxation and goodwill amortisation once again reflected animpressive return on operating income, of 29 per cent. (2004 - 30 per cent.) andon opening shareholders' funds, of 26 per cent. (2004 - 25 per cent.). The table below demonstrates the overall balance of our businesses. The growingproportion of our mix coming from the asset management division accords with ourstrategy and we expect this to continue in the future: Analysis of Operating Profit (before central costs) 2003 2004 2005 % % % Asset Management 8 13 21Corporate Finance 5 7 7Market-Making 24 28 24 ----- ----- -----Investment Banking 37 48 52Banking 63 52 48 ----- ----- ----- 100 100 100 ===== ===== ===== The increasing momentum in our asset management division that we reported lastyear has continued. We have achieved much in the past twelve months resulting ina divisional profit improvement of 83 per cent. We have focused our operationson private clients and funds and we have completed the recruitment of our topmanagement team. On the funds side, we have recently made the small butstrategically important acquisition of Escher, a process-drivenmanager-of-managers business, now renamed Close TEAMS. An important event during the year for our market-making division was thepurchase of Seydler for an initial €25 million (£17 million), approximately netasset value. This business has some 75 staff, most of whom are located inFrankfurt, and provides an interesting entry to a potentially growing market. On the banking side, we acquired a motor vehicle loan book for the benefit ofrunning it off and a commercial asset finance business. TRADING Investment Banking Asset Management The division achieved another year of significant growth with record pre-taxprofit of £31.8 million compared to £17.4 million last year. The pre-taxoperating margin was 27 per cent. and funds under management grew from £5.5billion to £7.1 billion. Our private client business has some £2.7 billion of investment funds undermanagement. It also administers some £5.2 billion of trust assets and has £0.7billion of deposits offshore. Our private banking operations in Jersey, Guernsey and Isle of Man now have asingle management structure. This group, together with our mass affluentbusiness, Close Wealth Management, and our onshore bespoke business for high networth individuals, form the building blocks of our private client business. Eachof the three key units in this group made progress during the year and areworking closely together. Our funds business has some £4.4 billion of funds under management. During theyear collective funds, property funds, private equity and fund administrationall performed well. The future for this division looks bright. Corporate Finance With operating income up 18 per cent., the pre-tax profit of this division was£10.1 million and the operating profit margin was 24 per cent. The emphasis of our business is on the M&A, restructuring and debt advisorymarkets. In all these we had a good start and finish to our year, but a ratherdull patch in the middle. Our early pipeline for 2006 is encouraging. Our French and German interests, now operating solely under the Close Brothersbrand, enjoyed some improvement in local market conditions. Our partners inSpain and Italy also made progress. Market-Making In addition to Winterflood Securities ("WINS") this division now includes therenamed Close Brothers Seydler, which made a small yet encouraging profitcontribution in the three months since acquisition. However, the vast majorityof the profit in the period was earned by WINS. Although pre-tax profit for thedivision was down somewhat, from £37.9 million to £35.7 million, WINS' pre-taxoperating profit margin at 37 per cent. remained fairly steady. In our financial year we experienced two quiet trading periods, at the start ofthe year (August/September 2004) and during the second half (April/May 2005). Inthe remainder of the year, trading was satisfactory, so that overall there wasno material difference between the first and second halves. For the whole of the year (unlike the previous year) the SETSmm trading systemwas operating for some 200 stocks below the top 100. Whilst this led to somemargin reduction, it was not material in the context of the whole of WINS'diverse business. Contribution from developments made in earlier years more thanfilled this space, including some healthy fee income from our specialistinvestment trust team. Our new financial year has got off to a solid start, significantly better thanlast year, as the market's mood continues to be positive. Banking As expected our banking activity had a year of consolidation in which the loanbook increased by 11 per cent. but profits increased only marginally. The pre-tax profit was £71.1 million compared to £69.7 million in 2004. We againachieved a commendable pre-tax return on operating income (38 per cent.) and on opening shareholders' funds (31 per cent.). These solid financial statistics demonstrate the effectiveness of our particular lending model. With relatively full employment and low interest rates in the UK, and a calm ifunexciting environment for small businesses, conditions have been benign for baddebts. During the year our charge to profit and loss account expressed as apercentage of average gross loans fell to 1.1 per cent. from 1.4 per cent. For the year overall a strong performance in some sectors, namely creditmanagement, property, and transport and engineering, helped by the improving baddebt ratio, more than offset the impact of the costs and associated loss ofincome resulting from regulatory change and the continuing deflation ofcommercial insurance premiums. On the funding side, we continue our proven strategy of being able to fund ourentire loan book without recourse to short term deposits. In November 2004, weraised €500 million of three-year finance under a medium term note programme.This funding was achieved at an attractive margin and from a range ofcontinental institutions, most of which were new providers of finance to thegroup. The new year has started well but will be influenced by the continuing effectsof regulatory change and insurance premium deflation. OUTLOOK The General Election changed neither the political landscape nor the economicpolicies in the UK. With consumer debt remaining high, Government expenditurecontinuing to rise, and the price of oil recently reaching record levels, the UKeconomic outlook remains somewhat unsettled. Our expectation for our banking activity is for continued progress at a modestlevel. Our view of our investment banking activity is more positive. We areheartened by the momentum in our asset management division and, provided theinvestment climate remains buoyant, we should also see further growth in ourmarket-making and corporate finance divisions. All four divisions have made a good start to the new financial year and we viewthe future with confidence. Sir David ScholeyChairman This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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