12th Sep 2006 07:04
Evolution Group PLC12 September 2006 THE EVOLUTION GROUP PLC ("EVOLUTION GROUP" OR THE "GROUP") Interim results for the six months ended 30 June 2006 Evolution Group, the listed investment bank and retail fund management group,today announces its results for the six months ended 30 June 2006. Financial highlights • Total Group income (before fee and commission expenses) increased by 18% to £44.3 million (2005: £37.6 million). • Adjusted operating profit has increased by 10% to £14.7 million (2005: £13.4 million) with clean profit before tax increasing by 6% to £17.0 million (2005: £16.0 million) 1. • Profit before tax at £14.7 million (2005: £51.6 million, which included profit on disposal of assets totaling £39.4 million, principally arising from sale of IP2IPO). • Clean earnings per share increased by 7% to 5.49p (2005: 5.15p) 1. • Basic earnings per share at 4.44p (2005: 20.25p, including significant contribution from profit on disposal of assets). • Net assets up by 16% to £164.9 million (2005: £143.0 million) including cash balances of £63.9 million (2005: £103.0 million). • Increase in interim dividend of 25% to 0.5p (2005: 0.4p) after a final dividend paid in June 2006 of 0.8p (2005: 0.58p). Operational highlights • £472 million raised for clients from 17 transactions (2005: £379 million from 22 transactions), an increase of 25% on money raised from the previous period. • Christows increased funds under management by 34% to £931 million (2005: £695 million). • Acquisition of Williams de Broe on 3 June 2006 - integration progressing well. • Evolution Securities China acquisition of Watterson Asia on 14 June 2006 - integration completed. 1 Clean profit before tax clean earnings and adjusted operating profit are defined in the Financial Information below. Note: This financial information has been prepared for the Group only andconsists of the Group's Income Statement for the six month period to 30 June2006, Group Balance Sheet as at 30 June 2006, Group Cash Flow Statement and aGroup Statement of Recognised Income and Expense each for the six month periodto 30 June 2006. The Group is defined as the Evolution Group Plc and itssubsidiaries, as disclosed in the recent annual report, and includes therecently acquired Watterson Asia Limited but excludes the recently acquiredWilliams de Broe entities as described in Note 1, 'Basis of Preparation' and asreferred to in the Chairman's Statement below. Martin Gray, Evolution Group's Chairman, commented: "The first half of 2006 saw strong progress in each of our Group businesses,with significant organic growth. This was complemented, as the period drew to aclose, with substantial acquisitions. We believe that the progress made alongwith our acquisitions, provide a platform for future growth across the Group. As a matter of policy, the Board intends to maintain a strong balance sheet,even allowing for the share buyback programme. This will enable Evolution tocontinue investment in all its operating businesses and recognises theirincreasing regulatory capital requirements. Additionally, we do not rule outfurther acquisitions if we find opportunities which will enhance shareholdervalue." For further information, please contact The Evolution Group Plc Tel: 020 7071 4300Alex Snow, Chief Executive OfficerGraeme Dell, Finance Director Bell Pottinger Corporate and Financial Tel: 020 7861 3232Charles CookPeter Otero CHAIRMAN'S STATEMENT Review of the half year ended 30 June 2006 The Evolution Group ("Evolution, the "Company" or the "Group") has continued itsstrong progress with an excellent first six months of 2006. On an operationallevel the Group's total income (before fee and commission expenses) hasincreased to £44.3m, up by 18% from £37.6m in 2005. Whilst the statutoryoperating profit has declined to £12.4m (2005: £49.0m), due to the prior year'sfigures benefiting from significant profits arising upon disposals of assetstotaling £39.4m (principally from sale of IP2IPO), the underlying or adjustedoperating profit has increased from £13.4m to £14.7m, an increase of 10%. Thefirst half also saw significant acquisition activity, which impacted all ouroperating businesses. On 3 June 2006 the Group entered into and completed anagreement to acquire Williams de Broe Plc and its sister company, Williams deBroe Administration Limited (together "Williams de Broe") from Williams de BroeHoldings Limited and ING Belgique S.A. This acquisition represents a significantfuture opportunity for the Group's investment banking and private client fundmanagement subsidiaries. The results of Williams de Broe have not beenconsolidated with the Group for June. Instead, the preliminary announcement inMarch 2007 will include a set of financial statements for the Group as at 30June 2006 on a fully consolidated basis including Williams de Broe. This meansthat its balance sheet has not been included on a line by line basis as at 30June 2006 nor has its profit contribution to the Group for June been reported,as required by International Financial Reporting Standards ("IFRS"). In addition, on 14 June 2006, Evolution Securities China Limited ("ESCL")acquired a corporate finance advisory and securities dealing business based inHong Kong named Watterson Asia Limited. This company has been successfullyconsolidated within the Group and its results are included for the period to 30June 2006. Investment Banking Evolution Securities, the Group's principal investment banking subsidiary,continues to be the driver of the Group's overall profitability with totalincome (before fee and commission expenses) in the first half of £34.5m anincrease of 11% from the figure of £31.2m in 2005. The primary activity hasincreased substantially as we raised funds totaling £472m for our corporateclients, an increase of 25% from a year ago. Meanwhile, our secondary marketactivities of sales and trading have performed strongly, retaining by asignificant margin our number one market position in terms of market sharewithin the LSE's AIM market and increasing their revenue contribution from thelevel of the first half of 2005. Private Client Fund Management Christows, the Group's private client fund management business has continuedthis year to progress in line with management expectations. The total income(before fee and commission expenses) of £7.1m is 25% ahead of the £5.7m achievedin 2005 with growth in both management fee and transactional revenue. At 30 June2006, total funds under management were £931m, up from £695m at the same timelast year and £789m as at year end. This growth has resulted mainly from a record six months of new fund sales from Christows' dedicated intermediary salesteam. Evolution Securities China Limited ESCL's income growth has continued strongly into 2006 with total income (beforefee and commission expenses) in the period of £2.6m, which already exceeds the2005 full year result. Whilst the business remains a small part of the Groupoverall, it is pleasing to see that it has developed so well in this period withgrowth in both primary and secondary activities. As noted above, following approval from the Hong Kong Securities and FuturesCommission, ESCL completed the acquisition of Watterson Asia. In completing thisacquisition of a regulated corporate finance advisory and securities dealingbusiness, ESCL has begun to expand its breadth and capability across the London,Chinese and Hong Kong markets. Acquisition of Williams de Broe On 3 June 2006, we completed the acquisition of 100% of the equity of Williamsde Broe Plc (and its subsidiaries, as detailed in Note 1) and its sister companyWilliams de Broe Administration Limited ("Williams de Broe") from Williams deBroe Holdings Limited and ING Belgium SA. We saw within the Williams de Broe business a clear strategic fit with theGroup. On the institutional side the presence of secondary markets large andmid-cap sales and research capability and a fixed income agency business are anideal complement to our Evolution Securities business. In addition, Williams deBroe private client business had funds under management broadly equal to thosewithin Christows and a similar investment philosophy. However, the businessneeded substantial restructuring in order to release this potential since it hadexperienced significant problems in its recent past. These have been widely reported and include a significant provision arising from reconciliation work performed in 2005 and the absence of statutory accounts for the years ended 2004 and 2005. In summary, the restructuring will take the form of the migration of the two business lines, institutional and private client, out of Williams de Broe into Evolution Securities and Christows respectively. At the same time adetailed review of the financial information of Williams de Broe will be performed including the resolution of the legacy reconciliation and accounting issues. The closure of the resultant shell companies will then follow, having first realised all assets and liabilities. Recognising this potential but also the significant restructuring necessary toachieve it the Group was able to complete the transaction for a cashconsideration of £15m, equal to the net asset value, which will become due oncecompletion accounts for Williams de Broe have been prepared. The cashconsideration is subject to a pound for pound adjustment to the extent that thenet assets of Williams de Broe as at 3 June 2006 are greater or less than £15m,subject only to a maximum cash consideration of £25m. The initial cashconsideration of £15m was met from existing cash resources of the EvolutionGroup and has been paid into an escrow account until the completion accountingprocess is finalised. In addition, the Group has provided temporary workingcapital of £26m to Williams de Broe, previously provided by ING, which will bereturned immediately following the migration out of the business lines and before calculating the net asset valuation. Further information regarding the acquisition is outlined in Note 1 to theaccounts, 'Basis of Preparation' . Following the period end, on 24 July 2006 we completed the migration of theinstitutional business into Evolution Securities on time and to plan and we arevery satisfied with the initial results. We are now moving forward with themigration of the private client business, which is scheduled to occur at thebeginning of October 2006. Work on resolving the reconciliation and accountingissues is on-going and is expected to be concluded in the final quarter of 2006. Balance sheet, cash and other items The Group has maintained a policy of balance sheet strength with net assets of£165m at the period end (2005: £143m) and retains a cash balance of £64m at 30June 2006 (2005: £103m). We have continued to exit from our legacy available for sale investmentportfolio. The Group has realised £0.1m in profits from the sale of certain ofthese investments in the six months to 30 June 2006 (2005: £39.4m, principallyarising upon sale of IP2IPO). Dividend and Share Purchases Dividend The Board declares an interim dividend of 0.5p per share (2005: 0.4p). Thisreflects the Board's continued commitment to a progressive dividend policy asset out in the 2005 Annual Report and Accounts. This is payable on 27 October2006 to shareholders on the register at 29 September 2006. Share buyback Following shareholder approval at the AGM in May for continuing share purchases,the Group intends to continue with its on-market buyback programme during theperiod between now and the next AGM. Share purchases by the Employee Trust In total this year the Group has purchased an additional 2.4m shares for totalconsideration of £3.9m. These shares were purchased by the Trust and are held tosatisfy share awards made to staff in the Group. The Trust now holds 9.1m shares(2005: 7.3m) Board changes At the Company's Annual General Meeting in May, I announced the resignation ofOliver Vaughan from the Board and would like to reiterate our thanks to him forthe significant contribution he has made to the Group. The Group announced the appointment of Andrew Umbers to the Board on 7 June 2006. His position as Chief Executive Officer of Evolution Securities Ltd andappointment to the Board has significantly strengthened the executive team. As outlined at the year end we intend to further strengthen the Board. We haveundertaken a selection process in respect of further non-executive directors andhope to be able to announce shortly when this process has reached a conclusion. Staff The performance of all of our businesses is due principally to the efforts andskills of our staff. I extend a warm welcome to our new colleagues from Williamsde Broe and Watterson Asia and to take the opportunity to thank all of our stafffor their commitment in helping us achieve a very successful first half to theyear. Outlook The first half of 2006 saw strong progress in each of our Group businesses, withsignificant organic growth. This was complemented, as the period drew to aclose, by significant acquisitions. The focus of our institutional equities business remains on the small and midcap markets; however, our secondary business has broadened to encompass many newsectors and larger cap stocks. The cornerstones of our offering remain:independence of research, facilitation for our clients, trading, corporatebroking and corporate finance, and an experienced sales team covering equity andfixed income products. This platform provides the opportunity to re-focus ourbusiness model to one that is more stable and which has a more sector basedfocus, allowing us to provide better solutions to all our clients. Havingundertaken a thorough review of the Evolution Securities business, we believe weare on the right path to achieving our objective of becoming the leadingindependent securities firm in the United Kingdom. Our private client business is extremely well placed for its next stage ofgrowth. The executive team undertook a branding review and concluded that thebusiness will operate in the future under the Williams de Broe brand. Christows'management, culture and ethos coupled with the heritage and brand awareness ofthe Williams de Broe name provide the opportunity to build a substantial organisation with innovative investment products and with client service at its core. The fund management business going forward represents a larger proportionof the Group overall and our key objective is to grow assets organically fromthe current combined level of approximately £2.0 billion to a level of more than£3 billion over the course of the next 18 months. Overall, despite the rather more difficult conditions of recent months, progresshas been maintained and the Group is trading in line with expectations. As a matter of policy, the Board intends to maintain a strong balance sheet,even allowing for the share buyback programme. This will enable Evolution tocontinue investment in all its operating businesses and recognises theirincreasing regulatory capital requirements. Additionally, we do not rule outfurther acquisitions if we find opportunities which will enhance shareholdervalue. We maintain our confidence for the future. Martin GrayChairman12 September 2006 FINANCIAL INFORMATION Adjusted operating profit The statutory operating profit for the overall Group is shown below. The Boardcontinues 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 andshare of results of associate companies that are not core to the Group, represent non-cash items. This measure is also used as the principal performancecriteria against which the vesting of stock awards for the Board 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 continuedprogress made on a Group basis in increasing adjusted operating profit by 10% to£14.7m in 2006 (2005: £13.4m): Unaudited Unaudited Audited 6 months to 6 months to 12 months to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 Operating profit 12,364 49,000 58,583 Items not included within adjusted operating profit Profit on disposal of available-for-sale investments (96) (39,436) (40,048)Profit on part sale of subsidiary (610) (2) ----------------------------------------------------------------Adjustment for provisions and profits on investments (706) (39,438) (40,048) Share of results of associate (13) - -Cost of share options granted to employees 3,045 3,876 6,744 ----------------------------------------------------------------- Non-cash items 3,032 3,876 6,744 -----------------------------------------------------------------Adjusted Group operating profit 14,690 13,438 25,279 Net interest receivable 2,288 2,555 5,007 -----------------------------------------------------------------Clean profit before tax 16,978 15,993 30,286 Tax expense (4,822) (3,875) (4,524) -----------------------------------------------------------------Clean earnings 12,156 12,118 25,672 =================================================================Clean earnings per share 5.49p 5.15p 11.42pClean diluted earnings per share 4.93p 4.60p 10.19p Independent review report of PricewaterhouseCoopers LLP to The Evolution GroupPlc (the "Company") We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the Group Income Statement,Group Balance Sheet, Group Cash Flow and Group Statement of Recognised Incomeand Expense and the related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion As explained in Note 1, wholly owned subsidiaries Williams de Broe Plc, Williamsde Broe Administration Limited and their respective subsidiaries (together "Williams de Broe"), which were acquired on 3 June 2006, have not beenconsolidated into these financial statements as required by IAS 27,'Consolidated and Separate Financial Statements' due to the lack of properaccounting records at Williams de Broe. As a result, pending reconstruction ofthe financial position of Williams de Broe at the date of acquisition and at 30June 2006, Williams de Broe is shown in the financial statements at the value of£41 million, representing the fair value of the cash consideration and thereplacement of working capital previously provided by ING Belgique SA. Theseamounts are subject to an adjustment mechanism based on actual net assetsacquired from ING Belgique SA. Consequently, at 30 June 2006, the Group BalanceSheet does not reflect the consolidated assets and liabilities of Williams deBroe and the Group Income Statement, Group Statement of Recognised Income andExpense and Group Cash Flow Statement do not reflect any post acquisition profitor loss, or cash flows of Williams de Broe. On the basis of our review, with the exception of any adjustments arising fromthe matter described in the preceding paragraph, we are not aware of anymaterial modifications that should be made to the financial information aspresented for the six months ended 30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon12 September 2006 GROUP INCOME STATEMENT (UNAUDITED) Note Six months Six months Twelve months to 30 June to 30 June to 31 December 2006 2005 2005 £'000 £'000 £'000 Fee and commission income 35,753 33,705 63,205Fee and commission expenses (1,422) (720) (1,500) ---------- ---------- --------------Net fee and commission income 34,331 32,985 61,705 Net trading income 7,979 3,794 9,206 Other income 521 114 1,064 ---------- ---------- --------------Total income 42,831 36,893 71,975 Profit on disposal of available-for-sale investments 96 39,436 40,048Profit on part sale of subsidiary 610 2 -Share of results of associate 13 - -Operating expenses (31,186) (27,331) (53,440) ---------- ---------- --------------Operating profit 12,364 49,000 58,583 Interest receivable and similar income 2,338 2,559 5,044 Interest payable and similar charges (50) (4) (37) ---------- ---------- --------------Profit before tax 14,652 51,555 63,590Tax expense (4,822) (3,875) (4,524) ---------- ---------- -------------- Profit for the period 9,830 47,680 59,066 ========== ========== ============== Profit attributable to minority interest 129 (17) 25Profit attributable to equity holders of The Evolution Group Plc 9,701 47,697 59,041 ---------- ---------- -------------- 9,830 47,680 59,066 ========== ========== ============== Basic earnings per ordinary share 4 4.44p 20.25p 26.18pDiluted earnings per share 4 3.99p 18.09p 23.35p Proposed dividend per share - Interim 5 0.5p 0.4p 0.4p - Final - - 0.8p Dividend declared (£'000) - Interim 5 1,109 859 859 - Final - - 1,781 The notes form an integral part of these consolidated interim financialstatements. GROUP BALANCE SHEET (UNAUDITED) Note 30 June 31 December 30 June 2006 2005 2005 £'000 £'000 £'000 ASSETSNon-current assetsGoodwill 9,877 9,085 8,990Investment in associate 121 - -Investment in Williams de Broe 15,000 - -Other intangible assets 849 232 224Property, plant and equipment 3,444 3,695 2,934Deferred tax assets 5,708 7,693 6,720 ------- ---------- -------Total non-current assets 34,999 20,705 18,868 Current assetsTrade and other receivables 102,346 42,069 70,031Available-for-sale investments 1,966 2,027 2,082Trading portfolio assets 47,014 13,446 35,677Temporary working capital provided to Williams de Broe 26,029 - -Cash and cash equivalents 63,883 137,973 103,044 ------- ---------- -------Total current assets 241,238 195,515 210,834 ------- ---------- -------Total assets 276,237 216,220 229,702 ======= ========== ======= LIABILITIESCurrent liabilitiesTrade and other payables 98,599 51,196 76,291Trading portfolio liabilities 10,012 6,200 5,720Current tax liabilities 2,482 1,947 4,611 ------- ---------- -------Total current liabilities 111,093 59,343 86,622 Non-current liabilitiesProvisions for liabilities 276 184 130 ------- ---------- -------Total liabilities 111,369 59,527 86,752 EQUITYCapital and reserves attributableto equity shareholdersShare capital 2,307 2,255 2,221Share premium 28,364 27,942 26,298Capital redemption reserve 274 274 275Merger reserve 51,230 51,230 51,230Fair value and other reserves (1,767) (1,652) (38)Retained earnings 84,017 76,592 63,048 ------- --------- ------- Parent company's shareholders' equity excluding minority interest 3 164,425 156,641 143,034Minority interest in equity 443 52 (84) ------- --------- -------Total equity 164,868 156,693 142,950 ------- --------- -------Total equity and liabilities 276,237 216,220 229,702 ======= ========= ======= The notes form an integral part of these consolidated interim financialstatements. GROUP CASH FLOW STATEMENT (UNAUDITED) Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000 £'000 £'000 Cash flow from operating activitiesCash used in operations (53,240) (12,088)Interest received 2,255 2,559Interest paid (50) (4)Income tax paid (1,969) (2,420) -------- --------Net cash outflow from operating activities (53,004) (11,953) Cash flows from investing activitiesAcquisition of subsidiaries (16,001) -Fees on acquisition of subsidiaries (111) -Cash acquired with subsidiary 931 -Proceeds from part sale of subsidiary - 10Purchase of property plant and equipment (326) (2,119)Purchase of intangible assets (103) (50)Purchase of available-for-sale investments (289) (518)Proceeds from sale of available-for -sale investments 230 51,294Dividends received - 15 -------- --------Net cash generated from investing activities (15,669) 48,632 Cash flows from financing activitiesIssues of ordinary share capital 405 10Dividends paid to the Company's shareholders (1,781) (1,307)Purchase of shares held by the Trust (3,906) (5,969)Purchase of treasury shares - (42,514) -------- --------Net cash used in financing activities (5,282) (49,780) -------- --------Net (decrease) / increase in cashand bank overdrafts (73,955) (13,101)Cash and bank overdrafts at beginning of period 137,973 115,170Exchange (losses) / gains on cashand bank overdrafts (135) 12 -------- -------- -------- --------Cash and bank overdrafts at end of 63,883 102,081period ======== ======== The notes form an integral part of these consolidated interim financialstatements. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) Note Six months Six months Twelve months to 30 June to 30 June to 31 December 2006 2005 2005 £'000 £'000 £'000 Profit for the financial period 9,830 47,680 59,066 Available-for-sale investments:Fair value changes taken to equity at 1 January 2005 - - 37,629Fair value changes taken to equity during the period (123) 41,339 (2,059)Fair value changes transferred to income statement on disposal 8 (41,377) (37,222) --------- -------- --------Net losses not recognised in income statement (115) (38) (1,652) --------- -------- --------Total recognised income and expense for the period 9,715 47,642 57,414 --------- -------- --------Attributable to:Minority interest 129 (17) 25Equity shareholders of the Parent 9,586 47,659 57,389 --------- -------- -------- 9,715 47,642 57,414 --------- -------- -------- The notes form an integral part of these consolidated interim financialstatements. 1. BASIS OF PREPARATION This financial information has been prepared for the Group only (excludingWilliams de Broe) and consists of the Group's Balance Sheet as at 30 June 2006,Group Income Statement, Group Cash Flow Statement and a Group Statement ofRecognised Income and Expense each for the six month period to 30 June 2006.This information does not represent a complete set of consolidated statutoryaccounts prepared under IFRS since it does not fully comply with therequirements of IAS 34, 'Interim Financial Reports', and contains only thoseitems required under the Listing Rules of the Financial Services Authority(revised June 2005), in accordance with which companies listed on the LondonStock Exchange are required to prepare their half-yearly reports. The financial information in this Interim Report does not constitute the Group'sstatutory accounts within the meaning of Section 240 of the Companies Act 1985(the "Act"). These financial statements have been prepared in accordance the 'PrincipalAccounting Policies' set out in the 2005 Annual Report and Accounts and Note 2(below), save for the consolidation of Williams de Broe as explained below. Thestatutory accounts for the year ended 31 December 2005, which contained anunqualified audit report under Section 235 of the Act and which did not make anystatements under Section 237 of the Act, have been delivered to the Registrar ofCompanies in accordance with Section 242 of the Act. On 3 June 2006, the Group acquired 100% of the equity of Williams de Broe Plcand its wholly owned subsidiaries: Williams de Broe Management Company Limited,Wilbro Nominees Limited, Williams de Broe Investment Management Limited (dormant), Williams de Broe Suisse SA, and Williams de Broe PTY (dormant); together with it sister company Williams de Broe Administration Limited (together referred to as "Williams de Broe"). In line with the structure of the acquisition of Williams de Broe as outlined inthe Chairman's Statement the Directors are undertaking a detailed review of thefinancial information of Williams de Broe, including the legacy reconciliationand statutory accounting issues. The statutory accounts for the year 2005 willbe completed after this review, following which the financial information willbe converted to the accounting policies adopted by the Group, including IFRS. Itis anticipated that this exercise will be completed in the final quarter of2006. Until that time the Directors do not feel it is appropriate to include thefinancial results and position of Williams de Broe within those of the Groupsince the Directors believe that the timely reporting of the Group's results andfinancial position and cash flows is critical to market participants. The value of the cash consideration is subject to a pound for pound adjustmentto the extent that the net assets of Williams de Broe as at 3 June 2006 aregreater or less then £15m as measured under UK generally accepted accountingprinciples, subject only to a maximum cash consideration of £25m. Accordinglythe value of the cash investment totalling £15m has been included in the balancesheet as "Investment in Williams de Broe", and the results and cash flows ofthat business have not been included in these financial statements. In additionthe Group has provided working capital to Williams de Broe totalling £26m, whichwas previously provided by ING, in the form of a £5m subordinated loan and a£21m cash facility. This balance is shown in the balance sheet as "Temporary working capital provided to Williams de Broe". Subsequent to 30 June 2006 Williams de Broe has repaid £4.5m of this balance. This treatment is not in accordance with IAS 27, 'Consolidated and SeparateFinancial Statements'. In the opinion of the directors, based on the informationavailable as at 12 September 2006, there would have been no material adjustmentto the net assets included in the Group Balance Sheet, to Group ProfitAttributable to Shareholders of the Group, or to the Statement of ReportedIncome and Expense, had this standard been complied with. However, individuallines within each financial statement would be different. Following the completion of the review of the financial information of Williamsde Broe, the fair values attributed to goodwill and intangibles will bedetermined. The Directors do not know at this stage what impact, if any, therewill be on the Consolidated Income Statement arising from this review. The preliminary announcement in March 2007 will include a set of financialstatements for the Group as at 30 June 2006 on a fully consolidated basis. Inaddition, it will include the disclosures required by International FinancialReporting Standard 3, 'Business Combinations' detailing the fair value of assetsacquired and the related goodwill. The Evolution Group Plc is a UK listed holding company for UK based financialservices companies. The Company is a public limited company incorporated in the United Kingdom. Theaddress of its registered office is: 100 Wood Street, London, EC2V 7AN. 2. ACCOUNTING POLICIES There have been no significant accounting policy changes to those described inthe 2005 Annual Report and Accounts, therefore the information in this reporthas been prepared using the accounting policies and presentation applied in2005, save for the accounting treatment applied to the acquisition of Williamsde Broe as described in Note 1. Consideration will be given during 2006 to the implications, if any, of thefollowing new standards, amendments to standards and interpretations that havebeen issued but are not effective for 2006 and have not been early adopted: • IFRIC 7, 'Applying the Restatement Approach under IAS 29', effective for annual periods beginning on or after 1 March 2006; • IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006; • IFRIC 9, 'Reassessment of Embedded Derivatives', effective for annual periods beginning on or after 1 June 2006 and; • IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007 and IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. 3. GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (excluding Minority Interest) Share Share Capital Merger Fair Retained Total capital premium Redemption Reserve value earnings equity reserve and other reserves £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2006 2,255 27,942 274 51,230 (1,652) 76,592 156,641 Profit for the period - - - - - 9,701 9,702Issue of ordinary share capital 52 422 - - - - 474Purchase of Trust shares by the Trust - - - - - (3,906) (3,906)Share option: value of services provided - - - - - 3,045 3,045Revaluation of available-for-sale investments - - - - (123) - (123)Available-for-saleinvestments transferred toincome statement on sale - - - - 8 - 8Deferred tax credit on employee options - - - - - 366 366Dividends paid - - - - - (1,781) (1,781) ------------------------------------------------------------------------------ Balance at 30 June 2006 2,307 28,364 274 51,230 (1,767) 84,017 164,425 ------------------------------------------------------------------------------ 4. EARNINGS PER ORDINARY SHARE The calculation of the basic earnings per ordinary share is based on the profiton ordinary activities after tax and on the weighted average number of ordinaryshares in issue during the year. The calculation of the diluted earnings pershare is based on the basic earnings per share adjusted to allow for the issueof shares on the assumed conversion of all dilutive options. Six months ended 30 June 2006 Six months ended 30 June 2005 Profit Weighted Earnings Profit Weighted Earnings £000's average no. per share £000's average no. per share (p) (p) Basic earnings per share 9,830 221,616,119 4.44 47,680 235,475,710 20.25 Dilutive effect of securities - 24,882,484 - - 28,084,352 - Diluted earnings -------------------------------- ---------------------------------per share 9,830 246,498,603 3.99 47,680 263,560,062 18.09 -------------------------------- --------------------------------- The dilutive effect of securities issued to minority option holders in ESCL isnot considered material to the calculations of dilutive earnings per share. 5. DIVIDENDS 30 June 2006 30 June 2005 £'000 £'000 Prior year final paid: 0.80p (2005: 0.58p) per 1p share 1,781 1,307 ------------- ------------- In addition, the Directors are proposing an interim dividend in respect of thefinancial year ending 31 December 2006 of 0.50p (2005: 0.40p) per share, whichwill absorb an estimated £1,109,000 (2005: £859,000) of shareholders' funds. Itwill be paid on 27 October 2006 to shareholders on the register of members on 29 September 2006. 6. BUSINESS COMBINATION Watterson Asia On 14 June 2006 the Group acquired 100% of the share capital of Watterson Asia,a Hong Kong regulated company, for a consideration of £2,183,000. The acquired business contributed revenues of £10,000 and nil profit to theGroup for the period from acquisition to 30 June 2006. If the acquisition hadoccurred on 1 January 2006, consolidated revenue and consolidated profit for thehalf-year ended 30 June 2006 would have been £321,000 and £90,000 respectively. On 29 June 2006, Watterson Asia Limited changed its name to Evolution WattersonSecurities Limited. Details of net assets acquired and goodwill are as follows: £'000Purchase consideration- cash paid 1,000- acquisition expenses 111- deferred cash consideration payable in December 2006 200- shares issued (885 shares @ £985/share) 872 ------------- Total purchase consideration 2,183- fair value of net identifiable assets acquired (1,390) ------------- Goodwill 793 ------------- The goodwill is attributable to Watterson Asia's strong position andprofitability in its market and the significant synergies expected to ariseafter its acquisition by the Group. The assets and liabilities arising from the acquisition are as follows: Acquirees's carrying amount Fair value £'000 £'000 Cash and cash equivalents 931 931Property, plant and equipment 11 11Customer relationships - 491Brand - 16Receivables 75 75Payables (132) (132)Net deferred tax assets (2) (2) =========== ==========Net identifiable assets acquired 883 1,390 =========== ========== Outflow of cash to acquire business, net of cash acquired: £'000 - cash consideration 1,000- cash and cash equivalents in subsidiary acquired (931) ---------Cash outflow on acquisition 69 ========= This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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