7th Mar 2005 07:01
Close Brothers Group PLC07 March 2005 Embargoed for release 7.00 am on Monday 7th March, 2005 CLOSE BROTHERS GROUP plc The specialist merchant banking group INTERIM RESULTS 2005 HIGHLIGHTS Six months ended Year ended 31st January, 31st January, 31st July, 2005 2004 2004 * Operating profit before taxation £65.1m £57.8m £118.9m and goodwill amortisation * Operating profit before taxation £60.9m £53.4m £101.3m on ordinary activities * Earnings per share (before 31.2p 27.7p 57.3p amortisation of goodwill) * Interim dividend per share 9.5p 9.0p n/a * Shareholders' funds £538m £504m £509m * Profits and earnings per share up 13%. * Dividend up 6%. * Investment Banking profits increased by 17%; group contribution 51%. Asset Management growth continues. FUM up 22% to £6.1bn. Corporate Finance improved revenues; higher contribution from M&A. Market-Making activity slower in early months, picked up late autumn. * Banking profits increased by 2%. Loan book (£2.0bn) up 6% organic. Lower bad debts, but testing markets and increased regulatory costs. Colin Keogh, Chief Executive, commenting on the results said: "The first half results are satisfactory and again demonstrate the resilience ofour diversified business model. We expect that investment banking will continueto move forward whilst banking will continue to find trading tough. Overall, weare set fair for our second half." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Rupert Young Brunswick Group LLP 020 7404 5959 Webcast video interview with Colin Keogh, Chief Executive, Close Brothers Groupplc at www.closebrothers.co.uk or www.cantos.com DIRECTORS' STATEMENT Profit and Dividend The operating profit on ordinary activities before taxation and goodwillamortisation of £4.2 million was £65.1 million compared with £57.8 million lastyear, an increase of 13 per cent. The earnings per share before goodwillamortisation was 31.2p compared with 27.7p, also up 13 per cent. After deducting the charge for goodwill amortisation, the operating profit onordinary activities before taxation was £60.9 million (2004 - £53.4 million), up14 per cent. Earnings per share on this basis increased by 15 per cent. to 28.4p(2004 - 24.6p). The directors have declared an interim dividend of 9.5p per share, an increaseof 5.6 per cent. over the interim of 9p per share last year. This is payable on13th April, 2005 to shareholders on the register at the close of business on18th March, 2005 and is in line with our policy to grow dividends whilerebuilding cover. Overall Business Review The first half results are satisfactory and again demonstrate the resilience ofour diversified business model. As foreshadowed in our last Annual Report, goodgrowth came from our investment banking activity while the growth rate of ourbanking activity slowed somewhat with the impact of testing markets and recentregulatory changes. The divisional results are shown in the table below. Investment Banking increased profits by some 17 per cent. compared to the sameperiod last year and contributed 51 per cent. (2004 - 48 per cent.) to thegroup's operating result. Market-Making performed well given the quietconditions in the early part of the period and Corporate Finance completed apleasing number of transactions for clients. The key driver of growth in theperiod was our burgeoning Asset Management division which is beginning to seethe benefits of groundwork laid in earlier years. Banking had a busy period, raising €500 million of new funding and making twoin-fill acquisitions in January. Our loan book increased to £2.0 billion (2004 -£1.7 billion) with an organic growth rate of some 6 per cent. Profits were 2 percent. higher compared with the same period last year. Operating income Profit before taxation First First First First half half half half£million 2004 2005 2004 2005 InvestmentBanking Asset Management 38.3 57.3 7.2 15.2 Corporate Finance 16.9 21.4 4.5 4.9 Market-Making 53.0 44.6 19.9 17.0 ------- ------- ------- ------- 108.2 123.3 31.6 37.1Banking 85.5 90.4 34.4 35.2Group 0.8 1.4 (8.2) (7.2) ------- ------- ------- ------- 194.5 215.1 ------- -------Profit before goodwill amortisation 57.8 65.1Goodwill amortisation (4.4) (4.2) ------- -------Profit before taxation 53.4 60.9 ------- -------The divisional net assets have not changed materially during the first half year. Divisional Business Review Banking While the organic growth rate of our banking profits has slowed, we continued toachieve a high return on income (39 per cent.) and a high return on capital (31per cent. annualised on opening shareholders' funds). These results had tosustain increased regulatory cost but benefited from the stable conditions forarrears levels and bad and doubtful debts, where our charge as a proportion ofaverage loan book fell to 1.0 per cent. (2004 - 1.3 per cent.). The acquisitions of Singer & Friedlander's motor finance loan book, now beingrun off, and Cattles' commercial assets lending business in Hull, togetheramounted to some £200 million of loans. Consequently our gross loan bookexpanded over the past 12 months to £1.98 billion (2004 - £1.68 billion),analysed as follows: 31st January, 2004 2005 Motor vehicles 20% 24%Insurance premiums 29% 22%Transport, engineering and plant 15% 16%Printing machinery 16% 13%Healthcare, armed services and other 7% 10%Property 8% 9%Debt factoring 5% 6% ------ ------ 100% 100% ------ ------ Our treasury, property lending and credit management businesses all increasedprofits while other commercial assets and motor vehicle finance performed wellin flat markets. In contrast and as expected, we have experienced a slowdown in our insurancefinancing business, with continued premium deflation, and also in mortgagesarranged. During the period the new regulation of mortgage brokers and of thesale of insurance has absorbed management time and led to increased costs. Theimplications of this are likely to be felt for some time. Planning for future growth, we have expanded the funding available to the bankand have raised €500 million for three years under a medium-term note programmeat an attractive rate. We now have credit ratings from both Fitch and Moody's asa result of which a wider funding market is open to us. Investment Banking Asset Management Funds under management grew 22 per cent. over the past year to £6.1 billion from£5.0 billion (as shown by the table below). However the timing of both new fundstaken on and prior year reorganisation and infrastructure charges contributed toan increase in revenue and profits of 50 per cent. and 111 per cent.respectively. Funds under management First First half half 2004 2005 £bn £bn New funds raised 0.5 0.6Withdrawals and redemptions (0.2) (0.3) ------ ------Net new funds 0.3 0.3Market effect 0.1 0.3Acquired funds 0.9 -Total at start of period 3.7 5.5 ------ ------ Total at end of period 5.0 6.1 ------ ------ Our private client business (FUM £2.3 billion) continued to develop, withearlier investment offshore bearing fruit and providing enhanced profits.Furthermore our wealth management accounts processed in London have now beenmigrated to our acquired business in Northwich which itself contributed for thefull period. Our unquoted funds (FUM £1.8 billion) progressed, with private equity achievingsome notable realisations for us and our clients as well as making investmentsfor its new £360 million Fund VII, now fully on-stream. In addition, ourproperty funds and our award-winning VCT team continued to attract newinvestors. Our specialist funds (FUM £2.0 billion) did well and we continue to refine ourstrategic plans for the future shape and development of this business. With major share markets generally stronger than six months ago, the developmentof this division continues. Corporate Finance Despite broadly flat activity in the mid-cap advisory market in the UK weachieved some useful completions in each of our three main areas of business - M&A, restructuring and debt advisory. This gave rise to an improvement in ourrevenues and a higher contribution from the M&A area. Activity in our Europeanassociates was encouraging and profits showed some improvement. We have beenawarded "European Restructuring House of the Year 2004" by InternationalFinancing Review. Market-Making Our market-making income was some 16 per cent. lower than in the same periodlast year, as business was slower during the earlier months. However activitypicked up in the late Autumn as the indices improved having been directionlessfor some months. In addition, our net margin held up well with the periodbenefiting from advisory activity in the investment trust sector. The firmertone to the market has continued into the new calendar year. Outlook The UK economy continues to grow but at a reducing rate. The UK stock marketended 2004 on a positive note and has progressed in the early weeks of 2005, butthere is evidence of slowdown in the consumer finance market; for the time beinghowever the bad debt scenario for banks remains benign. Against this background we expect that investment banking will continue to moveforward whilst banking will continue to find trading tough. Overall, we are setfair for our second half. 7th March, 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT Six months ended Year ended 31st January, 31st July, 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Interest receivable 137,410 116,243 240,348Interest payable 68,849 50,828 106,757 -------- -------- -------- Net interest income 68,561 65,415 133,591 -------- -------- -------- Fees and commissions receivable 103,847 86,568 194,453Fees and commissions payable (16,020) (13,675) (34,072)Net dealing income - market-making 48,138 54,683 99,983Other operating income 10,603 1,529 7,227 -------- -------- -------- Other income 146,568 129,105 267,591 -------- -------- -------- Operating income 215,129 194,520 401,182 -------- -------- -------- Administrative expenses 136,155 121,961 248,622Depreciation 5,099 4,387 10,833Provisions for bad and doubtful debts 8,804 10,365 22,781Amortisation of goodwill 4,160 4,451 17,603 -------- -------- -------- Total operating expenses 154,218 141,164 299,839 -------- -------- -------- Operating profit on ordinary activities before taxation 60,911 53,356 101,343Taxation on profit on ordinary activities 18,740 16,794 33,925 -------- -------- -------- Profit on ordinary activities after taxation 42,171 36,562 67,418Minority interests - equity 982 1,092 2,209 -------- -------- -------- Profit attributable to shareholders 41,189 35,470 65,209Interim dividend 13,636 12,875 38,479 -------- -------- -------- Retained profit 27,553 22,595 26,730-------------------------------------------------------------------------------- Dividend per share 9.5p 9.0p 27.0p -------- -------- -------- Earnings per share before amortisation of goodwill 31.2p 27.7p 57.3p -------- -------- -------- Earnings per share on profit attributable to shareholders 28.4p 24.6p 45.1p -------- -------- -------- Diluted earnings per share 28.3p 24.5p 45.0p -------- -------- -------- All income and profits are in respect of continuing operations. CONSOLIDATED BALANCE SHEET 31st January, 31st July, 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000AssetsCash and balances at central banks 923 970 844Loans and advances to banks 715,399 631,192 733,029Loans and advances to customers 1,978,149 1,684,206 1,757,074Non-recourse borrowings (250,000) (225,000) (250,000) 1,728,149 1,459,206 1,507,074Debt securities - long positions 55,966 50,297 54,521Debt securities - other 862,809 790,760 777,509Settlement accounts 544,330 437,675 366,213Equity shares - long positions 41,184 41,338 34,714Loans to money brokers against stock advanced 139,222 106,175 113,116Equity shares - investments 24,661 24,585 26,770Intangible fixed assets - goodwill 97,566 104,413 98,628Tangible fixed assets 36,285 32,607 32,855Share of gross assets of joint ventures 21,826 21,637 21,855Share of gross liabilities of joint ventures (21,183) (21,079) (21,358) 643 558 497Other assets 78,067 68,146 84,708Deferred taxation 18,140 12,813 14,377Prepayments and accrued income 46,860 32,072 35,589 -------- -------- -------- Total assets 4,390,204 3,792,807 3,880,444-------------------------------------------------------------------------------- LiabilitiesDeposits by banks 124,588 116,894 79,188Customer accounts 1,752,796 1,527,004 1,681,152Bank loans and overdrafts 545,047 621,275 621,360Debt securities - loan notes issued 350,000 100,000 100,000Debt securities - short positions 45,415 47,930 52,842Settlement accounts 479,931 354,680 301,159Equity shares - short positions 19,857 10,307 14,406Loans from money brokers against stock advanced 158,502 136,746 105,639Other liabilities 171,953 176,772 207,615Accruals and deferred income 101,735 93,226 106,208Subordinated loan capital 96,937 96,937 96,937Minority interests - equity 5,080 6,704 4,674 -------- -------- -------- Total liabilities 3,851,841 3,288,475 3,371,180 -------- -------- -------- Shareholders' fundsCalled up share capital 36,135 36,033 36,066Share premium account 251,642 249,935 250,430ESOP trust reserve (3,868) (4,116) (3,962)Profit and loss account 254,454 222,480 226,730 -------- -------- -------- Total equity shareholders' funds 538,363 504,332 509,264 -------- -------- -------- Total liabilities and shareholders' funds 4,390,204 3,792,807 3,880,444-------------------------------------------------------------------------------- Memorandum itemsContingent liabilities - guarantees 5,606 3,083 5,889Commitments - other 223,153 190,229 194,284 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months ended Year ended 31st January, 31st July, 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Profit attributable to shareholders 41,189 35,470 65,209Exchange adjustment 94 (1,488) (1,554) -------- -------- -------- Total recognised gains and losses 41,283 33,982 63,655 -------- -------- -------- -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT Six months ended Year ended 31st January, 31st July, 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Net cash inflow from operating activities (Note 1(a)) 345,639 180,985 113,868 -------- -------- -------- Returns on investments and servicing of finance:Interest paid on subordinated loan capital (3,938) (3,917) (7,834)Dividends paid to minorities (512) (743) (1,419) -------- -------- -------- (4,450) (4,660) (9,253) -------- -------- --------Taxation:Taxation paid (21,431) (12,063) (32,184) -------- -------- -------- Capital expenditure and financial investment:Purchase of tangible fixed assets (8,731) (5,253) (18,613)Sale of tangible fixed assets 1,180 223 630Purchase of equity shares held for investment (5,824) (763) (2,839)Sale of equity shares held for investment 14,843 2,377 5,677 -------- -------- -------- 1,468 (3,416) (15,145) -------- -------- -------- Acquisitions and disposals:Minority interests acquired for cash (2,622) (36) (2,950)Purchase of loan book (130,530) - -Purchase of subsidiaries (Note 1(b)) (16,623) (7,956) (11,772) -------- -------- -------- (149,775) (7,992) (14,722) -------- -------- -------- Equity dividends paid (25,604) (24,482) (37,357) -------- -------- -------- Net cash inflow before financing 145,847 128,372 5,207 Financing:Issue of ordinary share capital including premium 1,281 438 966 -------- -------- -------- Increase in cash 147,128 128,810 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 Six months ended Year ended 31st January, 31st July, 2005 2004 2004 (Unaudited) (Unaudited) (Audited) £'000 £'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 60,911 53,356 101,343 (Increase)/decrease in: Interest receivable and prepaid expenses (11,196) (4,859) (8,376) Net settlement accounts 655 (9,168) 8,773 Net equity shares held for trading (1,019) (26,017) (15,294) Net debt securities held for trading (8,872) 4,264 4,952 (Decrease)/increase in interest payable and accrued expenses (4,601) (3,423) 9,559 Depreciation and amortisation 9,259 8,838 28,436 -------- -------- ------- Net cash inflow from trading activities 45,137 22,991 129,393 (Increase)/decrease in: Debt securities held for liquidity (85,300) (246,934) (233,683) Loans and advances to customers (25,065) (68,592) (141,460) Loans and advances to banks not repayable on demand 164,679 244,112 19,764 Other assets less other liabilities 9,242 41,148 10,067 Increase/(decrease) in: Deposits by banks 45,400 9,022 (28,684) Customer accounts 71,644 125,522 279,670 Bank loans and overdrafts (130,098) 3,716 3,801 Non-recourse borrowings - 50,000 75,000 Debt securities - loan notes issued 250,000 - - -------- -------- ------- Net cash inflow from operating activities 345,639 180,985 113,868 -------- -------- ------- (b) Analysis of net cash outflow in respect of purchase of subsidiaries Cash consideration in respect of current year purchases (16,204) (9,563) (9,563) Loan stock redemptions and deferred consideration paid in respect of prior year purchases (419) (4,992) (8,808) Net movement in cash balances - 6,599 6,599 -------- -------- ------- (16,623) (7,956) (11,772) -------- -------- ------- (c) Analysis of changes in financing Share capital (including premium) and subordinated loan capital: Opening balance 383,433 382,467 382,467 Shares issued for cash 1,281 438 966 -------- -------- ------- Closing balance 384,714 382,905 383,433 -------- -------- ------- (d) Analysis of cash balances Movement in the period £'000 Cash and balances at central banks 79 923 970 844 Loans and advances to banks repayable on demand 147,049 283,584 259,046 136,535 --------- --------- --------- -------- 147,128 284,507 260,016 137,379 --------- --------- --------- ---------------------------------------------------------------------------------------- THE NOTES 2. Basis of preparation The interim accounts, which are unaudited, have been prepared on the basis ofthe accounting policies set out in the 2004 annual accounts. The figures shown for the full year ended 31st July, 2004 represent an abridgedversion of the full accounts of Close Brothers Group plc for that year, whichhave been filed with the Registrar of Companies and on which the auditors havegiven an unqualified report. The financial information contained in this interimreport does not constitute the group's statutory accounts within the meaning ofSection 240 of the Companies Act 1985.-------------------------------------------------------------------------------- 3. Earnings per share Earnings per share before amortisation of goodwill is based on profit of£45,349,000 (2004 - £39,921,000), being profit after taxation and minorityinterests but before goodwill amortisation, and on 145,162,000 (2004 -144,272,000) ordinary shares, being the weighted average number of shares inissue and contingently issuable during the period 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 £41,189,000 (2004 - £35,470,000) and onthe same number of shares as above. Diluted earnings per share is based on this same profit after taxation andminority interests, but on 145,600,000 (2004 - 144,856,000) 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 period.-------------------------------------------------------------------------------- INDEPENDENT REVIEW REPORT Independent Review Report to Close Brothers Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31st January, 2005 which comprises the profit and lossaccount, the balance sheet, the statement of total recognised gains and losses,the cash flow statement and related notes 1 to 3. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31st January, 2005. Deloitte & Touche LLPChartered AccountantsLondon 7th March, 2005-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Close Bros