11th Sep 2007 07:03
Evolution Group PLC11 September 2007 Embargoed until 7.00am 11 September 2007 The Evolution Group Plc (the "Evolution Group", the "Group", the "Company"). Interim results for the six months ended 30 June 2007. Strong first half performance, funds under management over £2.5 billion. Evolution Group, the listed investment bank and private client fund managementgroup, today announces its interim results for the six months ended 30 June2007. Financial highlights: Six months Six months Six months to to 30 June to 31 December 30 June 2006 2006 2007 (Restated) (Restated) £'000 £'000 £'000 ------ ------ ------ Total income (before fee andcommission expense) 51,890 47,763 37,030 Adjusted profit before tax(1) 15,824 17,560 7,680Profit before tax 3,079 22,035 (5,347) Adjusted earnings(1) 12,021 11,549 4,887Profit / (loss) for theperiod 1,117 15,431 (8,585) Adjusted basic EPS(1) 5.63p 5.15p 2.23pBasic EPS 0.43p 6.91p (3.90p) •Record half total Group income(2) of £51.9m, up 40% compared with H2 06 of £37.0m (up 9% on H1 06: £47.8m). •Increase in interim dividend of 34% to 0.67p (2006: 0.5p) after a final dividend paid in June 2007 of 1.00p (2006: 0.80p). Operational highlights: •Williams de Broe integration completed successfully. •Evolution Securities' total income(2) up 39% to £32.2m compared to H2 06 £23.2m (H1 06: £36.9m). Re-balancing of business model demonstrated by 53% increase in secondary income to £23.0m from H2 06 at £15.0m (H1 06: £13.4m). •Williams de Broe increased funds under management by 16% from £2,184m at 31 December 2006 to £2,531m (up 172% from 30 June 2006: £931m). Total income(2) increased by 34% to £17.0m from £12.7m in the six months to 31 December 2006 (H1 06: £7.9m). •Evolution Securities China continues to demonstrate strong growth in both primary and secondary activities, with total income(2) up 42% to £3.7m (H1 06: £2.6m), only marginally below the 2006 full year result of £4.1m. Commenting on the results and the Group's outlook, Martin Gray, Chairman, said: "This has been a good first half for the Group. We have successfully completedthe integration of Williams de Broe and re-balanced Evolution Securities tostrengthen our secondary market franchise, while successfully maintaining itsnumber one ranking on AIM. Evolution Securities China has also experienced astrong first half with total income only marginally below the full year resultfor last year. We are particularly pleased with the performance of Williams de Broe, ourprivate client fund management business, which achieved strong growth in bothmanagement fees and transactional income as funds under management wereincreased to over £2.5 billion, compared with £0.9 billion at the same stagelast year, making it one of the leading players in this market. We believe that the Group is now extremely well positioned to prosper in itschosen markets, notwithstanding the current volatile and uncertain environment.Our strategic restructuring of the business over the past year has created aGroup which now has two strong core businesses - each of which is a leader inits own field - and a strong balance sheet. The Board considers that thisstructure will serve the Group well and looks forward with confidence to thefuture." Notes:(1) Adjusted operating profit, adjusted profit before tax (formerly clean profitbefore tax) and adjusted earnings (formerly clean earnings) are defined in theFinancial Information section. (2) Represents total income before fee and commission expenses. - Ends - For further information, please contact: The Evolution Group Plc 020 7071 4300Alex Snow, Chief Executive OfficerGraeme Dell, Finance Director Bell Pottinger Corporate and Financial 020 7861 3232Charles CookMike DaviesVictoria Geoghegan Notes to Editors: The Evolution Group Plc The Evolution Group is the holding company of Evolution Securities Limited,Williams de Broe Limited and Evolution Securities China Limited. Founded inApril 2001 and originally listed on the AIM, the Evolution Group joined theOfficial List in 2003 and now has a market capitalisation of over £290 million. Evolution Securities Limited is a leading investment bank focused on mid-cap andsmall cap UK public companies. It provides a full range of investment bankingservices including equity research, institutional sales and trading, marketmaking, fixed income and corporate finance advice. Evolution Securities Limitedhas approximately 100 retained corporate clients. It is authorised and regulatedby the Financial Services Authority. Williams de Broe Limited is a leading private client fund manager, with officesin Bath, Birmingham, Bournemouth, Exeter, Guildford and London. Williams de Broeis authorised and regulated by the Financial Services Authority. Evolution Securities China Limited is a specialist Chinese investment bankingbusiness with offices in London, Hong Kong and Shanghai. It offers UK basedinstitutional clients research and trading in Chinese stocks and Chinesecorporates access to the markets in London and Hong Kong CHAIRMAN'S STATEMENT Review of the half year ended 30 June 2007 The Evolution Group's ("Evolution", the "Company" or the "Group") objective hasbeen to achieve a real balance in revenues between those of a recurring natureand those that are cyclical in type and to improve the quality of revenuestreams. I am pleased to report that in the first half the majority of theGroup's income came from recurring sources. Fundamental to the achievement ofthis strategy was the acquisition of W Deb MVL Plc (formerly Williams de BroePlc) completed in June 2006. Since the integration of this business within theGroup's investment banking and private client fund management businesses wasonly completed in July and October 2006 respectively it is clear that the moreappropriate comparative period for the Group's principal businesses is thesecond half of 2006. The Group's total income (before fee and commission expenses) increased to arecord level of £51.9m, up by 40% from £37.0m in H2 06 (up 9% from £47.8m in H106). Investment Banking Evolution Securities ("ESL"), the Group's principal investment banking business,has achieved total income (before fee and commission expenses) in the first halfof £32.2m, up by 39% from £23.2m in H2 06 (down 13% from £36.9m in H1 06). Primary - During the period ESL has executed one IPO and thirteen secondaryplacings, which together with other advisory fees and retainers have generated£9.0m in H1 of 2007 (2006 - H2: £9.8m; H1: £23.3m;). The level of primary feeshas decreased in H1 07 due to the restructuring of this business completed in H206 and we expect a return to normalised levels going forward. IPOs transacted byESL since 2006 have continued to perform well since issue, outperforming themarket, and on a weighted average basis have shown a 30% increase, demonstratingthe strength of our procedures in the primary issues we have completed. Secondary - Our secondary franchise has continued to develop. Total income fromequity sales commissions, trading and fixed income has increased by 53% to£23.0m from £15.0m in H2 06 (H1 06: £13.4m). ESL has seen a continuousimprovement in its secondary market share across all sectors since June 2006,attaining top 10 agency commission market share in each of the FTSE 100, FTSE250 and AIM sectors whilst maintaining our leading position within AIM by marketshare in total business. We have also maintained our number two position on theprincipal electronic retail platform in the UK. Our research coverage hasenjoyed greater market penetration and we have strengthened our targetedfranchises through the recruitment of analysts in Aerospace/Defence, Leisure/Gaming, Utilities, and Telecoms, Media and Technology. We firmly believe thatresearch across small, mid and large capitalised sectors is the cornerstone of asecurities business. Our research teams now cover nine broad sectors and duringthe first half we have also strengthened our sales and trading teams. We aim to be a leading UK only securities business, covering specialist sectorsprincipally in the small and mid cap markets, but also encompassing large capstock research and trading. Trading, research, sales and corporate finance areall aligned on these same sector lines. We will strive to keep a balance betweenprimary and secondary revenues recognising the relative volatility of both atcertain points in any cycle. This balance has been achieved in the first halfwith Primary income accounting for only approximately 30% of ESL's income. Private Client Fund Management Williams de Broe ("WdB"), the Group's private client fund managementbusiness, has seen continued momentum in growth this year on all metrics. Totalincome (before fee and commission expenses) for the first half was £17.0m, up by34% from £12.7m achieved in H2 06 (up 115% from £7.9m in H1 06), following thegrowth in both management fees and transactional revenue. At 30 June 2007, total funds under management were £2.5bn, an increase of 16%from the £2.2bn as at last year end (increase of 172% on the £0.9bn at 30 June2006). Total discretionary funds continue to account for over 85% of total fundswith recurring management fees now a significant source of stable income for theGroup. We have seen continued growth in funds under management into ourdiscretionary portfolio management services and also into our other fund basedproducts and services, including WdB Assetmaster and the specialist EIS and IHTproducts. This follows a record six months of new fund sales in 2007 (£0.3bn)from WdB's dedicated intermediary sales team (H2 06: £0.1bn; H1 06: £0.1bn). We were delighted that three years after launch the WdB Assetmaster range ofmulti-manager funds was awarded top quartile status by Lipper Hindsight andachieved an S&P 'A' ranking in all four funds: Cautious, Balanced, Growth andInternational Growth. In addition, it is our intention in the remainder of theyear to launch two new fund products: a UK equity hedge fund with an absolutereturn strategy and a long only UK alpha fund. WdB has continued to recruit further high quality individual managers over thecourse of this year, and this has continued to strengthen our team, and willprove to provide another important source of growth in our business. With thedevelopments outlined above this business has become significant, both withinthe Group and by reference to external benchmarks, and we look forward toproviding details of the compelling growth strategy for WdB at the forthcominginvestor briefings. Evolution Securities China Limited Evolution Securities China ("ESCL") income growth has continued strongly in 2007with total income (before fee and commission expenses) in the period of £3.7m,only marginally below the 2006 full year result of £4.1m (H1 06: £2.6m; H2 06£1.5m). Whilst the business remains a small part of the overall Group, it ispleasing to see that it has developed well in this period with growth in bothprimary and secondary activities. Balance sheet, cash and other items The Group has a long term policy of balance sheet strength, with net assets of£155.8m at the period end (31 December 2006: £154.0m) and retains a cash balanceof £54.3m at 30 June 2007 (31 December 2006: £88.6m). The shape of our balancesheet at 30 June 2007 now reflects the significant investment in the business byway of working capital used in the secondary market franchise of ESL and thesignificant increase in bargain volumes and market shares that have beenachieved here. Dividend The Board declares an interim dividend of 0.67p per share (2006: 0.5p). Thisreflects the Board's continued commitment to a progressive dividend policy asset out in the 2006 Annual Report and Accounts. This is payable on 26 October2007 to shareholders on the register at 28 September 2007. Board changes I am pleased to announce that the Board has approved the appointment of PeterGibbs to be a Non-executive Director with effect from 1 October 2007. We see hisappointment as an important and significant strengthening of the Board. Staff This is a business whose results are based on the significant efforts of itspeople. I thank each of them most warmly for their contribution to the Group'sperformance. Outlook The Board believes that the Group is now extremely well positioned to prosper inits chosen markets, notwithstanding the current volatile and uncertainenvironment. Our strategic restructuring of the business over the past year hascreated a Group which now has two strong core businesses - each of which is aleader in its own field - and a strong balance sheet. The Board considers thatthis structure will serve the Group well and looks forward with confidence tothe future. Martin GrayChairman11 September 2007 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'. This excludes items that are one-off or non-recurring (including itemsthat fall to be treated as exceptional), are not part of the on-going businessprofitability or, in the case of the income statement charge for share optionsand amortisation of intangible assets, which we view in the same manner asgoodwill and the share of results of associate companies that are not core tothe Group, represent non-cash items. The Board reviews performance against the measure 'Adjusted profit before tax'(formerly 'Clean profit before tax'), which represents adjusted operating profitplus net interest; and also the measure 'Adjusted earnings' (formerly 'Cleanearnings'), which represents adjusted profit before tax less tax expense. Thesemeasures are also followed by the analyst community as benchmarks for theGroup's on-going performance. Whilst statutory operating profit has declined from £19.8m to £1.8m, thiscompares with a loss of £7.1m in H2 06. The difference resulted principally fromthe profit of £10.2m arising from negative goodwill associated with theacquisition of W Deb MVL Plc in H1 06 and further exceptional items in this halfyear of £6.1m following last year's acquisitions. The remaining differenceresults from the continued investment in the people and systems within ouroperating businesses, an investment that we believe makes the Group well placedfor the remainder of 2007 and beyond. Adjusted operating profit is £14.5m. This has reduced slightly from the £15.3min the equivalent period last year but has shown a significant improvementagainst H2 06 of £6.0m, an increase of 143%. The addition of interest of £1.3mto adjusted operating profit results in adjusted profit before tax of £15.8m forthe period. This is 105% above H2 06 of £7.7m (down 10% from £17.6m in H1 06).Interest has fallen by £0.4m or 24% from H2 06 as a result of the increased working capital used within the business (down £0.9m or 40% from H1 06 of £2.2m). Adjusted earnings have increased by 146% from £4.9m in H2 06 to £12.0m (up 4% from £11.5m in H1 06). The following table reconciles these measures: UNAUDITED --------------------------------------------------- 6 months to 6 months to 6 months to 30 June 2007 30 June 2006 31 December 2006 (Restated) (Restated) £'000 £'000 £'000 £'000 £'000 £'000 Operating profit/(loss) 1,768 19,824 (7,059) Items not included within adjusted operating profitProfit on disposal of available-for-sale investments - - (5)Profit on part sale ofsubsidiary - (610) (477) ----------------------------------------------------Adjustment for profits oninvestments - (610) (482) Amortisation of intangibles 270 - 213Share of results of associated undertakings (29) (13) 12Income statement chargefor share options grantedto employees(1) 6,594 3,045 4,778 -----------------------------------------------------Non-cash items 6,835 3,032 5,003 Exceptional and non-recurring itemsExceptional (gain)/lossarising on disposal ofavailable-for-sale-investments (226) (96) 533Negative goodwill arising on acquisition - (10,237) (1,857)Operating expenses 6,136 3,436 9,052Impairment of intangibles - - 778 -----------------------------------------------------Adjustment for items that are one off or non-recurring 5,910 (6,897) 8,506 Adjusted Group operating profit 14,513 15,349 5,968Net interest receivable 1,311 2,211 1,712 -------- ------- -------Adjusted profit before tax 15,824 17,560 7,680Tax expense(2) (3,803) (6,011) (2,793) -------- ------- -------Adjusted earnings for the period 12,021 11,549 4,887 ======== ======= ======= Adjusted earnings attributableto minority interest 211 129 (18)Adjusted earnings attributableto equity holders of TheEvolution Group Plc 11,810 11,420 4,905 ------- ------- ------- 12,021 11,549 4,887 ======= ======= ======= Adjusted basic earningsper share 5.63p 5.15p 2.23pAdjusted diluted earningsper share 4.76p 4.81p 2.06p Notes:(1)Represents the income statement charge for the fair value of options grantedto employees. The Group continues to purchase shares through the Trust to satisfy obligations in respect of share options and call rights granted to employees.(2)Excludes the tax effect of exceptional items. Update on W Deb MVL Plc net asset valuation and exceptional items Following the finalisation of the fair value of net assets arising on theacquisition of W Deb MVL Plc on 3 June 2006, final adjustments have been made tothe provisional acquired balance sheet numbers disclosed in the 2006 AnnualReport. Further details on the impact of this review, which has affected theprior year financial information, are disclosed in Note 2. As detailed in Note 8 exceptional operating expenses of £6.1m have been incurredin the period (2006 - H2:£9.1m; H1: £3.4m). These were the final operating costsincurred prior to closing the business of W Deb MVL Plc and the costs toactually close down this business and retain key staff following theacquisition. Management do not expect any further material exceptional costs tobe incurred in the remainder of 2007. Share purchases by the Employee Trust This year the Group has purchased an additional 4.8m shares for totalconsideration of £6.8m. These shares were purchased by the Trust and are held tosatisfy share awards made to staff in the Group. The Trust held 11.7m shares at30 June 2007 (31 December 2006: 9.6m; 30 June 2006: 9.1m). Subsequent to theperiod end and up to the date of this report the Group has purchased a further1.8m shares for a total cost of £2.5m. At the date of this report the Trustholds 13.6m shares. The treatment of option costs within the income statement, at £6.6m for the sixmonths to 30 June 2007 (H1 06: £3.0m) arising on the award of options to keystaff, continues to be consistent with prior periods. These costs are added backto the measure of adjusted operating profit. 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 2007 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Recognised Income and Expense and the related notes.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies 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. The maintenance and integrity of The Evolution Group Plc web-site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web-site. Legislation in the UnitedKingdom governing the preparation and dissemination of financial information maydiffer from legislation in other jurisdictions. 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 management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. 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 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon11 September 2007 CONSOLIDATED INCOME STATEMENT (UNAUDITED) Twelve months Six months to to 31 Six months to 30 June 2006 December 2006 30 June 2007 (Restated) (Restated) Note £'000 £'000 £'000 Fee and commission income 37,370 39,348 71,395Fee and commission expenses (1,456) (1,735) (1,788) --------- --------- ---------Net fee and commission income 35,914 37,613 69,607Trading income 14,469 7,940 13,146Other income 51 475 252 --------- --------- ---------Total income 50,434 46,028 83,005 Profit/(loss) on disposal ofavailable-for-sale investments 226 96 (432)Profit on part sale of subsidiary - 610 1,087Share of results of associate 29 13 1Negative goodwill arising on acquisition - 10,237 12,094-------------------------------------------------------------------------------Operating expenses (42,785) (33,724) (70,502)Exceptional operating expenses 8 (6,136) (3,436) (12,488)-------------------------------------------------------------------------------Total operating expenses (48,921) (37,160) (82,990) --------- --------- ---------Operating profit 1,768 19,824 12,765 Interest receivable and similar income 1,401 2,361 4,097Interest payable and similar charges (90) (150) (174) --------- --------- ---------Profit before tax 3,079 22,035 16,688-------------------------------------------------------------------------------Tax expense (3,803) (6,011) (8,804)Exceptional tax credit/(expense) 1,841 (593) (1,038)-------------------------------------------------------------------------------Total tax expense 5 (1,962) (6,604) (9,842) --------- --------- ---------Profit for the period 1,117 15,431 6,846 ======== ========= ========= Profit attributable to minority interest 211 129 111Profit attributable to equity holders of The Evolution Group Plc 906 15,302 6,735 --------- --------- --------- 1,117 15,431 6,846 ========= ========= ========= Basic earnings per ordinary share 3 0.43p 6.91p 3.06pDiluted earnings per share 3 0.37p 6.44p 2.83p Proposed dividend per share - Interim 4 0.67p 0.50p 0.50p - Final - - 1.00p Dividend declared (£'000) - Interim 4 1,408 1,107 1,107 - Final - - 2,094 CONSOLIDATED BALANCE SHEET (UNAUDITED) 31 December 30 June 30 June 2006 2006 2007 (Restated) (Restated) Note £'000 £'000 £'000ASSETSNon-current assetsGoodwill 9,931 9,956 9,877Other intangible assets 2,813 2,745 3,391Property, plant and equipment 3,941 4,337 3,444Deferred tax assets 11,828 10,973 13,030Investment in associate 138 109 121Trade and other receivables 34 35 - --------- --------- --------Total non-current assets 28,685 28,155 29,863 Current assetsTrade and other receivables 528,221 132,992 290,385Available-for-sale investments 964 1,926 2,030Trading portfolio assets 82,666 27,716 51,146Cash and cash equivalents 54,276 88,565 68,972 --------- --------- ---------Total current assets 666,127 251,199 412,533 --------- --------- ---------Total assets 694,812 279,354 442,396 ========= ========= ========= LIABILITIESCurrent liabilitiesTrade and other payables 514,178 107,269 256,841Trading portfolioliabilities 20,346 14,728 10,119Current tax liabilities 3,637 2,579 4,106 --------- --------- --------Total current liabilities 538,161 124,576 271,066 Non-current liabilitiesDeferred tax liabilities 406 459 587Provisions for liabilities 414 333 276 --------- --------- --------Total non-current liabilities 820 792 863 --------- --------- --------Total liabilities 538,981 125,368 271,929 --------- --------- --------EQUITYCapital and reserves attributable toequity shareholdersShare capital 2,218 2,214 2,307Share premium 28,682 28,445 28,364Capital redemption reserve 373 373 274Merger reserve 51,230 51,230 51,230Fair value and other reserves (1,477) (1,491) (1,767)Retained earnings 73,425 72,061 89,616 ---------- --------- --------Parent company's shareholders' equityexcluding minority interest 6 154,451 152,832 170,024Minority interest in equity 1,380 1,154 443 --------- --------- --------Total equity 155,831 153,986 170,467 --------- --------- --------Total equity and liabilities 694,812 279,354 442,396 ========= ========= ========= CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) Six months to Six months to 30 June 2006 30 June 2007 (Restated) ------------------ ----------------- £'000 £'000 £'000 £'000 Cash flow from operating activitiesCash used in operations (28,431) (40,882)Interest received 1,803 2,278Interest paid (90) (150)Income tax recovered/(paid) 414 (1,976) -------- -------- -------- --------Net cash outflow fromoperating activities (26,304) (40,730) Cash flows from investing activitiesAcquisition of subsidiaries - (27,030)Fees on acquisition of subsidiaries - (1,057)Cash acquired with subsidiary - 5,570Purchase of propertyplant and equipment (396) (326)Purchase of intangible assets (578) (103)Purchase of available-for-saleinvestments - (138)Proceeds from sale ofavailable-for-sale investments 1,242 230 -------- -------- -------- --------Net cash generated /(absorbed) from investing activities 268 (22,854) Cash flows from financing activitiesIssues of ordinary share capital 127 405Dividends paid to theCompany's shareholders (2,094) (1,781)Purchase of shares held by the Trust (6,235) (3,906) ------- -------- -------- --------Net cash used in financing activities (8,202) (5,282) -------- --------Net decrease in cash and bank overdrafts (34,238) (68,866) Cash and bank overdrafts at beginning of period 88,565 137,973Exchange gains/(losses)on cash and bank overdrafts (51) (135) --------- --------Cash and bank overdrafts at end of period 54,276 68,972 ========= ======== CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) Twelve months Six months to to 31 December Six months to 30 June 2006 2006 June 2007 (Restated) (Restated) £'000 £'000 £'000 Profit for the financial period 1,117 15,431 6,846 Available-for-sale investments:Fair value changes takento equity during the period 280 (123) (151)Exchange differences (40) - (88)Deferred tax on shareoptions taken to equity 2,055 (1,653) (1,188) -------- -------- --------Net profit/(loss) notrecognised in income statement 2,295 (1,776) (1,427) -------- -------- --------Total recognised income andexpense for the period 3,412 13,655 5,419 ======== ======== ========Attributable to:Minority interest 211 129 111Equity shareholders of the Parent 3,201 13,526 5,308 -------- -------- -------- 3,412 13,655 5,419 ======== ======== ======== 1. BASIS OF PREPARATION This information does not represent a complete set of consolidated interimfinancial statements 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 with the 'PrincipalAccounting Policies' set out in the 2006 Annual Report and Accounts and Note 2below. The statutory accounts for the year ended 31 December 2006, whichcontained an unqualified audit report under Section 235 of the Act and which didnot make any statements under Section 237 of the Act, have been delivered to theRegistrar of Companies in accordance with Section 242 of the Act. The prior half year interim financial statement comparatives have been extractedfrom The Evolution Group Plc revised Interim Financial Information (Unaudited)distributed to shareholders with the Annual Report and Accounts for 2006. Thisinformation has been restated to reflect the revised fair value of net assetsdescribed in Note 2 below and the prior period adjustments described in Note 7below. In addition, the 2006 full year end comparatives have been restated toreflect the revised fair value of net assets described in Note 2 below and theprior period adjustments described in Note 7 below. 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 2006 Annual Report and Accounts, save for the adoption of IFRS 7, asdescribed below, and therefore the information in this report has been preparedusing the accounting policies and presentation applied in 2006. In accordance with IFRS 3, 'Business Combinations', the provisional allocationof the purchase consideration to the assets acquired from W Deb MVL Plc has beenreviewed based on additional information up to 3 June 2007. Listed below are theindividual adjustments arising following this review. Note 9 provides therevised analysis for the W Deb MVL Plc acquisition following this review. Following a review of the fair value of assets and liabilities arising on theacquisition of W Deb MVL Plc, further trading assets have been identified whichon disposal are to be shared 50:50 with the vendor. This review has resulted inprior year trading portfolio assets increasing by £1,696,000 and other creditorsincreasing by £848,000, reflecting the amount to be paid away to the vendor, inboth the 30 June 2006 and 31 December 2006 balance sheets. The offset to this isan increase in negative goodwill of £848,000. The fair value of the remainingportfolio of assets has been reduced by £327,000, in both the 30 June 2006 and31 December 2006 balance sheets, reflecting the final valuation adjustment tothe assets acquired. The offset to this is a reduction in negative goodwill of£327,000. In addition other debtors and other creditors within the balance sheet at both30 June 2006 and 31 December 2006 have each been reduced by £306,000, reflectingthe reversal of accrued professional fees, indemnified by the vendor, which areno longer payable. Finally, the fair value of other creditors at acquisition hasbeen reduced by £226,000, in both the 30 June 2006 and 31 December 2006 balancesheets, reflecting the over accrual for professional fees at the acquisitiondate. The offset to this is an increase in negative goodwill of £226,000. The income statement for the year ended 31 December 2006 has been restated toreflect additional trading income arising on the revaluation of trading assetsin the period. This adjustment has resulted in an increase in trading income of£104,000 with a corresponding increase in trading portfolio assets within thebalance sheet. The net effect of the above is an increase in negative goodwill arising onacquisition of £747,000 in both the 30 June 2006 and 31 December 2006 incomestatements. During the year IFRS 7, 'Financial Instruments Disclosures' has been adopted bythe Group. This has no impact on these financial statements. The annual reportfor the year ending 31 December 2007 will show the required disclosures underthis standard. 3. EARNINGS PER ORDINARY SHARE As per Note 7, earnings per share for 2006 have been adjusted to reflect theincome statement restatements arising on the revision of fair values to the netassets acquired and from the other adjustments detailed in that note. Thecalculation of the basic earnings per ordinary share is based on the profit forthe period (excluding minority interest) and on the weighted average number ofordinary shares in issue during the year. The calculation of the dilutedearnings per share is based on the basic earnings per share adjusted to allowfor the issue of shares on the assumed conversion of all dilutive options. Six months ended 30 June 2007 Six months ended 30 June 2006 (Restated) Earnings Weighted Earnings Earnings Weighted Earnings ave. no. per share ave. no. per share Statutory £000's (p) £000's (p) ------------------------------- ------------------------------ Basic 906 209,813,406 0.43 15,302 221,616,119 6.91 Dilutive effect of share awards - 38,243,816 - - 15,913,979 - ------ ----------- ----- ------- ----------- -----Diluted 906 248,057,222 0.37 15,302 237,530,098 6.44 ------ ----------- ----- ------- ----------- ----- Six months ended 30 June 2007 Six months ended 30 June 2006 (Restated) Earnings Weighted Earnings Earnings Weighted Earnings ave. no. per share ave. no. per shareAdjusted £000's (p) £000's (p) -------------------------------- ----------------------------- Basic 906 209,813,406 0.43 15,302 221,616,119 6.91 Profit oninvestments - - - (610) - (0.28)Exceptionalitems 5,910 - 2.81 (6,897) - (3.10)Exceptional tax(credit)/expense (1,841) - (0.87) 593 - 0.26Non-cash items 6,835 - 3.26 3,032 - 1.36 -------------------------------- ---------------------------Adjusted basic 11,810 209,813,406 5.63 11,420 221,616,119 5.15Dilutive effect ofshare awards - 38,243,816 - - 15,913,979 - -------------------------------- -----------------------------Adjusteddiluted 11,810 248,057,222 4.76 11,420 237,530,098 4.81 -------------------------------- ----------------------------- 4. DIVIDENDS 30 June 2007 30 June 2006 £'000 £'000 Prior year final paid: 1.00p (2006: 0.80p) per1p share 2,094 1,781 -------- -------- In addition, the Directors are proposing an interim dividend in respect of thefinancial year ending 31 December 2007 of 0.67p (2006: 0.50p) per share, whichwill absorb an estimated £1,408,000 (2006: £1,107,000) of shareholders' funds.It will be paid on 26 October 2007 to shareholders on the register of members on28 September 2007. 5. TAX EXPENSE Six months to Six months to Twelve months 30 June 2007 30 June 2006 to 31 December £'000 (Restated) 2006 (Restated) £'000 £'000Current tax:UK Corporation tax on profit 3,727 5,646 8,879Corporation tax onexceptional items (1,841) 593 (2,122)Adjustments in respect ofprior years (1,287) - -Foreign tax 215 33 252 --------- --------- ---------Current year tax charge 814 6,272 7,009Deferred tax:Current year movement 1,148 332 2,833 --------- --------- ---------Tax on profit 1,962 6,604 9,842 --------- --------- --------- The tax assessed for the period is higher (2006: lower) than the standard rateof corporation tax in the UK (30%). The differences are explained below. Theeffective rate of tax for the period is 30% (2005: 30%) Factors affecting the current tax charge for the period are explained below: Six months to Twelve months Six months to 30 June 2006 to 31 December 30 June 2007 (Restated) 2006 (Restated) £'000 £'000 £'000 Profit before tax 3,079 22,035 16,688 Profit multiplied by the standard rate of corporationtax in the UK of 30% (2006:30%) 924 6,61 5,006Effects of:Expenses not deductible for tax purposes 5,961 7,495 10,519Schedule 23 deduction onoptions exercised (3,750) (9,557) (10,495)Utilisation of losses (1,106) (102) 47Non taxable income (69) (183) (361)Adjustments in respect of prior years (1,287) - -Higher tax rates on overseas earnings (27) (5) 132Stock options taken to equity reserves 168 2,013 2,161 ------- ------- --------Current tax charge 814 6,272 7,009 ------- ------- -------- Deferred tax 303 332 (328)Exceptional deferred tax - - 3,161Adjustment in respect of prior years 845 - - ------- ------- --------Current year movement 1,148 332 2,833 ------- ------- --------Total tax charge 1,962 6,604 9,842 ------- ------- -------- The exceptional tax credit of £1,841,000 (30 June 2006: debit of £593,000)relates to the 30% tax credit estimated to arise on the £6,136,000 (2006:£3,436,000) of exceptional operating expenses, offset in the prior period by the£1,624,000 of tax estimated to arise on the £5,413,000 consideration receivedfrom the vendor for the net assets of W Deb MVL Plc. The prior year end exceptional tax credit of £2,122,000 relates to the 30% taxcredit estimated to arise on the £12,488,000 exceptional operating expenses,offset by the £1,624,000 tax estimated to arise on the consideration as detailedabove. The prior year exceptional deferred tax debit of £3,161,000 relates tothe write off of deferred tax assets on pension contributions made by the vendorof W Deb MVL Plc prior to acquisition. The 2007 adjustment in respect of prior years relates to the utilisation oflosses claimed for the years ended 31 December 2005 and 2006. 6. GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (excluding Minority Interest) Fair Capital value and Retained Share Share redemption Merger other Earnings Total capital premium reserve Reserve reserves (Restated) equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1January 2007 2,214 28,445 373 51,230 (1,491) 72,061 152,832 Profit for theperiod - - - - - 906 906Issue of ordinary share capital 4 237 - - - - 241Purchase ofTrust sharesby the Trust - - - - - (6,235) (6,235)Share option:value of servicesprovided - - - - - 6,583 6,583Revaluation ofavailable-for-saleinvestments - - - - 280 - 280Available-for-saleinvestments transferred toincome statement on sale - - - - (226) - (226)Deferred tax credit onemployee options - - - - - 2,204 2,204Exchangedifferences - - - - (40) - (40)Dividends paid - - - - - (2,094) 2,094) ----- ------ ------ ------ ------- ------- -------Balance at 30June 2007 2,218 28,682 373 51,230 (1,477) 73,425 154,451 ----- ------ ------ ------ ------- ------- ------- 7. OTHER ADJUSTMENTS The income statements in the prior periods have been restated to reflect there-classification of interest on client assets more appropriately as fee andcommission income rather than other income. This adjustment has resulted in theother income figure for the six months to 30 June 2006 and for the year to 31December 2006 decreasing by £347,000 and £1,101,000 respectively and fee andcommission income increasing by an equivalent amount. The income statements in the prior periods have been restated to reflect there-classification of taxation credits on exceptional operating expenses asexceptional tax expense rather than tax expense. This adjustment has resulted inthe ordinary tax expense figure for the six months to 30 June 2006 and for theyear to 31 December 2006 increasing by £1,031,000 and £3,746,000 respectivelywith the exceptional tax expense amount decreasing by an equivalent amount. Inaddition, the exceptional tax expense for the six months to 30 June 2006 hasincreased by £1,624,000, with the ordinary tax expense decreasing by anequivalent amount, reflecting the estimated tax arising on the £5,413,000consideration receivable from the vendor for net assets acquired in June 2006. The balance sheet at 30 June 2006 has been restated to reflect thereclassification of non-current deferred tax liabilities from current taxliabilities to non-current deferred tax liabilities. This adjustment hasresulted in a re-classification of £587,000. The prior year end tax expense figure has been restated to reflect thecorrection to deferred tax expense on employee options which had beenoverstated. This adjustment has resulted in a decrease in tax expense of£2,161,000 in the income statement for the year ended 31 December 2006 with anoffsetting decrease in retained earnings. There is no impact on net assetsarising from this adjustment. As a result of the fair value adjustments in Note 2 and the other adjustmentspresented above, the prior year profit for the period within the incomestatement has decreased by £877,000 for the six months to 30 June 2006 and hasincreased by £3,012,000 for the year ended 31 December 2006. The adjustments tothe profit figures for the prior periods results in basic and diluted EPSfigures decreasing from 7.30p and 6.81p respectively to 6.91p and 6.44p for thesix months to 30 June 2006 and increasing from 1.69p and 1.56p respectively to3.06p and 2.83p for the year ended 31 December 2006. 8. EXCEPTIONAL ITEMS As indicated in the annual report for 2006 the Group has incurred significantcosts during the period which it considers to be exceptional. A summary of allexceptional items for 2007 together with the comparative figures for 2006 isprovided below: Six months to Six months to 31 December Total Six months to 30 June 2006 2006 2006 30 June 2007 (Restated) (Restated) (Restated)Exceptional items £'000 £'000 £'000 £'000 Goodwill arising on acquisitionNegative goodwill - 10,237 1,857 12,094 Operating expenses Retention and loyalty bonuses (2,824) (2,249) (3,930) (6,179)Costs to close down business (1,780) (1,187) (2,262) (3,449)Other operating expenses (1,532) - (2,860) (2,860) -------- -------- -------- -------- (6,136) (3,436) (9,052) (12,488)Exceptional tax credit/(expense) 1,841 (593) (445) (1,038) -------- -------- -------- --------Total Exceptional items (4,295) 6,208 (7,640) (1,432) -------- -------- -------- -------- Costs to close down the business include redundancy and provisions to terminatethe systems and leases following closure of the acquired businesses. Otheroperating expenses include those expenses incurred for wages and salaries,premises and systems which are not expected to recur. 9. BUSINESS COMBINATION W Deb MVL Plc (formerly Williams de Broe Plc) and Williams de BroeAdministration Limited As previously reported, on 3 June 2006 the Company acquired 100% of the sharecapital of the W Deb MVL Plc and Williams de Broe Administration Limited. Adjustments to the fair value of identifiable net assets acquired in the year to3 June 2007 are as detailed below. Provisional Final £'000 £'000Purchase considerationIntercompany debts assumed by the Company 26,029 26,029Acquisition expenses 1,609 1,609 Amount recoverable for negative net assets (5,413) (5,413)Amount recoverable from indemnities received (5,927) (5,621) -------- --------Total purchase consideration 16,298 16,604Fair value of net identifiable assets acquired 27,645 28,698 -------- --------Negative goodwill arising (11,347) (12,094) -------- -------- The assets and liabilities arising from the acquisition are as follows: Provisional Final Fair value Fair value £'000 £'000 Cash and cash equivalents 5,654 5,654Investments 70 70Customer relationships 1,125 1,125Brand 1,066 1,066Distribution channels 351 351Receivables (including trading portfolio assets) 263,248 263,995Payables (250,750) (250,444)Deferred tax asset 7,469 7,469Deferred tax liability (588) (588) ---------- --------Net identifiable assets acquired 27,645 28,698 ---------- -------- The payables figure in the table above includes an amount of £1,014,000 inrespect of bank overdraft balances. Please refer to Note 2 for an explanation of the movements from the provisionalto the final fair values detailed above and the impact these have on thenegative goodwill arising. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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