Close Bros Regulatory News (CBG)

3 Mar 2008 07:02

Close Brothers Group PLC03 March 2008 Embargoed for release 7.00 am on Monday 3 March 2008 CLOSE BROTHERS GROUP plc The specialist merchant banking group announces INTERIM RESULTS 2008 Financial Highlightsfor the six months ended 31 January 2008 First half First half 2008 2007 Operating profit before tax £69.8m £97.8m -29% Basic earnings per share 31.4p 46.8p -33% *Operating profit before exceptional items, goodwill impairment and tax £75.3m £76.7m -2% *Adjusted earnings per share 35.1p 36.8p -5% Profit attributable to shareholders £46.7m £68.9m -32% Dividend per share 13.5p 12.0p +13% Shareholders' funds £0.7bn £0.7bn Total assets £5.4bn £4.8bn +12% *Reported for the first time is operating profit before exceptional items, goodwill impairment and tax and the corresponding adjusted earnings per share to enable consistent comparison of underlying performance with prior periods. Detailed disclosure of adjusting items is given in the notes to the financial statements at note 3 on segmental information, note 4 on exceptional items and note 5 on earnings per share. Operational Highlightsfor the six months ended 31 January 2008 Asset Management profit of £18.0 million. FUM down 2% on last year end to £8.9billion. Corporate Finance profit of £4.6 million reflecting a quieter period in the UK. Securities profit of £23.8 million. Strong contribution from Mako, our newassociate. Banking profit of £37.7 million. Loan book up 8% on last year to £2.0 billion.Deposits up 20% on last year to £2.4 billion. Colin Keogh, Chief Executive commenting on the results said: "The first half performance has been resilient against a backdrop of challengingmarket and trading conditions." Enquiries to: Colin Keogh Close Brothers Group plc 020 7426 4000 Justin Clark Close Brothers Group plc 020 7426 4000 Emma Burdett Maitland 020 7379 5151 Anthony Silverman Maitland 020 7379 5151 Webcast video interview with Colin Keogh, Chief Executive and Jonathan Howell, Finance Director, Close Brothers Group plc at www.closebrothers.co.uk and www.cantos.com Chairman and Chief Executive's Statement INTRODUCTIONThe first six months of our 2008 financial year has been an eventful period. Thegroup received an unsolicited takeover approach and our markets have beenimpacted by the effects of the credit crunch. In addition, equity markets havebeen volatile against a background of a deteriorating economic picture in theUS, the UK and Europe. Against this backdrop we are pleased to report a soundset of results with no exposure to sub prime mortgages or structured productssuch as Structured Investment Vehicles ("SIVs") and Collateralised DebtObligations ("CDOs"). THE RECENT OFFER PERIODOn 8 November 2007 we received an unsolicited approach for the group. Since thattime we have been in an Offer Period as defined by the Takeover Code. Duringthis period we received a number of other approaches and have entered intodetailed discussions with several parties. These discussions were held againstthe background of steadily deteriorating credit and stock markets and, as aresult, no bidder has been able to deliver a firm, fully financed, offer for theboard to consider or which we could put to our shareholders. This has been anunsettling period for our employees, clients and customers and after thisprolonged period of uncertainty, the board decided to terminate all suchdiscussions. RESULTSOperating profit before exceptional items, goodwill impairment and tax for thesix months ended 31 January 2008 was £75.3 million (2007: £76.7 million), down2%. Operating profit before tax was £69.8 million (2007: £97.8 million), down29%. Exceptional expense items for the period were £5.5 million relating to advisers'fees incurred during the offer period. In the six months ended 31 January 2007exceptional revenue items were £21.1 million in the Asset Management divisionrelating to investment gains and private equity performance fees. Adjusted earnings per share for the period was 35.1p (2007: 36.8p), down 5%.Basic earnings per share was 31.4p (2007: 46.8p), down 33%. The directors have declared an interim dividend per share of 13.5p, an increaseof 13%, in accordance with our policy of sustainable and progressive dividendgrowth. This is payable on 16 April 2008 to shareholders on the register at theclose of business on 14 March 2008. STRATEGY REVIEWDuring the offer period, the board, together with its financial advisers,undertook a review of the group's strategy to identify the best options fordelivering shareholder value. In this review, five main options were evaluated: the sale of the whole group; abreak-up and separate sale of each of the divisions of the group; sale of one ormore of the divisions; a return of capital to shareholders based on an increasein gearing; and finally, further development as an independent broadly basedfinancial services group. The first option, the sale of the whole group, offered shareholders anopportunity to crystallise significant value with the least execution risk. As aresult it was fully pursued but no firm, fully financed, offer was forthcoming. The second, total break-up option was rejected because, in the judgement of theboard and its advisers, this option carried extremely high execution risk andwas unlikely to yield a better financial result for shareholders. The board concluded that the third option, the sale of one or more of ourdivisions, was equally unattractive. In light of current market volatility, itwas felt that it would not be possible to establish competitive tension in anybusiness auction or reach close to fundamental value of any one business. Theboard also considered it unattractive to reduce the overall size of the group,at a time of considerable financial uncertainty and volatility. The group is well capitalised and soundly financed with a strong balance sheet.This is an important strength which provides both resilience and flexibility inthe current environment of reduced liquidity in the credit markets. Nonetheless,the board considered the option of gearing up the balance sheet and returningcash to shareholders. The board was not happy to increase the fundamental riskprofile of the group at this juncture, nor did it wish to restrict theavailability of capital to fund growth in the bank or attractively pricedacquisition opportunities of the sort current market conditions are expected toprovide. However, it will continue to keep the group's capital structure underreview. For all these reasons the board came to the clear conclusion that it was in thebest interests of all shareholders that Close Brothers should continue to growand develop as a broadly based financial services group. The board reviews itsgroup strategy and structure on a regular basis. THE WAY FORWARDIn the light of the events of the last few months it is important to reaffirmour strategy. This remains clear and consistent: actively to manage ourdistinctive, diverse, specialist and soundly financed businesses with a view togenerating growth in profit, dividends and long term shareholder value. Webelieve strongly in the Close Brothers business model which has delivered goodvalue to shareholders over the long term. We have some specific actions planned to enhance profit growth. These willinclude: • More rigorous capital management.• Being more proactive in shifting capital from one division to another in response to growth opportunities.• Adjusting the risk profile of the group in the light of future growth opportunities.• Increasing the number and size of acquisitions of businesses both in the UK and internationally. We have both the ambition and resource to do this and, as expected in current market conditions, we are seeing an increasing number of acquisition opportunities at attractive valuations.• Bringing a greater focus on costs at all levels. We have always relied on the motivational effect of equity and for some time wehave been considering whether existing remuneration arrangements, particularlyfor key management in our divisions, are effective to deliver the right businessperformance and behaviour and have sufficient retention effect. Recent eventshave highlighted the need to implement incentive arrangements which link rewardto future increases in business value, provide significant staff retentionincentives and provide "currency" to enable businesses to attract new employees.We are well advanced in the design of new equity type incentive arrangements. OVERALL BUSINESS REVIEWAgainst an exceptionally challenging background in both the overall tradingenvironment and our specific circumstances we have produced a solid set ofresults. Divisional profit is shown in the table below: Operating profit before exceptional items, goodwill impairment and tax -------------------------------- First First half half 2008 2007 £ million £ million Asset Management 18.0 21.6Corporate Finance 4.6 7.4Securities 23.8 20.4Banking 37.7 37.4Group (8.8) (10.1)-------------------------------------------------------------------------------- 75.3 76.7-------------------------------------------------------------------------------- Our key performance indicators excluding exceptional items and goodwillimpairment remained broadly steady. First First Full half half year 2008 2007 2007 % % % Operating margin 30 29 30Expense/income ratio 66 67 67Compensation ratio 44 45 43Bad debt ratio 1.0 1.0 1.1 These results reflect a strong maiden contribution from Mako Global DerivativesExecutive LLP ("Mako") which joined the group in October 2007 and which has hada small favourable impact on the operating margin and expense income ratio. The compensation ratio in the period includes a commitment to "lock-in" paymentsin certain areas of the business necessitated by uncertainty caused by the offerperiod. DIVISIONAL BUSINESS REVIEWFunding and LiquidityThe group has maintained its policy of financing its customer loan book withcapital and reserves, longer term deposits and committed facilities. We willcontinue to borrow long and lend short. The group has a broad spread ofcommitted facilities with terms up to four years and has over £350 million ofthese facilities undrawn. Customer deposits represent 121% of our loan book and have grown 20% over thelast twelve months to £2.44 billion, compared with £2.03 billion at 31 January2007. We continue to operate a risk averse approach to treasury operations. Ourtreasury counterparties have, almost exclusively, a credit rating of AA orbetter. We have no exposure to sub prime mortgages, SIVs, CDOs or otherstructured products. The group remains soundly financed in these times of reduced market liquidity. BankingOperating profit for the six months was slightly ahead of last year at £37.7million (2007: £37.4 million) with operating margin steady at 38% (2007: 38%).Our loan book at 31 January 2008 was £2,006 million, 8% up on last year. We haveseen no sign of deterioration in bad debt in the last six months and our baddebt charge remains steady at 1%. There has been some increase in demand for our specialist lending services andproducts together with a reduction in competitive pressure in some areas as aresult of the credit crunch. Looking forward, we anticipate that there will be opportunities for both organic and acquired growth. Asset ManagementFirst half profit of £18.0 million represents a good result in what has been aturbulent six months for asset managers. Our broad spread of asset classesprovides useful protection from stock market falls and the effect of declines inthe property market has been blunted by the aggressive programme of salesundertaken last year. Nonetheless this has been a difficult period for raisingnew funds and the £0.7 billion of new funds raised was offset by a similaramount of redemptions, withdrawals and realisations. Overall market movementsled to a 2% decline in FUM since 31 July 2007 to £8.9 billion. We will continue to push ahead with our growth plans in this division whilstseeking to extract the benefits of the recent restructuring of the business. Inaddition, we will be looking to add scale where operational gearing benefits canbe obtained. Corporate FinanceCorporate Finance profit for the period was £4.6 million (2007: £7.4 million)reflecting a quieter period in the UK. Our French operation had an exceptionallystrong six months and this was backed by a solid performance from Germany, withthe UK more directly impacted by the market volatility and the uncertaintycreated by the offer period. M&A continued to dominate the mix, although lookingforward we are seeing signs of an increase in restructuring activity. This business has an excellent European mid-market position and is welldiversified both by activity and geography. Our specialist restructuring anddebt advisory business is well positioned to take advantage of the currentmarket slowdown. We continue to seek to increase our corporate client base inall our geographies and to move towards a more unified business with a single,strong European franchise. With this objective we have increased our equityinvestment in our Spanish associate from 20% to 45% and in April 2008 we expectto acquire the remaining 17% of our French subsidiary. SecuritiesThe overall outcome for this division was satisfactory at £23.8 million (2007:£20.4 million). Weaker trading performances from Winterflood Securities("Winterflood") and Close Brothers Seydler AG were compensated for by a strongcontribution from our new associate, Mako, in which we invested last October. Bargain numbers at Winterflood were slightly up compared to last year butvolatile trading conditions in falling markets have led to a significantreduction in profit per bargain. The securities business remains competitive. Generating growth in our biggestsecurities business, Winterflood, has been a challenge against a backdrop ofmargin pressure. However Winterflood has a strong core business and there areopportunities to diversify its franchise into other areas. In December 2007 we launched Close Brothers Seydler Limited, a stock brokingcompany specialising in marketing small and mid-cap German securities toLondon-based institutional investors. This business has got off to a good startand we will continue to broaden our exposure in this interesting area. BOARD CHANGESPeter Buckley retired from the board on 31 December 2007 and with effect from 1January 2008 Jamie Cayzer-Colvin joined the board. Peter Buckley was appointedan alternate director to Jamie Cayzer-Colvin due to the latter convalescingafter an operation. It is expected that Jamie Cayzer-Colvin will be able to takeup his duties later this year. We are pleased to welcome Jonathan Howell to the board as finance director. Hejoined us on 4 February 2008 from the London Stock Exchange Group plc. OUTLOOKThe first half performance has been resilient against a backdrop of challengingmarket and trading conditions. Ongoing difficult market conditions are likely to continue to affect business inour Securities and Corporate Finance divisions. We take comfort from the broadspread of our asset management activities although we expect raising new fundsand attracting new assets in this climate to be difficult. We expect a solidsecond half performance from our banking businesses. Overall, we expect the current trading performance to continue into the secondhalf. Condensed Income Statementfor the six months ended 31 January 2008 Six months ended Year ended 31 January 31 July ----------------------- ----------- 2008 2007 2007 Unaudited Unaudited Audited Note £ million £ million £ million Interest and similar income 180.2 149.2 313.0Interest expense and similar charges 107.4 76.8 165.6-------------------------------------------------------------------------------- Net interest income 72.8 72.4 147.4-------------------------------------------------------------------------------- Fees and commissions income 140.8 159.4 360.8Fees and commissions expense (21.8) (24.5) (54.1)Gains less losses arising from dealing in securities 45.1 56.1 115.5Share of profit of associates 5.1 0.2 0.9Other operating income 11.0 20.4 36.3-------------------------------------------------------------------------------- Other income 180.2 211.6 459.4-------------------------------------------------------------------------------- Operating income before exceptional items 253.0 262.9 585.7Exceptional income 4 - 21.1 21.1-------------------------------------------------------------------------------- Operating income 253.0 284.0 606.8-------------------------------------------------------------------------------- Administrative expenses 167.2 171.0 376.3Impairment losses on loans and advances 9.6 9.1 21.5Depreciation and amortisation 6.4 6.1 15.1Impairment losses on goodwill - - 3.7-------------------------------------------------------------------------------- Total operating expenses before exceptional items and goodwill impairment 177.7 186.2 412.9Exceptional expenses 4 5.5 - -Impairment losses on goodwill - - 3.7-------------------------------------------------------------------------------- Total operating expenses 183.2 186.2 416.6-------------------------------------------------------------------------------- Operating profit before exceptional items, goodwill impairment and tax 75.3 76.7 172.8Exceptional items 4 (5.5) 21.1 21.1Impairment losses on goodwill - - (3.7)-------------------------------------------------------------------------------- Operating profit before tax 69.8 97.8 190.2Tax 21.2 27.1 53.5-------------------------------------------------------------------------------- Profit after tax 48.6 70.7 136.7Profit attributable to minority interests 1.9 1.8 3.8-------------------------------------------------------------------------------- Profit attributable to the shareholders of the company 46.7 68.9 132.9-------------------------------------------------------------------------------- Basic earnings per share 5 31.4p 46.8p 90.4pDiluted earnings per share 5 31.1p 46.7p 89.8pOrdinary dividend per share 6 13.5p 12.0p 37.0pSpecial dividend per share 6 - - 25.0p All income and profits are in respect of continuing operations. Condensed Balance Sheetat 31 January 2008 31 January 31 July --------------------- --------- 2008 2007 2007 Unaudited Unaudited Audited Note £ million £ million £ million AssetsCash and balances at central banks 1.8 1.4 1.6Settlement accounts 392.4 551.0 624.9Loans and advances to customers 2,005.8 1,863.2 1,962.5Loans and advances to banks 447.3 736.6 577.9Debt securities and equity shares - long trading positions 85.0 100.5 116.7Financial instruments classified as available for sale 790.1 502.7 775.2Certificates of deposit classified as loans and receivables 1,107.6 551.5 823.6Equity shares valued at fair value through profit or loss 16.9 20.4 16.6Floating rate notes held to maturity 30.8 25.8 27.9Loans to money brokers against stock advanced 132.2 130.1 114.3Other receivables 55.1 77.8 56.4Interests in associates 65.8 1.1 1.5Property, plant and equipment 35.3 43.0 37.4Intangible assets - goodwill 113.3 113.9 113.2Intangible assets - other 6.7 9.0 7.3Deferred tax assets 34.2 27.0 27.8Prepayments and accrued income 89.1 77.8 82.4Derivative financial instruments 6.1 5.7 7.7-------------------------------------------------------------------------------- Total assets 5,415.5 4,838.5 5,374.9-------------------------------------------------------------------------------- LiabilitiesSettlement accounts 379.1 471.3 484.5Deposits by customers 2,435.4 2,027.2 2,302.7Deposits by banks 213.0 141.8 160.6Debt securities and equity shares - short trading positions 43.7 70.1 67.0Loans and overdrafts from banks 973.9 371.0 457.8Promissory notes and other debt securities in issue 18.6 347.8 353.0Loans from money brokers against stock advanced 98.1 152.5 185.0Non-recourse borrowings 167.0 150.0 150.0Subordinated loan capital 75.0 75.0 75.0Other liabilities 141.4 154.0 192.4Current tax liabilities 14.4 27.5 29.3Accruals and deferred income 126.2 124.1 145.0Derivative financial instruments 8.8 24.6 20.0-------------------------------------------------------------------------------- Total liabilities 4,694.6 4,136.9 4,622.3-------------------------------------------------------------------------------- EquityCalled up share capital 37.3 36.8 36.8Share premium account 272.9 263.0 264.6Profit and loss account 411.9 386.3 432.4ESOP trust reserve (22.9) (10.7) (17.1)Other reserves 13.2 18.0 28.6Minority interests 8.5 8.2 7.3-------------------------------------------------------------------------------- Total equity 7 720.9 701.6 752.6-------------------------------------------------------------------------------- Total liabilities and equity 5,415.5 4,838.5 5,374.9-------------------------------------------------------------------------------- Condensed Statement of Recognised Income and Expensefor the six months ended 31 January 2008 Six months ended Year ended 31 January 31 July --------------------- ---------- 2008 2007 2007 Unaudited Unaudited Audited £ million £ million £ million Profit after tax 48.6 70.7 136.7--------------------------------------------------------------------------------Currency translation differences 2.3 (0.6) (0.7)Cash flow hedging (4.4) (0.4) 1.4Tax allowance on share option and deferred share awards 2.2 0.9 0.4Movements on available for sale investments (12.5) (1.0) 4.8-------------------------------------------------------------------------------- (12.4) (1.1) 5.9-------------------------------------------------------------------------------- Total recognised income and expense 36.2 69.6 142.6-------------------------------------------------------------------------------- Attributable to minority interests 1.9 1.8 3.8Attributable to shareholders 34.3 67.8 138.8-------------------------------------------------------------------------------- 36.2 69.6 142.6-------------------------------------------------------------------------------- Condensed Cash Flow Statementfor the six months ended 31 January 2008 Six months ended Year ended 31 January 31 July --------------------- ----------- 2008 2007 2007 Unaudited Unaudited Audited Note £ million £ million £ million Net cash inflow from operating activities 8(a) 329.3 176.5 572.9-------------------------------------------------------------------------------- Net cash outflow from investing activities:Dividends paid to minority interests (0.5) (0.5) (1.9)Purchase of assets let under operating leases (2.5) (4.1) (5.7)Purchase of property, plant and equipment (3.8) (5.9) (9.6)Sale of property, plant and equipment 4.2 2.3 6.9Purchase of intangible assets (1.0) (0.5) (1.8)Purchase of equity shares held for investment (20.7) (8.9) (25.1)Sale of equity shares held for investment 6.4 26.8 45.3Minority interests acquired for cash (0.5) (4.7) (10.2)Purchase of subsidiaries and associates 8(b) (65.3) (9.4) (12.4)-------------------------------------------------------------------------------- (83.7) (4.9) (14.5)-------------------------------------------------------------------------------- Net cash inflow before financing 245.6 171.6 558.4 Financing activities:Issue of ordinary share capital including premium 8.8 3.4 5.0Equity dividends paid (72.8) (31.9) (49.3)Interest paid on subordinated loan capital (2.8) (2.8) (5.6)-------------------------------------------------------------------------------- Net increase in cash 178.8 140.3 508.5-------------------------------------------------------------------------------- Notes to the Financial Statements This Interim Report for Close Brothers Group plc for the six months ended 31January 2008 ("Interim Report 2008") was approved by its directors on 3 March2008. 1. Basis of preparation and accounting policiesThe interim financial information has been prepared in accordance with theDisclosure and Transparency Rules of the Financial Services Authority and inaccordance with International Accounting Standard ("IAS") 34 - "InterimFinancial Reporting". The condensed financial statements are consolidatedincorporating the individual financial statements of Close Brothers Group plcand the entities it controls, using the acquisition method of accounting. The accounting policies used are consistent with those set out in the AnnualReport 2007. In addition an accounting policy to define exceptional items willbe included in the Annual Report 2008 as follows: "Items of income and expense that are material by size and/or nature and arenon-recurring are classified as exceptional items on the face of the incomestatement. The separate reporting of these items helps give an indication of thegroup's underlying performance." The preparation of the Interim Report requires management to make estimates andassumptions that affect the reported income and expense, assets and liabilitiesand disclosure of contingencies at the date of the Interim Report. Althoughthese estimates and assumptions are based on management's best judgement at thatdate, actual results may differ from these estimates. The Interim Report is unaudited and does not constitute statutory accountswithin the meaning of Section 240 of the Companies Act 1985. However, the information has been reviewed by the company's auditors, Deloitte & Touche LLP, and their report appears at the end of this report. The financial information for the year ended 31 July 2007 contained within thisInterim Report does not constitute statutory accounts as defined in Section 240of the Companies Act 1985. A copy of those statutory accounts has been reportedon by Deloitte & Touche LLP and delivered to the Registrar of Companies. Thereport of the auditors on those statutory accounts was unqualified and did notcontain a statement under Section 237(2) or (3) of the Companies Act 1985. 2. Related party transactionsTransactions with key management during the period are consistent with thedisclosure in note 31 of the Annual Report 2007. 3. Segmental information For the six months ended 31 January 2008 Asset Corporate Management Finance Securities Banking Group Total ---------- --------- ---------- ------- --------- --------- £ million £ million £ million £ million £ million £ million Operating income before exceptionals 69.0 26.2 55.8 99.8 2.2 253.0Operating expenses before exceptionals 51.0 21.6 32.0 62.1 11.0 177.7-------------------------------------------------------------------------------- Operating profit before exceptional items, goodwill impairment and tax 18.0 4.6 23.8 37.7 (8.8) 75.3Exceptional items: Advisers' fees - - - - (5.5) (5.5)--------------------------------------------------------------------------------Operating profit before tax 18.0 4.6 23.8 37.7 (14.3) 69.8-------------------------------------------------------------------------------- For the six months ended 31 January 2008, the operating income beforeexceptionals and the operating profit before tax of the Securities division included £4.5 million relating to its share of profit before tax of associates. For the six months ended 31 January 2007 Asset Corporate Management Finance Securities Banking Group Total ---------- --------- ---------- -------- --------- --------- £ million £ million £ million £ million £ million £ million Operating income before exceptionals 74.6 27.8 60.4 97.8 2.3 262.9Operating expenses before exceptionals 53.0 20.4 40.0 60.4 12.4 186.2--------------------------------------------------------------------------------Operating profit before exceptional items, goodwill impairment and tax 21.6 7.4 20.4 37.4 (10.1) 76.7Exceptional items: Investment gains and private equity performance fees 21.1 - - - - 21.1--------------------------------------------------------------------------------Operating profit before tax 42.7 7.4 20.4 37.4 (10.1) 97.8-------------------------------------------------------------------------------- For the six months ended 31 January 2007, the operating profit before tax of theAsset Management division included investment gains and private equityperformance fees of £26 million of which £21.1 million are treated asexceptional within the definition of the accounting policy for exceptional itemsreferred to in note 1 of this Interim Report. For the year ended 31 July 2007 Asset Corporate Management Finance Securities Banking Group Total ---------- --------- ---------- --------- --------- --------- £ million £ million £ million £ million £ million £ million Operating income before exceptionals 177.5 77.2 128.0 197.8 5.2 585.7Operating expenses before exceptionals 120.9 54.7 83.9 126.1 27.3 412.9--------------------------------------------------------------------------------Operating profit before exceptional items, goodwill impairment and tax 56.6 22.5 44.1 71.7 (22.1) 172.8Exceptional items: Investment gains and private equity performance fees 21.1 - - - - 21.1Goodwill impairment - - - - (3.7) (3.7)-------------------------------------------------------------------------------- Operating profit before tax 77.7 22.5 44.1 71.7 (25.8) 190.2-------------------------------------------------------------------------------- For the year ended 31 July 2007, the operating profit before tax of the AssetManagement division included investment gains and private equity performancefees of £43 million of which £21.1 million are treated as exceptional within thedefinition of the accounting policy for exceptional items referred to in note 1of this Interim Report. Substantially all of the group's activities and revenue are located within theBritish Isles and the value of transactions between segments was minimal. 4. Exceptional items Six months ended Year ended 31 January 31 July --------------------- ----------- 2008 2007 2007 Unaudited Unaudited Audited £ million £ million £ million Exceptional incomeInvestment gains and private equity performance fees - 21.1 21.1Exceptional expensesAdvisers' fees in respect of potential offers for the group 5.5 - --------------------------------------------------------------------------------- Total exceptional items (5.5) 21.1 21.1-------------------------------------------------------------------------------- 5. Earnings per shareEarnings per share is presented on three bases: basic earnings per share;diluted earnings per share; and adjusted basic earnings per share. Basicearnings per share is in respect of all activities and diluted earnings pershare takes into account the dilution effects which would arise on theconversion or vesting of share options and share awards in issue during theperiod. Adjusted basic earnings per share excludes exceptional items andimpairment losses on goodwill to enable comparison of the underlying earnings ofthe business with prior periods. Six months ended Year ended 31 January 31 July ---------------------- --------- 2008 2007 2007 Unaudited Unaudited Audited Basic earnings per share 31.4p 46.8p 90.4pDiluted earnings per share 31.1p 46.7p 89.8pAdjusted basic earnings per share 35.1p 36.8p 82.8p £ million £ million £ million Profit attributable to shareholders 46.7 68.9 132.9Adjustments:Exceptional items 5.5 (21.1) (21.1)Tax effect of exceptional items - 6.3 6.3Impairment losses on goodwill - - 3.7-------------------------------------------------------------------------------- Adjusted profit attributable to shareholders 52.2 54.1 121.8-------------------------------------------------------------------------------- Weighted average number of shares (million) 148.9 147.1 147.1Effect of dilutive share options and awards (million) 1.2 0.4 0.9-------------------------------------------------------------------------------- Diluted weighted average number of shares (million) 150.1 147.5 148.0-------------------------------------------------------------------------------- 6. Dividends Six months ended Year ended 31 January 31 July ---------------------- ---------- 2008 2007 2007 Unaudited Unaudited Audited £ million £ million £ million Interim dividend for 2007 paid April 2007: 12p per ordinary share - - 17.4Final dividend for 2007 paid November 2007: 25p (2006: 22p) per 36.4 31.9 31.9 ordinary shareSpecial dividend for 2007 paid November 2007: 25p 36.4 - --------------------------------------------------------------------------------- Total dividends 72.8 31.9 49.3-------------------------------------------------------------------------------- An interim dividend relating to the six months ended 31 January 2008 of 13.5p,amounting to an estimated £19.7 million is proposed. This interim dividend,which is due to be paid in April 2008, is not reflected in this financial information. 7. Condensed statement of changes in equity Six months ended Year ended 31 January 31 July ---------------------- ----------- 2008 2007 2007 Unaudited Unaudited Audited £ million £ million £ millionCalled up share capitalOpening balance 36.8 36.6 36.6Exercise of options 0.5 0.2 0.2-------------------------------------------------------------------------------- Closing balance 37.3 36.8 36.8-------------------------------------------------------------------------------- Share premium accountOpening balance 264.6 259.8 259.8Exercise of options 8.3 3.2 4.8-------------------------------------------------------------------------------- Closing balance 272.9 263.0 264.6-------------------------------------------------------------------------------- Profit and loss accountOpening balance 432.4 346.7 346.7Profit attributable to shareholders 46.7 68.9 132.9Dividends paid (72.8) (31.9) (49.3)Transfer from share-based awards reserve 3.4 1.7 1.7Other movements 2.2 0.9 0.4-------------------------------------------------------------------------------- Closing balance 411.9 386.3 432.4-------------------------------------------------------------------------------- ESOP trust reserveOpening balance (17.1) (8.3) (8.3)Shares purchased (5.8) (2.6) (9.0)Shares released - 0.2 0.2-------------------------------------------------------------------------------- Closing balance (22.9) (10.7) (17.1)-------------------------------------------------------------------------------- Other reserves:Share-based awards reserveOpening balance 14.8 11.8 11.8Charge to income statement 2.6 2.0 4.1Transfer to profit and loss account (3.4) (1.7) (1.7)Movement relating to deferred share awards - (0.4) 0.6-------------------------------------------------------------------------------- Closing balance 14.0 11.7 14.8-------------------------------------------------------------------------------- Exchange movements reserveOpening balance 0.2 0.9 0.9Currency translation differences 2.3 (0.6) (0.7)-------------------------------------------------------------------------------- Closing balance 2.5 0.3 0.2-------------------------------------------------------------------------------- Cash flow hedging reserveOpening balance 1.5 0.1 0.1Movement on derivatives (4.4) (0.4) 1.4-------------------------------------------------------------------------------- Closing balance (2.9) (0.3) 1.5-------------------------------------------------------------------------------- Available for sale reserveOpening balance 12.1 7.3 7.3Movement on available for sale investments (12.5) (1.0) 4.8-------------------------------------------------------------------------------- Closing balance (0.4) 6.3 12.1-------------------------------------------------------------------------------- Total other reserves 13.2 18.0 28.6-------------------------------------------------------------------------------- Minority interestsOpening balance 7.3 7.4 7.4Charge to income statement 1.9 1.8 3.8Other movements (0.7) (1.0) (3.9)-------------------------------------------------------------------------------- Closing balance 8.5 8.2 7.3-------------------------------------------------------------------------------- Total equity 720.9 701.6 752.6-------------------------------------------------------------------------------- 8. Condensed cash flow statement Six months ended Year ended 31 January 31 July ---------------------- ---------- 2008 2007 2007 Unaudited Unaudited Audited £ million £ million £ million (a)Reconciliation of operating profit on ordinary activities before tax to net cash inflow from operating activitiesOperating profit on ordinary activities before tax 69.8 97.8 190.2(Increase)/decrease in:Interest receivable and prepaid expenses (6.7) (14.7) (19.3)Net settlement accounts 127.1 (25.1) (85.8)Net debt securities and equity shares held for trading 8.5 10.1 (9.3) Increase/(decrease) in interest payable and accrued expenses (18.8) (12.7) 6.6Depreciation, amortisation and goodwill impairment losses 6.4 6.1 18.8-------------------------------------------------------------------------------- Net cash inflow from trading activities 186.3 61.5 101.2 (Increase)/decrease in:Debt securities held for liquidity 6.0 11.0 3.0Loans and advances to customers (43.3) (1.2) (100.4)Loans and advances to banks not repayable on demand 4.6 0.5 (3.2)Other assets less other liabilities (158.4) (32.1) 83.4 Increase/(decrease) in:Deposits by banks 52.4 (26.6) (7.8)Customer accounts 132.7 184.1 459.6Bank loans and overdrafts 516.1 7.7 94.6Non-recourse borrowings 17.0 - -Promissory notes and other debt securities in issue (350.0) (10.2) (5.0) Tax paid (34.1) (18.2) (52.5)-------------------------------------------------------------------------------- Net cash inflow from operating activities 329.3 176.5 572.9-------------------------------------------------------------------------------- (b) Analysis of net cash outflow in respect of the purchase of subsidiaries and associatesCash consideration in respect of current year purchases (61.9) (4.9) (8.8)Loan stock redemptions and deferred consideration paid in respect of prior year purchases (3.4) (4.5) (6.1)Net movement in cash balances - - 2.5-------------------------------------------------------------------------------- (65.3) (9.4) (12.4)-------------------------------------------------------------------------------- (c) Analysis of changes in financingShare capital (including premium) and subordinated loan capital:Opening balance 376.4 371.4 371.4Shares issued for cash 8.8 3.4 5.0-------------------------------------------------------------------------------- Closing balance 385.2 374.8 376.4-------------------------------------------------------------------------------- (d) Analysis of cash and cash equivalent balancesCash and balances at central banks 1.8 1.4 1.6Loans and advances to banks repayable on demand 446.9 735.3 573.0Floating rate notes classified as available for sale 777.2 498.3 756.5Certificates of deposit classified as loans and receivables 1,107.6 551.5 823.6-------------------------------------------------------------------------------- 2,333.5 1,786.5 2,154.7-------------------------------------------------------------------------------- Principal Risks The achievement of the group's strategic objectives is facilitated by its riskmanagement and internal control systems which are designed to identify, monitor,measure and manage the principal financial and non-financial risks facing thegroup. These are set out in the Annual Report 2007 and on the group's website atwww.closebrothers.co.uk/RiskManagement.asp. The principal risks and uncertainties foreseen will include the following in thesecond six months of the year. The board is committed to re-establishing confidence in a stable independentfuture for the group. In particular the group will continue to manage thepotential impact of recent uncertainty over its future ownership on employees,clients, ongoing operations and new business opportunities. Since the onset of reduced liquidity in the credit markets in August 2007, manyof the markets in which the group operates have experienced difficult conditionsand volatility. The group intends to maintain its well capitalised and soundlyfinanced balance sheet which should provide resilience in these difficultmarkets. Directors' Responsibility Statement The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe Interim Report 2008 includes a fair review of the information required bysections 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules. The directors of Close Brothers Group plc are listed in the Annual Report 2007with the exception of the following changes in the period: On 28 September 2007Peter Winkworth stepped down from the board, on 1 November 2007 James Williamsretired from the board, on 31 December 2007 Peter Buckley retired from the boardalthough on 9 January 2008 he was appointed as an alternate director to JamieCayzer-Colvin who was appointed to the board on 1 January 2008, and on 4February 2008 Jonathan Howell was appointed to the board. A list of currentdirectors is maintained and is available for inspection at the registered officeof the company located at 10 Crown Place, London EC2A 4FT. By order of the board Independent Review Report Independent Review Report to Close Brothers Group plcWe have been engaged by the company to review the condensed set of financialstatements in the Interim Report 2008 for the six months ended 31 January 2008which comprises the condensed income statement, the condensed balance sheet, thecondensed statement of recognised income and expense, the condensed cash flowstatement and related notes 1 to 8. We have read the other information containedin the Interim Report 2008 and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the condensedset of financial statements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements (UK and Ireland) 2410 issued by the AuditingPractices Board. Our work has been undertaken so that we might state to thecompany those matters we are required to state to them in an independent reviewreport and for no other purpose. To the fullest extent permitted by law, we donot accept or assume responsibility to anyone other than the company, for ourreview work, for this report, or for the conclusions we have formed. Directors' responsibilitiesThe Interim Report 2008 is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the Interim Report 2008in accordance with the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority. As disclosed in note 1, the annual financial statements of the group areprepared in accordance with International Financial Reporting Standards asadopted by the European Union. The condensed set of financial statementsincluded in this Interim Report 2008 has been prepared in accordance with IAS34, "Interim Financial Reporting", as adopted by the European Union. Our responsibilityOur responsibility is to express to the company a conclusion on the condensedset of financial statements in the Interim Report 2008 based on our review. Scope of ReviewWe conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. ConclusionBased on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the Interim Report 2008 forthe six months ended 31 January 2008 is not prepared, in all material respects,in accordance with IAS 34 as adopted by the European Union and the Disclosureand Transparency Rules of the United Kingdom's Financial Services Authority. Deloitte & Touche LLPChartered Accountants and Registered AuditorLondon, UK 3 March 2008 This information is provided by RNS The company news service from the London Stock Exchange