Interim Results

EDINBURGH FUND MANAGERS GROUP PLC INTERIM RESULTS Edinburgh Fund Managers Group plc is one of the UK's leading providers of actively managed funds for the retail and institutional markets. Its investment products are distributed primarily through alliances with major life and banking institutions, and through IFAs and professional advisers. Interim results for the six months ended 31 July 2002 Financials · Funds under management £4.7 billion (£7.1 billion in January 2002), reduced due to the combined effect of falling markets and the loss of the £1.1 billion EIT mandate · Due to uncertainty over outlook for world markets the Board will determine dividend at the year end · Turnover £16.6 million, down 1% on six months to 31 July 2001 · Pre-tax profit on ordinary activities (excluding goodwill and exceptionals), £3.1 million, down 22% against six months to 31 July 2001 at £4.0 million · Earnings per share 8.6p (excluding goodwill and exceptionals), down 15% against comparable six months to 31 July 2001 Key progress · Anne Richards appointed CIO · Record new business levels from the mutual fund business with gross inflows averaging over £1 million per working day · Edinburgh Portfolio ranked the number one ISA investment house for overall fund performance over the past three years by Morningstar* · Cost saving exercise including the closure of the North American offices, which when combined with the natural wastage and redeployment of staff, will see combined annualised savings in excess of £2 million. When taken in conjunction with the increased new business in high margin areas these cost savings have been able to counteract a substantial part of the lost revenues from EIT. · Moves into higher margin activities continue to boost the Group's average fee rates, which have now reached 0.52% * Morningstar Star ratings indicate overall fund performance over three years to the end of May 2002. Ends For further information, please contact: Iain Watt, Chief Executive Edinburgh Fund Managers Group plc 0131-313 1000 Nigel Whittingham, Director Edinburgh Fund Managers plc 0131-313 1000 Julian Polhill / Lucy Copeman Polhill Communications 0207 655 0500 Website: www.edfd.com CHAIRMAN'S STATEMENT I highlighted in my last annual report the negative impact of falling markets on our funds under management, and the revenues derived therefrom. The first half of the current financial year has seen further significant market falls, with the FTSE 100 down 18% since 1 February. This compounds previous market falls and the UK market has now fallen 39% since the market high of 31 December 1999 when the FTSE index closed at 6930. Falls in markets have a direct impact on our funds under management, which in turn affect earnings per share. This affects all fund management companies and, in our case for example, a 10% market movement in the major markets in which we invest equates to a movement of 6p per share in our earnings. Last year we paid an interim dividend of 4p. Our current earnings would justify maintaining this but due to the uncertain outlook in markets and the world economy the Board will review the full year dividend once the outcome for the year to 31 January 2003 is known. We were disappointed by the decision in July of The Edinburgh Investment Trust (EIT) Board to transfer the management contract for the trust to another investment manager, having put the mandate out to tender. Following the loss of the EIT contract the board carried out a cost saving exercise including the closure of the North American offices, which when combined with the natural wastage and redeployment of staff, will see combined annualised savings in excess of £2 million. These cost savings, taken in conjunction with the increased new business in high margin areas have been able to counteract a substantial part of the lost revenues from EIT. Importantly, this has been achieved without affecting service levels for existing clients, or compromising our ability to continue developing our high margin retail business. The combined effect of market falls and the loss of EIT has been to reduce funds under management from £7.1 billion at 31 January 2002 to £4.7 billion at 31 July 2002. Despite this reduction, there are a number of positive elements for the period under review: · Turnover, which included revenues from EIT for the whole of the first half, is only marginally down (-1%) on the first half of last year, which reflects the increased average fee rates across the business, and the fact that revenues from Portfolio were not included in the previous period. · Operating costs are only 4% higher than last year, despite the inclusion of the additional operating costs relating to the Edinburgh Portfolio business reflecting the efficient integration of that business. · Earnings per share, at 8.6p (excluding goodwill and exceptionals) are down 15% from the earnings in the six months to July 2001. Other positive factors include the recent appointment of Anne Richards as Chief Investment Officer. Anne, who was appointed to the Board on 2 September, brings a wealth of experience in fund management and strengthens both our investment management operation and leadership team. The Board has been further strengthened by the appointment, as Chief Operating Officer, of Rod MacRae. Our retail open-ended funds business goes from strength to strength - the first six months of the year have seen record new business levels, with gross inflows averaging over £1 million per working day - despite poor investor sentiment. Edinburgh Portfolio, our specialist funds of funds division, was recently named by Morningstar as the top ISA investment house over the last 3 years. NVM, the venture capital business acquired in 2000, also continues to deliver, and both businesses have assisted our progress towards increasing our average fee rate. This has risen from 0.39% for the year to 31 January 2000 to 0.52% for the six months to 31 July 2002 - an increase of 33% - and reflects our strategy of building our higher margin business. Going forward, market levels will continue to be key in determining revenues. If stock markets remain at current levels and with the full impact of cost savings not being realised until next year, it is unlikely that the second half will make a positive contribution to the business. However we will continue the strategy of growing the business through focusing on high margin areas such as open-ended funds and venture capital business. John Wright Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT Notes Six months Six months Year to to to 31 July 31 July 31 January 2002 2001 2002 £000 £000 £000 TURNOVER Fund management income 16,608 17,516 34,672 Net profit from unit 611 (112) 273 trust trading 2 17,219 17,404 34,945 ADMINISTRATIVE EXPENSES 2 (14,015) (13,427) (28,159) Exceptional costs 3 (540) (1,055) (3,029) Amortisation of goodwill (507) (213) (703) OPERATING PROFIT 2,157 2,709 3,054 Loss on investments 4 (308) (50) (180) Other income 308 401 718 Interest payable (444) (332) (816) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION - excluding goodwill and 3,127 3,996 6,508 exceptionals - goodwill and (1,414) (1,268) (3,732) exceptionals 1,713 2,728 2,776 Taxation 5 (593) (858) (1,167) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 1,120 1,870 1,609 Dividends 7 ¯ (1,122) (3,507) Retained profit/(loss) 1,120 748 (1,898) for period Earnings per share 6 8.6p 10.1p 16.2p (excluding goodwill and exceptionals) Earnings per share 4.0p 6.7p 5.7p (including goodwill and exceptionals) Fully diluted earnings 4.0p 6.6p 5.7p per share Dividends per ordinary ¯ 4.0p 12.5p share CONSOLIDATED BALANCE SHEET At At At 31 July 31 July 31 January 2002 2001 2002 £000 £000 £000 FIXED ASSETS Intangible assets - goodwill 18,714 17,453 18,449 Tangible assets 3,327 3,522 3,529 Investments - at market value 3,501 5,995 4,696 Own shares - at cost 1,691 2,033 2,015 27,233 29,003 28,689 CURRENT ASSETS Debtors and stock of shares 11,762 8,510 15,059 and units Cash and deposits 12,239 11,855 9,294 24,001 20,365 24,353 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Bank overdraft 14,658 13,799 12,649 Other creditors 21,645 15,382 21,562 36,303 29,181 34,211 NET CURRENT LIABILITIES (12,302) (8,816) (9,858) TOTAL ASSETS LESS CURRENT LIABILITIES 14,931 20,187 18,831 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 691 4,021 5,371 14,240 16,166 13,460 CAPITAL AND RESERVES Called up share capital 1,426 1,424 1,424 Reserves 12,814 14,742 12,036 EQUITY SHAREHOLDERS' FUNDS 14,240 16,166 13,460 CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year to to to 31 July 31 July 31 January 2002 2001 2002 £000 £000 £000 Operating profit 2,157 2,709 3,054 Cash flow adjustments 1,147 984 1,000 Net cash inflow from operating 3,304 3,693 4,054 activities Returns on investments and (69) 143 93 servicing of finance Taxation (563) (1,191) (2,568) Capital expenditure and 677 1,050 1,839 financial investment Acquisitions and disposals ¯ (10,003) (10,003) Equity dividends paid (2,385) (4,762) (5,884) Cash inflow/(outflow) before 964 (11,070) (12,469) financing Financing (28) (61) (73) Increase/(decrease) in cash in 936 (11,131) (12,542) the period The cash flow adjustments to operating profit principally relate to goodwill and depreciation charges and debtor and creditor timing differences in unit trust dealing activity. The acquisition during the previous period, Edinburgh Portfolio Ltd (formerly Portfolio Fund Management Ltd), was net of cash acquired. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Six months Six months Year to to to 31 July 31 July 31 January 2002 2001 2002 £000 £000 £000 Profit for the financial period 1,120 1,870 1,609 Dividends ¯ (1,122) (3,507) Retained profit/(loss) 1,120 748 (1,898) for the period Other recognised gains and (463) (1,447) (1,530) losses Issue of shares 123 73 96 Net addition to shareholders' 780 (626) (3,332) funds Shareholders' funds at 31 13,460 16,792 16,792 January 2002 Shareholders' funds at 31 July 14,240 16,166 13,460 2002 Note: The figure for shareholders funds at 31 January 2001 was originally reported in last year's interim accounts as £16,675,000. This was restated to £16,792,000 as a result of the implementation of FRS19 which requires deferred tax to be accounted for on a full provisioning basis. The effect of this change was to increase the deferred tax assets by £117,000. FUNDS UNDER MANAGEMENT at 31 July 2002 £m % By Category Investment Trusts 1,722 36 Institutional Funds 1,549 33 Unit Trusts and OEICs 972 21 Private Clients and Charities 327 7 Venture Capital 148 3 4,718 100 By Geographical Distribution United Kingdom 3,223 68 North America 680 14 Europe 364 8 Pacific 316 7 Japan 135 3 4,718 100 Notes to the Accounts 1. The accounts are prepared under the same accounting policies used for the year ended 31 January 2002. The financial information set out above for the periods ended 31 July 2002 and 31 July 2001 is unaudited but has been reviewed by the auditors. The information for the year ended 31 January 2002 does not constitute, but is derived from, the statutory accounts for that year on which the auditors gave an unqualified opinion. The statutory accounts for the year ended 31 January 2002 have been filed with the Registrar of Companies. 2. During the six months to 31 July 2001 Edinburgh Portfolio contributed £241,000 to turnover and £258,000 to operating costs, the acquisition having been made on 12 July 2001. In the current period the contribution to turnover from the funds acquired was £2,848,000. During the past year the business of Edinburgh Portfolio has been integrated with the existing OEIC and unit trust business. The cost savings achieved were approximately £2.5 million. This, together with other cost savings have kept operating expenses at only 4% higher than operating expenses in the six months to 31 July 2001. 3. The exceptional costs for the six months to 31 July 2002 represented further systems transfer costs completing the integration of Edinburgh Portfolio, together with further costs of advice in connection with an offer for the company. 4. The loss on disposal of investments included an exceptional investment write down of £367,000. 5. The tax charge has been provided at an effective rate of 26.7% (2001- 29.2%) on profits excluding goodwill. This rate is lower due to utilising tax losses. 6. Earnings per share is shown both including and excluding goodwill and exceptional items. The calculation is based on the adjusted weighted average of 28,098,455 (2001-28,023,928) shares in issue during the period. The adjustment is for those shares held within the employees' benefit trust which have no dividend entitlement. 7. No interim dividend will be paid (2001-4.0p per share). 8. During the period a total of 35,745 shares were issued. The number of shares in issue has increased from 28,488,174 at 31 January 2002 to 28,523,919 at 31 July 2002. INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO EDINBURGH FUND MANAGERS GROUP PLC Introduction We have been instructed by the company to review the financial information set out on pages 3 to 7 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with The Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of Interim Financial Information issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 July 2002. KPMG Audit Plc Chartered Accountants Edinburgh, 17 September 2002 Note: The page numbers referred to above relate to the interim report. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/09/17/20020917BIT00700/wkr0001.doc http://www.waymaker.net/bitonline/2002/09/17/20020917BIT00700/wkr0002.pdf