RNS Number:4225I
Shore Capital Group PLC
07 March 2003
For Immediate Release 7th March 2003
Preliminary Final Results for The Year Ended 31 December 2002
Shore Capital Group plc, the London-based investment banking boutique focused on
entrepreneurial clients and related services, issues its preliminary final
results for 2002:
Highlights
* Profit before deductions for exceptional items* and tax of #583,000.
* Strong balance sheet with #31.7m of liquid resources (including
tradeable short-dated bonds and commercial paper) at 31 December 2002,
following share buybacks distributing #5.9m.
* Expansion of market making capability through the Stock Exchange and
Dresdner RSP electronic links.
* Expanding absolute return fund management activities.
* the exceptional items totalled #1,375,000.
Howard Shore, Chairman of Shore Capital Group, said:
"On the one hand, the "bear" market has proved almost unrelenting and has
continued for longer than could have been anticipated. On the other hand, our
industry being in turmoil offers a rare opportunity for those flexible enough to
re-engineer their business model. We are engaged in a balancing exercise where
the aim is to create a platform capable of taking advantage of new business
flows when confidence improves, but, at the same time, seeking to avoid the
burden of overheads higher than we can comfortably carry in the present tough
conditions.
"Relative return is no longer of interest to many investors. Yet most of the
industry is geared to meet the relative return business model, creating a
substantial opportunity for those who can offer an absolute return. We now run
funds investing in growth capital and property and (building on our strong track
record in this area) will launch our hedge fund of funds shortly. We also hope
to launch a second property fund in the course of 2003."
Enquiries:
Howard Shore Shore Capital Group 020 7468 7911
Tim Jackaman Weber Shandwick 020 7067 0700
Chairman's Statement
Introduction
The difficult trading conditions which we were experiencing when we issued our
interim results in August 2002 persisted throughout the remainder of 2002 and
into the current year. As I commented at that time, on the one hand, the "bear"
market has proved almost unrelenting and has continued for longer than could
have been anticipated. On the other hand, our industry being in turmoil offers
a rare opportunity for those flexible enough to re-engineer their business
model. We are therefore engaged in a balancing exercise where the aim is to
create a platform capable of taking advantage of new business flows when
confidence improves, but, at the same time, seeking to avoid the burden of
overheads higher than we can comfortably carry in the present tough conditions.
We are seeking to strike a balance between short and medium term and have
increased our capability in market-making and fund management considerably.
The outcome was a profit in 2002 before exceptional items and tax of #583,000;
this was struck after receipt of interest of #1,227,000. The exceptional losses
of #1,375,000 resulted from writing down the value of shares in Shore Capital
Group held in the Employee Benefit Trust ("EBT") and a further reduction in the
value of the JellyWorks portfolio of #895,000 including an additional (and, I
believe, final) provision for the unquoted element.
Financial Review
Turnover before exceptional items fell from #6.29m in 2001 to #5.03m in 2002.
The loss after exceptional items but before tax was #792,000. The after tax
loss was #641,000 representing a loss of 0.14p per share on the weighted average
shares in issue during the year.
The exceptional charges relate to two non cash items:
The first was the repurchase of shares in Shore Capital Group held in the EBT.
The EBT initially acquired this holding in March 2000 by subscription of cash
for equity following a gift to it of the required cash by the Group. The
repurchase crystallised a loss of #480,000 under FRS 11, but there is no net
reduction in the tangible value of the Group as a consequence of these
transactions.
The second includes a further (and, I believe, final) write-down in the value of
the unquoted element of the JellyWorks portfolio. The unquoted book value of
this portfolio is now held at below #100,000. During the year we made
successful realisations from the portfolio of some #662,000; the residual value
of the portfolio including the quoted assets is now approximately #500,000.
During the second half, we also realised #2.7m in cash from the holdings we had
accumulated in Illuminator plc as a result of Illuminator's return of cash to
its shareholders by way of a special dividend and a tender offer.
During the second half, we cancelled some 67.35m shares for a total
consideration of #5.874m. Despite this, because of the strong cash generation
in the second half our liquid resources remained approximately #31.7m even after
paying for the share buybacks.
Strong Balance Sheet
At the balance sheet date, we had net cash of #25.06m and other near cash
(tradeable short dated bonds and commercial paper maturing in the first half of
2003) of #6.60m, giving a total of cash and near cash of #31.7m. In addition
there were client loans outstanding of some #559,000. The amount held in
alternative asset class activities was #4.21m and was the largest other
component of the balance sheet. The holdings are of Puma II, our hedge fund
portfolio, and the initial drawdown on Puma Property (discussed below). Some
#3.42m of the balance sheet was held in quoted securities, including #750,000 in
Inflexion plc in which we have an 8.83% interest. The total direct holdings of
private equity stakes comprised only #209,000, only about 0.5 per cent of the
balance sheet value.
Dividend
Given the prevailing market conditions and the share repurchase, we do not
propose to pay a final dividend for this period. We will consider dividends for
subsequent periods depending on how market conditions evolve.
Share Buy Back and Tender Offer
During the period the Group cancelled some 67.35m shares for a total
consideration of #5.874m. Following the year end we announced a tender offer to
buy in further shares from shareholders. The tender and related proposals were
approved by shareholders at an extraordinary general meeting of the Company on
3rd March 2003, with each resolution receiving over 99.9% of votes cast in
favour. The tender offer remains subject to court approval of a share capital
reduction.
We received valid tenders for some 75,426,090 shares at 9p per share. Upon
court approval, these shares will be purchased and cancelled, reducing the
equity base by a further 19.5% and the number of shares in issue to 311,306,623,
and leading to an additional cash outflow of approximately #6.9m.
Operating Review
We remain focused on serving entrepreneurs and institutions and providing
related services in our four chosen niches.
Equity Capital Markets (ECM)
The Group continued with its plans to develop and integrate brokerage, trading,
market making and corporate finance for small to medium sized companies by
appointing Simon Fine as Managing Director of this division. Simon was formerly
managing director and co-head of Pan European Equity Cash Trading at Lehman
Brothers. Further progress in this respect can be anticipated in the course of
2003. There are two principal activities within this division:
Investment banking for small/medium capitalised fast growth companies
This area remains one of our strengths, even in a very difficult market for
smaller companies. We completed three fund raisings for quoted companies during
the period, one flotation and two secondary offerings, as well as a number of
other advisory transactions. We also continued to grow our client list and were
delighted to have been voted runner up in the Growth Company Investor poll in
both the best nominated adviser and best AIM stockbroker categories,
particularly because the voting is by investing institutions and AIM companies.
Smaller company market-making
This activity is capable of generating substantial profitability in an active
market but is difficult in a low volume falling market. However, we have
continued to build market share and improve our platform. Notably we became one
of the two first retail service providers (RSPs) on the new London Stock
Exchange gateway which enables retail stockbrokers to execute their trades
automatically with any RSP (electronic market-maker connected to the gateway).
Additionally, we joined the "bestconnect" service, an electronic order execution
system (as a partner with Dresdner Kleinwort Wasserstein) offering execution in
over 1,800 UK securities, of which we make markets in approximately 450. Whilst
not having a material impact on the Group's trading performance for last year
(we went live in December 2002), in the medium term this, together with the
Stock Exchange RSP gateway connection, could contribute significantly to the
Group's market-making turnover.
Investment Management and Alternative Assets
As previously reported, we were delighted that Chris Ring, formerly managing
director of NatWest Stockbrokers, joined us to run this activity. Since Chris
has joined we have continued to grow discretionary funds under management and in
particular the alternative asset class funds. The team has been augmented
throughout the year. Following the appointment of Chris Ring in January, we
recruited a hedge fund specialist team in the summer and have allocated an
additional full time member of staff to develop and market these products.
Puma II
We were delighted that the Fund's shareholders voted (with 86% of the votes in
favour) to extend the life of the Fund by 2 years to December 2006. I believe
this vote of confidence was testament to the skills and diligence of the team
who worked relentlessly to seek to maximise value and minimise risk throughout
the year. The net assets per share of the fund grew by 0.65% in 2002 and 3.79%
since inception, with some #26.15m in cash, of a total of approximately #40m of
assets. Of the investments held in its active portfolio, 82% (#11.4m) were in
quoted shares and only 18% (#2.5m) in unquoted shares and we rebalanced the
portfolio in favour of the old economy (74%) relative to technology (26%).
Geographically, 74% was in the UK, 2% in the US and 24% in Israel.
We believe that current conditions offer an excellent opportunity to deploy Puma
II's cash and we are actively investing. Whilst no-one can definitively call
the bottom of the smaller company market, we are seeing value being offered in
our strong deal flow.
Puma Property Fund
We are also delighted to have completed the closing of our first commercial
property fund launched in partnership with Dawnay, Day & Co, the merchant bank
with an excellent track record of investing successfully in UK commercial
property. Over 15 years, Dawnay, Day have achieved a compounded return on
equity of 50.7 per cent per annum on its property portfolio and now own or
manage in joint ventures significantly in excess of #1bn of commercial property
throughout the UK.
Shore Capital and Dawnay, Day jointly launched The Puma Property (D.D.) Fund
L.P. with a 50:50 interest each in the Fund's general partner. Dawnay, Day have
responsibility for sourcing and managing the property investments which are
approved by an investment committee in which I participate. As part of Shore
Capital's role originating and promoting the Fund we made a pre-commitment to
invest #2.5m on the same terms as other investors.
The Fund recently closed with us having raised in excess of the #25m threshold
originally set out; a credible outcome in such difficult marketing conditions.
The recent drop in medium term interest rates has further enhanced the current
opportunity to acquire property on attractive terms and augurs well for the
prospects of the Fund.
We hope to launch a second property fund in the course of 2003.
Hedge Funds
Our portfolio has been expanded both up to and post year end showing further
good growth throughout the period. The IRR (in US dollar terms) achieved for
2002 was 17.7% p.a. and since inception was 15.9% p.a., without doubt in the top
decile of fund of fund performances. Having strengthened our team during the
course of 2002, our fund should finally be launched in the first half of this
year. We did not wish to launch the fund until we had built a platform and
infrastructure to source sufficient product to ensure that we could be
comfortable managing significant sums for third parties.
Our approach is straightforward:-
* back managers with a proven track record who have their own money
invested alongside investors and who benefit if we benefit;
* do not seek high risk adjusted return but rather high absolute return
whilst accepting volatility from individual managers;
* hedge the volatility of individual managers by diversification to
avoid, in so far as is possible, correlation between funds in the
portfolio;
* seek as much stability in the target fund's arrangements as possible so
that the chances of future returns matching historical returns are
maximised:
- size of fund
- mix of team
- business set up
- market conditions in which the team operates.
Plans for the division
We look forward to growing the investment management and alternative assets
division as a core part of our strategy going forward. The wealth destruction
many retail investors have experienced now means that they have lost their '
blind faith' in the stock market and will continue to have more conservative
asset allocation for some time to come.
Against this background investors are looking both for structured products with
capital guarantees and for alternative asset class investments capable of good
absolute return as the "kicker" to the portfolios. Relative return is no longer
of interest to many investors. Yet most of the industry is geared to meet the
relative return investment approach. This creates a substantial opportunity for
those flexible enough to re-engineer their business model.
Current Trading and Prospects
We said in our recent circular that trading for the Group in 2003 has begun with
subdued market conditions, and that prospects for the remainder of the year
would be significantly influenced by whether or not conditions improve.
Unfortunately, February has proved even tougher than January and activity in
equity markets has almost 'ground to a halt' while the world awaits developments
in Iraq. Like the rest of the world, we hope this situation is resolved for the
good as soon as possible. A rapid improvement in the geopolitical situation
would avoid making the pain deeper and longer than it would otherwise have been,
but by itself is unlikely to resolve the industry's problems.
The investment banking industry is now aggressively reducing its capacity as it
needed to do. Nevertheless, confidence will only return if people's fears of a
global slump are allayed. What might trigger this is hard to predict, but a
very sharp and sustained drop in oil prices would be one possible catalyst.
Consolidated Profit And Loss Account
For the year ended 31 December 2002
Year ended 31 December 2002 Year ended 31 December 2001
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
2002 2002 2002 2001 2001 2001
#'000 #'000 #'000 #'000 #'000 #'000
Turnover 5,027 (895) 4,132 6,291 (3,184) 3,107
Administrative (5,494) - (5,494) (4,462) (190) (4,652)
expenditure
Operating (loss)/ (467) (895) (1,362) 1,829 (3,374) (1,545)
profit
(Loss) arising from (324) (480) (804) (201) - (201)
fixed asset
investments
Dividend income 150 - 150 - - -
Interest receivable
and similar income 1,227 - 1,227 1,960 - 1,960
- excluding
interest receivable
from client loans
Interest payable (3) - (3) (42) - (42)
and similar charges
1,050 (480) 570 1,717 - 1,717
Profit/(loss) on 583 (1,375) (792) 3,546 (3,374) 172
ordinary activities
before taxation
Tax on profit on (262) 413 151 (1,115) 955 (160)
ordinary activities
Profit/(loss) on 321 (962) (641) 2,431 (2,419) 12
ordinary activities
after taxation
Equity dividends - - - (1,971) - (1,971)
Profit/(loss) for
the financial year 321 (962) (641) 460 (2,419) (1,959)
transferred to/
(from) reserves
Earnings/(loss) per 0.07p (0.14)p 0.54p 0.00p
share
Diluted earnings/ 0.07p (0.14)p 0.54p 0.00p
(loss) per share
All transactions are in respect of continuing operations.
There are no recognised gains and losses for the current financial year and
preceding financial year other than those taken into account in arriving at the
loss on ordinary activities after taxation of #641,000 (2001: profit of #12,000)
shown above.
Consolidated Balance Sheet
As at 31 December 2002
2002 2001
#'000 #'000
Fixed Assets
Intangible fixed assets 405 429
Tangible fixed assets 496 646
Investments 1,466 2,085
Investment in own shares - 1,000
2,367 4,160
Current Assets
Bull positions and other holdings 13,215 6,613
Debtors 4,057 5,689
Cash at bank and in hand 27,099 41,906
44,371 54,208
Creditors - amounts falling due within one year (4,733) (9,848)
Net Current Assets 39,638 44,360
Total Assets Less Current Liabilities 42,005 48,520
Provision for Liabilities and Charges - -
42,005 48,520
Capital And Reserves
Called up share capital 7,735 9,081
Share premium account 6,775 6,775
Merger relief reserve 26,653 26,653
Capital redemption reserve 1,376 30
Other reserve 78 78
Profit and loss account (612) 5,903
Total Equity Shareholders' Funds 42,005 48,520
Consolidated Cash Flow Statement
For the year ended 31 December 2002
2002 2001
#'000 #'000
Net Cash (Outflow)/Inflow From Operating (8,357) 1,944
Activities
Returns On Investments And Servicing Of
Finance 1,450 1,862
Taxation (3) (2,853)
Capital Receipts And Financial Investment 777 18
Equity Dividends Paid (1,254) (1,971)
Cash (Outflow) Before Use Of Liquid Resources
And Financing (7,387) (1,000)
Financing (Repurchase of Own Shares) (5,874) -
(Decrease) In Cash In The Year (13,261) (1,000)
Notes
1. The financial information in this announcement has been prepared under the
historical cost convention, adjusted for the revaluation of trading assets and
fixed asset investments, in accordance with the accounting policies set out in
the Company's Report and Accounts 2001. Such information does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1995.
The financial information for 2001 has been extracted from the statutory
accounts on which the auditors have reported; their report was unqualified and
did not contain statements under s237(2) or (3) of the Companies Act 1995.
2. Earnings per share is calculated on the earnings after taxation and the
weighted average number of shares in issue of 442,797,192 (2001: 447,969,772).
The fully diluted earnings per share is calculated using 442,797,192 shares
(2001: 449,456,581), being the weighted average number of shares in issue
adjusted for the dilutive effect of share option schemes.
3. The exceptional turnover relates to the net loss attributable to the current
period and to 2001 arising from the portfolio of holdings acquired from
JellyWorks plc during the year ended 31 December 2000. The exceptional loss
arising from fixed asset investments relates to the crystallisation of the
shares in the Group held by the EBT and the consequent diminution in the Group's
balance sheet.
4. Copies of the 2002 accounts will be posted to shareholders in due course.
Copies of this announcement are available from the Company at Bond Street House,
14 Clifford Street, London W1S 4JU.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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