Annual Report for the year ended 31 December 2008

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introduction The Directors present their report together with the audited Financial statements for The Evolution Group plc ("the Company") and its subsidiaries ("Group") for the year ended 31 December 2008. parent company Attached as section 2 to these Financial statements, the parent Company Financial statements on a standalone basis are provided. These Annual Financial statements have been prepared in accordance with iFRs as adopted by the Eu. These accounts will form the basis of any future distribution. principal activities and business review The Company is a FTsE 250 uK listed holding company for uK based financial services companies. it is incorporated in England and Wales. The address of its registered office is 100 Wood street, london, EC2v 7AN. The Group undertakes institutional investment banking through its subsidiary undertakings Evolution securities limited (“Esl”), and Evolution securities (us) inc. (“Esus”), which undertakes secondary sales for us institutional clients. The Group also provides private client investment management through its subsidiary undertaking Williams de Broë limited (“WdB”). in April 2008 WdB opened a further office in Edinburgh. On 21 October 2008 WdB reached agreement with the administrators of Kaupthing singer & Friedlander limited (in administration) (“KsF”) and certain subsidiaries of KsF, to acquire the investment management team of singer & Friedlander investment Management limited (“singer & Friedlander”). The singer & Friedlander team was successfully integrated into the existing WdB london Office in January 2009. The total value of client assets transferred was greater than £1bn. WDB Capital limited (“WDB Capital”) is the investment manager of the WDB Capital uK Equity Fund limited which was launched in september 2007 as a uK Equity Hedge Fund with an absolute return strategy. At 31 December 2008 the Company held 50.2% of the fund. Evolution securities limited, Williams de Broë limited and WDB Capital limited are authorised and regulated by the Financial services Authority (“FsA”). Evolution securities limited has offices in leeds and london where it is based in the Group’s office at 100 Wood street. Williams de Broë limited has branch offices in Bath, Birmingham, Bournemouth, Edinburgh, Exeter, Guildford and london. The Group’s us broker-dealer, Esus, is registered with the Financial industry Regulatory Authority (“FiNRA”) and regulated by the securities and Exchange Commission. This entity is based in the london offices of the Group with a branch office in New York. On 9 March 2009, the Company announced that an agreement, conditional on certain regulatory approvals, had been reached with First Eastern for an investment by First Eastern and the Company in the specialist Chinese investment banking business, Evolution securities China limited (“EsCl”). On 1 April 2009, the Company announced the completion of the investment which included subscription for shares whereby First Eastern now holds 51% of the ordinary share capital of EsCl with the Company holding approximately 48.5%. The new shares represent 90% of the enlarged issued share capital. direcTors' reporT for The year ended 31 december 18 THE EvOluTiON GROup plC ANNuAl REpORT & ACCOuNTs 2008 in addition to the initial share subscription, each of First Eastern and the Company have entered into a financial commitment to EsCl pursuant to which they may each be called upon to provide an aggregate of up to £500,000 by way of additional funding in each of the three years following completion of the transaction. Regulatory approvals were received in March 2009. The agreement combines the strengths of the Company’s well financed and independent position in london along with First Eastern’s considerable experience and proprietary deal flow in the Chinese market. Evolution securities China is based in london, Hong Kong and shanghai. pursuant to the investment agreement dated 6 March 2009 between the Company and First Eastern, the Company granted to First Eastern a right to acquire from the Company such number of the Company's residual holding of ordinary shares in EsCl which would increase First Eastern's holding in EsCl to 75% of the issued ordinary share capital. This right arises in the event (i) any person or group of persons acting in concert (as defined in the City Code on Takeovers and Mergers) acquires the right to cast more than 30% of the votes which may be exercised at an Annual General Meeting of the Company, or (ii) both Alex snow and Clive Whiley (but for the avoidance of doubt, not only one of them) cease to be Directors or employees of EsCl or the Company, or (iii) an order is made by a court of competent jurisdiction, or a resolution is passed, for the liquidation or administration of the Company or a notice of appointment of an administrator of the Company is filed with a court of competent jurisdiction, or (iv) any step is taken to appoint a manager, receiver, administrative receiver, administrator, trustee or other similar officer in respect of the Company or any of its assets. The price at which the ordinary shares in EsCl would be acquired by First Eastern depends on the date on which this right arises and is exercised, but is calculated by reference to either the net tangible asset value of EsCl and its subsidiaries or a multiple of the consolidated profit after tax of EsCl and its subsidiaries at the time. A detailed review of the principal activities of the Group and its principal subsidiaries, the review and main trends and factors likely to affect the future development, performance and position of its business including the current market conditions and regulatory environment in which the business operates, key performance indicators and strategy and its future prospects are set out in the Chairman’s statement, Chief Executive’s Report and Financial Review on pages 2 to 15 and in the notes to these Financial statements on pages 44 to 76. A description of the principal risks and uncertainties facing the Group are detailed below and additional information on financial risk management framework can be found in note 2 to the Financial statements and below. in addition the environmental matters and social and community issues are discussed in the Corporate Governance Report on pages 24 to 30. information about the Company’s employees can be found within this Directors’ Report, Chairman’s statement, Chief Executive’s Report and in the Corporate Governance Report. The Group has an outsourcing arrangement in place for operational and settlement activities with pershing securities limited. This agreement has a six month rolling notice period. All information relating to the principal activities business review and principal risks can be found below and elsewhere in the Financial statements and shall be treated as forming part of this Directors’ Report by reference.
principal risks and uncertainties The Audit Committee reviewed the key risks facing the Group and the controls that have been put in place to mitigate them. Changes to the risk environment were highlighted, as were improvements to the control structure: most notably in the restructuring of the Compliance Function, the introduction of an Annual Compliance plan, approved by the Board and the introduction of enhanced governance structures below Board level at WdB. Reputational risk Reputational risk is the risk of damage to the Group’s image as a result of the inability to retain and generate business due to adverse public opinion. The Board has established policies and procedures that provide direction on managing reputational risk focusing on reducing loss of confidence amongst existing and potential customers, investors, suppliers, and supervisors. Retention of staff The retention of highly skilled staff, as well as the ability to attract new staff with the right capabilities and experience is central to the efficiency and sustainability of the Groups’ operations. The Group mitigates the risk of loss of key staff through its employment policies, remuneration and benefits packages which are designed to be competitive with other companies, as well as providing staff with motivating and fulfilling career opportunities. The Group supports the principles set out in the FsA’s code of best practice on remuneration policies issued in February 2009. Major infrastructure incident There is a risk that any incident the Group is involved in, directly or indirectly could cause possible damage to the Group’s or key vendors infrastructure which in turn would also affect the Group’s reputation or cause financial loss. The Group has in place controls to maintain the integrity and efficiency of its systems, while ensuring the sustainability of operations despite a significant disruption. The Group continuously reviews its business continuity planning, and has disaster recovery facilities in order to mitigate any substantial disruption to its operations caused by events such as acts of terrorism and natural disasters. Financial crime This is the risk that the Group suffers a loss from fraud. This could be through the deliberate over-riding of internal controls or through an external party successfully overcoming the Group’s controls (eg through identity theft). The FsA in its annual financial risk outlook highlighted that firms may be at greater risk of financial crime due to the current economic stresses at the individual and corporate level. The Group believes that it has sufficient controls in place to mitigate the risk of financial crime. Nevertheless, the compliance department is undertaking a review of the current controls in place throughout the Group to ensure controls are robust and to determine where improvements can be made. Regulatory risk The Group’s principal business subsidiaries are all regulated entities. Recent statements by the FsA, the results of the Turner report and the likely outcome of the forthcoming Walker report all point to a financial services regulatory environment that is becoming increasingly challenging. The Group’s philosophy is to ensure compliance at all times. There is, however, always a risk of regulatory action given the markets in which the Group operates including its private client business which is expanding its client base and where the FsA is demonstrating an increasing focus on the fair treatment of customers and the governance arrangements surrounding this. Furthermore, there are regulatory risks relating to the FsA increasing focus on regulatory reporting within our securities business. The Audit Committee considered whether there had been any material failings or weaknesses in the internal controls of the Group and in doing so considered the results of the FsA ARROW visit in september 2008. The visit focused upon certain matters already under review by the Group and with our internal auditors including the governance and committee structures below Board level. in line with the FsA’s continuing treating customers fairly (TCF) initiative, the ARROW visit also focused on treating customers fairly and portfolio suitability within WdB. Detailed discussions with the FsA on the results of the ARROW visit are continuing. However, the Group has increased the resources employed in and accelerated its review and remediation work on customer files with third party help. in line with the continuing project to enhance systems and reporting in WdB it has also committed to considerable investment in a bespoke management information system. Market risk The Group, through Esl, holds positions in equities which are subject to price fluctuation. There is therefore a risk that Esl will suffer a loss in the event of a significant market correction. positions are subject to limits that are independently monitored by the risk department. Further details on financial risk management can be found in note 2 – financial instruments and risk management to the accounts. results and dividends During the year the Group made a loss after tax from continuing operations of £13,496,000 (2007: profit £3,202,000). The profit for the year ended 31 December 2008 of the Company amounted to £2,167,000 (2007: profit £762,000). The Directors recommend the payment of a final dividend for the year of 1.27p per ordinary share (2007: 1.25p). if approved, the final dividend will make the total dividends for the year 2.02p (2007: 1.92p) following the payment of the interim dividend of 0.75p per ordinary share on 24 October 2008. The dividend is payable on 22 May 2009 to shareholders on the register on 24 April 2009. post balance sheet events Details of significant post Balance sheet events are set out in note 36 to the accounts and in the principal activities and business review section of this Directors’ Report. Directors The Directors of the Company, who held office since 1 January 2008 (there were no appointments or resignations of Directors during the year up to the date of this report), unless otherwise stated, are as shown below: Martin Gray (Non-executive Chairman) Alex snow (Chief Executive Officer) Andrew umbers (Executive Director) lord Maclaurin of Knebworth, Dl (senior Non-executive) Nicholas irens (Non-executive) Mark Nicholls (Non-executive) peter Gibbs (Non-executive) We have made very good progress WiTh The inTegraTion and developmenT of each of our businesses. 19
Page 1 and 2: Yesterday Today Tomorrow... ANNUAL
Page 3 and 4: FINANCIAL ANd OPERATIONAL HIGHLIGHT
Page 5 and 6: Balance Sheet strength and cash bal
Page 7 and 8: evolution securities Evolution secu
Page 9 and 10: Corporate Finance Evolution securit
Page 11 and 12: Wdb capital The Group’s investmen
Page 13 and 14: EARNINGS PER SHARE ON TOTAL OPERATI
Page 15 and 16: evolution securities’ income anal
Page 17 and 18: other activities The Group’s othe
Page 19: Lord macLaurin of Knebworth, dL (72
Page 23 and 24: share capital Details of the change
Page 25 and 26: The Directors consider that in prep
Page 27 and 28: The Chief Executive, Alex snow, is
Page 29 and 30: The Committee observed that during
Page 31 and 32: appropriate and comprehensive proce
Page 33 and 34: The Board has delegated to the Remu
Page 35 and 36: The concept of a bonus ceiling does
Page 37 and 38: non-executive directors Non-executi
Page 39 and 40: On 8 April 2009, Alex snow was awar
Page 41 and 42: We have audited the Consolidated Fi
Page 43 and 44: ASSETS 2008 2007 Note £’000 £
Page 45 and 46: 2008 2007 £’000 £’000 (loss)/
Page 47 and 48: shareholding of more than one half
Page 49 and 50: ) Distribution channels and custome
Page 51 and 52: (b) Share-based plans The Group’s
Page 53 and 54: Risk Reporting The Group Board rece
Page 55 and 56: Neither past Past due but not impai
Page 57 and 58: By business segment (continued) The
Page 59 and 60: 6. otHeR inCome Restated 2008 2007
Page 61 and 62: 11. aUditoRs’ RemUneRation During
Page 63 and 64: 14. inCome taX eXPense (CONTINuED)
Page 65 and 66: 18. intanGiBle assets notes to tHe
Page 67 and 68: 20. deFeRRed inCome taX (CONTINuED)
Page 69 and 70: 24. tRadinG PoRtFolio assets notes
Page 71 and 72:
31. Consolidated moVement in sHaReH
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33. CasH FloW FRom oPeRatinG aCtiVi
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38. emPloYee sHaRe sCHemes Movement
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38. emPloYee sHaRe sCHemes (CONTINu
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THE EVOLuTION GROuP PLC PARENT COMP
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ASSETS ComPanY BalanCe sHeet AS AT
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statement oF ReCoGnised inCome and
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1. aCCoUntinG PoliCies (CONTINuED)
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2. FinanCial instRUments and RisK m
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2. FinanCial instRUments and RisK m
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5. inVestment in sUBsidiaRies notes
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10. CasH and CasH eQUiValents 2008
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17. Post BalanCe sHeet eVents There
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Page 99 and 100:
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FoR YoUR notes 99
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DesiGneD AnD proDuceD BY BesT&co. l
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Annual Report for the year ended 31 December 2008

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