RNS Number:9958N
ISIS Asset Management PLC
28 July 2003
To: London Stock Exchange
Attention: RNS
Date: Embargoed until 7am on 28 July 2003
From: ISIS Asset Management plc (the "Company")
Interim results for the six months to 30 June 2003 (unaudited)
Financial and business highlights.
* Earnings per share before amortisation of goodwill and exceptional costs
- 5.62 pence.
* Operating margin rises from year end position to 31.9%.
* Unchanged interim dividend of 4.0 pence.
* Assets under management rise to #60.8 billion.
* Integration of Royal & SunAlliance Investments (RSAI) now substantially
complete and ahead of target in all respects.
* Net revenue - #51.8 million.
Full interim report together with analysis on assets under management at 30 June
2003 follows.
Enquiries:
Howard Carter, Chief Executive - Telephone: 020 7506 1168 / 020 7506 1103
Chairman's Statement
At the time of writing last year's interim report I referred to two major issues
facing the company: the stockmarket environment and the significant task facing
senior management in terms of integrating the business of the company with that
of Royal & SunAlliance's investment management business ("RSAI"). My annual
review also referred to the tough stockmarket environment and the fact that the
company was well positioned to participate in any industry consolidation that
might occur.
Turning to each of these issues, I am pleased to report progress. Stockmarkets
appear to have stabilised and passed their worst, albeit I believe it is highly
unlikely that we will see any return to the heady days of the 1990s. Regarding
the integration of our business, I can report that, with the exception of the
rationalisation of our retail funds, which is on track to be implemented by 30
September 2003, the overall integration has now been completed. My thanks go to
our staff for the efficient way in which this task has been handled. We
continue to seek out ways which would enable us to further develop our business,
both organically and by acquisition, if appropriate.
Last year we departed from our previous interim reporting format of only having
a Chairman's statement in order to enable our Chief Executive to update
shareholders on operational issues surrounding our acquisition of RSAI. We have
decided to continue with the format of dual reports as we believe it provides
the right balance of reporting and creates greater transparency in terms of the
business and the operational issues surrounding its management.
Results
The group profit before tax, before amortisation of goodwill and exceptional
costs, for the six months ended 30 June 2003 totalled #11.4 million (2002 -
#12.7 million). Earnings per share, before amortisation of goodwill and
exceptional costs, fell 7.7 per cent. from 6.09 pence to 5.62 pence. Net
revenue totalled #51.8 million (2002 - #35.3 million) and administration
expenses excluding amortisation of goodwill totalled #35.7 million (2002 - #24.6
million). Net revenues and expenses for the half year to 30 June 2002 related
to the period prior to the acquisition of RSAI and, as such, are not directly
comparable. What is of more relevance is our operating margin which has risen
from 28.2 per cent. for the full year to 31 December 2002 to 31.9 per cent.
reflecting the efficiencies we have achieved in our business through extracting
synergies and other management actions. Furthermore it should be borne in mind
that this margin improvement has been achieved against a background of
significantly lower stockmarkets.
Interim Dividend
We have again declared an unchanged interim dividend of 4.0 pence per ordinary
share - which will be paid on 5 September 2003 to shareholders on the register
on 8 August 2003. Our policy of maintaining the level of dividend during recent
years, when we have experienced significant declines in stockmarkets and thus
revenues, underlines our commitment to delivering shareholder value.
Financial Performance
Six months to 30 June 2000 2001 2002 2003
FTSE-100 Index 6313 5643 4656 4031
Operating Margin* 38.2% 29.1% 32.4% 31.9%
The above table sets out the operating margin of our business for each of the
stated six month periods to 30 June and the level of the stockmarkets at 30 June
in each year. Although precise direct comparison is not possible due to
structural changes over the period, it is relevant that during a prolonged
period of falling markets our operating margin has been reasonably stable. This
single statistic masks a number of changes within our business, both in terms of
acquisitions and the way management has refined the operating platform to
address the changing environment. I have in recent reports dealt with these
issues and do not intend to restate them in this report.
* Group operating profit before amortisation of goodwill expressed as a
percentage of Net revenue.
Regulatory Environment
The UK financial services industry is one of the most highly regulated
industries in the world and, while I fully support the principles of good
regulation, transparency and investor protection, I question the balance of
some of the recent consultation papers issued by the Financial Services
Authority. Their content and direction is in some cases questionable and the
additional administrative burden and costs which would be involved do not seem
to be justified by improved investor protection or other benefits for the buyer
of investment products.
I urge policy makers and regulators to focus on good regulation and investor
protection and to avoid seeking to become involved in interfering with proven
business practices and defining how the commercial environment should work.
Outlook
As I look forward there are significant challenges which face the fund
management industry as well as those which are specific to our company. As an
industry we are encountering a period of significant change, both business and
regulatory, and this will pose both threats and opportunities. We have been,
and will continue to be, pro-active in addressing industry issues, seeking to be
informed and involved in a constructive manner with regard to planned
developments.
On the business front the challenges are the achievement of superior investment
performance and organic growth. These, together with the final completion of
the RSAI integration process, will be the main focus of management during the
second half of the year.
Meantime, I look forward with some confidence to reporting further progress in
my 2003 Annual Review.
Sir David Kinloch
28 July 2003
Chief Executive's Report
In my annual review I set out in detail our strategy and reported on the related
activities which support the development of our business model and create
shareholder value. It is therefore pleasing to report that not only have we
made good progress against the goals that we set ourselves, but we are also
encountering a more favourable stockmarket environment than we experienced
earlier this year.
Stockmarket Environment
The first half of the year has seen strong fixed interest markets and while
fixed interest represents over half of our assets under management it represents
a somewhat smaller portion of our revenues which come predominantly from
equities.
The UK stockmarket, being the best proxy for the equity funds we manage on
behalf of clients, has risen strongly from a low of 3287 at 12 March 2003, as
measured by the FTSE-100 index, to a level of 4031 at 30 June 2003. While we do
not foresee a return to the sustained market rises experienced during the 1990s
we do believe that some of the uncertainty has been removed and that equity
markets have passed the low point in the current cycle. This improved level of
markets, together with some degree of stability, has provided a more positive
backdrop for asset management company valuations. This has contributed to the
recent move in our share price, which has risen during the half year from a low
of 114 pence to 196.5 pence.
Integration
At the year end I gave a full report on what had been achieved on the
integration and indicated that we were on schedule to meet or exceed our
targets. It is pleasing to report that we successfully migrated onto a single
back office platform in April and by the end of June had terminated the shared
services agreement with RSA, completing another phase of the integration
process. The only remaining integration task is the consolidation of our retail
product range by the end of Quarter 3, the work for which is currently on track.
We are also taking the opportunity to change the outsource arrangements
regarding the pricing of our retail products during Quarter 4 and this will
provide additional financial benefits which will be realised during 2004 and
beyond.
In our last annual report we stated our target of achieving a 30 per cent.
operating margin by the second half of this year - providing that the FTSE-100
was above 3500. It is pleasing to note that we exceeded this operating margin
in the first half when the FTSE-100 averaged 3807, but before the full cost
synergies of the transaction had been realised. These further cost synergies
partly flow from a post-integration review which has identified a number of
areas where our original analysis was conservative and where we have
subsequently taken action to reduce headcount or remove costs. Furthermore, as
part of the ongoing process, we have a discipline of regularly reviewing our
business model and, where appropriate, making changes to ensure we focus on our
core business and deliver client and shareholder value. We continue to believe
that the acquisition and its integration has resulted in a scaleable business
structure, capable of taking on additional funds under management at relatively
little additional cost.
Employees on Payroll
The move to a single operating platform for investment accounting and the
termination of the shared services agreement has allowed us, as indicated in
the annual report, to move our headcount towards our year-end target of 500. The
position at 1 January 2003 and 30 June 2003 is detailed below:
1 January 2003 559
30 June 2003 513
Target by 31 December 2003 500
Investment Performance
Meeting or exceeding client expectations on investment performance is likely to
become an even bigger differentiator going forward, impacting the ability to
generate net inflows into asset management companies.
Our fixed interest and private equity performance is excellent, resulting in
inflows across institutional and retail funds. Commercial property returns have
been relatively good, as have those on some of our specialist equity retail
funds. Our medium-term record on balanced funds has been below average for some
while, partly due to over-adherence to a growth investment style. The changes
in approach and structure introduced by our new Chief Investment Officer - such
as the introduction of a dedicated pan-European equity research team - are
starting to have an impact. Investment performance has been more stable over
the period since the acquisition and a programme of meetings has been conducted
with investment consultants to explain the revised approach. Inevitably it will
take some time for these efforts to bear fruit.
New Business
The poor stockmarket background over the last three years has undermined
sentiment in the retail market. Our market share was broadly static in the
first half of 2003, but overall business volumes were again down on the previous
year due to depressed conditions. Venture Capital Trust ("VCT") new business
has collapsed as investors with gains to shelter are few and far between,
although we have been able to secure around 20 per cent. of the VCT new business
during the first half of the year, principally through a 'C' share issue of our
Baronsmead VCT. Our new private equity 10 year Limited Partnership has reached
#150 million and has a target of #175 million for its final close due in
December. We won two institutional fixed interest mandates, totalling just
under #200 million, in the period but the assets will not be under our
management until the second half of the year. These relatively positive trends
have been counterbalanced by insurance outflows and by some institutional losses
influenced by the continued trend away from balanced mandates to core/specialist
structures.
Inflow Outflow Net
#m #m #m
Life & Pensions N/A N/A (1,534)
Retail Products - Third Party 129 (93) 36
Investment Trusts - (37) (37)
Institutional Clients 118 (363) (245)
Limited Partnerships 26 (10) 16
VCTs 10 - 10
N/A N/A (1,754)
Brand
We launched our new ISIS brand during Quarter 3 of 2002 and recent research has
not only confirmed our original views as to user acceptance but clearly
indicates that the Company's position and profile in the marketplace are gaining
recognition. Once our fund rationalisation has been concluded in Quarter 3 of
this year and our retail products are all under the ISIS brand, we believe we
will be well positioned to increase our share of the retail market in line with
our strategic objectives.
Outlook
With stockmarkets showing a degree of stability and our integration now almost
complete, we have the platform to further develop our business both organically
and by acquisition if appropriate. Subject to market levels, we anticipate the
second half of the year will demonstrate further progress in respect of the
development of the business to meet the challenges that face our industry.
Howard Carter
28 July 2003
Consolidated profit and loss account
6 months 6 months Year
to to Ended
30 June 30 June 31 December
2003 2002 2002
Notes #000 #000 #000
Turnover
Group and share of joint venture 2 52,647 36,866 90,041
Share of joint venture 2 - (488) (721)
Group turnover 2 52,647 36,378 89,320
Selling expenses (878) (1,046) (1,744)
Net revenue 51,769 35,332 87,576
Administrative expenses
- excluding amortisation of goodwill (35,726) (24,633) (64,101)
- amortisation of goodwill (11,702) (3,576) (15,280)
Total administrative expenses (47,428) (28,209) (79,381)
Other operating income 495 754 1,241
Group operating profit 4,836 7,877 9,436
Share of operating loss in joint venture (15) (30) (33)
Total operating profit: group and share of 4,821 7,847 9,403
joint venture
Exceptional costs:
Reorganisation costs post acquisition of Royal
& SunAlliance Investments
3 (7,741) - (19,169)
Other finance (expenditure)/income (88) 171 351
Interest and investment income receivable 611 1,161 2,473
Interest payable (5,678) (31) (5,924)
(Loss)/profit on ordinary activities before (8,075) 9,148 (12,866)
taxation
Tax on (loss)/profit on ordinary activities 4 (614) (3,591) (286)
(Loss)/profit on ordinary activities after (8,689) 5,557 (13,152)
taxation
Dividend on Cumulative Preference Shares (15) (14) (26)
(Loss)/profit attributable to ordinary (8,704) 5,543 (13,178)
shareholders
Interim dividend 6 (5,994) (5,996) (5,996)
Final dividend 2002 - - (10,494)
Retained loss transferred from reserves (14,698) (453) (29,668)
Earnings per ordinary share before amortisation
of goodwill and exceptional costs
5 5.62p 6.09p 10.36p
(Loss)/earnings per Ordinary Share 5 (5.81p) 3.70p (8.80p)
Interim dividend per Ordinary Share 6 4.00p 4.00p 4.00p
Final dividend per Ordinary Share - - 7.00p
Consolidated balance sheet
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
Fixed assets
Intangible fixed assets 324,230 128,211 335,932
Tangible fixed assets 9,231 5,841 7,932
Investments in joint venture:
Share of gross assets - 275 168
Share of gross liabilities - (178) (80)
- 97 88
Other investments 96 6 6
Insurance assets attributable to unit-linked 899,917 1,244,196 952,878
policyholders
1,233,474 1,378,351 1,296,836
Current assets
Stock of units and shares 738 373 740
Investments 6,800 6,606 6,714
Debtors 43,676 24,491 35,951
Cash at bank and in hand 18,074 273,549 30,242
69,288 305,019 73,647
Creditors (amounts falling due within one year) (70,258) (65,704) (70,491)
Net current (liabilities)/assets (970) 239,315 3,156
Total assets less current liabilities 1,232,504 1,617,666 1,299,992
Creditors (amounts falling due outwith one year) (180,003) (180,252) (180,002)
Provision for liabilities and charges (3,822) - (3,637)
Insurance liabilities attributable to unit-linked
policyholders
(899,917) (1,244,196) (952,878)
Net assets excluding pension deficit 148,762 193,218 163,475
Pension deficit (5,972) (2,480) (5,972)
Net assets including pension deficit 142,790 190,738 157,503
Capital and reserves
Called up preference share capital 390 390 390
Called up ordinary share capital 150 150 150
Share premium account 17,060 37,060 17,060
Other reserves 124,437 127,290 133,459
Profit and loss account 753 25,848 6,444
Shareholders' funds
Equity 142,400 190,348 157,113
Non-equity 390 390 390
TOTAL SHAREHOLDERS' FUNDS 142,790 190,738 157,503
Consolidated cash flow statement
6 months 6 months Year
to to Ended
30 June 30 June 31 December
Note 2003 2002 2002
#000 #000 #000
Net cash (outflow)/inflow from operating activities 8 (3,764) 11,823 7,569
Returns on investments and servicing of finance (5,112) 1,002 (1,866)
Taxation 236 (2,761) (5,392)
Capital expenditure and financial investment (2,780) 5,420 2,535
Acquisitions and disposals (4) (76) (209,749)
Equity dividends paid (10,494) (10,467) (16,463)
Cash (outflow) / inflow before use of liquid resources
and financing
(21,918) 4,941 (223,366)
Management of liquid resources - - -
Financing 9,750 200,824 185,824
(Decrease) / increase in cash for the period (12,168) 205,765 (37,542)
Reconciliation of net cash flow to movement in net
(debt) / funds
(Decrease) / increase in cash for the period (12,168) 205,765 (37,542)
Cash inflow from increase in debt (9,750) (200,000) (185,000)
(21,918) 5,765 (222,542)
Other non-cash changes 86 43 151
Movement in net (debt)/funds in the period (21,832) 5,808 (222,391)
Net (debt)/funds as at beginning of the period (148,294) 74,097 74,097
Net (debt)/funds as at end of the period (170,126) 79,905 (148,294)
Consolidated statement of total recognised gains and losses ("STRGL")
6 months 6 months Year
to to Ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
(Loss)/profit on ordinary activities after taxation (8,689) 5,557 (13,152)
Exchange losses arising on consolidation (110) (80) (435)
Actuarial gain/(loss) recognised in the STRGL (net of
deferred tax)
94 (2,248) (5,608)
Total recognised gains and losses (8,705) 3,229 (19,195)
Notes to the interim financial statements
1. Basis of preparation of interim financial information.
The interim financial information has been prepared on the basis of accounting
policies set out in the group's statutory accounts for the year ended 31
December 2002.
2. Turnover and segmental analysis
6 months 6 months Year
to to Ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
Investment management fees 52,936 36,683 89,996
Net (loss)/profit on OEIC and unit trust trading (289) 183 45
52,647 36,866 90,041
Turnover was earned from clients in:
United Kingdom 51,615 34,523 87,022
Rest of Europe 895 1,461 2,060
North America 102 117 143
Far East and Australia 35 277 95
Group turnover 52,647 36,378 89,320
Joint Venture:
Far East and Australia - 488 721
Turnover of group and share of joint venture 52,647 36,866 90,041
Turnover was earned by operations in:
United Kingdom 52,647 36,378 89,320
Joint Venture:
Far East and Australia - 488 721
Turnover of group and share of joint venture 52,647 36,866 90,041
As disclosed in the 31 December 2002 Report & Accounts, ISIS Joint Venture
operations in the Far East were discontinued in the 2nd half of 2002.
3. Exceptional costs: Integration, rationalisation and reorganisation of the
business on acquisition of Royal & SunAlliance Investments
As disclosed in the 2002 Annual Report & Accounts the group initiated a
substantial integration, rationalisation and reorganisation of the business
following the acquisition of Royal & SunAlliance Investments. At 31 December
2002 #19,169,000 of exceptional costs were expensed. A further #7,741,000 of
exceptional costs were expensed during the period ended 30 June 2003 as the
fundamental restructuring of the group continued. The directors consider it
appropriate to disclose the following integration and restructuring costs as
non-operating exceptional expenditure relating to continuing operations:
6 months to 6 months to Year Ended 31
30 June 30 June December
2003 2002 2002
#000 #000 #000
Redundancy and other related staff costs 4,059 - 12,139
Premises costs 689 - 2,830
Information Technology and related costs 560 - 1,104
Rationalisation of the retail business, re-branding, administration
and client servicing 2,063 - 1,665
Consultancy and other costs supporting the restructuring process 370 - 1,431
Exceptional costs 7,741 - 19,169
Taxation credit in respect of exceptional costs (2,322) - (5,751)
Net effect of exceptional costs 5,419 - 13,418
4. Taxation
Corporation Tax has been provided at a rate of 30% of profit before taxation
(year ended 31 December 2002 - 30.0% and period to 30 June 2002 - 30.0%).
Several adjustments are made to the profit before taxation to arrive at the
taxation charge for the period. The most notable adjustments are adding back
the goodwill amortisation and eliminating the other operating income, which is
already stated net of tax.
5. Earnings/(loss) per share
(Loss)/earnings per share at 30 June 2003 is based on:
i) the weighted average number of ordinary shares of 0.1 pence in issue during
the six months, excluding those held by the group ESOP Trust, being 149,868,403
(year ended 31 December 2002: 149,764,724 and 6 month period to 30 June 2002:
149,618,222); and
ii) earnings attributable to ordinary shareholders as shown below.
Earnings per share before amortisation of goodwill and exceptional costs (net of
tax) is based on:
i) the weighted average number of ordinary shares of 0.1 pence in issue during
the period as stated above; and
ii) earnings attributable to ordinary shareholders before amortisation of
goodwill and exceptional costs (net of tax) as shown below.
Earnings:
6 months to 6 months to Year Ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
(Loss)/profit attributable to ordinary shareholders (8,704) 5,543 (13,178)
Amortisation of goodwill 11,702 3,576 15,280
Exceptional costs net of tax (note 3) 5,419 - 13,418
Profit before amortisation of goodwill and exceptional costs 8,417 9,119 15,520
6. Interim dividend
The interim dividend of 4.0p per ordinary share is payable on the Ordinary
shares in issue at 30 June 2003. The group ESOP Trust held 69,700 shares in ISIS
Asset Management plc at 30 June 2003. The ESOP Trust has agreed to waive its
dividend entitlement.
Ordinary shares
No.
Ordinary shares held in the market 149,839,137
Ordinary shares held by group ESOP Trust 69,700
Total issued share capital at 30 June 2003 149,908,837
7. Acquisition of Royal & SunAlliance Investments ("RSAI")
As disclosed in the 31 December 2002 Annual Report and Accounts the acquisition
of RSAI included a provisional consideration price, provisional fair value of
net assets and provisional goodwill amount. No adjustments have been made to
these numbers at 30 June 2003. It is anticipated that following agreement of
the Completion Accounts, the final consideration and fair value of net assets
acquired and the resultant goodwill will be reflected in the Annual Report and
Accounts for the year ended 31 December 2003.
8. Reconciliation of group operating profit to net cash flow from operating activities
6 months 6 months Year
to to Ended
30 June 30 June 31 December
2003 2002 2002
#000 #000 #000
Group operating profit 4,836 7,877 9,436
Amortisation of goodwill 11,702 3,576 15,280
Depreciation charge 1,706 928 2,131
Gain on disposal of tangible fixed assets (156) - (3)
Gain on sale of investments - (731) (735)
Increase in debtors (7,530) (3,481) (531)
(Decrease) / increase in creditors (8,224) 4,392 (7,489)
Decrease in stock of units and shares 2 7 70
Increase/(decrease) in provision for liabilities and charges 191 (1) 1,905
Increase in investment provision 1 - -
Cash outflow related to exceptional costs (6,292) (744) (12,495)
Net cash (outflow)/inflow from operating activities (3,764) 11,823 7,569
9. The above financial information does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The financial information for
the full preceding year is based on the statutory accounts for the financial
year ended 31 December 2002. Those accounts, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of Companies.
10. Copies of the Interim Report and Accounts will be posted to shareholders
and will be available for inspection at the registered office of the Company at
80 George Street, Edinburgh, EH2 3BU.
INDEPENDENT REVIEW REPORT TO ISIS ASSET MANAGEMENT PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2003 which comprises the Consolidated profit and
loss account, Consolidated balance sheet, Consolidated cash flow statement,
Consolidated statement of total recognised gains and losses and the related
notes 1 to 9. 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.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 "Review of interim financial information" issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained 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 any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group 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 excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom 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 30 June 2003.
Ernst & Young LLP
Edinburgh
28 July 2003
ISIS Asset Management plc
Report on assets under management as at 30 June 2003.
1. Assets under Management 30 June 31 December
2003 2002
#billion #billion
Life & Pensions 52.9 52.6
Institutional Clients 4.4 4.4
Open Ended Products - Third Party 1.8 1.5
Investment Trusts 1.3 1.2
Limited Partnerships 0.2 0.2
Venture Capital Trusts 0.2 0.2
60.8 60.1
2. Assets under Management 30 June 31 December
by Asset Type 2003 2002
#billion #billion
Fixed Interest 31.4 31.2
UK Equities 15.6 15.4
Overseas Equities 5.4 5.3
Property 4.6 4.6
Liquidity 3.3 3.2
Private Equity 0.5 0.4
60.8 60.1
This information is provided by RNS
The company news service from the London Stock Exchange
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