EVG Annual Report 2005 - The Evolution Group PLC

The Evolution Group Plc
100 Wood Street, London, EC2V 7AN T +44 (0)20 7071 4300
www.evgplc.com
The Evolution Group Plc. Annual Report & Accounts 2005
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Evolution.
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Annual Report & Accounts for the year ended 31 December 2005

Group
at a glance.
Evolution Securities China
is a specialist Chinese investment banking
business with offices in London and Shanghai.
It offers UK based institutional clients research
and trading in listed Chinese stocks.
Chairman’s Statement 02
Chief Executive’s Report 04
Financial Review 12
The Board 18
Directors’ Report 20
Corporate Governance 23
Report from the Chairman
of the Audit Committee 29
Directors’ Remuneration Report 30
Independent Auditors’ Report 37
Financial Statements 38
Notes to the Financial Statements 42
Reconciliations between IFRS and UKGAAP 70
Parent Company Financial Statements 79
Directors and Advisors 94
The Evolution Group Plc
is the holding company of Evolution Securities Limited,
Christows Limited and Evolution Securities China Limited.
Founded in April 2001 and originally listed on the AIM,
the Evolution Group joined the Official List in 2003 and
now has a market capitalisation of over £399 million.
Evolution Securities
aims to be the leading investment bank advising small and mid-cap UK
public companies. It has approximately 100 retained corporate clients, to
whom it provides equity research, institutional sales and trading, market
making and corporate finance advice. Evolution Securities Limited is authorised
and regulated by the Financial Services Authority. In addition, it operates a
US broker-dealer, Evolution Securities (US) Inc., through which it brings
US institutional investors access to its UK based corporate clients.
Christows
is a leading private client stockbroker and fund
manager, with offices in Bath, Birmingham,
Bournemouth, Exeter and London. Christows is
authorised and regulated by the Financial Services
Authority.
Highlights.
the facts.
Financial
Total Group income (before fee
and commission expenses) increased
by 15% to £73.5 million (2004: £64.1
million).
Profit before tax increased by 33%
to £63.6 million (2004: £47.8 million).
Clean profit before tax increased
by 29% to £30.3 million (2004:
£23.4 million).
Basic earnings per share increased
by 46% to 26.18p (2004: 17.90p).
Clean earnings per share increased
by 44% to 11.42p (2004: 7.93p).
Strong cash generation across
the Group with cash balances at
£138.0 million (2004: £115.2 million),
after purchase of own shares for £49.6
million and net cash received from
disposal of remaining stake in IP2IPO.
Increase in annual dividend of 60%
after a final dividend proposed of
0.80p (2004: 0.58p) following the
dividend of 0.40p paid in November
2005 (2004: 0.17p).
31. 12. 2005 31. 12. 2004
£’000 % + £’000
Total income* 73,475 15 64,143
Profit before tax 63,590 33 47,835
Dividends per share 1.20p 60 0.75p
Basic earnings per share 26.18p 46 17.90p
* Before fee and commission expenses
Financial & Operational Highlights
Operational
£864 million raised for our clients
in 2005 (2004: £633 million) from
51 transactions (2004: 60), a 36%
increase on the previous year.
23% increase in funds under
management for Christows to
£789 million (2004: £640 million).
£52.8 million of cash raised from
sale of remaining stake in IP2IPO
in March 2005, resulting in net profit
of £35.7 million.
Evolution Securities China moves
into profit.
The Evolution Group plc Plc Report & Accounts 2005 01

Evolution.
world at your feet.
The outlook for the Group is extremely
positive and your Board is confident of
achieving further success in 2006.
Chairman’s Statement
The Evolution Group (the “Group” or the
“Company”) has continued to develop
strongly in 2005 and has grown both
revenues and operating profitability for
the fifth consecutive year. In addition, the
Group realised further value from the sale
of its remaining stake in IP2IPO Group Plc.
I am pleased to report total income (before
fee and commission expenses) up by 15%
to £73.5m from £64.1m in the prior year
and a profit before tax up 33% to £63.6m
from £47.8m in 2004.
The Group’s principal investment banking
business, Evolution Securities Limited
(“Evolution Securities” or “ESL”) has continued
to be the driver of the Group’s operational
profitability. Its position as the No.1 ranked
broker on the AIM market of the LSE by
market share in secondary trading has been
achieved in a period when that market has
itself seen record volumes. The firm’s primary
placing capability continued to increase in
2005 with total funds raised for clients of
£864m, an increase of 36% from 2004.
Christows Limited (“Christows”), the Group’s
private client stockbroking and fund management
business has achieved further success in 2005.
Funds under management (“FUM”) have grown
by 23% during 2005, giving total FUM at 31
December 2005 of £789m (2004: £640m).
Christows has continued to operate profitably
through this period of growth despite the
investment associated with the opening of a
new Birmingham office and the strengthening
of the business by the recruitment of new
account executives.
Evolution Securities China Limited (“Evolution
Securities China” or “ESCL”), the Group’s
specialist Chinese investment banking business,
has developed strongly in 2005. In only its
second full year of operation there has been
strong growth, with revenue increasing to
£2.1m (2004: £0.4m), generating a profit
before tax of £0.1m (2004: loss £0.7m).
Corporate governance
Following my appointment as Non-executive
Chairman in May 2005, through my interaction
with the Board, discussions with executives and
employees, and meetings with a number of
shareholders, I recognised the presence of
considerable further opportunity for the Group,
underpinned by an extremely committed and
capable team. At the same time it was clear to
me that, following a period of intense growth,
there was a need to review and strengthen
further our corporate governance. The challenge
was to ensure that this was achieved across all
the Group’s operating businesses so it added
measurably to the Group’s strengths. Ten months
on, I believe that through a number of initiatives
at Board level and within the operating
businesses, much has been achieved. We are
very well placed now to look forward to a period
of further growth and development with new
standards of governance being implemented
and embedded.
Board development
An important responsibility in chairing the Group
is to ensure the effectiveness of the Board as a
body and to develop it as necessary. In this
regard an initial focus was to ensure a smooth
transition of the chairmanship from Richard
Griffiths to me. I believe that goal was achieved
during the period until Richard left the Board in
October. Richard’s contribution in the Group’s
first five years of growth was significant and on
behalf of the Board I thank him most warmly
for all that he achieved.
There will be another change in the constitution
of the Board at the Annual General Meeting
(“AGM”) in May 2006. It is now nine years
since Oliver Vaughan first joined the Board at
the incorporation of the Company in 1997 and
in accordance with best practice he will step
down at the AGM. On behalf of the Board I
should like to thank Oliver for all that he has
contributed to the Board and the Group over
the years.
We intend to strengthen the Board further in
the short term.
Dividend
The Board recommends the payment of a final
dividend of 0.80p per share (2004: 0.58p).
This follows the interim dividend payment of
0.40p per share announced in September and
paid in November (2004: 0.17p), giving an
overall dividend for the year of 1.20p (2004:
0.75p) per share. This 60% increase in the
overall dividend for the year is an acknowledgement
of our continued confidence of the
Group’s operating businesses and is in line
with our stated progressive dividend policy.
Share buyback
During 2005 the Company undertook a share
buyback programme, purchasing 27.4m shares
for cancellation at a total cost of £42.5m.
Despite this major programme, at the year-end
the Group’s cash balance had risen to £138.0m
(2004: £115.2m) as a result of the continuing
profitability of our businesses and the proceeds
arising from our disposal of the remaining
investment in IP2IPO Group Plc in March
2005. The Group may continue with an onmarket
share buyback programme during the
remainder of 2006. To facilitate this process
we shall be seeking shareholder approval to
purchase shares at this year’s AGM.
Share purchases by the Employee Trust
The Trust purchased 5,310,443 shares during
the year (2004: 2,559,000) for total consideration
of £7.1m (2004: £3.8m) through the Group’s
share incentive trust in respect of meeting
share incentive awards made to staff and the
Company will continue this process in 2006.
The Group’s employees
We have a team of talented employees
committed to the successful development of
the Group’s operating businesses. It is through
their efforts that the excellent results have been
achieved. I should like to thank them all on
behalf of the Board. We believe that the
achievement of the Group’s long-term strategic
objectives is dependent on staff whose interests
are aligned with the shareholders. Each
operating subsidiary has equity participation
as an element of employee reward. Evolution
Securities China is an entity where the staff are
minority shareholders in this company and there
is, therefore a very strong alignment between
them and the Group as majority shareholder.
At Christows, we have completed an award of
options in January 2006 under the Group’s
2001 Executive Share Option Plan covering
75% of the employees. Within Evolution
Securities, the Key Performers Share Incentive
Plan implemented in 2003 was a three-year
scheme, which was largely completed with the
award made in January 2005 and confirmed at
the time of the annual remuneration process in
January 2006. This has, I believe, underpinned
the success achieved during this time. The
Remuneration Committee has been considering
the appropriate form of incentive scheme for
the next phase of the Group’s development to
further align the interests of shareholders with
the executive directors and employees of
Evolution Securities Limited. This scheme will be
presented for shareholder approval at the AGM in
May 2006 and, in the period between now and
then, the Chairman of the Remuneration
Committee and I will be consulting shareholders.
Outlook
We have made significant progress in developing
each of our operating businesses. The momentum
in the equity markets has continued in 2006.
We have a strong balance sheet and a motivated
team. The outlook for the Group is extremely
positive and your Board is confident of achieving
further success in 2006.
Martin Gray
Chairman
29 March 2006
The Evolution Group Plc Report & Accounts 2005 03

Chief Executive’s Report
Evolution Group.
cutting edge.
“In 2005, the Evolution Group grew all three
operating businesses by both revenue and
profitability measures. On a consolidated basis,
total Group income (before fee and commission
expenses) rose by 15% to £73.5m.”
Alex Snow
Chief Executive Officer
The detailed income analysis by segment and by operating company, is shown below.
Operating performance is reported internally to the Board by operating company
and the Group’s organisational and management structure is set up on this basis.
Performance Breakdown
Income 2005 2004
£’000 % £’000 %
Investment banking and markets
ESL and Evolution Securities (US) Inc (“ESUS”) 59,887 81 54,145 84
ESCL 2,082 3 409 1
Sub-total
Stockbroking and fund management
61,969 54,554
Christows
Other
11,503 16 9,345 15
Other income 3 - 244 -
73,475 100 64,143 100
Commissions paid away (1,500) (1,019)
Total income 71,975 63,124
Evolution Group Income
before fee and commission expenses
£80m
£60m
£40m
£20m
£0m
0.5
4.8
7.6
15.8
40.8
64.1
99 00 01 02 03 04 05
UKGAAP IFRS
73.5
Evolution Securities, Christows and Evolution Securities China
have each individually achieved other key goals during the year
including: market share and fund raising gains in ESL; funds
under management growth in Christows; and a maiden profit
for the year in ESCL respectively.
As the year ended, all three businesses had very positive
opportunities looking forward into 2006 and, in my report,
I will give for each a flavour of both historical achievements
and future prospects to enable shareholders to have a full
understanding of the Group.
The Evolution Group Plc Report & Accounts 2005 05

Chief Executive’s Report
Evolution Securities.
No.1 market share on AIM in secondary trading.
Evolution Securities has completed another year of strong
growth in 2005. Its income (before fee and commission
expenses) has increased by 11% from 2004 to £59.9m.
Its corporate broking, trading, equity distribution and
research activities have all achieved success in the year.
Case studies
To demonstrate the breadth and depth of our primary fundraising and placing capabilities across the London markets for a diverse
client group we have highlighted four of the deals during 2005 in which ESL participated.
Powerleague Plc
| £22.25m Placing and Admission to AIM, May 05
| NOMAD and Broker
Powerleague is the leading operator of 5-a-side football centres
in the UK. At flotation, the Group had 26 centres providing a
total of 282 floodlit pitches, in various geographical locations
throughout the UK.
In May 2005, ESL acted as Powerleague’s NOMAD and Broker
during the flotation process and arranged an institutional placing
of 50,570,004 ordinary shares at 44p per share to raise £14m on
behalf of the company and £8.25m on behalf of selling shareholders.
The flotation enabled the directors to realise a proportion of their
investments, the Bank of Scotland to realise their equity investment
and the company to position itself for further investment and growth.
Since the flotation Powerleague’s shares have risen by 95%
and the company now has a market capitalisation of £70.8m*.
* based on the closing price of 86.5p on 21 March 2006.
Billing Services Group Plc (“BSG”)
| £84.1m Placing and Admission to AIM, June 2005
| €155m Acquisition and £61.9m Placing, August 2005
| £23.5m Offer for United Clearing Plc, December 2005
| NOMAD and Broker on all deals
BSG is a global provider of clearing and settlement, payment services
and financial risk management solutions for communications service
providers. ESL acted as NOMAD and Broker to BSG on its Admission
to AIM in June 2005. At that time BSG, a US based business, was
focused on its core US market, but looked to London as a base for
international expansion. The company is very cash generative and
the placing at the time represented a 100% exit for the Venture
Capital backers of the business, as well as a small amount of new
money to cover the costs of the transaction. The placing was
undertaken at 74p per share.
BSG shares are currently (21 March 2006) offered at 79.5p,
a 7% premium to the IPO share price.
Evolution Securities Corporate broking
Corporate broking continued this year to be
the significant driver of income growth with an
increase of 22% to £41.2m (2004: £33.7m).
We achieved this with record fund raisings for
clients of £864m (2004: £633m) a 36%
increase across 51 transactions (2004: 60).
This gives an average fund raising deal size
of £16.9m, an increase of 59% from the level
of 2004. At the end of the year we had 100
retained corporate clients with an average
market capitalisation of £83m.
Wichford Plc
| £30m Placing and Admission to AIM, August 2004
| £100m Placing, July 2005
| NOMAD and Broker on both deals
Wichford is a property investment company whose focus is on
properties occupied by UK Central Government and related bodies.
At flotation, the company owned 18 properties and, including
the money raised, had a net asset value of approximately £54m.
At the placing price of 150p, the company was capitalised at
£56m. The funds raised enabled the company to expand its
portfolio and by 31 March 2005, it had invested substantially
all of the funds raised, raising the net asset value to almost
£67m – an increase of £13m in value in 7 months.
By 30 September 2005, Wichford owned 46 properties, its
net assets per share had increased to 172p from 150p at
flotation and its share price was standing at 191p – a rise
of 27 per cent in the period since flotation and a premium
of 11 per cent to the underlying asset value.
Its share price, as of 21 March 2006, was 210p giving it a
market capitalisation of £204m – 264% of its capitalisation
on flotation in August 2004.
Ashtead Group Plc
| £70m Joint placing, July 2005
| Broker
Ashtead Group PLC provides equipment rental to construction,
industrial and home owner customers and has operations in
the US, the UK, Singapore and Canada. ESL was appointed as
broker to the company on 20 September 2004 in conjunction
with the company’s results for the first quarter ending
31 July 2004. At appointment the share price was 56.25p
giving the company a market capitalisation of £183m.
On 7 July 2005, ESL jointly underwrote a £70m placing
and open offer as part of a larger transaction involving the
repayment of a convertible loan note and the refinancing
of some of the Group’s existing debt. The equity issue price
valued the company at £381.5m.
The company has since gone from strength to strength.
Having joined the FTSE 250 in September 2005, the
company now (21 March 2006) has a share price of
221.75p and a market capitalisation of £893m.
The corporate broking capability has been
enhanced during the year by the recruitment
to the corporate finance team of a number of
talented individuals and the team is well placed
for continued success in 2006.
Equity distribution
Equity distribution is made up of two elements:
primary placements and secondary market
activity. Our primary placing activity in 2005,
associated with the record levels of client fund
raisings detailed above, represents a significant
achievement and we continue to be recognised
as one of the leading brokers when measured
by primary placing capability. For secondary
markets we have two principal measures of
success: secondary commission income and
market share. In 2005, commission income
grew to £9.4m, an overall increase of 9% on
2004, and we saw increased market share
across all sector indices. Particularly striking
was the fact that we achieved the No.1 market
share on the AIM market of the LSE for agency
business which, in a year of record volumes
in this market overall, was an extremely
satisfying result.
Equity research
Equity research has continued to play a
significant role in the support of the firm’s
primary and secondary businesses. At the
end of December our analysts covered sectors
including resources, oil and gas, industrials,
building construction, life sciences, leisure
and gaming, media, retail, support services,
software, technology, and telecoms. It is our
intention to strengthen our secondary market
research team further in 2006.
Market Making
The market making business traded profitably
again in 2005 with overall trading income of
£8.9m (2004: £11.6m). Following a couple of
very difficult trading months in April and May we
completed a significant structural change and
aligned the market making books on a sectoral
and corporate client basis rather than a purely
alphabetical basis. We believe this focus leaves
us better able to recognise trading patterns
within sectors, allowing us to take advantage of
profits and mitigate losses, and also to integrate
more effectively with the other parts of the
Company, which are also organised along a
sectoral basis. Market making saw a dramatic
increase in transaction numbers and overall
value in the year, and when measured by total
business, the firm had the No.1 market share
on the AIM market of the LSE, under-pinning
the contribution the market making business
made to the Company’s overall AIM franchise.
Electronic trading
We continue to recognise the importance of
connectivity to retail service provider (“RSP”)
hubs and during the year we increased
connectivity, adding retail stockbroker connections
across our four RSP hubs, with a number of
brokers accounting for significant electronic
daily transaction flows. Electronic trading
accounted for 40% of our total volumes in the
first two months of 2006, compared to the
31% level achieved in 2005 and 25% in 2004.
We believe in the growth of electronic and
on-line trading in the future and will continue
to invest in our trading platforms.
US Broker-Dealer
Evolution Securities Limited’s subsidiary, ESUS,
the US broker-dealer registered by the National
Association of Securities Dealers (“NASD”)
began trading in 2005. As stated last year,
this enables us to represent our corporate
clients to US institutional customers and,
where appropriate, to provide US roadshows
for them. Thereafter it provides for the effective
distribution of secondary UK equities to
these US institutional investors.
The Evolution Group Plc Report & Accounts 2005 07

Chief Executive’s Report
Christows.
if the shoes fit.
PERSONAL SERVICE
Christows’ ethos is to maintain
enhanced levels of direct personal
service by the appointment of
dedicated portfolio managers
to every client.
BESPOKE PORTFOLIOS
Each client’s portfolio is designed,
structured and managed to suit
their own requirements and
circumstances, often incorporating
existing investment assets yet
utilising Christows centralised
investment research capabilities.
INVESTMENT RESEARCH
Clients benefit from the high level
of Group resource allocated to
investment research, relative to
funds under management.
PROFESSIONAL PARTNERSHIPS
Christows has fostered the
development of close working
relationships with other professional
intermediaries who utilise our
services and are responsible for a
significant proportion of our new
business flow.
UNQUALIFIED INDEPENDENCE
Christows provides an environment in
which portfolio managers are encouraged
to select the investment assets best suited
to individual clients needs and objectives,
which is attracting an increasing number
of like minded professional portfolio
managers to Christows.
Christows’
expansion
Christows Christows continues with its strategic initiatives of
growth in scale and attaining greater profitability
each year. I am pleased to report that both of these
achievements were met in 2005. Total income
(before fee and commission expenses) increased
by 24% to £11.5m in 2005 (2004: £9.3m)
which, coupled with continued tight management
of costs, produced growth in profits for the fourth
consecutive year, despite the investment costs
associated with the new Birmingham office,
with operating profitability up 33% from 2004.
The recruitment by Christows of six highly experienced
portfolio managers, with many years of embedded local
knowledge, heralded the launch of a project to establish
a new office in Birmingham.
Starting with a bare floor in a newly refurbished landmark
building, in the heart of the local financial district at No.1
Colmore Row, our project management team designed, built
and made fully operational an IT ready office to the same
high specification as the rest of the Group.
This office was opened ahead of schedule in September 2005
and provides an opportunity for Christows to display the
dedicated local portfolio management skill base necessary
to provide a personal service to high net worth clients,
pension funds and charities.
Funds under management
We continue our underlying strategy of
growing funds under management (“FUM”).
Overall FUM increased 23% and had reached
£789m (2004: £640m) at year-end. This
growth was underpinned by the continued
strong sales by our professional intermediary
sales team, leading to Christows winning
new mandates across all its product range.
Products
Christows’ product range was further developed
in the fourth quarter of the year by the addition
of EIS and IHT portfolio services, following
recruitment of a leading specialised fund
manager in this area. This supplements the
very successful range of Christows’ portfolio
products including: Discretionary Service;
Private Portfolio account; Private Portfolio
Service; and the Multi-Manager products
which during the year were re-branded
‘Collective Portfolio Accounts’.
As well as creating a platform to service existing clients of
our new team, this will serve as a launch pad for Christows
sales team to extend its partnership approach to professional
intermediaries in a substantial new territory. As our fifth
branch office this now brings a significant proportion of
the UK population within our geographical reach.
The highly regarded new Birmingham team has also facilitated
the launch, in the last quarter 2005, of our new EIS and
IHT tax efficient services. These are designed to provide our
professional partners with additional tools to service their
clients and, as a truly national product, allow us to extend
the depth of our offering to our existing clients.
This enables Christows to service clients
across the full range of portfolio sizes typically
from £50,000 to £5 million.
Research
During the year, Christows enhanced its
research offering by the appointment of an
experienced Head of Research. This has
provided the opportunity for further refinement
of the Christows’ core model portfolio range
and has resulted in the increased provision
of regular equity and collective research
to account executives.
Branch networks
It has been a year of considerable focus on
the growth of the Christows’ branch network.
Firstly, we increased the scale of the Bath
office. This was followed with the opening of
a new branch in Birmingham in September
2005, with a strong team of account executives
and fund managers. I am confident that,
following a period of up-front investment at
the early stages of development of these two
offices, we will see significant growth in FUM
and revenues, and achieve profitability from
these branches. Funds received in the last
quarter of 2005 and first quarter of 2006
support this view.
Outlook
There has been consolidation and acquisitions
amongst the traditional competitors to Christows
and in many cases it appears that this may
result in a move away from the traditional
values of truly bespoke portfolio management
which we believe clients continue to value
highly and remains at the heart of Christows’
offering. With continuing growth in FUM,
increased geographical representation, and
an enhanced product range, I am confident
that we will continue to win new funds, attract
like minded account executives and work
with an increased range of intermediaries,
which together represents an opportunity
for continued strong growth of this business
over the coming years.
The Evolution Group Plc Report & Accounts 2005 09

Chief Executive’s Report
Evolution Securities China.
breaking down barriers. Evolution Securities China
Case study
To demonstrate the strong position of our ESCL primary fundraising and placing capabilities aimed at Chinese clients, we have
highlighted one of the 2005 deals in which ESCL participated.
Asian Citrus Holdings Plc
| £12.1m Placing & Admission to AIM
| NOMAD and Broker, August 2005
Asian Citrus Holdings Limited (“Asian Citrus”) is the largest
orange plantation owner and operator in China.
On its admission to AIM, at a placing price of 112p, Asian Citrus
raised £12.1m from institutional clients to fund the growth in its
production volume, the building of a national brand in the People’s
Republic of China (“PRC”), the establishment and development
of an extensive sales and distribution network in areas identified
by the directors as key in the PRC and to provide founding
shareholders with an exit.
Asian Citrus has two plantations occupying, in total, approximately
68 sq. km of land; approximately 31 sq. km located in the
Hepu county of the Guangxi Zhuang Autonomous Region and
approximately 37 sq. km in the Xinfeng county of the Jiangxi
province of the PRC.
The Hepu plantation is operational while the Xinfeng plantation is
currently under development with its first harvest expected to be
in the winter of 2007. The group currently cultivates and sells two
types of oranges: Winter Oranges (comprising the hamlin, pineapple
and hong jiang varieties) and Summer Oranges (Valencia).
This admission to AIM represented the first by a significant
Chinese company and has laid the foundation for the successful
introduction of other Chinese companies to the AIM market.
The share price of Asian Citrus, as at 21 March 2006, was 221p –
an approximate 97% premium to its placing price in August 2005
- giving it a market capitalisation of approximately £137.5m.
The Group’s specialist Chinese investment
banking business, Evolution Securities China,
has shown very good progress in 2005.
Total income (before fee and commission
expenses) increased by 410% from £0.4m
in 2004 to £2.1m in 2005. This led to an
operating profit of £0.1m, which is a significant
turnaround from the loss of £0.7m in 2004.
During the period ESCL has strengthened its
secondary market equities research offering
based in Shanghai, adding to its team of
analysts and bringing more companies under
coverage. This has enabled its equity distribution
team based in London to broaden its institutional
customer base. ESCL also developed its primary
market activity during the year and completed
its first two introductions of Chinese companies
onto the AIM market. These have established
ESCL as the foremost specialist broker to
Chinese clients operating in the London market.
We remain convinced that there will be
substantial opportunities ahead as the Chinese
equity markets develop and that ESCL is well
positioned to capitalise on these.
Investments
As previously announced in March 2005,
the Group disposed of its remaining holding in
IP2IPO for gross proceeds of £52.8m in cash.
This realised a profit for the Group, after
taking into account related expenses of sale
of £35.7m. This transaction taken together
with the previous partial disposals in 2003
and 2004 has created and realised significant
value for Evolution’s shareholders.
As previously reported, the Group has
continued to exit from its legacy investment
portfolio. The Group seeks to extract value
from this portfolio with profit on sale of other
available-for-sale investments totalling £4.3m
in 2005 (2004: £6.6m). Set against this the
Group has a negative fair value reserve of
£1.7m against the remaining portfolio of
available-for-sale investments (2004: nil).
Infrastructure, culture and employees
The Group has made excellent progress in
the year. This has been achieved against a
background of additional challenge as we
made it a priority to focus on enhancing the
infrastructure and support structure. As a
result of these initiatives we have completed
the development of a risk function, enhanced
systems, performed compliance restructuring,
increased management strength in the areas
of risk, operations and IT, and implemented
additional new business and transaction
approval processes. These requirements
arose as the scale of growth of the business
moved forward dramatically and as we
undertook our review of corporate governance
on a group wide basis with an objective of
achieving best in class amongst our peer group.
I am confident the progress made in these
areas mean that the business is now extremely
well placed for the next stage of development.
These initiatives have contributed towards
an overall increase in costs of £5.4m.
These changes highlight our continued
emphasis upon the development of a culture
of compliance and control across the Group’s
operations. We believe in today’s business
climate that, particularly operating in the
regulated markets, such a strategy is
imperative to achieving long term success.
This is one facet of our culture. Another is
the process of placing our clients’ interests
first as our results are determined by the
results we obtain for our clients. A third is
our continued focus on the encouragement
of high levels of individual effort and
performance in striving collectively to achieve
the Group’s operational goals. We are
committed, therefore, to a reward structure
for employees where there is significant
emphasis on performance-based reward.
Our performance-based bonuses differ slightly
between operating business – in line with
market practice and business maturity – but
the overriding principle is creating a bonus
pool only where profits are being generated
for shareholders. Equity incentivisation is the
final component of reward and this ensures
the employees’ interests are fully aligned with
shareholders. The profit and loss charge
resulting from equity incentivisation, in the
form of the fair value of awards granted
spread over the life of the awards, equated
to £6.7m in 2005 (2004: £4.9m).
I should like to add my own thanks to those
made above by Martin regarding the efforts of
the Group’s employees, through whose efforts
the results have been achieved and through
whose further endeavours I am confident of the
Group achieving continued success this year.
Outlook
The first quarter of 2006 has been an excellent
start to the year with income and profitability
strongly ahead of the equivalent period last year.
Evolution Securities has completed, or is
working on, a number of significant primary
transactions, and in the secondary markets we
have seen a dramatic increase in transaction
volumes. Christows has begun the year well,
with good flows of new funds under management
being won by both the sales team and
the new account executive teams that started
in the final quarter of last year. Christows has
also seen a marked increase in transaction
volumes. The Chinese securities market has
started the year very strongly and Evolution
Securities China looks well positioned to
continue to develop in 2006.
Alex Snow
Chief Executive Officer
29 March 2006
The Evolution Group Plc Report & Accounts 2005 11

Group Income (before fee and commission expenses)
2005
3
2
1 ESL
%
81
2 ESCL 3
3 Christows 16
4 Other -
Investment Banking and Markets
Stockbroking and Fund Management
1
2004
1 ESL
%
84
2 ESCL 1
3 Christows 15
4 Other -
Investment Banking and Markets
Stockbroking and Fund Management
Financial Review Adjusted operating profit
The Group applied International Financial Reporting Standards
(“IFRS”) with effect from 1 January 2004, with the exception of IAS
32 and IAS 39, which were applied from 1 January 2005. The effect
of these changes and a more detailed explanation of the basis of
preparation are detailed below.
3
2
1
Group Costs (operating and fee and commission expenses)
2005
The statutory operating profit for the overall Group is as shown above.
The Board continues to believe a truer reflection of the performance
of the Group’s on-going operating businesses is afforded by the
measure of ‘Adjusted operating profit’ that excludes items that are oneoff
or non-recurring, are not part of the on-going business profitability
or, in the case of the cost of options, represent non-cash items.
This measure is therefore used as the principal performance criteria
against which the vesting of stock awards is determined.
However, the Board reviews performance against the measure ‘Clean
profit before tax’, which represents adjusted operating profit plus net
interest; and also the measure ‘Clean earnings’, which represents clean
profit before tax less tax expense. These measures are also followed
by the analyst community as benchmarks for the Group’s on-going
performance.
The table opposite for Operating Profit reconciles these measures and
demonstrates the continued strong progress made on a Group basis
in increasing adjusted operating profit by 26% to £25.3m in 2005
(2004: £20.1m):
%
1 ESL 74
2 ESCL 4
3 Christows 19
4 Other 3
2004
3
4
3
4
2
2
1
%
1 ESL 73
2 ESCL 2
3 Christows 18
4 Other 7
1
Brass Tacks.
getting down to business.
31.12.05 31.12.04
£’000 £’000 £’000 £’000
Operating Profit
Items not included within adjusted operating profit
58,583 44,513
Profit on disposal of available-for-sale investments (40,048)
Profit on sale of fixed asset investments (1,225)
Release of provision against fixed asset investments (525)
Profit on sale of current asset investments (4,813)
Profit on part sale of subsidiary - (66)
Profit on sale of associate - (22,286)
Adjustment for provisions and profits on investments (40,048) (28,915)
Share of results of associated undertaking - (436)
Cost of share options granted to employees 6,744 4,928
Non-cash items 6,744 4,492
Adjusted Group operating profit 25,279 20,090
Net interest receivable 5,007 3,322
Clean profit before tax 30,286 23,412
Tax expense (4,524) (3,831)
Clean earnings 25,762 19,581
Clean earnings per share 11.42p 7.93p
Clean diluted earnings per share 10.19p 7.28p
Within the investment banking business of
Evolution Securities, there has been continued
growth in scale and profitability. Evolution China has
seen significant growth in the scale and profitability
of its business. Christows has seen a continuation
of the progress of the last three years.
The Evolution Group Plc Report & Accounts 2005 13

Financial Review
- continued
ESL Income (before fee and commission expenses)
2005
2
%
1 Corporate finance 68
2 Sales commissions 16
3 Trading 15
4 Other 1
ESL Costs
2005
3
3
4
4
1
%
1 Staff costs
Non performance related 19
2 Staff costs
Performance related 35
3 Other costs 34
4 Cost of options 12
1
2
2004
%
1 Corporate finance 62
2 Sales commissions 16
3 Trading 21
4 Other 1
2004
3
4
2 1
%
1 Staff costs
Non performance related 17
2 Staff costs
Performance related 42
3 Other costs 36
4 Cost of options 5
ESCL Income (before fee and commission expenses)
2005
2
%
1 Corporate finance 66
2 Sales commissions 19
3 Trading 13
4 Other 2
ESCL Costs
2005
3
3
4
2
1
%
1 Staff costs
Non performance related 53
2 Staff costs
Performance related 6
3 Other costs 41
1
2004
3
4
1
2
%
1 Corporate finance 46
2 Sales commissions 54
3 Trading -
4 Other -
2004
2
3
1
1
%
1 Staff costs
Non performance related 56
2 Staff costs
Performance related -
3 Other costs 44
The Segment analysis in note 3 to the Consolidated Financial
Statements in Section 1 to the Annual Report highlights the disclosures
required under IAS 14, ‘Segment Reporting’. The primary business
segments are: Investment banking and markets; Stockbroking and
fund management; and Other.
Investment banking and markets in the current year refers to the business
carried out in Evolution Securities Limited, Evolution Securities China
Limited and Evolution Securities (US) Inc.
Stockbroking and fund management refers to Private Client Stockbroking
and Fund Management under the Christows brand.
Other activities refer to the central administrative, shared services
and holding company functions, combined with the profits on, and
provisions against, the legacy fixed asset investment portfolio and
the business carried out in the intellectual property commercialisation
field under the IP2IPO group of companies. This holding was disposed
of in March 2005.
Investment banking and markets
2005 2004
£’000 £’000
Income (before fee and commission expenses) 61,969 54,554
Fee and commission expenses (1,126) (747)
Total income 60,843 53,807
Operating expenses (41,446) (36,244)
Profit on disposal of available-for-sale investments 117
Profit on sale of fixed asset investments - 21
Profit on sale of current asset investments - 171
Operating profit 19,514 17,755
In line with the analysis presented in the Chief Executive Officer’s
Report above, the investment banking and markets segment is further
divided into Evolution Securities (consisting of ESL and ESUS) and
ESCL. The breakout of revenues and costs for these categories is
detailed below. It is clear to see the progress made in 2005 from
the previous year.
Evolution Securities
Within the investment banking business of Evolution Securities,
there has been continued growth in the scale and profitability of this
business resulting in an increase of 21% in adjusted operating profit
from £19.9m in 2004 to £24.0m in 2005.
2005 2004
£’000 £’000
Income (before fee and commission expenses) 59,887 54,145
Fee and commission expenses (1,037) (670)
Total income 58,850 53,475
Operating expenses (39,557) (35,204)
Profit on disposal of available-for-sale investments 117
Profit on sale of fixed asset investments - 21
Profit on sale of current asset investments - 171
Operating profit 19,410 18,463
Profit on disposal of available-for-sale investments (117)
Profit on sale of fixed asset investments (21)
Profit on sale of current asset investments (171)
Cost of options 4,701 1,659
Adjusted operating profit 23,994 19,930
Evolution Securities’ income analysis
The growth in Evolution Securities’ income (before fee and commission
expenses) has been achieved by particular growth from the activities of
corporate finance advice and fundraising. In addition, sales commissions
held up well and remain a constant proportion of the overall revenue.
Equity trading income was down by approximately 20% in absolute
terms, which has therefore had an impact on the balance between
primary and secondary income. We would expect this to return to a
more balanced basis going forward.
2005 2004
Corporate finance 68% 62%
Sales commissions 16% 16%
Trading 15% 21%
Other 1% 1%
Evolution Securities’ cost analysis
The overall cost/income ratio for the Evolution Securities business,
excluding cost of options and non-recurring costs, has reduced again
this year in line with our plans to 59% (2004: 63%). Staff costs
continue to make up the majority of the total cost base, accounting for
54% (2004: 59%) of costs with over 64% (2004: 70%) of this being
in the form of performance related bonuses. The other administrative
expenses have increased principally as a result of the increase in
premises costs, professional fees and direct transaction costs.
2005 2004
Staff costs – Non performance related 19% 17%
Staff costs – Performance related 35% 42%
Other costs 34% 36%
Cost of options 12% 5%
Evolution Securities China
As this business has reached a larger scale than a year ago, I believe it
is useful to break out its results on a standalone basis. There has been
significant growth in the scale and profitability of this business resulting
in an adjusted operating profit of £0.1m in 2005 from a loss of
£0.7m in 2004.
2005 2004
£’000 £’000
Income (before fee and commission expenses) 2,082 409
Fee and commission expenses (89) (77)
Total income 1,993 332
Operating expenses (1,889) (1,040)
Operating profit / (loss) 104 (708)
Cost of options 6 -
Adjusted operating profit / (loss) 110 (708)
Evolution Securities China income analysis
ESCL’s income (before fee and commission expenses) has grown in all
areas. Its commission income increased by over 80% and corporate
finance revenues by over 600% when compared with the previous
year. Given the early stage of development of the business and its
relatively small scale overall it is too early to predict the normalised
revenue profile.
2005 2004
Corporate finance 66% 46%
Sales commissions 19% 54%
Trading 13% -
Other income 2% -
Evolution Securities China cost analysis
ESCL’s total cost base saw an overall increase of over 80% as the
scale of the business changed during the year. There was, however, a
consistency in the proportion of staff costs and these were in line with its
business model of low fixed employment costs linked with direct equity
participation. The Group recognises the importance of maintaining a
different business model in this early stage of the business.
2005 2004
Staff costs – Non performance related 53% 56%
Staff costs – Performance related 6% -
Other Costs 41% 44%
Stockbroking and fund management
Looking next at Christows, the Group’s private client stockbroking and
fund manager, 2005 has seen a continuation of the progress of the
last three years with an increase of 24% (2004: 137%) in adjusted
operating profit from £0.9m in 2004 to £1.1m in 2005.
2005 2004
£’000 £’000
Income (before fee and commission expenses) 11,503 9,345
Fee and commission expenses (374) (283)
Total income 11,129 9,062
Operating expenses (10,194) (8,362)
Operating profit 935 700
Cost of options 146 171
Adjusted operating profit 1,081 871
IFRS Impact
Christows was the business within the Group upon which IFRS
reclassification had the greatest impact. Whilst these had no material
impact upon profitability, there were quite major reclassifications.
Firstly, commissions shared with individuals, deemed under IFRS to be
employees, were reclassified from commission expenses to performancerelated
staff costs. Secondly, commission expenses to financial
intermediaries were reclassified to net off against the relevant income.
Thirdly, the policy of immediately matching initial commission earned
on the transfer of client funds into Christows and the related initial
commission expense paid to intermediaries was replaced with a process
of capitalising income and expense, and amortising over the estimated
average life of FUM.
Stockbroking and fund management income analysis
Christows’ mix of income has remained constant across the two periods
demonstrating the consistency of the business model, as the overall level
of funds under management increases, and showing equal growth in its
recurring management fees and sales commission income lines.
2005 2004
Corporate finance - 3%
Sales commissions 60% 61%
Management fees 34% 31%
Other income 6% 5%
Corporate finance in the prior year relates to nominated broker fees.
The Evolution Group Plc Report & Accounts 2005 15

Financial Review
- continued
Christows Income (before fee and commission expenses)
2005
3
%
1 Corporate finance -
2 Sales commissions 60
3 Management fees 34
4 Other 6
4
Christows Costs
2005
3
%
1 Staff costs
Non performance related 31
2 Staff costs
Performance related 27
3 Other costs 41
4 Cost of options 1
2
2004
%
1 Corporate finance 3
2 Sales commissions 61
3 Management fees 31
4 Other 5
2004
4 4
1
2
3
3
1
4
%
1 Staff costs
Non performance related 35
2 Staff costs
Performance related 22
3 Other costs 41
4 Cost of options 2
2
2
1
Stockbroking and fund management cost analysis
The overall cost/income ratio, excluding cost of options and nonrecurring
costs, for Christows has remained stable at 90% (2004:
90%) taking into account the reclassifications under IFRS outlined
above. Further examination of the cost structure within Christows
shows it continues to be tightly managed and highly predictable.
During the second half of 2005 Christows opened a new office in
Birmingham and this resulted in a number of up-front costs together
with incurring amounts for new staff not as yet fully matched with
revenue as they began to build up the business. The process of
absorbing this into Christows’ results whilst still maintaining forward
momentum is testament to the strength of Christows.
2005 2004
Staff costs – Non performance related 31% 35%
Staff costs – Performance related 27% 22%
Other Costs 41% 41%
Cost of options 1% 2%
Other activities
The Group’s other activities are made up of: central group support
costs not recovered from the operating businesses; the profits on and
provisions against investments; the partial disposals of IP2IPO and
other legacy fixed asset investments; and the results of the IP2IPO
business whilst it was an associated undertaking of the Group.
2005 2004
£’000 £’000
Income (before fee and commission expenses) 3 244
Fee and commission credit - 11
Total income 3 255
Operating expenses (1,800) (3,356)
Profit on disposal of available-for-sale investments 39,931
Profit on part sale of subsidiary - 66
Profit on sale of associate - 22,286
Profit on fixed asset investments 1,204
Release of provision on fixed asset investments 525
Profit on current asset investments 4,642
Share of associated undertaking’s interest - 252
Share of associated undertaking operating profit - 184
Operating profit 38,134 26,058
Profit on part sale of subsidiary - (66)
Profit on sale of associate - (22,286)
Profit on disposal of available-for-sale investments (39,931)
Profit on sale of fixed asset investments - (1,204)
Release of provision against fixed asset investments - (525)
Profit on current asset investments - (4,642)
Share of associated undertaking’s interest - (252)
Share of associated undertaking operating profit - (184)
Cost of options 1,891 3,099
Adjusted operating profit / (loss) 94 (2)
IP2IPO
On 11 March 2005, the Group disposed of its remaining holding in
IP2IPO of 7,502,170 shares for total gross proceeds, before expenses
of £52.8m. After taking into account related expenses of sale, this
resulted in a realised profit of £35.7m.
Investment portfolio
As previously reported, the Group has continued to exit from its
legacy investment portfolio. The Group seeks to extract value from
this portfolio with profit on sale of other available-for-sale investments
totalling £4.3m in 2005 (2004: £6.6m). Set against this the Group
has a negative fair value reserve of £1.7m against the remaining
portfolio of available-for-sale investments (2004: nil).
Balance sheet strength
The Group remains focused on maintaining a strong balance sheet.
At the year-end it had net assets of £156.7m (2004: £141.0m)
including cash of £138.0m (2004: £115.2m).
Cashflow
The Group generated positive cash inflow of £22.8m in the year
(2004: £61.4m). This has been achieved principally from operating
activities and the final disposal of IP2IPO in March 2005, offset by
purchases of own shares totalling £49.6m.
Dividend
The Board is proposing a final dividend per share for 2005 of 0.80p
per share (2004: 0.58p). This dividend is payable on 2 June 2006
to shareholders on the register on 5 May 2006. This follows the
dividend paid in November 2005 of 0.40p per share (2004: 0.17p).
Impact of IFRS
The conversion of the Group’s accounts to IFRS has not materially
impacted the continuing operational performance of the Group.
The Group’s operating profit per the statutory consolidated income
statement for the year to 31 December 2004 has been adjusted
down by £132,000 from a UKGAAP figure of £44,645,000 to a
figure of £44,513,000. This was principally a result of changes to
the accounting treatment for share options granted to employees
under IFRS 2, ‘Share Based Payments’, which resulted in an additional
charge of £660,000 and of changes to the treatment of amortisation
under IAS 38, ‘Intangible Assets’, which resulted in a credit to the
income statement of £505,000. Neither of these adjustments impact
the measure: “Adjusted operating profit”, which remains constant
due to the exclusion of non-cash items and one-off or non-recurring
investment gains and losses. Adjusted operating profit performance
is highlighted above.
Correspondingly the impact on equity at 31 December 2004 of
an increase of £4,552,000 following the adoption of IFRS relates
to the recognition of deferred tax assets on share options granted to
employees, the reversal of dividends as yet unpaid or unapproved
and the reversal of amortisation on goodwill (refer to Appendix 1
on page 70).
Reconciliations between IFRS and UK GAAP
To assist with the understanding of the impact of transition from
UKGAAP to IFRS, the Group has presented the reconciliations in
Appendix 1 (i) to (v) on pages 70 to 78 as detailed below.
Appendix 1
The following reconciliations provide a quantification of the effect
of the transition to IFRS:
(i) reconciliations of equity at 1 January 2004
and 31 December 2004 (page 70)
(ii) reconciliation of equity at 1 January 2004 (page 71)
(iii) reconciliation of equity at 31 December 2004 (page 72)
(iv) reconciliation of profit for the year ended 31 December 2004
(page 75)
(v) reconciliation of equity at 1 January 2005 (page 77)
Section 2
The Evolution Group Plc Parent Company Accounts prepared under
UKGAAP have been included on pages 79 to 93.
Graeme Dell
Finance Director
29 March 2006
The Evolution Group Plc Report & Accounts 2005 17

The Board.
working together.
The Evolution Group Plc is the ultimate
holding company of Evolution Securities
Limited, Christows Limited, Evolution
Securities China Limited and Evolution
Securities (US) Inc. The Group has at its
core an extremely strong and dynamic
senior management team in its Executive
Board directors. The whole Group’s
operating structure, processes, strategic
direction and ethos are based around this
team. The management of the operating
subsidiaries within the Group are also led
by members of this team.
Alex Snow (36), Chief Executive Officer,
joined the Group in May 2000 and has led the
Group through its development from a small
investment company to a fully fledged financial
services group by significant acquisitions and
resultant restructuring. Alex’s previous career
experience was with CSFB and BZW in the
equity sales, trading and capital markets areas.
He is a graduate of St Andrew’s University.
Alex is in charge of the day to day and strategic
management of the Group’s activities. He heads
the Executive Committees that manage Evolution
Securities Limited, Christows Limited and chairs
the Board of Evolution Securities China Limited.
He is also a director of all Group subsidiaries.
Graeme Dell (39), Finance Director, joined the
Group in August 2001 and is responsible for
finance, operations and technology throughout
the Group. Graeme’s previous career experience
was with Deutsche Bank as a business manager
in its Global Exchange Services business and
with Goldman Sachs where he held management
positions in finance and operations. He qualified
as a Chartered Accountant with Coopers &
Lybrand having graduated in Engineering from
Hertford College, Oxford University. Graeme is
a member of the Executive Committees that
manage Evolution Securities Limited, Christows
Limited and Evolution Securities China Limited.
Graeme is a director of Wickam Capital Limited,
a company in which the Group now holds
40% of the equity. He is also a director of all
Group subsidiaries.
The Group’s Non-executive Board members
combine with the Executive team to complete
the balance of corporate governance and
independence, and provide between them
a wealth of experience in strategic and
operational management of companies.
Martin Gray (59), is the Non-executive
Chairman. He joined the Group on 26 May
2005. Martin spent over 36 years with the
NatWest Bank Group. From 1992 to 1998 he
was Chief Executive of NatWest UK, and from
1993 to 1999 he was a Group Board member
of NatWest Group Plc. In his operational role in
charge of the Group’s UK businesses he was
responsible for assets of over £100 billion,
annual revenues of nearly £5 billion, annual
profits of approximately £1 billion and over
55,000 staff. Martin was also a member of the
Global Board of Mastercard Inc from 1993 to
1996 and was a director of Visa Europe from
1996 to 1999. He is currently a Nonexecutive
director of National Savings and
Investments and Miller Insurance Group.
Lord MacLaurin of Knebworth, DL (68), is the
senior Non-executive director. He joined the
Group on 13 July 2004. Lord MacLaurin is
currently Chairman of Vodafone Group Plc,
where he chairs the Nomination and Governance
Committees. He was formerly Chairman of Tesco
Plc from 1985 to 1997, and has been a director
of Enterprise Oil Plc, Guinness Plc, National
Westminster Bank Plc and Whitbread Plc.
Nicholas Irens (59), is Chairman of the Audit
Committee. He joined the Group on 1 January
2004. Nicholas is a Chartered Accountant
with recent and relevant financial experience.
He qualified as a Chartered Accountant in
1970 and went on to become the Finance
Director of First Leisure Corporation Plc from
1988 to 1992. Most recently he founded
Vardon Plc, renamed Cannons Group Plc, in
1992. He was Chairman of that group between
1998 and 2001 when he stepped down
following its sale to Royal Bank Private Equity.
Nick currently has a number of Non-executive
appointments, which include the Non-executive
Chair of Esporta Group Limited, James Hull
Associates Limited and Northgate Information
Solutions Plc, and Non-executive directorships
of Leisure and Media VCT Plc and Care
Principles Limited.
Left to right:
Alex Snow
Nicholas Irens
Oliver Vaughan
Martin Gray
Lord MacLaurin
Graeme Dell
Oliver Vaughan (59), is Chairman of the
Remuneration Committee. He joined the Board
upon the incorporation of the Company in
April 1997. He has an extensive background
investing in and being a director of AIM listed
companies. He co-founded Juliana’s Holdings
Plc in 1968, a holding company with interests
in the leisure industry of which he was
managing director for 23 years. He saw it
through to flotation on the London Stock
Exchange in 1983, prior to its acquisition by
Wembley Plc in 1989, on whose board he
then served for the next two years. Currently
he is Chairman of Corporate Synergy Plc and
a Non-executive director of Redstone Plc.
The Evolution Group Plc Report & Accounts 2005 19

Directors’ Report
For the year ended 31 December 2005
Introduction
The directors present their report together with the audited financial statements
for The Evolution Group Plc (the “Company”) and its subsidiaries (the
“Group”) for the year ended 31 December 2005.
Following the adoption of IAS Regulation (EC) 1606/2002 on 19 July 2002
by the European Parliament, the Group, along with all other European listed
entities, is required to prepare consolidated financial statements in accordance
with IFRS as adopted by the European Union (“EU”) for the year beginning
1 January 2005.
The Group has applied IFRS for the year ended 31 December 2005, with
the exception of the standards relating to financial instruments which are
applied only with effect from 1 January 2005, with one year of comparative
figures under IFRS as endorsed by the EU. Therefore the impacts of adopting
IAS 32 and IAS 39 are not included in the 2004 comparatives in accordance
with IFRS 1 and financial instruments are accounted for under UK
Accounting Standards issued by the UK Accounting Standards Board and the
pronouncements of its Urgent Issues Task Force, relevant Statements of
Recommended Practice and the Companies Act 1985 (collectively,
“UKGAAP”) in 2004. Accordingly, the Group’s date of transition to IFRS is
1 January 2004 and it first full reporting period under IFRS is for the year
ended 31 December 2005.
The 2005 results are therefore not entirely comparable to those of 2004 in
affected areas. For a full analysis of the transition to IFRS and the impact on
the financial statements, please refer to Appendix 1 of the Annual Report.
The Group’s accounting policies are detailed in pages 42 to 46.
Parent Company and Subsidiary accounts
In accordance with Section 226(2)(a) of the Companies Act 1985, as revised
by the Companies Act 1985 (International Accounting Standards and Other
Accounting Amendments) Regulations 2004, the Board has elected to
continue to comply with UKGAAP for the Company’s individual accounts.
Hence, all UK subsidiaries within the Group will continue to apply UKGAAP
in their individual accounts up to 31 December 2005 as per Section 227C.
Attached as Section 2 to this Annual Report, the Parent Company Financial
Statements on a standalone basis are provided. These annual financial
statements have been prepared in accordance with UKGAAP and will form
the basis of any potential future distribution.
Principal activities and Review of business
The Group undertakes institutional investment banking through its subsidiary
undertakings Evolution Securities Limited and its specialist Chinese
investment banking business, Evolution Securities China Limited. In addition
its investment banking and markets segment undertakes secondary sales for
US institutional clients within Evolution Securities (US) Inc. Finally, it
undertakes private client stockbroking and fund management through its
subsidiary undertaking Christows Limited.
Evolution Securities Limited and Christows Limited are authorised and
regulated by the Financial Services Authority (“FSA”).
Evolution Securities China Limited is based in London and has a branch
office in Shanghai.
Christows has branch offices in Bath, Birmingham, Bournemouth, Exeter
with the head office in London.
The Group’s US broker-dealer, Evolution Securities (US) Inc., is registered
with the National Association of Securities Dealers (“NASD”) and regulated by
the Securities and Exchange Commission. This entity provides an equity sales
service to US institutional clients. This entity is based in the London offices of
the Company with a branch office in New York.
The Group disposed of its 17.4% holding in IP2IPO Group Plc on 11 March
2005.
A review of the businesses during 2005 and the prospects of the Group for
the current year are set out in the Chairman’s Statement, Chief Executive’s
Report and Financial Review on pages 2 to 17.
The Company is a FTSE 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.
Results and Dividends
The consolidated profit for the year ended 31 December 2005 of the Group
under IFRS amounted to £59,066,000 (2004: £44,004,000). The directors
recommend the payment of a final dividend for the year of 0.80p per
ordinary share (2004: 0.58p), and interim dividend of 0.40p per ordinary
share (2004: 0.17p).
Post balance sheet events
Full details of all significant post balance sheet events are set out in note 43
to the accounts.
Directors
The directors of the Company who held office since 1 January 2005, unless
otherwise stated, are as shown below:
Date of Date of
appointment resignation
Martin Gray
(Non-executive Chairman) 26 May 2005 -
Alex Snow - -
Graeme Dell
Lord MacLaurin of Knebworth, DL
- -
(Non-executive)
Nicholas Irens
- -
(Non-executive)
Oliver Vaughan
- -
(Non-executive) - -
Richard Griffiths - 25 October 2005
Richard Griffiths resigned as Chairman on 26 May 2005, to be replaced by
Martin Gray, and was then appointed President. He resigned as President on
25 October 2005.
Directors’ interest
The interests of directors in shares and options are disclosed in the Directors’
Remuneration Report on pages 30 to 36.
Charitable donations
During the year the Group made charitable donations of £47,976 (2004:
£17,085). The Group’s general policy with respect to charitable donations is
to make a small number of donations to causes that are suggested by the
Group’s employees, particularly where such staff are taking part in
fundraising events. The Group does not set a pre-determined level of
charitable donations, retaining the flexibility to respond accordingly to staff
participation in charitable events. The amount donated included the following
payments: £20,000 to Friends of OTW Ltd; £9,000 to the Sporting Heroes
Foundation; £3,600 to the NSPCC; £3,000 to Streetwork; £2,550 to the
Stock Exchange Veterans; £2,000 to the Rainbow Trust; £1,250 to the
Trustees of The British Museum; £1,000 to each of the National Autistic
Society, Macmillan Cancer Relief, Leukaemia Research Fund, and the
Thames Valley Hospice; £530 to the Devon Wildlife Trust; £500 to each of
Piggybanks Kids and the Disability Partnership; £300 to the RNLI and £250
to Cancer Research. The remaining balance was made up of de minimis
amounts donated to various other charities.
Political donations
It is Group policy not to make political donations.
Share capital
Changes in the Company’s issued share capital during the year are set out in
note 32 to the Financial Statements. In order to create a more efficient capital
structure and enhance earnings per share, thus creating the potential for improved
shareholder value in the future, the Company implemented the authority
granted by shareholders on 26 May 2005 to make market purchases of its
own shares. The details for these transactions are provided below.
Authority for Company to purchase its own shares
At the AGM held on 26 May 2005, Members approved the Company's
authority under Section 166 of the Companies Act 1985 to make market
purchases on the London Stock Exchange of up to 33,900,000 ordinary
shares of 1p each (“Shares”) of the Company (2004: 24,700,000),
representing less than 15% (2004: 10%) of the issued share capital of the
Company at 26 April 2005.
Pursuant to the authority granted in May 2004 the Company purchased, in
the financial year ended 31 December 2005, an aggregate of 22,126,821
(2004: 2,558,876) shares having a nominal value of £221,268 (2004:
£25,589). In addition pursuant to the authority granted in May 2005 the
Company purchased an aggregate of 10,607,967 shares having a nominal
value of £106,080. The total amount purchased in 2005 of 32,734,788
(representing 14.5% of the Company's issued share capital as at 31
December 2005), was for an aggregate consideration of £49,624,000
(2004: £3,800,000), at an average cost of 151.6p per share. Further, the
Company has in the financial year ending 31 December 2006 purchased an
aggregate of 500,000 Shares having a nominal value of £5,000 for an
aggregate consideration of £790,000, at an average cost of 158.0p.
The Company considers that these purchases were beneficial to Members as
they have contributed to an increase in earnings per share. As a result of
these purchases the number of shares in respect of which the Company is
now authorised to make market purchases has been reduced to 22,792,033
Shares (representing approximately 9.92% of the present issued share capital
of the Company).
The authority given by Members at the last AGM for the Company to
purchase its own shares expires on 26 August 2006 or, if earlier, at the next
AGM at which a similar resolution will be proposed. The directors believe that
it is in the best interests of the Company for the authority to be renewed at
the forthcoming AGM for a period which shall expire at the end of 15 months
from the date of the Meeting or, if earlier, at the next AGM. Accordingly, it is
intended to propose, as Special Business, at the forthcoming AGM, a Special
Resolution to renew the directors' existing authority to purchase shares of the
Company, which shall be limited to 14.85% (2004: 14.9%) of the current
issued share capital of 229,594,021 or 34,100,000 (2004: 33,900,000)
Shares.
Employee Share Trusts
The Group currently operates one share trust. The Evolution Group Plc
Employees’ Share Trust (the “Trust”) administers The Evolution Group Plc
share schemes and is managed by the Sanne Trust. In the prior year, the
Share Incentive Trust administered the legacy Beeson Gregory Group share
schemes and was administered by the Sanne Trust. All shares in the Share
Incentive Trust were transferred to the Trust on 28 February 2005. Prior year
comparatives include the sum of shares held by both the Share Incentive
Trust and the Trust.
The Trust holds 8,074,621 (2004: 3,231,308) Shares with a cost of
£10,602,000 (2004: £4,185,000) and a market value at 31 December
2005 of £11,466,000 (2004: £4,847,000). All of these shares were
acquired in the open market. The shares held represent 3.58% (2004:
1.29%) of the issued share capital of the Company. The Trust used funds
provided by the Company to meet the Group’s obligations under the share
option and incentive schemes in place. Share options are granted to employees
at the discretion of the Company and shares are awarded to employees by
the Trust in accordance with the recommendations of the Company.
The total number of shares, both allocated and unallocated, are disclosed in
note 32. All shares in the Trust are held to satisfy the Company’s obligations
in respect of share options and call rights granted.
Creditors payment policy
It is the Group’s policy to agree appropriate terms and conditions for its
transactions with suppliers by means ranging from standard terms and
conditions to individually negotiated contracts. Suppliers are paid according to
agreed terms and conditions, provided that the supplier meets those terms
and conditions. The accounts payable function for the Group and Company is
carried out by a Group company, Evolution Group Services Limited. Average
trade creditor days for Evolution Group Services Limited as at the year-end
was 41 days (2004: 39 days).
The Evolution Group Plc Report & Accounts 2005 21

Committees
The Group currently operates a Nomination Committee, a Remuneration
Committee and an Audit Committee. Details of members, Terms of Reference
and frequency of meetings are referred to in the Corporate Governance report
on pages 23 to 29.
Substantial shareholdings
Other than the interests of the directors, the following shareholders are known
to have, or hold on behalf of individual beneficiaries, an interest in the
Company greater than 3%:
Shareholder Number of shares Holding Note
Name held by individual %
beneficiary
Cantor Fitzgerald Europe 9,876,206 4.30 1
Nutraco Nominees
HSBC Global Custody
8,484,799 3.70 2
Nominee (UK) Limited
The Evolution Group Plc
7,875,000 3.43 3
Employees’ Share Trust 7,487,404 3.26 4
Notes
(1) Notified to the Company on 15 March 2006.
(2) Based on S212 Notification from the share register on 28 February 2006. In total,
Nutraco Nominees is known to hold 12,742,334 shares on behalf of beneficiaries,
including the amount disclosed above, representing 5.55% of the Company.
(3) Based on S212 Notification from the share register on 28 February 2006. In total,
HSBC Global Custody Nominee (UK) Limited is known to hold 44,730,293 shares
on behalf of beneficiaries, including the amount disclosed above, representing
19.49% of the Company.
(4) Notified to the Company on 28 March 2006.
The Company has not been notified of any other interests greater than 3% of
the issued share capital as at 29 March 2006.
Employees
The average and actual number of employees, including directors, employed
by the Group and their remuneration is disclosed in note 5, with key
management compensation disclosed in note 44.
Employment Policies
The Group encourages employees to participate in its success through
performance based bonus arrangements and through its use of share based
incentive arrangements amongst its key performers within each of the
business units. To further this overall equity participation, the Company
introduced an all Employees’ Share Ownership Plan in February 2004,
which was approved by shareholders at the EGM on 10 October 2003. This
allows every employee to purchase up to £1,500 worth of the Company’s
shares per annum on a tax efficient basis. These are purchased on a monthly
basis and held in trust and are matched by shares issued by the Company.
Employees are kept informed of the Group’s progress by half yearly Group
results presentations. In addition, there are monthly Executive Committee
meetings from which further information is distributed to employees.
It is Group policy that no employee or applicant for employment receives less
favourable treatment (including training and development, recruitment and
promotion) by the Group or any other employee, on the grounds of sex,
marital status, race, colour, nationality, ethnic origin, sexual orientation,
political opinion, religion, age or disability, nor be disadvantaged by
conditions, management attitudes, behaviour or requirements that cannot
be justified.
Risk management policies – Financial Risk Management
The risk management framework that exists within the Group is detailed in
the Corporate Governance Report on pages 23 to 29 and in note 2 to the
financial statements.
Statement of Directors’ Responsibilities
The following statement, which should be read in conjunction with the
independent auditors’ report set out on page 37, is made with a view to
distinguishing for shareholders the respective responsibilities of the directors
and of the independent auditors in relation to the financial statements.
The directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the consolidated Group as at the end of the financial year and of
the profit for the financial year.
The directors consider that in preparing the financial statements on pages 38
to 78 that:
• the Group has used appropriate accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates;
• all the accounting standards which they consider to be applicable have
been followed; and
• the financial statements have been prepared on a going concern basis.
The directors have responsibility for ensuring that the Group keeps accounting
records which disclose with reasonable accuracy the financial position of the
Group and which enable them to ensure the financial statements comply
with the Companies Act 1985.
The directors have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Auditors
PricewaterhouseCoopers LLP have indicated their willingness to continue in
office, and pursuant to section 384 (1) of the Companies Act 1985, an
ordinary resolution re-appointing them as auditors and authorising the
directors to determine their remuneration will be proposed at the 2006 AGM.
The Audit Committee reviews and approves the appointment of the external
auditors.
BY ORDER OF THE BOARD
Yew Meng Fong
Secretary
29 March 2006
Corporate Governance
Compliance
The board of directors (“the Board”) are collectively responsible for the
success and corporate governance of The Evolution Group Plc (“the
Company”). They support the principles of good corporate governance and
code of best practice laid down by the Combined Code issued in July 2003.
The directors consider that the Group has been in compliance with the
provisions set out in Section 1 of the Combined Code on Corporate
Governance, issued in July 2003, as endorsed by the Financial Services
Authority, save for compliance with Schedule A due to the absence of
performance bonus ceiling in the operation of the Group’s remuneration
policy and for the appointment of the Chairman as a member of the
Remuneration Committee. The first exception is explained in more detail in
the Directors’ Remuneration Report on page 31. The second exception is
explained in more detail in the Directors’ Remuneration Report on page 30.
The manner in which the Company has applied the principles of good
governance set out in the Combined Code is outlined below and in the
Directors' Remuneration Report on pages 30 to 36.
Directors
The Board comprises two Executive and four Non-executive directors, whose
biographies are set out on pages 18 to 19. The Non-executive directors are
Martin Gray, the Non-executive Chairman (appointed 26 May 2005), Lord
MacLaurin, Nicholas Irens and Oliver Vaughan, and all are independent as
set out in the Combined Code. The other director who served on the Board
during the year was Richard Griffiths (who resigned as Chairman on 26 May
2005 and as President on 25 October 2005). Oliver Vaughan, on reaching
nine years service to the Board, will be retiring at the next AGM and will not
seek re-election. There is a formal schedule of matters reserved for decision
by the Board.
In accordance with the Combined Code, there is a clear division of
responsibilities set out in writing and agreed by the Board between the
running of the Board by the Chairman and the responsibility for running the
Group by the Chief Executive. The Chairman is responsible for the leadership
and conduct of the Board and its oversight of the Group’s affairs and strategy
which includes ensuring the directors receive accurate, timely and clear
information, ensuring the effective contribution of Non-executive directors,
facilitating constructive relations between the Non-executive directors and
Executive directors, and implementing effective communication with
shareholders. The Chief Executive, Alex Snow, is responsible for the
management of the Group’s operating businesses and the development of
their strategic direction. These responsibilities include leading the three
subsidiary executive committees and ensuring that these committees are
effective bodies, with appropriate senior management membership and
succession planning. From the leadership of the Executive Committees, he is
responsible for deriving the operating plans and budgets for these businesses,
monitoring business performance and reporting upon these to the Board.
In addition, Lord MacLaurin acts as independent senior Non-executive
director. The Board believes that these arrangements facilitate the effective
management of the business and provide a strong control environment.
The biographies on pages 18 to 19 demonstrate a range of experience and
sufficient calibre to bring independent judgement on issues of strategy,
performance, resources and standards of conduct which is vital to the
success of the Group. The Board is responsible to shareholders for the proper
management of the Company. All directors of the Company take decisions
objectively in the interest of the Company. A statement of the directors'
responsibilities in respect of the accounts is set out on page 22. A statement
on going concern is set out on page 28.
Where directors have concerns about the running of the Company or a
proposed action that cannot be resolved, their concerns are recorded in the
Board minutes. During the year, the Chairman held meetings with the Nonexecutive
directors without the Executive directors present. It is standard
procedure that resigning Non-executive directors provide written statements to
the Chairman to be circulated to the Board and that the Board resolves any
concerns that are raised.
The Evolution Group Plc Report & Accounts 2005 23

The terms of the Directors' service agreements and letters of appointment are
summarised in the Directors' Remuneration Report on pages 30 to 36.
In accordance with the Combined Code, all directors are subject to election
by shareholders at the first AGM of shareholders after their appointment.
Thereafter, all directors are required to retire by rotation and are subject to reelection
at least every three years. One third of the Board will seek re-election
at each future AGM. Directors who have served more than nine years will be
subject to annual re-election.
At the forthcoming AGM in May, Martin Gray will be subject to election as
this will be the first AGM after his appointment. Alex Snow will retire by
rotation and, being eligible, seeks re-election. Resolutions proposing their
election are set out in the Notice of Annual General Meeting. The Chairman
confirms the directors seeking election and re-election continue to perform
effectively and demonstrate commitment to their positions. Oliver Vaughan
will be retiring at the forthcoming AGM.
The Company Secretary is responsible for advising the Board, through the
Chairman, on all corporate governance matters and is responsible to the Board
for ensuring that Board procedures are complied with. The Board as a whole
considers the appointment and removal of the Company Secretary. All directors
have access to the advice and services of the Company Secretary and there
are procedures in place for taking independent professional advice to ensure
that individual directors and the Board Committees are provided with sufficient
resources to undertake their duties, at the Group's expense if required.
Performance
The Board conducts a formal and rigorous annual evaluation of individual
directors, its own performance and that of its Committees. The evaluation
process is constructively used as a mechanism to improve Board
effectiveness, maximise strengths and address its weaknesses.
Attendance at Board meetings is set out on page 26.
Individual Performance
Performance of individual directors is reviewed as follows:
• the Chief Executive is appraised by the Chairman, having consulted with
the Non-executive directors without the Chief Executive present;
• the Chief Executive appraises the performance of the other Executive
director, having consulted the Non-executive directors;
• the senior independent Non-executive director appraises the performance
of the Chairman, having consulted the Non-executive directors without
the Chairman present and considered the views of the Executive
directors; and
• the performances of the Non-executive directors are appraised by the
Chairman, having consulted with the Executive directors.
In this manner, appraisals were conducted for all the directors during January
to March 2006 in respect of their performance in 2005. In all cases
performance was appraised to be continuously effective.
The Chairman ensures that all directors receive a full, formal and tailored
induction on joining the Board including a thorough briefing about the Group’s
businesses and the opportunity to meet key senior management from the
businesses. All directors review and update their skills and knowledge on a
regular basis to enable effective conduct in their roles. Training needs are
monitored and addressed as part of the annual performance evaluation process.
In addition to the individual performance appraisals, the Board considers its
overall performance as a body and of its Committees.
Board Performance
The Company believes that most benefit is to be gained from an in-depth
annual review of all areas of Board activity and adopts a formal methodology
to facilitate this review. Each member of the Board completes a detailed
‘Board Effectiveness’ questionnaire at year-end.
The results for the 2005 annual review were collated by the Company
Secretary and reviewed by the Board at the subsequent Board meeting. The
Board was considered to be performing effectively through this process and
no significant issues were raised.
Committee Performance
Committee performance is reviewed as follows:
• The Audit Committee is subject to a rigorous review by its own
members. Each member completes a questionnaire to assess the
effectiveness of the Committee. The results for the 2005 annual review
were collated by the Company Secretary and reviewed by the Audit
Committee at the subsequent Audit Committee meeting. The Chairman
of the Audit Committee was responsible for leading a discussion on the
results at the subsequent Board meeting at which time the Committee
was considered to be working effectively.
• The Remuneration Committee is subject to rigorous review by its own
members and in conjunction with advice received from Towers Perrin,
an external remuneration consultant. Each member completes a
questionnaire to assess the effectiveness of the Committee. The results
for the 2005 annual review were collated by the Company Secretary and
reviewed by the Remuneration Committee at its subsequent meeting.
The Chairman of the Remuneration Committee was responsible for
leading a discussion on the results at the subsequent Board meeting at
which time the Committee was considered to be working effectively.
• The Nomination Committee is subject to a rigorous review by its own
members and is considered to be working effectively.
Committees
The following committees deal with the specific aspects of the Group's affairs:
Audit Committee
The Audit Committee comprises three independent Non-executive directors.
Nicholas Irens acts as Chairman of the Audit Committee, with Lord
MacLaurin and Oliver Vaughan as members. Attendance at Committee
meetings is set out on page 26. The biographies on pages 18 to 19 set out
the qualifications of all the members of the Committee during the year.
Nicholas Irens, as a chartered accountant with recent and relevant financial
experience, was considered by the Nomination Committee to be appropriate
for the role of Chairman of the Audit Committee.
The Audit Committee met five times during the course of 2005. The Group's
auditors and the Executive directors may attend Committee meetings by
invitation. The Committee has a discussion with the external auditors at every
Audit Committee meeting without Executive directors being present, to ensure
that there are no unresolved issues of concern.
The Terms of Reference for the Committee comply with the Combined Code
and are available for inspection at the Company's registered office and at the
AGM. A summary of these Terms is on the Group’s website:
www.evgplc.com. In accordance with the Combined Code, the Audit
Committee's remit, which is set out in its Terms of Reference, includes
responsibility for:
• monitoring the integrity of the financial statements and formal
announcements of financial performance and reviewing significant
reporting judgements contained therein;
• reviewing related information presented within the financial statements,
including the operating and financial review, and corporate governance
reports relating to risk and audit management, and reviewing other
statements containing financial information prior to Board approval;
• reviewing the scope and findings of the external audit at the interim and
final stages;
• reporting to the Board any identified matters requiring action or
improvement and recommendations of steps to be taken;
• reviewing the effectiveness of the Group's internal financial control
procedures, and internal control and risk management systems,
reviewing any reports on the effectiveness of systems and conclusions of
any testing carried out by external auditors;
• reviewing arrangements by which staff of the Group may, in confidence,
raise concerns about possible improprieties in matters of financial
reporting or other matters and ensure arrangements are in place for the
proportionate and independent investigation of such matters and for
appropriate follow-up action;
• making recommendations to the Board for shareholder approval of the
appointment, re-appointment and removal of the external auditors,
external auditors remuneration and terms of engagement. The Audit
Committee has primary responsibility for these recommendations;
• reviewing on an annual basis external auditors independence, objectivity
and the effectiveness of the audit process taking into consideration
relevant UK professional and regulatory requirements;
• developing and implementing policy on the engagement of the external
auditors to supply non-audit services and reporting to the Board,
identifying any matters which require action or improvement;
• considering the major findings of any internal investigations and
management’s response; and
• reviewing annually the requirement for an internal audit function and
make recommendations to the Board.
The Chairman of the Audit Committee reports the Committee’s findings to the
Board at the following Board meeting.
Remuneration Committee
The Remuneration Committee comprises all the independent Non-executive
directors. Oliver Vaughan acts as Chairman, with Martin Gray (who joined
the Committee on his appointment to the Board on 26 May 2005), Lord
MacLaurin and Nicholas Irens as members. Attendance at Committee
meetings is set out on page 26.
The Remuneration Committee met three times during 2005. The Executive
directors attend certain parts of meetings of the Remuneration Committee
by invitation but do not attend discussions on their own remuneration.
The Terms of Reference for the Committee comply with the Combined Code
and are available for inspection at the Company's registered office and at
the AGM. A summary of these Terms is also on the Group’s website:
www.evgplc.com. The duties of the Committee, as set out in its Terms of
Reference, include:
• delegated responsibility to agree and recommend remuneration policy;
• responsibility for setting the remuneration of the Executive directors,
Chairman and senior management;
• formulating suitable performance related criteria for any element of
remuneration of the Executive directors, Chairman and senior
management and making recommendations to the Chairman regarding
bonuses or performance related remuneration;
• advising and determining all performance-related formulae relevant to the
remuneration of the directors of the Company and to consider the
eligibility of directors for annual bonuses and benefits under long term
incentive schemes;
• administering and granting share options under the Company’s share
option schemes;
• ensuring that regulatory disclosure requirements regarding remuneration
are met;
• reviewing the policy or authorising claims for expenses from the CEO and
Chairman; and
• responsibility for selecting and appointing remuneration consultants who
advise the Committee.
The Chairman of the Remuneration Committee reports the Committee’s
findings to the Board at the following Board meeting.
Further details of how these responsibilities are executed and the Group's
policies on remuneration, service contracts and share options are given in the
Directors' Remuneration Report on pages 30 to 36.
Nomination Committee
The Nomination Committee is chaired by the Chairman of the Group who
is joined by the other Non-executive directors. The Nomination Committee
met twice during 2005. Attendance at the Committee meetings is set out
on page 26.
The Terms of Reference for the Committee comply with the Combined Code
and are available for inspection at the Company's registered office and at the
Annual General Meeting. A summary of these Terms are on the Group’s
website: www.evgplc.com. The Nomination Committee is responsible for all
elements of the nomination process for the Executive and Non-executive
directors of the Company. The duties of the Committee, as set out in its
Terms of Reference, include:
• reviewing regularly the Board structure, size and composition to ensure
orderly succession planning and making recommendations to the Board
with regard to any adjustments that are deemed necessary;
• identifying and nominating candidates for the approval of the Board and
putting in place plans for succession;
• evaluating the balance of skills, knowledge and experience on the Board
prior to making an appointment and preparing a description of the role
and capabilities required for a particular appointment;
• making recommendations to the Board for the continuation in service of
an Executive director, for the re-election of directors who are retiring by
rotation and on the appointment of directors to the relevant committees;
and
• reviewing annually the time required from a Non-executive director and
whether time commitments are being satisfactorily fulfilled.
The Chairman of the Nomination Committee reports the Committee’s
determinations to the Board at the following Board meeting and is available
to report to shareholders at each AGM.
The terms of appointment of Non-executive directors are detailed in the
Directors’ Remuneration Report on pages 30 to 36. The terms of
appointment and time commitments of Non-executive directors are available
for inspection at the Company’s registered office.
During the year, the Nomination Committee discussed succession planning
for the Board. The Nomination Committee follows a process for nominating
candidates for board appointments which involves considering the structure,
size and composition of the existing Board, setting out a description of the
role and capabilities required, drawing up a shortlist of candidates, holding
a series of one-to-one meetings between the candidates and Non-executive
directors, and then candidates meeting with all members of the Board.
Future appointments will follow a similar process, with consideration given
to whether external advertising or external advice is required.
The appointment of Martin Gray as Chairman on 26 May 2005 was
considered by the full Board to improve the breadth and depth of experience
of its Non-executive directors and complied with the independence criteria
as set out in the Combined Code. The Board considered that his knowledge
and experience in his past Executive positions and current and recent
Non-executive positions provided an excellent background for the role of
Chairman. Furthermore, the Board was impressed at the expected time that
he detailed he was prepared to commit to the position and that he stated he
expected it to become and remain the sole role as listed company Chairman
he would take on.
In the event that these commitments change during the duration of
appointment, they will be reported to the Board as a matter of procedure.
Attendance at Meetings
The Board has a schedule of 12 meetings per annum to discuss matters
arising in the Company's ordinary course of business. Additional meetings
are arranged as required.
The table overleaf identifies the scheduled number of Board meetings and
actual Committee meetings held during the year to 31 December 2005
and the attendance record of their members:
The Evolution Group Plc Report & Accounts 2005 25

Review of Internal controls and Risks
The Board of directors is responsible for identifying, evaluating and managing
the significant risks faced by the Group to safeguard shareholders' investment
and the Group’s assets. It therefore has overall responsibility for the system of
internal control, covering all material controls including financial, operational
and compliance controls and risk management systems, and for reviewing
the effectiveness of these throughout each of the Group’s operating entities.
Throughout the year ended 31 December 2005 and up to the approval date
of the Annual Report and Accounts, the Board confirms there has been an
on-going process of identifying, evaluating and managing the significant risks
faced by the Group. The Group has complied with the Turnbull Committee’s
guidance for directors. The planning, control and performance management
framework in operation in each of the Group’s operating entities considers
the strategic, operational, commercial and financial risks and identifies the
relevant management processes required to mitigate them. The Board
acknowledges that they are responsible for the Group’s system of internal
controls, for setting the control framework and for reviewing the effectiveness
of internal controls. The system of internal control is designed to manage
rather than eliminate entirely the risk of failure to achieve business objectives.
Therefore, this can only provide reasonable and not absolute assurance
against material misstatement or loss.
The key elements of the planning, control and performance management
framework, which constitutes the control environment are:
• Board review - On a monthly basis the Board meets to review the
performance of the Group at strategic level, taking into account the
reviews made at the entity Executive Committee meeting level. The
Board also considers the reports made by the Audit Committee including
the report on the effectiveness of internal control.
• Audit Committee – The work of the Audit Committee is referred to in more
detail on pages 24 to 25 and page 29. This Committee meets regularly
to assess, as part of its terms of reference, the performance of the controls
in place throughout the Group and it monitors the external auditors in
the performance of their duties with respect to the annual audits.
• Budgeting and forecasting - Each operating entity submits a detailed
annual budget and three year forecast for approval by their own
Executive Committees and ultimately the Board on an annual basis.
• Business reviews – On a monthly basis, each entity has an Executive
Committee meeting to review actual performance against budget and
against prior year performance. This review considers financial and
operational results, focusing in on key performance indicators relevant to
each entity and the risks affecting these and the actions taken by
management to manage these and achieve the objectives set within the
budget. In addition, each Committee considers all major operational
issues, trading developments and additional projects in their respective
operating businesses.
• Compliance - Evolution Securities and Christows are both authorised and
regulated by the Financial Services Authority. Evolution Securities China
is an appointed representative of Evolution Securities Limited. The Group
therefore has a specialist compliance department. This department is
responsible for maintaining a detailed and up to date understanding and
interpretation of the rules and regulations that each of the entities is
subject to. During the year, additional staff were recruited and the
Scheduled
Board Audit Remuneration Nomination
Meetings Committee Committee Committee
Number of meetings in the year 12 5 3 2
Martin Gray (1) 7 - 1 -
Alex Snow 11 - - -
Graeme Dell 12 - - -
Lord MacLaurin 11 4 3 2
Nicholas Irens 10 5 3 2
Oliver Vaughan 10 5 3 2
Richard Griffiths (2) 8 - - 1
Notes
1. Martin Gray was appointed Non-executive Chairman on 26 May 2005. Martin Gray attended all Board and Remuneration Committee meetings which occurred subsequent
to his date of appointment.
2. Richard Griffiths resigned as Chairman on the Nomination Committee on 19 January 2005 and as President on 25 October 2005. Richard Griffiths attended eight of the
nine Board meetings prior to his resignation as President and one Nomination Committee meeting.
department was restructured to enable the implementation of a risk based
monitoring framework that ensures all entities are complying with all the
relevant rules and regulations and that procedures are being implemented
in compliance with these rules. The Compliance officers are in regular
contact with the Executive directors and report formally to the Board each
month, and are available to report to the Audit Committee.
• Risk – A Head of Risk was recruited in January 2005 and a Risk
Committee was established in the same month with Terms of Reference
approved by the Board. The Risk Committee meets at least monthly to
assess and discuss risk issues affecting the Group. The work of the Risk
Department and the Risk Committee is further detailed on pages 27 to 28.
• Policies and procedures - The Group has detailed policies and procedures
in place in all areas of its operations. Its operations, finance, IT, risk,
compliance and human resources departments utilise extensive monitoring
and reconciliation to ensure control throughout the reporting of its business
operations. The heads of each of these support functions meet on a
monthly basis to discuss all significant issues and on a quarterly basis
provide feedback to the Board on all support related issues.
The Group has taken out appropriate insurance cover in respect of legal action
against its directors and officers. In addition to insurance cover for directors’
and officers’ liability, the Group has utilised insurance cover in respect of
professional indemnity and corporate crime, employers’ liability, and public
and products liability.
In accordance with the Combined Code, during the year the Audit Committee
has considered the need for an internal audit function and made its
recommendation to the Board that, due to the size of the Group and the
relatively limited scope of its operations, it has sufficient monitoring,
reconciliation and control procedures in place to justify not having an internal
audit function. This situation will continue to be monitored by the Audit
Committee and the Board.
The Board, through the Audit Committee, reviews the effectiveness of the
system of internal control. The Board recognises the significant importance of
an appropriate system of internal controls and strives continuously to make
improvements to these. In March 2006, the Audit Committee considered the
progress made during the year and assessed the status of the Group’s system
of internal controls.
The Committee noted that during the year there had been an ongoing focus
upon the further development of the internal control environment. Significant
progress was made in ensuring that appropriate internal controls continued to
be in place and were further strengthened where it was identified that
potential risks or weaker controls existed. A formal operational risk framework
had been implemented and Key Risk Indicators were developed and are
included within the monthly risk report to the Board.
Following this review, the Committee concluded that the framework for the
monitoring, mitigation and reporting of operational risk has continued to
develop over the year and the internal control structure in place meets
industry best practice. It is therefore appropriate to report that risks are
adequately managed and mitigated through the robust system of internal
controls in place throughout the Group. It is worth noting that no internal
control system is 100% certain; the system of internal control manages
rather than eliminates entirely the risk of failure.
Risk Management Framework
GROUP BOARD
RISK COMMITTEE
RISK DEPARTMENT
AUDIT COMMITTEE
Through its normal operations, the Group is exposed to a number of risks,
the most significant of which are market, credit, currency, liquidity and
interest rate risks. The Group’s trading and investing activities expose it to a
variety of financial risks that include the effects of changes in equity security
prices, foreign currency exchange rates, credit risks, liquidity and interest
rates. The Group has in place a risk management programme that seeks to
limit the adverse effects on the financial performance of the Group by using
foreign currency financial instruments to fix foreign exchange rates.
The Group Board is responsible for approving all risk management policies
and for determining the overall risk appetite for the Group.
The Audit Committee is responsible for reviewing the Group’s internal control
and risk management systems.
The Group’s directors have delegated to a sub-committee, the Risk
Committee, the responsibility for setting the risk management policies applied
by the Group and its subsidiaries. The Risk Committee is the forum where
more general risk issues are discussed and appropriate responses formulated.
It meets at least monthly and is chaired by the Head of Risk.
The Risk Department has day-to-day responsibility for monitoring, mitigating
and reporting risks within the Group and for escalating issues to senior
management. The Risk Department follows the guidelines laid down by the
Credit Policy, the Credit Limit Book, the Market Risk Limit Book and the
Operational Risk Policy as approved by the Group Board, the Audit
Committee and the Risk Committee.
The Treasury Department is responsible for managing foreign exchange and
interest rate risk. The Department has a policy and procedures manual that
sets out specific guidelines for managing these risks including the use of
financial instruments for hedging purposes. The Department receives regular
reports from all the trading desks to enable prompt identification of financial
risks so that appropriate actions may be taken.
These responsibilities are carried out as follows:
Delegated Authority
Risk Reporting
Risk Reporting
The Group Board receives a monthly risk report detailing market and credit
risk exposures and operational risk events. In addition, the Risk Committee
discusses significant exposures and reviews limit breaches or requests for
temporary limit increases.
Market Risk
The Group is exposed to market risk in respect of its equity holdings. These
comprise available-for-sale investments, trading portfolio assets, which result
from proprietry trading, market making activities and derivatives. Derivatives
consist of the options and warrants received in lieu of corporate finance fees.
Market risk management seeks to identify and control the potential loss in
value of Group assets arising from changes in market prices. The principal
risk for the Group is an adverse change in equity prices. The Risk
Department’s role is to independently identify, monitor and report this risk.
Market Risk Control
The Risk Department monitors the market risk limits as laid down in the
Market Risk Limit Book. An automated system notifies the department
whenever a limit is breached and the Risk Department then have a discussion
with the trader before notifying senior management as to how the breach
will be resolved. The whole process is logged and fully auditable so that it
is possible, for example, to analyse limit breach patterns or limit utilisation.
Market Risk Measurement
It is important for senior management to be aware of the possible capital
implications of an adverse movement in prices. The Risk Department
therefore undertakes stress scenarios to determine a worst-case loss that
may impact the Group. The scenarios are based on historical data and reflect
the three worst stock market crashes since 1987. The scenarios cover a
5-day period to reflect the likely illiquidity that would exist in a portfolio
concentrated in small and mid-cap stocks.
Credit Risk
Credit risk represents the potential loss to the Group as a result of a
counterparty failing to meet its obligations. For the Group, this is principally
the risk that a counterparty fails to settle an equity trade thereby forcing the
Group to close out the trade at a possible loss. It is important to note that the
potential loss is not the value of the trade, but the difference between the
price at which the trade was executed and the current price. This is termed
the mark-to-market value.
The Risk Department is responsible for controlling, monitoring, reporting and,
where required, mitigating credit risk.
Credit Risk Control
The Risk Department undertakes a credit review of all new accounts and
periodically reviews all existing counterparties. As part of the review, each
counterparty is assigned a credit limit according to the guidelines in the Credit
Limit Book. New accounts cannot begin to trade until the credit review has
been completed.
Each day the Risk Department prepares a counterparty exposure report that
shows all credit risk exposures and limits. Credit limit breaches are annotated
and investigated. The Risk Committee reviews all credit limit breaches and
authorises mitigating action when deemed necessary.
The Group has no significant concentrations of credit risk.
Interest rate risk
The Group has interest bearing assets in mainly cash and cash equivalents.
The Group has a policy of maintaining excess funds in cash and short term
deposits and is not exposed to short-term or long-term interest rate risk. At
the year-end, all of the Group’s excess funds were invested in cash and shortterm
deposits. The Group does not use any derivatives to hedge interest rate
risk.
Liquidity risk
The Group seeks to manage liquidity risk, to ensure sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably. The Group actively maintains a mixture of cash and short-term
deposits that is designed to ensure the Group has sufficient available funds
for operations, trading and corporate finance activities. The Group deems
there is sufficient liquidity for the foreseeable future.
Foreign exchange risk
The Group utilises forward exchange contracts to manage the exchange risk
on actual transactions related to amounts receivable, denominated in a
currency other than the functional currency of the Group. The Group’s
forward exchange contracts do not subject the Group to risk from exchange
rate movements because the gains and losses on such contracts offset losses
and gains, respectively, on the underlying foreign currency transactions to
which they relate. The forward contracts and related amounts receivable are
recorded at fair value at each period end. Fair value is estimated using the
settlement rates prevailing at the period end. All gains and losses resulting
from the settlement of the contracts are recorded within other income in the
income statement. The Group does not enter into forward exchange contracts
for the purpose of hedging anticipated transactions.
The Evolution Group Plc Report & Accounts 2005 27

Operational Risk
The Group defines operational risk as the risk of loss resulting from
inadequate or failed internal processes, people, and systems or from external
events. The Group recognises that operational risk can never be eliminated,
but seeks to minimise the probability and impact of operational risk events.
Over the course of the year, the Audit Committee approved an Operational
Risk policy that has been implemented by the Risk Department. The policy
incorporates three key processes:
• A risk and control assessment carried out by the Risk Department
through discussion with department heads. The assessment scores risk
events as to probability and impact as well as evaluating the design and
performance of controls that have been put in place to mitigate the risk.
• Monitoring of Key Risk Indicators by the Risk Committee and Group
Board.
• Establishment of an operational loss database to capture and analyse risk
incidents and loss events.
The practice and development of operational risk management continues to
progress and our approach to managing operational risk will continue to be
assessed and improved in light of industry perceived best practice.
Capital Requirements Directive (CRD)
The CRD is the European Union implementation of the Basel II capital
adequacy framework and will replace the current directive (CAD II) from
January 2007. The Group has established a CRD steering committee to
ensure that the necessary systems and processes are in place to enable
compliance with the CRD.
Going Concern
These financial statements are prepared on a going concern basis as the
directors have satisfied themselves that, at the time of approving the financial
statements, the Group and Company have adequate resources to continue in
operational existence for the foreseeable future.
Auditor independence
The Group has appointed PricewaterhouseCoopers LLP as auditors of the
holding company and all subsidiaries since 2001.
During the year the Audit Committee reviewed the cost effectiveness,
objectivity and independence of the auditors. The auditors disclosed the level
of fees received in respect of the various services provided by their firm in
addition to audit during 2005. They confirmed to the Audit Committee that
they did not believe that the level of non-audit fees had affected their
independence. The Audit Committee is responsible for implementing a policy
for the engagement of the external auditors to supply non-audit services. The
most appropriate advisers are used for non-audit work taking account of the
need to maintain independence. The Group does not maintain a policy of
regular fixed-term rotation of auditors.
In addition to their statutory audit responsibilities, the Group will typically use
the auditors for other work that they are well placed to undertake in that role.
This includes areas such as: regulatory reviews and other ancillary audit
work; work in respect of acquisitions and disposals; and tax compliance.
Several firms are considered for other work, including the auditors in some
instances. In such cases due consideration is given to the impact of the
assignment on the independence of the auditors and to their qualifications to
carry out the role.
Having given consideration to the extra work undertaken by the auditors, and
after careful discussion with the responsible partner in PricewaterhouseCoopers
LLP and the Executive directors, the Audit Committee is satisfied as to the
independence of the statutory auditors.
Relations with Shareholders
The Board is responsible for ensuring that a satisfactory dialogue with
shareholders takes place and welcomes shareholder participation.
The Chairman's Statement, Chief Executive’s Report and Financial Review in
this Annual Report and accounts include a detailed review of the business
and future developments as a way of informing shareholders of the Group’s
performance and progress. The Board is also in regular dialogue with
institutional investors, and analysts, principally around the time of the Group's
preliminary announcement of results for the year and also when the interim
results are announced. After the announcement of the results, the executive
board members schedule a roadshow of presentations to existing and
prospective shareholders arranged in conjunction with the Group’s broker.
In addition, the appropriate briefing meetings are arranged with analysts and
the press to ensure dissemination and interpretation of the Group’s results.
The Board uses the AGM to communicate with private and institutional
investors and welcomes their participation. The Group ensures that
shareholders are sent the Notice of the Annual General Meeting and related
papers with sufficient notice (more than 20 working days). The Chairman
aims to ensure that all of the directors are available at the AGM to answer
questions. The proxy votes cast on each resolution proposed at the AGMs
are disclosed at those meetings. The results of voting on each resolution
are available to shareholders upon request.
The Board recognises the importance of investor relations and communications
with shareholders throughout the year as well as at the time of results.
Throughout the year, the Chairman and CEO maintain a dialogue with the
principal shareholders, discussing, inter alia, matters of governance, strategy
and remuneration, and are responsible for ensuring that shareholders' views
are communicated to the Board as a whole. The senior independent Nonexecutive
director is available to meet with shareholders should other
channels of contact be unsatisfactory, but was not called upon for this
purpose during the year. Non-executive directors are offered the opportunity
to attend meetings with major shareholders. Major shareholders are given the
opportunity to meet new and existing Non-executive directors.
The Group participates in a ShareDeal service offered by Capita Registrars
whereby small existing shareholders have the opportunity, through an on-line
and telephone share dealing service, to buy or sell shares without opening an
account, or completing any application forms. This is a quick and easy share
dealing service and is available to either sell or buy Evolution Group Plc
shares. This benefits both the Group and shareholders in extending the
market for the Group’s shares and facilitating dealing for private shareholders.
An on-line and telephone dealing facility is available providing the Group’s
shareholders with an easy to access and simple to use service. For further
information on this service, or to buy and sell shares, please contact:
• Website: www.capitadeal.com (on-line dealing) 24 hours
• Telephone: 0870 458 4577 (telephone dealing) 8am-4.30pm Monday
to Friday.
The Group's website at www.evgplc.com contains information on the Group,
its Board and Committees, its operating subsidiaries and the products and
services which it offers as well as share price performance and recent
announcements.
Social, Ethical and Environmental Policy
In accordance with the Combined Code, the Board has appointed a director
with specific responsibility for Social, Ethical and Environmental (“SEE”)
policy and remuneration incentives will include the management of SEE risk.
This role is held by the Finance Director. Going forward, SEE issues will be
regularly considered by the Board to identify, assess and manage
the significant risks and opportunities affecting the Group’s long and short
term value arising from its handling of SEE matters.
The Group has addressed SEE issues as detailed below.
Social Policy
The Group is committed to upholding its social responsibility and has
measures in place to address this responsibility.
The Group endeavours in all its office locations to be an active member of the
local business community. Employees in the Group’s regional offices attend
local meetings of the Chamber of Commerce and are active members of the
West Country branch of the Securities Institute, involved in organising
regional events which are well attended by local business representatives,
and of the Birmingham Forward and Birmingham Future organisations, to
promote the professional, financial and business services in the region.
The Group has made £47,976 (2004: £17,085) in charitable donations
during the year as detailed on page 21 and supports its staff participation in
charitable events. In addition to monetary contributions to charities, staff also
contributed their time and talents. The Group does not set a pre-determined
level of charitable donations retaining the flexibility to respond accordingly
to staff participation in charitable events. It is Group policy not to make
political donations.
The Finance Director and Head of Human Resources are responsible for
human resources issues in the Group. The Group’s parental and family
policies for employees address the importance of family values and the Group
endeavours to respond positively to all requests for flexible working practices
to uphold these values.
Christows, the Group’s stockbroking division, has retained accreditation as
an Investor in People.
The Group is committed to employee development through on-going
education and training to ensure the most effective use of the talents, skills
and experience of its employees.
Ethical Policy
The Group conducts business in an ethical manner with appropriate regard
to the way in which business is conducted. Its ability to operate ethically
in business is facilitated by the strong control environment as detailed on
pages 26 to 28.
The Group adheres to the FSA principles of business and follows their rules
and guidance on appropriate behaviour as well as guidance provided by the
Listing Authority and other regulatory bodies under which the Group acts.
Furthermore, the Group is committed to extending its ethical obligations
beyond regulatory compliance as regards to conduct in its relations with
its stakeholders, including clients, suppliers, advisors, and shareholders.
For example, Christows manages the portfolios of a number of charity clients.
With regard to ethical employment policy, it is Group policy that no employee
or applicant for employment receives less favourable treatment (including
training and development, recruitment and promotion) by the Group or
any other employee, on the grounds of sex, marital status, race, colour,
nationality, ethnic origin, sexual orientation, political opinion, religion, age
or disability, nor be disadvantaged by conditions, management attitudes,
behaviour or requirements that cannot be justified.
Environmental Policy
The Board considers the Group makes the appropriate provision for
environmental issues appropriate to the size of the Group operating in the
financial services industry. The Group has introduced a formal environmental
policy which is available to all employees through the Group intranet site and
has begun to obtain quantification, where possible, of the positive impact of
the Group’s environmental initiatives. The Finance Director and a member of
senior management are responsible for environmental issues across the Group.
The Group conforms to the Waste Electrical and Electronic Equipment
Directive 2002/96/EC by recycling electrical and electronic equipment. This
covers items such as white goods, brown goods, IT and telecommunication
equipment, electrical lighting and electrical tools. Paper, confidential waste,
newspapers and magazines, packaging, aluminium cans, plastic cups and
containers are actively recycled. Certificates for paper recycling at the Head
Office and London offices of Christows and Evolution Securities China state
that 15,845 kilos of paper have been recycled, saving 269 trees, conserving
4,754 kilowatts of energy and reducing landfill by 79.2 cubic metres.
Quantification of environmental initiatives across the other offices within the
Group is not available at present. The Head Office of the Group is located
within a managed building which follows best practice guidelines for
environmental issues including programmed lighting, air conditioning sensors,
monitoring water usage and recycling.
Report from the Chairman of the Audit Committee
For the year ended 31 December 2005
The composition and terms of reference of the Audit Committee are detailed
on pages 24 to 25.
The principal activities of the Audit Committee in the year to 31 December
2005 are summarised below:
Financial Statements
The Audit Committee reviewed the 2005 Annual Report, the interim
results, preliminary results and reports from the external auditors,
PricewaterhouseCoopers LLP, on the outcome of their audits during 2005.
External Audit
The Committee liaised with the external auditors during 2005 to review the
scope and findings of the external audit at the interim and final stages.
The Committee recommended to the Board for shareholder approval the reappointment,
remuneration and terms of engagement of the auditors during
2005.
Through their review of the balance of audit and non-audit work performed
and fees paid to PricewaterhouseCoopers LLP, the Committee concluded that
auditors’ independence has been maintained throughout 2005 and the audit
process was effective.
The Committee conducted its annual review for the requirement of an internal
audit function and concluded in its recommendation to the Board that the
Group does not require an internal audit function (see page 27).
Meetings were held between the auditors and the Committee after each
meeting, without the presence of Executive directors, to ensure there were no
restrictions on the scope of their audit and that there were no unresolved
issues of concern.
Internal Controls
The Committee reviewed and evaluated the process by which the Group
implemented its system of internal controls and risk management.
Audit Committee Effectiveness
The members reviewed the Committee’s effectiveness and concluded the
Committee to be working effectively.
Nick Irens
Chairman of the Audit Committee
29 March 2006
The Evolution Group Plc Report & Accounts 2005 29

Directors’ Remuneration Report
For the year ended 31 December 2005
Introduction
The Board has delegated to the Remuneration Committee the determination of Executive directors’ remuneration.
The constitution and operation of the Committee comply with the Best Practice Provisions on Directors’ Remuneration in the Combined Code of the UK Listing Authority.
This report has been prepared in accordance with the Schedule 7A of the Companies Act 1985. The report also meets the relevant requirements of the Listing
Rules of the UK Listing Authority and describes how the Board has applied the Principles of Good Governance relating to directors’ remuneration and where it
does not comply, why this is the case. As required by the Directors’ Remuneration Report Regulations, the Directors’ Remuneration Report will be submitted to
the forthcoming AGM for approval.
Members of the Remuneration Committee
The Remuneration Committee consists only of independent Non-executive directors. Oliver Vaughan is the Chairman of the Remuneration Committee. The other
members are Nicholas Irens, Lord MacLaurin of Knebworth, DL and Martin Gray (who joined the Committee on his appointment to the Board on 26 May
2005). As Chairman, Martin Gray is not considered independent for the purposes of the Combined Code as currently drafted. The Board is aware that this
aspect of the Code is under review and furthermore believes that his integrity and experience makes him a highly effective and appropriate member of the
Remuneration Committee.
The Board considers that all members of the Committee (save for Martin Gray) are independent within the meaning of the Combined Code as explained in the
Corporate Governance Report on pages 23 to 29. Details of the number of meetings and each member’s attendance are set out in the table on page 26.
The Terms of Reference for the Committee comply with the Combined Code and are available for inspection at the Company’s registered office and at the AGM.
A summary of these Terms is also on the Group’s website: www.evgplc.com.
Advice
During the year the Committee has received advice on remuneration from its principal remuneration consultant, Towers Perrin. In addition it received advice
from its lawyers, Jones Day and internally from its Human Resources Department. During the year the Committee has also used the services of Towers Perrin to
advise on employee and executive remuneration. The remuneration consultants do not have any other connection with the Group. No individual is involved in
the determination of their own remuneration. Additionally the Group’s auditors have advised in the preparation of the Remuneration Report.
Remuneration Policy
For all employees throughout the Group the overriding aim is to develop and implement a remuneration policy which motivates individuals of the highest calibre
to grow the value of the Group and maximise returns to shareholders. The Remuneration Committee takes the view that the same philosophy that is applied to
employees of the Group generally should also apply to Executive directors who are essential to the effective and successful leadership and management of the
Group. Evolution Group operates in the highly competitive market place of investment banking and fund management, which places a heavy emphasis on
exceptional rewards for exceptional performance. An overriding objective is to ensure that the approach to remuneration is simple and clear.
Consistent with this philosophy, the Group’s reward structure aims to achieve the following:
• motivate executives in the short term while also linking remuneration to the long term performance of the Group;
• align the interests of Executive directors with those of shareholders through performance related awards reflecting the performance of the Group;
• to be appropriate in the light of remuneration arrangements of its competitors and for senior Group employees who are not directors; and
• reflect Group profit levels and rewards profit growth, with a significant element of performance-related remuneration.
In determining directors’ remuneration, the Remuneration Committee considers returns to shareholders as measured by profit and earnings performance both in
absolute terms and against budget. The quality of profit performance is also considered in the context of market conditions and whether it is broadly based
across all divisions or derived more narrowly together with the application of risk controls across the business. Other considerations are comparable market
remuneration data, the experience and performance of individual directors, their areas of responsibility and remuneration levels throughout the Group.
A high proportion of total remuneration is related to performance designed to motivate Executive directors to enhance the value of the Group. The performancerelated
elements of remuneration represent over 90% of total remuneration.
All medium and long-term incentives are delivered in the form of Evolution Group options and share awards.
The Committee intends that the broad tenets of remuneration policy will continue to support the objectives of the Group but will keep it under review and will
strive to balance the views of major shareholders and the needs of the Group.
The Components of Remuneration
Overview
The remuneration packages of Executive directors currently comprise three elements: basic salary and benefits in kind, annual discretionary performance related
bonus, and medium/long term incentive plans.
1. Fixed remuneration - basic salary and benefits
The fixed component of Executive directors’ remuneration comprises basic salary and benefits in kind. A salary cap was implemented in 2002 for all employees
throughout the Group of £100,000 which remained in place throughout 2005. It is intended that this will remain in place going forward. The following
benefits in kind are provided to Executive directors: medical cover; life assurance; critical illness and permanent health insurance; and a car allowance. No
pension provision is provided by the Group.
The basic salary of £100,000, together with the benefits in kind, represent some of the lowest levels of fixed remuneration in other comparable companies,
particularly given the absence of pension provision. This accords with the Group’s overall philosophy of remuneration having as low an element of fixed or nonperformance
related pay as possible.
2. Performance-related remuneration
Annual performance bonus
The Group operates the same annual bonus scheme for employees of ESL and the Executive directors as part of the Group’s overall reward structure since ESL
represents the majority of the Group’s operating profit performance.
The bonus scheme is formulaic to the extent that the funds available for bonus payments are directly related to the profit performance but the allocation of
payments to individuals depends on the performance of the relevant business unit and on individual performance including contribution to profitability.
The scheme operates on a bonus ‘pool’ system which is defined by reference to a percentage of operating profit. Up to budgeted performance, 45% of operating
profit is allocated to the bonus pool, thereafter, for performance above budget, 50% of operating profit is allocated to the pool. The Committee divides and
allocates the bonus pool to the business units within ESL and to the Executive directors, to reflect their overall performance and contribution to the Group’s profit.
The concept of a bonus ceiling does not naturally align with the Group’s remuneration philosophy. The Committee acknowledges that the consequence of this is
that the scheme does not comply with Schedule A of the Combined Code. The Committee takes the view that the current bonus scheme design, which has
operated very effectively for some years, generates and rewards behaviours which are successfully driving the creation of long-term shareholder value. The
emphasis on annual bonus payments which are not capped at the level of the individual but only by reference to the profit pool made available also allows the
Group to keep fixed cost remuneration low while at the same time remaining competitive.
Each director has detailed and demanding performance criteria against which they are measured. The Remuneration Committee sets performance goals and
assesses the achievement of these goals.
Annual bonus payments made in respect of the Group’s performance in 2005 took into account the increase in total income of 15% from £64.1m to £73.5m
and the increase in adjusted operating profit of 26% from £20.1m to £25.3m. Annual performance related bonus payments to Executive directors decreased
from £3.6m in 2004 to £2.7m in 2005, a decrease of 25%. The proportion of the overall ESL bonus pool paid to Executive directors fell from 24% in 2004
to 20% in 2005. The Committee considers that in the light of these facts the bonus payments made are justified and reasonable.
3. Medium/long term incentive plans
The final element of reward for the Executive directors is the medium/long term incentive plan. Shares may be awarded to Executive directors under the 2002
Executive Share Incentive Scheme, approved by shareholders on 10 October 2002. No awards were made in 2005.
Share based awards to the Chief Executive Officer (“CEO”)
These awards were made by the Remuneration Committee in November 2003 and were intended to act both as an incentive and as a retention arrangement
for the CEO, Alex Snow, to the end of the 2005 financial year. Full vesting of the total award of six million shares is phased over the period November 2003 to
April 2006 and conditional upon the achievement of strict performance criteria. These required a growth in the Group’s adjusted earnings per share based upon
the “adjusted operating profit” measure (as defined in the Financial Review on page 12) of the Group for each of the financial years 2004 and 2005 of 15%
per annum from the level attained in the first half of 2003 of £3,219,000 or 1.34p per share, annualised to be an adjusted earnings per share of 2.68p per
share for 2003.
The second tranche of these awards was confirmed in March 2005. The third tranche is now confirmed since adjusted operating profit of £25,279,000 or
11.21p per share for 2005 (measured by dividing adjusted operating profit by the weighted average number of shares of 225,487,743) is well in excess of the
15% per annum growth required from the level of 2.68p per share.
Alex Snow exercised 500,000 options on 13 December 2005 (the expiration date of the options), at an exercise price of 25p per share. These options were
issued to him under an individual share option agreement dated 14 December 2000. Of these, 259,428 shares were sold at a price of 135.5p, solely to cover
the exercise and taxation costs of the transaction, with the balance of 240,572 shares being transferred to and retained by him.
On 18 January 2006, Alex Snow exercised the first two tranches of this award and sold 1,656,504 shares at a price of 143p per share (the taxable value on
exercise) solely to cover the exercise and taxation costs of the transaction. The balance of 2,343,496 shares arising from the exercise was transferred to Alex
Snow and he has retained the shares.
Awards to the Finance Director and Former Executive Chairman
Share awards were also made under the 2002 Executive Share Incentive Scheme to the former Chairman and to the Finance Director in July 2004 as follows:
Tranche 1 Tranche 2 Tranche 3
Executive director Total award of shares 2005 2005 2006
Richard Griffiths 1,312,500 187,500 375,000 750,000
Graeme Dell 1,312,500 187,500 375,000 750,000
Following the departure of Richard Griffiths on 25 October 2005 all his awards have been cancelled.
These awards were made in a manner to take into account comments received from the institutional investor voting agencies. Therefore, they were established
in three phased tranches with performance criteria measured over three accounting periods and a requirement of an overall vesting period of three years.
Each tranche of shares will only vest subject to continued employment and the achievement of the Group’s earnings per share growth of 15% per annum from
the full year 2003 adjusted earnings per share of 4.37p per share. This was calculated on the basis of an adjusted operating profit of £10,617,000 and a
weighted average number of shares in issue of 242,953,440.
The awards will be confirmed after three years on 6 July 2007, subject to continued employment, by the grant of call rights to acquire the confirmed award
shares at nominal value. The performance condition for the 2004 award has already been confirmed. The performance condition for the 2005 award has now
been met since adjusted operating profit of £25,279,000 or 11.21p per share for 2005 is in excess of the 15% growth required from the level of 5.03p per
share and the awards will vest in 2007 subject to continuing employment.
The Evolution Group Plc Report & Accounts 2005 31

Performance criteria for award vesting
In all cases above the measure of performance required for awards to be confirmed is based upon a 15% growth in adjusted operating profit per share. This
measure has been chosen as it best reflects the Group’s target for growth appropriate to the sector and the market conditions in which the Group operates.
Adjusted operating profit is the measure that the Committee believes will enhance the long-term value of the Group and is therefore appropriately aligned with
shareholders’ interests. The Committee believes that a 15% annual growth is an appropriately challenging rate of annualised growth.
To the extent that IFRS has had an impact on adjusted earnings per share performance, the Remuneration Committee will continue to ensure that performance
is measured consistently and that adjusted earnings per share at the start and end of the performance period are measured on the same basis. The measure
adjusted operating profit has not materially changed from one period to the next.
Award levels have been determined in the light of the impact on shareholders’ dilution. The outstanding awards made to Executive directors will, subject to
vesting, absorb 5.7% of issued share capital as at 31 December 2005. The current dilution arising from the Group’s discretionary schemes is 8.2%, taking
into account own shares purchased by the Group’s employee trust to satisfy share awards. The Remuneration Committee keeps the levels of dilution under
regular review. No Executive director has any entitlement to participate in the Plan and the level of awards has to date been made on an occasional rather than
an annual basis.
The Remuneration Committee is aware that the Executive Share Incentive Scheme operates unusually in two main respects: there are no annual limits on
individual award levels and the vesting of awards is phased over three years. The Committee believes this flexibility allows remuneration to be structured in a
simple and yet highly effective way, which aligns the interests of Executive directors with those of shareholders. Awards from 2004 are subject to the
achievement of a stretching performance condition and the Committee has introduced a requirement to defer the release of shares until the end of the threeyear
period. The Committee maintains that the measurement of performance over annual cycles combined with this deferral creates the right combination of
meaningful incentive and shareholder alignment within a business in which short-term decisions and performance are critical to medium-term and long-term
growth. The requirement to defer the vesting of shares for three years and that shares should only vest subject to the achievement of performance conditions,
were amendments to policy that the Committee has made after talking to major institutional shareholders in 2004 and receiving feedback from institutional
shareholder voting agencies in respect of the Remuneration Report for 2004.
The Remuneration Committee in conjunction with its advisors started in the course of the year to review the Company’s share-based incentive arrangements.
The Committee believes that it is imperative that new arrangements should be put in place to ensure that the Executive directors and other key employees are
appropriately retained and motivated. The Committee has also been considering the appropriate structure of share-based remuneration for all staff of ESL.
The Remuneration Committee has decided to introduce for Executive directors and other key employees a new long-term equity participation plan, for which
shareholder approval will be sought at the AGM on 25 May 2006. The scheme will be effective from this date. This scheme will make available a pool of
shares which will only vest on the achievement of a stretching performance criterion, namely significant absolute share price growth. A full description of the
scheme is provided in the AGM notice to shareholders. Key shareholders are of course being consulted on this new arrangement.
Executive directors are eligible to participate in the The Evolution Group Share Incentive Plan (“SIP”). The SIP is an Inland Revenue approved plan open to all
UK permanent employees. Eligible employees may contribute up to £125 each month and the trustee of the plan uses the money to buy partnership shares on
their behalf. An equivalent number of matching shares is issued by the Company, with the equivalent cost met by the employing company. Partnership and
matching shares are eligible for dividends and dividend shares are acquired on receipt of the relevant paid amounts.
Details of the Executive directors’ share interests under this plan is given in the table below.
1 January Partnership Matching Dividend 31 December
2005 shares shares shares 2005
Alex Snow 3,519 1,035 1,035 34 5,623
Graeme Dell 3,519 1,035 1,035 34 5,623
IP2IPO incentive awards
In March 2005 at the time of the placing of 7,502,170 shares in the Group’s former investment, IP2IPO Group Plc, the Group was able to crystallise cash
of £52.8 million before any related expenses of sale upon the sale of a part of its remaining stake. This transaction realised significant value for Evolution’s
shareholders. The Remuneration Committee determined that a bonus pool of 10% of the cash realised, from which commission and other transaction costs
should be deducted, should be established and distributed among Executive directors who played a direct role in delivering this exceptional value to the Group.
Details of awards made to the Executive directors are shown in the table on page 34. The remaining cash to the business from the placement is £47.5 million,
which the Committee regards as an extremely positive contribution to the Group’s value.
Pensions
None of the directors receive any employer pension contributions from the Group either under defined contribution or final salary schemes.
Proportion of fixed and variable remuneration
In line with the reward structure outlined above, the relative proportions of fixed annual remuneration and performance related pay made for 2005 for the
Executive directors are as follows:-
Non-Performance related Performance related
(%) Annual Bonus (%) IP2IPO award (%) Total (%)
Alex Snow 3 42 55 100
Graeme Dell 17 71 12 100
Richard Griffiths 7 22 71 100
Directors’ service contracts
The Combined Code recommends that a one-year notice period or contract terms be set as an objective for Executive directors. The Remuneration Committee’s
policy is that service contracts should not have a notice period exceeding 12 months and should not contain a liquidated damages clause in the event of
termination.
All Executive directors have service contracts with no fixed terms and with notice periods of 12 months or less. The principal terms extant in these contracts are
as set out below. The directors’ service contracts and letters of engagement for Non-executive directors will be available for inspection at the Company’s AGM.
Contractural
Contract date Notice period termination payments
Alex Snow 13.11.03 12 months None
Graeme Dell 03.07.01 3 months None
Richard Griffiths 03.07.01 12 months None
Richard Griffiths, on his departure on 25 October 2005, has received a payment on termination equivalent to twelve months’ salary and benefits in kind in
accordance with the terms of his contract plus a bonus in recognition of his services during 2005 (see table on page 34 for further information).
Non-executive directors
Non-executive directors do not hold service contracts but letters of engagement. The dates of their appointment are shown on pages 18 to 19.
The Non-executive directors’ letters of engagement are each for an initial term of one year with two months’ notice. Non-executives are subject to the process
of re-appointment on a rolling basis at the time of the AGM. Non-executive directors receive a fee for their services to the Board. Fee levels for Non-executive
directors, excluding the Chairman, are set by the Chairman and Executive directors. The fee for the Chairman is set by the other Non-executive directors.
The Non-executive directors are not involved in the discussions to determine their own remuneration.
Non-executive directors do not participate in the Group’s annual bonus arrangements or long-term incentive arrangements. Fees cease to be payable
immediately upon termination of any appointments for any reason and no compensation is payable in respect of such termination.
From 1 January 2005, the overall fee for Non-executive directors was increased to £60,000 basic fee plus £15,000 for chairing a Committee, from a flat
£50,000 per annum in 2004. The fee for Martin Gray, on his appointment as Chairman is £100,000 per annum. The Board believe these fee levels are
appropriate and reflect the experience brought by the Non-executive directors, the time commitment they give, and the contribution they make.
Five-Year Historical TSR Performance
Growth in the Value of a Hypothetical £100 Holding Over Five Years
FTSE Mid 250 (excluding Investment Trusts) Comparison Based on 30 Trading Day Average Values
£260
£240
£220
£200
£180
£160
£140
£120
£100
£80
£60
£40
£20
£0
Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05
The above graph shows the TSR against that of the FTSE 250 Index. TSR is calculated assuming dividends are reinvested on receipt.
The Evolution Group Plc
FTSE mid 250
(excluding Investment Trusts)
In the opinion of the directors, the FTSE 250 Index (excluding investment Trusts) is the most appropriate index against which the total shareholder return of
the Group should be measured as at 31 December 2005, because it is an index of similar-sized companies to the Group. The Group’s growth strategy and
commitment to improving shareholder value seek to ensure that EVG becomes part of this group and it is the Index towards which the Group is growing.
For context only, in the period shown in the graph above, the Group was listed on the AIM market from December 1999 up until its move to the Full List of
the London Stock Exchange in June 2003, when it became a constituent of the FTSE Small cap index. Thereafter, the Group’s shares then joined the FTSE
250 index in March 2004 and left the FTSE 250 Index in June 2005 when they returned to the FTSE Small Cap Index.
The Evolution Group Plc Report & Accounts 2005 33

Auditable information
The report on remuneration from page 30 up to this statement has not been audited. The following information has been audited by the Company's auditors,
PricewaterhouseCoopers LLP, as required by Section 235 (4) of the Companies Act 1985.
A summary of the total remuneration paid to Executive and Non-executive directors appears in the table below:
Annual
performance Benefits IP2IPO Total Total
Salary/fees cash bonus in kind Awards 2005 2004
Note £’000 £’000 £’000 £’000 £’000 £’000
Executive directors
Alex Snow 1 100 1,590 10 2,057 3,757 2,947
Graeme Dell 1 100 450 10 75 635 843
Richard Griffiths
Non-executive directors
1,2,3 182 656 19 2,082 2,939 3,030
Martin Gray 60 - - - 60 -
Lord MacLaurin 75 - - - 75 23
Nicholas Irens 75 - - - 75 35
Oliver Vaughan 75 - - - 75 33
Total 667 2,696 39 4,214 7,616 6,911
Notes to remuneration in above table
1. The IP2IPO award was made in March 2005 at the time of the sale of shares in IP2IPO.
2. Richard Griffiths was Executive Chairman until he became President on 26 May 2005. He resigned from the Board on 25 October 2005. His salary and performance payment
for 2005 were made in recognition of his executive services to the Company.
3. On stepping down from the Board, Richard Griffiths received pay in lieu of notice of £110,000 under the terms of his contract, representing 12 months’ salary of £100,000 and
benefits-in-kind of £10,000 (included in the numbers above).
Benefits in kind represent contributions for private medical insurance and in the case of Alex Snow and Graeme Dell, the provision of a company car allowance.
Richard Griffiths received a £9,000 contribution as a company car allowance to the date of his resignation, plus £10,000 as noted above.
Total aggregate emoluments of directors appear in note 5.
Directors’ pensions
None of the directors receive any pension contributions from the Group either under defined contribution or final salary schemes.
Directors’ shares under option
Market
At 1 Exercised Earliest price at Cancelled At 31
Date of January during exercise Expiry Exercise exercise during the December
grant Note 2005 the year date date price (p) date (p) year 2005
Alex Snow
14.12.00 4 500,000 (500,000) 14.12.00 14.12.05 25.00 135.50 - -
11.05.01 2 1,065,632 - 12.05.04 11.05.11 58.67 - - 1,065,632
11.05.01 3 2,025,933 - 12.05.03 11.05.11 58.67 - - 2,025,933
29.06.01 1 1,500,000 - 30.06.04 29.06.11 52.30 - - 1,500,000
13.11.03 5 2,000,000 - 13.11.03 12.11.13 1.00 - - 2,000,000
13.11.03 6 2,000,000 - 22.03.05 12.11.13 1.00 - - 2,000,000
13.11.03
Graeme Dell
6 2,000,000 - 22.03.06 12.11.13 1.00 - - 2,000,000
31.01.03 8 500,000 - 01.02.06 31.01.13 41.40 - - 500,000
31.01.03 9 500,000 - 01.02.06 31.01.13 1.00 - - 500,000
06.07.04 7 187,500 - 06.07.07 06.07.14 1.00 - - 187,500
06.07.04 7 375,000 - 06.07.07 06.07.14 1.00 - - 375,000
06.07.04 7 750,000 - 06.07.07 06.07.14 1.00 - - 750,000
Richard Griffiths
11.05.01 3 2,025,933 (2,025,933) 12.05.03 11.05.11 58.67 133.00 - -
06.07.04 7 187,500 - 06.07.07 06.07.14 1.00 - (187,500) -
06.07.04 7 375,000 - 06.07.07 06.07.14 1.00 - (375,000) -
06.07.04 7 750,000 - 06.07.07 06.07.14 1.00 - (750,000) -
No options lapsed during the year to 31 December 2005.
No options were granted during the year.
Save as set out above, no directors nor members of the immediate family of directors, have any options over shares in the Company or any Group company or,
during the year to 31 December 2005, was granted or exercised an option over shares in the Company.
The market price for an ordinary share in the Company at 30 December 2005 was £1.42 (2004: £1.50). The highest price throughout the year was £1.715
(2004: £1.58) and the lowest was £1.175 (2004: £1.015).
Vested options awarded to Richard Griffths under the 2000 Executive Share Option Scheme (Unapproved Ordinary) were retained following his resignation on
25 October 2005. These awards could be exercised up to six months from the date of his departure. The exercise occurred on 3 November 2005 subsequent
to his resignation as a director, however the exercise and market price data is included in the table for completeness and transparency but gains from the
exercised options are not included within directors’ emoluments.
Alex Snow exercised 500,000 options on 14 December 2005 (the expiration date of the options), at an exercise price of 25p per share. These options were
issued to him under an individual share option agreement dated 14 December 2000. Of these, 259,428 shares were sold at a price of 135.5p, solely to cover
the exercise and taxation costs of the transaction, with the balance of 240,572 shares being transferred to and retained by him. Refer to note 5 for gains made
on exercise of share options.
On 18 January 2006, Alex Snow exercised the first and second tranches of the award made on 13 November 2003 and sold 1,656,504 Shares at a price of
143p per share (the effective price used to determine the taxable value on exercise) solely to cover the exercise and taxation costs of the transaction. The
balance of 2,343,496 shares arising from the exercise was transferred to Alex Snow.
Summary of schemes for Directors’ options in the above tables
1. These options were granted under the 2001 Executive Share Option Scheme. Under the terms of this scheme the performance criteria require that the
closing bid of The Evolution Group Plc share price, as derived from the Daily Official List published by The London Stock Exchange Plc, must be not less
on average than a specified amount for a period of 60 consecutive days before options can be exercised. If the share price is 90p then 25% of the options
may be exercised; if 110p, a further 25% may be exercised; if 130p then a further 25% may be exercised and if 150p, the remaining 25% may be
exercised. All of these awards have now vested on the basis of the Group’s share price in 2005.
2. These options were granted under the 2000 Executive Share Option Scheme (Unapproved Ordinary). A performance criteria has been set making the
exercise of the option conditional on the middle market quotation of The Evolution Group Plc share price increasing by an average of 50% above the
relevant exercise price over a period of 30 dealing days since the date of the grant. The vesting conditions for these options have been met in full.
3. These options were granted under the 2000 Executive Share Option Scheme (Unapproved Ordinary). No performance criteria are attached to the exercise
of these options. The vesting conditions for these options have been met in full.
4. These options were granted outside of any share scheme. No performance criteria are attached to the exercise of these options. These options were issued
on the completion of the Christows acquisition in November 2000 and were immediately vestable since they were based on past performance. These
options were exercised on 13 December 2005.
5. These options were granted under the 2002 Executive Share Incentive Plan. No performance criteria are attached to the exercise of these options. These
options were immediately vestable since they were based on the past performance of Alex Snow and in recognition of the conclusion of the establishment
of an appropriate service contract. The Board considered that the Group’s interests were served by the establishment of such a contract as a matter of
paramount importance given that securing Alex Snow’s ongoing services are believed to be fundamental to the success of the Group. The Committee feels
that in the light of these facts the award levels and their vesting criteria are justified and reasonable. These options were exercised on 18 January 2006.
6. These options were granted under the 2002 Executive Share Incentive Plan. The options are granted subject to performance criteria in respect of the
Group’s adjusted earnings per share (based upon the adjusted operating profit figure divided by the weighted average number of shares) for the full years in
2004 and 2005. To fully vest, the Group’s adjusted earnings per share will need to grow by 15% per annum over the annualised level achieved in the first
half of 2003 of 1.34p. This measure has been chosen as it best reflects the Group’s target for growth appropriate to the sector, market conditions in which
the Group operates, and is therefore appropriately aligned with shareholders’ interests. The tranche for 2004 has already been confirmed. The tranche for
2005 is now confirmed since adjusted operating profit of £25,279,000 or 11.21p per share in 2005 is well in excess of the 15% per annum growth
required from the level of 2.68p per share it was measured against for 2003. The 2004 tranche was exercised on 18 January 2006.
7. These awards were granted under the 2002 Executive Share Incentive Plan. These awards are subject to strict Group earnings per share performance
criteria requiring growth of 15% per annum from the full year 2003 adjusted operating profit of 4.37p per share (adjusted operating profit of £10,617,000
and weighted average number of shares in issue of 242,953,440). The awards will be confirmed after three years on 6 July 2007, subject to continued
employment, by the grant of call rights to acquire the confirmed award shares at nominal value. The tranche for 2004 has already been confirmed. The
performance condition for the 2005 award has now been met since adjusted operating profit of £25,279,000 or 11.21p per share for 2005 is well in
excess of the 15% per annum growth required from the level of 4.37p per share that it was measured against for 2003 and will vest in 2007 subject to
continuing employment.
8. These options were granted under the 2001 Executive Share Option Scheme at an exercise price of 41.4p. This award was made in respect of historic
performance and partly in recognition of the cancellation of a previous award. No performance criteria are attached to the exercise of these options.
9. These options were granted under the 2002 Executive Share Incentive Plan. This award was made in respect of historic performance hence no
performance criteria are attached to the exercise of these options.
For further details of share schemes across the Group, see note 45 to the financial statements.
The Evolution Group Plc Report & Accounts 2005 35

Directors’ interests in ordinary shares of The Evolution Group Plc
The directors in office at the year-end had interests in the ordinary share capital of the Company (all of which were beneficial) as shown below:
1 January 2005 31 December 2005
(or, if later the date of his appointment
Alex Snow 432,446 675,297
Graeme Dell 51,164 53,443
Martin Gray - 7,858
Lord MacLaurin - -
Nicholas Irens 25,000 25,000
Oliver Vaughan 399,019 399,019
The above shareholdings include shares acquired and issued under the The Evolution Group SIP. Subsequent to the year-end and up to the date of this report,
Alex Snow and Graeme Dell have each purchased 243 additional partnership shares under The Evolution Group SIP which have been matched by the issue of
243 matching shares by the Company. In addition, following the exercise of options on 18 January 2006, and sale of sufficient shares to cover all transaction
costs, Alex Snow has received a further 2,343,496 shares, bringing his total holding to 3,019,279 as at 29 March 2006.
Lord MacLaurin purchased 25,000 shares on 23 March 2006.
Oliver Vaughan purchased 13,933 shares on 23 March 2006.
Oliver Vaughan
Chairman of the Remuneration Committee
29 March 2006
Independent Auditors’ Report to the Members of the Evolution Group Plc
We have audited the Group financial statements of the Evolution Group plc (the ‘‘financial statements’’) for the year ended 31 December 2005 which comprise
the Group consolidated Income Statement, the Group consolidated Balance Sheet, the Group consolidated Cash Flow Statement, the Group Consolidated
Statement of Recognised Income and Expense and the related notes on pages 38 to 78. These financial statements have been prepared under the accounting
policies set out on pages 42 to 46. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited (the
“auditable part”) on pages 34 to 36.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable
law in the United Kingdom and International Financial Reporting Standards as adopted by the European Union are set out in the Statement of Directors’
responsibilities on page 22.
Our responsibility is to audit the financial statements and the auditable part of the Directors’ Remuneration Report in accordance with relevant legal and
regulatory requirements in the United Kingdom and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared
for and only for The Evolution Group Plc’s members as a body in accordance with Section 235 of the United Kingdom Companies Act 1985 (in respect of the
Evolution Group plc) and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true and fair view and the auditable part of the remuneration report have been
properly prepared in accordance with the United Kingdom Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you if, in our opinion,
the Directors’ Report is not consistent with the financial statements, if the Group has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information specified by United Kingdom law regarding directors’ remuneration and other
transactions is not disclosed.
We review whether the Corporate Governance report reflects the Evolution Group Plc’s compliance with the nine provisions of the 2003 FRC Combined Code
specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Boards’
statement on internal control covers all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or their risk
and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information
comprises only the Chairman’s Statement, Chief Executive’s Report, Financial Review, Corporate Governance report and the unaudited part of the Directors’
Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the
financial statements. Our responsibilities do not extend to any other information.
The maintenance and integrity of The Evolution Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since
they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board in the United
Kingdom. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financial statements and the
auditable part of the Directors’ Remuneration Report. It also includes an assessment of the significant estimates and judgements made by the directors in the
preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the financial statements and the auditable part of the Directors’ Remuneration Report are free from material
misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the auditable part of the
Directors’ Remuneration Report.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at
31 December 2005 and of the Group’s income and cash flows for the year then ended; and
• the financial statements and the auditable part of the Directors’ Remuneration Report have been properly prepared in accordance with the United Kingdom
Companies Act 1985 and Article 4 of the IAS Regulation.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
29 March 2006
The Evolution Group Plc Report & Accounts 2005 37

Consolidated
Income Statement
for the year ended 31 December
Note 2005 2004
£’000 £’000
Fee and commission income 63,205 52,289
Fee and commission expenses (1,500) (1,019)
Net fee and commission income 61,705 51,270
Net trading income 9,206 11,618
Other income 1,064 236
Total income 3 71,975 63,124
Profit on disposal of available-for-sale investments 6 40,048
Profit on sale of fixed asset investments 1,225
Release of provision against fixed asset investments 525
Profit on sale of current asset investments 4,813
Profit on part sale of subsidiary 7 - 66
Profit on sale of associate 8 - 22,286
Share of results of associate 9 - 436
Operating expenses 4 (53,440) (47,962)
Operating profit 58,583 44,513
Interest receivable and similar income 10 5,044 3,329
Interest payable and similar charges 10 (37) (7)
Profit before tax 63,590 47,835
Tax expense 11 (4,524) (3,831)
Profit for the year 59,066 44,004
Profit / (loss) attributable to minority interest 25 (174)
Profit attributable to equity holders of The Evolution Group Plc 59,041 44,178
59,066 44,004
Basic earnings per ordinary share 12 26.18p 17.90p
Diluted earnings per share 12 23.35p 16.43p
Dividend per share – Interim (paid) 13 0.40p 0.17p
– Final (proposed) 0.80p 0.58p
Dividend (£’000) – Interim (paid) 13 859 421
– Final (proposed) 1,772 1,307
The notes on pages 42 to 69 form an integral part of these financial statements.
Consolidated
Balance Sheet
for the year ended 31 December
Note 2005 2004
£’000 £’000
ASSETS
Non-current assets
Goodwill 14 9,085 8,990
Other intangible assets 15 232 242
Property, plant and equipment 16 3,695 1,330
Investments 17 583
Deferred tax assets 18 7,693 5,820
Total non-current assets 20,705 16,965
Current assets
Trade and other receivables 19 42,069
Debtors 20 37,442
Available-for-sale investments 21 2,027
Trading portfolio assets 22 13,446
Long trading positions 23 9,679
Current asset investments 24 12,148
Cash and cash equivalents 25 137,973 115,170
Total current assets 195,515 174,439
Total assets 216,220 191,404
LIABILITIES
Current liabilities
Trade and other payables 26 51,196
Creditors: amounts falling due within one year 27 47,923
Trading portfolio liabilities 28 6,200
Current tax liabilities 29 1,947 2,382
Total current liabilities 59,343 50,305
Non-current liabilities
Provisions for liabilities 30 184 78
Total liabilities 59,527 50,383
EQUITY
Capital and reserves attributable to equity shareholders
Share capital 32 2,255 2,495
Share premium 33 27,942 26,223
Capital redemption reserve 34 274 -
Merger reserve 35 51,230 51,230
Fair value and other reserves 36 (1,652) -
Retained earnings 37 76,592 61,138
Parent company’s shareholders’ equity excluding minority interest 31 156,641 141,086
Minority interest in equity 38 52 (65)
Total equity 156,693 141,021
Total equity and liabilities 216,220 191,404
The notes on pages 42 to 69 form an integral part of these consolidated financial statements.
The financial statements on pages 38 to 78 were approved by the Board of Directors on 29 March 2006 and were signed on its behalf by:
Graeme Dell Finance Director
Alex Snow Chief Executive
The Evolution Group Plc Report & Accounts 2005 39

Consolidated
Cash Flow Statement
for the year ended 31 December
Note 2005 2004
£’000 £’000 £’000 £’000
Cash flow from operating activities
Cash generated from operations 39 25,749 20,218
Interest received 5,044 3,283
Interest paid (37) (7)
Tax paid (5,824) (4,136)
Net cash inflow from operating activities 24,932 19,358
Cash flows from investing activities
Purchase of subsidiary shares (2) (59)
Proceeds from sale of associate - 39,674
Purchase of property, plant and equipment (3,368) (796)
Purchase of intangible assets (106) -
Purchase of available-for-sale investments (1,074)
Net proceeds from sale of available-for-sale investments 52,525
Purchase of investments (321)
Proceeds from sale of investments 7,260
Dividends received 15 85
Net cash generated from investing activities 47,990 45,843
Cash flows from financing activities
Issues of ordinary share capital 1,614 379
Issue of ordinary share capital to minorities 1 219
Dividends paid to the company’s shareholders 13 (2,166) (1,037)
Purchase of shares held by the Trust (7,111) (3,335)
Purchase of treasury shares (42,513) -
Net cash used in financing activities (50,175) (3,774)
Net increase in cash and bank overdrafts 22,747 61,427
Cash and bank overdrafts at beginning of period 115,170 53,705
Exchange gains on cash and bank overdrafts 56 38
Cash and bank overdrafts at end of period 25 137,973 115,170
The notes on pages 42 to 69 form an integral part of these consolidated financial statements.
Consolidated
Statement of Recognised Income and Expense
for the year ended 31 December
2005 2004
£’000 £’000
Profit for the financial year 59,066 44,004
Available-for-sale investments:
Fair value changes taken to equity at 1 January 2005 37,629
Fair value changes taken to equity during the year (2,059)
Fair value changes transferred to income statement on disposal (37,222)
Net losses not recognised in income statement (1,652) -
Total recognised income and expense for the year 57,414 44,004
Effect of changes in accounting policy for the adoption of IAS 32 and 39
Available-for-sale financial assets fair value reserve 37,629
Retained earnings 340
Minority interest -
Attributable to:
Minority interest 25
Equity shareholders of the Parent 57,389
The notes on pages 42 to 69 form an integral part of these consolidated financial statements.
37,969 -
57,414 -
The Evolution Group Plc Report & Accounts 2005 41

Notes
to the financial statements
1. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to the years
presented, except for the first time application of IAS 39 ‘Financial Instruments: Recognition and Measurement’ (“IAS 39”); and the adoption of the presentation
requirements of IAS 32 ‘Financial Instruments: Presentation’ (“IAS 32”) relating to financial instruments as described below.
Basis of preparation
Following the adoption of IAS Regulation (EC) 1606/2002 on 19 July 2002 by the European Parliament, the Group, along with all other European listed entities, is
required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”)
for the year beginning 1 January 2005.
The Group has applied IFRS for the year ended 31 December 2005 with one year of comparative figures under IFRS as adopted by the EU. Figures presented are in
thousands Sterling. In preparing these consolidated financial statements, the Group has elected to take advantage of certain transitional provisions within IFRS 1 ‘First-time
Adoption of International Financial Reporting Standards’ (“IFRS 1”) which offer exemption from presenting comparative information or applying IFRS retrospectively. The
most significant of these provisions is the exemption from presenting comparative information in accordance with IFRS in the following areas: IAS 32 ‘Financial
Instruments: Presentation’ (“IAS 32”) and IAS 39 ‘Financial Instruments: Recognition and Measurement’ (“IAS 39”). Therefore the impacts of adopting IAS 32 and IAS 39
are not included in the 2004 comparatives in accordance with IFRS 1 and financial instruments are accounted for under UK Accounting Standards issued by the UK
Accounting Standards Board and the pronouncements of its Urgent Issues Task Force, relevant Statements of Recommended Practice and the Companies Act 1985
(collectively, “UKGAAP”) in 2004. The Group’s date of transition to IFRS is 1 January 2004 and its first reporting period under IFRS is for the year ended 31 December
2005. The 2005 results are therefore not entirely comparable to those of 2004 in affected areas.
These financial statements have been prepared in accordance with IFRS and IFRIC interpretations and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS. A summary of the Group accounting policies is set out below, together with an explanation of where changes have been made to
previous policies on the adoption of new accounting standards in the year.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these
estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
Changes in accounting policy
As a result of the requirement to use the accounting policies applied as at 31 December 2005 to the 1 January 2004 transition and 2004 comparatives, there have been
no changes to the accounting policies under IFRS. As permitted by IFRS 1, IAS 32 and IAS 39 have not been applied to the 2004 comparatives. The impact of these
standards as at 1 January 2005 have been detailed on page 115 in Appendix 1(v) and note 31.
Parent Company and Subsidiary accounts
In accordance with S226(2) of the Companies Act 1985, as revised by the Companies Act 1985 (International Accounting Standards and Other Accounting
Amendments) Regulations 2004, the Board has elected to continue to comply with UK Accounting Standards issued by the UK Accounting Standards Board and the
pronouncements of its Urgent Issues Task Force, relevant Statements of Recommended Practice and the Companies Act 1985 (collectively, “UKGAAP”) in accordance
with Section 226A for the Company’s individual accounts. Hence, all UK subsidiaries within the Group will continue to apply UKGAAP in their individual accounts up to
31 December 2005 as per Section 227C.
Attached as Section 2 to this Annual Report, the Parent Company Financial Statements on a standalone basis are provided. These annual financial statements have been
prepared in accordance with UKGAAP.
Basis of consolidation
The Group’s consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings. As permitted by IFRS 1, the Group has
chosen not to restate, under IFRS, business combinations that took place prior to 1 January 2004, the date of transition to IFRS. All intra-Group transactions are
eliminated on consolidation.
Future accounting policies
In August 2005, the IASB issued IFRS 7, ‘Financial Instruments Disclosures’ and an amendment to IAS 1, ‘Presentation of Financial Statements’ on capital disclosures for
application in accounting periods beginning on or after 1 January 2007 which have been adopted by the European Commission. The new or revised disclosures will be
adopted by the Group for reporting in 2007.
Consideration will be given early in 2006 to the implications of all the IFRIC interpretations issued during 2005 which first apply to accounting periods beginning on or
after 1 January 2006.
Significant Accounting Policies
Income recognition
The Group follows the principles of IAS 18, ‘Revenue Recognition’, in determining appropriate revenue recognition policies. In principle, therefore, revenue is recognised to
the extent that it is probable that the economic benefits associated with the transaction will flow into the Group.
a) Fee and commission income
Fee and commission income includes those amounts receivable from corporate finance transactions by way of fees, commission and retainer income, and fees from asset
management activities. In addition, execution and clearing commission from brokerage activities is recognised on the difference between the consideration received on the
sale of a security and the purchase of a security. Interest income on segregated client money accounts is included within this category.
Fees and commissions are recognised in the income statement when the related services are performed and all legal conditions have been satisfied, and when considered
recoverable.
Commission paid to employees is treated as wages and salaries. Initial commissions charged to clients and paid or payable to intermediaries are capitalised in the balance
sheet as assets and liabilities respectively when paid or due. These amounts are amortised over the average holding period of five years, the relevant period in which the
relationship between the commission earned (and paid away) and the funds under management to which such commissions relate is believed to exist.
1. ACCOUNTING POLICIES continued
b) Net trading income
Trading income from market making and principal trading activities comprises all gains and losses from changes in the fair value of financial assets and liabilities held for
trading, together with any related dividend income on positions held.
c) Other income
Other income includes foreign exchange gains and losses resulting from the retranslation and settlement of foreign currency transactions and any other dividend income on
available-for-sale investments.
Segment reporting
Business segments are distinguishable components of the Group that provide products or services that are subject to risks and rewards that are different to those of other
business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and rewards that are different to
those of components operating in other economic environments. Business segments are the primary reporting segments. Group costs are allocated to segments on a
reasonable and consistent basis. The analysis by geographical segment is based on the location of the customer.
Investments in subsidiary undertakings
Interests in subsidiary undertakings are presented in accordance with IAS 27, ‘Consolidated and Separate Financial Statements’. An undertaking is regarded as a
subsidiary undertaking if the Group has the power to exercise control over its operating and financial policies. This generally accompanies a shareholding of greater than
50% of the voting power. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date that control
ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries.
The cost of an acquisition is measured at the fair value of the identifiable assets given, equity instruments issued and liabilities or contingent liabilities incurred or assumed
at the date of exchange, together with any costs directly related to the acquisition. The excess of the cost of an acquisition over the Group’s share of the fair value of the
identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the Group’s share of the
identifiable assets, liabilities and contingent liabilities of the subsidiary acquired, the difference is recognised immediately in the income statement.
All intra-group transactions and balances are eliminated on consolidation and consistent accounting policies are used throughout the Group for the purposes of the
consolidation.
Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary’s equity. The excess, and any further losses applicable to
the minority, are allocated to the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the
losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the
majority has been recovered.
Assets, liabilities and equity of foreign operations are translated into the reporting currency at the closing rate and items of income and expense are translated into Sterling
at the rates prevailing on the dates of the transactions, or average rates where these approximate to actual rates.
Investment in associated undertaking
Interests in associated undertakings are accounted for by the equity method of accounting in accordance with IAS 28, ‘Investments in Associates’. An associate is an entity
in which the Group exercises significant influence, but not control or where the Group holding is in excess of 20%, but no more than 50%, of the voting rights.
The Group’s investment in associates is initially recorded at fair value and increased (or decreased) each year by the Group’s share of the post acquisition net profit (or
loss), or other movements reflected directly in the equity of the associated or jointly controlled entity. Goodwill arising on the acquisition of an associate or joint venture is
included in the cost of the investment (net of any accumulated impairment loss). When the Group’s share of losses in an associate equals or exceeds the recorded interest,
including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the entity.
The Group’s share of the results of associates after tax is based on financial statements made up to a date not earlier than three months before the balance sheet date and
adjusted to conform with the accounting polices of the Group. Unrealised gains on transactions are eliminated to the extent of the Group’s interest in the investee.
Unrealised losses are also eliminated unless the transaction provides evidence of impairment in the asset transferred.
Intangible assets
a) Goodwill
Goodwill arises on business combinations, including the acquisition of subsidiaries, associated entities and joint ventures, and represents the excess of the fair value of the
purchase consideration and direct costs of making the acquisition, over the fair value of the Group’s share of the identifiable assets acquired and the liabilities and
contingent liabilities assumed on the date of the acquisition. In accordance with IAS 38, ‘Intangible assets’, goodwill is capitalised as an intangible asset and reviewed
annually for impairment.
For the purpose of calculating goodwill, fair values of acquired identifiable assets, liabilities and contingent liabilities are determined by reference to market values or by
discounting expected future cash flows to present value. This discounting is either performed using market rates or by using risk-free rates and risk adjusted expected
future cash flows.
Goodwill is stated at cost less accumulated impairment losses which are charged to the income statement. Gains and losses on the disposal of an entity include the
carrying amount of the goodwill relating to the entity sold. Any excess of the Group’s interest in fair value of the identifiable net assets, liabilities and contingent liabilities of
an acquired business over the cost to acquire it is recognised immediately in the income statement.
b) National Association of Securities Dealers (“NASD”) Licence
Costs associated with the acquisition of the US Broker Dealer, Evolution Securities US Inc., are deemed to relate to the NASD licence only. The licence is deemed to have
an indefinite life, based on continuing NASD membership having no fixed life, and consequently is not being amortised. The carrying value of the licence is reviewed
annually for impairment.
c) Computer software
Acquired computer software licences are stated at cost, including those costs incurred to acquire and bring to use the specific software, less amortisation and provisions
for impairment, if any. Costs are amortised on a straight-line basis over the estimated useful life of the software, which is 3 years.
The Evolution Group Plc Report & Accounts 2005 43

Notes
to the financial statements
- continued
1. ACCOUNTING POLICIES continued
Costs associated with maintaining or developing the software are recognised as an expense when incurred. Costs associated with the production of internally generated
software controlled by the Group, which will probably provide future economic benefits in excess of cost beyond one year, are recognised as intangible assets and
amortised over an estimated useful life of 3 – 5 years. Such costs include software development and associated employee costs.
Property, plant and equipment
All property, plant and equipment (PPE) is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the
acquisition of the items.
Depreciation on PPE is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows:
Leasehold improvements Over 5 years
Computers and similar equipment Over 3 to 5 years
Fixtures and fittings and other equipment Over 3 to 5 years
Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is sooner.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately
to its estimated recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount
Gains and losses on disposals are determined by comparing proceeds with the carrying amounts. These are included in the income statement.
Impairment of PPE, goodwill and intangible assets
Goodwill and assets that have an indefinite useful life are not subject to amortisation or depreciation and, together with PPE and other intangible assets, are tested
annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. The impairment review comprises a
comparison of the carrying amount of the asset with its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in
use. An impairment loss is recognised in the income statement in the period in which it occurs for the amount by which the asset’s carrying amount exceeds its
recoverable amount.
A previously recognised impairment loss relating to an item of PPE may be reversed in part or in full when a change in circumstances leads to a change in the estimates
used to determine the fixed assets recoverable amount. The carrying amount of the fixed asset will only be increased up to the amount it would have been, had the
original impairment not been recognised. Impairment losses on goodwill and other intangible assets are not reversed.
Financial assets and liabilities
From 1 January 2004 to 31 December 2004
Financial assets were classified as investments which included investments in equity securities other than subsidiaries and associates, financial receivables held for
investment purposes, treasury shares and other securities. Financial fixed assets are recorded at cost, including any additional directly attributable charges, less any
adjustment for impairment. Current assets also include investments and securities acquired as a temporary investment, which were valued at the lower of cost and net
realisable value.
From 1 January 2005
The Group classifies its financial assets as trading portfolio assets and available-for-sale investments. The classification depends on the purpose for which the assets were
acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.
Trading portfolio assets and liabilities
This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in
this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current if they
are either held for trading or are expected to be realised within twelve months of the balance sheet date. Purchases and sales of investments are recognised on trade date,
being the date on which the Group commits to purchase or sell the asset.
Available-for-sale financial assets
Available-for-sale financial assets that are either designated in this category or are not classified in any of the other categories. They are initially recognised at fair value
including direct and incremental transaction costs. They are subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate
component of equity within Fair Value and Other Reserves until sale or when impaired, when the cumulative gain or loss is transferred to the income statement.
Measurement
For trading portfolio assets and liabilities and available-for-sale investments that are quoted in active markets, fair values are determined by reference to the current quoted
bid/offer price, with trading portfolio assets marked to the bid price and trading portfolio liabilities marked at the offer price. Where independent prices are not available,
fair values may be determined using valuation techniques with reference to observable market data. These may include comparison to similar instruments where market
observable prices exist, discounted cash flow analysis, option pricing models such as Black-Scholes and other valuation techniques commonly used by market
participants.
The Group makes an assessment at each balance sheet date as to whether there is any objective evidence of impairment, being any circumstance where an adverse
impact on estimated future cash flows of the financial asset or group of assets can be reliably estimated. In the case of equity investments classified as available-for-sale,
the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in the income statement) is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on availablefor-sale
equity investments are not reversed through the income statement.
Derivative financial instruments
The Group utilises forward exchange contracts to manage the exchange risk on actual transactions related to amounts receivable, denominated in a currency other than
the functional currency of the business. The Group has not sought to apply the hedging requirements of IAS 39. The Group’s forward exchange contracts do not subject
the Group to risk from exchange rate movements because the gains and losses on such contracts offset losses and gains, respectively, on the underlying foreign currency
transactions to which they relate. The forward contracts and related amounts receivable are recorded at fair value at each period end. Fair value is estimated using the
settlement rates prevailing at the period end. All gains and losses resulting from the settlement of the contracts are recorded within net trading income in the income
statement. The Group does not enter into forward exchange contracts for the purpose of hedging anticipated transactions.
1. ACCOUNTING POLICIES continued
The regular way purchase or sale of held for trading financial assets is recognised using trade date accounting. A regular way purchase or sale is a purchase or sale of a
financial asset under a contract whose terms require delivery of the asset within the time frames established generally by regulation or convention in the marketplace
concerned. Purchases or sales that do not fall within the regular way classification (generally beyond three days settlement) are treated as derivatives in the period between
the trade date and the settlement date, i.e. as a forward purchase or sale of security. The contract value (i.e. the trade date receivable or payable) of such transactions is
not recorded on the balance sheet, but the change in fair value is recognised on the balance sheet and income statement within net trading income in the intervening
period between the trade date and settlement date.
The derivative contracts relating to equity options and warrants held, have been acquired at zero cost in lieu of corporate finance fees. Derivatives are initially accounted
and measured at fair value on the date a derivative contract is accrued and subsequently measured at fair value. The gain or loss on re-measurement is taken to the
income statement within net trading income. Fair values are obtained from quoted prices prevailing in active markets, including recent market transactions, and valuation
techniques, including discounted cash flow models and options pricing models as appropriate. All derivatives are included in assets when their fair value is positive, and
liabilities when their fair value is negative, unless there is the legal ability and intention to settle net.
Stock borrowing
The Group enters stock borrowing arrangements with certain institutions which are entered into on a collateralised basis with securities or cash advanced or received as
collateral. The transfer of securities to institutions is not reflected on the balance sheet. Where cash collateral is advanced or received, an asset or liability should be
recorded at the amount of cash collateral advanced or received. Securities borrowed are not recognised on the balance sheet, unless they are sold to third parties, in which
case the obligation to return the securities is recorded as a trading liability and measured at fair value and any gains or losses are included in the income statement.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for
impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated
future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.
Trade and other payables
Trade and other payables are recognised initially at fair value, which is the agreed market price at the time goods or services are provided. The Group accrues for all goods
and services consumed but as yet unbilled at amounts representing management’s best estimate of fair value.
Provisions
Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle
the obligation and it can be reliably estimated. Provisions believed to relate to periods greater than twelve months are discounted to the net present value using an effective
discount rate that reliably calculates the present value of the future obligation.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic
benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised in the financial statements, however, they are disclosed unless remote.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity
operates (the ‘functional currency’). The consolidated financial statements of the Group are presented in sterling, which is the Group’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of their fair value gain or loss. Translation
differences on non-monetary items measured at fair value in a foreign currency, such as equities classified as available-for-sale financial assets, are translated into the
functional currency using the rate of exchange at the date the fair value was determined. Translation differences are included in the fair value reserve in equity from
1 January 2005.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid
investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are normally those
with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
Share capital
a) Share issue costs
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.
b) Treasury shares
Where the Group purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of taxes), is
deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or
reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the
Company’s equity holders.
The Evolution Group Plc Report & Accounts 2005 45

Notes
to the financial statements
- continued
1. ACCOUNTING POLICIES continued
c) Trust shares
The Group’s Employee Benefit Trust (“the Trust”) uses funds provided by the Company to meet the Group’s obligations under the employee share option schemes in place.
All shares acquired by the Trust are purchased on the open market, the consideration paid, including any directly attributable incremental costs (net of taxes), is deducted
from equity attributable to the Company’s equity holders.
d) Dividend distribution
Dividend distribution to the Group’s shareholders is recognised in equity in the Group’s financial statements in the period in which the dividends are paid.
Employee share ownership plans
The Trust is a separately administered trust which is funded by loans from the Company, and the assets of which comprise shares in the Company. The Group recognises
the assets and liabilities of the Trust in its own accounts and shares held by the Trust are recorded at cost as a deduction in arriving at shareholders’ funds until such time
as the shares vest unconditionally to employees.
Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the
period, excluding those held in the Evolution Group Plc Employees’ Share Trust which are treated as cancelled. For diluted earnings per share, the weighted number of
ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.
Taxes
Taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial
reporting and tax bases of assets and liabilities and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. The
deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss. Valuation allowances are established against deferred tax assets where it is more likely than not that some
portion or all of the asset will not be realised.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from
goodwill, negative goodwill or from the acquisition of an asset, which does not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where
the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under UK tax rules. As explained under
“Share-based plans” below, a compensation expense is recorded in the Group’s income statement over the period from the grant date to the vesting date of the relevant
options. As there is a temporary difference between the accounting and tax bases, a deferred tax asset is recorded. The deferred tax asset arising is calculated by
comparing the estimated amount of tax deduction to be obtained in the future (based on the Company’s share price at the balance sheet date) with the cumulative
amount of the compensation expense recorded in the income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the
remuneration expense, at the statutory tax rate, the excess is recorded directly in equity, against retained earnings.
As explained under “Share-based plans” below, no compensation charge is recorded in respect of options granted before 7 November 2002 or in respect of those options
which have been exercised or have lapsed before 1 January 2005. Nevertheless, tax deductions have arisen and will continue to arise on these options. The tax effects
arising in relation to these options are recorded directly in equity, against retained earnings.
Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also
dealt with in equity.
Employee benefits
(a) Pension obligations
The Group does not operate any pension schemes.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a
detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due
more than twelve months after balance sheet date are discounted to present value.
(c) Share-based plans
The Group’s management awards high-performing employees bonuses in the form of equity-settled share based payments, from time to time, on a discretionary basis. In
accordance with IFRS 2, ‘Share-based payments’, equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of
the Black-Scholes pricing model or, in the case of awards of call rights, which have an exercise price of 1p per ordinary share, the fair value is based on the market value
at the time of grant discounted by the dividend yield over the expected life. The fair value determined at the grant date of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. The options are subject to threeyear
service vesting condition, and their fair value is recognised as an employee benefits expense with a corresponding increase in other reserve equity over the vesting
period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are
exercised.
Operating leases
Rentals applicable to operating leases where substantially all the benefits and risk of ownership remain with the lessor are charged to the income statement on a straight
line basis over the lease term.
Lease incentives are credited to the income statement and spread over the life of the lease.
Provisions for dilapidation on leasehold premises are recognised as a liability in all years from inception to the end of the lease and discounted to fair value at an effective
interest rate.
2. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Through its normal operations, the Group is exposed to a number of risks, the most significant of which are market, credit, currency, liquidity and interest rate risks. The
Group’s trading and investing activities expose it to a variety of financial risks that include the effects of changes in equity security prices, foreign currency exchange rates,
credit risks, liquidity and interest rates. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the
Group by using foreign currency financial instruments to fix foreign exchange rates.
The Group’s directors have delegated to a sub-committee, the Risk Committee, the responsibility for setting the risk management policies applied by the Group and its
subsidiaries. The Treasury Department is responsible for managing foreign exchange and interest rate risk. The Department has a policy and procedures manual that sets
out specific guidelines for managing these risks including the use of financial instruments for hedging purposes. The Department receives regular reports from all the
trading desks to enable prompt identification of financial risks so that appropriate actions may be taken. The management of these risks is vested in the Board of directors
and disclosed in more detail in the Corporate Governance report on pages 23 to 29.
In the normal course of business, the Group uses certain financial instruments including cash, trading positions and available-for-sale investments.
The Group’s cash and short term deposits (excluding amounts received in the course of settlement of client transactions and held by the Trust) were as follows:
2005 2004
£’000 £’000
On current account
The notice period for short term deposits is one day.
The interest rate for short term deposits and current accounts is variable dependent on the rates offered by the Group’s bankers.
Trading positions and available-for-sale investments are funded by shareholders’ funds.
The Group has detailed policies and strategies in respect of these financial instruments, which seek to minimise the associated risks.
136,786 114,152
The fair value of available-for-sale investments has been disclosed in note 21. Trading portfolio assets are carried in the financial statements at fair value, as shown in note
22. Trading portfolio liabilities are carried in the financial statements at fair value and shown in note 28.
Management of Market Risk
The Group is exposed to market risk in respect of its equity holdings. These comprise (i) available-for-sale investments, (ii) trading portfolio assets, which result from
proprietary trading and market making activities, and (iii) derivatives:
i) Available-for-sale investments
The Board continues to review the performance of existing available-for-sale investments in the Group’s portfolio and realises these investments when deemed appropriate.
Note 21 summarises the available-for-sale investments at the year-end date and the disposals and fair value movements made in the year. The impact on the year’s
results is also disclosed in note 3 (Segment analysis of profit before tax).
ii) Trading portfolio assets
Management of market risk in respect of trading positions is through a limit structure and active involvement of senior management under the supervision of the Board of
directors.
The following table shows the highest, lowest and average long, short, gross and net positions during the year, together with those at the year-end. Gross positions are
defined as the absolute sum of long and short positions.
Long Short Gross Net
Positions Positions Positions Positions
£’000 £’000 £’000 £’000
Highest positions 25,278 (8,527) 31,275 22,182
Lowest positions 11,343 (3,096) 14,635 8,051
Average positions 19,367 (5,222) 24,589 14,144
Positions at 31 December 2005 11,343 (3,292) 14,635 8,051
Non-regular way trades (note 22) 1,626 (2,908) 4,534 (1,282)
Net positions 12,969 (6,200) 19,169 6,769
These amounts are calculated based on month end positions taken throughout the year and do not represent intra month positions. The Group’s monitoring of trading
position limits for market making and principal trading is performed on a real time basis.
The net gain included in the income statement derived from trading in equity shares was £9.2m (2004: £11.6m).
iii) Derivatives
Management of market risk in respect of derivatives is through active involvement of senior management under the supervision of the Board of directors.
Management of Credit Risk
The Risk Department undertakes a credit review of all new accounts and periodically reviews all existing counterparties. As part of the review, each counterparty is
assigned a credit limit according to the guidelines in the Credit Limit Book. New accounts cannot begin to trade until the credit review has been completed.
Each day the Risk Department prepares a counterparty exposure report that shows all credit risk exposures and limits. Credit limit breaches are annotated and
investigated. The Risk Committee reviews all credit limit breaches and authorises mitigating action when deemed necessary.
The Group has no significant concentrations of credit risk.
The Evolution Group Plc Report & Accounts 2005 47

Notes
to the financial statements
- continued
2. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT continued
Management of Currency Risk
The Group takes out spot and forward rate contracts for foreign currency transactions to reduce currency risk exposure.
The Group utilises forward exchange contracts to manage the exchange risk on actual transactions related to amounts receivable, denominated in a currency other than
the functional currency of the Group. The Group’s forward exchange contracts do not subject the Group to risk from exchange rate movements because the gains and
losses on such contracts offset losses and gains, respectively, on the underlying foreign currency transactions to which they relate. The forward contracts and related
amounts receivable are recorded at fair value at each period end. Fair value is estimated using the settlement rates prevailing at the period end.
The Group’s long/(short) foreign currency exposures, converted to sterling at year-end rates, were as follows:
2005 2004
£’000 £’000
Euros 51 27
US dollars 478 157
Other currencies 91 (43)
620 141
There were no outstanding foreign exchange contracts at the year end.
Currency exposures primarily comprise investment banking trading and counterparty positions, and bank balances. Currency exposure is monitored daily by the Treasury
Manager, in order to keep it within appropriate limits and minimise risk throughout the year.
All gains and losses resulting from the settlement of the contracts are recorded within net trading income in the income statement. The Group does not enter into forward
exchange contracts for the purpose of hedging anticipated transactions.
Management of Liquidity Risk
The Group seeks to manage liquidity risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group
deems there is sufficient liquidity for the foreseeable future.
Management of Interest Rate Risk
The Group has interest bearing assets in mainly cash and cash equivalents. The Group has a policy of maintaining excess funds in cash and short-term deposits and is
not exposed to short-term and long-term risk interest rate risk. At the year-end, all of the Group’s excess funds were invested in cash and short-term deposits. The Group
does not use any derivatives to hedge interest rate risk.
3. SEGMENT REPORTING
By business segment
The Board monitor and review the operating performance of the Group by subsidiary. The Parent is a holding company for its subsidiaries and the Board reviews the
performance of its subsidiaries separately from the business segment categories disclosed below. The Chief Executive’s Report and Financial Review on pages 4 to 17
highlight the detailed breakdown of these business segments by entity.
Investment banking and markets in the current year refers to the business carried out in Evolution Securities Limited (“ESL”), Evolution Securities China Limited (“ESCL”),
and Evolution Securities (US) Inc. (“ESUS”). Stockbroking and fund management refers to Private Client Stockbroking and Fund Management under the Christows brand.
Other activities refer to the central administrative, shared services and holding company functions, combined with the profits on, the legacy fixed asset investment portfolio
and the business carried out in the intellectual property commercialisation field under the IP2IPO group of companies. The holding of IP2IPO was disposed of in March
2005, and resulted in a reduction in total assets of £11,802,000 and profit on disposal for available-for-sale investments of £39,709,000.
2005 2004
£’000 % £’000 %
Total assets
Investment banking and markets 93,635 43 71,970 37
Stockbroking and fund management 8,811 4 7,102 4
Other 113,774 53 112,332 59
216,220 100 191,404 100
2005 2004
£’000 % £’000 %
Total liabilities
Investment banking and markets (50,886) 86 (40,946) 81
Stockbroking and fund management (2,380) 4 (2,945) 6
Other (6,261) 10 (6,492) 13
(59,527)
The capital expenditure on property, plant and equipment and on intangible assets is disclosed below:
100 (50,383) 100
2005 2004
£’000 £’000
Investment banking and markets 3,330 762
Stockbroking and fund management 312 121
Other 4 6
3,646 889
3. SEGMENT REPORTING continued
Year ended 31 December 2005 Year ended 31 December 2004
Investment Stockbroking Investment Stockbroking
banking and and Fund banking and and Fund
markets management Other Total markets management Other Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Profit before tax
Fee and commission income 52,380 10,825 - 63,205 42,968 9,332 (11) 52,289
Fee and commission expenses (1,126) (374) - (1,500) (747) (283) 11 (1,019)
Net fee and commission income 51,254 10,451 - 61,705 42,221 9,049 - 51,270
Net trading income 9,206 - - 9,206 11,618 - - 11,618
Other income 383 678 3 1,064 (32) 13 255 236
Total income
Profit on disposal of available-for-sale
60,843 11,129 3 71,975 53,807 9,062 255 63,124
investments 117 - 39,931 40,048
Profit on sale of fixed asset investments
Release of provision against fixed asset
21 - 1,204 1,225
investments - - 525 525
Profit on sale of current asset investments 171 - 4,642 4,813
Profit on part sale of subsidiary - - - - - - 66 66
Profit on sale of associate - - - - - - 22,286 22,286
Share of results of associate - - - - - - 436 436
Depreciation of PPE (978) (160) (6) (1,144) (510) (171) (11) (692)
Amortisation of intangibles (126) (2) - (128) (132) (2) - (134)
Other operating expenses (40,342) (10,032) (1,794) (52,168) (35,602) (8,189) (3,345) (47,136)
Operating profit 19,514 935 38,134 58,583 17,755 700 26,058 44,513
Interest receivable and similar income 794 195 4,055 5,044 561 122 2,646 3,329
Interest payable and similar charges (212) (62) 237 (37) (7) (44) 44 (7)
Profit before tax 20,096 1,068 42,426 63,590 18,309 778 28,748 47,835
By geographical segment
The disclosure of the Group’s assets, income, asset costs and intangible movements are disclosed below. The analysis is based on the three main geographical areas in
which the Group operates. The UK is the home country of the Parent and the principal location in which all subsidiary companies are registered and located. Asia/Pacific
relates to the business of ESCL carried out on behalf of Chinese clients.
2005 2004
£’000 % £’000 %
Total assets
UK 214,439 99 190,937 100
USA 565 - 143 -
Asia / Pacific 1,216 1 324 -
The income analysis below is based on the location of the customer.
216,220 100 191,404 100
2005 2004
Total income
£’000 % £’000 %
UK 69,950 97 62,793 99
USA 31 - - -
Asia / Pacific 1,994 3 331 1
The additional required disclosures on property costs are disclosed below:
71,975 100 63,124 100
Year ended 31 December 2005 Year ended 31 December 2004
UK USA Asia/Pacific Total UK USA Asia/Pacific Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Depreciation on PPE 1,125 1 18 1,144 687 - 5 692
Amortisation of intangibles 128 - - 128 134 - - 134
Purchase of PPE and Intangibles 3,558 - 88 3,646 812 63 14 889
The Evolution Group Plc Report & Accounts 2005 49

Notes
to the financial statements
- continued
4. OPERATING EXPENSES
The following items have been included in arriving at operating profit:
2005 2004
£’000 £’000
Operating expenses
Employee benefits expense (note 5) 36,423 32,736
Depreciation – owned assets 1,144 692
Amortisation of intangibles 128 133
Operating lease charges – cars - 7
Operating lease charges – leasehold property 1,366 809
Legal costs 816 712
Direct dealing costs 2,420 2,241
FSA fine - 500
Other administrative expenses 11,143 10,132
Operating expenses – total 53,440 47,962
During the year the Group (including its overseas branches and subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below:
2005 2004
£’000 £’000
Audit services – statutory audit 396 201
– audit-related regulatory reporting 188 44
Further assurance services – liquidation support - 71
Tax services – compliance services 123 67
– advisory services - 48
Fees for audit services above include all amounts payable to the Group’s auditors in their capacity as such.
707 431
Taxation services include compliance services such as tax return preparation and advisory services such as consultation on tax matters, tax advice relating to transactions
and other tax planning and advice.
Fees relating to the audit of the Company were £132,000 (2004: £88,000). The independence of the Group’s auditors in providing non-audit services is described in the
Corporate Governance report on pages 23 to 29.
5. EMPLOYEES AND DIRECTORS
2005 2004
£’000 £’000
Employee benefits expense
Wages and salaries 25,942 23,651
Social security costs 3,487 3,810
Other pension costs 195 256
Other staff costs 6,799 5,019
Total administrative expenses – staff costs 36,423 32,736
Included within other staff costs is an amount of £6,744,000 (2004: £4,928,000) relating to the cost of options on shares in the Group. The amounts disclosed above
exclude special awards made to directors and employees of £4,866,000 (2004: £3,240,000) on disposal of IP2IPO and available-for-sale securities.
The Company’s equity-settled share-based payments comprise the Employees’ Share Ownership Plan (“ESOP”), as described below, and the Share Incentive (“SI”)
schemes, as described in note 45.
The ESOP allows every employee to purchase up to £1,500 worth of the Company’s shares per annum on a tax efficient basis. These are purchased on a monthly basis
and held in trust and are matched by shares issued by the Company on a one-for-one basis.
Options under the SI schemes are valued using a Black-Scholes model adjusted for dividends according to those declared by the Company. The Company estimates the
number of options likely to vest and expenses that value over the relevant period. Volatility has been estimated by taking the historical volatility in the Company’s share
price over the expected life of the award.
In the case of awards of call rights, which have an exercise price of 1.0p per ordinary share, the fair value is based on the market value at the time of grant discounted by
the dividend yield over the expected life.
The average number of employees (including directors) during the year was as follows:
2005 2004
Group
Investment banking and markets 123 103
Stockbroking and fund management 82 69
Other activities 10 9
The actual number of full time employees was 230 at 31 December 2005 (2004: 195).
215 181
5. EMPLOYEES AND DIRECTORS continued
Directors
The aggregate emoluments of the highest paid director were £3,757,000 (2004: £3,030,000). Gains on exercise of share options of the highest paid director were
£553,000 (2004: £nil).
Other pension costs relate to amounts paid or accrued under money purchase pension schemes. No director accrued benefits under money purchase pension schemes
during the year (2004: 1).
2005 2004
£’000 £’000
Aggregate emoluments 7,616 6,959
Other pension costs - 2
Gains made on exercise of share options 553 -
An analysis of all directors’ remuneration may be found in the Directors’ Remuneration Report on pages 30 to 36.
8,169 6,961
6. PROFIT ON DISPOSAL OF AVAILABLE-FOR-SALE INVESTMENTS
Proceeds on disposal of available-for-sale investments
2005
£’000
57,912
Fair value of investments at date of disposal (49,692)
8,220
Reversal of fair value reserve (note 36) 37,222
Disposal expenses (comprising fees and charges £528,000 and awards of £4,866,000 for IP2IPO and available-for-sale disposals) (5,394)
Profit on disposal of available-for-sale investment 40,048
The above disposals relate to the sale by the Company in March 2005 of its remaining investment in IP2IPO Group Plc of £39,709,000 and sales by the Group of some
its remaining available-for-sale securities.
7. PROFIT ON PART SALE OF SUBSIDIARY
2005 2004
£’000 £’000
Gain on part disposal of subsidiary net tangible assets
The 2004 prior year comparative of £66,000 relates to the deemed and actual disposal of shares in ESCL.
- 66
8. PROFIT ON SALE OF ASSOCIATE
2005 2004
£’000 £’000
Gain on part disposal of associates net tangible assets - 26,829
Goodwill disposed - (477)
Disposal expenses (comprising fees and charges £826,400 and IP2IPO award £3,240,000) - (4,066)
Profit on part disposal of associate - 22,286
The profit on sale of associate in the prior year relates to the disposal in May 2004, of shares in IP2IPO Group Plc, when it was an associated undertaking.
The gain on the disposal of IP2IPO is exempt from tax under substantial shareholdings relief. IP2IPO did not pay any tax during this year.
9. SHARE OF RESULTS OF ASSOCIATE
2005 2004
£’000 £’000
Share of associated undertakings profit - 184
Share of associated undertaking’s interest receivable - 252
Total share of results of associate - 436
The share of results of associate in the prior year relates to the Group’s share of profits and interest receivable in IP2IPO Group Plc, when it was an associated undertaking.
10. FINANCE COSTS
2005 2004
£’000 £’000
Interest receivable and similar income 5,044 3,329
Interest payable and similar charges (37) (7)
Finance costs
Interest is paid on overdrawn balances with clearing or settlement institutions.
5,007 3,322
The Evolution Group Plc Report & Accounts 2005 51

Notes
to the financial statements
- continued
11. TAX EXPENSE
2005 2004
£’000 £’000
Current tax:
UK Corporation tax 6,101 6,648
Adjustments in respect of prior years 117 (1,004)
Foreign tax 46 37
Current year tax charge 6,264 5,681
Deferred tax:
Current year movement (1,740) (1,850)
Tax on profit 4,524 3,831
The tax assessed for the year is lower than the standard rate of corporation tax in the UK (30%). The difference is explained below. The effective rate of tax for the year is
7.1% (2004: 8.0%).
Factors affecting the current tax charge for the year are explained below:
2005 2004
£’000 £’000
Profit before tax 63,590 47,835
Profit multiplied by the standard rate of corporation tax in the UK of 30% (2004: 30%)
Effects of:
19,077 14,351
Expenses not deductible for tax purposes 591 (335)
Losses arising in the period for which no deferred tax is recognised 22 146
Utilisation of losses for which deferred tax asset has not been recognised (4,603) (2,642)
Non taxable income (10,726) (6,716)
Adjustments in respect of prior years 117 (1,004)
Higher tax rates on overseas earnings 46 31
Total taxation
Tax on items charged to equity:
4,524 3,831
2005 2004
£’000 £’000
Deferred tax credit on stock options 133 1,489
Current year corporation tax credit on stock options 986 -
Total tax charged to equity
See note 18 for further disclosure of recognised deferred tax assets.
1,119 1,489
There is no tax charge on the profit arising on the part disposal of shares in IP2IPO in the prior year of £22,286,000 as this is an exempt item under substantial
shareholding relief as approved by the HM Revenue & Customs.
12. EARNINGS PER ORDINARY SHARE
The calculation of the basic earnings per ordinary share is based on the profit on ordinary activities after tax and on the weighted average number of ordinary shares in
issue during the year. The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed
conversion of all dilutive options.
Year ended 31 December 2005 Year ended 31 December 2004
Weighted Earnings Weighted Earnings
Profit average no. per share Profit average no. per share
£’000 (p) £’000 (p)
Basic earnings per share 59,041 225,487,743 26.18 44,178 246,864,166 17.90
Dilutive effect of securities - 27,373,712 - - 21,958,936 -
Diluted earnings per share 59,041 252,861,455 23.35 44,178 268,823,102 16.43
The dilutive effect of securities issued to minority option holders in ESCL is not considered material to the calculations of dilutive earnings per share.
13. DIVIDENDS
2005 2004
£’000 £’000
Prior year final paid: 0.58p (2003: 0.25p) per 1p share 1,307 616
Current year interim paid: 0.40p (2004: 0.17p) per 1p share 859 421
2,166 1,037
Dividends amounting to £63,819 (2004: £18,742) in respect of the Company’s shares held by an employee share trust have been waived and accordingly deducted in
arriving at the aggregate dividends proposed.
In addition, the directors are proposing a final dividend in respect of the financial year ending 31 December 2005 of 0.80p (2004: 0.58p) per share, which will absorb
an estimated £1,772,000 of shareholders’ funds. It will be paid on 2 June 2006 to shareholders on the register of members on 5 May 2006.
14. GOODWILL
2005 2004
£’000 £’000
Cost
At 1 January 8,990 8,990
Additions 95 -
At 31 December 9,085 8,990
Aggregate impairment
At 1 January and 31 December - -
Net book value
At 31 December 9,085 8,990
At 1 January 8,990 8,990
The goodwill as at 1 January 2005 arose on the acquisition of the Beeson Gregory Group on 11 July 2002 and relates entirely to the business of ESL. ESL is the Group’s
investment banking and markets business and the profitability of this business is higher than at the time of acquisition.
Goodwill arising in the year relates to the acquisition of shares in ESCL.
The Group’s stake in ESCL was reduced in April 2005, from 71.5% to 71.1% following the disposal by the Company of 52 shares to other shareholders at £192.49 per
share on 28 April 2005. The Group’s stake was then increased from 71.1% to 73.0% in September 2005 when the ESCL issued 926 new shares on 30 September 2005,
in which the Company acquired 923 shares at £385 per share. Finally, the Group’s stake was increased from 73.0% to 73.1% in 4 November 2005 following the
purchase by the Company of 11 shares from other shareholders at £192.49 per share on 4 November 2005.
The assets and liabilities at acquisition and the total consideration are set out in the following table:
£’000
Evolution Securities China Limited
Net assets
Net assets 356
Minority interest (94)
Net assets acquired 262
Satisfied by:
Cash 357
Goodwill Arising 95
15. OTHER INTANGIBLE ASSETS
2005 2004
Computer US Computer US
software License Total software license Total
£’000 £’000 £’000 £’000 £’000 £’000
Cost
At 1 January 1,077 60 1,137 1,186 - 1,186
Acquisitions – separately acquired 116 - 116 220 60 280
Write offs - - - (329) - (329)
Translation adjustment - 2 2 - - -
At 31 December 1,193 62 1,255 1,077 60 1,137
Aggregate amortisation and impairment
At 1 January 895 - 895 1,090 - 1,090
Charge for the year 128 - 128 134 - 134
Write offs - - - (329) - (329)
At 31 December 1,023 - 1,023 895 - 895
Net book value
At 31 December 170 62 232 182 60 242
At 1 January
All intangible assets have been separately acquired.
182 60 242 96 - 96
The following useful lives have been determined for the intangible assets acquired during the year:
Computer software 3 years
US License Indefinite
The computer software principally relates to trading software and management information systems.
The US License relates to the costs of acquiring a US, NASD registered broker dealer.
The Evolution Group Plc Report & Accounts 2005 53

Notes
to the financial statements
- continued
16. PROPERTY, PLANT AND EQUIPMENT
2005 2004
Leasehold Fixtures and Computer Leasehold Fixtures and Computer
improvements fittings equipment Total improvements fittings equipment Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Cost
At 1 January 101 1,211 1,680 2,992 476 1,688 1,670 3,834
Additions 2 2,605 923 3,530 4 138 467 609
Write downs - (50) - (50) (379) (615) (457) (1,451)
At 31 December 103 3,766 2,603 6,472 101 1,211 1,680 2,992
Depreciation
At 1 January 90 630 942 1,662 452 928 1,041 2,421
Charge for the year 9 605 530 1,144 17 317 358 692
Write downs - (29) - (29) (379) (615) (457) (1,451)
At 31 December 99 1,206 1,472 2,777 90 630 942 1,662
Net book values
At 31 December 4 2,560 1,131 3,695 11 581 738 1,330
At 1 January 11 581 738 1,330 24 760 629 1,413
17. INVESTMENTS
AIM listed Other unlisted
investments investments Total
2004 £’000 £’000 £’000
Cost
At 1 January 2004 11,200 15,894 27,094
Additions - 1 1
Disposals (12) (530) (542)
Reclassification to available-for-sale investments - (260) (260)
Transfer from associated undertaking 11,793 - 11,793
Reclassification to available-for-sale investments (11,793) - (11,793)
At 31 December 2004 11,188 15,105 26,293
Provisions
At 1 January 2004 11,121 15,122 26,243
Disposals (8) - (8)
Release of provision - (525) (525)
At 31 December 2004 11,113 14,597 25,710
Net book values
At 31 December 2004 75 508 583
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, investments previously recorded within non-current asset investments as at
31 December 2004 have been re-classified within current assets as available-for-sale investments and fair valued.
18. DEFERRED TAX
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 30% (2004: 30%)
The movement on the deferred tax account is detailed below:
2005 2004
£’000 £’000
At 1 January 5,820 2,482
Income Statement credit – capital allowances 54 233
Income Statement (charge) / credit – trading losses (167) 204
Income Statement credit – stock options 1,853 1,413
Equity credit – stock options 133 1,488
At 31 December 7,693 5,820
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets because it is probable that these
assets will be recovered.
Capital Trading Deferred
Allowances Losses Options tax asset
£’000 £’000 £’000 £’000
Deferred tax assets
As at 1 January 2005 287 204 5,329 5,820
Movement in the year 54 (167) 1,986 1,873
As at 31 December 2005
Deferred tax assets are expected to be recovered as follows:
341 37 7,315 7,693
2005
£’000
Within twelve months 5,722
After twelve months 1,971
Total deferred tax asset 7,693
There is an additional unrecognised deferred tax asset at 31 December 2005 of £7,263,000 (2004: £9,232,000). Of this £7,197,000 (2004: £9,097,000) relates to
timing differences arising on capital losses, plus £66,000 (2004: £135,000) relating to trading losses carried forward. This asset has not been recognised in the
accounts due to current uncertainties as to how the Group will utilise the reversal of the underlying timing differences.
19. TRADE AND OTHER RECEIVABLES
Trade debtors 5,317
Less: provision for impairment of receivables (615)
Trade debtors - net 4,702
Counterparty debtors 33,943
Other debtors 789
Prepayments and accrued income 2,635
2005 2004
£’000 £’000
42,069
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, amounts previously recorded as debtors as at 31 December 2004 have
been re-classified within current assets as trade and other receivables.
An amount of £2,580,000 has been reclassified from counterparty debtors to trading portfolio positions due to fair valuation of purchases or sales of held for trading
assets that do not qualify as regular way transactions. Refer to note 22 for further information.
20. DEBTORS
2005 2004
£’000 £’000
Amounts falling due within one year:
Trade debtors 3,099
Counterparty debtors 30,596
Other debtors 1,275
Prepayments and accrued income 2,472
37,442
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, amounts previously recorded as debtors as at 31 December 2004 have
been re-classified within current assets as trade and other receivables.
The Evolution Group Plc Report & Accounts 2005 55

Notes
to the financial statements
- continued
21. AVAILABLE-FOR-SALE INVESTMENTS
At 31 December 2004 -
Re-classification from fixed asset investments 583
Re-classification from current asset investments 12,148
Re-valuation of other available-for-sale investments 37,629
At 1 January 2005
Additions
50,360
Shares purchased 1,074
Transferred in on exercise of option 92
Fair value additions of shares received in lieu of corporate finance income 2,257
Disposals of available-for-sale investments at fair value
3,423
(50,047)
Revaluation deficit transfer to equity (1,709)
At 31 December 2005 2,027
Non-current -
Current
Available for sale investments include the following:
Listed securities:
2,027
– Equity securities – UK
Unlisted securities:
959
– Equity securities – UK 1,068
The valuation of the investment in unlisted securities is based on the valuation provided by the fund manager.
2005 2004
£’000 £’000
22. TRADING PORTFOLIO ASSETS
2005 2004
£’000 £’000
Long positions in market-making and dealing operations at market value 12,969
Options and warrants received in lieu of corporate finance income 477
13,446
The long trading portfolio assets represent shares listed on both the Official List and AIM. Short trading portfolio liabilities are disclosed in trading portfolio liabilities in note 28.
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, amounts previously recorded as long trading positions as at 31 December
2004 have been re-classified within current assets as trading portfolio assets, held for trading through the income statement.
The nominal value (based on exercise price) of options and warrants held at 31 December 2005 was £1,018,000.
As mentioned in note 1 of these financial statements, transactions that do not fall within the regular way classification are treated as derivatives in the period between the
trade date and the settlement date. The following table illustrates the adjustments made to reclassify these transactions.
2005
£’000
Summary of adjustments
Counterparty debtors (2,580)
Counterparty creditors 3,865
Trading portfolio assets 1,626
Trading portfolio liabilities (2,911)
23. LONG TRADING POSITIONS
2,027
2005 2004
£’000 £’000
Long positions in market-making and dealing operations at market value 9,679
The long trading positions in the prior year represent shares listed on both the Official List and AIM. Short trading positions are disclosed in trading portfolio liabilities in
note 28.
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, amounts previously recorded as long trading positions as at 31 December
2004 have been re-classified within current assets as trading portfolio assets, held for trading through the income statement.
-
24. CURRENT ASSET INVESTMENTS
2005 2004
£’000 £’000
Investments 12,148
As a result of the adoption of IAS 39, ‘Financial Instruments’, from 1 January 2005 onwards, investments previously recorded within current asset investments as at 31
December 2004 have been re-classified within current assets as available-for-sale investments and fair valued.
25. CASH AND CASH EQUIVALENTS
Cash at bank includes £592,000 (2004: £801,000) received in the course of settlement of client transactions which is held in trust on behalf of clients, but may be
utilised to settle outstanding transactions. It also includes cash of £595,000 (2004: £217,000) held by the Evolution Group Plc Employees’ Share Trust which cannot be
used by the Group.
2005 2004
£’000 £’000
Cash and cash equivalents
Cash at bank and in hand 137,973 115,170
26. TRADE AND OTHER PAYABLES
Trade payables 2,291
Counterparty creditors 28,249
Other taxation and social security 1,183
Other creditors 35
Accruals and deferred income 19,438
137,973 115,170
2005 2004
£’000 £’000
51,196
As a result of the adoption of IFRS, amounts previously recorded as creditors as at 31 December 2004 have been re-classified within current liabilities as either trade and
other payables, trading portfolio liabilities, current tax liabilities or in the case of dividends payable, are only shown to the extent that they have been approved at the AGM.
An amount of £3,865,000 has been reclassified from counterparty creditors to trading portfolio positions due to fair valuation of purchases or sales of held for trading
assets that do not qualify as regular way transactions. Refer to note 22 for further information.
27. CREDITORS: amounts falling due within one year
2005 2004
£’000 £’000
Trade creditors 1,576
Counterparty creditors 20,162
Other taxation and social security 608
Other creditors 29
Accruals and deferred income 22,313
Short trading positions 3,235
47,923
As a result of the adoption of IFRS, amounts previously recorded as creditors as at 31 December 2004 have been re-classified within current liabilities as either trade and
other payables, trading portfolio liabilities, current tax liabilities or in the case of dividends payable, are only shown to the extent that they have been approved at the AGM.
28. TRADING PORTFOLIO LIABILITIES
2005 2004
£’000 £’000
Short positions in market-making and dealing operations at market value 6,200
The short trading positions represent shares listed on both the Official List and AIM.
As a result of the adoption of IFRS, amounts previously recorded as creditors as at 31 December 2004 have been re-classified within current liabilities as either trade and
other payables, current tax liabilities or in the case of dividends payable, are only shown to the extent that they have been approved at the AGM.
The Evolution Group Plc Report & Accounts 2005 57

Notes
to the financial statements
- continued
29. CURRENT TAX LIABILITIES
2005 2004
£’000 £’000
Current tax liabilities
The current tax charge is expected to be settled within twelve months. The deferred tax asset is analysed in note 18.
1,947 2,382
30. PROVISIONS FOR LIABILITIES
2005 2004
£’000 £’000
As at 1 January 78 -
Charge to income statement 106 78
As at 31 December 184 78
The amount provided in respect of dilapidations in the current year relates to the two floors of offices of one of the Group’s subsidiary undertakings. The Group accrues
costs for dilapidations on its head office lease over the period of the property lease. The accrual is based on expected costs to be incurred at the end of the lease period to
bring the building back into a suitable state discounted to the net present value using an effective discount rate that reliably calculates the present value of the future
obligation. The leases were taken out in 2004 and 2005 respectively and have an initial lease term of 7 years.
31. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (excluding Minority Interest)
Capital Fair value
Share Share redemption Merger and other Retained Total
capital premium reserve reserve reserves earnings equity
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2005 2,495 26,223 - 51,230 - 61,138 141,086
Adoption of IAS 32 and 39
(Change in accounting policy) - - - - 37,629 340 37,969
Balance at 1 January 2005 2,495 26,223 - 51,230 37,629 61,478 179,055
Profit for the year - - - - - 59,041 59,041
Issue of ordinary share capital 34 1,719 - - - - 1,753
Purchase of Trust shares by the Trust - - - - - (7,111) (7,111)
Purchase of treasury shares - - - - - (42,513) (42,513)
Cancellation of treasury shares (274) - 274 - - - -
Share option: value of services provided - - - - - 6,744 6,744
Revaluation of available-for-sale investments
Available-for-sale investments transferred to
- - - - (2,059) - (2,059)
Income Statement on sale - - - - (37,222) - (37,222)
Deferred tax credit on employee options - - - - - 1,119 1,119
Dividends paid - - - - - (2,166) (2,166)
Balance at 31 December 2005 2,255 27,942 274 51,230 (1,652) 76,592 156,641
32. SHARE CAPITAL
2005 2004
£’000 £’000
Company
Authorised:
400,000,000 ordinary shares of 1p each
Allotted, issued and fully paid:
4,000 4,000
225,456,334 ordinary shares of 1p each
The following table summarises the movements of allotted, issued and fully paid share capital during 2005:
2,255 2,495
2005 2004
Company
Allotted, issued and fully paid
At 1 January
£’000 £’000
249,470,866 ordinary shares of 1p each 2,495 2,478
Issues
3,313,683 ordinary shares on exercise of options (see below) 33 15
96,130 ordinary shares on issue of matching shares from Share Incentive Plan 1 2
Cancellations
Purchase of 27,424,345 own shares by company for cancellation (see below) (274) -
At 31 December
225,456,334 ordinary shares of 1p each
The aggregate consideration received on the issue of shares during the year was £1,753,000 (2004: £499,000).
2,255 2,495
32. SHARE CAPITAL continued
The following issues of the ordinary shares of 1p took place during the year:
(a) 7,443 on 7 January 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 153p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(b) 3,905 on 3 February 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 159p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(c) 7,045 on 3 March 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 167p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(d) 7,234 on 5 April 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 167p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(e) 25,000 on 6 April 2005 following the exercise of options under The Evolution Group Plc Executive Share Scheme 2001 at an exercise price of 39.6p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 17 October 2003.
(f) 8,361 on 5 May 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 148p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(g) 9,611 on 3 June 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 127p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(h) 8,438 on 6 July 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 128p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(i) 9,742 on 3 August 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 132p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(j) 9,545 on 5 September 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 141p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(k) 75,000 on 26 September 2005 following the exercise of options under an individual share option agreement dated 14 December 2000 at an exercise price of 25p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 17 October 2003.
(l) 9,272 on 5 October 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 149p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(m) 100,000 on 3 October 2005 following the exercise of options under The Evolution Group Plc Executive Share Scheme 2001 at an exercise price of 39.6p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 17 October 2003.
(n) 7,611 on 3 November 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 135p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(o) 2,025,933 on 3 November 2005 following the exercise of options under The Evolution Group Plc Executive Share Scheme 2000 at an exercise price of 58.67p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 3 November 2005.
(p) 587,750 on 18 November 2005 following the exercise of options under The Evolution Group Plc Executive Share Scheme 2001 at an exercise price of 58.67p.
279,700 of this award were issued under the Block Listing Arrangement agreed with the Listing Authority on 17 October 2003 and 308,050 were issued under
the Block Listing Arrangement agreed with the Listing Authority on 3 November 2005.
(q) 7,923 on 3 December 2005 following the issue of matching shares under The Evolution Group Plc Share Incentive Plan at an equivalent price of 142p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 27 February 2004.
(r) 500,000 on 14 December 2005 following the exercise of options under an individual share option agreement dated 14 December 2000 at an exercise price of 25p.
This award was issued under the Block Listing Arrangement agreed with the Listing Authority on 17 October 2003.
The following purchases of Ordinary shares of 1p by the Company took place during the year which were immediately cancelled:
(a) 8,988,100 on 5 April 2005 at a purchase price of 165p.
(b) 1,974,204 on 8 April 2005 at a purchase price of 165p.
(c) 3,350,000 on 12 April 2005 at a purchase price of 165p.
(d) 2,914,846 on 15 April 2005 at a purchase price of 165p.
(e) 1,500,000 on 18 April 2005 at a purchase price of 163p.
(f) 1,368,536 on 20 April 2005 at a purchase price of 160p.
(g) 83,885 on 28 April 2005 at a purchase price of 155p.
(h) 309,250 on 29 April 2005 at a purchase price of 155p.
(i) 402,000 on 4 May 2005 at a purchase price of 154p.
(j) 6,533,524 on 6 June 2005 at a purchase price of 123p.
Terms of share capital
Ordinary Shares of 1p
The holder of each share is entitled to one vote on a poll. The holders also have the right to receive dividends and the right to participate on a return of capital.
The Evolution Group Plc Report & Accounts 2005 59

Notes
to the financial statements
- continued
32. SHARE CAPITAL continued
Potential issues of ordinary shares
As at 31 December 2005 there are 26,564,347 options outstanding under all Company schemes as detailed in note 45. Of these 10,422,683 have already vested.
The Trust held 8,074,621 shares at 31 December 2005, all of which are held to satisfy the Company’s obligations in respect of share options granted.
The number and market value of the Group’s holding in its own shares, held by the Evolution Group Plc Employees’ Share Trust, are disclosed below.
The Trust held the following 1p ordinary shares in The Evolution Group Plc at 31 December 2005:
2005 2004
Number of Number of
shares shares
Shares allocated to specific employees in respect of options issued 59,544 66,057
Shares held in trust not yet conditionally allocated 8,015,077 3,165,251
8,074,621 3,231,308
Nominal value of 1p ordinary shares £80,746 £32,313
Market value at £1.42 per share (2004: £1.50)
The market value represents the market price for an ordinary 1p share at 31 December 2005.
£11,465,962 £4,846,962
33. SHARE PREMIUM ACCOUNT
2005 2004
£’000 £’000
At 1 January 26,223 25,739
Issues of ordinary share capital 1,719 484
At 31 December 27,942 26,223
34. CAPITAL REDEMPTION RESERVE
2005 2004
£’000 £’000
At 1 January - -
Purchase of 27,424,345 ordinary 1p shares for cancellation 274 -
At 31 December 274 -
35. MERGER RESERVE
2005 2004
£’000 £’000
At 1 January 51,230 57,261
Release to the income statement reserve - (6,031)
At 31 December 51,230 51,230
The merger reserve within the Group arose on the acquisition of the Beeson Gregory Group on 11 July 2002 which was accounted for under acquisition accounting using
merger relief under Section 131 of The Companies Act 1985. The adoption of this method resulted in the premium arising on the acquisition being taken to the merger
reserve.
In addition to the above, within the Group an additional merger reserve of £6,031,000 was created on the merger of The Evolution Group Plc and Christows Group
Limited which took place in 2000. This reserve was released upon the completion of Members Voluntary Liquidation of Christows Group Limited in March 2004.
36. FAIR VALUE AND OTHER RESERVES
At 1 January 2005 as previously reported -
Adoption of IAS 32/39 37,629
At 1 January 2005 as restated 37,629
Revaluation of available-for-sale investments (2,059)
Available-for-sale investments transferred to Income Statement on sale (37,222)
At 31 December 2005 (1,652)
£’000
37. RETAINED EARNINGS
2005 2004
£’000 £’000
At 1 January as previously reported 61,138 8,986
Change in accounting policies 340 -
At 1 January as restated 61,478 8,986
Profit for the financial year 59,041 44,178
Share options: value of services provided 6,744 4,929
Purchase of own shares (49,624) (3,438)
Deferred tax credit on employee options 1,119 1,489
Release of Merger Reserve - 6,031
Dividends paid (2,166) (1,037)
At 31 December 76,592 61,138
38. MINORITY INTEREST
2005 2004
£’000 £’000
At 1 January (65) (33)
Deemed disposal of ESCL in May 2004 - 9
Deemed disposal of ESCL in December 2004 - 133
Part disposal of shares in ESCL in May 2005 (2) -
Purchases of shares in ESCL in September and October 2005 94 -
Share of profits / (losses) of ESCL 25 (174)
At 31 December
For details of the purchases made in the year refer to note 14.
52 (65)
39. CASH FLOW FROM OPERATING ACTIVITIES
Reconciliation of operating profit to net cash inflow from operating activities:
2005 2004
£’000 £’000
Cash generated from operations
Operating profit 58,583 44,513
Adjustments for:
Depreciation of property, plant and equipment 1,144 692
Amortisation of intangibles 128 134
Write off of property, plant and equipment 21 -
Profit on sale of available-for-sale investments (40,048)
Profit on sale of investments (6,038)
Profit on sale of associate - (22,286)
Loss on part sale of subsidiary - (66)
Release of provision against available-for-sale investments - (525)
Provisions for share options 6,744 4,928
Income from investing activities (15) -
Dividends received - (85)
Foreign exchange gains (56) (38)
Share of associated undertaking’s operating profit - (436)
Cost of matching shares issued under SIP 138 122
Own shares forfeited to Trust - (103)
Changes in working capital:
Increase in trade and other receivables (1,281) (892)
Increase in trade and other payables (1,751) 7,443
Increase in net market counterparties 4,739 (1,568)
Increase in fair value provisions (2,463) -
Increase / (decrease) in provisions for liabilities and charges 105 (1,935)
Increase in net trading portfolio positions (239) (3,642)
Cash generated from operations 25,749 20,218
The Evolution Group Plc Report & Accounts 2005 61

Notes
to the financial statements
- continued
40. CAPITAL COMMITMENTS AND CONTINGENCIES
At the year-end the Group had capital commitments of £82,000 for the installation of a new trading platform within Evolution Securities Limited, a subsidiary company
(2004: nil).
In common with other market participants, during the year the Company has issued a guarantee for the potential default of trading obligations and liabilities on trades
between Evolution Securities Limited and a third party for amounts up to £5 million.
The Company has issued letters of support to Evolution Capital Investment Limited, Christows Investments Dublin and Evolution Group Services Limited to guarantee that
each entity is a going concern.
41. LEASE COMMITMENTS
The Group has operating lease commitments in respect of land and buildings of £1,435,000 (2004: £1,212,000). The leases to which these amounts relate expire as
follows:
Land and buildings
2005 2004
£’000 £’000
Within one year - 108
Within two to five years 376 45
After five years 1,059 1,059
42. PRINCIPAL SUBSIDIARY UNDERTAKINGS
1,435 1,212
Business Percentage Country
Owned Incorporation
Held directly by the Company
Evolution Securities Limited Investment banking 100 UK
Christows Limited Stockbroking and fund management 100 UK
Evolution Group Services Limited Shared services 100 UK
Evolution Capital Investment Limited Investment company: Private Equity Portfolio 100 UK
Evolution Securities China Limited Investment banking 73 UK
Held by other group companies
Evolution Securities (US) Inc. Investment banking 100 USA
Christows Investments (Dublin) Limited Manager of open ended investment company (Dormant) 100 Ireland (Eire)
Shareholdings in the above subsidiaries are of ordinary equity shares. In accordance with S231 (5) of the Companies Act 1985, the above information is solely provided
in relation to principal subsidiary undertakings. Full information is included within the Annual Return to be filed at Companies House.
Christows Investments (Dublin) Limited was put into voluntary liquidation during 2003 following the transfer of all client funds into a subsidiary undertaking Christows
Limited. On 17 February 2006, Christows Investments (Dublin) Limited paid a final distribution of £730,000 to its parent company, Evolution Group Services Limited. At
the date of signing these financial statements, Christows Investment (Dublin) Limited remains in voluntary liquidation.
43. POST BALANCE SHEET EVENTS
On 5 January 2006, following the purchase and cancellation of own shares by one of the Group’s investments, Wickam Capital Limited and the Group’s purchase of a
further 18,068 shares at 248.0p the Group’s holding in this investment increased from 16.7% to 40.0%.
On 17 January 2006, 1,877,500 options were granted to certain employees under The Evolution Group Plc 2001 Executive Share Option Scheme at an exercise price of
128.7p. These awards will ultimately vest after three years subject to the satisfactory employment by the individual within a Group company throughout the period
following the grant.
On 18 January 2006, the Company received notification from Evolution EBT Limited (the “Trustee”) as Trustee of The Evolution Group Plc Employees’ Share Trust (the
“Trust”), a discretionary trust of which all employees of The Evolution Group Plc and its subsidiaries are beneficiaries, that Alex Snow (Director and Chief Executive Officer)
exercised call rights at an exercise price of 1p per share (“Call Rights”) over 4,000,000 ordinary shares of 1p each. These call rights were granted to Alex Snow on
13 November 2003 under The Evolution Group Plc 2002 Executive Share Incentive Plan (the “Plan”) and had vested in previous years in accordance with the
performance criteria attached to the Call Rights. The Trustee also notified the Company that on 18 January 2006, it had disposed of 1,656,504 Shares at a sale price of
143.0p per share on behalf of Alex Snow solely to cover the exercise and taxation costs of the Call Rights transaction and that the balance of 2,343,496 Shares arising
from the Call Rights exercise were transferred to Alex Snow.
On 18 and 20 January 2006 certain employees were granted awards of ordinary shares under The Evolution Group Plc 2002 Executive Share Incentive Plan.
These awards total 392,796 shares. The satisfactory employment by the individual within a Group company throughout the period following grant of an award is required
for vesting to take place. The price to be paid on exercise of these awards is the greater of £1 or the nominal value of shares to be subscribed for. The awards may be
exercised after three years from the date of grant.
On 20 January 2006 certain employees were granted awards of ordinary shares under the Key Performers Share Incentive Plan. These awards total 2,100,400 shares
and will be subject to the performance of individuals over the twelve months from issue. Up to 50% of this award, once made may be clawed back dependent upon the
individual’s performance during the twelve months following the award, as measured within the group company’s annual appraisal process. The level of subsequent
awards is also directly related to the individual’s overall performance rating within the company’s annual appraisal process. Additionally, the satisfactory employment by
the individual within a Group company throughout the period following grant of an award is required. The price to be paid on exercise of these awards is the greater of £1
or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant.
43. POST BALANCE SHEET EVENTS continued
On 20 January 2006 the market making and trading team of ESL was granted the second of three equal awards of 500,000 ordinary shares under the Market Making
and Trading Share Incentive Plan (“MMTSIP”). This award will be allocated in January 2007 to employees within this team, based upon strict performance criteria in
2006, dependent upon the individual’s performance during the twelve months following the award. The award will ultimately vest after three years, subject to the
satisfactory employment by the individual within a Group company throughout the period following grant. The price to be paid on exercise of these awards is the greater of
£1 or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant.
On 20 January 2006, 373 options in a subsidiary company, Evolution Securities China Limited, were granted under that company’s 2004 scheme to employees at an
exercise price of £385. These awards will ultimately vest after 3 years subject to the satisfactory employment of each individual within the company throughout the period
following grant.
The directors are proposing a final dividend in respect of the financial year ending 31 December 2005 of 0.80p per share, which will absorb an estimated £1,772,000
of shareholders’ funds. It will be paid on 2 June 2006 to shareholders on the register of members on 5 May 2006.
Christows Investments (Dublin) Limited was put into voluntary liquidation during 2003 following the transfer of all client funds into a subsidiary undertaking, Christows
Limited. On 17 February 2006, Christows Investments (Dublin) Limited paid a final distribution of £730,000 to its parent company, Evolution Group Services Limited.
At the date of signing these financial statements Christows Investment (Dublin) Limited remains in voluntary liquidation.
On 23 March 2006 Lord MacLaurin purchased 25,000 shares in the Company.
On 23 March 2006 Oliver Vaughan purchased 13,933 shares in the Company.
In addition, the Company has, in the financial year ending 31 December 2006, purchased an aggregate of 500,000 Shares having a nominal value of £5,000 for an
aggregate consideration of £790,000, an average cost of 158.0p.
44. RELATED PARTY TRANSACTIONS
The Company is the holding company for the group of companies falling within The Evolution group. Details of all significant subsidiaries are given in note 42.
The following transactions were carried out with related parties:
i) Intra-group trading
The Company has per IAS 24 not disclosed transactions or balances between group entities that have been fully eliminated on consolidation.
ii) Key management compensation
The compensation paid to key management is detailed below. Key management has been determined as the executive management teams of the Group operating
subsidiaries, who are also the directors of those subsidiaries.
2005 2004
£’000 £’000
Salaries and short term employee benefits 9,915 8,181
Social security costs 1,268 1,047
Other pension costs - 2
Gains made on exercise of share options 782 -
The above amounts include those paid to directors of the Parent Company.
An analysis of all directors’ remuneration may be found in the Directors’ Remuneration Report on pages 30 to 36.
11,965 9,230
iii) Debenture
During 2002, a director of the Company, Alex Snow, purchased a debenture at Twickenham for a term of 10 years. The debenture was paid for by the Group to the value
of £26,000. The balance outstanding at 31 December 2005 was £17,865 (31 December 2004: £20,465). An agreement is in place that requires the remaining
portion of the debenture to be repaid by the director should he leave prior to the end of the ten year term. The debenture is used to facilitate the entertainment of clients.
iv) Subordinated loans
The subordinated loan (as approved by the FSA), of £1,000,000 owed by Christows Limited to the Company, was entered into in two equal tranches on 19 September
2002 and 31 March 2003 respectively, and is repayable on the date specified by notice in writing by either party being not less than two years after the date of which
the notice is given. The loan is interest bearing at a rate equal to the base rate from time to time.
The subordinated loan of $100,000 (£58,062) (2004: $100,000 (£51,932)), as approved by the NASD, owed by Evolution Securities (U.S), Inc. to Evolution
Securities Limited, was drawn on 10 December 2004 and is repayable three years from this date. There is, however, a Permissive Prepayment Option for the loan to
be repaid within this period, no earlier than one year after the date of the agreement. The loan is interest free.
v) Commission earned on trading with key management
During the year the Group has received £5,500 in commission income from trading carried out by key management on private client accounts at Christows.
vi) Dealings with directors
Other than the dealings disclosed below the Group has had no dealings with companies in which any of the key management, or persons connected to them, is a director.
During the year MAR Shopfitters carried out office refurbishment work for the Group. The total amount paid to MAR Shopfitters was £135,000 (2004: £16,000).
The proprietor of MAR Shopfitters is the husband of a director of Christows Limited, a Group subsidiary. The transactions were carried out on an arm’s length basis.
During the year the Group has made purchases from Redstone Plc, a company of which one of the Non-executive directors, Oliver Vaughan, is a director. Total purchases
during the year amounted to £256,000 with a balance outstanding at the year-end of £4,000. The transactions were carried out on an arm’s length basis.
The Company has invested £1,000,000 in Wickam Fund, a fund managed by Wickam Capital Limited, a company in which the Group had a 16.7% holding and of
which Graeme Dell is a director. The fair value of this holding at the year-end is £1,068,000.
The Evolution Group Plc Report & Accounts 2005 63

Notes
to the financial statements
- continued
45. EMPLOYEE SHARE SCHEMES
The following table summarises the options in issue within the Group as at 31 December 2005
Weighted Weighted
Weighted average average
average exercise price exercise price Exercisable
Exercise At 1 At 31 share price of exercised of forfeited at 31
price January Granted Exercised Forfeited December at exercise shares shares December
(pence) 2005 in the year in the year in the year 2005 (pence) (pence) (pence) 2005
Options over new shares
EVG 2002 Executive Share
Incentive Plan 1.00 15,200,267 6,908,432 (467,131) (2,412,633) 19,228,935 159.50 1.00 1.00 4,230,769
EVG 2001 Executive Share
Option Scheme 27.00-53.10 4,641,498 - (712,750) (323,000) 3,605,748 134.08 39.60 32.26 2,462,250
EVG 2000 Executive
Share Option Scheme 58.67 4,051,866 - (2,025,933) - 2,025,933 133.00 58.67 - 2,025,933
EVG 2000 Executive
Share Option Scheme 58.67 1,065,632 - - - 1,065,632 - - - 1,065,632
BGG 1996 Executive Share
Incentive Scheme 28.25 65,348 - - - 65,348 - - - 65,348
BGG 1996 Executive
Share Incentive Scheme 28.25 377,152 - - - 377,152 - - - 377,152
BGG 2000 Discretionary
Share Option Scheme 154.80 19,378 - - - 19,378 - - - 19,378
BGG 2000 Discretionary
Share Option Scheme 154.80 176,221 - - - 176,221 - - - 176,221
Other options 25.00 575,000 - (575,000) - - 137.45 25.00 - -
15.03 26,172,362 6,908,432 (3,780,814) (2,735,633) 26,564,347 137.17 42.82 4.69 10,422,683
Options over existing shares held by the Trust
BGG 1996 Executive Share
Option Scheme 18.36 21,168 - - (6,513) 14,655 - - 18.36 14,655
BGG Deferred Share
Bonus Plan - 44,889 - - - 44,889 - - - 44,889
66,057 - - (6,513) 59,544 - - 18.36 59,544
Awards over 816,133 shares were granted in 2005 and forfeited in the same year.
The following table summarises the options in issue within the Group as at 31 December 2004
Weighted Weighted
Weighted average average
average exercise price exercise price Exercisable
Exercise At 1 At 31 share price of exercised of forfeited at 31
price January Granted Exercised Forfeited December at exercise shares shares December
(pence) 2004 in the year in the year in the year 2004 (pence) (pence) (pence) 2004
Options over new shares
EVG 2002 Executive Share
Incentive Plan 1.00 9,303,650 7,448,367 (500,000) (1,051,750) 15,200,267 138.00 1.00 1.00 2,000,000
EVG 2001 Executive Share
Option Scheme 27.00-53.10 4,669,511 100,000 (45,300) (82,713) 4,641,498 141.49 37.40 33.48 1,525,000
EVG 2000 Executive
Share Option Scheme 58.67 4,488,622 - (436,756) - 4,051,866 125.07 25.50 - 4,051,866
EVG 2000 Executive
Share Option Scheme 58.67 1,065,632 - - - 1,065,632 - - - 1,065,632
BGG 1996 Executive Share
Incentive Scheme 28.25 354,227 - (288,879) - 65,348 145.48 33.13 - 65,348
BGG 1996 Executive
Share Incentive Scheme 28.25 563,073 - (185,921) - 377,152 152,46 28.73 - 377,152
BGG 2000 Discretionary
Share Option Scheme 154.80 153,189 - (28,858) (104,953) 19,378 153.71 103.95 128.09 19,378
BGG 2000 Discretionary
Share Option Scheme 154.80 382,815 - (17,208) (189,386) 176,221 153.71 103.95 141.47 176,221
Other options 25.00 575,000 - - - 575,000 - - - 575,000
21.69 21,555,719 7,548,367 (1,502,922) (1,428,802) 26,172,362 138.00 22.01 30.84 9,855,597
Options over existing shares held by the Trust
BGG 1996 Executive Share
Option Scheme 18.36 145,737 - (124,569) - 21,168 - - 18.36 21,168
BGG Deferred Share
Bonus Plan - 375,040 - (263,541) (66,610) 44,889 - - - 44,889
520,777 - (388,110) (66,610) 66,057 - - 18.36 66,057
Awards over 945,500 shares were granted in 2004 and forfeited in the same year.
45. EMPLOYEE SHARE SCHEMES continued
The number of options outstanding by issue date and exercise price, together with the vesting periods, the fair values, and the assumptions used to calculate it, and the
actual remaining contractual life as at 31 December 2005 are as follows:
Market
Exercise Number of value Vesting Expected Expected Dividend Fair Life
price awards at grant Period life volatility Yield Interest value remaining
(pence) outstanding (pence) (years) (years) (%) (%) (%) (pence) (years)
EVG 2002 Executive Share
Incentive Plan
1 Dec 2005 1.00 23,392 128.25 3.0 3.0 N/A 1.10 N/A 124.10 9.92
7 Sep 2005 1.00 167,953 139.90 3.0 3.0 N/A 1.00 N/A 135.80 9.69
1 Jul 2005 1.00 11,754 127.61 3.0 3.0 N/A 0.78 N/A 124.60 9.50
29 Apr 2005 1.00 100,000 155.00 3.0 3.0 N/A 0.65 N/A 152.00 9.33
21 Jan 2005 1
1.00 5,689,200 156.75 3.0 3.0 N/A 0.64 N/A 153.78 9.06
21 Jan 2005 1.00 100,000
6,092,299
156.75 3.0 2.5 N/A 0.64 N/A 154.32 9.06
1 Sep 2004 1.00 101,867 147.25 3.0 3.0 N/A 0.29 N/A 146.00 8.67
6 Jul 2004 1.00 750,000 141.50 3.0 3.0 N/A 0.30 N/A 140.20 8.52
6 Jul 2004 1.00 1,312,500 141.50 3.0 5.0 N/A 0.30 N/A 139.40 8.52
23 Jan 2004 1.00 2,758,000 120.21 3.0 3.0 N/A 0.35 N/A 118.96 8.07
13 Nov 2003 1.00 6,000,000 102.50 0-2.3 5.0 N/A 0.00 N/A 102.50 7.87
2 Jul 2003 1.00 50,000 61.17 3.0 3.0 N/A 0.00 N/A 61.17 7.50
4 Apr 2003 1.00 350,000 30.00 3.0 3.0 N/A 0.00 N/A 30.00 7.26
31 Jan 2003 1.00 1,083,500 48.50 3.0 3.0 N/A 0.00 N/A 48.50 7.09
31 Jan 2003 1.00 500,000 48.50 3.0 5.0 N/A 0.00 N/A 48.50 7.09
16 July 2002
EVG 2001 Executive Share
Option scheme
1.00 230,769
19,228,935
44.00 3.0 N/A N/A N/A N/A N/A 6.54
2 Jul 2003 53.10 100,000 59.00 2.0 3.0 57 0.42 3.87 26.26 7.50
4 Apr 2003 27.00 643,498 30.00 3.0 5.0 73 0.83 4.11 19.25 7.26
31 Jan 2003 41.40 500,000 48.50 3.0 5.0 73 0.52 4.04 31.71 7.09
21 Nov 2002 39.60 862,250 44.00 3.0 5.0 73 0.57 4.41 28.46 6.89
29 Jun 2001
EVG 2000 Executive Share
Option scheme
52.30 1,500,000
3,605,748
58.11 3.0 N/A N/A N/A N/A N/A 5.50
11 May 2001 58.67 2,025,933 58.67 3.0 N/A N/A N/A N/A N/A 5.36
11 May 2001 58.67 1,065,632 58.67 3.0 N/A N/A N/A N/A N/A 5.36
Ex BGG 1996 Executive Share
Incentive Plan
24 Nov 1999 28.25 65,348 28.25 3.0 N/A N/A N/A N/A N/A 3.90
24 Nov 1999 28.25 377,152 28.25 3.0 N/A N/A N/A N/A N/A 3.90
Ex BGG 2000 Discretionary
Share Option Scheme
9 Oct 2000 154.80 19,378 154.80 3.0 N/A N/A N/A N/A N/A 4.78
9 Oct 2000 154.80 176,221 154.80 3.0 N/A N/A N/A N/A N/A 4.78
26,564,347
Notes
1 It is assumed that up to 10% of this award will be forfeited before vesting.
The Evolution Group Plc Report & Accounts 2005 65

Notes
to the financial statements
- continued
45. EMPLOYEE SHARE SCHEMES continued
The number of options outstanding by issue date and exercise price, together with the vesting periods, the fair values, and the assumptions used to calculate it, and the
actual remaining contractual life as at 31 December 2004 are as follows:
Market
Exercise Number of value Vesting Expected Expected Dividend Fair Life
price awards at grant Period life volatility Yield Interest value remaining
(pence) outstanding (pence) (years) (years) (%) (%) (%) (pence) (years)
EVG 2002 Executive Share
Incentive Plan
1 Sep 2004 1.00 101,867 147.25 3.0 3.0 N/A 0.29 N/A 146.00 9.67
6 Jul 2004 1.00 750,000 141.50 3.0 3.0 N/A 0.30 N/A 140.20 9.52
6 Jul 2004 1.00 2,625,000 141.50 3.0 5.0 N/A 0.30 N/A 139.40 9.52
4 Apr 2004 1.00 250,000 140.00 2.0 2.0 N/A 0.30 N/A 140.00 9.26
23 Jan 2004 1.00 2,776,000
6,502,867
120.21 3.0 3.0 N/A 0.35 N/A 118.96 9.07
13 Nov 2003 1.00 6,000,000 102.50 0-2.3 5.0 N/A 0.00 N/A 102.50 8.87
4 Apr 2003 1.00 600,000 40.00 3.0 3.0 N/A 0.00 N/A 30.00 8.26
31 Jan 2003 1.00 1,099,500 48.50 3.0 3.0 N/A 0.00 N/A 48.50 8.09
31 Jan 2003 1.00 550,000 48.50 3.0 5.0 N/A 0.00 N/A 48.50 8.09
16 July 2003 1.00 230,769 44.00 3.0 N/A N/A N/A N/A N/A 7.54
29 Apr 2002
EVG 2001 Executive Share
Option scheme
1.00 217,131
15,200,267
69.67 3.0 N/A N/A N/A N/A N/A 7.33
2 Jul 2003 53.10 100,000 59.00 2.0 3.0 57 0.42 3.87 26.26 8.50
4 Apr 2003 27.00 831,498 30.00 3.0 5.0 73 0.83 4.11 19.25 8.26
31 Jan 2003 41.40 500,000 48.50 3.0 5.0 73 0.52 4.04 31.71 8.09
21 Nov 2002 39.60 1,685,000 44.00 3.0 5.0 73 0.57 4.41 28.46 7.89
29 Jun 2001
EVG 2000 Executive Share
Option scheme
52.30 1,525,000
4,641,498
58.11 3.0 N/A N/A N/A N/A N/A 6.50
11 May 2001 58.67 4,051,866 58.67 3.0 N/A N/A N/A N/A N/A 6.36
11 May 2001 58.67 1,065,632 58.67 3.0 N/A N/A N/A N/A N/A 6.36
Ex BGG 1996 Executive Share
Incentive Plan
24 Nov 1999 28.25 65,348 28.25 3.0 N/A N/A N/A N/A N/A 4.90
24 Nov 1999 28.25 377,152 28.25 3.0 N/A N/A N/A N/A N/A 4.90
Ex BGG 2000 Discretionary
Share Option Scheme
9 Oct 2000 154.80 19,378 154.80 3.0 N/A N/A N/A N/A N/A 5.78
9 Oct 2000 154.80 176,221 154.80 3.0 N/A N/A N/A N/A N/A 5.78
Other options
14 Dec 2000 25.00 575,000 67.50 0 N/A N/A N/A N/A N/A 5.96
26,172,362
All options in the above table have a life from grant of 10 years.
In the above tables EVG refers to The Evolution Group Plc and BGG refers to Beeson Gregory Group Limited. The Group acquired the BGG share schemes in its
acquisition of Beeson Gregory Group on 11 July 2002.
The Group currently operates one share trust. The Evolution Group Plc Employees’ Share Trust (the “Trust”) administers The Evolution Group Plc share schemes and is
managed by the Sanne Trust.
Options under the share incentive schemes are valued using a Black-Scholes model adjusted for dividends according to those declared by the Company. The Company
estimates the number of options likely to vest and expenses that value over the relevant period. Volatility has been estimated by taking the historical volatility in the
Company’s share price over a three year period.
In the case of awards of call rights which, have an exercise price of 1p per ordinary share, the fair value is based on the market value at the time of grant discounted by
the dividend yield over the expected life.
45. EMPLOYEE SHARE SCHEMES continued
Movements in the number of share options and their weighted average exercise prices are as follows:
2005 2004
Average Average
exercise exercise
price Outstanding price Outstanding
(pence per share) options (pence per share) options
At 1 January 21.69 26,172,362 29.32 21,555,719
Granted 1.00 6,908,432 1.51 7,548,367
Exercised 42.83 (3,780,814) 22.01 (1,502,922)
Forfeited 4.69 (2,735,633) 30.84 (1,428,802)
At 31 December 15.03 26,564,347 21.69 26,172,362
The weighted average market value of the shares issued during the year upon exercise was £1.37 (2004: £1.38).
The date range over which the above options may be exercised is described in the relevant scheme details below. The overall weighted average life of the remaining
options is 7.6 years (2004: 8.0 years).
The Evolution Group Plc 2002 Executive Share Incentive Plan
This plan was approved by the Board on 13 March 2002 and by shareholders on 10 October 2003.
Eligibility
Any director of the Company, or a Group company, and any employee of the Company, or a Group company, may be invited to participate in the plan.
Nature of Plan
The plan provides for participants to be awarded shares in the Company at their nominal cost. Subject to achievement of performance criteria, awards of shares convert
into call rights over such shares. The plan is operated in conjunction with an employee benefit trust on two levels.
It is operated as a standalone plan and it is also used as the framework for the Key Performers Share Incentive Plan (“KPSIP”) introduced for employees of ESL in January
2003 and the Market Making and Trading Share Incentive Plan (“MMTSIP”) introduced for the market making team of ESL in January 2005 where it forms the method
of delivery of such awards made within the KPSIP framework.
Performance criteria
• Standalone plan
Under the standalone plan the basic performance criteria used prior to the vesting of awards was growth in earnings of 15% per annum over the vesting period of the
award. Additionally, the satisfactory employment by the individual within a Group company throughout the period following grant of an award is required. From January
2006, following the review by the Remuneration Committee, it was concluded that the continued imposition of performance criteria for all awards on the basis of 15%
earnings growth was too generally applied and that where awards were made to employees of the Group’s operating subsidiaries, then the sole general criteria should be
that of continued satisfactory employment within a Group company. This is because individual employees do not by themselves have particular influence upon the
achievement of the earnings growth target. Furthermore, the Remuneration Committee observed that the imposition of this target were undermining the financial and
retention values of share awards.
• KPSIP
Under the KPSIP, employees may be granted an initial award and two subsequent awards at the first and second anniversary of the initial award. Up to 50% of each
award, once made may be clawed back dependent upon the individual’s performance during the twelve months following the award, as measured within the Group
company’s annual appraisal process. The level of subsequent awards is also directly related to the individual’s overall performance rating within the company’s annual
appraisal process. Additionally, the satisfactory employment by the individual within a Group company throughout the period following grant of an award is required. The
performance criteria for the aggregate growth in earnings was removed for all awards on 20 January 2006 as outlined above for the standalone plan.
• MMTSIP
Under the MMTSIP, employees of the market making team of Evolution Securities may be granted an initial award and two subsequent awards at the first and second
anniversary of the initial award. Each award is allocated to individuals within this team in the following January based upon strict performance criteria in 2005,
dependent upon the individual’s performance during the twelve months following the award. The award will ultimately vest after three years subject to the basic scheme
target of aggregate growth in earnings (based upon the adjusted operating profit) of the Company of 15% per annum over the vesting period of the award. Additionally, the
satisfactory employment by the individual within a Group company throughout the period following grant of an award is required. The price to be paid on exercise of these
awards is the greater of £1 or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant. The performance
criteria for the aggregate growth in earnings was removed for all awards on 20 January 2006 as outlined above for the standalone plan.
Call rights
After achievement of the performance criteria and vesting of the award, a call right is granted to the individual exercisable, subject to continued satisfactory employment,
within ten years of the date of the original award.
Scheme Limits
The number of shares which may be issued to satisfy awards under this plan is limited to 10% of the issued share capital of the Company from time to time.
Options granted
At 31 December 2005 awards and call rights over 19,228,935 shares (2004: 15,200,267) were outstanding at an exercise price of the greater of £1 or the nominal
value of the shares to be subscribed for. The call rights can be exercised between 14 November 2003 and 1 December 2015.
The Evolution Group Plc Report & Accounts 2005 67

Notes
to the financial statements
- continued
45. EMPLOYEE SHARE SCHEMES continued
The Evolution Group Plc 2001 Executive Share Option Scheme
This scheme was approved by shareholders on 21 June 2001.
Eligibility
Any director who is required to devote the whole or substantially the whole of his working time to the service of the Company, or a group company, and any employee of
the Company, or a Group company, may be invited to participate in either Ordinary or Super options.
Option price
The exercise price shall be determined by the directors but shall not, unless approved by ordinary resolution of the shareholders be less than the greater of nine-tenths of
the market value of the share at the date of the grant and the nominal value of a share.
Performance criteria
The option exercise may be conditional upon the performance of the Company and/or the participant over such period and measured against such objective criteria as
may be determined by the directors. The initial performance criteria established by the directors of the Company were that the closing bid price of a share in The Evolution
Group Plc as derived from the Daily Official List published by The London Stock Exchange must be not less on average than a specified amount for a period of 60
consecutive days before options can be exercised. If the average share price is 90p, then 25% of the options may be exercised; at 110p a further 25% may be exercised;
at 130p then a further 25% may be exercised; and at 150p, the remaining 25% may be exercised. At a meeting of the Board on 21 November 2002, approval was
given to the waiving of these initial performance criteria for all new options granted under the scheme by varying the scheme rules. This recommendation was made by
the Remuneration Committee, having made comparisons with the practice of other groups and taken the appropriate legal advice.
Exercise of options
An option may not be exercised later than the tenth anniversary after the date of grant. The earliest date of exercise is generally two years after the date of grant for
Ordinary options and three years after the date of grant for Super options.
Scheme Limits
The overall limit on the number of shares which may be issued to satisfy Ordinary options, is 10% of the issued share capital and for Super options, is 5% of the issued
share capital of the Company.
Options granted
At 31 December 2005 nil Ordinary options (2004: nil) and 3,605,748 Super options (2004: 4,641,498) were outstanding with exercise prices between 27p and
53.1p. The options can be exercised between 29 June 2004 and 2 July 2013.
The Evolution Group Plc 2000 Executive Share Option Scheme (Unapproved)
This scheme was approved by shareholders on 20 November 2000.
Eligibility
Any director of the Company, or a Group company, and any employee of the Company, or a Group company, may be invited to participate in either Ordinary or Super options.
Option price
The exercise price shall be determined by the directors but shall not be less than the greater of the market value of the share at the date of grant or the nominal value
of a share.
Performance criteria
The option exercise on Ordinary options may be conditional upon the performance of the Company and /or the participant over such period and measured against such
objective criteria as may be determined by the directors. There are no performance criteria for Super options.
Exercise of options
An option may not be exercised later than the tenth anniversary after the date of grant. The earliest date of exercise is generally three years after the grant for Ordinary
options and five years after the date of grant for Super options.
Scheme Limits
The overall limit on the number of shares which may be issued to satisfy Ordinary options, is 10% of the issued share capital and for Super options, is 5% of the issued
share capital of the Company.
Options granted
At 31 December 2005, 2,025,933 Ordinary options (2004: 4,051,866) and 1,065,632 Super options (2004: 1,065,632) were outstanding with an exercise price of
58.67p. The options can be exercised between 11 May 2004 and 11 May 2011.
The Evolution Group Plc 2000 Executive Share Option Scheme (Approved)
The terms of this scheme are exactly the same as the Unapproved 2000 scheme save the restriction that no individual shall be granted options over shares with an
aggregate market value (calculated as the strike price at date of grant) exceeding £30,000.
Options granted
No options were outstanding in either periods.
45. EMPLOYEE SHARE SCHEMES continued
The Beeson Gregory Group plc Executive Share Incentive Scheme 1996 (Approved and Unapproved)
(Closed for new awards)
Eligibility
Any former director or employee of Beeson Gregory Group who was required to devote substantially the whole of their working time to the affairs of the group.
The Scheme is closed for new awards.
Option price
Existing options rolled over at acquisition were granted between 21 January 1997 and 7 March 2000 and have post rollover exercise prices ranging from 8.76p to
70.62p.
Performance criteria
There are no performance criteria attached to the exercise of these options.
Exercise of options
Subject to certain specific provisions, an option may only generally be exercised within the period commencing on the third anniversary and ending on the tenth
anniversary of the relevant allocation date.
Options granted
At 31 December 2005 65,348 (2004: 65,348) approved options and 377,152 (2004: 377,152) unapproved options were outstanding over new shares, with an
exercise price of 28.25p. In addition 14,655 (2004: 21,168) approved and nil (2004: nil) unapproved options over existing shares were outstanding on the same terms
as above. The options can be exercised between 24 November 2002 and 24 November 2009.
The Beeson Gregory Group plc Discretionary Share Option Scheme 2000 (Approved and Unapproved)
(Closed for new awards)
Eligibility
Any former director of Beeson Gregory Group who is required under their contract of employment to work for not less than 25 hours per week and other employees of the
Group. The Scheme is closed for new awards.
Option price
Existing options rolled over at acquisition were granted between 6 July 2000 and 25 June 2001 and have post rollover exercise prices ranging from 81.26p to 178.53p.
Performance criteria
There are no performance criteria attached to the exercise of these options.
Exercise of options
Subject to certain specific provisions, an option may only generally be exercised within the period commencing on the third anniversary and ending on the day prior to the
tenth anniversary of the relevant date of grant.
Options granted
At 31 December 2005, 19,378 (2004: 19,378) approved options and 176,221 (2004: 176,221) unapproved options were outstanding with an exercise price of
154.80p. The options can be exercised between 9 October 2003 and 9 October 2010.
The Beeson Gregory Group Plc Deferred Bonus Plan (Unapproved)
(Closed for new awards)
Eligibility
Any former directors and employees of Beeson Gregory Group. The plan is closed for new awards.
Option price
Existing awards rolled over at acquisition were granted on 19 April 2001 and have an exercise price of £1 in aggregate.
Performance Criteria
There are no performance criteria attached to the exercise of these options.
Exercise of options
Subject to certain specific provisions, an award may only generally be exercised within the period commencing on the third anniversary and ending on the day prior to the
tenth anniversary of the relevant date of grant.
Options granted under the Deferred Bonus Plan may only vest with employees three years after allocation, provided they continue to be employed by the Group, and the
cost of acquiring them is included within the bonus charge for the years in respect of which they are granted.
At 31 December 2005 44,889 (2004: 44,889) options over existing shares were allocated. The options can be exercised between 19 April 2004 and 19 April 2011.
Other Options
As at 31 December 2005, there were also the following options in issue which were outside any other option scheme:
Alex Snow and a former employee, Andrew Beaton were granted by the Company on 14 December 2000 options to subscribe for up to 500,000 ordinary shares and
300,000 ordinary shares respectively at 25p per share at any time between 14 December 2000 and 13 December 2005.
At 31 December 2005 nil (2004: 575,000) options over existing shares were outstanding.
The Evolution Group Plc Report & Accounts 2005 69

Reconciliations
between IFRS and UKGAAP
APPENDIX I
RECONCILIATIONS OF EQUITY, NET ASSETS AND PROFIT UNDER UKGAAP TO IFRS
The Evolution Group Plc reported under UKGAAP in its previously published financial statements for the year ended 31 December 2004. The analyses below show
reconciliations of equity, net assets and profit as reported under UKGAAP as at 31 December 2004 to the revised equity, net assets and profit under IFRS as reported in
this Annual Report. In addition, there is a reconciliation of net assets under UKGAAP to IFRS at the transition date for the Group, being 1 January 2004.
(i) Summary of equity
1 January 31 December
2004 2004
Note £’000 Note £’000
Total equity and minority interest under UKGAAP 91,441 136,469
Reversal of proposed ordinary dividends payable a 616 a 1,428
Deferred tax adjustments b 2,428 b 2,649
Cumulative impact of other non material items c (54) c 475
Total equity under IFRS 94,431 141,021
Notes to summary of equity
a) Reversal of proposed ordinary dividends payable
In prior periods, under UKGAAP market practice was for companies to provide for their final dividend in their closing balance sheet and in advance of the dividend being
declared and approved by the AGM, since it represents an appropriation of profits and therefore an appropriate liability should be recorded. Under IAS 10, ‘Events after the
balance sheet date’, dividends to holders of equity instruments declared after the balance sheet date are not to be recognised as liabilities but should be recognised in the
period in which they are paid or ratified by the AGM.
As a result, the amounts below were removed from other liabilities, with a corresponding credit to the income statement:
1 January 31 December
2004 2004
£’000 £’000
Reversal of dividend accrued 616 1,428
Total impact – decrease in current liabilities 616 1,428
b) Deferred tax adjustment
Under IAS 12, ‘Taxes’, deferred tax is provided in full on temporary timing differences arising from the tax bases of assets and liabilities and their carrying amounts in the
interim consolidated financial statements.
Following the adoption of IFRS2, ‘Share Based Payments’, the amounts below have been recognised as deferred tax assets in the balance sheet, with a corresponding
credit to the income statement:
1 January 31 December
2004 2004
£’000 £’000
Increase in deferred tax under IFRS 2,428 2,649
Total impact – increase in non-current assets 2,428 2,649
c) Cumulative impact of non-material items
1 January 31 December
2004 2004
£’000 £’000
Reversal of amortisation - 485
Increase in profit on disposal of current asset investments - 9
Discounting of dilapidation provision - 36
Net adjustment on commission income and expense (54) (55)
Total impact – increase in retained earnings (54) 475
APPENDIX I continued
ii) Reconciliation of equity at 1 January 2004 (Date of transition to IFRS)
UK GAAP
Effect of transition to IFRS
Re-measurement Re-classification IFRS
Note £’000 £’000 £’000 £’000
ASSETS
Non-Current assets
Goodwill a - - 8,990 8,990
Other intangible assets a, b 8,990 - (8,894) 96
Investments in associates 25,525 - - 25,525
Tangible fixed assets a, b 1,509 (1,509) -
Property, plant and equipment a, b - - 1,413 1,413
Investments 851 - - 851
Deferred tax assets c - 2,428 54 2,482
Total non-current assets 36,875 2,428 54 39,357
Current assets
Debtors c, g 28,171 780 (54) 28,897
Long trading positions 7,207 - - 7,207
Investments 444 - - 444
Cash and cash equivalents 53,705 - - 53,705
Total current assets 89,527 780 (54) 90,253
Total assets 126,402 3,208 - 129,610
LIABILITIES
Current liabilities
Creditors: amounts falling due within one year d, e, g 34,734 218 (838) 34,114
Current tax liabilities e - - 838 838
Total current liabilities 34,734 218 - 34,952
Non-current liabilities
Provisions for liabilities 227 - - 227
Total non-current liabilities 227 - - 227
Total liabilities 34,961 218 - 35,179
EQUITY
Capital and reserves attributable to equity shareholders
Share capital 2,478 - - 2,478
Share premium 25,739 - - 25,739
Merger reserve 57,261 - - 57,261
Retained earnings c, d, g 5,996 2,990 - 8,986
Parent company’s shareholders’ equity excluding
minority interest 91,474 2,990 - 94,464
Minority interest in equity (33) - - (33)
Total equity 91,441 2,990 - 94,431
Total equity and liabilities 126,402 3,208 - 129,610
The Evolution Group Plc Report & Accounts 2005 71

Reconciliations
between IFRS and UKGAAP
- continued
APPENDIX I continued
iii) Reconciliation of equity at 31 December 2004
UK GAAP Re-measurement
Effect of transition to IFRS
Re-classification IFRS
Note £’000 £’000 £’000 £’000
ASSETS
Non-Current assets
Goodwill a, f - 485 8,505 8,990
Other intangible assets a 8,565 - (8,323) 242
Tangible fixed assets a, b 1,512 - (1,512) -
Property, plant and equipment a, b - - 1,330 1,330
Investments 583 - - 583
Deferred tax assets c - 2,649 3,171 5,820
Total non-current assets 10,660 3,134 3,171 16,965
Current assets
Debtors c, g 39,614 999 (3,171) 37,442
Long trading positions 9,679 - - 9,679
Investments f 12,139 9 - 12,148
Cash and cash equivalents 115,170 - - 115,170
Total current assets 176,602 1,008 (3,171) 174,439
Total assets 187,262 4,142 - 191,404
LIABILITIES
Current liabilities
Creditors: amounts falling due within one year d, e, g 50,679 (374) (2,382) 47,923
Current tax liabilities e - - 2,382 2,382
Total current liabilities 50,679 (374) - 50,305
Non-current liabilities
Provisions for liabilities 114 (36) - 78
Total non-current liabilities 114 (36) - 78
Total liabilities 50,793 (410) - 50,383
EQUITY
Capital and reserves attributable to equity shareholders
Share capital 2,495 - - 2,495
Share premium account 26,223 - - 26,223
Merger reserve 51,230 - - 51,230
Retained earnings c, d, f, g 56,586 4,552 - 61,138
Parent company’s shareholders’ equity excluding
minority interest 136,534 4,552 - 141,086
Minority interest in equity (65) - - (65)
Total equity 136,469 4,552 - 141,021
Total equity and liabilities 187,262 4,142 - 191,404
Notes to Reconciliations of equity
a) Goodwill
As a result of the adoption of IAS 38, ‘Intangible Assets’, Goodwill previously recognised within intangible assets has been re-classed to Goodwill on the face of the
balance sheet. In addition, the costs to acquire a US broker dealer with NASD approval have been re-classified as other intangible assets. The table below shows the
adjustments in the balance sheet in the relevant periods.
1 January 31 December
2004 2004
£’000 £’000
Goodwill re-classification 8,990 8,565
Re-classification of licence costs from goodwill to other intangible assets - (60)
Re-classification of software from tangible fixed assets to other intangible assets (96) (182)
8,894 8,323
b) Property, plant and equipment and other intangible assets
As a result of the adoption of IAS 16, ‘Property, Plant and Equipment’ (“PPE”), items previously classified as tangible fixed assets have been re-classified as property, plant
and equipment.
As a result of the adoption of IAS 38, ‘Intangible Assets’, computer software such as licenses and capitalised development work have been disclosed within ‘Other
intangible assets’ which is shown as a separate line item on the face of the balance sheet.
The table below shows the adjustments in the balance sheet in the relevant periods.
1 January 31 December
2004 2004
£’000 £’000
Re-classification of PPE from tangible fixed assets to PPE 1,509 1,512
Property, plant and equipment 1,509 1,512
c) Deferred tax
Under IAS 12, ‘Taxes’, deferred tax is recognised on the difference between the fair value and the tax base of share based payments accounted for under IFRS 2,
‘Share Based Payments’. The following table shows the impact on non-current assets of the recognition of this additional deferred tax asset and the re-classification
from current assets of deferred tax of previously recognised:
1 January 31 December
2004 2004
£’000 £’000
Increase in deferred tax under IFRS 2,428 2,649
Current assets –debtors 54 3,171
Total impact – increase in non-current assets 2,482 5,820
d) Current liabilities: Reversal of proposed ordinary dividends payable
In prior periods under UKGAAP, market practice was for companies to provide for their final dividend in their closing balance sheet and in advance of the dividend being
declared and approved by the AGM, since it represents an appropriation of profits and therefore an appropriate liability should be recorded. Under IAS 10, ‘Events after the
balance sheet date’, dividends to holders of equity instruments declared after the balance sheet date are not to be recognised as liabilities but were to be recognised in the
period in which they are paid or ratified by the AGM.
As a result, the amounts below were removed from creditors, with a corresponding credit to the income statement:
1 January 31 December
2004 2004
£’000 £’000
Reversal of dividends payable 616 1,428
Total impact – decrease in current liabilities 616 1,428
e) Current tax liabilities
As a result of the adoption of IAS 12, ‘Taxes’, current tax liabilities are shown as a separate line item on the face of the balance sheet. The table below shows the
adjustments in the balance sheet in the relevant periods.
1 January 31 December
2004 2004
£’000 £’000
Re-classification of corporation tax payable 838 2,382
838 2,382
The Evolution Group Plc Report & Accounts 2005 73

Reconciliations
between IFRS and UKGAAP
- continued
Notes to Reconciliations of equity continued
f) Amortisation
As a result of the adoption of IFRS 3, ‘Business Combinations’, amortisation of goodwill, previously deducted from goodwill on a straight-line basis has been reversed. The
net impact of these adjustments is to either increase goodwill or the carrying value of the remaining investment to which goodwill was originally attributed when the asset
was a subsidiary or associate.
1 January 31 December
2004 2004
£’000 £’000
Reversal of amortisation on goodwill allocated to subsidiaries - 485
Reversal of amortisation on goodwill allocated to investments - 9
- 494
g) Initial commission income and expense
Initial commissions earned on the transfer of client funds into the Group’s stockbroking subsidiary entity and the related commission expense are capitalised as accrued
income and prepayments respectively. Hence initial commission income and expense in the period has been reversed and capitalised in the balance sheet. These
amounts are amortised over the average holding period of five years, the relevant period in which the relationship between the commission earned (and paid away) and
the funds under management to which such commissions relate is believed to exist.
The table below shows the adjustments to the balance sheet and income statement in the relevant periods:
1 January 31 December
2004 2004
£’000 £’000
Accrued commission income liability (834) (1,054)
Prepaid commission expense asset 780 999
Decrease in net assets (54) (55)
Net adjustment to commission income - (220)
Net adjustment to commission expense - 219
Decrease in net income - (1)
h) Share-based payments
Under IFRS 2, ‘Share-Based Payments’, the cost of share option awards made to employees has been restated to reflect the change in measurement from intrinsic value
to fair value. An annual charge is made in the income statement for share options based on the fair value of options granted or shares awarded on the date of the grant or
award. This charge is spread over the period the employees' services are received, which is the vesting period. The fair value of the options granted is determined using
option pricing models.
As a result of this change in accounting treatment the following change has been made between other staff costs in the income statement and retained reserves:
1 January 31 December
2004 2004
£’000 £’000
(Decrease) / increase in other staff costs (2,704) 660
Increase / (decrease) in retained reserves 2,704 (660)
i) Retained earnings
The cumulative effect of all the above adjustments has resulted in an increase in retained earnings in the relevant periods as per the table below.
1 January 31 December
2004 2004
£’000 £’000
Increase in retained earnings 2,990 4,552
Notes to Reconciliations of equity continued
iv) Reconciliation of profit for the year ended 31 December 2004
UK GAAP Re-measurement
Effect of transition to IFRS
Re-classification IFRS
Note £’000 £’000 £’000 £’000
Operating income a 65,533 - (65,533) -
Fee and commission income - (220) 52,509 52,289
Fee and commission expense - 219 (1,238) (1,019)
Net fee and commission income - (1) 51,271 51,270
Net trading income - - 11,618 11,618
Other income - - 236 236
Commission payable (3,303) - 3,303 -
Total income a 62,230 (1) 895 63,124
Profit on sale of fixed asset investments 1,225 - - 1,225
Profit on sale of current asset investments b 4,824 (11) - 4,813
Release of provision against fixed asset investments 525 - - 525
Profit on part sale of subsidiary 66 - - 66
Profit on part sale of associate 22,286 - - 22,286
Share of results of associate 436 - - 436
Operating expenses a, b (46,947) (120) (895) (47,962)
Operating profit 44,645 (132) - 44,513
Interest receivable and similar income 3,329 - - 3,329
Interest payable and similar charges (7) - - (7)
Profit before tax 47,967 (132) - 47,835
Tax expense c (2,564) (1,267) - (3,831)
Profit for the period 45,403 (1,399) - 44,004
Profit attributable to minority interest
Profit attributable to equity holders of
(174) (174)
The Evolution Group Plc 45,577 44,178
Profit attributable to equity holders of
The Evolution Group Plc 45,403 (1,399) - 44,004
The Evolution Group Plc Report & Accounts 2005 75

Reconciliations
between IFRS and UKGAAP
- continued
Notes to Reconciliations of profit
a) Revenue and cost recognition
Reclassification
The adoption of IAS 18, ‘Revenue’ and IAS 19, ‘Employee benefits’, has resulted in the re-classification of Operating income and Commission payable as previously
reported under UKGAAP, to fee and commission income, less fee and commission expense respectively; the net down of commissions received and paid on an agency
basis between income and expense; and the re-classification of commission paid to employees, to staff costs within operating expenses.
The impact of these re-classifications is shown in the table below:
31 December
2004
£’000
Reversal of Operating income per UKGAAP (65,533)
Reversal of Commission payable per UKGAAP 3,303
Re-classification to Fee and commission income
(62,230)
52,509
Re-classification to Fee and commission expense (1,238)
51,271
Re-classification to Net trading income 11,618
Re-classification to Other income 236
Re-classification to Operating expenses (895)
-
Re-measurement
Initial commission income and expense recognised in the period has been reversed and posted to deferred income and prepayments respectively in the balance sheet.
These balances are then amortised over the estimated life of the funds under management to which these amounts relate.
The net impact of these adjustments to the income statement is shown in the table below:
31 December
2004
£’000
Net adjustment to commission income (220)
Net adjustment to commission expense 219
Decrease in net income (1)
b) Operating expenses
Under IFRS 2, ‘Share-Based Payments’, the cost of share option awards made to employees has been restated to reflect the change in measurement from intrinsic value
to fair value.
As a result of the adoption of IFRS 3, ‘Business Combinations’, amortisation of goodwill, previously deducted from goodwill on a straight-line basis has been reversed. In
addition amortisation attributed to the profit on the part disposal of a subsidiary has been reversed.
IAS 37, ‘Provisions, contingent liabilities and contingent assets’, requires that any provision or estimate for future obligations must be discounted. The Group has a
dilapidation provision for its offices which has been recalculated to reflect the discounting required.
The table below shows the net impact on the income statement in the relevant periods:
31 December
2004
£’000
Total impact of share options granted to employees (660)
Reversal of amortisation charges 505
Discounting of dilapidation provision 35
Decrease in operating expenses (120)
Re-adjustment to carrying value of investment (11)
c) Deferred tax adjustment
Deferred tax attributed to the cost of options has resulted in an adjustment to the income statement as below:
895
31 December
2004
£’000
Tax adjustment under IFRS (1,267)
Notes to Reconciliations of profit continued
v) Reconciliation of equity at 1 January 2005
Effect of adoption of IAS 32 and 39
IFRS at
31 December 2004 Re-measurement Re-classification IFRS
Note £’000 £’000 £’000 £’000
ASSETS
Non-Current assets
Goodwill 8,990 - - 8,990
Other intangible assets 242 - - 242
Property, plant and equipment 1,330 - - 1,330
Investments a 583 - (583) -
Deferred tax assets 5,820 - - 5,820
Total non-current assets 16,965 - (583) 16,382
Current assets
Trade and other receivables b, f - (821) 37,442 36,621
Debtors b 37,442 - (37,442) -
Available-for-sale investments a, c - 37,629 12,731 50,360
Trading portfolio assets d - 407 9,679 10,086
Long trading positions d 9,679 - (9,679) -
Investments a 12,148 - (12,148) -
Cash and cash equivalents 115,170 - - 115,170
Total current assets 174,439 37,215 583 212,237
Total assets 191,404 37,215 - 228,619
LIABILITIES
Current liabilities
Trade and other payables e, f - (497) 44,689 44,192
Creditors: Amounts falling due within one year e 47,923 - (47,923) -
Trading portfolio liabilities e, f - (367) 3,234 2,867
Current tax liabilities g 2,382 110 - 2,492
Total current liabilities 50,305 (754) - 49,551
Non-current liabilities
Provisions for liabilities 78 - - 78
Total non-current liabilities 78 - - 78
Total liabilities 50,383 (754) - 49,629
EQUITY
Capital and reserves attributable to equity shareholders
Share capital 2,495 - - 2,495
Share premium account 26,223 - - 26,223
Merger reserve 51,230 - - 51,230
Fair value and other reserves c - 37,629 - 37,629
Retained earnings d, g 61,138 340 - 61,478
Parent company’s shareholders’ equity excluding
minority interest 141,086 37,969 - 179,055
Minority interest in equity (65) - - (65)
Total equity 141,021 37,969 - 178,990
Total equity and liabilities 191,404 37,215 - 228,619
The Evolution Group Plc Report & Accounts 2005 77

Reconciliations
between IFRS and UKGAAP
- continued
Notes to Reconciliation of equity at 1 January 2005
a) Available- for-sale investments
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, investments previously recorded within noncurrent
or current asset investments as at 31 December 2004 have been re-classified within current assets as available-for-sale investments and fair valued. As at 1
January 2005, £12,731,000 has been re-classified in this way with £583,000 re-classified from non-current asset investments and £12,148,000 re-classified from
current asset investments.
b) Trade and other receivables
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, amounts previously recorded as debtors as
at 31 December 2004 have been re-classified within current assets as trade and other receivables. As at 1 January 2005, £37,442,000 has been re-classified in this way.
c) Available-for-sale investments – fair value adjustments
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, investments previously recorded within noncurrent
or current asset investments as at 31 December 2004 have been re-valued to fair value rather than cost in accordance with the measurement policy set out in the
Principal Accounting Policies of the Group. As at 1 January 2005, £37,629,000 (representing £37,224,000 revaluation for IP2IPO and £405,000 on other availablefor-sale
investments) has been calculated as the fair value adjustment. A corresponding entry for £37,629,000 has been taken to Fair Value and Other reserves within
equity.
£’000
Revaluation of investment in IP2IPO from current asset investments to available-for-sale financial assets 37,224
Revaluation of other available-for-sale investments 405
Total fair value adjustments 37,629
d) Trading portfolio assets – fair value adjustments
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, amounts previously recorded as long trading
position as at 31 December 2004 have been re-classified within current assets as trading portfolio assets held for trading through the income statement. As at 1 January
2005, £9,679,000 has been re-classified in this way.
In addition, all other assets held for trading, such as options, are fair valued as at 1 January 2005 with the fair value adjustment taken to the income statement and the
reversal of liquidity provisions taken to the income statement.
£’000
Trading portfolio assets revaluation 365
Reversal of liquidity provision against trading portfolio 85
Non regular way adjustment to trading portfolio liabilities (see (f)) (43)
Total fair value adjustments 407
e) Current liabilities
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, amounts previously recorded as creditors as
at 31 December 2004 have been re-classified within current liabilities as trading portfolio liabilities held for trading through the income statement or as trade and other
payables. As at 1 January 2005, £47,923,000 has been re-classified in this way with £44,689,000 treated as trade and other payables and £3,234,000 treated as
trading portfolio liabilities.
There is no tax charge on the profit arising on the part disposal of shares in IP2IPO in the prior year of £22,286,000 as this is an exempt item under substantial
shareholding relief as approved by the HM Revenue & Customs.
f) Financial instruments
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards purchases or sales that do not fall within the
regular way classification (generally beyond three days settlement) are treated as derivatives in the period between the trade date and the settlement date, i.e. as a forward
purchase or sale of security. The contract value (i.e. the trade receivable or payable) of such transactions is not recorded on the balance sheet, but the change in fair value
is recognised on the balance sheet and income statement in the intervening period between the trade date and settlement date.
The impact of this change in treatment is to reduce trade and other receivables by £821,000, reduce trading portfolio assets by £43,000, reduce trade and other
payables by £497,000 and reduce trading portfolio liabilities by £367,000.
g) Taxation adjustment
As a result of the adoption of IAS 39, ‘Financial Instruments: Recognition and Measurement’, from 1 January 2005 onwards, assets held for trading such as options are
fair valued through the income statement. The impact of this adoption has increased revenue by £450,000 which has generated an additional taxation charge of
£110,000.
Section 2
Parent Company Financial Statements
The Evolution Group Plc
Parent Company Accounts prepared under UKGAAP
Report and Financial Statements for the year ended 31 December 2005
Registered Number: 03359425
The Evolution Group Plc Report & Accounts 2005 79

Directors’ Report
For the year ended 31 December 2005
The directors present their report together with the audited financial statement
for the year ended 31 December 2005. The directors report for the
Consolidated Financial Statements can be found on pages 20 to 22 in
Section 1 of the Annual Report.
Introduction
The Evolution Group Plc (the “Company”) is a UK listed holding company
within the FTSE Smallcap Index for UK based financial services companies.
The Company is incorporated in England and Wales. The address of its
registered office is 100 Wood Street, London, EC2V 7AN.
Parent Company accounts
In accordance with Section 226(2)(a) of the Companies Act 1985, as revised
by the Companies Act 1985 (International Accounting Standards and Other
Accounting Amendments) Regulations 2004, the Board has elected to
continue to comply with UKGAAP in accordance with Section 226A for the
Company’s individual accounts. Hence, all UK subsidiaries within the Group
will continue to apply UKGAAP in their statutory accounts up to and as of
31 December 2005 as per Section 227C.
This financial information has been specifically prepared for the Company
only and consists of the Company’s Balance Sheet as at 31 December 2005
and related notes under UKGAAP. This information does not represent a full
set of standalone statutory accounts prepared fully under UKGAAP since the
Company has elected to utilise the exemptions provided under Section 230 of
the Companies Act 1985. Under this exemption, the Company does not have
to produce a profit and loss account and its related notes.
The Company’s directors do not foresee any change in the principal activities
of the Company over the coming year.
Results and dividend
During the year the Company made a profit after taxation and dividends
of £49,151,000 (2004: £46,326,000). The directors recommend the
payment of a final dividend of 0.80p per ordinary share (2004: 0.58p).
The dividend is payable on 2 June 2006 to shareholders on the register on
5 May 2006. This follows the interim dividend paid in November 2005 of
0.40p per share (2004: 0.17p).
Post balance sheet events
Full details of all significant post balance sheet events are set out in note 24.
Corporate Governance
Full corporate governance details are set out on pages 23 to 29 of the
Consolidated Financial Statements within Section 1 of the Annual Report.
Authority for Company to purchase its own shares
Full details of the Company’s authority to purchase its own shares are set out
on page 21 of the Directors’ Report within the Consolidated Financial
Statements found in Section 1 of the Annual Report.
Directors’ Interests
Disclosures outlining Directors’ Interests can be found within the Directors’
Remuneration Report on pages 30 to 36 of the Consolidated Financial
Statements found in Section 1 of the Annual Report.
Directors’ Remuneration
Disclosures outlining Directors’ Remuneration can be found within the
Directors’ Remuneration Report on pages 30 to 36 of the Consolidated
Financial Statements found in Section 1 of the Annual Report.
Risk management policies
Financial Risk Management
Full details of the Company’s Risk Management policies are disclosed in the
Corporate Governance Section on pages 23 to 29 of the Consolidated
Financial Statements within Section 1 of the Annual Report.
Creditor Payment Policy
It is the Company’s policy to agree the terms of payment to creditors at the
start of business with each supplier, ensure that suppliers are aware of the
terms of payment and to pay in accordance with its contractual and other
legal obligations.
Statement of Directors' Responsibilities
The following statement, which should be read in conjunction with the
independent auditors’ report set out on page 81 is made with a view to
distinguishing for shareholders the respective responsibilities of the directors
and of the independent auditors in relation to the financial statements.
The directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company as at the end of the financial year and of the profit
or loss for the financial year.
The directors consider that in preparing the financial statements on pages 82
to 93 that:
• the Company has used appropriate accounting policies, consistently
applied and supported by reasonable and prudent judgements and
estimates;
• all the accounting standards which they consider to be applicable have
been followed, and
• the financial statements have been prepared on a going concern basis.
The directors have responsibility for ensuring that the Company keeps
accounting records which disclose with reasonable accuracy the financial
position of the Company and which enable them to ensure the financial
statements comply with the Companies Act 1985.
The directors have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
The directors’ confirm that they have complied with the above requirements
in preparing the financial statements. So far as each director is aware, there
is no relevant audit information of which the Company’s auditors are
unaware.
Auditors
PricewaterhouseCoopers LLP have indicated their willingness to continue in
office, and pursuant to section 384 (1) of the Companies Act 1985, a notice
will be given of a resolution proposing to re-appoint PricewaterhouseCoopers
LLP as the Company’s auditors at the AGM.
BY ORDER OF THE BOARD
Yew Meng Fong
Secretary
29 March 2006
Independent Auditors’ Report to the Shareholders of the Evolution Group Plc
We have audited the parent company financial statements of The Evolution Group Plc for the year ended 31 December 2005 which comprise the Balance
Sheet and the related notes set out on pages 82 to 93. These parent company financial statements have been prepared under the accounting policies set out
on pages 83 to 84.
We have reported separately on the Group financial statements of The Evolution Group Plc for the year ended 31 December 2005.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the parent company financial statements in accordance with applicable law and United
Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the parent company financial statements in accordance with relevant legal and regulatory requirements in the United Kingdom and
International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for The Evolution Group Plc’s members
as a body in accordance with Section 235 of the United Kingdom Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial
statements have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' Report is not
consistent with the parent company financial statements, if the company has not kept proper accounting records or if we have not received all the information
and explanations we require for our audit.
We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements.
The other information comprises only the Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.
The maintenance and integrity of The Evolution Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since
they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting
policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient
evidence to give reasonable assurance that the parent company financial statements and the part of the Directors' Remuneration Report to be audited are free
from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the parent company financial statements.
Opinion
In our opinion:
• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state
of the company’s affairs as at 31 December 2005; and
• the parent company financial statements have been properly prepared in accordance with the Companies Act 1985.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
29 March 2006
The Evolution Group Plc Report & Accounts 2005 81

Balance Sheet
as at 31 December
2005 2004
Note (Restated)
£’000 £’000
FIXED ASSETS
Invesment in subsidiary undertakings 5 43,783 38,583
Subordinated loan 6 1,000 1,000
44,783 39,583
Current Assets
Debtors 7 3,418 6,915
Investments 8 1,068 45,049
Cash at bank and in hand 9 95,045 84,289
99,531 136,253
Creditors: Amounts falling due within one year 10 (3,580) (5,964)
Net Current Assets 95,951 130,289
Net Assets 140,734 169,872
Capital and Reserves
Called up ordinary share capital 11 2,255 2,495
Share premium account 12 27,942 26,223
Capital redemption reserve 13 274 -
Merger reserve 14 51,230 51,230
Fair value reserve 15 68 37,224
Profit and Loss reserve 16 58,965 52,700
Total equity shareholders’ funds 17 140,734 169,872
A statement of movement in equity shareholders’ funds is given in note 17.
The notes on pages 83 to 93 form an integral part of these financial statements.
The financial statements on page 82 were approved by the Board of Directors on 29 March 2006.
Graeme Dell Finance Director
Notes
to the financial statements
1. ACCOUNTING POLICIES
Under the exemptions provided within Section 230 of the Companies Act 1985, the Company has elected to not produce a profit and loss account and its related notes.
During the year the Company made a profit of £49,151,000 (2004: £46,326,000).
The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied, except for the first
time application of fair value accounting under the new Fair Value Accounting rules, as set out in Schedule 4 to the Companies Act 1985 relating to financial instruments,
and the adoption of the presentation requirements of Financial Reporting Standard 25, ‘Financial Instruments: Disclosures and Presentation’, (“FRS 25”) for which the
2004 comparatives have been restated as described below.
The application of the new Fair Value Accounting rules as described above requires adoption of FRS 25. The Company has elected to utilise the disclosure exemption
provided in FRS 25, since the consolidated accounts of the Evolution Group as set out in Section 1, are publicly available and include disclosures which are similar to
FRS 25. The adoption of the presentation requirements of FRS 25 and Fair Value Accounting rules has resulted in increasing the fair value reserves by £37,224,000.
There has been no impact on retained earnings as a result of this change in method.
The Company has adopted FRS 26, ‘Financial Instruments: Measurement’ (“FRS 26”) in these financial statements. The adoption of FRS 26 represents a change in
accounting policy and the comparative figures have been restated accordingly. Please refer to the change in accounting policy note below for further detail.
The Company has adopted FRS 20, ’share Based Payment’ (“FRS 20”) in these financial statements. The adoption of FRS 20 represents a change in accounting policy
and the comparative figures have been restated accordingly. Please refer to the change in accounting policy note below for further detail.
The Company has adopted FRS 21, ‘Events after the balance sheet date’ (“FRS 21”) in these financial statements. FRS 21 may only be adopted from 1 January 2005
but following adoption, the Company is required to restate any comparatives with respect to the change in accounting policy for dividends. The Company is therefore
required to disclose details of any proposed dividends agreed after the balance sheet date but before authorisation of these financial statements. The effects of this
adoption are described below in the change in accounting policy note.
Basis of preparation
The financial statements have been prepared under the historical cost convention, modified to include the fair valuation of financial instruments to the extent required or
permitted under the Companies Act 1985 (the “Act”) and detailed in the relevant accounting policies.
The preparation of financial statements in accordance with the Companies Act 1985 requires the use of certain critical accounting estimates. It also requires management
to exercise judgement in the process of applying the accounting policies. The notes to the financial statements set out areas involving a higher degree of judgement or
complexity, or areas where assumptions are significant to the financial statements.
Employee Benefits – Share based payments
The Company’s management awards certain employees and directors in the form of equity-settled share based payments, from time to time, on a discretionary basis.
In accordance with FRS 20, ’share-based payments’, preceded by UITF 17, equity-settled share-based payments are measured at fair value at the date of grant. Fair value
is measured by use of the Black-Scholes pricing model or, in the case of awards of call rights, which have an exercise price of 1 pence per ordinary share, the fair value
is based on the market value at the time of grant discounted by the dividend yield over the expected life. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the number of shares that will eventually vest.
The options are subject to three-year service vesting condition, and their fair value is recognised as an employee benefits expense with a corresponding increase in other
reserve equity over the vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share
premium within the Company when the options are exercised.
The Company has adopted FRS 20, ’share Based Payment’ in these financial statements. The adoption of FRS 20 represents a change in accounting policy and the
comparative figures have been restated accordingly. Please refer to the change in accounting policy note below for further detail.
Current asset investments
The Company recognises financial instruments from the contract date, and continues to recognise them until, in the case of assets, the rights to receive cash flows have
expired or the Company has transferred substantially all the risks and rewards of ownership, or in the case of liabilities, until the liability has been settled, extinguished or
has expired.
At the balance sheet date the only financial assets held by the Company were current asset investments.
Current asset investments are equity or fund investments with which the Company would seek to generate revenue. They are initially recognised at fair value including
direct and incremental transaction costs. They are subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate
component of equity, fair value reserve, until sale or when impaired, when the cumulative gain or loss is transferred to the profit and loss account.
The Company makes an assessment at each balance sheet date as to whether there is any objective evidence of impairment, being any circumstance where an adverse
impact on estimated future cash flows of the financial asset or group of assets can be reliably estimated. In the case of equity investments classified as current asset
investments, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognised in the profit and loss account) is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and
loss account on current asset investments are not reversed through the profit and loss account.
Determining fair value
From 1 January 2005
Where the classification of a financial instrument requires it to be stated at fair value, this is determined by reference to the quoted bid value in an active market wherever
possible. Where no such active market exists for the particular asset, the Company uses a valuation technique to arrive at the fair value, including the use of prices
obtained in recent arms’ length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
The fair values of short-term deposits, cash and overdrafts with a maturity of less than one year are assumed to approximate to their book values.
From 1 January 2004 to 31 December 2004
The current asset investments were recognised at the lower of cost or net realisable value. The prior year comparative numbers have been restated to reflect changes in
the accounting policy for current asset investments as described in the change in accounting policy note below.
The Evolution Group Plc Report & Accounts 2005 83

Notes
to the financial statements
- continued
1. ACCOUNTING POLICIES continued
Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange applicable at the date of the transaction. Assets and liabilities denominated in foreign currencies are
translated at the reporting date exchange rates.
Operating leases
Rentals applicable to operating leases where substantially all the benefits and risk of ownership remain with the lessor are charged to the profit and loss account on a
straight line basis over the term of the lease.
Investment in subsidiary undertakings
Investment in subsidiary undertakings is stated at historical cost less a provision for any impairment in value. Details of the principal subsidiary undertakings are given in
note 42 on page 62 of the Consolidated Financial Statements within Section 1 of the Annual Report. An impairment would arise if, in the opinion of the directors, a
subsidiary had suffered a permanent diminution in value. The loss on impairment is charged through the profit and loss account.
Loans
Loans are non-derivatives with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for loans with
maturities greater than twelve months after the balance sheet date in which case these are classified as fixed assets.
The Company has entered into a subordinated loan agreement with a subsidiary company, the details of which are given in note 6. This loan is measured at amortised
cost as the Company charges variable interest on the loan, together with any directly attributable transaction costs, to profit or loss on a systematic basis over the
instrument’s life.
Deferred tax
Deferred tax is accounted for under FRS 19, 'Deferred Tax' (“FRS 19”). This standard addresses the recognition, on a full provision basis, of deferred tax assets and
liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in the tax computations.
Deferred tax, provided at anticipated tax rates and on a non-discounted basis, is recognised in respect of all timing differences, arising from transactions or events that
result in an obligation to pay more tax in the future, or a right to pay less tax in the future, which have occurred at the balance sheet date. Assets are recognised on this
basis only to the extent that it is regarded as more likely than not that they will crystallise in the future.
Credit risk provisions
Provisions for bad and doubtful debts are recognised when the ultimate recoverability of outstanding balances deemed uncertain. The provision calculated is the amount
required to reduce debtors to their forecast recoverable amount.
Provisions
Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle
the obligation and it can be reliably estimated.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligation where the transfer of economic benefit
is uncertain or cannot be reliably measured. Contingent liabilities are not recognised. However, they are disclosed unless remote.
Trust Consolidation
The Trust is a separately administered trust which is funded by loans from the Company, and the assets of which comprise shares in the Company. The Company
recognises the assets and liabilities of the Trust in its own accounts and shares held by the Trust are recorded at cost as a deduction in arriving at shareholders’ funds until
such time as the shares vest unconditionally to employees.
Change in accounting policy
The Company has adopted FRS 26, ‘Financial Instruments: Recognition and Measurement’ (“FRS 26”). The adoption of FRS 26 represents a change in accounting policy
and the comparative figures have been restated accordingly. At 1 January 2005 the Company’s investment in IP2IPO Group Plc was adjusted to fair value with
£37,224,000 debited to current asset investments and £37,224,000 credited to fair value reserve. This has been reversed through the profit and loss account on
disposal at 13 March 2005.
The Company has adopted FRS 20, ’share Based Payment’ (“FRS 20”). The adoption of FRS 20 represents a change in accounting policy and the comparative figures
have been restated accordingly. Other staff costs includes an amount of £1,891,000 (2004: £3,099,000) in relation to the cost of options granted to employees by the
Company. Following the adoption of FRS 20 during the year this amount is calculated based on the fair value of options granted, spread over the vesting period. The effect
of this adoption is to reduce the prior year profit by £543,000. The credit entry for this charge has been taken to profit and loss reserves within equity.
In addition, in recognition of the issue of the equity instruments (the options) to employees of other group companies, the Company has increased its equity through the
profit and loss reserve by £4,847,000 in the year (2004: £1,829,000, 2003: £518,000). The debit entry to this represents an increase in investments in subsidiaries
as presented in note 5.
The effect on comparatives is to increase the investments in subsidiaries in the prior years by £2,347,000 with a corresponding increase in profit and loss reserves.
The Company has adopted FRS 21, ‘Events after the balance sheet date’ (“FRS 21”). The adoption of FRS 21 represents a change in accounting policy and the
comparative figures have been restated accordingly. FRS 21 may only be adopted from 1 January 2005 but following adoption, the Company is required to restate any
comparatives with respect to the change in accounting policy for dividends. The Company is therefore required to disclose details of any proposed dividends agreed after
the balance sheet date but before authorisation of these financial statements. The effect of this adoption is to reduce dividends charged during 2003 by £616,000 with a
corresponding increase in retained earnings. The effect during 2004 is to increase dividends by the £616,000 and to then decrease dividends charged by £1,428,000
for the 2004 proposed dividend. The net impact of £812,000 increases retained earnings. The £1,428,000 is then charged during 2005 thus increasing dividends
charged with a corresponding decrease in retained earnings.
2. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Through its normal operations, the Company is exposed to a number of risks, the most significant of which are market, currency, liquidity and interest rate risks.
The Company’s investing activities expose it to a variety of financial risks that include the effects of changes in equity security prices, foreign currency exchange rates,
liquidity and interest rates. The Company has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Company
by using foreign currency financial instruments, to fix foreign exchange rates.
The Company’s directors have delegated to a sub-committee, the Risk Committee, the responsibility for setting the risk management policies applied by the Company and
its subsidiaries. The policies are implemented by the Treasury Department, which receives regular reports from all the trading desks to enable prompt identification of
financial risks so that appropriate actions may be taken. The Treasury Department has a policy and procedures manual that sets out specific guidelines to manage foreign
exchange risk, interest rate risk and the use of financial instruments to manage these. The management of these risks is vested in the board of directors.
In the normal course of business, the Company uses certain financial instruments including cash, and current and fixed asset investments.
The Company’s cash and short term deposits (excluding amounts held by the Trust) were as follows:
2005 2004
£’000 £’000
On current account 94,450 84,072
The notice period for short term deposits is one day.
The interest rate for short term deposits and current accounts is variable dependent on the rates offered by the Company’s bankers.
Current and fixed asset investments are funded by shareholders’ funds.
94,450 84,072
The Company has detailed policies and strategies in respect of these financial instruments, which seek to minimise the associated risks.
The fair value of current asset investments has been disclosed in note 8.
Management of Market Risk
The Company is exposed to market risk in respect of its equity investments. These comprise of current asset investments.
Management of Foreign Exchange Risk
The Company utilises forward exchange contracts to manage the exchange risk on actual transactions related to amounts receivable, denominated in a currency other
than the functional currency of the Company. The Company’s forward exchange contracts do not subject the Company to risk from exchange rate movements because the
gains and losses on such contracts offset losses and gains, respectively, on the underlying foreign currency transactions to which they relate. The forward contracts and
related amounts receivable are recorded at fair value at each period end. Fair value is estimated using the settlement rates prevailing at the period end.
All gains and losses resulting from the settlement of the contracts are recorded within net trading income in the profit and loss account. The Company does not enter into
forward exchange contracts for the purpose of hedging anticipated transactions.
Management of Liquidity Risk
The Company seeks to manage liquidity risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
Management of Interest rate risk
The Company has interest bearing assets in mainly cash and cash equivalents. The Company has a policy of maintaining excess funds in cash and short term deposits
and is not exposed to short-term and long-term interest rate risk. At the year-end, all of the Company’s excess funds were invested in cash and short-term deposits. The
Company’s does not use any derivatives to hedge interest rate risk.
Current asset investment
This comprises of an investment in an unlisted managed fund. The Company does not actively invest in current asset investments. Performance is reviewed by
management who will also decide when to realise investments.
3. EMPLOYEES
Average employee numbers during the year were as follows:
2005 2004
Company 10 8
Actual full time employee numbers were 9 at 1 January 2005 and 9 at 31 December 2005. Costs in relation to employees are borne by the Company in the form of a
management recharge which is included within staff costs.
Fees relating to the audit of the Company were £132,000 (2004: £88,000). The independence of the Company’s auditors in providing non-audit services is described in
the Corporate Governance report on pages 23 to 29 in Section 1 of the Annual Report.
The Evolution Group Plc Report & Accounts 2005 85

Notes
to the financial statements
- continued
4. DIVIDENDS
2005 2004
(Restated)
£’000 £’000
Final paid: 0.58p (2003: 0.25p) per 1p share 1,307 616
Interim paid: 0.40p (2004: 0.17p) per 1p share 859 421
2,166 1,037
Dividends amounting to £63,819 (2004: £18,742) in respect of the Company’s shares held by an employee share trust have been waived and accordingly deducted in
arriving at the aggregate dividends proposed.
In addition, the directors are proposing a final dividend in respect of the financial year ended 31 December 2005 of 0.80p per share which will absorb an estimated
£1,772,000 of shareholders’ funds. It will be paid on 2 June 2006 to shareholders on the register of members on 5 May 2006.
The Company has adopted FRS 21, ‘Events after the balance sheet date’. The effects of this adoption are described in note 1 within changes in accounting policy.
5. INVESTMENT IN SUBSIDIARY UNDERTAKINGS
2005 2004
(Restated)
£’000 £’000
Cost
At 1 January 44,510 117,607
Additions 357 333
Issue of equity instruments to employees of subsidiaries 4,847 1,829
Disposals (4) (75,259)
At 31 December 49,710 44,510
Provision for impairment
At 1 January 5,927 22,736
Additions - 3,601
Disposals - (20,410)
At 31 December 5,927 5,927
Net book values
At 1 January 38,583 94,871
At 31 December 43,783 38,583
Additions
On 30 September 2005, the Company acquired 923 shares for £355,355 in ESCL following a new share issue by the company. On 4 November 2005 the Company
purchased a further 11 shares for £2,117 from existing shareholders.
In addition, in recognition of the issue of equity instruments (the options) to employees of other group companies, the Company has increased its investments in
subsidiaries by £4,847,000 in the year (2004: £1,829,000, 2003: £518,000). The credit entry to this represents an increase in the Company’s profit and loss reserve
as shown in note 16.
Disposals
On 28 April 2005, the Company disposed of 52 shares in ESCL to existing shareholders for net proceeds of £4,652.
Prior year adjustments
The prior year comparatives for disposals in both cost and provision have been restated by £8,605,000, representing the cost of investment, and related impairment,
in Capital Exchange Limited, a legacy subsidiary investment that was disposed of through Members Voluntary Liquidation in 2004.
6. SUBORDINATED LOAN
2005 2004
£’000 £’000
Subordinated loan to Christows Limited 1,000 1,000
The subordinated loan, as approved by the FSA, of £1,000,000 made to Christows Limited, was drawn in two equal tranches on 19 September 2002 and 3 April 2003
respectively, and is repayable on the date specified by notice in writing by either party being not less than two years after the date of which the notice is given. The loan is
interest bearing at a rate equal to the base rate, which had the following rates during the year: 4.75% for the period January to July and 4.50% for the period August to
December.
7. DEBTORS
2005 2004
£’000 £’000
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 1,624 5,154
Other debtors 232 4
Prepayments and accrued income 24 195
1,880 5,353
Amounts falling due after more than one year:
Deferred tax asset 1,538 1,562
3,418 6,915
Deferred tax asset
£’000
As at 1 January 2005 1,562
Debit to the profit and loss account (24)
As at 31 December 2005 1,538
The deferred tax asset at 31 December 2005 of £1,538,000 relates to share options (2004: £1,562,000).
8. CURRENT ASSET INVESTMENTS
2005 2004
(Restated)
£’000 £’000
Current asset investments 1,068 45,049
Current asset investments include amounts invested in the Wickam Fund, a fund managed by Wickam Management Limited. The original investment of £1,000,000 has
be adjusted to fair value at 31 December 2005 and as a result the investment has been increased by £68,400 with a corresponding credit to Fair Value reserves.
The Company has adopted FRS 26, ‘Financial Instruments: Recognition and Measurement’. The effects of this adoption are described in note 1 within the changes in
accounting policy note.
9. CASH AT BANK AND IN HAND
Cash at bank includes £595,000 (2004: £217,000) held with the Company’s Trustees.
10. CREDITORS: amounts falling due within one year
2005 2004
£’000 £’000
Amount owed to subsidiary undertakings 1,124 520
Corporation tax 709 716
Other taxation and social security 1 -
Accruals and deferred income 1,746 4,728
11. SHARE CAPITAL
Full details of the Company’s share capital are disclosed in note 32 of the Consolidated Financial Statements within Section 1 of the Annual Report.
12. SHARE PREMIUM ACCOUNT
3,580 5,964
Full details of the Company’s share premium account are disclosed in note 33 of the Consolidated Financial Statements within Section 1 of the Annual Report.
13. CAPITAL REDEMPTION RESERVE
Full details of the Company’s share capital are disclosed in note 34 of the Consolidated Financial Statements within Section 1 of the Annual Report.
14. MERGER RESERVE
Full details of the Company’s merger reserve are disclosed in note 35 of the Consolidated Financial Statements within Section 1 of the Annual Report.
The Evolution Group Plc Report & Accounts 2005 87

Notes
to the financial statements
- continued
15. FAIR VALUE RESERVE
2005 2004
(Restated)
£’000 £’000
At 1 January 2005 37,224 -
Revaluation of current asset investments 68 37,224
Fair value reserve transferred to profit and loss account on disposal (37,224) -
At 31 December 2005 68 37,224
The Company has adopted FRS 26, ‘Financial Instruments: Recognition and Measurement’. The adoption of FRS 26 represents a change in accounting policy and the
comparative figures have been restated accordingly. The effects of this adoption are described above in note 1 within changes in accounting policy.
16. PROFIT & LOSS ACCOUNT RESERVE
2005 2004
(Restated)
£’000 £’000
At 1 January as previously reported 52,700 3,750
Adjustment to 2003 as a result of adopting FRS 21 - 616
Adjustment to 2003 as a result of adopting FRS 20 - 518
At 1 January as restated 52,700 4,884
Profit for the financial year 51,317 47,363
Dividends (738) (1,849)
Reversal of prior year adjustment in current year following FRS 21 adoption (1,428) (616)
Adjustment to current year as a result of adopting FRS 21 - 1,428
Purchase of own shares (49,624) (3,438)
Issue of equity instruments to employees of subsidiaries 4,847 1,829
Share options 1,891 2,556
Adjustment to prior year as a result of adopting FRS 20 543
At 31 December 2005 58,965 52,700
17. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS’ FUNDS
2005 2004
(Restated)
£’000 £’000
Equity shareholders’ funds at 1 January as previously reported 169,872 83,197
Adjustment to 2003 as a result of adopting FRS 21 - 616
Adjustment to 2003 as a result of adopting FRS 20 - 518
Equity shareholders’ funds at 1 January 169,872 84,331
Issues of ordinary share capital 1,753 501
Share options 1,891 2,556
Adjustment to prior year as a result of adopting FRS 20 - 543
Issue of equity instruments to employees of subsidiaries 4,847 1,829
Purchase of own shares (49,624) (3,438)
Fair value reserve (37,156) 37,224
Dividends (738) (1,849)
Reversal of prior year adjustment in current year following FRS 21 adoption (1,428) (616)
Adjustment to current year as a result of adopting FRS 21 - 1,428
Profit for the financial year 51,317 47,363
Equity shareholders’ funds at 31 December 140,734 169,872
18. CONTINGENT LIABILITIES
In the ordinary course of business the Company has given letters of indemnity to clients in respect of lost share certificates. Although the contingent liability arising from
these cannot be precisely quantified, it is not believed to be material.
In common with other market participants, during the year the Company has issued a guarantee for the potential default of trading obligations and liabilities on trades
between Evolution Securities Limited and a third party for amounts up to £5 million.
The Company has issued letters of support to Evolution Capital Investments Limited, Christows Investments Dublin and Evolution Group Services Limited to provide
financial support to enable the subsidiaries to meet liabilities as and when they fall due.
19. CAPITAL COMMITMENTS
The Company had no capital commitments at 31 December 2005 (2004: nil).
20. OPERATING LEASE COMMITMENTS
The lease on the current premises is in the name of Evolution Group Services Limited, another Group company, details of which can be seen in the accounts of that
company. Evolution Group Services Limited recharges the Company for usage of the premises in Wood Street.
21. RELATED PARTY TRANSACTIONS
The Company has taken advantage of the exemption under the provisions of Financial Reporting Standard 8, ‘Related Party Disclosures’ not to disclose transactions with
other Group companies since the Company is the Parent Company of The Evolution Company Plc, the Consolidated Financial Statements of which are publicly available.
During the year there have been no transactions with related parties other than Group companies.
Refer to note 44 in the Consolidated Financial Statements within Section 1 of the Annual Report for disclosures for related party transactions for the Group.
22. CASH FLOW STATEMENT
The Company has elected to utilise the exemption provided in Financial Reporting Standard 1 (revised 1996) ("FRS 1") 'Cash Flow Statements' to not produce a cash
flow statement, since the Company is the Parent Company of The Evolution Group Plc, the consolidated accounts of which are publicly available.
23. EMPLOYEE SHARE SCHEMES
The following table summarises the options issued to Company employees and directors at 31 December 2005.
Weighted Weighted
Weighted average average
average exercise price exercise price Exercisable
Exercise At 1 Granted Exercised Forfeited At 31 share price of exercised of forfeited at 31
price January in the in the in the December at exercise shares shares December
(pence) 2005 period period period 2005 (pence) (pence) (pence) 2005
Options over new shares
EVG 2002 Executive Share
Incentive Plan 1.00 9,125,000 - - (1,312,500) 7,812,500 - - 1.00 4,000,000
EVG 2001 Executive Share
Option Scheme 41.40-52.30 2,000,000 - - - 2,000,000 - - - 1,500,000
EVG 2000 Executive
Share Option Scheme 58.67 4,051,866 - 2,025,933 - 2,025,933 133.00 58.67 - 2,025,933
EVG 2000 Executive
Share Option Scheme 58.67 1,065,632 - - - 1,065,632 - - - 1,065,632
Other options 25.00 575,000 - 575,000 - - 137.45 25.00 - -
16,817,498 - 2,600,933 (1,312,500) 12,904,065 133.99 51.23 1.00 8,591,565
The Evolution Group Plc Report & Accounts 2005 89

Notes
to the financial statements
- continued
23. EMPLOYEE SHARE SCHEMES continued
The following table summaries the options issued to Company employees and directors at 31 December 2004.
Exercise Exercisable
price At 1 January Granted in Exercised in Forfeited in At 31 December at 31 December
(pence) 2005 the period the period the period 2004 2004
Options over new shares
EVG 2002 Executive Share
Incentive Plan 1.00 6,500,000 2,625,000 - - 9,125,000 2,000,000
EVG 2001 Executive Share 41.40-
Option Scheme 52.30 2,000,000 - - - 2,000,000 1,500,000
EVG 2000 Executive
Share Option Scheme 58.67 4,051,866 - - - 4,051,866 4,051,866
EVG 2000 Executive
Share Option Scheme 58.67 1,065,632 - - - 1,065,632 1,065,632
Other options 25.00 575,000 - - - 575,000 575,000
14,192,498
No awards were exercised, forfeited or expired during 2004.
2,625,000 - - 16,817,498 9,192,498
The number of options outstanding by issue date and exercise price, together with the vesting periods, the fair values, and the assumptions used to calculate it, and the
actual remaining contractual life as at 31 December 2005 are as follows:
Market
Exercise Number of value Vesting Expected Expected Dividend Fair Life
price awards at grant Period life volatility Yield Interest value remaining
(pence) outstanding (pence) (years) (years) (%) (%) (%) (pence) (years)
EVG 2002 Executive Share
Incentive Plan
6 Jul 2004 1.00 1,312,500 141.50 3.0 5.0 N/A 0.30 N/A 139.40 8.52
13 Nov 2003 1.00 6,000,000 102.50 0-2.3 5.0 N/A 0.00 N/A 102.50 7.87
31 Jan 2003
EVG 2001 Executive Share
Option scheme
1.00 500,000
7,812,500
48.50 3.0 5.0 N/A 0.00 N/A 48.50 7.09
31 Jan 2003 41.40 500,000 48.50 3.0 5.0 73 0.52 4.04 31.71 7.09
29 Jun 2001
EVG 2000 Executive Share
Option scheme
52.30 1,500,000
2,000,000
58.11 3.0 N/A N/A N/A N/A N/A 5.50
11 May 2001 58.67 2,025,933 58.67 3.0 N/A N/A N/A N/A N/A 5.36
11 May 2001 58.67 1,065,632 58.67 3.0 N/A N/A N/A N/A N/A 5.36
12,904,065
The number of options outstanding by issue date and exercise price, together with the vesting periods, the fair values, and the assumptions used to calculate it, and the
actual remaining contractual life as at 31 December 2004 are as follows:
Market
Exercise Number of value Vesting Expected Expected Dividend Fair Life
price awards at grant Period life volatility Yield Interest value remaining
(pence) outstanding (pence) (years) (years) (%) (%) (%) (pence) (years)
EVG 2002 Executive Share
Incentive Plan
6 Jul 2004 1.00 2,625,000 141.50 3.0 5.0 N/A 0.30 N/A 139.40 9.52
13 Nov 2003 1.00 6,000,000 102.50 0-2.3 5.0 N/A 0.00 N/A 102.50 8.87
31 Jan 2003
EVG 2001 Executive Share
Option scheme
1.00 500,000
9,125,000
48.50 3.0 5.0 N/A 0.00 N/A 48.50 8.09
31 Jan 2003 41.40 500,000 48.50 3.0 5.0 73 0.52 4.04 31.71 8.09
29 Jun 2001
EVG 2000 Executive Share
Option scheme
52.30 1,500,000
2,000,000
58.11 3.0 N/A N/A N/A N/A N/A 6.50
11 May 2001 58.67 4,051,866 58.67 3.0 N/A N/A N/A N/A N/A 6.36
11 May 2001 58.67 1,065,632 58.67 3.0 N/A N/A N/A N/A N/A 6.36
Other options
14 Dec 2000 25.00 575,000 67.50 0 N/A N/A N/A N/A N/A 5.96
16,817,498
23. EMPLOYEE SHARE SCHEMES continued
All options in the above table have a life from grant of 10 years.
In the above tables EVG refers to The Evolution Group Plc and BGG refers to Beeson Gregory Group Limited. The Group acquired the BGG share schemes in its
acquisition of Beeson Gregory Group on 11 July 2002.
The Company currently operates one share trust. The Evolution Group Plc Employees’ Share Trust (the “Trust”) administers The Evolution Group Plc share schemes and
is managed by the Sanne Trust.
Options under the share incentive schemes are valued using a Black-Scholes model adjusted for dividends according to those declared by the Company. The Company
estimates the number of options likely to vest and expenses that value over the relevant period. Volatility has been estimated by taking the historical volatility in the
Company’s share price over a three year period.
In the case of awards of call rights which, have an exercise price of 1p per ordinary share, the fair value is based on the market value at the time of grant discounted by
the dividend yield over the expected life.
Movements in the number of share options and their weighted average exercise prices are as follows:
2005 2004
Average Average
exercise exercise
price Outstanding price Outstanding
(pence per share) options (pence per share) options
At 1 January 25.15 16,817,498 29.61 14,192,498
Granted - - 1.00 2,625,000
Exercised 51.23 (2,600,933) - -
Forfeited 1.00 (1,312,500) - -
At 31 December 22.35 12,904,065 25.15 16,817,498
The weighted average market value of the shares issued during the year upon exercise was £1.34 (2004: £nil)
The date range over which the above options may be exercised is described in the relevant scheme details below. The overall weighted average life of the remaining
options is 7.00 years (2004: 7.85).
Full disclosure of all options granted is disclosed in note 45 of the Consolidated Financial Statements in Section 1 of this document.
The Evolution Group Plc 2002 Executive Share Incentive Plan
This plan was approved by the Board on 13 March 2002 and by shareholders on 10 October 2003.
Eligibility
Any director of the Company, or a Group company, and any employee of the Company, or a Group company, may be invited to participate in the plan.
Nature of Plan
The plan provides for participants to be awarded shares in the Company at their nominal cost. Subject to achievement of performance criteria, awards of shares convert
into call rights over such shares. The plan is operated in conjunction with an employee benefit trust on three levels.
It is operated as a standalone plan and it is also used as the framework for the Key Performers Share Incentive Plan (“KPSIP”) introduced for employees of Evolution
Securities Limited in January 2003 and the Market Making and Trading Share Incentive Plan (“MMTSIP”) introduced for the market making team of ESL in January
2005 where it forms the method of delivery of such awards made within the KPSIP framework.
Performance criteria
• Standalone plan
Under the standalone plan the basic performance criteria used prior to the vesting of awards was growth in earnings of 15% per annum over the vesting period of the
award. Additionally, the satisfactory employment by the individual within a Group company throughout the period following grant of an award is required. From January
2006, following the review by the Remuneration Committee, it was concluded that the continued imposition of performance criteria for all awards on the basis of 15%
earnings growth was too generally applied and that where awards were made to employees of the Group’s operating subsidiaries, then the sole general criteria should be
that of continued satisfactory employment within a Group company. This is because individual employees do not by themselves have particular influence upon the
achievement of the earnings growth target. Furthermore, the Remuneration Committee observed that the imposition of this target were undermining the financial and
retention values of share awards.
• KPSIP
Under the KPSIP, employees may be granted an initial award and two subsequent awards at the first and second anniversary of the initial award. Up to 50% of each
award, once made may be clawed back dependent upon the individual’s performance during the twelve months following the award, as measured within the Group
company’s annual appraisal process. The level of subsequent awards is also directly related to the individual’s overall performance rating within the company’s annual
appraisal process. Additionally, the satisfactory employment by the individual within a Group company throughout the period following grant of an award is required. The
performance criteria for the aggregate growth in earnings was removed for all awards on 20 January 2006 as outlined above for the standalone plan.
• MMTSIP
Under the MMTSIP, employees of the market making team of ESL may be granted an initial award and two subsequent awards at the first and second anniversary of the
initial award. Each award is allocated to individuals within this team in the following January based upon strict performance criteria in 2005, dependent upon the
individual’s performance during the twelve months following the award. The award will ultimately vest after three years subject to the basic scheme target of aggregate
growth in earnings (based upon the adjusted operating profit) of the Company of 15% per annum over the vesting period of the award. Additionally, the satisfactory
employment by the individual within a Group company throughout the period following grant of an award is required. The price to be paid on exercise of these awards is
the greater of £1 or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant. The performance criteria for
the aggregate growth in earnings was removed for all awards on 20 January 2006 as outlined above for the standalone plan.
The Evolution Group Plc Report & Accounts 2005 91

Notes
to the financial statements
- continued
23. EMPLOYEE SHARE SCHEMES continued
Call rights
After achievement of the performance criteria and vesting of the award, a call right is granted to the individual exercisable, subject to continued satisfactory employment,
within ten years of the date of the original award
Scheme Limits
The number of shares which may be issued to satisfy awards under this plan is limited to 10% of the issued share capital of the Company from time to time.
Options granted
At 31 December 2005 awards and call rights over 7,812,500 shares (2004: 9,125,000) were outstanding at an exercise price of the greater of £1 or the nominal value
of the shares to be subscribed for. The call rights can be exercised between 14 November 2003 and 6 July 2014.
The Evolution Group Plc 2001 Executive Share Option Scheme
This scheme was approved by shareholders on 21 June 2001.
Eligibility
Any director who is required to devote the whole or substantially the whole of his working time to the service of the Company, or a group company, and any employee of
the Company, or a Group company, may be invited to participate in either Ordinary or Super options.
Option price
The exercise price shall be determined by the directors but shall not, unless approved by ordinary resolution of the shareholders be less than the greater of nine-tenths of
the market value of the share at the date of the grant and the nominal value of a share.
Performance criteria
The option exercise may be conditional upon the performance of the Company and /or the participant over such period and measured against such objective criteria as
may be determined by the directors. The initial performance criteria established by the directors of the Company were that the closing bid price of a share in The Evolution
Group Plc as derived from the Daily Official List published by The London Stock Exchange must be not less on average than a specified amount for a period of 60
consecutive days before options can be exercised. If the average share price is 90p, then 25% of the options may be exercised; at 110p a further 25% may be exercised;
at 130p then a further 25% may be exercised; and at 150p, the remaining 25% may be exercised. At a meeting of the Board on 21 November 2002, approval was
given to the waiving of these initial performance criteria for all new options granted under the scheme by varying the scheme rules. This recommendation was made by
the Remuneration Committee, having made comparisons with the practice of other groups and taken the appropriate legal advice.
Exercise of options
An option may not be exercised later than the tenth anniversary after the date of grant. The earliest date of exercise is generally two years after the date of grant for
Ordinary options and three years after the date of grant for Super options.
Scheme Limits
The overall limit on the number of shares which may be issued to satisfy Ordinary options, is 10% of the issued share capital and for Super options, is 5% of the issued
share capital of the Company.
Options granted
At 31 December 2005 nil Ordinary options (2004: nil) and 2,000,000 Super options (2004: 2,000,000) were outstanding with exercise prices between 41.4p and
52.3p. The options can be exercised between 29 June 2004 and 31 January 2013.
The Evolution Group Plc 2000 Executive Share Option Scheme (Unapproved)
This scheme was approved by shareholders on 20 November 2000.
Eligibility
Any director of the Company, or a Group company, and any employee of the Company, or a Group company, may be invited to participate in either Ordinary or Super options.
Option price
The exercise price shall be determined by the directors but shall not be less than the greater of the market value of the share at the date of grant or the nominal value
of a share.
Performance criteria
The option exercise on Ordinary options may be conditional upon the performance of the Company and /or the participant over such period and measured against such
objective criteria as may be determined by the directors. There are no performance criteria for Super options.
Exercise of options
An option may not be exercised later than the tenth anniversary after the date of grant. The earliest date of exercise is generally three years after the grant for Ordinary
options and five years after the date of grant for Super options.
Scheme Limits
The overall limit on the number of shares which may be issued to satisfy Ordinary options, is 10% of the issued share capital and for Super options, is 5% of the issued
share capital of the Company.
Options granted
At 31 December 2005, 2,025,933 Ordinary options (2004: 4,051,866) and 1,065,632 Super options (2004: 1,065,632) were outstanding with an exercise price of
58.67p. The options can be exercised between 11 May 2004 and 11 May 2011.
23. EMPLOYEE SHARE SCHEMES continued
The Evolution Group Plc 2000 Executive Share Option Scheme (Approved)
The terms of this scheme are exactly the same as the Unapproved 2000 scheme save the restriction that no individual shall be granted options over shares with an
aggregate market value (calculated as the strike price at date of grant) exceeding £30,000.
Options granted
No options were outstanding in either periods.
Other Options
As at 31 December 2005, there were also the following options in issue which were outside any other option scheme:
Alex Snow and a former employee, Andrew Beaton were granted by the Company, on 14 December 2000, options to subscribe for up to 500,000 ordinary shares and
300,000 ordinary shares respectively at 25p per share at any time between 14 December 2000 and 13 December 2005.
At 31 December 2005 nil (2004: 575,000) options over existing shares were outstanding.
24. POST BALANCE SHEET EVENTS
On 5 January 2006, following the purchase and cancellation of own shares by one of the Company’s investments, Wickam Capital Limited and the Company’s purchase
of a further 18,068 shares at £2.48 the Company’s holding in this investment increased from 16.7% to 40.0%.
On 17 January 2006, 1,877,500 options were granted to certain employees under The Evolution Group Plc 2001 Executive Share Option Scheme at an exercise price of
128.7p. These awards will ultimately vest after three years subject to the satisfactory employment by the individual within a Group company throughout the period
following the grant.
On 18 January 2006, the Company received notification from Evolution EBT Limited (the “Trustee”) as Trustee of The Evolution Group Plc Employees’ Share Trust ((the
“Trust”), a discretionary trust of which all employees of The Evolution Group Plc and its subsidiaries are beneficiaries), that Alex Snow (Director and Chief Executive Officer)
exercised call rights at an exercise price of 1p per share (“Call Rights”) over 4,000,000 ordinary shares of 1p each. These call rights were granted to Alex Snow on 13
November 2003 under The Evolution Group Plc 2002 Executive Share Incentive Plan (the “Plan”) and had vested in previous years in accordance with the performance
criteria attached to the Call Rights. The Trustee also notified the Company that on 18 January 2006, it had disposed of 1,656,504 shares at a sale price of 143.0p per
share on behalf of Alex Snow solely to cover the exercise and taxation costs of the Call Rights transaction and that the balance of 2,343,496 shares arising from the Call
Rights exercise were transferred to Alex Snow.
On 18 and 20 January 2006 certain employees were granted awards of ordinary shares under The Evolution Group Plc 2002 Executive Share Incentive Plan. These
awards total 392,796 shares. The satisfactory employment by the individual within a Group company throughout the period following grant of an award is required for
vesting to take place. The price to be paid on exercise of these awards is the greater of £1 or the nominal value of shares to be subscribed for. The awards may be
exercised after three years from the date of grant.
On 20 January 2006 certain employees were granted awards of ordinary shares under the Key Performers Share Incentive Plan. These awards total 2,100,400 shares
and will be subject to the performance of individuals over the twelve months from issue. Up to 50% of this award, once made may be clawed back dependent upon the
individual’s performance during the twelve months following the award, as measured within the group company’s annual appraisal process. The level of subsequent
awards is also directly related to the individual’s overall performance rating within the company’s annual appraisal process. Additionally, the satisfactory employment by
the individual within a Group company throughout the period following grant of an award is required. The price to be paid on exercise of these awards is the greater of £1
or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant.
In addition, on 20 January 2006 the market making and trading team of ESL was granted the second of three equal awards of 500,000 ordinary shares under the
Market Making and Trading Share Incentive Plan (“MMTSIP”). This award will be allocated in January 2007 to employees within this team, based upon strict
performance criteria in 2006, dependent upon the individual’s performance during the twelve months following the award. The award will ultimately vest after three years,
subject to the satisfactory employment by the individual within a Group company throughout the period following grant. The price to be paid on exercise of these awards
is the greater of £1 or the nominal value of shares to be subscribed for. The awards may be exercised after three years from the date of grant.
The directors are proposing a final dividend in respect of the financial year ending 31 December 2005 of 0.80p per share, which will absorb an estimated £1,772,000 of
shareholders’ funds. It will be paid on 2 June 2006 to shareholders on the register of members on 5 May 2006.
On 23 March 2006 Lord MacLaurin purchased 25,000 shares in the Company.
On 23 March 2006 Oliver Vaughan purchased 13,933 shares in the Company.
Further, the Company has in the financial year ending 31 December 2006 purchased an aggregate of 500,000 Shares having a nominal value of £5,000 for an
aggregate consideration of £790,000, an average cost of 158.0p.
The Evolution Group Plc Report & Accounts 2005 93

Directors and Advisors
Directors
Martin Gray (Non-executive Chairman)
Alex Snow (Chief Executive)
Graeme Dell (Finance Director)
Lord MacLaurin of Knebworth, DL (Non-executive)
Nicholas Irens (Non-executive)
Oliver Vaughan (Non-executive)
Company Secretary
Yew Meng Fong
Registered Office
9th Floor
100 Wood Street
London EC2V 7AN
Auditors
PricewaterhouseCoopers LLP
Southwark Towers
32 London Bridge Street
London SE1 9SY
Solicitors
Stringer Saul LLP
17 Hanover Square
London W1S 1HU
Broker
Credit Suisse
One Cabot Square
London E14 4QJ
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4BR
Registered number
03359425
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