Annual Report for the year ended 31 December 2008

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2. FinanCial instRUments and RisK manaGement (CONTINuED) 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 exposed to short-term 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. At 31 December 2008 if liBor market interest rates had been 100 basis points higher/lower with all other variables held constant, profit for the year would have been £1,026,000 (2007: £504,000) higher and £1,026,000 (2007: £504,000) lower respectively. (b) Management of Credit Risk The Group has exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Group by failing to discharge an obligation. credit risk exposure is generated primarily from the settlement risk on equities and fixed income. This is principally the risk that counterparty fails to settle a 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 prices at which the trade was executed and the current price. This is termed the mark-to-market value. The Group is also exposed to credit risk on outstanding receivables; exposure to this risk is managed by taking into account financial position, past experience and other factors for the customers. The Group does not lend money nor does it trade in oTc derivatives and the longest dated transactions are limited to trade date plus twenty five business days. Credit Risk Control counterparty receivables represent monies due from institutional trading counterparts. 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. limits are based on either the amount of assets under management or risk assessments from a third party provider. Where data is not available the limit is based on the net assets and profitability of the counterparty. new accounts cannot begin to trade until the credit review has been completed and the counterparty assessed as credit worthy. The chart below summarises the credit quality of the Group's financial assets by third party credit ratings (if available): 2008 % 1. AAA-A rATeD 2. un-rATeD – privATe clienT cusToDiAn % 61 priMe BroKers 3. un-rATeD – invesTMenT BAnKinG 4 insTiTuTionAl clienTs 19 4. un-rATeD 16 The ratings noted above have been derived using source information from standard & poor and Moody's. All financial assets over an “A” rating are consolidated under the “AAA-A” category and include as cash and cash equivalents, trade debtors and counterparties. Where an asset is un-rated, that is, there is no recognised external rating applicable to the asset, we have created sub-divisions to further distinguish the asset classes. All un-rated assets have undergone a thorough credit review and have been allocated internal ratings based on this review. each day the risk Department prepares a counterparty exposure report that shows all credit risk exposures, potential future 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 £101.7m of its cash balance deposited with a single AA rated uK Bank. however there are no significant concentrations of credit risk with unrated counterparties. All items classified as neither past due nor impaired, following the credit reviews described above, are considered to be recoverable and therefore of a credit quality that do not require impairment. The table below of financial assets analyses amounts due by ageing: Neither past Past due but not impaired Greater than Carrying due nor impaired 0-3 months 3-6 months 6-9 months 1 year Impaired value 31 December 2008 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Trade receivables 4,002 685 798 42 60 (384) 5,203 counterparty receivables 32,246 6,273 99 950 892 (1,454) 39,006 other receivables 5,832 57 48 – 24 – 5,961 Available-for-sale financial assets 1,056 – – – – – 1,056 Trading portfolio assets 5,034 – – – – – 5,034 cash and cash equivalents 103,639 – – – – – 103,639 Amounts owed from Group undertakings 693 – – – – – 693 152,502 7,015 945 992 976 (1,838) 160,592 notes to tHe FinanCial statements CONTINuED FOR THE YEAR ENDED 31 DECEMBER 2008 52 The evoluTion Group plc AnnuAl reporT & AccounTs 2008 2007 % 1. AAA-A rATeD 2. un-rATeD – privATe clienT cusToDiAn % 60 priMe BroKers 3. un-rATeD – invesTMenT BAnKinG 2 insTiTuTionAl clienTs 35 4. un-rATeD 3
Neither past Past due but not impaired Greater than Carrying due nor impaired 0-3 months 3-6 months 6-9 months 1 year Impaired value 31 December 2007 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Trade receivables 5,512 1,021 1,086 164 155 (666) 7,272 counterparty receivables 43,244 28,815 720 2,161 – (1,394) 73,546 other receivables 3,506 823 – – – – 4,329 Available-for-sale financial assets 680 – – – – – 680 Trading portfolio assets 19,171 – – – – – 19,171 cash and cash equivalents 122,743 – – – – – 122,743 Deposits 35 – – – – – 35 194,891 30,659 1,806 2,325 155 (2,060) 227,776 (c) 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 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. As part of this process the Group has been diversifying its deposits to ensure that it is not exposed to undue risk caused by the possible increase in redemption times in its money market funds. WDB capital limited has also undertaken a similar process to ensure that the WDB uK equity Fund limited is not unduly exposed to its prime broker. The Group deems there is sufficient liquidity for the near future. The Group’s exposure to liquidity arises from the equity and fixed income trading activities within the investment bank business and the settlement of trades within this business. This risk is short-term in nature. The tables below analyse the Group’s future cash outflows based on the remaining period to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows. Less than 1 year 1-2 years Total 31 December 2008 £'000 £'000 £'000 Trade and other payables 60,251 – 60,251 Trading portfolio liabilities 4,260 – 4,260 held-for-sale liabilities 12,878 – 12,878 77,389 – 77,389 Less than 1 year 1-2 years Total 31 December 2007 £'000 £'000 £'000 Trade and other payables 96,077 5 96,082 Trading portfolio liabilities 6,744 – 6,744 102,821 5 102,826 (d) Operational Risk Control 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. The operational risk policy that has been implemented 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. The results of this assessment form the basis of the Key risks Matrix. • 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 Group also undertake yearly appraisals for all employees as well as completing an independent employment screening of all new employees. notes to tHe FinanCial statements CONTINuED FOR THE YEAR ENDED 31 DECEMBER 2008 53
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Yesterday Today Tomorrow... ANNUAL
Page 3 and 4: FINANCIAL ANd OPERATIONAL HIGHLIGHT
Page 5 and 6: Balance Sheet strength and cash bal
Page 7 and 8: evolution securities Evolution secu
Page 9 and 10: Corporate Finance Evolution securit
Page 11 and 12: Wdb capital The Group’s investmen
Page 13 and 14: EARNINGS PER SHARE ON TOTAL OPERATI
Page 15 and 16: evolution securities’ income anal
Page 17 and 18: other activities The Group’s othe
Page 19 and 20: Lord macLaurin of Knebworth, dL (72
Page 21 and 22: principal risks and uncertainties T
Page 23 and 24: share capital Details of the change
Page 25 and 26: The Directors consider that in prep
Page 27 and 28: The Chief Executive, Alex snow, is
Page 29 and 30: The Committee observed that during
Page 31 and 32: appropriate and comprehensive proce
Page 33 and 34: The Board has delegated to the Remu
Page 35 and 36: The concept of a bonus ceiling does
Page 37 and 38: non-executive directors Non-executi
Page 39 and 40: On 8 April 2009, Alex snow was awar
Page 41 and 42: We have audited the Consolidated Fi
Page 43 and 44: ASSETS 2008 2007 Note £’000 £
Page 45 and 46: 2008 2007 £’000 £’000 (loss)/
Page 47 and 48: shareholding of more than one half
Page 49 and 50: ) Distribution channels and custome
Page 51 and 52: (b) Share-based plans The Group’s
Page 53: Risk Reporting The Group Board rece
Page 57 and 58: By business segment (continued) The
Page 59 and 60: 6. otHeR inCome Restated 2008 2007
Page 61 and 62: 11. aUditoRs’ RemUneRation During
Page 63 and 64: 14. inCome taX eXPense (CONTINuED)
Page 65 and 66: 18. intanGiBle assets notes to tHe
Page 67 and 68: 20. deFeRRed inCome taX (CONTINuED)
Page 69 and 70: 24. tRadinG PoRtFolio assets notes
Page 71 and 72: 31. Consolidated moVement in sHaReH
Page 73 and 74: 33. CasH FloW FRom oPeRatinG aCtiVi
Page 75 and 76: 38. emPloYee sHaRe sCHemes Movement
Page 77 and 78: 38. emPloYee sHaRe sCHemes (CONTINu
Page 79 and 80: THE EVOLuTION GROuP PLC PARENT COMP
Page 81 and 82: ASSETS ComPanY BalanCe sHeet AS AT
Page 83 and 84: statement oF ReCoGnised inCome and
Page 85 and 86: 1. aCCoUntinG PoliCies (CONTINuED)
Page 87 and 88: 2. FinanCial instRUments and RisK m
Page 89 and 90: 2. FinanCial instRUments and RisK m
Page 91 and 92: 5. inVestment in sUBsidiaRies notes
Page 93 and 94: 10. CasH and CasH eQUiValents 2008
Page 95 and 96: 17. Post BalanCe sHeet eVents There
Page 101 and 102: FoR YoUR notes 99
Page 103 and 104: DesiGneD AnD proDuceD BY BesT&co. l
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Annual Report for the year ended 31 December 2008

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