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Arden Partners plc   -  ARDN   

Audited Results for the Year Ended 31 October 2018

Released 07:00 24-Jan-2019

RNS Number : 9381N
Arden Partners plc
24 January 2019
 

Arden Partners plc

("Arden" or the "Company" or the "Group")

 

Audited results for the year ended 31 October 2018

 

Arden Partners plc (AIM: ARDN), the institutional stockbroking company, today announces audited results for the year ended 31 October 2018.

Operational highlights

·      Substantial investment made across the Group to enhance its capabilities

-   23% increase in overall headcount

·      New Wealth Management division established

-   regulatory approvals received post year end

·      Equities operations restructured in response to MiFID II

-   Sales trading operations brought wholly in-house

-   Bristol office closed with operations transferred to London

·      Strengthened plc board

-   Mark Ansell became Chairman and, post year end, appointment of Group Finance Director and independent Non-executive Director

·      Corporate clients increased to 51 at year end (2017: 38)

-   Average market capitalisation of the client base: £125 million

·      Profitable trading (on an underlying basis*) in the second half of the financial year demonstrating positive impact from investment and restructuring

-   25 corporate transactions completed in the financial year

 

Financial highlights

·      Revenue: £7.4 million (2017: £10.5 million)

·      Underlying operating loss*: £1.8 million (2017: £1.2 million operating profit)

·      Loss before tax: £2.8 million (2017: £0.7 million profit before tax)

·      Basic loss per share: 9.6p (2017: 3.3p earnings per share)

·      Capital adequacy ratio: 428% (2017: 652%)

·      Proposed dividend: 1.0p per share (2017: 1.0p)

 

* Operating profit/ (loss) and profit/ (loss) before tax as adjusted for the effect of share based payments, restructuring costs (including non-recurring costs related to the appointment and termination of personnel) and Wealth Management division start-up costs

 

Commenting on the results and Arden's outlook, Mark Ansell, Chairman, said:

 

"Following the turnaround of the Group and the significant investment across the platform in the first half of the current year, I am pleased to report that, on an underlying basis, we traded profitably in the second half of the year despite challenging market conditions. 

 

These challenging market conditions are likely to continue in the short-term, however, we are well placed to capitalise on opportunities as and when they arise.  Arden has the balance sheet strength and the people to continue to compete effectively."

 

For further enquiries:

 

Arden Partners plc

020 7614 5900

Donald Brown - Chief Executive Officer

James Reed-Daunter - Executive Director

Steve Douglas - Group Finance Director

 

GCA Altium Limited

020 7484 4040

Sam Fuller / Tim Richardson

 

 

Notes for editors

Arden is a dedicated corporate adviser and multi-service stockbroker to small and mid-cap companies in the UK and their investors.

 

The absolute core of our business is the effective management of the needs of our significant and growing base of corporate clients, and the effective support of their relationships with existing and potential shareholders.

 

These relationships are enhanced by the quality of our corporate finance advice and industry research, and the strong market presence of our sales and trading teams.

Our corporate finance capabilities encompass M&A, corporate finance advisory, broking and Sponsor and NOMAD services. We represent our clients in private transactions and AIM and Main Market share issues.

Our research is designed to be sector focused, concentrating on top down thematic trends which highlight companies giving investors an exposure to the real growth areas of the small-cap and AIM markets.

It is the job of the sales team to keep institutions abreast of these themes and stock ideas. When there is a requirement for our corporate clients to raise money to fulfil their growth ambitions, the sales team is in a strong position to effect this, with its entrenched relationships with the UK institutional and non-institutional markets.

Our market making and trading teams provide liquidity in the shares of our corporate clients. We also trade the shares of non-client corporates on behalf of institutions.

The recently added Arden Wealth Management team offers a bespoke service to our clients, with the ability to trade/invest in equities, bonds and a range of global investment funds, as well as allowing clients to participate in Primary and Secondary equity placings.

 

 

Chairman's Statement

This is my first statement as Chairman of Arden, having been appointed to the role in May 2018 (initially on an interim basis).  I have been a Non-executive Director of the Company since December 2010.

Recent years have been challenging for the stockbroking industry, and in particular for small and mid-cap stockbrokers.  If anything, these challenges increased during the year under review, and global economic uncertainty and Brexit continue to have a material negative impact on capital markets.

In response to those challenges and as we have previously announced, the first half loss was impacted by the necessary investment and restructuring of the business in order to reduce costs and increase recurring income to result in less reliance being placed on transactional income. Performance in the second half of the financial period was improved, but these challenges continued to impact the financial results of the Group and the Group made a loss for the year as a whole.

Nevertheless, we completed a good number of transactions over the year and I am pleased to report that, on an underlying basis, we traded profitably in the second half.  In this period we also increased the number of retained corporate clients from 38 to 51.  As always, our focus is on providing a high quality of service to our clients, both corporate and institutional.

During the year, we invested in the creation of a Wealth Management team.  This team will offer a new and bespoke service to our clients, with the ability to trade/invest in equities, bonds and a range of global investment funds, as well as allowing clients to participate in Primary and Secondary equity placings.  Post the year end, I was delighted to announce the granting of FCA regulatory permissions for this division.

I would reiterate that our organisation is now structured appropriately for more normal markets but all small and mid-cap brokers are facing current challenges caused by Brexit and global economic uncertainties.  Our balance sheet remains strong and we hold cash and cash equivalents significantly in excess of our capital adequacy requirements, sufficient to take us through short to medium term difficulties in the market.  Furthermore, the Group continues to monitor its cost base carefully given underlying market conditions. 

I would like to thank my Board, our corporate and institutional clients and all our hard-working staff for their support during this year. 

We believe the Group is well positioned in its markets and look forward to the future with confidence.

Mark Ansell

Chairman

 

 

Chief Executive's Statement

This has been my first full year as Chief Executive of Arden and we have achieved a great deal in this time.  During the first half of the current year we restructured the platform and made significant investments in every department across the Group in order to ensure we are optimally positioned for growth in the future.

 

The market became increasingly more challenging as the year progressed.  Whilst, the regulatory change effected by the introduction of MiFID II in January 2018 presented the Group with some opportunities, it required significant changes to certain industry practices.

Against this market and regulatory backdrop, we initiated a significant restructuring of the platform to position us for growth, including:-

·      A restructuring of the Board, with the appointment of a new Chairman and, post year end, a Group Finance Director and a further independent Non-executive Director.

·      Bringing the sales trading team wholly in-house, which we believe is more appropriate in a growing, integrated equities division.

·      Increasing our market making coverage to in excess of 120 stocks.

·      Doubling the size of our research team and significantly upgrading the quality of our product.  The external feedback we have received backs up our view that our offering is now of great value to our institutional clients.

·      Broadening the equity sales team to ensure it covers a wide spectrum of institutional clients, wealth managers and family offices.

·      Appointing a Head of Corporate Broking to ensure our corporate clients remain at the heart of our business.

·      Adding specific individuals to the corporate finance team to enhance our existing capabilities.  Post year end, we have appointed new joint heads of this department to continue to take this team forward.

As part of the Company restructuring, we closed our Bristol office. We also established a new Wealth Management operation to diversify our revenue streams and expand the universe of our potential client base. Whilst all of the set up costs for this new division were incurred in the year under review, the regulatory permissions were only granted after the year end, meaning the benefits will start to arise from the current year onwards. We are very excited by the opportunities we believe are available to this new division.

Business review

The first half operating loss of £2.3m was materially impacted by the necessary investment and restructuring of the business.  Performance in the second half of the financial period was improved, but these challenges continued to impact the financial results of the Group and the Group made a loss for the year as a whole.

 

Corporate Finance

 

2018

 

2017

 

% change

 

 

 

 

Corporate finance revenue (£'m)

6.4

6.7

(4.2)

 

 

 

 

Number of corporate transactions

25

18

38.9

Funds raised (£'m)

124

150

(17.3)

Number of corporate clients

51

38

34.2

 

 

 

 

 

The year started slowly but, over the year as a whole, corporate finance revenues consolidated the increased activity seen in the prior year.  A number of notable transactions were completed in the year, including the IPO of Anexo Group plc in June 2018. Three IPO's and an increased number of secondary fundraisings were completed in the year, however, the average size of these transactions was lower than in the previous year, resulting in the reduced overall revenue.

 

It is very pleasing to report the growth in number of retained corporate clients to 51 from 38.  This has increased our annualised recurring revenues from retainers by almost 25% year on year.  We are currently ranked 12th in the ARL corporate advisers guide (by number of corporate clients).  The average market capitalisation of our clients is £125 million.

Equities

 

2018

£'m

2017

£'m

% change

 

 

 

 

Equities revenue

1.0

3.8

(74.4)

 

 

 

 

 

Equities revenues in 2017 include grossed up revenues of £1.9 million from the sales trading team which, along with a corresponding increase in costs, reflected the then outsourced nature of the team. Bringing the trading team in-house means no such adjustment was required in the current year.

The market making book and a revaluation of certain warrants recorded a cumulative loss of £0.4 million in the year (2017: £0.1 million profit).  This was predominantly due to the volatile equity markets experienced in the second half of the year.

The changes to the equities division, required by MiFID II to be completed by January 2018, dominated the focus of the division through the early part of the year.  Our institutional clients have provided an encouraging level of support for our offering and, whilst our processes continue to be refined, we are in a good position from which to build.

MiFID II places greater scrutiny on the value, quality and service levels being received by our institutional clients and we welcome this focus.  We have enhanced our service levels and work hard to ensure we are best in class. 

Current trading and outlook

We have an encouraging pipeline of transactional business for 2019, a combination of IPOs, capital raisings and advisory services for our corporate clients, but the completion of these transactions will be unpredictable in the current, uncertain and volatile macro-economic environment.

 

The increased market volatility has impacted the equities division post year end and is likely to continue to do so. 

 

We remain strongly capitalised and will protect our balance sheet whilst remaining focussed on our growth strategy and on our clients' needs.

 

I would like to thank all our clients and shareholders for their continued support and to express the appreciation of the entire Board for the considerable hard work and commitment of our staff.

 

Donald Brown

Chief Executive Officer

 

Financial Review

Revenue

Revenue for the full year totalled £7.4 million, a decrease of 29.7% on 2017.  As was the case in 2017, total revenues were significantly weighted towards the second half of the year. £4.7 million of second half revenue accounted for 64.4% of total revenues. (2017: £7.6 million / 72.3%).

 

 

2018

£'m

2017

£'m

% change

 

 

 

 

Revenue (£'m)

7.4

10.5

(29.7)

Average number of employees

48

39

23.1

Revenue per employee (£'k)

154

269

(42.8)

 

 

 

 

 

Underlying operating profit/(loss) - reconciliation

The Directors believe that the underlying (loss)/profit and underlying (loss)/earnings per share provide more useful information for shareholders on the underlying performance of the Group than the reported numbers as they fairer reflect the underlying operating performance of the Group.

 

 

2018

£'m

2017

£'m

 

 

 

 

 

Operating (loss)/profit

(2.8)

0.7

 

 

 

 

 

Adjustments:

 

 

 

Restructuring costs

0.8

0.5

 

Wealth Management start-up costs

0.1

-

 

Share based payment charges

0.1

-

 

 

 

 

 

Underlying operating (loss)/profit

(1.8)

1.2

 

 

 

 

 

 

The operating profit of 2017 slipped to an operating loss for the year under review as a result of the reduced turnover and a modest increase in costs. The major adjustments required to reconcile operating (loss)/profit to underlying operating (loss)/profit are the costs of bringing the sales trading team wholly in-house, restructuring costs (including redundancy costs) across the Equities business and the establishment of the Wealth Management business in the period. On an underlying basis, adding back the material restructuring and start-up costs set out in the table above, the operating loss reduced to £1.8 million (2017: £1.2 million operating profit). The Group made an underlying operating profit in the second half of the year.

Basic loss per share was 9.6p (2017: earnings per share 3.3p).

Liquidity position

The Group's adjusted liquidity position at the year end was £9.8 million (2017: £12.9 million).  The decrease in the year is primarily due to the investment and restructuring costs incurred during the year, together with funding the trading losses for the year.

The Directors believe that the adjusted liquidity position, which is an alternative performance measure, provides more useful information for shareholders on the underlying performance of the Group than the reported numbers.

Net asset position and capital adequacy

The Group's net assets at the year end were £9.2 million (2017: £12.5 million), the reduction being the result of the loss incurred in the year. 

The Company holds surplus capital on its balance sheet and continually assesses this position throughout the year. Our strong balance sheet protects us against possible negative market movements.

 

Steven Douglas

Group Finance Director

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 October 2018

 

 

2018

2017

 

 

£'000

£'000

 

Revenue

 

7,366

10,477

Administrative expenses

 

(10,204)

(9,741)

(Loss)/profit from operations

 

(2,838)

736

Finance income

 

48

34

Finance expense

 

-

(23)

(Loss)/profit before taxation

 

(2,790)

747

Income tax charge

 

(31)

(15)

(Loss)/profit after taxation

 

(2,821)

732

Other comprehensive income for the year:

Items that will or may be reclassified subsequently to profit or loss:

Decrease in fair value of available for sale financial assets

 

 

 

 

(9)

 

 

 

(8)

Transfer to profit or loss on disposal of available for sale assets

 

                              8

13

Deferred tax taken to equity

 

-

4

Total comprehensive income for the year attributable to equity shareholders

 

(2,822)

741

 

 

 

 

(Loss)/profit per share

 

 

 

Basic

 

(9.6p)

3.3p

Diluted

 

(9.6p)

3.2p

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 October 2018

 

 

 

 

 

 

 

 

2018

2018

2017

2017

 

 

£'000

£'000

£'000

£'000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

 

104

 

67

Deferred tax asset

 

 

8

 

39

Total non-current assets

 

 

112

 

106

Current assets

 

 

 

 

 

Assets held at fair value

 

3,981

 

2,806

 

Available for sale financial assets

 

520

 

503

 

Trade and other receivables

 

2,873

 

2,714

 

Collateral deposits

 

-

 

48

 

Cash and cash equivalents

 

4,667

 

9,037

 

Total current assets

 

 

12,041

 

15,108

Total assets

 

 

12,153

 

15,214

Current liabilities

 

 

 

 

 

Financial liabilities held at fair value

 

(59)

 

(171)

 

Trade and other payables

 

(2,870)

 

(2,494)

 

Total current liabilities

 

 

(2,929)

 

(2,665)

Total liabilities

 

 

(2,929)

 

(2,665)

Net assets

 

 

9,224

 

12,549

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Called up share capital

 

 

3,338

 

3,338

Capital redemption reserve

 

 

700

 

700

Share premium account

 

 

6,691

 

6,691

Employee Benefit Trust reserve

 

 

(849)

 

(849)

Available for sale reserve

 

 

(7)

 

(6)

Retained earnings

 

 

519

 

3,547

Total equity before deduction of own shares

 

 

10,392

 

13,421

Own shares

 

 

(1,168)

 

(872)

Total equity

 

 

9,224

 

12,549

             

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 October 2018

 

 

2018

 

 

£'000

£'000

Operating activities before taxation

 

 

 

(Loss)/profit before tax

 

(2,790)

747

Adjustments for:

 

 

 

Fair value adjustments

 

166

(27)

Gain on sale of available for sale investments

 

-

(50)

Depreciation of fixtures, fittings and computer equipment

 

36

21

Net interest receivable

 

(48)

(11)

Share based payments

 

104

4

Operating cash flow before changes in working capital

 

(2,532)

684

Increase in operating assets

 

(1,444)

(1,437)

Increase/(decrease) in operating liabilities

 

264

(102)

Purchase of available for sale investments

 

(527)

(509)

Proceeds from disposal of available for sale investments

 

501

600

Cash used in operations

 

(3,738)

(764)

Income taxes paid

 

-

-

Net cash flows from operating activities

 

(3,738)

(764)

Investing activities

 

 

 

Purchases of property, plant and equipment

 

(73)

(61)

Net interest received

 

48

11

Net cash flows from investing activities

 

(25)

(50)

Financing activities

 

 

 

Exercise of share options

 

(16)

(15)

Purchase of own shares

 

(296)

(337)

Issue of shares

 

-

5,033

Dividends paid to equity shareholders

 

(295)

-

Net cash flows from financing activities

 

(607)

4,681

(Decrease)/increase in cash and cash equivalents

 

(4,370)

3,867

Cash and cash equivalents at the beginning of the year

 

9,037

5,170

Cash and cash equivalents at the end of the year

 

4,667

9,037

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 October 2018

 

Share

Capital

Share

Premium

Account

 

Capital Redemption Reserve

 

 

Own

Shares

Employee

Benefit Trust

Reserve

 

Available

 for sale

 Reserve

Retained

Earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at

1 November 2016

2,063

2,933

700

(549)

(849)

(11)

2,836

7,123

Profit for year

-

-

-

-

-

-

732

732

Deferred tax taken to equity

-

-

-

-

-

-

4

4

Transferred to profit or loss on disposal of available for sale assets

-

-

-

-

-

13

-

13

Revaluation of available for sale financial assets

-

-

-

-

-

(8)

-

(8)

Total comprehensive income for the year

-

-

-

-

-

5

736

741

Contributions by and distributions to owners

 

 

 

 

 

 

 

Issue of ordinary shares net of expenses

1,275

3,758

-

-

-

-

-

5,033

Purchase of own shares

-

-

-

(337)

-

-

-

(337)

Share based payments

-

-

-

-

-

-

4

4

Share options exercised

-

-

-

14

-

-

(29)

(15)

Balance at

31 October 2017

3,338

6,691

700

(872)

(849)

(6)

3,547

12,549

Loss for year

-

-

-

-

-

-

(2,821)

(2,821)

Transferred to profit or loss on disposal of available for sale assets

-

-

-

-

-

8

-

8

Revaluation of available for sale financial assets

-

-

-

-

-

(9)

-

(9)

Total comprehensive income for the year

-

-

-

-

-

(1)

(2,821)

(2,822)

Contributions by and distributions to owners

 

 

 

 

 

 

 

Dividends

-

-

-

-

-

-

(295)

(295)

Purchase of own shares

-

-

-

(296)

-

-

-

(296)

Share based payments

-

-

-

-

-

-

104

104

Share options exercised

 

 

 

-

 

 

(16)

(16)

Balance at

31 October 2018

3,338

6,691

700

(1,168)

(849)

(7)

519

9,224

 

Notes

1.      The capital redemption reserve represents the nominal value of shares that have been cancelled that were previously held as Own Shares.

2.      Own Shares represents shares purchased to be held as treasury shares at historical cost.

3.    The Employee Benefit Trust reserve represents shares held in the parent Company by the Arden Partners Employee Benefit Trust which is consolidated in these financial statements in accordance with the accounting policy in note 1. 

 

 

NOTES

 

1)    Basis of preparation

The financial information set out in this announcement has been prepared in accordance with the recognition and measurement principles of IFRS as endorsed for use in the European Union.

 

The financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 31 October 2018 or the year ended 31 October 2017 under the meaning of s434 Companies Act 2006, but is derived from those accounts.

 

Statutory accounts for the years ended 31 October 2018 and 31 October 2017 have been reported on by the Independent Auditors. 

 

The Independent Auditors' Report on the Annual Report and Financial Statements for the years ended 31 October 2018 and 31 October 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Statutory accounts for the year ended 31 October 2017 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 October 2018, prepared under IFRS, will be delivered to the Registrar in due course.

 

2)    Revenue

Revenue is wholly attributable to the principal activity of the Group and arises solely within the United Kingdom.

 

 

 

2018

2017

 

 

£'000

£'000

Equities Division

 

974

3,767

Corporate Finance Division

 

6,400

6,673

Gain on sale of available for sale asset

 

-

50

Transfer to profit or loss on disposal of available for sale assets

 

(8)

(13)

Total revenue

 

7,366

10,477

 

Included within revenue of the Equities Division is a loss of £150,000 (2017: Profit £40,000) relating to the fair value adjustment of derivatives held within assets that are fair valued through profit or loss.

 

The Directors are of the opinion that there are only two operating segments and while segment revenues are reviewed internally business resources are not allocated to segments for the purposes of deriving either profit or assets.  In 2018, one of the Group's customers contributed revenue of £1,075,000, being more than 10% of the Group's total revenue. In 2017, one of the Group's customers contributed revenue of £1,996,000, being more than 10% of the Group's total revenue.

 

3)    Dividends

Dividends recognised in the year consisted of the 2017 final dividend of £295,000 (1p per share).

 

No dividends were recognised in the prior year.

 

The final dividend, if approved, will be paid on 27 March 2019 to shareholders on the register at close of business on 1 March 2019, with an ex-dividend of 28 February 2019.

 

4)    Earnings per share

In addition to the basic earnings per share, underlying earnings per share has been shown because the Directors consider that this gives a more meaningful indication of the underlying performance of the Group.  Where applicable, all adjustments are stated after taking into consideration current tax treatment ignoring deferred tax.

 

 

            Year ended

            31 October 2018

          Year ended

            31 October 2017

 

Pence per

Share

Pence per

Share

Numerator

£'000

Basic (loss)/profit per share

(9.6)

(2,821)

3.3

732

Add:  IFRS2 share-based payments

0.5

142

-

4

Add: Restructuring costs

3.1

923

2.3

517

Underlying basic (loss)/profit

(6.0)

(1,756)

5.6

1,253

 

 

 

 

 

Diluted (loss)/profit per share

(9.6)

(2,821)

3.2

732

Add: IFRS2 share-based payments

0.5

142

-

4

Add: Restructuring costs

3.1

923

2.3

517

Underlying diluted (loss)/profit

(6.0)

(1,756)

5.5

1,253

           

 

The Directors believe that the underlying (loss)/profit and underlying (loss)/earnings per share, which are alternative performance measures, provide more useful information for shareholders on the underlying performance of the Group than the reported numbers as they fairer reflect the underlying operating performance of the Group.

 

 

Year ended 

31 October 2018

 

Year ended 

31 October 2017

 

 

Number

 

Number

 

Denominator

 

 

 

 

Weighted average number of shares in issue for basic earnings calculation

29,533,754

 

22,188,366

 

Weighted average dilution for outstanding share options

228,578

 

406,895

 

Weighted average number for diluted earnings calculation

29,762,332

 

22,595,261

 

 

 

 

 

 

The 1,480,700 (2017: 1,480,700) shares held by the Arden Partners Employee Benefit Trust and 2,364,481 (2017: 1,256,444) shares held in Treasury, being the weighted average number of treasury shares in issue during the year, have been excluded from the denominator.

 

No adjustment has been made to the diluted loss per share of 6.0p as the dilution effect of the weighted average number of outstanding share options of 228,578 would be to decrease the loss per share.

 

5)    Annual Report and Accounts

Copies of the 2018 Report and Accounts will be posted to shareholders in due course.  Copies will also be available from the Company's registered office and from the Company's website www.arden-partners.com


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Audited Results for the Year Ended 31 October 2018 - RNS