Arbuthnot Regulatory News (ARBB)

21 Mar 2006 10:10

Arbuthnot Banking Group PLC21 March 2006 Arbuthnot Securities Overview Arbuthnot Securities Ltd is the investment banking subsidiary of ArbuthnotBanking Group plc, which announced its results for the year ended 31 December2005 today. 40% of the equity of Arbuthnot Securities has been distributed orreserved within a Long Term Incentive Plan for employees, with 60% to beretained by Arbuthnot Banking Group. Arbuthnot Securities is focused on UK growth companies, typically of asmall-to-mid range capitalisation, and has two principal business streams:raising equity for, and providing equity and M&A advisory services to corporateclients, and offering research and transactional services in UK equities toasset management clients. In 2005 its revenues advanced 58% to reach £19.4m,with all activities performing well. Transformation The transformation of Arbuthnot Securities began in late 2004 and the financialperformance of 2005 reflects many of the improvements made. Mark Brown commencedhis appointment as CEO in September 2004 and swiftly effected a number ofpersonnel changes. Overall headcount was reduced by approximately a quarter, andthe majority of the management committee was replaced with new recruits in orderto bring greater focus and dynamism to the business. Led by its new management, the company has made a commitment to excellence. Thismanifests itself in a determination to accept nothing less than the highestethical and technical standards from all its professionals, and in anacknowledgement that improving the quality of the business is a continual not afinite process. Serving the long-term needs of its clients moreover, is now atthe centre of all core activities, and the firm will never accept conflicts ofinterest between the capital raising needs of corporate clients and theinvestment performance requirements of its asset management clients. The qualitative improvements made already are starting to deliver a markedimprovement in financial performance. In 2005, revenues rose by 58% to £19.4mwhich, together with a reduction in many operating cost lines, delivered aprofit (before tax and exceptional items but after all bonuses) of £2.8m. Thisrepresents a marked improvement in performance from the loss of £1.5m in 2004.It is moreover notable that £12.1m of the £19.4m 2005 revenues were achieved inthe second half of the year, and that the improved revenue and profitperformance was achieved without any material increase in the average level ofcapital employed. There is now clear evidence of improved performance across both of the firm'sbusiness streams: Corporate Finance Arbuthnot Securities raised for its clients £285m in 2005 compared to £101million in 2004. This represented the result of 14 successful equityfundraisings. Transactions included secondary raisings for existing clients onthe full list, such as UMECO and Hampson, as well as 10 IPOs on AIM. Arbuthnot Securities ranked 8th among all investment banks in 2005 in the DealMonitor table of funds raised through IPOs on AIM (having been unranked in2004), behind only 3 of its peer group. Furthermore, 8 of Arbuthnot Securities'10 IPOs on AIM are currently trading above their issue price, compared with just57% of new issues on AIM (with a listing market capitalisation of over £10m)during 2005. The firm established a particularly strong presence in the launch of closed-endinvestment funds with successful IPOs for the North American Banks Fund, UtilicoEmerging Markets Fund and India Capital Growth Fund. Arbuthnot Securities alsoraised equity for a number of international businesses such as Cosentino (a winecompany with operations based in California) and Titanium Resources Group (amining company with operations based in West Africa). Arbuthnot Securities also advised on a number of high-profile M&A deals during2005 such as the acquisition of Little Chef, the sale by BUPA of a portfolio ofnine hospitals to Legal & General Ventures, and the takeover of the regionalbrewer and pub operator, Jennings Brothers, by Wolverhampton & Dudley Breweries. Equities The secondary market activities of Arbuthnot Securities have been reshaped, tomove the firm's research offer away from a coverage and maintenance model to amodel that concentrates on offering a limited number of strongconsensus-challenging investment ideas. By way of illustration, the annualpublished and promoted list of key stock recommendations in 2005 outperformed arising UK market by 16%. So far this year the 2006 selection has outperformed by11%. The sales and trading effort has been repositioned to support the new researchmodel; delivering these strong ideas into a more focused range of assetmanagement clients and employing its market-making capital with greaterconcentration behind those stocks where it believes it has superiorunderstanding. The refocused research and execution propositions will offer morevalue to clients and should also benefit from the unbundling of brokeragecommissions. Arbuthnot Securities' secondary market commissions in 2005 were £5.8m. Excludingthe discontinued Stirling Hendry business, this represents an advance of 52% on2004. Favourable market conditions notwithstanding, the firm increased its shareof the smaller-to-mid size UK equities market to 1.9%, a material increase onthe 1.5% share of 2004. Not only has the firm's mode average commission raterisen markedly, but several large transactions give evidence of its increasedplacing power in the secondary market: In 2005 Arbuthnot Securities placed 30%of the share capital of PD Ports; 7% of Highway Insurance Holdings and 5% ofSalvesen (Christian). Outlook With the business now on a sound strategic footing, returned to profitability,and experiencing momentum in its revenues, Arbuthnot Securities will continueselectively to recruit high-quality professionals. The business should benefitin 2006 from the recruitment, over recent months, of experienced andaccomplished analysts to cover the Software and Computer Services, Property,Mining and Support Services sectors. A Deputy Chief Executive has also beenrecruited; Neil Kirton (previously Head of Equities at Bridgewell and GlobalHead of Equity Sales at ABN AMRO), to strengthen the general representation ofthe business at all levels and drive the expansion of the corporate brokingclient base. During the second half of 2005, 15 new corporate clients were added to close theyear with 60 retained corporate clients. Since the year end the intensifiedtargeting of new corporate clients has seen the client list continue to expand. While the pace of corporate transactions is always difficult to predict, earlyindications are positive, with a prospective pipeline broadly twice as strong asat this time last year. Indeed, the firm is currently marketing equity capitalraisings with an aggregate value in excess of £250m to potential investors. The equities business stream has started 2006 well, with year-to-date marketshare in smaller-to-mid size UK equities having advanced firmly from Q4 of lastyear. Arbuthnot Securities thus looks forward to 2006 and beyond with confidence. For further information contact: Arbuthnot Securities: Mark F BrownChief Executive02070122150 College Hill: Richard Pearson02074572020 Tony Friend02074572020 This information is provided by RNS The company news service from the London Stock Exchange