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Arden Partners plc

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

Unaudited results for the six months ended 30 April 2020

Arden Partners plc (AIM: ARDN.L), the institutional stockbroking company, today announces its unaudited results for the six months ended 30 April 2020 (the "period").

Highlights

· Arden made a good start to the period despite the elevated political uncertainty prevailing around Brexit and the General Election.

· Trading towards the end of the period was negatively impacted by the significant global market declines in reaction to the COVID-19 pandemic, with the Company's equity trading operation suffering material losses.

· Corporate finance revenues for the period were materially higher than the comparative period and included higher corporate client retainer levels. Equity commissions for the period were lower, as anticipated.

· The Board implemented steps to reduce costs and preserve cash in response to COVID-19. As a result, the Company's current annualised cost base is significantly lower than last year. 

· The Company has traded profitably post the period end, with a number of corporate transactions completed and an encouraging pipeline.

Financial highlights

· Revenue: reduced by 26.8% to £2.3m (2019: £3.2m) with the losses incurred in the equity trading operation offsetting increased corporate finance revenue

· Loss before tax: £1.5m (2019: £1.6m)

· Basic loss per share: 5.7p (2019: 5.5p)

· No interim dividend proposed (2019: nil)

· Strong balance sheet with capital maintained at a level above minimum FCA requirements

Commenting Chief Executive Officer Donald Brown said:

"During these unprecedented times our priorities have been ensuring the wellbeing of our staff and continuing to support our clients. We are grateful for our staff's efforts in ensuring that our business activities suffered no disruption and that the quality of our service has not been compromised. 

As a result of our swift actions, Arden continues to have the balance sheet strength and the people to compete effectively.

Our clients continue to react to the significant effect of COVID-19 on their businesses and seek our support, for example, to raise equity or assist with development or acquisition plans. We have an encouraging pipeline of transactions and the Company's performance for the current financial year as a whole is likely to be determined by the delivery of these deals."

CHIEF EXECUTIVE'S STATEMENT

Overview

The macro agenda for the first half of the period was dominated by the UK General Election of December 2019. The clear result of that election led to strong equity market gains and presaged a resurgence of corporate activity. However, this trading environment was short lived as, in the second half of the period, the impact of the COVID-19 pandemic then led to unprecedented declines in equity markets, significant volatility levels and a pause on all corporate activity.

Post the period end, however, we have seen a substantial increase in demand for equity issuance and a gradual return of corporate activity as clients react to the opportunities as well as the challenges triggered by the pandemic. We anticipate this trend continuing.

The Company operated throughout the period, albeit remotely for the later part, and we continue to win new corporate clients.

Overall, revenues decreased 26.8% to £2.3m (H1 2019: £3.2m) and the operating loss was £1.5m (H1 2019: operating loss of £1.6m). The equity trading operation suffered material unrealised losses predominantly caused by a small number of larger positions that suffered material falls in value as financial markets were impacted by COVID-19. Post the period end, there has been a partial recovery in some of these positions. Excluding the losses of its equity trading operation, the Company delivered revenue growth in the period, driven by a 23% increase in corporate finance revenues. Excluding the equity trading losses and restructuring costs, the Company generated a small operating profit for the period.

The Company has a strong balance sheet, with cash and cash equivalent resources well in excess of its regulatory requirements. Further, the Company's cash and cash equivalent resources have increased post period end following the profitable start to the second half of the financial year.

Over the period the Board has taken action to ensure the appropriateness of the Company's cost base. This was particularly evident with the swift action taken to manage costs and preserve cash as COVID-19 impacted the UK market.  As a result, staff and overhead costs for the period are 28% lower than in the prior period and the Company's cost base for the current financial year is anticipated to be significantly lower than last year. The Board will continue to take all necessary action to manage costs and minimise the impact of any further uncertainty caused by COVID 19. 

Post period end and in recognition of the continued hard work and sacrifice of Arden's employees during this extraordinary time, the Company's employee Benefit Trust distributed ordinary shares to all employees and the Company re-set the exercise price of all existing share options.

Looking forward, our current pipeline, together with our lower cost base and strong balance sheet, means we are well placed to meet the challenges ahead and are cautiously optimistic for the remainder of the financial year.

Business review

Summary

* Wealth Management revenues in the period were £33,982 (2019 £40,950) which have been rounded to the nearest thousand in the table above.

Equities division

Equities income comprises equity execution commission, payments for research, the equity trading operation and the market value of warrants held by the Company.

Equity execution commission, in line with our expectations, reduced slightly compared to the prior period reflecting the ongoing impact of regulation reducing trading volumes in the small and mid-cap market. Payments for research were in-line with the prior year. We recorded a small loss on our warrant position reflecting reduced market values at the period end.

The equity trading operation suffered material unrealised losses predominantly caused by a small number of larger positions that suffered material falls in value as financial markets were impacted by COVID-19. These larger positions were predominantly in sectors whose share prices were particularly impacted by the onset of the pandemic. Post the period end, there has been a partial recovery in some of these positions and the equity trading operation has made material unrealised profits.

Corporate Finance

Corporate Finance revenues comprise fees for fund raisings and other corporate transactions together with retainers from corporate clients. These revenues rose by 23.7% in the period compared to the first half of last year.

Following the General Election in the first half of the period, Arden completed a number of corporate transactions. The second half of the period then suffered from a decline in transaction volumes as COVID-19 significantly impacted the wider market. However, since the period end, the Company is experiencing strong fundraising and transactional demand and the transaction pipeline has improved, leaving us well placed for the remainder of the year.

Corporate finance retainers in the period increased by 9.1% reflecting an increase in client numbers compared to the prior year. Post the period end, the Company has continued to win new clients.

Wealth Management

Our wealth management operation remains in its infancy whilst we wait for more stable market conditions to properly launch our offering. Revenues in the period comprised equity trading commissions broadly in line with the prior period. The small team has offered considerable assistance on a number of our fund raisings and bring a new investor audience to our offering.

Coronavirus update

Trading towards the end of the period was impacted materially by the significant declines in the global market in reaction to the start of the COVID-19 pandemic. Our equity trading operation suffered material unrealised losses as a number of long positions fell in value and a number of corporate finance transactions were put on hold.

In response, the Board implemented steps to manage the Company's cost base and preserve cash and, to ensure both the wellbeing of our staff and our ability to continue supporting our clients as normal, to provide a comprehensive remote working capability. As a result, the Company remained fully operational throughout the lockdown period and was able to work closely with its corporate clients to assess the disruption caused to them by COVID-19 and, where possible, assist them in protecting their businesses and continuing to implement their strategies.

The measures taken by the Board to manage the Company's cost base included salary and fee sacrifices of in excess of 40% for all Board members and certain senior employees; salary sacrifices for all other employees; the furloughing of a number of staff; utilising government allowances for deferring the payment of VAT; and the cancellation or deferral of all discretionary expenditure.  The Board is keeping the cost base under review and will continue to take all necessary action to minimise the financial impact of any further uncertainty caused by COVID-19.   

Post the period end as the stock market has recovered somewhat from its lows, the equity trading operation has recovered some of the losses it incurred and trading conditions in our corporate finance business have improved, with a number of completed transactions and an encouraging pipeline. Our ability to attract and win new high-quality corporate clients remains strong.  

The Company has recently re-opened its London offices in accordance with government guidelines to provide a compliant space for those employees who choose to utilise it and can access it in an acceptable, socially distanced way.

Capital and Liquidity

As at 30 April 2020, the Group's net asset position was £4.5m (31 October 2019: £6.1m). We maintain excess regulatory capital to provide strategic flexibility and the financial stability to protect against possible negative market movements such as those we have experienced over the last 18 months. 

Current trading and outlook

Post the period end, we have completed a number of equity fundraisings and corporate transactions for our clients and have continued to win new clients. As our clients continue to analyse the opportunities as well as the challenges presented by the COVID-19 pandemic we anticipate this trend continuing.

The Company has traded profitably since the period end.

Our current pipeline is encouraging and, together with our lower cost base and balance sheet strength, means we are well placed to meet the challenges ahead and are cautiously optimistic for the remainder of the financial year.

Donald Brown

Chief Executive Officer

24 July 2020

CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 April 2020

CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION

At 30 April 2020

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

For the period ended 30 April 2020

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY 

For the period ended 30 April 2020

NOTES TO THE CONDENSED FINANCIAL STATEMENTS 

1) Basis of preparation

As permitted under AIM listing rules, IAS 34, 'Interim Financial Reporting' has not been applied in this interim report.

The financial information presented in this report has been prepared using accounting policies that are expected to be applied in the preparation of the financial statements for the year ending 31 October 2020.

These policies are in accordance with the recognition and measurement principles of International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board as endorsed for use in the European Union, and these principles are disclosed in the Financial Statements for the year ended 31 October 2018.

The financial information in this interim report does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The Annual Report and Financial Statements for 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for 2019 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.

Going concern

The Directors believe that taking into account the available cash and liquid assets that the Group will have adequate resources to continue in operational existence for the foreseeable future. The Directors have assessed the impact of COVID-19 on the Group, running various scenarios taking into account the impact of the pandemic to date and making various assumptions on the timing and extent of the pandemic's longer term impact on the Group's operations. The Directors are pleased to report that current trading is above the upside sensitivity scenario although the Directors are very aware that this may not be an indicator of longer-term trends. Further, the Director's continue to assess the liquidity of the Group's capital resources by realising certain assets into cash. The combination of these exercises reassured the Board that the Group's liquid assets could be accessed, at short notice, should market conditions deteriorate. For this reason, they continue to believe it is appropriate to adopt the going concern basis in preparing the Financial Statements.

Accounting policies

The same accounting policies, presentation and methods of computation are followed in these condensed set of financial statements as are applied in the Group's latest audited Report and Accounts for the year ended 31 October 2019, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019 and will be adopted in the 2020 annual financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ending 31 October 2020, and which have given rise to changes in the Group's accounting policies are:

· IFRS 16 Leases

Details of the impact this new standard has had is given below. Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

IFRS 16 Leases

IFRS 16 has been adopted from 1 November 2019 and applied on a modified retrospective basis which recognises a right of use asset at an equal amount to the lease liability, using the Group's current incremental borrowing rate. Comparative figures have not been restated.

The Group made the following additional choices, as permitted by IFRS 16, for existing operating leases:

- to apply a single discount rate to a portfolio of leases with reasonably similar characteristics.

- not to bring leases with 12 months or fewer remaining to run as at 1 November 2019 on balance sheet. Costs for these items continue to be expensed directly to the income statement.

- for all leases, the lease liability was measured at 1 November 2019 as the present value of any future lease payments discounted using the incremental borrowing rate. The Group also excluded any initial direct costs (e.g. legal fees) from the measurement of the right of use assets at transition.

- to apply the use of hindsight when reviewing the lease arrangements for determination of the measurement or term of the lease under the retrospective option.

The weighted average incremental borrowing rate applied to lease liabilities on 1 November 2019 was 5%.

Right of use assets are initially measured at the amount of the lease liabilities and adjusted by the amount of any prepaid or accrued lease prepayments as at 31 October 2019.

The aggregate lease liability recognised in the Statement of Financial Position at 1 November 2019 and the Group's operating lease commitment at 31 October 2019 is set out below:

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used.

As permitted under IFRS 16, all leases are accounted for by recognising a right of use asset and a lease liability except for:

· Leases with a term of twelve months or less remaining at 1 November 2019

· Lease of low value assets

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

2) Revenue

* Included within revenue of the Equities Division is a loss of £1,415,000 (2019: £111,000) derived from the equity trading operation.

3) Administrative expenses

4) Loss per share

The basic loss per share of 5.7p (2019: 5.5p) is calculated on a loss after tax of £1,529,000 (2019: £1,622,000) and 26,763,511 (2019: 29,428,534) being the weighted average number of ordinary shares in issue during the period less shares held in Treasury and by the Arden Partners Employee Benefit Trust. For the year to 31 October 2019, the basic loss per share of 8.9p is calculated on a loss after tax of £2,560,000 and 28,794,079 being the weighted average number of ordinary shares in issue during the period less shares held in Treasury and by the Arden Partners Employee Benefit Trust.

The basic loss per share has not been adjusted in respect of a dilution as the impact of the weighted average outstanding share options would be to decrease the loss per share.

The underlying basic loss per share of 4.7p (2019: 5.3p) for the six months ended 30 April 2020 is calculated on a loss after tax of £1,273,000 (2019: £1,558,000) being the loss after tax, adjusted for the effect of IFRS 2 credit of £17,000 (2019: cost £64,000) and redundancy and restructuring costs of £273,000 (2019: £Nil). The underlying basic loss per share of 8.6p for the year to 31 October 2019 is calculated on a loss after tax of £2,471,000 being the loss after tax, adjusted for the effect of IFRS 2 costs of £89,000.

5) Dividends

The Directors have not proposed an interim dividend (2019: Nil).

INDEPENDENT REVIEW REPORT TO ARDEN PARTNERS PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 April 2020 which Consolidated Condensed Statement of Comprehensive Income, Consolidated Condensed Statement of Financial Position, Consolidated Condensed Statement of Cash Flows and Consolidated Condensed Statement of Changes in Equity.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 April 2020 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London

24 July 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).