NUM.L Regulatory News (NUM)

2023 Interim Results

5 May 2023: Numis Corporation Plc (Numis) today announces unaudited interim results for the period ended 31 March 2023.

Alex Ham and Ross Mitchinson, Co-Chief Executive Officers at Numis, said:

"We are pleased that our business continues to perform resiliently despite the persistence of the unfavourable market conditions that have been a feature of the investment banking sector for the past 12 months or so. Diversification has been the foundation of our comparative resilience throughout this down cycle and this has been demonstrated by record revenues in our advisory business. This diversity also allows for us to maintain a focus on total shareholder returns through cycles with the interim dividend maintained at 6.0p per share."

"Whilst capital markets volumes are likely to remain relatively low over the near term, we have started to see emerging indications that the second half may see relatively better conditions. Irrespective of the market environment, the financial position of the Group remains resilient and our capital position strong."

Financial Highlights

· Revenue of £63.8m, down 14% compared to prior period as market activity remained subdued

· Profit Before Tax (PBT) of £6.0m, down 55%, due to the operational gearing in the business

· Investment banking revenues declined 12% as low capital markets activity was partially offset by record performance in our advisory business

o  Advisory revenues up 40% year-on-year, with average fees up 204% compared to H1 FY22 and we are starting to build a broader pipeline of M&A transactions

o  Capital markets revenues down 52% as UK ECM volumes dropped to a 10-year low

· Equities revenues down 17% as weak Q2 trading performance offset market share gains

· Resilient shareholder returns; interim dividend of 6.0p consistent with the prior year, and a further £4.4m spent on share repurchases

· Balance sheet position remains robust; strong liquidity and capital positions maintained despite prolonged period of unfavourable conditions

Strategic Highlights

· On 28 April the Board of Numis and the Management Board of Deutsche Bank AG announced that they have reached agreement on the terms of a recommended all-cash offer by Deutsche Bank AG for the entire issued and to be issued share capital of Numis. Further details relating to the timetable of the Offer will be announced in due course.

Outlook

General macro-economic sentiment continues to weigh on the outlook for the investment banking industry. Against that backdrop, our advisory business continues to perform well and has good pipeline of both buy-side and sell-side mandates for a range of clients reflecting our growing reputation in M&A and our progress in creating a proposition that delivers through market cyclicality. Capital markets volumes are likely to remain relatively low. However, there are some emerging indications that the historic lows we have recently experienced may give way to better conditions in the second half.

Key statistics

Note: Revenue, underlying operating profit, operating margin and revenue per head all exclude investment gains and losses.

Contacts

Notes for editors

Numis (LON: NUM) is an international investment bank that partners with some of the most ambitious companies and investors, offering strategic advice, unique insights and connectivity to the capital markets.

Already a leader in the UK market, Numis is the adviser of choice for many listed companies, including one-fifth of the FTSE 350 index[1], with an average market capitalisation of £1.0bn[2], and has acted on the most UK IPOs over the past decade.

Since 2016, Numis has diversified its strategy to grow its UK M&A franchise, expand internationally and develop its private markets business, which combined now represent more than half of Numis' investment banking revenues[3].

Numis is listed on London's AIM and has offices in London, New York and Dublin.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (as it forms part of domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018).

Forward-looking statements

This announcement contains forward-looking statements. Forward-looking statements sometimes use words such as 'may', 'will', 'could', 'seek', 'continue', 'aim', 'anticipate', 'target', 'project', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', 'achieve' or other words of similar meaning. Past performance is no guide to future performance and any forward-looking statements and forecasts are based on current expectations and assumptions but relate to events and depend upon circumstances in the future and you should not place reliance on them. These statements and forecasts are subject to various risks and uncertainties and there are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts.

The forward-looking statements contained in this document speak only as of the date of this announcement and (except as required by applicable regulations or by law) Numis does not undertake to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

Nothing in this announcement constitutes or should be construed as constituting a profit forecast.

No offer of securities

The information, statements and opinions contained in this announcement do not constitute or form part of, and should not be construed as, any public offer under any applicable legislation, or an offer, or solicitation of an offer, to buy or sell any securities or financial instruments in any jurisdiction, or any advice or recommendation with respect to any securities or financial instruments.

Business review

The first half of our financial year has seen a continuation of the unfavourable market backdrop and, in the case of capital markets, we have experienced a deterioration in deal volumes relative to the comparative period. Consequently, our revenues for the half decreased 14% to £63.8m (2022: £74.2m) and Underlying operating profit decreased 60% to £5.6m (2022: £14.0m). Profit before tax was £6.0m (2022: £13.4m) and included £0.5m of gains recognised on investments held outside of our market making business (2022: £0.4m gain). Our net assets decreased 6% over the period to £179.6m, and similarly our liquidity position was marginally lower but remains strong; cash balances were £99.7m (2022: £111.5m).

Market conditions

Throughout the first half equity markets remained fragile. Inflation concerns and rising interest rates remained firmly in focus for both our institutional and corporate clients. Investor sentiment toward the UK generally remained weak with domestic focused institutional investors experiencing persistent fund outflows. Despite the challenging backdrop, UK markets optically performed relatively well with the FTSE 100 and FTSE 250 up 11% and 10% respectively.

However, the improved performance of UK indices was not matched by a corresponding increase in ECM activity. UK ECM volumes remained at 10 year lows, declining 62% against a weak comparative period. The IPO market remains effectively closed although there are some early indications of potential recovery in activity toward the end of 2023. Private markets have also been impacted by the broader slowdown in capital markets; however, there remains a significant amount of dry powder among venture and growth equity investors globally.

Whilst M&A volumes also declined across the period, activity levels have been generally more resilient compared to capital markets, particularly in the UK mid-market where valuations of listed companies remain attractive notwithstanding some recovery in market levels. 

Investment banking

The investment banking division delivered revenue of £42.2m (2022: £48.0m) for the first half, representing a decline of 12% relative to H1 FY22 which benefitted from the tail end of the post-COVID recovery.

During the first half we continued to build on the successful diversification of our investment banking business, delivering a record first half advisory revenue performance. M&A revenues have benefited from continued momentum in securing financial adviser mandates from our corporate broking client base. The strength of our offering has been demonstrated by further progress in growing our average M&A deal fee. Average M&A fees were up 204% compared to H1 FY22 and we are starting to build a broader pipeline of M&A transactions beyond bid defence for our corporate broking clients.

The strong advisory performance was offset by a weaker capital markets performance where revenues were down more than 50%. Whilst our ECM market share in the UK has increased relative to the comparative period, overall market levels of issuance declined further during the half. For example, the first half of FY23 featured no IPOs whereas we completed 4 IPOs in the comparative period last year.

Growth capital solutions, our private markets business, has experienced a pick-up in deal activity and pipeline development. Whilst revenues were lower than the first half of FY22, the performance represented an improvement on the subdued H2 FY22 performance. Our track record in this structural growth market leaves us well positioned to capitalise on a further recovery in activity.

Our International ECM strategy continues to advance. We are now distributing UK deals to EU institutional clients across both public and private markets, and we have completed ECM transactions for EU issuers in the period. 

The decline in corporate clients to 166 was attributable to elevated levels of mid-market takeovers. During the half, 9 clients were lost due to transactions which more than offset the wins in the period. Retainer fee income stayed consistent at £6.1m (2022: £6.1m).

Growing the corporate client list is a strategic priority. We will remain disciplined, and focused on those opportunities where we can leverage the combined strength of our investment banking and equities platforms. Whilst activity levels amongst our corporate client base, across all products, was near the lower end of our long-term historic range, corporate clients generated 88% of investment banking deal fee revenues in the period demonstrating the embedded value of the franchise.

Equities

Equities delivered revenue of £21.6m for the first half, representing a decline of 17% relative to the comparative period. Following a good start to the year, revenues were impacted by a materially weaker trading performance in the second quarter which led to a 36% decline in trading gains for the first half.

Institutional income was down 11% compared to H1 FY22 and in line with the second half of FY22. The research payment component of this revenue line remains consistent with prior periods demonstrating the continued strength of our research offering and stability of our institutional relationships.

Whilst investor sentiment remained cautious we continued to offer high levels of service and proactive engagement to our institutional clients. We expanded our European client base during the period, in line with the strategy to enhance our distribution capability beyond the UK and support our EU ECM marketing efforts.

Investment portfolio

Overall, the portfolio achieved a gain of £0.5m and is now valued at £17.7m representing approximately 10% of group net assets. The portfolio faced valuation headwinds as the higher interest rate environment led to continued pressure on the ratings of listed growth businesses. In addition the weakening of the US Dollar over the period adversely impacted valuations. As a result, the majority of the holdings incurred write downs during the half. However, the aggregate write down was more than offset by the upward re-valuation of Wiz following completion of their funding round in February 2023. This transaction was led by our growth capital solutions team and demonstrates the strategic benefit of aligning our investment portfolio with our private markets activities.

Administrative expenses

Total costs for the period reduced by 3% to £58.2m (2022: £60.1m) due to lower variable compensation reflecting the lower operating performance in the period. During the first half we made a small number of headcount reductions in certain areas of the business whilst maintaining our focus on investing in strategic growth areas. Post the period end we also closed our Electronic Trading business reflecting our assessment that this product was not core to our long term strategy.

Our share based payment charge increased 6% due to a slightly higher equity component to the prior year variable compensation round. The compensation ratio increased as a function of the lower revenue performance but remains well within our through the cycle target range. New regulations governing the remuneration of certain senior staff came into effect on 1 January requiring a greater proportion of variable compensation to be delivered in the form of equity.

Non-staff costs increased 3% due to higher technology and market data costs as well as investment in our international strategy.

Capital and liquidity

The financial position of the Group remains extremely resilient notwithstanding the prolonged weakness in capital markets activity. We continue to operate significantly in excess of our regulatory capital and liquidity requirements with sufficient capacity to support our long term shareholder return strategy. During such periods of market uncertainty, our balance sheet position enables sustained investment in the platform as well as providing reassurance and stability to our clients and employees.

The business has operated IFPR since 1 January 2022 and we remain in a transition period, whereby our overall capital requirement will remain consistent with the previous regime until the FCA completes its review of our internal assessment.

Our liquidity position remains robust with cash balances of £99.7m, 11% lower than the position at the end of FY22. The decline was attributable to variable compensation payments related to the prior year, which were partially offset by short-term cash movements associated with trading and settlement activities.

Dividends and shareholder returns

In accordance with the dividend policy the Board has declared an interim dividend of 6.0p per share. The dividend will be paid on 23 June 2023 to shareholders on the register on 19 May 2023.

The share count remains broadly in line with the comparative period end pursuant to our strategy to offset the dilutive impact of share awards though buybacks. During the half, on-market purchases of shares totalling £2.6m have been executed. This is supplemented by tax offset purchases by the EBT upon the vesting of share awards which totalled £1.8m during the period. 

On this occasion, the Company will not be offering shareholders the option to participate in the dividend reinvestment plan ("DRIP").

Current trading and outlook

Whilst capital markets volumes are likely to remain relatively low over the near term, we have started to see emerging indications that the second half will see relatively better conditions. Irrespective of the market environment, the financial position of the Group remains resilient and our capital position strong.

Consolidated income statement

Unaudited for the 6 months ended 31 March 2023

Consolidated statement of comprehensive income

Unaudited for the 6 months ended 31 March 2023

Consolidated balance sheet

Unaudited as at 31 March 2023

Consolidated statement of changes in equity

Unaudited for the 6 months ended 31 March 2023

For the year ended 30 September 2022

Consolidated statement of cash flows

Unaudited for the 6 months ended 31 March 2023

Notes to the Financial Statements

1. Basis of preparation and accounting policies

Basis of preparation

The consolidated financial information contained within these financial statements is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The preparation of these interim financial statements 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. The significant judgements and estimates applied by the Group in these results have been applied on a consistent basis with the statutory accounts for the year ended 30 September 2022. Although such estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those of estimates.

The interim consolidated financial information contained within these financial statements has been prepared on the historical cost basis, except for the revaluation of certain financial instruments.

The interim consolidated financial information contained within these financial statements has been prepared on a going concern basis as the Directors have satisfied themselves that, at the time of approving the financial information and having taken into consideration the strength of the Group balance sheet and cash balances, the Group has adequate resources to continue in operational existence for at least the next twelve months.

Accounting policies

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Numis Corporation Plc transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 October 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

The consolidated financial information contained within these financial statements has been prepared in accordance with UK-adopted International Accounting Standards with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards and are in accordance with the accounting policies that were applied in the Group's statutory accounts for the year ended 30 September 2022.

There are no new mandatory standards, amendments or interpretations for the Group's and the Company's interim accounting period ended 31 March 2023.

As at the date of authorisation of the financial statements, there were no relevant standards, amendments or interpretations to existing standards not yet effective, which have been early adopted by the Group.

2. Segmental Reporting

Geographical information

The Group earns its revenue in the following geographical locations:

The following is an analysis of the carrying amount of non-current assets (excluding deferred tax assets) by the geographical area in which the assets are located:

Geographical information is based on the location of the contracting legal entity. 

3. Revenue

4. Other operating income/(loss)

Other operating income represents net gains/losses made on investments which are held outside of the market-making portfolio, which are disclosed within Trading Investments.

5. Administrative expenses

The average number of employees during the period increased to 335 (31 March 2022: 324). Compensation costs as a percentage of revenue increased to 57% (30 September 2022: 56%).

Other non-staff costs comprise expenses incurred in the normal course of business, the most significant of which relate to technology, information systems, market data, brokerage, clearing and exchange fees.

6. Finance income / Finance costs

Interest income comprises interest on cash balances. Net foreign exchange gains/losses relate to activities in the normal course of business and investments held in foreign currencies.

Interest expense comprises amounts paid on overdrawn balances with clearing institutions and costs associated with the stand-by RCF facility. Interest expense on lease liabilities relates to leases accounted for under IFRS 16.

7. Earnings per share

Basic earnings per share is calculated on a profit after tax of £4,898,000 (31 March 2022: £16,782,000) and 108,950,605 (31 March 2022: 111,295,087) ordinary shares being the weighted average number of ordinary shares in issue during the year. Diluted earnings per share takes account of contingently issuable shares arising from share scheme award arrangements where their impact would be dilutive. In accordance with IAS 33, potential ordinary shares are only considered dilutive when their conversion would decrease the profit or loss per share from continuing operations attributable to the equity holders.

The calculations exclude shares held by the Employee Benefit Trust on behalf of the Group and shares held in Treasury.

8. Dividends

The Board has approved an interim dividend of 6.0p per share (2022: interim 6.0p per share). This dividend will be payable on 23 June 2023 to shareholders on the register of members at the close of business on 19 May 2023. These results do not reflect this dividend payable.

9. Balance sheet items

(a) Deferred tax

As at 31 March 2023 deferred tax assets totalling £1.7m (30 September 2022: £1.4m) have been recognised reflecting management's confidence that there will be sufficient levels of future taxable gains against which the deferred tax asset can be utilised. The deferred tax asset principally comprises amounts in respect of share-based payments, unutilised trading losses of overseas affiliates and unrealised losses on the investment portfolio.

(b) Trade and other receivables and Trade and other payables

Trade and other receivables and Trade and other payables principally comprise amounts due from and due to clients, brokers and other counterparties. Such amounts represent unsettled sold and unsettled purchased securities transactions and are stated gross. The magnitude of such balances varies with the level of business being transacted around the reporting date. Included within Trade and other receivables are cash collateral balances held with securities clearing houses of £12.7m (30 September 2022: £18.9m).

(c) Trading investments

Included within trading investments is £17.7m (30 September 2022: £18.4) of unlisted investments held outside of the market making portfolio. During the interim period there were no new investment purchases or disposals with the fair value net decrease of £(0.7)m attributable as FX losses of £(1.2)m and net portfolio revaluation £0.5m.

As at 31 March 2023 no trading investments had been pledged to institutions under stock borrowing arrangements (30 September 2022: nil).

(d) Stock borrowing collateral

The Group enters stock borrowing arrangements with certain institutions which are entered into on a collateralised basis with cash advanced as collateral. Under such arrangements a security is purchased with a commitment to return it at a future date at an agreed price. 

The securities purchased are not recognised on the balance sheet. An asset is recorded on the balance sheet as stock borrowing collateral at the amount of cash collateral advanced.

(e) Trading instruments

Trading instruments comprise short positions in quoted securities arising through the normal course of business in facilitating client order flow and form part of the market making portfolio.

(f) Cash and cash equivalents

Cash balances reflect movement in market making positions, the operating performance of the business offset by dividend distributions (£8.2m cash outflow) and share buy-backs through the repurchase of shares into Treasury and the Employee Benefit Trust (£4.4m cash outflow).

At 31 March 2023, the Group had a £50m unsecured Revolving Credit Facility ('RCF') with Barclays and AIB. The facility was undrawn at reporting date.

10. Reconciliation of profit before tax to cash flows from operating activities