REG - Peel Hunt Limited - Full-Year Results
16/06/2023 07:00
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RNS Number : 9193C Peel Hunt Limited 16 June 2023
Peel Hunt Limited
Full-Year Results
For the year ended 31 March 2023
Strategic progress in challenging markets
Peel Hunt Limited ("Peel Hunt" or the "Company") together with its
subsidiaries (the "Group") today announces audited results for the year
ended 31 March 2023 ("FY23").
The full-year results for the Group consolidate Peel Hunt LLP, a limited
liability partnership which, up until the IPO of the Company on 29 September
2021, had a corporate member and individual members. Profits derived from the
partnership during the year ended 31 March 2022 ('FY22') were allocated
between the members. Profits attributable to the corporate member were
retained within the Group and subject to corporation tax; profits attributable
to individual members (prior to the IPO) comprised the non-controlling
interests, with those members bearing tax liabilities personally. Following
the IPO, individual members became employees of Peel Hunt LLP with all future
earnings attributable to the Group.
For reference, an unaudited illustrative consolidated statement of
comprehensive income for FY22 is also presented as a prior year comparative.
This statement illustrates the impact that the reorganisation of the Group's
corporate structure, and the IPO, would have had on the consolidated statement
of comprehensive income had it taken place on or before 31 March 2021. This
illustrative statement retains the actual revenue results in FY22 and
considers the addition of all former members of Peel Hunt LLP being
remunerated as employees along with related National Insurance contributions
and pension costs on an ongoing basis. The statement has also been adjusted to
remove the impact of one-off costs relating to the IPO, and tax-related prior
year items arising in FY22. Partnership profits that were allocated to the
former individual members in FY22, or non-controlling interests, are
attributed to the Group in full and are shown as if subject to corporation
tax.
Steven Fine, Chief Executive Officer, said:
"The challenges faced by the financial services sector in the past 12 months
have been well documented, with the impact on market activity and investor
sentiment felt across the industry. This can be seen in our FY23 results.
Despite this backdrop, we have continued to deliver on the strategic
priorities of the organisation, adding FTSE 350 mandates, building-out our
Private Capital Markets capability and strengthening our M&A/Advisory
business. We are also pleased to be relaunching REX as RetailBook alongside a
number of our peers, and to have received regulatory approval for our EU
platform.
Real credit for all of this goes to our people, who have shown incredible
tenacity, working together to stay focused on what matters most: looking after
our clients. I'd like to thank them for their hard work and continued
enthusiasm for our future.
Our distinctive culture and continued technology leadership have been integral
to navigating this turbulence and will remain core to the long-term future of
the firm. Our diversified business model and cost discipline have helped us
maintain a strong balance sheet, which in turn has allowed us to invest
selectively to strengthen our platform. We remain confident that we will be
ready and well-positioned to capitalise when market activity normalises."
Highlights
· Revenue and profitability impacted by unusually low capital
markets activity throughout FY23
o Revenue of £82.3m (FY22: £131.0m) and loss before tax (LBT) of £(1.5)m
(FY22: profit before tax (PBT) £41.2m)
o Actions taken to rationalise costs, partially mitigating inflationary cost
pressures
· Business division performance
o Investment Banking revenues were £23.4m (FY22: £57.9m), 19 new retained
corporate clients, including seven in the FTSE 350. We currently act for 40
FTSE 350 clients, an increase of 37.9% over the last five years
o Execution Services revenues remain higher than pre-pandemic levels at
£33.8m but down year-on-year due to lower market volumes (FY22: £46.1m).
Market leading position retained with a 13.3% share of LSE volumes
o A resilient performance in Research and Distribution with revenues of
£25.1m (FY22: £26.9m) despite the drop in market activity. Further
strengthened our market leading mid-cap North American and Continental
European distribution capabilities, and continued to build our institutional
client base
· Strategic progress
o Further built out our Private Capital Markets capability and strengthened
our M&A/Advisory business
o Our retail capital markets technology platform REX to relaunch as
RetailBook, a standalone business that will operate independently of Peel
Hunt. Collaboration agreements in place with Hargreaves Lansdown, Jefferies,
Numis and Rothschild & Co
o Regulatory approval received for Peel Hunt Europe to open our Copenhagen
office which is expected to be operational over the summer
· Our strong balance sheet allowed us to take advantage of market
dislocation to make selective and targeted investment in talent in line with
the strategy
o Net assets of £93.1m and cash balances of £27.4m
o Capital base comfortably in excess of minimum regulatory requirements
· Well positioned for when market conditions improve with
considerable operational leverage in the business
Outlook
Whilst the macro-economic backdrop may remain challenging for some time, we
have seen a gradual improvement in our M&A pipeline since the start of
FY24, with UK mid-cap valuations remaining attractive, and are seeing
tentative signs of a pick-up in capital markets activity. We will continue to
progress our strategic priorities whilst prudently managing the business
through this period of downturn. As consolidation amongst UK-focused
investment banking and financial advisory businesses accelerates, we remain
confident that our consistent model of delivering a joined-up and agile
service, providing our clients with trusted and impartial advice, will
position us well to take advantage of opportunities that may arise.
Key statistics
Financial highlights 2023 2022 Change
Revenue £82.3m £131.0m (37.2)%
(Loss)/Profit before tax (1) LBT £(1.5)m PBT £41.2m (103.6)%
Basic EPS (2) (1.1)p 15.4p (107.1)%
Dividend - 3.1p (100)%
Compensation ratio (3) 58.6% 47.1% 11.5ppts
Operating highlights
Cash £27.4m £76.7m (64.3)%
Net assets £93.1m £100.1m (7.0)%
Corporate clients 155 162 (4.3)%
Average market cap of clients £690.5m £683.7m 1.0%
Notes:
(1) Illustrative PBT in FY22 was £33.1m
(2) Illustrative Basic EPS in FY22 was £21.1p
(3) Illustrative Compensation ratio (using illustrative staff costs) in
FY22 was 46.3%.
For further information, please contact:
Peel Hunt: via MHP
Steven Fine, CEO
Sunil Dhall, CFOO
MHP (Financial PR): +44 (0)20 3128 8540
Tim Rowntree
Charlie Barker
Robert Collett-Creedy
peelhunt@mhpgroup.com (mailto:peelhunt@mhpgroup.com)
Grant Thornton UK LLP (Nominated Adviser): +44 (0)20 7728 2942
Colin Aaronson
Samuel Littler
Keefe, Bruyette & Woods (Corporate Broker): +44 (0) 20 7710 7600
Alistair McKay
Alberto Moreno Blasco
Fred Walsh
Akshman Ori
Notes to editors
Peel Hunt is a leading specialist in UK investment banking. Our purpose is to
guide and nurture people through the evolution of business. We achieve this
through a proven, joined-up approach that consistently delivers value to UK
corporates, global institutions and trading counterparties alike.
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) Peel Hunt 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
Market review
During FY23 we have seen an extraordinary level of market turmoil, driven by
different economic and geopolitical events. The ongoing war on European soil
combined with the fallout from the UK Government's disastrous mini-budget have
contributed to rapidly rising interest rates, which are now at their highest
level for 14 years. This, together with the biggest bank failures since 2008,
has weighed heavily on investor confidence and market volumes in the UK.
Overall, during the financial year, the FTSE 250 declined 10.6% and the AIM
All-Share 22.3%, although both have staged recoveries in the second half, from
October lows. Nevertheless, capital markets activity levels have remained
exceptionally low throughout the period and the IPO market has been
effectively closed.
Divisional review: Investment Banking
This has been a difficult year for the UK's equity markets, with very low
volumes of activity, particularly around primary issuance. As a result,
Investment Banking revenues in FY23 were down at £23.4m, compared with
£57.9m in FY22. Overall, we acted on 27 Equity Capital Markets (ECM)
transactions over FY23, versus 46 in FY22. Nonetheless, we worked on a number
of successful secondary fundraising transactions with a total value of
£829.6m, acted on a number of high-profile public M&A transactions, and
continued to develop our retail capital markets profile on our own
transactions as well as on third-party transactions, through the use of REX.
We have always stayed close to our clients and invested selectively in our
business during economic downturns. This year has been no different. The
quality and consistency of our team and the services they provide, alongside
our absolute commitment to being a trusted adviser to our clients, have helped
us win 19 new retained corporate clients.
A key element of our refined strategy is to evolve the quality and
profitability of our corporate client base, focusing on mid-cap and growth
companies ahead of absolute client numbers. In the period we added seven FTSE
350 clients. Notwithstanding the drop in the FTSE 250 over FY23, the average
market capitalisation of our retained corporate clients was £690.5m (FY22:
£684m). Overall, we ended the year with 155 corporate clients (FY22: 162),
including 39 in the FTSE 350, and our income from retainers increased to
£8.8m. What sits behind these numbers is the quality and relevance of the
relationships we're developing, and our long-term approach of supporting our
clients through the evolution of business.
Towards the end of Q4, we saw some pick-up in market activity, with a number
of new mandates and pipeline deals with a higher M&A weighting. However,
it is too early to say what will happen in practice, and execution risk
remains amplified.
A period of sustained subdued capital market activity has given us the
opportunity to spend time focusing internally on building the business in line
with our strategic priorities. Expanding Investment Banking as part of the
joined-up service we offer clients includes strengthening our capabilities in
M&A, Private Capital Markets, and Debt Advisory. We are really pleased to
have made some key strategic hires in these areas. A particularly important
development is our increasing focus on Private Capital Markets. We've long
been known for our expertise in Equity Capital Markets, but our services are
equally relevant to private companies.
We're also investing in people at the very start of their finance career,
launching our first graduate scheme, which has given us the opportunity to
target a more diverse pool of candidates. The scheme has already proved
popular, with more than 1,000 applications for four places. Our graduates will
join us later in 2023 and will spend their first 12 months rotating through a
series of roles to help them experience our joined-up approach.
Technology is one of our firm-wide strategic priorities, and it's particularly
relevant in Investment Banking, where our ability to digitalise makes life
easier, simpler, faster and more efficient for our clients and ourselves. Our
proprietary retail platform, REX, is an excellent example of this. This year,
REX was mandated on 12 completed transactions of which eight were non-Peel
Hunt deals. We're now taking steps to spin off REX into a standalone business,
RetailBook, which will help expand retail participation in capital markets.
Meanwhile, our ability to use technology to interrogate data in a more
meaningful way is evolving. The bespoke digital tools and dashboards developed
by our in-house team are adding value to our Investment Banking service,
helping us share emerging trends and themes with clients more quickly, and
speeding up decision-making. What's also important is how we're embedding
digital thinking within our team. Not everyone needs to be able to create
technology, but we all need to understand what technology can help us achieve
and how it can add value to our clients.
Divisional review: Execution Services
Execution Services had a respectable year despite the extremely challenging
economic climate, generating revenue of £33.8m (FY22: £46.1m). Crucially, we
retained a leading market position with a 13.3% share of LSE volume, ahead of
our pre-pandemic market share.
Systematic Trading and Investment Trusts performed in-line with expectations.
Fixed Income has outperformed given the greater trading opportunities in fixed
income securities this year. The capital and funding we've applied to the
trading business has yielded positive returns in difficult markets.
We have not completely avoided the market turbulence, with lower trading
volumes, particularly in small-cap and AIM stocks, but the revenue we have
generated has contributed to the resilience of the firm overall. This is
thanks, in large part, to the experience that we have built up in our team
over several years, and our proactive approach to diversifying our revenue
across a growing number of trading strategies. From this, we can access
incremental, differentiated pools of liquidity for our clients and
counterparties.
As a result, we've been able to keep demonstrating our ability to deliver
positive returns from low-risk market making across the cycle. Despite market
volatility during the period, our traders have maintained good risk management
discipline, operating within their risk limits.
Technology is an essential part of our trading capabilities and risk controls.
Thanks to the investments we've made over more than a decade, our proprietary
tools and platforms have helped us retain a high market share of retail
trading and continue building our overall UK trading volumes. Today,
technology is genuinely a differentiator for our business. But ours is also an
increasingly competitive space, so we have continued to invest in our
proprietary trading intelligence tool, Peel Hunt Automated Trading (PHAT), to
make it more efficient and ensure we continue to provide fast access to
liquidity for our customers and clients. We're always innovating and giving
our traders better tools to manage risk and trade efficiently.
Divisional review: Research & Distribution
Research & Distribution has had another stable, resilient year, despite
the challenges in the macroeconomic landscape. Revenue from research payments
and execution commissions was down 6.9% to £25.1m (FY22: £27.0m), reflecting
the quality of our research offering, broad and deep institutional
relationships, and aligned core trading focused on driving liquidity and
facilitating client business in difficult markets.
Although market volumes fell, we saw momentum in new account openings in both
formal research agreements and trading accounts. We also continued to expand
our offering to a wider universe of hedge funds, sovereign wealth funds,
overseas funds and family offices and private capital market investors. As
well as opening up new commission opportunities, this has further strengthened
our ECM distribution platform.
Today, we have 1,243 relationships with clients who value our top-rated
research, an increase from 1,235 in FY22. Annual sales interactions this year
reached 17,340 (FY22: 16,372).
The experience and consistency of our research, distribution and core trading
teams has always helped us win new corporate clients and IPO mandates, and
these qualities became even more important this year as we stepped forward to
help our clients navigate challenging markets.
As well as retaining our number one research ranking in the Institutional
Investor's UK Mid and Small-cap survey for the sixth consecutive year, a
record five of our analysts ranked individually in the top 10 across all
sectors. Meanwhile, our US and Continental European sales teams were also
ranked number one for the second year running.
One of our strategic priorities is to expand our distribution footprint in the
UK and internationally. This will ensure our corporate clients have in-depth
access to all relevant pools of capital as we become an increasingly key
partner for new institutional clients. We have now received regulatory
approval for our new Copenhagen office, which will allow us to reinstate our
unrestricted, pre-Brexit access to EU institutions.
Meanwhile, our differentiated, low-touch institutional electronic execution
product, developed in conjunction with our technology team, continues to build
momentum. Having completed the build out, we are now onboarding clients. Our
low-touch product is an increasingly important part of delivering best
execution for our clients.
Technology has also been a big theme for our research team, as we completed
work to roll out our new centralised Research database. It's already helping
us be more efficient, giving our research analysts new tools to interrogate
data and produce more in-depth reports. We're very much at the start of this
process, exploring the tremendous potential the database has to generate
deeper insights, more quickly, to share with our clients. We also continued to
develop our new portal for investors.
However, perhaps the most exciting development for our digital approach this
year was having a specialist developer embed themselves in the research team.
As a result, we have already introduced some bespoke, data-led products and
are quickly harnessing the power of artificial intelligence to help our
research and sales teams produce superior content for our clients. This
connection between frontline work across the firm will help ensure that our
accelerating technology investments keep our clients' needs front and centre,
bolstering our role as a trusted adviser.
Current trading and outlook
The challenging market conditions seen throughout FY23 have continued into
FY24, although we have seen a gradual improvement in our pipeline since the
start of FY24, especially in M&A, and there are tentative signs of a
pick-up in capital markets activity. Through the remainder of this period of
downturn, we will continue to prudently manage the business, make strategic
progress and position the business for when market activity normalises. The
stability of our platform, our one-firm, joined-up approach and consistent
impartial advice, mean that we are well positioned to take advantage of
opportunities with our clients as market conditions improve.
FINANCIAL REVIEW
Revenue performance
Our revenue performance was in line with revised market expectations, albeit
down relative to the prior year, influenced by uncertainty in the global
markets, high inflation and rising interest rates. Nevertheless, our strategy
of combining advice, research, distribution and market share in trading
volumes, allied to our sector specialist approach, remains in demand and will
put us in a good position as market conditions normalise.
Continued targeted investment in our operating divisions, both in technology
and our people, remains important to the long-term growth of the business.
Revenue comprises the following:
FY23 FY22 %
£000 £000 change
Investment Banking revenue 23,411 57,948 (59.6)%
Research payments and execution commission((1)) 25,116 26,986 (6.9)%
Execution Services revenue((1)) 33,810 46,112 (26.7)%
Total revenue for the year 82,337 131,046 (37.2)%
Notes:
(1) We have reclassified £3.5m from Research payments and Execution
commission to Execution services revenue to better match how the business is
managed. The effect of the reclassification is immaterial in the current year.
Revenue for the year was £82.3m (FY22: £131.0m). Investment Banking
revenue was affected by the uncertain global economic environment and extreme
lows in capital markets activity throughout FY23. Execution Services revenue
remained higher than pre-pandemic levels, although down year-on-year due to
lower market volumes. Research & Distribution revenue remained resilient,
with research payments and institutional commissions largely consistent with
the previous year, notwithstanding the drop in market activity.
Investment Banking performance
FY23 FY22 %
£000 £000 change
Investment Banking fees 14,622 49,643 (70.5)%
Investment Banking retainers 8,789 8,305 5.8%
Total Investment Banking revenue 23,411 57,948 (59.6)%
This year has been a challenging period for UK equity capital markets with
transaction activity at an all-time low, particularly in terms of primary
equity issuance. The downturn has suppressed client activity and stalled IPO
mandates. As a result, our revenue for the year was down to £23.4m, compared
with £57.9m in FY22.
During the year we added 19 new retained corporate clients (including seven in
the FTSE 350). At the end of FY23 we had 155 corporate clients (FY22: 162),
with an average market capitalisation of approximately £690.5m, including 39
in the FTSE 350. Having added a further FTSE 350 client since the start of
FY24, we now act for 40 FTSE 350 clients.
We have continued to strengthen our private capital markets capabilities,
enabling us to act for both public and private companies alike. We have also
continued to invest in our advisory business, where we act as retained
financial adviser on M&A transactions.
We continue to receive new mandate enquiries and we have a number of pipeline
deals that we expect to execute when market conditions permit.
Execution Services performance
FY23 FY22 %
£000 £000 change
Execution Services revenue 33,810 46,112 (26.7)%
Execution Services revenue was down 26.7% to £33.8m, although our volumes and
LSE market share remained above pre-pandemic levels.
Our Execution Services revenue is diversified across a growing number of
trading strategies as we obtain access to incremental, differentiated pools of
liquidity, extending our ability to provide liquidity to our clients and
counterparties. We continued to demonstrate our ability to deliver positive
returns from low-risk market making across the cycle, and our traders have
maintained good risk management discipline, operating well within their risk
limits.
During the financial year the FTSE 250 and AIM All-Share declined 10.6% and
22.3% respectively, and trading volumes remained much lower across the market
as a whole. Despite this backdrop, a number of our trading books have
performed well versus market drawdowns.
Research & Distribution performance
FY23 FY22 %
£000 £000 change
Research payments and execution commission 25,116 26,986 (6.9)%
Research & Distribution returned a resilient revenue performance of
£25.1m, representing a 6.9% reduction, compared to FY22. The effect of
reduced market volumes was somewhat offset by momentum in new account
openings, across both formal research agreements and trading accounts. We
expanded our offering to a wider universe of hedge funds, sovereign wealth
funds, overseas funds and family offices, which have opened up new commission
opportunities.
Our differentiated, low-touch institutional electronic execution product
continues to build momentum, with the technical build-out now complete and
client onboarding ongoing.
Costs and people
FY23 FY22 %
£000 £000 change
Illustrative staff costs(1) 48,252 60,680 (20.5)%
Illustrative non-staff costs(1) 34,125 35,665 (4.3)%
Total illustrative administration costs(1) 82,377 96,345 (14.5)%
Illustrative compensation ratio(1) 58.6% 46.3% 12.3ppts
Actual staff costs(2) 48,252 41,465 16.4%
Actual non-staff costs 34,125 36,852 (7.4)%
Total actual administration costs( ) 82,377 78,317 5.2%
Actual compensation ratio 58.6% 47.1% 11.5ppts
Period-end headcount 310 309 0.0%
Average headcount 316 299 5.7%
Notes:
(1) FY23 are actual financial results; FY22 are illustrative financial
results as outlined in the Unaudited Illustrative Statement of Comprehensive
Income below.
(2) Actual staff costs in FY22 include variable remuneration costs for
employees but not for members
Despite the challenging markets, we are confident in our strategy, and have
continued with our programme of targeted investment in our strategic
priorities.
Actual staff costs in FY23 were higher than FY22, partly due to the increase
in headcount, and partly due to the change in compensation structure between
the periods. In H1 FY22, all former members of Peel Hunt LLP were remunerated
as employees, with additional National Insurance contributions and pension
costs. Also, at the start of FY22, the firm rebalanced the compensation of
staff between fixed and variable pay. This brought fixed compensation in line
with peer firms in an extremely competitive market for talent and also
prepared us to meet the Investment Firm Prudential Regulation ('IFPR')
remuneration requirements. IFPR requires that a proportion of variable
compensation for certain staff members must now be paid in shares and deferred
over multiple years.
Illustrative staff costs (including variable remuneration) in FY23 were lower
than FY22, reflecting the reduction in revenue and the associated reduction in
variable remuneration expense. However, reduced revenue has resulted in an
increased illustrative compensation ratio compared with FY22.
Actual non-staff costs decreased in FY23 largely due to the corresponding
period in FY22 including the costs associated with the IPO. However, FY23
additional costs related to increased audit and corporate governance
requirements alongside increased interest rates and inflationary increases,
particularly on our large technology contracts and our continued investment in
technology capabilities. Illustrative non-staff costs are largely consistent
with FY22.
Since the end of FY23, we have taken action to rationalise costs and we will
continue to carefully monitor expenditure in the context of prevailing market
activity/conditions, whilst remaining focused on our strategic priorities.
Responsible business
Our commitments to diversity and sustainability are shaped by our board-level
ESG Committee. During the period, we have determined four areas of focus which
are important to our stakeholders and which Peel Hunt can positively impact.
These are:
i. Diversity, equity and inclusion
ii. Carbon reduction
iii. Governance and integrity: We are working to ensure that
sustainability is formally embedded within our risk appetite and
decision-making processes
iv. Building our sustainability capabilities and products: We want to help
our investment bankers and research analysts enhance their sustainability
knowledge so that they can better serve our clients.
In the spirit of creating measurable steps for delivery, we have set important
targets to reduce our carbon footprint and increase gender diversity. These
include a target of women comprising at least 40% of employees by 2035, as
well as setting targets to become carbon neutral by 2025, and reach net zero
by 2040.
Balance sheet
The Group's net asset position as at 31 March 2023 was £93.1m (31 March 2022:
£100.1m), representing a decrease of 7.0% from compared with last year, due
to the previous year's dividend payment, the EBT's acquisition of ordinary
shares in the Group to meet future employee share plan obligations and the
loss in the current financial year.
We have a strong balance sheet following the IPO, and as at 31 March 2023 we
maintained £101.7m of liquid assets, comprising cash and settled securities
(mainly equities and some government bonds), which can provide funding to the
business at short notice.
Capital and liquidity
The business maintained a good cash balance at the year-end of £27.4m, having
decreased from £76.7m as at 31 March 2022. This is largely due to the
settlement of amounts attributable to the period before the IPO, in addition
to investment in the trading book and payment of the dividend in July 2022. We
have now completed all non-recurring payments due in relation to the period
before the IPO.
Strong liquidity management and controls have remained a focus during the
year, to ensure the resilience of our business. Scenario and stress testing
have always been part of our regular liquidity and capital analysis, providing
clear actions that can be implemented in severe scenarios.
We continue to operate well in excess of our minimum regulatory capital
requirements with an Own Funds cover over net assets of 555% at the end of
FY23, compared to 558% at the end of FY22. The slight decrease has been due to
the reduction in net assets since FY22 offset by a reduction in risk exposures
during FY23.
We repaid long-term debt of £6.0m during the year leaving £21.0m of
principal outstanding as at 31 March 2023, and we continue to have access to a
£30.0m revolving credit facility ('RCF'), which was renewed during the year.
Since the year end we have accelerated repayments of £6m further reducing the
principal outstanding to £15m as shown in Note 9 to the condensed
consolidated financial statements.
Dividend
The Board is not proposing a dividend for the year.
Unaudited Illustrative Statement of Comprehensive Income
The unaudited illustrative statement of comprehensive income, set out below,
has been prepared for the comparative period to illustrate the impact that the
reorganisation of the Group's corporate structure, and the IPO, would have had
on the consolidated statement of comprehensive income had it taken place on or
before 31 March 2021. FY23 are actual results whilst FY22 is prepared on an
illustrative basis.
Year ended Year ended
31 March 2023 31 March 2022
Continuing activities Notes £'000 £'000
Revenue 82,337 131,046
Administrative expenses (1) (82,377) (96,345)
(Loss)/profit from operations (40) 34,701
Finance income 692 15
Finance expenses (2,320) (1,664)
Other income 180 56
(Loss)/profit before tax (1,488) 33,108
Tax (2) 166 (7,566)
(Loss)/profit after tax (1,322) 25,542
Dividend (3) (1,322) (10,217)
Retained (loss)/profit for the period (1,322) 15,325
Illustrative performance metrics
Compensation ratio 58.6% 46.3%
Non-staff cost ratio 43.2% 28.4%
(Loss)/profit before tax margin (1.8)% 25.3%
Notes to the Unaudited Illustrative Statement of Comprehensive Income
1. Administrative expenses - in FY22 these include the impact of changes
to the compensation structure of the Group, including the former members of
Peel Hunt LLP being remunerated as employees plus the resulting additional
National Insurance contributions and pension costs. In addition, FY22
excludes one-off costs of £4.1m (£1.2m of staff costs relating to the
reorganisation of the Group's corporate structure, and £2.9m of non-staff
costs relating to the IPO).
2. Tax - the corporation tax in FY22 includes the effect of the Group
being subject to corporation tax at the standard rate (19%) on additional
profits.
3. Dividend - the dividend in FY22 includes the targeted basic dividend
pay-out ratio of the Group (40%), applied to the profit after tax for the
period.
Reconciliation of Illustrative to Actual Consolidated Comprehensive Income for
FY22((1))
The impact of Notes (1) to (3) in the unaudited illustrative statement of
comprehensive income on FY22 is summarised below:
Administrative expenses ((2))
Actual financials - FY22 Include: revised compensation model ((3)) Exclude: one-off expenses Exclude: one-off tax charge in respect of prior years Include: additional corporation tax Include: illustrative 40% dividend Illustrative financials - FY22
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit before tax for the period 41,228 (12,193) 4,073 33,108
Tax (5,280) 1,559 (3,845) (7,566)
Profit after tax 35,948 (12,193) 4,073 1,559 (3,845) 25,542
Dividend (10,217) (10,217)
Retained profit for the period 15,325
(1) There is no reconciliation for FY23 as the results remain the same as
the actual financial results.
(2) Administration expenses includes members' remuneration charged as an
expense; this is presented separately from the actual administration expenses
shown in the consolidated statement of comprehensive income within the
financial statements.
(3) Includes National Insurance, pension costs and variable remuneration
related to former members of Peel Hunt LLP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
Audited for the year ended 31 March 2023
Year ended Year ended
31 March 2023 31 March 2022
Continuing activities Note £'000 £'000
Revenue 2 82,337 131,046
Administrative expenses 3 (82,377) (78,317)
(Loss)/profit from operations (40) 52,729
Finance income 4 692 15
Finance expense 4 (2,320) (1,664)
Other income 180 56
(Loss)/profit before members' remuneration and tax (1,488) 51,136
Members' remuneration charged as an expense 3 - (9,908)
(Loss)/profit before tax for the year (1,488) 41,228
Tax 5 166 (5,280)
(Loss)/profit for the year (1,322) 35,948
Other comprehensive income for the year - 27
Total comprehensive (expense) income for the year (1,322) 35,975
Attributable to:
Owners of the Company (1,322) 10,954
Non-controlling interests 6 - 24,994
(Loss)/profit for the year (1,322) 35,948
Attributable to:
Owners of the Company (1,322) 10,981
Non-controlling interests 6 - 24,994
Total comprehensive (expense) income for the year (1,322) 35,975
(Loss)/earnings per share - attributable to owners of the Company:
Basic 8 (1.1p) 15.4p
Diluted 8 (1.1p) 15.4p
Consolidated Statement of Financial Position
Audited as at 31 March 2023
As at 31 March 2023 As at 31 March 2022
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 8,092 9,341
Intangible assets 1,152 110
Right-of-use assets 15,889 18,219
Deferred tax asset 273 259
Total non-current assets 25,406 27,929
Current assets
Securities held for trading 54,144 50,341
Market and client debtors 471,504 559,485
Trade and other debtors 15,546 13,200
Cash and cash equivalents 27,410 76,719
Total current assets 568,604 699,745
LIABILITIES
Current liabilities
Securities held for trading (32,062) (32,705)
Market and client creditors (421,953) (505,475)
Amounts due to members - (21,837)
Trade and other creditors (4,214) (16,790)
Long-term loan (6,000) (6,000)
Lease liabilities (2,867) (2,544)
Provisions (576) (540)
Total current liabilities (467,672) (585,891)
Net current assets 100,932 113,854
Non-current liabilities
Long-term loan (15,000) (21,000)
Lease liabilities (18,192) (20,649)
Total non-current liabilities (33,192) (41,649)
Net assets 93,146 100,134
Consolidated Statement of Financial Position
Audited as at 31 March 2023
As at 31 March 2023 As at 31 March 2022
£'000 £'000
EQUITY
Ordinary share capital 40,099 40,099
Other reserves 53,047 60,035
Total equity 93,146 100,134
Consolidated Statement of Changes in Equity
Audited for the year ended 31 March 2023
Ordinary share Other Total Equity
capital
Own shares
reserves
held by the
Company
Group £'000 £'000 £'000 £'000
Balance at 1 April 2021 99 (14) 48,285 48,370
Profit for the year - - 10,954 10,954
Other comprehensive income - - 27 27
Total comprehensive income - - 10,981 10,981
Transactions with owners
New shares issued during the year 40,000 - (2,513) 37,487
(including cost of issuance)
Gain on option exercise - - 730 730
Sale of Company shares - 14 2,552 2,566
Balance at 31 March 2022 40,099 - 60,035 100,134
Loss for the year - - (1,322) (1,322)
Other comprehensive income - - - -
Total comprehensive expense - - (1,322) (1,322)
Transactions with owners
Equity-settled share-based payments reserve - - 647 647
Purchase of Company shares - - (2,581) (2,581)
Dividends paid - - (3,732) (3,732)
Balance at 31 March 2023 40,099 - 53,047 93,146
Consolidated Statement of Cash Flows
Audited for the year ended 31 March 2023
Year ended Year ended
31 March 2023 31 March 2022
Note £'000 £'000
Net cash used in operations 9 (30,899) (68,074)
Cash flows from investing activities
Purchase of tangible assets (511) (1,346)
Purchase of intangible assets (1,087) (6)
Disposal of equity investments not held for trading - 47
Net cash used in investing activities (1,598) (1,305)
Cash flows from financing activities
Interest paid (1,382) (732)
Dividends paid (3,732) -
Lease liability payments (3,117) (316)
Proceeds from share issuance - 40,000
(Purchase)/sale of Company shares (2,581) 2,566
Proceeds from option exercise - 730
Share issuance expenses - (2,513)
(Repayment of)/increase in long-term loan (6,000) 3,000
Net cash (used in)/ generated from financing activities (16,812) 42,735
Net decrease in cash and cash equivalents (49,309) (26,644)
Cash and cash equivalents at start of period 76,719 103,363
Cash and cash equivalents at end of period 27,410 76,719
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
Peel Hunt Limited (the Company) (until 21 September 2021, PH Capital Limited)
is a non-cellular company limited by shares having listed its shares for
trading on the Alternative Investment Market (AIM), a market operated by The
London Stock Exchange, on 29 September 2021. The Company is registered in
Guernsey. Its registered office is Ground Floor, Dorey Court, Admiral Park, St
Peter Port, Guernsey GY1 2HT. The consolidated financial statements of the
Company comprises the Company and its subsidiaries, together referred to as
the Group.
The financial information is presented in pounds sterling and all values are
rounded to the nearest thousand (£'000), except where indicated otherwise.
The financial information has been prepared on the historical cost basis,
except for derivatives, financial assets and liabilities which are valued at
fair value through profit and loss (FVTPL) and fair value through other
comprehensive income (FVTOCI). Historical cost is generally based on the fair
value of the consideration given in exchange for the assets.
Going concern
The Group's principal activities are Investment Banking, Research &
Distribution and Execution Services in UK mid-cap and growth companies to
institutional clients, wealth managers and private client brokers.
The Directors have assessed the Group's projected business activities and
available financial resources together with a detailed cash flow forecast for
the next 18 months from the date these financial statements were approved. The
Directors have used base case and severe but plausible scenarios to perform
the going concern assessment.
The base scenario assumes:
• Long-term sustainable growth of the Group as approved by the Board
in the Group's five-year business plan, including continued growth in
corporate clients
• Increased interest rates, as well as inflationary pressures on all
cost categories
• Continued strategic investment in the Group, particularly in
relation to technology and execution services
The severe but plausible downside scenario assumes:
• Worsening of the economic climate from the current historic low
levels, continuing to keep capital market activity low and trading volumes
reduced
• An operational event occurs reducing profitability and cash
• Management continue to rationalise costs where possible
The results of the scenario analysis consider the impact on profitability,
cash, liquid assets, regulatory capital and covenant requirements. The severe
but plausible downside scenario also includes active management of the Group's
liquid assets in order to ensure the Group's ability to repay its long-term
loans as required, which would remove any potential covenant constraints. In
view of the Group's available financial resources, the Directors believe that
the Group is well placed to manage its business risks successfully.
The Directors are satisfied that the Group has adequate resources to continue
in operational existence for a period of at least 12 months from the date
these financial statements are approved and for the foreseeable future. The
Group has a strong focus on working capital management to ensure the payment
of the Group's liabilities as they fall due. There is also a focus on
monitoring the regulatory capital resource and requirements of Peel Hunt LLP
and the UK regulatory group to ensure that all regulatory capital and
liquidity requirements and covenant requirements are met.
Accordingly, the Directors continue to adopt the going concern basis in
preparing the financial statements for the year ended 31 March 2023.
The new standards or amendments to IFRS that became effective and were adopted
by the Group during the year had no material effect on the financial
statements.
2. Revenue
Year ended Year ended
31 Mar 2023 31 Mar 2022
£'000 £'000
Restated
Research payments and execution commission 25,116 26,986
Execution Services revenue 33,810 46,112
Investment Banking fees and retainers 23,411 57,948
Total revenue for the period 82,337 131,046
We have reclassified £3.5m from Research payments and Execution commission to
Execution services revenue in the prior year to be better match how the
business is managed. The effect of the reclassification is immaterial in the
current year.
3. Staff costs
Year ended Year ended
31 Mar 2023 31 Mar 2022
£'000 £'000
Wages and salaries 39,946 33,179
Social security costs 5,597 6,051
Pensions costs 2,623 1,473
Other costs 86 762
Total staff costs for the period 48,252 41,465
Members' remuneration charged as an expense - 9,908
Total staff costs and members' remuneration charged as an expense for the 48,252 51,373
period
The average number of employees and members of the Group during the period has
increased to 316 (31 March 2022: 299).
4. Net finance expense
Year ended Year ended
31 Mar 2023 31 Mar 2022
£'000 £'000
Finance income
Bank interest received 692 15
Finance expense
Bank interest paid (52) (72)
Interest on lease liabilities (938) (934)
Interest accrued on long-term loan (1,330) (658)
Finance expense for the period (2,320) (1,664)
Net finance expense for the period (1,628) (1,649)
5. Tax charge
The Group tax charge in the year ended 31 March 2023 includes a credit of
£0.2m relating to tax charges in respect of prior years.
6. Non-controlling interest
The non-controlling interest in the prior year relates to the former
individual members of Peel Hunt LLP; these amounts are included in amounts due
to members on the Consolidated Statement of Financial Position.
7. Statement of Financial Position items
(a) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and impairment losses. Depreciation is charged to the income statement on a
straight-line basis over the estimated useful economic lives of each item.
(b) Intangible assets
Intangible assets represent internally generated intangible assets, computer
software and sports debentures. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful economic lives of
each item. Internally generated intangible assets are amortised over three
years, computer software is amortised over five years and sports debentures
are amortised over the life of the ticket rights.
Internally generated intangible assets comprises capitalised development costs
for certain technology developments for key projects in the Group. The
expenditure incurred in the research phase of these internal projects is
expensed. Intangible assets are recognised from the development phase if and
only if certain specific criteria are met in order to demonstrate the asset
will generate probable future economic benefits and that its costs can be
reliably measured. Amortisation begins when the asset is available for use.
(c) Right-of-use asset and lease liabilities
The right-of-use asset and lease liabilities (current and non-current)
represent the two property leases that the Group currently uses for its
offices in London and New York.
(d) Market and client debtors and creditors
The market and client debtor and creditor balances represent unsettled sold
securities transactions and unsettled purchased securities transactions, which
are recognised on a trade date basis. The majority of open bargains were
settled in the ordinary course of business (trade date plus two days). Market
and client debtor and creditor balances in these financial statements include
agreed counterparty netting of £11.9m (31 March 2022: £17.4m).
(e) Financial instruments
Financial assets and financial liabilities are recognised in the statement of
financial position when the Group becomes a party to the contractual
provisions of the financial instrument. The type of financial instruments held
by the Group at 31 March 2023 and 31 March 2022 are consistent with those held
at prior year end. The majority of financial instruments are classified as
'Level 1', with quoted prices in active markets.
(f) Stock borrowing collateral
The Group enters into stock borrowing agreements with a number of institutions
on a collateralised basis. Under such agreements, securities are purchased
with a commitment to return them at a future date and price. The securities
purchased are not recognised on the statement of financial position. The cash
advanced is recorded on the statement of financial position as cash collateral
within trade and other debtors, the value of which is not significantly
different from the value of the securities purchased. The total value of cash
collateral held on the statement of financial position is £2.4m (31 March
2022: £2.8m).
(g) Long-term loans
During the year the Group repaid £6m of the outstanding Senior Facilities
Agreement. The balance outstanding at year end is £21m (31 March 2022:
£27m).
8. (Loss)/earnings per share
Year ended Year ended
31 March 2023 31 March 2022
Basic weighted average number of ordinary shares in issue during the year 119,197,519 71,231,123
Dilutive effect of share option grants 1,605,000 259,971
Diluted weighted average number of ordinary shares in issue during the year 120,802,519 71,491,093
Basic (loss)/earnings per share is calculated on total comprehensive
(loss)/income for the year, attributable to the owners of the Company, of
£(1.3m) (31 March 2022: £11.0m) and 119,197,519 (31 March 2022: 71,231,123)
ordinary shares, being the weighted average number of ordinary shares in issue
during the year. Diluted earnings per share is calculated after adjusting for
the number of options expected to be exercised from the share option grants.
The Company has 1,605,000 (31 March 2022: 259,971) of dilutive equity
instruments outstanding as at 31 March 2023.
9. Post balance sheet event
Since the year end the Company has accelerated £6m of principal repayments of
the Senior Facilities Agreement (SFA) (see Note 7(g) - Long-term loans),
reducing the outstanding balance to £15m. As a result, £3m of scheduled
principal repayments in each of September 2023 and March 2024 are no longer
due. The accelerated repayments are estimated to save approximately £0.3m of
interest expense throughout the year ending 31 March 2024. The available
Revolving Credit Facility (RCF) remains at £30m and the interest rates
applicable to both the SFA and RCF remain unchanged. Alongside the accelerated
repayments, the Company has negotiated a temporary reduction in its interest
cover covenant up to, and including, 31 December 2023.
10. Reconciliation of (loss)/profit before tax to cash from
operating activities
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
(Loss)/profit before tax for the period (1,488) 41,228
Adjustments for:
Depreciation and amortisation 4,251 4,154
Impairment loss on loans and receivables 277 244
Fair value gain on sale of securities not held for trading _ 27
Increase in provisions 37 109
Foreign exchange movement on deferred tax asset - (8)
Equity settled share-based payments - IFRS 2 charge 647 -
Revaluation of Right-of-use asset and Lease liability (71) (52)
Net finance costs 1,628 1,649
Change in working capital:
Increase in net securities held for trading (4,446) (4,068)
Decrease in net market and client debtors 4,458 12,373
Increase in trade and other debtors (2,339) (4,017)
Decrease in net amounts due to members (21,837) (116,565)
(Decrease)/increase in trade and other creditors (12,572) 3,001
Cash used in operations (31,455) (61,925)
Interest received 692 15
Corporation tax paid (136) (6,164)
Net cash used in operations (30,899) (68,074)
END
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