Panmure Gordon & Co. Plc – Final Results

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Panmure Gordon & Co. Plc – Final Results

Panmure Gordon & Co. plc

(“Panmure Gordon”, the “Group” or the “Company”)

Preliminary results for the year ended 31 December 2015

Panmure Gordon & Co. plc, a leading independent institutional stockbroker and investment bank, today announces preliminary results for the year ended 31 December 2015.

 

Key Points

  • As previously advised, the loss after tax from normal operations for the year is £(4.1m) (2014 profit of £2.0m)
  • The operational loss total of £(4.1)m comprises the total statutory loss of £(16.7m) less the impact of goodwill impairment of £(13.2m) and the write-back of its associated accumulated deferred tax credit of £1.1m and, share based payments charge of £(0.5m)
  • International accounting standard IAS36 review of the carrying value of goodwill resulted in a non-cash impairment charge of £13.2m (2014: £nil) and an accompanying reversal of historic accrued deferred tax liabilities of £1.1m (2014: nil)
  • Revenue from corporate finance and other fee income down 38% to £12.8m (2014: £20.7m)
  • 11.3% increase in net commission and trading income to £10.5m (2014: £9.4m)
  • Assisted clients in raising more than £500m in the year
  • Successful acquisition and integration of Charles Stanley Securities
  • Client numbers at an all-time high of 152 at 31 December 2015 (2014: 123)
  • Appointed new Chief Executive, Patric Johnson in February 2016
  • Cash at 31 December 2015 was £5.0m (2014: £12.4m)
  • £5.0m financing facility made available by QInvest in February 2016

 

Chief Executive Patric Johnson commented:

“2015 was a disappointing year with regards to our primary markets activities. However, our institutional securities business performed well, we successfully completed the acquisition of Charles Stanley Securities in July 2015, increased our corporate client base to 152 from 123 and we remodelled the business with our corporate-led, sector-driven approach and this strategy is already yielding results. We took the decision to write off the outstanding historic accounting goodwill of £13.2m on the balance sheet, which dates back to 2005, and start 2016 with a clean slate. This results in a statutory loss of £16.7m and a clean and transparent balance sheet going forward. I should make it clear that the relevant impairment charge of £13.2m is non-cash accounting item and has no impact on regulatory capital or on the ongoing operations of the business.

2016 has started positively: In the first three months of the year we have made operational efficiencies and executed 14 deals, and will record a profit. Despite this, we are under no illusion as to the potency of the dangers that lie ahead of us this year and the external factors that will weigh heavily on the fund raising opportunities in our market. Encouragingly, we have an extremely talented team of people and a very supportive shareholder in QInvest – an excellent platform on which to build for the future.”

Panmure Gordon 
Ed Warner, Chairman020 7886 2500
Patric Johnson, Chief Executive020 7886 2500
Buchanan
Mark Edwards/Helen Chan/Stephanie Watson 020 7886 2500
panmure@buchanan.uk.com
Grant Thornton Corporate Finance (Nominated Adviser)
Philip Secrett/Salmaan Khawaja/Jen Clarke 020 7383 5100

CHAIRMAN’S STATEMENT

2015 was a challenging year in financial markets. Extreme volatility, in large part caused by concerns about Chinese economic growth and attendant collapses in commodity markets, severely constrained the equity capital markets. While it gives the Board no pleasure to report a loss for Panmure Gordon for the year, this should be viewed against this backdrop of constraints to primary equity issuance rather than as a reflection of the underlying strengths of the Company.

In July 2015 the Company completed the acquisition of Charles Stanley Securities, an institutional broking and corporate finance business with highly complementary operations to the core Panmure Gordon activities. We are pleased to welcome the staff and clients of Charles Stanley Securities and believe that the enhanced client list of the enlarged firm provides a solid foundation for future growth.

Secondary market revenues, comprising brokerage commissions and market making profits, held steady year-on-year, although there was a change in the revenue mix. Commission rates have been under steady downward pressure for many years, and 2015 was no exception, encouraged in part by regulatory change. This was reflected in our own commission revenues. However, this was offset by a rise in trading profits, a function of management and other changes in recent times.

The Company’s primary market revenues declined year-on-year, reflecting the difficult market environment. Nevertheless, Panmure Gordon still raised over £500m in equity finance for our clients, underlining the Company’s continuing reputation and capabilities. Our corporate client list has grown to 152, boosted by the Charles Stanley Securities acquisition, and providing a firm foundation of retainer income and the prospect of primary revenues in years to come.

Since the year end, management has taken action to ensure that the core Panmure Gordon institutional and corporate business is fit for the continuing challenging market conditions. Costs have been removed from these operations and management responsibilities realigned. In addition, the Company has withdrawn from non-core activities, including the closure of the loss-making office in Nyon, Switzerland.

Also in 2016, Phillip Wale stepped down and was replaced as Chief Executive by Patric Johnson, who had been promoted to the Board in March 2015. Phillip leaves Panmure Gordon with the Board’s very best wishes, having been instrumental through his leadership in reshaping the business over the past four years.

Patric’s appointment in February was accompanied by the securing of a £5m funding facility from our largest shareholder, QInvest. This facility underlines QInvest’s continuing commitment to Panmure Gordon and will provide management with increased flexibility in pursuing their growth plans in the coming years.

I also am pleased to welcome Steven Baldwin who was appointed as a non-executive director on 1 February 2016. Steve brings a wealth of financial services experience with him and we are pleased to have him on board.

Finally, I will be retiring as Chairman at the Company’s Annual General Meeting in May. I leave a business well placed to capitalise on its long heritage in the UK stock market and its enduring reputation for integrity in the conduct of business for its clients.

Ed Warner, OBE

Chairman

 

30 March 2016

Chief Executive’s review

Macro review

UK equity valuations remained subdued during 2015 and into the first part of 2016. Earnings growth failed to materialise for the fourth consecutive year and an overweight commodities sector weighed on headline UK indices. The expected tailwind to global growth from lower energy costs has been uneven and sporadic.

 

Comparing 2015 against 2014, the UK main market and AIM raised in 2015 a combined total in IPOs of £8.0bn versus £12.0bn in 2014.

Overview

2015 was a disappointing year with regards to our primary markets activities. However, our institutional securities business performed well with the continued success of our distribution & trading activities. We successfully completed the acquisition of Charles Stanley Securities in July 2015 and increased our corporate client base to152 from 123.

The Group experienced a number of pressures and as a result has entered into a post-tax operating loss from operations before the impact of goodwill impairment of £13.2m, the associated write-back of deferred tax liability of £1.1m and share based payments charge of £0.5m led to a post-tax loss from normal operations of £(4.1)m (equivalent for 2014: profit of £2.0m). This loss was due to a reduction in Corporate finance and other fee income by £7.9m to £12.8m. This decline in corporate revenue was driven by a combination of smaller deal size and lower corporate activity. Additionally, administrative costs, relating primarily to the Charles Stanley Securities acquisition, increased by £1.0m to £26.5m. Conversely, the institutional securities side of the business saw an increase in net commission and trading income of £1.1m to £10.5m showing a year-on-year growth  of 11.3%.  This increase is consistent with our longer term strategy to prepare the business for the incoming regulatory changes represented by MiFID II and a rigorous focus on servicing our institutional client base with high value and substantive research, access to capital and the provision of excellent trading and sales capabilities.

 

We have remodelled the business with our corporate-led, sector-driven approach with teams of sector experts to support clients and  this strategy is already yielding results with the No 1 position by number of clients in Healthcare (ARL Corporate Advisers Ranging Guide Feb 2016), the No1 slot in Consumer goods and 2nd overall position in the number of AIM clients, up from 3rd in 2014.

 

Key Transactions

Panmure Gordon helped to raise over £500m for corporate clients in over 20 separate transactions throughout the course of the year. Significant corporate financing deals won in 2015 include; the £233m rights issue for RPC Group; a secondary placing on behalf of GLI Finance, the IPO of Gear4Music, the York based musical equipment retailer; a secondary placing for Allergy Therapeutics and, the IPO of Orchard Funding Group.

The new clients obtained from the acquisition of Charles Stanley Securities and the additional expertise obtained provides a good platform from which to move forward in 2016. Our focus on ensuring that the level of service and advice we provide to our client base continues to be of the highest quality, reflecting the values of Panmure Gordon, should continue to generate opportunities for growth.

Dividend

The Board is not recommending the payment of a dividend (2014: 2.5p per ordinary share).

Goodwill

Management has to make a number of subjective assumptions in respect of goodwill and this year has reflected on the recent losses incurred, the extreme market volatilities being experienced and the appropriateness of the interest rate used to discount the future expected cash flows of the business which it has increased significantly and, as a result, an impairment charge of £13.2m has been taken through the income statement for the year ended 31 December 2015. Whilst the resulting number is significant it is important to note that this has no effect on the day-to-day business but the cleaning up of an historic 2005 pre-financial crisis era accounting entry that was generated by the acquisition of Panmure Gordon (UK) Limited by the Group. This has no impact on cash or the levels of regulatory capital which both remain comfortable.

QInvest

Panmure Gordon enjoys an excellent relationship with its major shareholder, QInvest, and in February 2016 agreed to enter into a £5m financing arrangement that will further assist growth plans for the future whilst providing further liquidity for ongoing business.

2016 Outlook

2016 will benefit from the operational efficiencies made including the closure of our office in Nyon, Switzerland, effective January 2016, and the reduction in overall headcount numbers from a peak of 137 in July 2015 to approximately 100 at the current date. Right-sizing the business is crucial to create a solid platform for growth and we have had to make some tough decisions in our ongoing effort to make this right. However, in order to remain a client centric business, we will continue to invest in individuals and teams that reflect the values of the Company and drive the business forward. We have concentrated our resources around key specialist sector teams and we have continued to move the revenue model to better reflect the future regulatory environment. We will also look to expand our distribution capabilities, particularly in the US.

We are fortunate to have as a key shareholder, QInvest, who is supportive of our business and strategy. Their granting of financing to enhance our financial strength and liquidity will allow us to accelerate our plans for the near future. We look forward to exploring further opportunities for working together.

The start to 2016 has proved to be extremely challenging in all areas of the financial services industry. We have seen volatility spike and a continued decline in trading volumes, all within a macro backdrop of uncertainty regarding Europe and the United Kingdom’s continued participation in the EU as well as the US elections and China’s economic slowdown.  I am pleased to report, however, that we have started the year profitably with 14 transactions by the end of March 2016, compared with six transactions in the first Quarter of 2015, and we continue to see modest, though steady, growth in our secondary business.

Phillip Wale, who served as Chief Executive from 2012 left the business in February 2016. Phillip’s direction and leadership allowed us to move with the changing environment and he was instrumental in defining the blueprint of the business going forward. I want to take this opportunity to express our gratitude for his valuable contribution over the past four years.

2015 saw a number of changes culemating in

Finally, although he is with us until the AGM in May, I would like to take this opportunity to thank Ed Warner for his efforts and dedication to the firm over the past seven years, six as Non-Executive Chairman.  His presence of mind, advice and general guidance and oversight for the board will be missed by both the executive team and non-executives directors. His contribution has been greatly appreciated, and we wish him all the best for the future.

 

Patric Johnson

Chief Executive

30 March 2016

 

Key performance indicators

 

Financial

KPI Objective Performance Trend
Corporate finance and other fee income To add high quality corporate clients to our list which will in turn generate retainer and fee income.

2015: £12.79m

2014: £20.70m

2013: £18.10m

 

Significant growth over the 3 years 2012-2014 was disrupted by difficult markets in 2015.
Net commission and trading income To maintain a steady level of commission and trading income.

2015: £10.51m

2014: £9.44m

2013: £9.80m

 

Despite difficult markets, 2015 saw a healthy increase on the prior year as a result of better management of resources.
Basic earnings/(loss) per share To grow earnings per share for shareholders.

      2015: (107.3)p

2014: 9.64p

2013: 5.36p

 

The action taken on Goodwill combined with the impact that the difficult markets of 2015 had have resulted in losses though with action on costs and attention to revenue opportunities this is being addressed in 2016
(Loss)  / Profit To increase profit from operations by increasing income while managing operating costs.

2015: £(16.68m)

2014: £1.50m

2013: £0.83m

 

A challenging year reversed the trend of the recent 3 years.

 

Operational

KPI Objective Performance Trend
Revenue per employee (£’000) To increase the level of revenue per employee, whilst keeping a stable number of employees.

2015: 181

2014: 263

2013: 237

 

The recent positive trend has been impacted by the difficult markets of 2015. The early signs of 2016 are however encouraging.
Ratio of employee compensation to turnover To retain a high calibre and fairly rewarded team who generate increasing levels of revenue.  As the fee income grows this ratio should maintain a reducing trend.

2015: 80%

2014: 59%

2013: 62%

 

With high fixed costs the ratio that has been decreasing over the recent years was impacted by the reduced revenue of 2015. Cost reductions in 2016 will however help to reverse this setback.
Number of corporate clients To grow our list of retained clients across a range of sectors in order to maximise retainer and transaction based income.

2015: 152

2014: 123

2013: 130

 

The client list has grown since 2012 and increased further in 2015 with the acquisition of Charles Stanley Securities.

 

Consolidated income statement

 

For the year ended 31 December 2015

 

Notes   2015 2014
£‘000   £‘000
Continuing operations
Commission and trading income   11,687   10,916
Commission and trading expense   (1,180)   (1,474)
   
Net commission and trading income   10,507   9,442
   
Corporate finance and other fee income   12,788   20,704
Loss on corporate investments 3 (270)   (755)
   
Net commission and fee income   23,025   29,391
   
Net loss on available for sale investments     (7)
   
Administrative costs1   (26,493)   (25,507)
   
Redundancy, restructuring and other non-recurring charges1 4 (1,730)   (1,216)
   
Operating (loss)/profit before share-based payments and goodwill impairment   (5,198)   2,661
     
Share-based payments1 5 (470)   (500)
Goodwill impairment 12 (13,201)  
     
Operating (loss)/profit   (18,869)   2,161
     
Financial income 7 1   1
Financial expense 7 (17)   (17)
   
Net financial expense 7 (16)   (16)
     
(loss)/profit before tax from operations   (18,885)   2,145
   
Taxation 9 2,210   (646)
   

(loss)/profit for the period attributable to the owners of

       the Company

  (16,675)   1,499
   
   
Basic (loss)/earnings per share 11 (107.3)p   9.64p
   
Diluted (loss)/earnings per share 11 (106.3)p   9.39p

 

1   Administrative expenses which total £41.9m (2014: £27.2m) have been presented separately here owing to their individual nature and size

Consolidated statement of comprehensive income & expense

For the year ended 31 December 2015

 

  Notes 2015 2014
      £‘000   £‘000

(Loss)/Profit for the period attributable to the owners of

       the Company

    (16,675)   1,499

Total comprehensive (loss)/income for the period

       attributable to the owners of the Company

    (16,675)   1,499

 

The notes on pages 32 to 57 form part of these financial statements.

 

Consolidated statement of financial position

As at 31 December 2015

  Notes 2015 2014
    £‘000   £‘000
Assets
Intangibles 12 2,012 13,201
Plant and equipment 13 1,913 2,060
Available for sale investments 14 100
Deferred tax asset 17 1,547 396
Other receivables 15 409 645
 
Total non-current assets   5,981   16,302
Securities held for trading   5,804 4,507
Trade and other receivables 15 20,239 20,808
Corporation tax debtor  
Cash and cash equivalents   4,985 12,386
 
Total current assets   31,028   37,701
 
Current liabilities  
Trade payables 16 (14,115) (14,804)
Tax and social security   (601) (857)
Corporation tax liabilities   (194)
Other payables 16 (4,126) (2,688)
Securities held for trading   (1,595) (1,275)
 
Total current liabilities   (20,437)   (19,818)
 
Net current assets   10,591   17,883
Deferred tax liability 17 (338) (1,058)
 
Total non-current liabilities   (338)   (1,058)
 
Net assets   16,234   33,127
 
Equity  
 
Issued share capital 22 622 622
Merger reserve 23 21,810 21,810
Other reserve 23 (8,112) (7,790)
Retained earnings 1,914 18,485
         
Total equity   16,234   33,127

 

Approved by the board on 30 March 2016 and signed on its behalf by:

Philip Tansey

Chief Financial Officer

Consolidated statement of cash flow

 

Year ended

31 December 2015

Year ended

31 December 2014

    £‘000   £‘000
Cash flows from operating activities
(Loss) / Profit after tax (16,675) 1,499
Net financial expense 16 16
Depreciation and amortisation 421 353
Intangibles impairment and amortisation 13,404
Net loss on available for sale investments 7
Movement in securities held for trading (976) 3,099
(Increase)/decrease in net amounts owed by market             counterparties (449) 3,496
(Increase) in trade and other receivables (119) (346)
Increase/(decrease) in trade payables and provisions 1,686 (2,176)
IFRS 2 share-based payment charges 470 500
Income tax expense (2,210) 646
Net cash from operating activities   (4,432) (7,094)
Cash flows from investing activities
Financial income received 1 1
Acquisition of plant and equipment (288) (402)
Acquisition of Intangible assets (1,877)
Acquisition of available for sale investments (100)
Proceeds from disposal of investments 1
Net cash from investing activities   (2,264) (400)
Cash flows from financing activities
Purchase of own shares for EBT (326) (372)
Financial expense (17) (17)
Dividend paid (366)
Repayment of EBT loan 4 23
Net cash from financing activities   (705) (366)
Net (decrease)/increase in cash and cash equivalents (7,401) 6,328
Cash and cash equivalents at 1 January 12,386 6,058
Cash and cash equivalents at 31 December   4,985 12,386

 

Consolidated statement of changes in equity for the year ended 31 December 2015

£‘000 Issued share capital Share premium Merger reserve Other reserve Treasury shares Retained earnings

Total

equity

At 1 January 2015 622 21,810 (7,790) 18,485 33,127
 

Total comprehensive loss

   for the period

             
Loss for the year

 

(16,675)

(16,675)
 

Other items recorded

   directly in equity

Dividend payment (366) (366)
Share capital reduction
Share-based payments 470 470

Purchase of own shares for

EBT

(326) (326)

Decrease in shares held by

EBT

4 4
At 31 December 2015 622 21,810 (8,112) 1,914 16,234

Consolidated statement of changes in equity for the year ended 31 December 2014

£‘000 Issued share capital Share premium Merger reserve Other reserve Treasury shares Retained earnings

Total

equity

At 1 January 2014 6,187 36,740 21,810 (7,441) (25,819) 31,477
 
Total comprehensive income    for the period              
Profit for the year 1,499 1,499
 
Other items recorded    directly in equity
Share capital reduction (5,565) (36,740) 42,305
Share-based payments 500 500
Purchase of own shares for    EBT (372) (372)
Decrease in shares held by    EBT 23 23
At 31 December 2014 622 21,810 (7,790) 18,485

33,127

 

 

 

  • Segmental analysis

 

The Group reports its operating segments according to how the Group’s chief operating decision maker (“CODM”) allocates resources to each segment and assesses performance.  In this respect the Group’s CODM has been defined as the Group’s CEO.

 

In the segmental table below, the results of the Swiss office appear in the ‘Other’ column. In January 2016 a decision was taken to cease regulated activity from the Swiss office and it has subsequently been closed.

 

Segmental analysis for the year ended 31 December 2015 and reconciliation to the statutory income statement is set out below:

 

  UK   Other   Total
                       
  2015   2014   2015   2014   2015   2014
  £‘000   £‘000   £‘000   £‘000   £‘000   £‘000
Net commission and trading   income 9,280 8,061 1,227 1,381 10,507 9,442
Corporate finance fee income 11,896 20,147 37 38 11,933 20,185

Loss on corporate

investments

(270) (755) (270) (755)
Wealth management and      other income 855 519 855 519
Net loss on AFS      investments (7) (7)
Foreign exchange (loss)/gain 73 (106) (2) (6) 71 (112)
On-going administration costs (38,453) (24,036) (1,312) (1,359) (39,765) (25,395)
Segmental operating profit/      (loss) (16,619)   3,823   (50)   54   (16,669)   3,877
                 
Redundancy and restructuring      charges (1,730) (1,216) (1,730) (1,216)
Share-based payment      charges (470) (500) (470) (500)
Operating profit/(loss) (18,819)   2,107   (50)   54   (18,869)   2,161
                 
Net financial income/(expense) (16) (16) (16) (16)
                 
Profit/(loss) before tax (18,835)   2,091   (50)   54   (18,885)   2,145
                 
Income tax on continuing      operations 2,234 (631) (24) (15) 2,210 (646)
                 
Profit/(loss) for period    attributable to the owners      of the Company (16,601)   1,460   (74)   39   (16,675)   1,499

 

All revenue is from external customers.  There are no regular major customers that account for more than 10% of revenue.

 

 

 

 

 

 

UK

 

 

 

 

 

Other1

 

 

 

 

 

Total

                       
  2015   2014   2015   2014   2015   2014
  £‘000   £‘000   £‘000   £‘000   £‘000   £‘000
     
Non-current assets (inc. goodwill) 5,981 16,302 5,981 16,302
Current assets 31,028 37,701 31,028 37,701
Current liabilities (20,438) (19,818) (20,438) (19,818)
Non-current liabilities (338) (1,058) (338) (1,058)
Capital expenditure (288) (402) (288) (402)
  • The Swiss business operates as a representative office of the UK business and therefore shares assets with the UK business.

 

Country-by Country Reporting

 

The Capital Requirements Regulations 2013 came into effect on 1 January 2014, and have been transposed into UK law to impose certain reporting obligations on institutions, defined as credit institutions and investment firms, within the United Kingdom and within the scope of EU Capital Requirements Directive IV (CRD IV).

Disclosure requirements under article 89 in the Capital Requirements Directive comprise details on the registered office, nature of activities, turnover, profit or loss before tax, tax paid, public subsidies received and the average number of employees of the firm on a country by country basis.  This is known as Country-by Country Reporting (“CBCR”).

The information contained in this disclosure is based on the scope of consolidation in the financial statements and reflects the data as at the reporting date 31 December 2015.

The table below shows that the vast majority of Group losses or profits are generated in the UK and therefore, a resulting higher amount of corporation tax is incurred in the UK. The Group had a calculated global tax credit of £2.2m (2014 charge: £0.7m). Due to prior and current years’ trade losses and double taxation relief effectively no tax payment was required. Panmure Gordon & Co plc. paid in total £23,000 (2014: £16,000) of corporation tax in Switzerland. With a global tax credit of £2.2m and losses before tax of £(18.9)m the effective calculated tax rate charge for 2015 is (11.7)%.

 

UK Switzerland Singapore
Nature of activities The principal activity of the Group is to provide corporate and institutional investment banking and stockbroking services.  The Group’s UK business is conducted through one regulated operating subsidiary, Panmure Gordon (UK) Ltd, which is authorised and regulated by the FCA and is a member of the London Stock Exchange. Panmure Gordon (UK) Ltd has a representative office in Nyon, Switzerland, which trades under the name of Quaker Securities and  provides sales and trading services to institutional investors with specialisation in US and European stocks. Panmure Gordon (UK) Ltd also has a fellow subsidiary Company in Singapore which introduces companies from that region wishing to access the London markets to the London offices of Panmure Gordon (UK) Ltd.
     
2015 2014 2015 2014 2015 2014
  £’000 £’000 £’000 £’000 £’000 £’000
Income 21,461 27,657 1,264 1,417 300 317
(Loss)/Profit before tax (18,862) 2,063 (50) 53 27 29
Corporation tax paid/(received) 23 16
Subsidies received
 
Headcount 123 118 6 6 1 1

 

 

 

 

  • Staff costs

 

Group

Year ended

31 December 2015

 

Year ended

31 December 2014

  £‘000   £‘000
Staff costs including Directors’ emoluments      
Wages and salaries 12,525 14,322
Social security costs 2,528 2,189
Pensions (defined contribution scheme) 1,077 952

Total

16,130   17,463

 

The Group operates a defined contribution pension scheme. At the balance sheet date the Group had no outstanding pension contribution liabilities. The charge for the period to 31 December 2015 was £1.1m (2014: £1.0m).

 

Actual number of persons, including Directors, employed by the Group as at 31 December 2015:

 

Group total 2015   UK 2015*   Swiss 2015   Group total 2014
           
Institutional equities 55 53 2 54
Corporate finance 32 32 28
Investment funds 11 11 11
Other 24 21 3 37

Total

122   117   5   130

 

* The UK total includes 1 headcount in Singapore

Average number of persons, including Directors, employed by the Group during the year was:

 

Group total 2015   UK 2015*   Swiss 2015   Group total 2014
         
Institutional equities 58 55 3 49
Corporate finance 33 33 28
Investment funds 11 11 11
Other 28 25 3 37

Total

130   124   6   125

 

* The UK total includes 1 headcount in Singapore

Directors’ emoluments

Emoluments paid to Directors were as follows:

 

  Emoluments Pension Share option gain Emoluments Pension Share option gain
  2015 2015 2015 2014 2014 2014
  £’000 £’000 £’000 £’000 £’000 £’000
Aggregate 1,117 42 11 771 26 12
Highest paid      Director 353 13

 

362 13

 

 

Three Directors accrued benefits during the year under the Group’s defined contribution pension scheme during the year.

 

The Directors are reimbursed all reasonable expenses incurred solely in relation to their duties as a Director.

 

  • Income tax expense

 

The analysis of the total income tax credit/(expense) is as follows:

 

Year ended

31 December

2015

 

Year ended

31 December

2014

  £‘000   £‘000
Analysis of tax credit/(charge) in period:      
      UK corporation tax at 20.25% (2014: 21.5%)
      Current year tax credit/(charge) (31)
      Prior year adjustment 30
      Other prior year adjustments (28) (20)
  2 (51)
Deferred tax      
      Prior year adjustments to deferred tax credit 338 67
      Current year deferred tax credit / (charge) 1,870 (662)
2,208 (595)

Tax credit / (charge) on profits on ordinary activities

 

2,210

 

(646)

Effective tax rate charge

(11.7)% 30.1%

Factors affecting tax charge:

   
(Loss) / profit on ordinary activities after tax (16,675) 1,499
Tax on operations (2,210) 646
Loss on ordinary activities before tax (18,885)   2,145
Loss / profit on ordinary activities multiplied
      by rate of UK corporation tax at 20.25% (2014:21.5%) 3,824 (462)
   
Effects of:    
      Expenses not deductible for tax purposes (24) (90)
     Impairment of consolidated goodwill not deductible for  tax purposes (2,673)
      Differences relating to share schemes (105) (160)
      Effects of foreign tax (22) (15)
      Change in corporation tax rate (216) 14
      Deemed goodwill on amortisation 106
      Impairment of consolidated goodwill-write off of deferred tax liability 1,058 (106)
      Adjustment to tax charge in respect of previous periods 368 67

Total tax credit / (charge) on losses/profits on ordinary activities

 

2,210

 

(646)

 

 

  • Earnings per share

 

Earnings per share (“EPS”) are calculated on a net basis using the profit on ordinary activities after taxation divided by the weighted average number of shares detailed below.

 

 

    Year ended Year ended
  31 December 31 December
  2015 2014
  £‘000   £‘000
   
(Loss) / Profit on ordinary activities after taxation   (16,675) 1,499
     
Weighted average number of shares in issue   15,545,473 15,545,473
Fully diluted weighted average number of shares in issue   15,682,490 15,969,945
 
Basic (loss) / earnings per share (based on (loss)/profit on ordinary activities after taxation)   (107.3)p                                             9.64p
 
Diluted earnings per share (based on (loss)/profit on ordinary activities after taxation)                    (106.3)p 9.39p

 

  • Goodwill and other intangibles

 

On 15 July 2015 the Group successfully completed the acquisition of Charles Stanley Securities (“CSS”), the investment banking division of Charles Stanley Group Plc. The consideration for the acquisition comprises a cash payment on completion of up to £1.5m in cash and deferred consideration comprising an equal split between the Group and Charles Stanley of retainer and corporate transaction fees which emanate from the transferred business and are earned in the twelve month period following completion, to a maximum of £5m.

 

The fair value of the intangible has been estimated to be £1.9m which, after grossing up for the impact of deferred tax liabilities at 18% of £0.3m, results in a total value of £2.2m.  This has been treated as an intangible asset with no goodwill arising and is shown separately in the table below. Acquisition related costs of £0.1m were incurred and taken as expenses in the year. No other assets or liabilities were recognised as part of the acquisition. The intangible represents customer relationships that were transferred to the Group as part of the CSS acquisition. Intangible assets are amortised over a useful life of five years and the charge for the part-year in 2015 is £0.2m.

 

Goodwill represents the excess of purchase price paid over net assets acquired, being in respect of the acquisition of Panmure Gordon (UK) Limited in April 2005, which represents the UK cash-generating unit (“CGU”). A charge for goodwill impairment of £13.2m has been taken as explained under Goodwill Impairment below.

 

 

PGUK

CGU

CSS Total
  £‘000 £‘000 £‘000
Cost      
At 1 January 2015 13,201 13,201
Acquisition in the year   2,215 2,215
At 31 December 2015 13,201 2,215 15,416
     
Accumulated impairment and amortisation      
At 1 January 2015
Charge for the year (13,201) (203) (13,404)
At 31 December 2015 (13,201) (203) (13,404)
     
Net at 31 December 2015 2,012 2,012

 

 

        Total  
      £‘000  
Cost        
At 1 January 2014     13,201  
Exchange differences      
At 31 December 2014     13,201  
       
Accumulated impairment and amortisation        
At 1 January 2014      
Charge for the year      
Exchange differences      
At 31 December 2014      
       
Net at 31 December 2014     13,201  

 

 

Goodwill impairment

 

Approach to goodwill impairment testing

 

The process of identifying and evaluating goodwill impairment requires significant management judgment in making a series of estimations, the results of which are highly sensitive to the assumptions used.

 

If the results of the impairment testing demonstrate that the estimated recoverable amount is lower than the carrying value of the CGU, a charge for impairment of goodwill will be considered for recognition in the Group’s income statement for the year.

 

Goodwill following the acquisition of Panmure Gordon (UK) Limited (“UK CGU”)

 

The recoverable amount of the UK CGU was measured based on value in use.  The key assumptions and approach to determine value in use calculations are solely estimates for the purpose of assessing impairment on acquired goodwill. The calculation uses cash flow projections based on budgets and forecasts approved by management covering three years. These projections are then extrapolated using a nominal long-term growth rate appropriate for the CGU.

 

The review of goodwill impairment represents management’s best estimate of the factors below:

  • The future expected cash flows of the CGU are sensitive to the cash flows projected for the periods for which detailed forecasts are available and to assumptions regarding the average long-term sustainable cash flows thereafter. Forecasts take into account previous actual performance and externally verifiable economic and market data and expectations both in past and future periods.  However, the cash flow forecasts also necessarily and appropriately reflect management’s view of future business prospects at the time of the assessment taking into account recent trading performance.The rate used to discount the future expected cash flows is based on the cost of capital assigned to the CGU and has a significant effect on the CGU’s valuation.  The cost of capital is generally derived from a Capital Asset Pricing Model, which incorporates inputs reflecting a number of financial and economic variables, including the risk-free interest rate in the country concerned and an equity risk premium.  The cost of capital is then adjusted to reflect the inherent and specific risks of the business being evaluated, to obtain the discount rates.These variables are subject to fluctuations in external market factors and economic conditions outside of management’s control and are therefore established on the basis of management judgment and subject to uncertainty.  When the CGU’s cost of capital increases, the effect is to reduce the estimated recoverable amount of the CGU.

 

 

Key assumptions

The three key assumptions upon which management has based its determination of the recoverable amount of the CGU are: three-year cash flow forecasts, in addition to long-term sustainable cash flows (discussed above); the discount rate (discussed above); and the long-term growth rate, which is based on expected long-term GDP growth for the UK.  Further detail regarding the assumptions used and the results of sensitivity analyses performed are outlined below.

 

Results of impairment review

Management considers that the business and cash flows from Panmure Gordon (UK) Limited are integral to the operations of the Group in the UK.  Management has reflected on the recent significant losses incurred in the year ended 31 December 2015 and also the appropriateness of the discount rate used to discount the future expected cash flows of the business and concluded that it should be increased to 12.5%. The resulting present value of these cash flows at this significantly increased discount rate is considerably lower than the carrying value of the CGU and as a result an impairment charge of £13.2m has been taken through the income statement for the year ended 31 December 2015.

 

2015

2014

 

Long-term growth rate 1.9% 1.9%
Discount rate 12.5% 9.6%

 

**************************************************************************************

The financial information set out above does not constitute the Company’s statutory accounts for the year ended 31 December 2015, but is derived from those accounts. The annual report and statutory accounts will be sent to shareholders and will be made available to the public from the Company’s website: www.panmure.com or, upon request, at the registered office of Panmure Gordon & Co. plc, One New Change, London EC4M 9AF.

Panmure Gordon & Co.Plc

Source: Panmure Gordon & Co.Plc

London

Panmure Gordon & Co
One New Change
(Entrance on Watling Street)
London
EC4M 9AF
UK
+44 (0)20 7886 2500

Leeds

Panmure Gordon & Co
Park House,
Park Square West
Leeds
LS1 2PW
UK
+44 (0)113 357 1150

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