HUME CAPITAL SECURITIES PLC
24 December 2014
Hume Capital Securities plc ("Hume" or the "Company") Final results for year ended 31 August 2014
Hume Capital (AIM: HUME) (together with its subsidiaries the "Group"), a financial services group comprising
asset management, corporate advisory and corporate and institutional stockbroking and private client wealth management businesses, presents its audited results for the year ended 31 August 2014.
A new management team was appointed towards the end of the period (in late June 2014), a comprehensive review of the Group's businesses has been undertaken and substantial restructuring and reorganisation of the business has been largely implemented during the period, with substantial cost saving benefits expected to be seen in the financial period ending 31August 2015;
Revenue increased slightly by 0.5 per cent. to £6.0 million (2013: £6.0 million);
Loss before tax reduced by 27 per cent to £2.7 million (2013: £3.7 million); losses include provisions for the costs of the restructuring and reorganisation steps taken during the last few months of the financial year;
The full benefit of the recent restructuring should see over £2.75 million of annualised cost savings and the Group now has an employee base with remuneration packages more geared to performance;
Asset Management's collective investment vehicle portfolio is being streamlined and since the year end new mandates have been won for approximately £10 million of Discretionary Fund Management portfolios, with substantial further mandates in the pipeline;
Corporate activity included some larger mandates over the year and corporate client activity levels remained strong throughout the period, with 25 transactions closed; and
The Private Client Wealth Management business, with approximately 1,300 clients, is well positioned to offer attractive alternatives to the "model portfolio" approach adopted by many of our private client stockbroking competitors.
Commenting on the results, Guy Peters, CEO said:
"The last financial period has been one of significant change for the Group. Many of the challenges that gave rise to the substantial losses incurred in the period have now been addressed and the business is better equipped for the future than at any time in the past."
"There is still substantial further work to do in rebuilding the capital base of the firm; however, the Group is now structured and staffed in a more appropriate manner, we are starting to attract new assets under management, we have a good corporate client base from which to grow our corporate business and some interesting prospects, and our private client teams are able to offer a differentiated solution for their clients."
"I believe that the culture change we have striven to bring about within the Group is beginning to take hold and that the Group's financial performance for the year ended 31 August 2015 will show a substantial improvement."
The full Directors' report and financial statements for the year ended 31 August 2014 will be posted to shareholders in early January and uploaded at the same time to the Company's website at www.humecapital.com.
Enquiries:
Hume Capital Securities plc
Guy Peters (Chief Executive Officer) 020 3693 1470
Grant Thornton UK LLP, Nominated Adviser
Philip Secrett /Melanie Frean/ Jamie Barklem 020 7383 5100
Chief Executive's Report
The financial year under review saw a slight increase in revenue as against 2013 and an improvement in the results, albeit insufficient to eliminate losses, despite some cost cutting measures implemented in the first half of the period. To address the issues inherent in the business, on 20 June 2014 board changes were announced whereby I was appointed as Chief Executive Officer together with a new Finance Director and a new Chief Operating Officer. At this time Mike Frame stepped down as Finance Director, having become very ill over the financial period. Sadly Mike passed away in August 2014 and our thoughts are with him and his family.
Immediately following our appointments, the new team undertook a comprehensive review of the business and the Company's balance sheet with a view to ensuring that the Company's financial resources were adequate to fund the Group's business for the foreseeable future. As a consequence, we undertook a substantial restructuring and reorganisation of the business in the last quarter of the period which has now been largely implemented, albeit that we are only just beginning to benefit now (December 2014) from some of the cost savings made and other savings will not come through until the second half of the current financial period because of the lead times involved.
Following our appointment, the executive team took immediate action to address the significant legacy creditor positions of the Group's businesses and to reduce substantially the cost of the two largest components of the Group's overheads, namely staff and information technology costs, which were deemed to be excessive and inappropriate for the current scale and nature of the Group's businesses. Staff costs have therefore been reduced through a mixture of redundancies and alterations to existing contracts to better align remuneration with performance. Whilst this has inevitably given rise to certain one-off costs, the business is now structured and staffed in a more appropriate manner for its current scale and workflow, rather than being structured in anticipation of a substantial business upturn. Some initial information technology cost savings have been achieved through the rationalisation of existing systems, whilst further savings are anticipated as systems are re-configured to better reflect the volume and type of business the Group undertakes and is likely to undertake going forwards.
The next steps for the new team are to complete the re-design of the Group's business operations and processes and ensure that robust management tools are in place to provide real time information, as far as practicable, to capture any issues before they become problems. All of the actions taken to date and to be taken are intended to embed a culture change in the Group's businesses which will enable us to provide an enhanced service to our clients, better manage the business and drive future growth across our three core segments: asset management, corporate advisory and corporate and institutional stockbroking and private client wealth management. They will also enable us to streamline and enhance the Group's requisite back office functions necessary to deliver these services.
Overall, the Group made a pre-tax loss of £2.7 million, an improvement of £1.0 million from the previous year. Part of this year's loss is attributable to the costs associated with the restructuring and reorganisation and appropriately providing for historic liabilities.
During the financial year we raised £1.575 million of new equity and an additional £1.43 million of debt, of which
£0.43 million was repaid during the period.
Post year end a further £1.25million of debt has been raised, further details of which are set out below. Almost half of this debt has been provided by two significant shareholders on very attractive terms. David Taylor, who currently holds 9.99 per cent. of the Company's issued share capital, provided the Group with £852,000 of unsecured debt finance during the period. Post year end he has provided the Company with a new secured debt facility, in substitution for and in repayment of the previous facility, of £1,162,000. KB Foundation, which is currently the holder of 7.69 per cent. of the Company's issued share capital, has also provided the Company with a new unsecured debt facility of £300,000 post year end. The Company has also drawn a secured US$1,000,000 short term loan post year end from a third party lender, which previously provided a US$900,000 secured facility in September 2013, of which US$665,000 had been repaid at the financial period end.
As stated in the 20th June 2014 announcement of the appointment of the new executive team and an equity placing, the Board is looking to ensure that the Company's financial resources are adequate to fund the business for the foreseeable future. A combination of the losses incurred to date and the review undertaken by the new executive team necessitate a further significant capital injection. The investors referred to but not identified in the June 2014 announcement are David Taylor and the KB Foundation, who have each confirmed that they intend to provide the requisite funding to secure the Company's business for the short and medium term, which is likely to require a further significant equity injection. The provision of that further funding will be subject to a number of regulatory and shareholder consents and the precise quantum and nature of the further tranche of that funding is expected to be announced as soon as practicable during the first quarter of 2015.
The Asset Management business has won some substantial new Discretionary Fund Management mandates towards the end of the financial period. The funds managed have only started to arrive since the period end, with approximately £10 million of new funds under management having been added in recent months and the prospects for the arrival of significantly more than this over the next few months looking good. Separately, the collective investment vehicle portfolio run by the Group is being simplified and we are in the process of creating a number of new funds which should launch during 2015.
The Corporate business remained the largest business in the Group during the period and there is a pipeline of potential new clients and some larger potential deals for 2015, subject as ever to market conditions being favourable.
Private Client Wealth Management tends to follow the markets: we have a reasonably broad client base and two good teams, backed up by an in-house settlements team and access to some larger fundraisings and a variety of smaller ones that helps differentiate us from the competition.
Review of Business Units
Asset Management
The Asset Management division manages approximately £130 million of client money on a discretionary basis through a variety of offshore collective investment vehicles and a Discretionary Fund Management business. The significant majority of the money managed within this division is contained within offshore collective investment fund vehicles as part of a Guernsey based protected cell company structure. The structure of these funds is being streamlined in order to make the offering simpler to understand for investors and potential investors or business introducers. The Discretionary Fund Management service is being expanded significantly and has already won mandates to manage over £10 million of new money since the period end, with further substantial inflows anticipated over the remainder of the year. Overall, this division made a loss for the pe riod under review, but the changes implemented by the new management team since the period end are anticipated to reverse this position.
Corporate
The Corporate division, which comprises corporate advisory, corporate and institutional broking remained the largest revenue generator within the Group and was profitable in the last financial year. In total we raised £37.8 million for our corporate clients over the period across 25 transactions, a very significant uplift as against the previous year. We currently have 20 corporate retained clients, with a number of further clients in prospect. This retainer base provides a useful contribution towards the costs of the team, with transactions providing further upside. Since the period end we have raised over £5 million for our corporate clients, with a number of existing clients expected to raise further funds this financial period. We also have a number of interesting new mandates in the pipeline which should, subject to market conditions and timing, generate additional transactional revenue from some larger fundraisings during the current financial year.
Private Client Wealth Management
The Private Client Wealth Management business is engaged in running discretionary, advisory and execution only portfolios for approximately 1,300 clients. Portfolios range from accounts utilising a low risk portfolio model
approach through to medium and high risk accounts, where stock picking and active trading and management are far more significant features. Discretionary equity portfolios managed by this team amount to some £20 million, with advisory and execution only amounting to a further £15 million. Whilst this business lost money for the Group during the period, the internal reorganisation and changes we have made should mean that this business can perform better this year. Given its client base and the increasing focus of our competitors on "model portfolios", the opportunity for a business that can not only replicate that model to the extent desired but also provide access to market deals not generally available to retail clients should position the business well for the future.
Outlook
The last financial period has been one of significant change for the Group. Many of the challenges that gave rise to the substantial losses incurred in the period have now been addressed and the business is better equipped for the future than at any time in the past, but there is still substantial further work to do.
This will include rebuilding the capital base of the firm, which has been significantly impacted by losses and restructuring costs over the period, in order that the Group meets its regulatory capital r equirements. This will be achieved through a combination of retained profits plus the potential new capital raising described above.
The Group is now structured and staffed in a more appropriate manner for its current scale and workflow, with further information technology savings anticipated as systems are re-configured. We are starting to attract new assets under management in a competitive environment, we have a solid corporate client base from which we have the opportunity to grow our corporate business together with some interesting prospects, and our private client teams are able to offer a differentiated solution for their clients.
I believe that the culture change we have striven to bring about within the Group is beginning to take hold and that the Group's financial performance for the year ended 31 August 2015 will show a substantial improvement.
I would like to thank our clients, shareholders, other stakeholders and staff for all their support.
Consolidated Statement of Comprehensive Income
Year ended 31
August 2014
Year ended 31
August 2013
Revenue | £'000 6,002 | £'000 5,971 |
Administrative expenses | (8,730) | (9,683) |
Share based payments | 126 | 116 |
Operating loss | (2,602) | (3,596) |
Profit on disposal of fixtures and equipment | - | 23 |
Finance costs | (124) | (90) |
Interest income | 3 | 3 |
Loss before tax | (2,723) | (3,660) |
Tax | - | (312) |
Total loss for the year | (2,723) | (3,972) |
Total comprehensive loss for the year | (2,723) | (3,972) |
Loss per share | ||
Basic and diluted | (0.1p) | (0.3p) |
All the Group's revenue and operating loss was derived from continuing operations.
There were no items of comprehensive income in the current year or prior year, other than the loss as shown above. Accordingly, no statement of comprehensive income is presented.
The loss and total comprehensive loss for the year are attributable to the equity holders.
Consolidated and Company Balance Sheet
Group Company 31 August 201431 August 2013
£'000
31 August 201431 August 2013
£'000
Non-current assets Fixtures and equipment | 243 | 382 | 243 | 382 |
Intangible assets and goodwill | 1,383 | 1,383 | - | - |
Deferred tax asset | 480 | 480 | 480 | 480 |
2,106 | 2,245 | 723 | 862 | |
Current assets | ||||
Trade and other receivables | 5,716 | 33,156 | 5,528 | 32,812 |
Trading portfolio assets | 56 | 298 | 56 | 298 |
Investments | 136 | 61 | 2,073 | 1,998 |
Cash and bank balances | 204 | 830 | 55 | 276 |
6,112 | 34,345 | 7,712 | 35,384 | |
Total assets | 8,218 | 36,590 | 8,435 | 36,246 |
Current liabilities | ||||
Trade and other payables | (6,548) | (34,454) | (6,655) | (33,908) |
Trading portfolio liabilities | - | (136) | - | (136) |
Short term borrowing | (1,021) | - | 1,021 | - |
(7,570) | (34,590) | (7,676) | (34,044) | |
Net current assets | (1,458) | (245) | 35 | 1,340 |
Total liabilities | (7,570) | (34,590) | (7,676) | (34,044) |
Net assets | 648 | 2,000 | 759 | 2,202 |
Equity | ||||
Share capital | 2,623 | 1,764 | 2,623 | 1,764 |
Share premium account | 11,303 | 10,583 | 11,303 | 10,583 |
Retained loss | (15,035) | (12,104) | (14,924) | (11,902) |
Deferred share reserve | 1,757 | 1,757 | 1,757 | 1,757 |
Total equity | 648 | 2,000 | 759 | 2,202 |
Consolidated and Company Cash Flow Statement
Group Company Year ended 31 August 2014 £'000 Year ended 31 August 2013 £'000 Year ended 31 August 2014 £'000 Year ended 31 August 2013 £'000 Net cash used in operating activities (2,026) (763) (1,633) (2,448)Purchases of fixtures and equipment (57) (89) (57) (89) Goodwill and intangible assets acquired in
exchange for shares issued less cash
acquired - (1,133) - -
Net cash used in investing activities | (57) | (1,222) | (57) | (89) |
Financing activities | ||||
Net proceeds on issue of shares | 1,580 | 2,900 | 1,580 | 2,900 |
Finance costs | (124) | (90) | (112) | (90) |
Interest income | 3 | 3 | 3 | 3 |
Net cash from financing activities | 1,459 | 2,813 | 1,470 | 2,813 |
Net (decrease)/increase in cash and cash equivalents | (626) | 830 | (221) | 276 |
General information
1. The financial information set out above does not constitute the Group's statutory accounts for the year ended 31 August 2014 but is derived from those accounts. Statutory accounts for 2014 will be delivered to the Registrar of Companies and posted to shareholders in due course. The auditors' report on those accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
2. Going Concern
The Financial Reporting Council issued a guidance note in November 2009 requiring all companies to provide fuller disclosures regarding the directors' assessment of going concern. The financial statements of the Group have been prepared on a going concern basis.
The Group has made a loss in the year and has had to restructure some of its operations in order to secure its liquidity and capital positions during the financial year. As highlighted in the Chief Executive's statement, the financial year under review was one of rebuilding the Group against a backdrop of very difficult market conditions. The losses for the year have arisen because of the substantial changes that needed to be implemented, in the context of poor market conditions.
The Directors have prepared detailed forecasts for the enlarged group for the foreseeable future which consider the liquidity and capital position of the Group. These forecasts assume an immediate increase in profitability based on the cost cutting measures already implemented together with increased revenue from the existing business divisions as discussed in both the Chief Executive's statement and the Strategic Report sections of the Annual Report. These forecasts show that the Group will need to rebuild its capital base, which has been significantly impacted by the retained losses in the year, within the going concern period in order to meet its regulatory capital requirements.
In this respect the directors expect that the Group will be able to obtain sufficient capital resources and funding through the injection of new capital from the placement of new shares as described in the Chief Executive's report, as well as it having the ability to bring additional capital and cash in through further restructuring.
Taking these factors into account, the Directors have a reasonable expectation that the Group has adequate resources and has sufficient liquidity to continue in existence for the foreseeable future. Accordingly, the Directors have adopted the going concern basis in preparing the financial statements.
3. Loss per share
The calculation of the basic and diluted loss per share is based on the following data:
Losses
Year ended
31 August 2014
£'000
Year ended
31 August 2013
£'000
Losses for the purposes of basic loss per share being net loss
attributable to owners of the Group (2,723) (3,972)
Number of shares | '000 | '000 |
Weighted average number of ordinary shares for the purposes of | ||
basic loss per share | 2,115,191 | 1,273,527 |
Effect of dilutive potential ordinary shares:
Share options 30,500 49,600
Ordinary shares issued post year end - 323,214
Weighted average number of ordinary shares for the purposes of
diluted loss per share 2,145,691 1,646,341
Share options and ordinary shares issued post year end are antidilutive and therefore are disregarded in the calculation of diluted loss per share.
4. Subsidiaries
Hume Capital Securities plc has four 100% fully owned subsidiaries, Hume Capital Investments Limited (formerly EPIC Investment Partners Limited), Hume Capital Guernsey Limited, XCAP Securities (Middle East and India) Limited and XCAP Nominees Limited. EPIC Investment Partners Limited owns
100% of Hume Capital Management Limited.
5. Share capital
Share capital
£'000
Authorised, allotted, issued and fully paid: As at 1 September 2012
439.2 million ordinary shares of 0.5 pence each 2,196
Issue of shares 1,325
Share capital re-organisation (1,757)
As at 31 August 2013:
1,764.324 million ordinary shares of 0.1 pence each 1,764
Issue of shares 859
As at 31 August 2014
2,623.735 million ordinary shares of 0.1 pence each 2,623
The Company has one class of ordinary shares which carries no right to fixed income.
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