24th Apr 2012 07:00
PANMURE GORDON & CO. PLC
("Panmure Gordon" or the "Group")
Preliminary results for the year ended 31 December 2011
Panmure Gordon & Co. plc today announces preliminary results for the year ended 31 December 2011.
Financial performance
Underlying operating loss adjusted for significant one-off costs of £10.54m (2010: £6.04m) Statutory loss of £31.47m (2010: £7.43m) includes significant non-cash items including full impairment of goodwill relating to ThinkEquity and associated write-off of deferred tax asset UK regulated entity's capital comfortably exceeds regulatory requirementsOperating and business highlights
Agreement to divest control of ThinkEquity from Panmure Gordon reached since period end Appointment of Phillip Wale as Chief Executive since period end Action taken to reduce UK costs substantially with benefits accruing in 2012 Appointed to 17 new corporate clients in reporting period; total number of clients currently 77 Top 5 broker status in 2011 Thomson Reuters Extel Mid & Small Cap survey Opened Singapore office to facilitate business opportunities with increasing number of Asia-focused companies seeking access to UK and European capital marketsEd Warner, Chairman of Panmure Gordon commented:
"We have made an encouraging start to 2012, having agreed to divest control of ThinkEquity, which has historically been responsible for a significant proportion of statutory losses incurred in recent years, whilst also substantially reducing UK costs. I am delighted that we have secured a new Chief Executive, Phillip Wale, since the period-end whilst retaining the services of Tim Linacre, who will remain on the board and with the business as chairman of investment banking.
"While markets remain cautious, we believe the UK business is now right-sized. We are focused entirely on serving our institutional and corporate clients and in the first quarter of this year we have seen an increase in commission levels and the establishment of a good investment banking pipeline."
Enquiries:
| Panmure Gordon Tim Linacre, Chief Executive Philip Tansey, Chief Financial Officer | 020 7459 3600 | |||
| FTI Consulting Billy Clegg/Ed Gascoigne-Pees | 020 7831 3113 | |||
| Grant Thornton Corporate Finance (NOMAD) Gerry Beaney/Salmaan Khawaja/Jen Hatter | 020 7383 5100 |
CHAIRMAN'S STATEMENT
2011 was a very difficult year for our industry and for Panmure Gordon. The continuing effects of the global financial crisis were seen in low levels of commission and the deferral or cancellation of investment banking transactions.
We experienced a particularly challenging second half and took decisive action across the Group accordingly.
After an encouraging first half, our US business, ThinkEquity, recorded substantial losses in the second half. ThinkEquity was acquired in 2007, just before the onset of the financial crisis. Since then, market conditions have changed beyond all recognition and it was the view of the board that the business would fail to achieve an acceptable level of profitability in the foreseeable future as a subsidiary of Panmure Gordon. After an approach from management, agreement was reached for a management buy-out of ThinkEquity after the year end. Following US regulatory approval, Panmure Gordon will initially retain a shareholding in the business and we wish the team well for the future.
The results we announce today reflect a number of extraordinary costs associated with ThinkEquity, in addition to its underlying loss for the year. Some extra one-off redundancy costs were also incurred in relation to the decisive action taken to reduce UK costs at the end of 2011. As a result, what remains is a more efficient business better able to return to profitability.
In difficult markets, Panmure Gordon's reputation helped to attract 17 new corporate clients during the year, bringing our total number of clients to 77. These clients provide the bedrock for future investment banking deals.
Panmure Gordon's international focus remains strong, despite having agreed to divest control of ThinkEquity. Our clients are increasingly active internationally and our new office in Singapore will be a valuable conduit for Asian clients seeking access to United Kingdom and European capital markets. Our connections to the India and Middle-East markets through Ambit Capital and QInvest also provide further opportunities.
During the year Simon Heale stood down as a non-executive director and I thank him for the time and commitment he put into the role. During the year Lesley Watkins and Philip Tansey were welcomed as directors, as non-executive chair of the audit committee and as chief financial officer respectively and both have already proved to be strong additions to the board.
In November of 2011, Tim Linacre notified the board of his intention to stand down as Chief Executive before the end of 2012. The board commenced a thorough executive search programme and I was delighted to announce the appointment of Phillip Wale as our new Chief Executive on 18 April 2012. Phillip has more than 30 years' experience in the City, including service at Goldman Sachs and Commerzbank and most recently as Chief Executive of Seymour Pierce. Tim Linacre has been with the firm for over 20 years and has been Chief Executive for nine, most of which have been in particularly challenging conditions. When he took over as Chief Executive, Panmure Gordon was a subsidiary of WestLB. He engineered the move to Lazard and the subsequent merger with Durlacher to create the independent business of today. I am delighted that Tim will be staying on the board and with the firm as chairman of investment banking when Phillip joins in the summer.
While the results of 2011 were very disappointing, the agreement to divest control of ThinkEquity and the cost-reduction exercise carried out in the UK are among the many reasons to be encouraged by the firm's prospects. Despite continuing low market volumes, the UK business has commenced the year well and we look to 2012 with increased confidence.
Ed WarnerChairman23 April 2011
CHIEF EXECUTIVE'S REVIEW
As the Chairman's statement makes clear, 2011 was an exceptionally difficult year for the firm. Those difficulties are fully reflected in the results we announce today.
After an encouraging start to 2011, the markets entered a further excessively turbulent phase in the second half of the year caused by Eurozone and global economic concerns. This led to a sharp fall in commission levels and the deferral or cancellation of a significant number of investment banking transactions on both sides of the Atlantic in the last three months of the year.
We took decisive action to reduce costs, alongside the decision to divest control of ThinkEquity since the year end.
Panmure Gordon remains totally focused on serving its institutional clients, its London listed corporate clients and those seeking to come to the London market. In spite of the year's extraordinary challenges, the firm continued to grow its corporate client list which now stands at 77. During the year Panmure Gordon maintained its position as a Top 5 UK broker in the highly regarded Thomson Reuters Extel 2011 Mid & Small Cap survey.
The past few years have been extremely challenging and I thank colleagues for their efforts. With over 20 years at the firm so far, with the last nine as Chief Executive, I look forward to working with Phillip Wale when he joins in the summer to drive the firm's profitability and continue to improve our market share.
Results
Given the size of the statutory loss in the reporting period, in the table below we break out the significant one-off costs primarily associated with ThinkEquity in its final year within the Panmure Gordon Group; a year which saw significant impairments and write downs.
As the table shows, the largest one-off cost reflected in the statutory accounts is the £16.8m impairment of the full carrying value of goodwill associated with ThinkEquity. Additionally, based on ThinkEquity's history of continued losses, the Company reviewed the level of deferred tax assets held in the US business and wrote-off the previously recognised entire amount of £3.4m.
| UK | US | Swiss | Consolidated | Consolidated | ||||||
| 2011 | 2011 | 2011 | 2011 | 2010 | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Statutory loss for period | (4,189) | (26,882) | (402) | (31,473) | (7,431) | |||||
| Adjusted for significant one-off costs | ||||||||||
| US deferred tax asset written off | - | 3,413 | - | 3,413 | - | |||||
| Goodwill Impairment | - | 16,841 | - | 16,841 | - | |||||
| Redundancy and restructuring charges | 516 | 4 | - | 520 | 1,252 | |||||
| Amortisation of intangibles | - | 164 | - | 164 | 141 | |||||
| Underlying operating loss adjusted for significant one-off costs | (3,673) | (6,460) | (402) | (10,535) | (6,038) |
Dividend
The board has not recommended a dividend for the year.
Outlook
We have made an encouranging start to 2012, having agreed, subject to regulatory approval, to divest control of ThinkEquity, which has historically been responsible for a significant proportion of statutory losses incurred in recent years, whilst also substantially reducing UK costs. While markets remain cautious, we believe the UK business is now right-sized. We are focused entirely on serving our institutional and corporate clients and in the first quarter of this year we have seen an increase in commission levels and the establishment of a good investment banking pipeline.
Tim LinacreChief Executive23 April 2012
Consolidated income statement
For the year ended 31 December 2011
|
| 2011 | 2010 | |||
| £'000 | £'000 | ||||
| Commission and trading income | 19,210 | 21,929 | |||
| Commission and trading expense | (2,532) | (3,568) | |||
| Net commission and trading income | 16,678 | 18,361 | |||
| Corporate finance and other fee income | 21,267 | 22,094 | |||
| Net commission and fee income | 37,945 | 40,455 | |||
| Net (loss)/gain on available for sale investments | (1,201) | 446 | |||
| Administrative expenses1 | (46,740) | (46,254) | |||
| Redundancy, restructuring and other non-recurring charges1 | (520) | (1,252) | |||
| Operating loss before share-based payments and goodwill impairment | (10,516) | (6,605) | |||
| Share-based payments1 | (1,211) | (437) | |||
| Goodwill impairment1 | (16,841) | - | |||
| Operating loss (including goodwill impairment) | (28,568) | (7,042) | |||
| Financial income | 69 | 111 | |||
| Financial expense | (60) | (202) | |||
| Net financial income/(expense) | 9 | (91) | |||
| Loss before tax | (28,559) | (7,133) | |||
| Taxation | (2,914) | (298) | |||
| Loss for the period attributable to the owners of the Company | (31,473) | (7,431) | |||
| Basic loss per share | (21.21)p | (5.10)p | |||
| Diluted loss per share | (21.21)p | (5.10)p | |||
|
| |||||
| 1 These are all part of administrative expenses which total £65.3m (2010: £47.9m)
Consolidated statement of comprehensive income & expense
For the year ended 31 December 2011
| |||||
| 2011 | 2010 | ||||
| £'000 | £'000 | ||||
| Loss for the period attributable to the owners of the Company | (31,473) | (7,431) | |||
| Other comprehensive (loss)/income | |||||
| Foreign exchange translation differences | (200) | 369 | |||
| Available for sale gains transferred to the income statement | - | (569) | |||
| Total other comprehensive loss for the period net of tax | (200) | (200) | |||
| Total comprehensive loss for the period attributable to the owners of the Company | (31,673) | (7,631) | |||
Consolidated statement of financial position
As at 31 December 2011
|
| 2011 | 2010 | ||
| £'000 | £'000 | |||
| Assets | ||||
| Intangibles | 13,201 | 30,168 | ||
| Plant and equipment | 1,710 | 1,999 | ||
| Available for sale investments | 1,365 | 2,640 | ||
| Deferred tax asset | 1,694 | 4,490 | ||
| Other receivables | 2,332 | 2,458 | ||
| Total non-current assets | 20,302 | 41,755 | ||
| Securities held for trading | 3,952 | 5,082 | ||
| Trade and other receivables | 32,156 | 29,172 | ||
| Cash and cash equivalents | 15,855 | 26,166 | ||
| Total current assets | 51,963 | 60,420 | ||
| Current liabilities | ||||
| Trade payables | (26,508) | (21,252) | ||
| Tax and social security | (638) | (663) | ||
| Other payables | (6,848) | (8,808) | ||
| Held for trading liabilities | (327) | (693) | ||
| Interest bearing loans and borrowings | -- | (3,000) | ||
| Total current liabilities | (34,321) | (34,416) | ||
| Net current assets | 17,642 | 26,004 | ||
| Deferred tax liability | (925) | (856) | ||
| Total non-current liabilities | (925) | (856) | ||
| Net assets | 37,019 | 66,903 | ||
| Equity | ||||
| Issued share capital | 6,009 | 5,914 | ||
| Shares to be issued (including share premium) | 86 | 129 | ||
| Share premium account | 36,620 | 36,084 | ||
| Merger reserve | 21,810 | 21,810 | ||
| Special reserve | 9,595 | 9,595 | ||
| Other reserve | (3,873) | (2,725) | ||
| Foreign currency translation reserve | 3,140 | 3,340 | ||
| Treasury shares | (2,526) | (3,454) | ||
| Retained earnings | (33,842) | (3,790) | ||
| Total equity | 37,019 | 66,903 |
Approved by the board on 23 April 2012 and signed on its behalf by:
Philip TanseyChief Financial Officer
Consolidated statement of cash flow
| Year ended 31 December2011 | Year ended 31 December2010 | |||
| £'000 | £'000 | |||
| Cash flows from operating activities | ||||
| Loss before tax | (28,559) | (7,133) | ||
| Net financial (income)/expense | (9) | 91 | ||
| Depreciation and amortisation | 794 | 956 | ||
| Goodwill impairment | 16,841 | - | ||
| Net loss/(gain) on available for saleinvestments | 1,201 | (367) | ||
| Loss on disposal of fixed assets | - | 9 | ||
| Movement in securities held for trading | 764 | (1,043) | ||
| Increase in net amounts owed by marketcounterparties | 900 | 1,559 | ||
| Decrease/(increase) in trade and otherreceivables | 946 | (295) | ||
| Decrease in trade payables and provisions | (2,169) | (7,154) | ||
| IFRS 2 share-based payment charges | 1,421 | 720 | ||
| Net cash outflow from operating activities | (7,870) | (12,657) | ||
| Income taxes received/(paid) | 429 | (201) | ||
| Net cash from operating activities | (7,441) | (12,858) | ||
| Cash flows from investing activities | ||||
| Financial income received | 69 | 111 | ||
| Acquisition of plant and equipment | (350) | (190) | ||
| Proceeds from disposal of investments | 43 | 1,030 | ||
| Net cash from investing activities | (238) | 951 | ||
| Cash flows from financing activities | ||||
| Proceeds from the issue of share capital | 588 | 76 | ||
| Purchase of own shares for treasury | - | (148) | ||
| Purchase of own shares for EBT | (257) | (385) | ||
| Financial expense | (60) | (202) | ||
| Repayment of EBT loan | 37 | 143 | ||
| Repayment of subordinated loan | (3,000) | - | ||
| Net cash from financing activities | (2,692) | (516) | ||
| Net decrease in cash and cash equivalents | (10,371) | (12,423) | ||
| Cash and cash equivalents at 1 January | 26,166 | 38,903 | ||
| Effect of exchange rate fluctuations | 60 | (314) | ||
| Cash and cash equivalents at 31 December | 15,855 | 26,166 |
Consolidated statement of changes in equity for the year ended 31 December 2011
| £'000 | Issued share capital | Shares to be issued | Share premium | Merger reserve | Special reserve | Fair value reserve | Other reserve | Foreign currency translation reserve | Treasury shares | Retained earnings | Total equity | ||||||||||||||||||
| At 1 January 2011 | 5,914 | 129 | 36,084 | 21,810 | 9,595 | - | (2,725 | ) | 3,340 | (3,454 | ) | (3,790 | ) | 66,903 | |||||||||||||||
| Total comprehensive income for the period | |||||||||||||||||||||||||||||
| Loss for the year | - | - | - | - | - | - | - | - | - | (31,473 | ) | (31,473 | ) | ||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||
| Foreign currency translation differences | - | - | - | - | - | - | - | (200 | ) | - | - | (200 | ) | ||||||||||||||||
| Other items recorded directly in equity | |||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | - | - | - | - | - | 1,421 | 1,421 | ||||||||||||||||||
| Shares issued under employee share plans | 95 | (43 | ) | 536 | - | - | - | - | - | - | - | 588 | |||||||||||||||||
| Shares transferred under employee share plans | - | - | - | - | - | - | (928 | ) | - | 928 | - | - | |||||||||||||||||
| Purchase of own shares for EBT | - | - | - | - | - | - | (257 | ) | - | - | - | (257 | ) | ||||||||||||||||
| Decrease in shares held by EBT | - | - | - | - | - | - | 37 | - | - | - | 37 | ||||||||||||||||||
| At 31 December 2011 | 6,009 | 86 | 36,620 | 21,810 | 9,595 | - | (3,873 | ) | 3,140 | (2,526 | ) | (33,842 | ) | 37,019 | |||||||||||||||
Consolidated statement of changes in equity for the year ended 31 December 2010
| £'000 | Issued share capital | Shares to be issued | Share premium | Merger reserve | Special reserve | Fair value reserve | Other reserve | Foreign currency translation reserve | Treasury shares | Retained earnings | Total equity | ||||||||||||||||||||||||
| At 1 January 2010 | 5,874 | 298 | 35,879 | 21,810 | 9,595 | 569 | (776 | ) |
| 2,971 | (5,013 | ) |
| 2,921 | 74,128 | ||||||||||||||||||||
| Total comprehensive income for the period | |||||||||||||||||||||||||||||||||||
| Loss for the year | - | - | - | - | - | - | - | - | - | (7,431 | ) |
| (7,431 | ) |
| ||||||||||||||||||||
| Other comprehensive income |
|
| |||||||||||||||||||||||||||||||||
| Foreign currency translation differences | - | - | - | - | - | - | - | 369 | - | - | 369 | ||||||||||||||||||||||||
| Available for sale gain recycled | - | - | - | - | - | (569 | ) |
| - | - | - | - | (569 | ) |
| ||||||||||||||||||||
| Other items recorded directly in equity | |||||||||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | - | - | - | - | - | 720 | 720 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
| Shares issued under employee share plans | 40 | (169 | ) |
| 205 | - | - | - | - | - | - | - | 76 | ||||||||||||||||||||||
| Shares transferred under employee share plans | - | - | - | - | - | - | (1,707 | ) |
| - | 1,707 | - | - | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
| Purchase of own shares for EBT | - | - | - | - | - | - | (385 | ) |
| - | - | - | (385 | ) |
| ||||||||||||||||||||
| Decrease in shares held by EBT | - | - | - | - | - | - | 143 | - | - | - | 143 | ||||||||||||||||||||||||
| Purchase of shares for treasury | - | - | - | - | - | - | - | - | (148 | ) |
| - | (148 | ) |
| ||||||||||||||||||||
| At 31 December 2010 | 5,914 | 129 | 36,084 | 21,810 | 9,595 | - | (2,725 | ) |
| 3,340 | (3,454 | ) |
| (3,790 | ) |
| 66,903 | ||||||||||||||||||
1 Segmental analysis
The Group has reported 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. The CODM allocates resources across the Group based on results and performance in each geographic area of operation. This is consistent with the basis of segmentation in the Report and Financial Statements 2010.
Segmental analysis for the year ended 31 December 2011 and reconciliation to the statutory income statement
| UK | US | Swiss | Consolidated | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||||||
| Net commission and trading income | 6,692 | 7,417 | 8,743 | 9,174 | 1,243 | 1,770 | 16,678 | 18,361 | |||||||||||
| Corporate finance fee income | 9,194 | 11,828 | 9,711 | 8,067 | 70 | - | 18,975 | 19,895 | |||||||||||
| Wealth management and other income | 503 | 112 | 1,789 | 2,087 | - | - | 2,292 | 2,199 | |||||||||||
| Net (loss)/gain on AFS investments | (1,045) | 471 | (156) | (25) | - | - | (1,201) | 446 | |||||||||||
| Foreign exchange (loss)/gain | - | - | (72) | 314 | 12 | (19) | (60) | 295 | |||||||||||
| Ongoing administration costs | (20,395) | (20,303) | (24,394) | (24,220) | (1,727) | (1,885) | (46,516) | (46,408) | |||||||||||
| Segmental operating loss | (5,051) | (475) | (4,379) | (4,603) | (402) | (134) | (9,832) | (5,212) | |||||||||||
| Redundancy and restructuring charges | (516) | (561) | (4) | (691) | - | - | (520) | (1,252) | |||||||||||
| Amortisation of intangibles | - | - | (164) | (141) | - | - | (164) | (141) | |||||||||||
| Share-based payment charges | (363) | (58) | (848) | (379) | - | - | (1,211) | (437) | |||||||||||
| Goodwill impairment | - | - | (16,841) | - | - | - | (16,841) | - | |||||||||||
| Operating loss | (5,930) | (1,094) | (22,236) | (5,814) | (402) | (134) | (28,568) | (7,042) | |||||||||||
| Net financial income/(expense) | 1,235 | 994 | (1,226) | (1,085) | - | - | 9 | (91) | |||||||||||
| Loss before tax | (4,695) | (100) | (23,462) | (6,899) | (402) | (134) | (28,559) | (7,133) | |||||||||||
| Income tax | 506 | (298) | (3,420) | - | - | - | (2,914) | (298) | |||||||||||
| Loss for period attributable to the owners of the Company | (4,189) | (398) | (26,882) | (6,899) | (402) | (134) | (31,473) | (7,431) | |||||||||||
| All revenue is from external customers. There are no regular major customers that account for more than 10% of revenue. The segmental operating loss reconciles to the statutory loss above. There were no discontinued activities during the period.
In respect of assets and non-current assets, the basis of segmentation is the same as in the Report and Financial Statements 2010. | |||||||||||||||||||
| UK | US | Swiss1 | Consolidated | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| £'000 | £'000 | £'000
| £'000 | £'000 | £'000
| £'000
| £'000
| ||||||||||||
| Non-current assets (inc goodwill) 2 | 18,833 | 19,610 | 1,469 | 22,145 | - | - | 20,302 | 41,755 | |||||||||||
| Current assets | 44,470 | 51,668 | 7,493 | 8,752 | - | - | 51,963 | 60,420 | |||||||||||
| Current liabilities | (29,801) | (29,315) | (4,520) | (5,101) | - | - | (34,321) | (34,416) | |||||||||||
| Non-current liabilities | (925) | (897) | - | 41 | - | - | (925) | (856) | |||||||||||
| Capital expenditure | (121) | (95) | (229) | (95) | - | - | (350) | (190) | |||||||||||
1 The Swiss business operates as a representative office of the UK business and therefore shares assets with the UK business.
2 The amounts disclosed as non-current exclude intragroup balances of £39.1m (2010: £35.4m) payable to the UK business.
2 Staff costs
| Year ended 31 December 2011 | Year ended 31 December 2010 | |||
| £'000 | £'000 | |||
| Staff costs including directors' emoluments | ||||
| Wages and salaries | 25,190 | 25,006 | ||
| Social security costs | 2,017 | 2,214 | ||
| Pensions (defined contribution scheme) | 1,709 | 1,636 | ||
| Total | 28,916 | 28,856 |
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 2011 was £1.7m (2010: £1.6m).
Actual number of persons, including directors, employed by the Group as at 31 December 2011:
| Group total 2011 | UK 2011 | Swiss 2011 | US 2011 | Group total 2010 | ||||||
| Institutional equities | 102 | 44 | 3 | 55 | 115 | |||||
| Corporate finance | 49 | 21 | 0 | 28 | 50 | |||||
| Other | 73 | 35 | 5 | 33 | 67 | |||||
| Total | 224 | 100 | 8 | 116 | 232 |
Average number of persons, including directors, employed by the Group during the year was:
| Group total 2011 | UK 2011 | Swiss 2011 | US 2011 | Group total 2010 | ||||||
| Institutional equities | 110 | 44 | 4 | 62 | 116 | |||||
| Corporate finance | 52 | 23 | 0 | 29 | 46 | |||||
| Other | 70 | 39 | 5 | 26 | 68 | |||||
| Total | 232 | 106 | 9 | 117 | 230 |
3 Income tax expense
The analysis of the total income tax credit/(expense) is as follows:
| Year ended 31 December 2011 | Year ended 31 December 2010 | |||
| £'000 | £'000 | |||
| Analysis of tax credit/(charge) in period: | ||||
| UK corporation tax at 26.5% (2010: 28%) | ||||
| Current year tax credit/(charge) | - | 217 | ||
| Prior year adjustment - loss carry back claim | (44) | 466 | ||
| Other prior year adjustments | (35) | (254) | ||
| (79) | 429 | |||
| Deferred tax | ||||
| Prior year adjustments to deferred tax credit | 1 | 43 | ||
| Current year deferred tax charge | (2,836) | (770) | ||
| (2,835) | (727) | |||
| Tax charge on profits on ordinary activities | (2,914) | (298) | ||
| Effective tax rate charge | (10.2)% | (4.2)% | ||
| Factors affecting tax charge: | ||||
| Loss on ordinary activities before tax | (28,559) | (7,133) | ||
| Taxation on ordinary activities multiplied | ||||
| by rate of UK corporation tax at 26.5% (2010: 28%) | 7,568 | 1,997 | ||
| Effects of: | ||||
| Expenses not deductible for tax purposes | (84) | (117) | ||
| US goodwill write-off | (5,781) | - | ||
| US losses not recognised | (490) | (1,854) | ||
| US DTA on losses write off | (3,413) | - | ||
| Differences relating to share schemes | (551) | (266) | ||
| Foreign tax | (35) | - | ||
| Change in corporation tax rate | (84) | (9) | ||
| Deemed goodwill on amortisation | 132 | 148 | ||
| Goodwill on consolidation | (132) | (148) | ||
| Adjustment to tax charge in respect of previous periods | (44) | (49) | ||
| Total tax charge on profits on ordinary activities | (2,914) | (298) |
4 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 | ||||
| 2011 | 2010 | ||||
| £'000 | £'000 | ||||
| Loss on ordinary activities after taxation (LAT) | (31,473) | (7,431) | |||
| Weighted average number of shares in issue | 148,409,933 | 145,759,376 | |||
| Fully diluted weighted average number of shares in issue | 160,774,267 | 147,971,186 | |||
| Basic earnings per share (based on LAT) | (21.21)p | (5.10)p | |||
| Diluted earnings per share (based on LAT) | (21.21)p | (5.10)p |
5 Goodwill and other intangibles
| Goodwill UK | Goodwill US | Intangible US | Total | |||||
| £'000 | £'000 | £'000 | £'000 | |||||
| Cost | ||||||||
| At 1 January 2011 | 13,201 | 34,353 | 709 | 48,263 | ||||
| Exchange differences | - | 51 | 1 | 52 | ||||
| At 31 December 2011 | 13,201 | 34,404 | 710 | 48,315 | ||||
| Accumulated impairment and amortisation | ||||||||
| At 1 January 2011 | - | (17,552) | (543) | (18,095) | ||||
| Charge for the year | - | (16,841) | (164) | (17,005) | ||||
| Exchange differences | - | (11) | (3) | (14) | ||||
| At 31 December 2011 | - | (34,404) | (710) | (35,114) | ||||
| Net at 31 December 2011 | 13,201 | - | - | 13,201 |
| Goodwill UK | Goodwill US | Intangible US | Total | ||||
| £'000 | £'000 | £'000 | £'000 | ||||
| Cost | |||||||
| At 1 January 2010 | 13,201 | 32,844 | 678 | 46,723 | |||
| Exchange differences | - | 1,509 | 31 | 1,540 | |||
| At 31 December 2010 | 13,201 | 34,353 | 709 | 48,263 | |||
| Accumulated impairment and amortisation | |||||||
| At 1 January 2010 | - | (16,781) | (384) | (17,165) | |||
| Charge for the year | - | - | (141) | (141) | |||
| Exchange differences | - | (771) | (18) | (789) | |||
| At 31 December 2010 | - | (17,552) | (543) | (18,095) | |||
| Net at 31 December 2010 | 13,201 | 16,801 | 166 | 30,168 |
Goodwill represents the excess of purchase price paid over net assets acquired, being in respect of:
(i) The acquisition of Panmure Gordon (UK) Limited in April 2005, which represents the UK cash-generating unit ("CGU").
(ii) The acquisition of ThinkEquity in March 2007, which represents the US CGU.
(iii) The intangible assets acquired relate to customer relationships, the estimated useful life of which is five years.
Goodwill impairment
Approach to goodwill impairment testing
The process of identifying and evaluating goodwill impairment is inherently uncertain because it 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 recognised 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 cash-generating unit ("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.Detailed cash flow forecasts for the UK business are over three years. The effect of a decline in the expected cash flows is to reduce the CGU's estimated recoverable amount.
The discount rate used to discount the future expected cash flows are based on the cost of capital assigned to the CGU, and can have 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 are 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 emanating from Panmure Gordon (UK) Limited are integral to the operations of the Group in the UK. As such management has reviewed forecast cash flows in respect of the business and is satisfied that the present value of these cash flows is considerably in excess of the carrying value of the CGU, thus fully supporting the allocated goodwill of £13.2m at 31 December 2011.
| 2011 | 2010 | ||||||||||||||||||||||
| Long-term growth rate | 1.8% | 2.0% | |||||||||||||||||||||
| Discount rate | 9.2% | 10.9% |
The pre-tax discount rate applied was 11.9% (2010: 14.4%).
The result of the value in use calculations determine that there is a significant amount of headroom over the goodwill balance allocated to the UK CGU. A 100 basis point increase in the discount rate, assuming no effects on other variables, would not lead to any impairment of the goodwill. In terms of cash flow forecasts, a drop of 10% in cash flow estimates, assuming no effects on other variables, would not lead to any impairment of the goodwill.
Goodwill following the acquisition of ThinkEquity (US CGU)
The recoverable amount of the US CGU was measured based on fair value less costs to sell (2010: value in use). As at the balance sheet date management recognised that ThinkEquity, in its current form, was unlikely to produce an acceptable level of profitability in the foreseeable future.
Subsequent to the year end and as disclosed in note 7, the Group reached agreement to divest control of ThinkEquity by way of a management buy-out for a nominal consideration. Accordingly the CGU's carrying value significantly exceeded its recoverable amount. As such, a further impairment charge of £16.8m was recognised in the income statement. A prior impairment of this CGU of £13.7m was recognised in 2008.
In the prior year the CGU's recoverable amount (determined through value in use) exceeded its carrying amount by £2.6m ($4.1m at 2010 year end exchange rate of 1.5524). The calculation of this recoverable amount was based on management's assessment of detailed five year cash flow projections which were extrapolated at a rate of 2.0% per annum (based on the expected long-term growth rate of the US business), with discount rates of 11.4% applied to detailed cash flows and 12.8% to long-term sustainable cash flows.
6 Deferred tax asset and liabilities
| Deferred tax asset | ||||||||||
| Share-based payments | UK losses | US losses | Plant and equipment | Total | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Balance as at 1 January 2011 | 719 | 32 | 3,413 | 326 | 4,490 | |||||
| Movement during year | (426) | 1,167 | (3,413) | (46) | (2,718) | |||||
| Effect of tax rate change | (53) | (2) | - | (24) | (79) | |||||
| Prior year adjustment | - | - | - | 1 | 1 | |||||
| Balance at 31 December 2011 | 240 | 1,197 | - | 257 | 1,694 |
A deferred tax asset of £1.7m (2010: £4.49m) has been established to reflect the tax benefit which is expected to arise from the future exercise of share options, accelerated capital allowances and losses carried forward in the UK. The recognition of the deferred tax assets relies on the projection of future taxable profits. Forecasts prepared by the Company support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilise the deferred tax recognised.
At 31 December 2011, the Company reviewed the current level of deferred tax assets held in the US business. Based on the recent history of continued losses and the decision since the end of the year to divest control of ThinkEquity, the entire amount of deferred tax previously recognised of £3.4m has been written off.
At 31 December 2011, the Group also had a potential deferred tax asset of £13.8m (2010: £8.7m) relating to US trading losses. This asset has not been recognised in the balance sheet due to the uncertainty over timing and extent of future taxable profits beyond the levels that would support the value of the deferred tax asset already recognised.
The Group also had a potential deferred tax asset of £6.1m (2010: £6.6m) relating to UK losses brought forward. This asset has also not been recognised in the balance sheet due to the uncertainty over the extent and timing of its recoverability.
| Deferred tax liability | ||||||
| Goodwill | ||||||
| £'000 | ||||||
| Balance as at 1 January 2011 | 856 | |||||
| Effect of tax rate change | (63) | |||||
| Movement during year | 132 | |||||
| Balance at 31 December 2011 | 925 |
A deferred tax liability of £0.9m (2010: £0.9m) has been established to reflect the difference between the carrying value and the tax value of goodwill generated following the acquisition of Panmure Gordon (UK) Limited in 2005.
7 Post balance sheet events
On 8 March 2012, the Company announced that it had reached agreement for the disposal of ThinkEquity LLC, its US based subsidiary, subject to US regulatory approval. The sale is structured such that the entire equity holding of the company will be transferred from Panmure Gordon Holdings LLC, a wholly owned subsidiary incorporated in the US, to a newly formed company, ThinkEquity Holdings LLC. The Company will receive a notional $1 sum for its holding and a 24.11% stake in the newly formed company in return for a $345,000 investment. The majority owners of ThinkEquity Holdings LLC, who will also have the power to control and govern the business, are management and employees of ThinkEquity LLC. The 2012 results of ThinkEquity LLC will be consolidated in the 2012 financial statements up until the date of sale. At the date of this report, the transaction remains subject to US regulatory approval.
To facilitate the disposal, the Company has committed to share costs with ThinkEquity Holdings LLC in relation to any claims arising from regulatory, litigation or arbitration cases brought against ThinkEquity LLC prior to the disposal date. The liability of the Company is, in relation to this, limited to a maximum contribution of $900,000.
The financial information set out above does not constitute the company's statutory accounts for the year ended 31 December 2011, 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, Moorgate Hall, 155 Moorgate, London EC2M 6XB.
Copyright Business Wire 2012
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