Numis : Interim Results 2019

Numis Corporation Plc

Half Year Results

for the six months ended 31 March 2019

London, 3 May 2019: Numis Corporation Plc ("Numis") today announces unaudited interim results for the period ended 31 March 2019.

Highlights

∙Challenging market backdrop has impacted first half performance

∙Investment Banking revenues 24% lower than H1 2018 but 3% higher than the second half of 2018

∙Quality of the corporate client base continues to progress - 54 FTSE 350 clients and 17% increase in average market cap

∙Equities revenue down 28% reflecting weak UK investor sentiment and lower market volumes

∙Transition to MiFID II completed, payments for research remain in line with prior year despite reduction in institutional budgets

∙Dividend maintained at 5.5p and £7.5m spent on share repurchases in the 6 month period

∙Strong balance sheet, additional £35m of liquidity provided by new committed credit facility

Key statistics

Financial highlights	H1 2019	H1 2018	Change
Revenue	£55.7m	£74.1m	(24.9)%
Underlying Operating profit	£8.1m	£19.3m	(57.9)%
Profit before tax	£7.1m	£19.5m	(63.6)%
EPS	5.4p	15.8p	(65.8)%
Cash	£78.9m	£82.5m	(4.4)%
Net assets	£140.2m	£140.0m	0.1%
Operating highlights
Corporate clients	214	208	+6
Average market cap of clients	£836m	£711m	17.3%
Revenue per head (annualised)	£401k	£606k	(33.8)%
Operating margin	14.6%	26.0%	(11.4ppts)
Spend on share repurchases	£7.5m	£9.7m	(22.7)%

Notes:

1)Revenue, Underlying Operating profit, Operating margin and Revenue per head all exclude investment income / losses

2)EPS represents Basic EPS

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

"We operate in a cyclical industry and our financial performance will always be influenced to a certain extent by market conditions. Our first half performance has been impacted by a significant slowdown in UK deal activity and investors maintaining a cautious approach toward the UK market. However, we are encouraged by the continued progress of the business and believe our investment in recent years provides a strong platform from which we can continue to successfully execute our strategy.

Numis benefits from a strong financial position established over a period of many years. This stability provides reassurance to existing and potential clients, and ensures Numis continues to be a great platform for our staff, and potential new hires. Stability has also significantly contributed to our track record of outperformance during periods of difficult market conditions. We believe the current market environment, whilst uncertain in the short term, presents further opportunities for the business to advance its strategic ambitions within an evolving competitive landscape."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Contacts:
Numis Corporation:
Alex Ham & Ross Mitchinson, Co-Chief Executives	020 7260 1245
Andrew Holloway, Chief Financial Officer	020 7260 1266
Brunswick:
Nick Cosgrove	020 7404 5959
Simone Selzer	020 7404 5959
Grant Thornton UK LLP (Nominated Adviser):
Philip Secrett	020 7728 2578
Harrison Clarke	020 7184 4384

Notes for Editors

Numis is a leading independent investment banking group offering a full range of research, execution, corporate broking and advisory services to companies in the UK and their investors. Numis is listed on AIM, and employs approximately 270 staff in London and New York.

Business review

Overall performance

The first half performance was impacted by a difficult trading environment dominated by domestic political uncertainty, volatile equity markets and a material decline in transaction activity. Revenues declined 25% to £55.7m (2018: £74.1m) and Underlying Operating profit declined 58% to £8.1m (2018: £19.3m). Profit before tax declined by £12.4m to £7.1m and includes £1.4m of losses recognised on investments held outside of our market making business (2018: £0.4m gain). Our balance sheet remains strong with cash balances of £78.9m (2018: £82.5m) and net assets of £140.2m (2018: £140.0m).

Market conditions

Whilst markets closed the period at broadly similar levels to the start of the financial year, with the FTSE 100 and 250 declining 3.1% and 5.9% respectively, the 6 month period witnessed a material decline at the start of the period followed by a partial recovery over the past few months. In addition, volatility levels were elevated for much of the period driven by both domestic matters and a variety of global economic concerns. The political uncertainty facing the UK has inhibited corporate client activity resulting in both lower M&A activity and a significant reduction in equity capital markets transactions. UK ECM volumes are approximately 50% lower in the 6 month period to 31 March 2019 compared to the previous 6 months to 30 September 2018.

Investment Banking

	H1 2019	H1 2018	%
	£m	£m	Change
Capital Markets	24.9	33.0	(24.7)%
Advisory	7.5	11.7	(35.9)%
Corporate retainers	6.4	6.1	4.9%
Investment Banking revenue	38.8	50.9	(23.8)%

During the period, the Corporate Broking & Advisory division (CB&A) was renamed Investment Banking reflecting the broader range of products and services now delivered by the team (there is no change to revenue attribution as a result of the renaming). Investment Banking revenue for the 6 months to 31 March 2019 was 24% lower than the first half of the prior year but, despite the significant fall in market activity, revenue was 3% higher than the second half of the prior year. The period started positively with a number of IPOs and Capital Markets transactions in October, and ended strongly with 13 deals completed in March, however, across the period, deal volumes were down compared to both 6 month periods of the prior year. Average deal fees remained at broadly the same level achieved across the prior financial year reflecting the sustained benefits of a higher quality corporate client base and consistently being awarded senior roles on transactions.

Capital Markets revenues were 25% lower than the comparable period and only 4% lower than the second half of the prior financial year, notwithstanding the far greater decline in UK capital markets volumes over the past 6 months. Our performance reflects our ability to execute transactions in challenging market environments and enhances our reputation for being able to provide our clients insightful, accurate and bespoke advice at pivotal moments.

Advisory revenues were also down on the comparable period but 35% higher than the second half of the prior year, this continues to be an area of focus as we leverage our evolving sector specialisation with our strong execution capabilities to improve the frequency of our appointment as a financial adviser in M&A situations. We continue to make progress and the recent growth in the M&A pipeline is encouraging.

Retainer fee income increased 3% relative to the comparative period through a combination of new client wins and negotiated fee increases. Overall we delivered a net 6 client wins in the six month period including Fever-Tree and Euromoney. The average market capitalisation of the clients won was materially higher than those lost in the period reflecting our continued focus on developing the quality and size of our corporate client base. We now act as retained broker for 6 FTSE 100 companies and 48 FTSE 250 companies.

Equities

	H1 2019	H1 2018	%
	£m	£m	Change
Institutional income	16.5	18.7	(11.8)%
Trading	0.4	4.6	(91.3)%
Equities revenue	16.9	23.3	(27.5)%

Equities delivered revenue of £16.9m for the six months ended 31 March 2019 (2018: £23.3m), which represented a decline of 28%. Institutional income, which comprises execution commission and payments for research under MIFID II, declined 12% compared to the first half of the prior year. This performance is reflective of lower volumes in the UK market as the prevailing uncertainty has reduced trading activity amongst our predominantly long-only institutional client base. Payments for research remain robust notwithstanding a reduction in budgets across the asset management community. We continue to expect research payments for calendar year 2019 to be in line with the previous year which we believe would represent an increase in our market share. Our institutional clients clearly recognise the relative quality of our product and analysts, both of which have been enhanced by new hires completed over the past 12 months. As a result, the number of institutional clients who consider Numis their top rated UK broker continues to grow.

Whilst Trading has reported a negligible gain in the period of £0.4m, this includes the loss associated with the underwriting of the Kier rights issue. Excluding this loss, Trading has delivered a reasonable performance in the first half although below the level achieved in the comparative period largely due to the increased volatility and varied market performance across the 6 month period.

The strength of our Equities platform continues to provide a competitive advantage to our Investment Banking business, in particular the quality of our research and distribution remains central to our strategy to grow the corporate client base and gain market share in UK ECM.

Investment portfolio

The valuation of our portfolio as at 31 March 2019 was £15.5m, compared to £16.3m at the year end, representing a decline of £0.8m. A total of £0.6m new investments were completed during the period comprising one new investment and follow- on investments relating to commitments arising from a private equity fund investment made in the prior year. There were no disposals during the period but we incurred a write down of £0.9m in relation to our unquoted investments and a loss of £0.5m in relation to our only remaining quoted investment. We do not anticipate materially increasing the number of investments in the near term and we will aim to take advantage of liquidity events to exit certain investments.

Costs and people

	H1 2019	H1 2018	%
	£m	£m	Change
Staff costs	24.7	34.8	(29.0)%
Share-based payment	5.5	5.2	6.5%
Non-staff costs	17.4	14.9	16.8%
Total administrative costs	47.6	54.9	(13.3)%
Period end headcount	279	254	9.8%
Average headcount	278	245	13.5%
Compensation ratio	54%	54%	-

Staff related costs comprise the majority of our cost base. During the period we increased average headcount by 13.5% reflecting the hiring activity completed towards the end of the previous year. Periods of market dislocation generally present good hiring opportunities and whilst we do not expect a material change in our headcount across the remainder of the year, we may consider such opportunities on a selective basis. The hiring initiatives of the prior year were focused on strengthening our platform and expanding our capabilities. The benefits of these hires are beginning to materialise in the current financial year and our primary focus is to maximise the positive impact of this investment and continue to grow our market share.

Overall, staff costs were 29% lower than the comparative period with the increase in salary costs associated with the higher headcount being more than offset by a lower variable compensation provision attributable to the weaker revenue performance over the period.

Our share-based payment charge was £5.5m (2018: £5.2m), an increase of 7% compared to the comparable period. This increase is attributable to awards made to staff as part of the annual compensation round, and awards made to new hires to compensate for sacrificed awards made by previous employers. The expense related to equity awards is generally weighted toward the first year of a three year term.

Compensation costs as a percentage of revenue remained at 54% (2018: 54%) as a result of the lower revenue performance over the period being partially offset by a decline in variable compensation. We adopt a disciplined approach to managing the compensation ratio of the business across market cycles and seek to ensure an appropriate alignment between staff compensation, business performance and shareholder returns.

Non-staff costs are 17% higher than the comparable period. In the six months to 31 March 2019 we incurred additional variable costs related to information services and data costs arising partly as a result of the higher headcount as well as further regulatory related expenditure. In addition we continue to believe investing in technology to enhance our service to clients, and effectively manage the risks inherent in our business should remain priorities.