If one-off costs, including £384,000 in expenses relating to an FCA investigation as well as legal fees incurred during the establishment of its partnership with SEI and severance payments, legal and advisory fees and temporary employment costs within its compliance division relating to its ongoing focus on wealth management, the operating loss is reduced to £1,1m.
According to the firm, the big driver of the weakness in earnings was investor uncertainty – fuelled by worries over Chinese growth, the falls in commodity prices and, more recently Brexit fears – which dampened their propensity to trade.
As a result of this, said Richard Killingbeck, the firm’s group CEO, transaction revenue, in the first half, was significantly lower.
“When combined with lower client commissions within our Private Wealth Management division, our total transactional income across the business was lower by approximately £4m when compared to the same period a year ago,” he said, adding: “It is against this backdrop that a trading loss of approximately £1m needs to be measured and, whilst disappointing, demonstrates the strong oversight on operational costs which we have maintained throughout the period.”
Within the firm’s private wealth division, wherein it continues to move away from commission income and focus on building up its base of fee paying clients through the delivery of either discretionary or advisory services, it said the deal to partner with SEI Corp will provide the firm with “the necessary operational tools to service the increased requirements that these clients demand”.
And, Killingbeck said: “Since the beginning of the year, our total assets under management and administration have increased to approximately £2.7bn as at 31 May 2016”. Within this, the firm’s discretionary arm was the fastest growing segment.
Management fee income across the division rose by 15% to approximately £4m during the period, the firm said.
Within its broking division, the 72 day suspension by the FCA from undertaking regulated activities hit the division hard, reporting a loss of £741,000 for the period, compared to a profit of £59,000 in the first half of the 2015 financial year.
However, Killingbeck said: “Despite this, our retainer income remained solid reflecting our consistently strong emphasis upon maintaining and growing our corporate client list. This also demonstrates the considerable loyalty afforded to us by our clients during this difficult period. While the total number of retained clients fell by 3 to 95 at the half year primarily due to delistings, we still saw a number of smaller transactions completed towards the end of the period.”
Going forward, Killingbeck said, the vote to leave the European Union has expanded market uncertainty rather than removing it from markets. And, as a result, will have an impact on short-term sentiment.
“I fear that over the summer months investor confidence will remain very cautious and risk averse. This will therefore continue to impact the trading outlook for both of our divisions.”