Arbuthnot Securities

Arbuthnot Banking Group PLC
21 March 2006


Arbuthnot Securities


Overview


Arbuthnot Securities Ltd is the investment banking subsidiary of Arbuthnot
Banking Group plc, which announced its results for the year ended 31 December
2005 today. 40% of the equity of Arbuthnot Securities has been distributed or
reserved within a Long Term Incentive Plan for employees, with 60% to be
retained by Arbuthnot Banking Group.


Arbuthnot Securities is focused on UK growth companies, typically of a
small-to-mid range capitalisation, and has two principal business streams:
raising equity for, and providing equity and M&A advisory services to corporate
clients, and offering research and transactional services in UK equities to
asset management clients. In 2005 its revenues advanced 58% to reach £19.4m,
with all activities performing well.


Transformation



The transformation of Arbuthnot Securities began in late 2004 and the financial
performance of 2005 reflects many of the improvements made. Mark Brown commenced
his appointment as CEO in September 2004 and swiftly effected a number of
personnel changes. Overall headcount was reduced by approximately a quarter, and
the majority of the management committee was replaced with new recruits in order
to bring greater focus and dynamism to the business.



Led by its new management, the company has made a commitment to excellence. This
manifests itself in a determination to accept nothing less than the highest
ethical and technical standards from all its professionals, and in an
acknowledgement that improving the quality of the business is a continual not a
finite process. Serving the long-term needs of its clients moreover, is now at
the centre of all core activities, and the firm will never accept conflicts of
interest between the capital raising needs of corporate clients and the
investment performance requirements of its asset management clients.



The qualitative improvements made already are starting to deliver a marked
improvement in financial performance. In 2005, revenues rose by 58% to £19.4m
which, together with a reduction in many operating cost lines, delivered a
profit (before tax and exceptional items but after all bonuses) of £2.8m. This
represents a marked improvement in performance from the loss of £1.5m in 2004.
It is moreover notable that £12.1m of the £19.4m 2005 revenues were achieved in
the second half of the year, and that the improved revenue and profit
performance was achieved without any material increase in the average level of
capital employed.



There is now clear evidence of improved performance across both of the firm's
business streams:




Corporate Finance



Arbuthnot Securities raised for its clients £285m in 2005 compared to £101
million in 2004. This represented the result of 14 successful equity
fundraisings. Transactions included secondary raisings for existing clients on
the full list, such as UMECO and Hampson, as well as 10 IPOs on AIM.



Arbuthnot Securities ranked 8th among all investment banks in 2005 in the Deal
Monitor table of funds raised through IPOs on AIM (having been unranked in
2004), behind only 3 of its peer group. Furthermore, 8 of Arbuthnot Securities'
10 IPOs on AIM are currently trading above their issue price, compared with just
57% of new issues on AIM (with a listing market capitalisation of over £10m)
during 2005.



The firm established a particularly strong presence in the launch of closed-end
investment funds with successful IPOs for the North American Banks Fund, Utilico
Emerging Markets Fund and India Capital Growth Fund. Arbuthnot Securities also
raised equity for a number of international businesses such as Cosentino (a wine
company with operations based in California) and Titanium Resources Group (a
mining company with operations based in West Africa).



Arbuthnot Securities also advised on a number of high-profile M&A deals during
2005 such as the acquisition of Little Chef, the sale by BUPA of a portfolio of
nine hospitals to Legal & General Ventures, and the takeover of the regional
brewer and pub operator, Jennings Brothers, by Wolverhampton & Dudley Breweries.





Equities



The secondary market activities of Arbuthnot Securities have been reshaped, to
move the firm's research offer away from a coverage and maintenance model to a
model that concentrates on offering a limited number of strong
consensus-challenging investment ideas. By way of illustration, the annual
published and promoted list of key stock recommendations in 2005 outperformed a
rising UK market by 16%. So far this year the 2006 selection has outperformed by
11%.



The sales and trading effort has been repositioned to support the new research
model; delivering these strong ideas into a more focused range of asset
management clients and employing its market-making capital with greater
concentration behind those stocks where it believes it has superior
understanding. The refocused research and execution propositions will offer more
value to clients and should also benefit from the unbundling of brokerage
commissions.



Arbuthnot Securities' secondary market commissions in 2005 were £5.8m. Excluding
the discontinued Stirling Hendry business, this represents an advance of 52% on
2004. Favourable market conditions notwithstanding, the firm increased its share
of the smaller-to-mid size UK equities market to 1.9%, a material increase on
the 1.5% share of 2004. Not only has the firm's mode average commission rate
risen markedly, but several large transactions give evidence of its increased
placing power in the secondary market: In 2005 Arbuthnot Securities placed 30%
of the share capital of PD Ports; 7% of Highway Insurance Holdings and 5% of
Salvesen (Christian).





Outlook



With the business now on a sound strategic footing, returned to profitability,
and experiencing momentum in its revenues, Arbuthnot Securities will continue
selectively to recruit high-quality professionals. The business should benefit
in 2006 from the recruitment, over recent months, of experienced and
accomplished analysts to cover the Software and Computer Services, Property,
Mining and Support Services sectors. A Deputy Chief Executive has also been
recruited; Neil Kirton (previously Head of Equities at Bridgewell and Global
Head of Equity Sales at ABN AMRO), to strengthen the general representation of
the business at all levels and drive the expansion of the corporate broking
client base.



During the second half of 2005, 15 new corporate clients were added to close the
year with 60 retained corporate clients. Since the year end the intensified
targeting of new corporate clients has seen the client list continue to expand.



While the pace of corporate transactions is always difficult to predict, early
indications are positive, with a prospective pipeline broadly twice as strong as
at this time last year. Indeed, the firm is currently marketing equity capital
raisings with an aggregate value in excess of £250m to potential investors.



The equities business stream has started 2006 well, with year-to-date market
share in smaller-to-mid size UK equities having advanced firmly from Q4 of last
year.



Arbuthnot Securities thus looks forward to 2006 and beyond with confidence.



For further information contact:


Arbuthnot Securities:


Mark F Brown
Chief Executive
02070122150


College Hill:


Richard Pearson
02074572020



Tony Friend
02074572020






                      This information is provided by RNS
            The company news service from the London Stock Exchange