Annual Report for the year ended 31 December 2008

evolution securities
Evolution securities provide equity and fixed income research, institutional
sales and trading, equity market making, corporate finance and corporate
broking advice. Within Evolution securities, the core strategic objective
is to maintain a balanced business, between equities and fixed income,
servicing the needs of institutional and Corporate customers in both of
these product areas.
2008 presented an extraordinary business environment. Capital markets
all but ceased to exist with well-publicised significant falls in all FTsE
indices, especially in AiM and the small cap indices as well as in Official
list initial public Offerings (“ipO”). in addition, secondary volumes on all
indices fell between 30-65% with a corresponding impact on share prices.
Despite this backdrop, Evolution securities continued to maintain significant
market shares in both agency business and total transactional shares
across all uK indices.
Faced with these conditions, Evolution securities reduced its headcount
and costs in its equities division and strategically took the decision to
further invest in people within fixed income, and align this business to
the opportunities that prevail in its market place. This latter point, in
particular, refers to the servicing of the customer at both the institutional
and corporate level.
Results for the year have been affected by the prevailing market conditions
in equities, especially in the second half of the year, which significantly
impacted equity market making. For the year to 31 December 2008
Evolution securities traded at a loss, recording an adjusted operating
loss (as defined in the Financial Review) of £5.4m (2007: profit £13.0m).
Total income before fee and commission expenses was £29.8m (2007:
£54.7m), with secondary sales and trading for equity and fixed income
holding up, despite market factors, at £19.8m (2007: £19.7m). The business
reduced its annualised cost base by £7.2m (14%) during the year as
part of an ongoing programme to drive efficiency through to the bottom
line and streamline the business. The fully annualised benefit of these
savings will not been seen until 2009.
Our objective for 2008 has been the reduction of costs, streamlining the
business and positioning our fixed income and equities businesses for
2009. We are very confident about our prospects in both.
CHIEF ExECUTIVE’S REPORT CONTiNuED
INSTITUTIONAL INVESTmENT BANKING
Secondary market activities
Research
strength in equity research lies at the heart of a strong equities franchise,
it helps brand the business. Our research teams are highly experienced,
with in-depth knowledge and a strong reputation across a broad range of
uK sectors and industries. Our research offering covers small, mid and
large sized capitalised companies. in total, we research approximately
200 stocks. A notable award in 2008 was from starmine (sponsored by
The sunday Times) where we achieved the No 1 ranking in FTsE 100
research recommendations across our industry.
Fixed Income
Changing working capital practises within the major investment Banks, a
changing regulatory environment as well as a redirection of risk appetite
have all produced a changing picture for fixed income markets. We believe
that these changes are permanent and here to stay.
During 2008 Evolution securities has adapted to these changes by
investing in the talent pools in the market place as well as in execution
technology. Our business in this area has changed considerably in 2008,
with further expansion in the first quarter of 2009, which is expected to
continue throughout the year. We now service a global client base and
in terms of an offering, we price over 4,000 bonds, have a first class
and independent research team, and offer services in fixed income
products across Government Bonds, investment Grade, High Yield,
Distressed and Asset Backed securities areas.
in conclusion, we believe that we offer a service that is independent and
is broadly unique to many of our competitors. Whilst these new initiatives
were not fully operational or complete in 2008, we are delighted to report
a robustness in our performance where income grew by 97% to £7.1m
(2007: £3.6m).
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