17/03/2014 - 15:50

Patersons looking for extra capital

17/03/2014 - 15:50

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Patersons Securities plans to introduce an employee share scheme to help bolster its net assets by at least $15 million, after posting its third interim loss in succession.

Patersons looking for extra capital
Patersons executive chairman Michael Manford.

Patersons Securities plans to introduce an employee share scheme to help bolster its net assets by at least $15 million, after posting its third successive interim loss.

The national stockbroker posted a loss of $1.6 million for the six months to December 2013, from losses of $3.6 million and $3.7 million in the two previous corresponding periods.

The smaller loss was helped by a 4.7 per cent lift in revenue to $42.2 million.

In a letter to shareholders obtained by Business News, executive chairman Michael Manford outlined a series of cost-cutting measures Patersons hopes will improve its earnings.

“We are working diligently to make a crossover to profit this year,” he said.

“The September quarter was profitable but an early close to market activity running into Christmas dragged the six month result into the red”.

Patersons is the largest broking firm in Perth, with 80 advisers and 205 staff in WA, according to BusinessNews IQ, and also has a large east coast network.

Its weak financial results are similar to those incurred by other broking firms across the country but are in marked contrast to the healthy profits reported by its main Perth competitors, Hartleys and Euroz.

ASX-listed Euroz recently reported a 23 per cent increase in interim net profit to $12.4 million, reflecting higher operating profits from ongoing activities and unrealised profits from investments.

Hartleys, which lodges annual returns with ASIC, reported a net profit of $9.6 million for the year to June 2013.

Mr Manford said the board had resolved to introduce an employee share plan, which “offers the opportunity to embed a proprietorial culture and initially rebuild the balance sheet towards its June 2011 net assets of $42 million”.

That is a $15 million boost from the December 2013 net assets of $27 million.

Mr Manford said this initiative would be supported by the board members, who collectively owned or represented about 48 per cent of the current shares on issue.

The big shareholders include Mr Manford and corporate finance director Aaron Constantine.

Mr Manford said Patersons’ board was aiming to at least double the current level of employee ownership.

“Currently 24 per cent of employees are shareholders and the board is enthusiastic at the prospect of initially seeing this double to 50 per cent and subsequently seek to have 75 per cent of employees being shareholders,” he said.

On the operational front, Mr Manford said Patersons was aiming to get employee expenses below 60 per cent or revenue, after substantial job cuts last year.

“Employee expenses are the firm’s largest expense and the appropriate alignment of this cost with revenues is critical,” he said.

The firm is hoping to save up to $3 million by renegotiating three property leases due to expire over the next 21 months, and by taking less space.

It has 15 offices across Australia, with the largest being at level 23 of Exchange Plaza in central Perth.

It is also looking to make 20 per cent cost savings on its IT spending, having already cut annual spending in this area from $6 million to $5 million.

Marketing expenses are currently in line with the full-year budget of $3.1 million, or 3.8 per cent of revenues.

There was no mention of the firm’s naming rights sponsorship of Patersons stadium in Subiaco; that deal, signed in 2010, was worth $3.5 million over four years.

Mr Manford’s letter said brokerage revenue was flat in the December half.

Revenue growth came from Patersons’ Accolade funds management platform “and a modest recovery in equity capital markets activity”.

Mr Manford said ECM activity had picked up in February, with “a level of cautious optimism emerging”.

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