Financial Analysis, Management Reporting and Exit Planning

Institutional Brokerage Start-up

As a start up the financial and management reporting was minimal
Group was growing very fast across 4 major hubs
Group required daily trading reports and monthly management reports
Trade amendments and errors were often recorded in different accounting periods but reflected in trading reports based on trade date
FX rates were entered daily for trading dates but amendments used the rates on date of amendment causing differences
Legal entity reports had different functional currencies
Complexities resulted in differences on the figures reported on trading reports, monthly management accounts and annual audited accounts

Invest in a true multi-currency, multi-unit general ledger package (Sun Acc.)
Participate in the development of cross border securities trading and settlement system
Integrate the trading and settlement system platform into GL
Customise reports for local accounting and regulatory reporting
Reconcile the different reporting platforms on a monthly basis (annually for audit)
Where possible work with IT to remediate the problems causing the discrepancies
Where not possible provide management / board with the reconciliation

Detailed monthly reporting packages were prepared for management and board with budget v actual for current month and YTD for all material operating units using Excel files that were automatically populated from accounting platform using macros
Daily Reports were developed from the trading and settlement system that showed daily, MTD and YTD reports based on both a client office and an executing office basis with all the primary revenue and expense categories.
Annual reconciliation provided to the board from the management reports to the final audited reports when completed with minimal reconciling items

Retail equity trading was losing a significant amount of money despite revenue and volume growth
Charging was in line with industry prescribed commission rates
Division numbers were rolled up into the group reports which didn’t highlight the leakage
No detailed reporting available on individual trades as most of the costs were not transaction related
There were three revenue channels for retail equity trading; online, bricks and mortar proprietary and bricks and mortar franchisee
The bricks and mortar proprietary trading with almost 100 locations was the area of greatest concern but no readily available data to validate

Working with the IT team, Finance and a dedicated executive assistant we needed to get a better understanding of the trading costs for the proprietary trading
We agreed with the divisional head what costs were to be included in the calculation such as headcount, premise costs, marketing and their related overheads (along with the related direct trading costs such as exchange fees etc)
For each proprietary outlet we prepared a detailed calculation of revenue and costs on a per transaction revenue rather than the yield percentage based on the principal value of trades which was based on industry practice

Across the group we discovered that are average cost per transaction was 50% higher than our revenue per transaction
We discovered that we were losing money on over 80% of our transactions
We identified 2 solutions to rectify this:

Introduce a minimum charge per transaction
Create centralised trading desks that could be accessed by telephone rather than hosting traders on all physical premises (this was the route followed by HSBC who subsequently acquired the Group)

PE owners decided that the timing was right for them to proceed with their Exit and engaged the necessary bankers and lawyers for an IPO in Hong Kong.
The Group had grown significantly both organically and through acquisition with only very basic integration and most businesses ran on different business and accounting platforms that were consolidated on Excel
There was minimal consolidated metric or customer data that would be necessary to meet minimum disclosure requirement for the prospectus
There were no listed competitors and minimal publicly available data on the sector
Market share was very difficult given the diversity of participants that provided services in the Group’s segments

Together with a dedicated business analyst we looked at what the key and minimum metrics would be for inclusion in the prospectus bearing in mind we needed 3 years of data
We looked at the little available public data or data held by global consulting firms
With the assistance of our IT group we were able to extract key data from the various systems that had previously not been tracked and put mechanisms in place to track going forward
We audited the non-financial information that had previously been reported and discovered flaws in the data
By focusing on the larger jurisdictions we were able to formulate global client data

Despite a distinct lack of centralised data and a large variety of technology platforms we were able to provide significant metrics around the business for disclosure in the prospectus
The data provided was able to meet the robust due diligence of the investment bankers and their lawyers in a market where the verification standards are high due to the criminal liability of the bankers
The prospectus was approved by the various regulatory bodies with no queries on the metric data included in the prospectus
The data collated in the prospectus provided a template for future management reporting

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