Download our latest Annual Report for 2009 [PDF] - East West ...

Ambrian Capital plcAnnual Report & Accounts 2009OverviewBusiness review 07GovernanceFinancial statementsShareholder informationAmbrian Commodities LimitedLeft to right:Peter GrinhamMalcolm Freeman119Number of companiescovered by AmbrianPartners equity researchThe decision was taken during 2009 to take advantageof the dislocation in the UK stockbroking sector torecruit a limited number of top quality researchanalysts and equity salesmen to broaden AmbrianPartners’ product offering beyond the mining sectorand AIM.The plan is to build a larger, more profitable equitiesbusiness to enable our fixed cost base to be sharedamong a greater number of income generators andbuild on Ambrian Partners’ first-rate reputationin the natural resources sector.Our strategy is to build our brokerage presence inequities bought largely for their defensive qualitiesas a counter-balance to the highly cyclical and volatilenatural resources sector in which Ambrian Partnersalready has a strong presence. Since the beginningof 2010, Ambrian Partners has hired “thought leading”equity research analysts specialising in defensivesectors such as utilities, pharmaceutical companiesand food retailers.Ambrian Partners is committed to being a specialistsecurities firm with recognised industry expertise.Increasingly, Ambrian Partners’ skills in naturalresources will be complemented by expertise in newsectors that will provide diverse and sustainablesources of revenue.Ambrian Partners makes markets in the shares of55 companies and had £2.00 million of capital allocatedto the activity at 31 December 2009.Equity market making was profitable in all but onemonth in 2009 and generated revenue of £1.49 millionin 2009 compared to a loss of £(2.04) million in 2008.Equity market making plays a vital role providingliquidity to our “house stocks” and thereby facilitatingclient activity. Over 75% of the revenue generatedby equity market making was in the shares of AmbrianPartners’ corporate clients.CommoditiesCommodities comprises Ambrian CommoditiesLimited, the LME broker-dealer and Ambrian MetalsLimited, the physical metals merchant.Ambrian Commodities LimitedAmbrian Commodities had a more difficult year in 2009than in 2008 as a result of a 19% reduction in customeractivity levels, lower average metals prices and lowerinterest rates. Nevertheless, Ambrian Commoditiesremained profitable.Total LME trading volume was almost unchangedwith 112 million lots traded in 2009 compared with113 million lots in 2008. However, in 2009 the US dollarnotional value of lots traded on the LME declined by28% to US$7.41 trillion due to lower metals prices.LME volumes were maintained by the activity of financialinvestors despite a decline in end-user demand.Ambrian Commodities’ client base primarily consistsof industrial metals fabricators, of which approximatelytwo-thirds are located in Continental Europe.These industrial customers have a regular need forthe metals price hedging services provided by AmbrianCommodities regardless of the actual level of metalsprices. However, their volume of LME activity is directlyrelated to their manufacturing production. Given theweak European economic recovery in 2009, output wasreduced and this depressed Ambrian Commodities’volume of activity.In addition, in the low interest rate environmentprevailing in 2009, Ambrian Commodities was unableto maintain interest income on cash balances heldat the same level as in 2008. During 2009, overnightUS$ LIBOR averaged only 0.23% compared with2.33% in 2008.The allocation of capital to support the granting ofmargin credit represents the largest single constraintto the future growth of Ambrian Commodities andwe are actively pursuing initiatives to resolve this issue.