Despite this, our Execution Services team and our advisory team in Investment Banking both produced creditable performances, demonstrating the resilience of our diversified business model during periods of volatility and lower capital markets activity.

Divisional review: Investment Banking

Investment Banking reported record results in terms of both revenue and number of retained corporate clients, as we broadened our offering to our retained corporate clients to support them through the evolution of their businesses. Revenue increased from £43.9m in FY21 to £57.9m. We acted on 46 ECM transactions over FY22 (H1: 30; H2: 16), the highest number for a UK investment bank, and advised on approximately 19% of all announced UK takeover situations in the mid- and small-cap segment of the market².

The year started well with trading in line with expectations through to the end of Q3, and a healthy deal pipeline across a broad spread of products and sectors. We achieved record results for the first half of the year, with revenue up 43% to £32.7m and retainer income up 15%, reflecting new client wins.

As we entered the final quarter, the operating environment became much more challenging with greater market volatility, heightened economic uncertainty and escalating macroeconomic and geopolitical tensions taking hold. This affected market-wide investment banking performance particularly in our Q4.

The consistent growth in the number of our retained corporate clients and their relative average market capitalisation has generated opportunities for us to advise more frequently, on both larger and more complex transactions. In early FY22, we entered into an underwriting collaboration agreement with Banco Santander SA, which significantly extends our capability for underwriting large or multiple simultaneous equity offerings.

We have invested in a broad range of services to meet the needs of our clients, as their businesses develop and their financing needs become more sophisticated. In FY22, we continued to build our Retail Capital Markets capabilities, advising corporate clients on structuring, marketing and distributing securities to UK retail investors using REX, our own proprietary electronic distribution platform.

We believe UK retail investors will have an increasingly important role to play in supporting corporate fund raises as upcoming market reforms, including anticipated reforms to the prospectus regime, will give them more opportunities to take part in UK ECM transactions. In Private Capital Markets ("PCM"), we have widened our focus to include larger and later stage fund raises, as well as smaller and earlier stage financings. We see significant opportunities to develop PCM in advisory, financing (equity and debt) and liquidity provision. In FY22, we added Debt Advisory to our franchise, and will continue to develop our capability in private placements of bonds during FY23.

Divisional review: Execution Services

Execution Services is a market-leading liquidity provider to retail and institutional investors, earning trading income as a market maker. We delivered a solid performance this year, generating revenue of £42.9m. As expected, this was lower than last year's exceptional performance during the pandemic of £116.7m, but higher than pre-pandemic levels (FY20: £26.3m). Our ongoing investment in technology helps us to retain a high market share of retail trading and continue to build our overall UK trading volumes.

Our presence and market share of trading in the retail and institutional investor markets give us deep insight into the markets and capital flow, through data insights generated from our quote and trading database. This in turn supports information flow with our Research & Distribution and Investment Banking teams. 

Technology is integral to our trading ability, risk controls and ability to outperform. Our automated risk management controls protect Peel Hunt, but also give traders the confidence to win more business through their pricing strategies. Technology also allows greater speed in fast markets, leading to better pricing. Our trading team can therefore manage more stocks, improving operational gearing.

Our technology, mainly developed in-house over the last 10 years, has enabled us to secure a market-leading share in retail equity trading, working closely with intermediary investor platforms. PHAT (Peel Hunt Automated Trading) is our robust and scalable execution and trading system. PHAT allows algorithmic institutional execution, and automated on-exchange and retail flow market-making, which means we can achieve better outcomes, such as price improvements, for our trading and institutional clients.

During the year, our developers continued to enhance our trading and execution products and platforms. We are investing to generate further trading efficiencies and create more revenue opportunities, and to leverage ongoing structural changes in financial markets. In FY22, we signed a five-year agreement with the leading provider of trading and order management systems to use their European trading platform, which gives us more capacity to meet increasing trading volumes from different investors, including new retail platforms.

Divisional review: Research & Distribution

Despite the challenging macroeconomic environment, and a significant decline in UK capital market volumes, our performance in Research & Distribution has been resilient, with revenue from research payments and execution commissions of £30.2m (FY21: £36.3m). This reflects long-term growth in revenue and market share from our institutional clients, thanks to our expanding team of expert analysts and sales specialists, and their understanding of our corporate and institutional clients' needs across the UK and international markets. As expected, our commission revenues from servicing retail intermediary platforms with overseas equity execution moderated down from the exceptional volumes we saw during the pandemic in the prior year.

In a commoditised research market, our institutional and corporate clients deal with limited providers. They demand best-in-class service and highly-ranked MiFID II-relevant investment banks, which is our guiding principle. The quality of our research and distribution teams is a key driver for winning new corporate clients and IPO mandates. During the year, we both increased the number of clients that pay us for our research, and increased market share from our existing clients. We now have 1,235 relationships with clients who value our top-rated research, and this number of relationships has increased by 3.4% compared with FY21.

How research is consumed and what institutional clients want is changing. We are making our research more relevant, engaging and accessible, with ESG ratings and analysis integral to our research. We write research on companies that people care about and want to read about, and this is reflected in our market share of global commission and research payments in UK equities, which has doubled over 5 years. We are proactive about distributing our research, with annual sales interactions of 16,372 in FY22, a CAGR of 13% over 2 years. We are investing in increasing our US distribution and further pushing into European markets with the opening of our office in Copenhagen (planned to take place in FY23). This builds on our leading Institutional Investor ranking in both geographies, and will give more global investors the opportunity to invest into UK plc. 

We are increasingly using technology to improve our service. Over the past year, we have invested in technology so we can better interrogate data and produce more in-depth reports. We are developing a new portal for investors, providing access to our research and enhanced screening tools. We are also continuing to invest in our digital media capabilities. In FY22, we started to use our new recording studio to deliver podcasts and videos, enhancing how we engage with corporate and institutional clients. We believe both this and our own in-house developed technologies will give us the opportunity to enhance our research, and improve our ability to inform our clients with deeper insights.

Current trading and outlook

Market conditions were challenging in the second half of FY22, particularly in the last quarter where exceptionally low levels of capital markets activity were experienced market wide. We expect ECM activity to continue in line with Q4 of FY22 through the first half of FY23. Despite this market backdrop, since the start of FY23, we have continued to benefit from our diversified business model, strengthened our corporate client base and have acted on some of the more significant UK mid-cap ECM transactions that have been executed. We remain hopeful that market conditions in the second half of our financial year will support execution of our strong pipeline of Investment Banking transactions.

FINANCIAL REVIEW

Revenue performance

We delivered a solid revenue performance in a year where market conditions, particularly in the second half, were very challenging. Whilst overall revenue performance is down relative to the prior year, this was in line with our expectations, given the prior year saw exceptional trading and heightened activity during the pandemic. Our continued investment in the business, both in technology and our people, remains important to the long-term growth of the business.

Revenue comprises the following:

Revenue for the year was £131.0m (FY21: £196.9m). Despite the difficult market environment, this constituted record revenues in Investment Banking for the second year in succession, a solid performance by Execution Services and resilient revenues for Research & Distribution.

Investment Banking performance

Investment Banking delivered record revenue for the year of £57.9m (FY21: £43.9m). The first half of the year saw us execute a healthy deal pipeline across a broad spread of products and sectors along with a number of new client wins.

The final quarter of the financial year saw the operating environment become much more challenging with greater market volatility, heightened economic uncertainty and geopolitical tensions taking hold. We therefore saw a corresponding reduction in performance across the market in the second half. While this affected our Investment Banking deals, we were encouraged by our advisory activity, where we acted on approximately 19% of all announced UK takeover situations in the mid- and small-cap segment of the market. This shows the resilience of our diversified offering in Investment Banking.

Execution Services performance

Execution Services revenue in FY22 of £42.9m was in line with our expectations, being lower than in FY21 (£116.7m), but ahead of FY20 (£26.3m). FY21 was buoyed by much higher volumes and volatility amid market-wide uncertainty at the onset of the pandemic, while FY20 was a more comparable, pre-pandemic market environment. We retained our leading trading position with a 17% share of LSE volume.

During FY22, Execution Services' performance was solid, with our ongoing investment in technology helping us to capture additional liquidity. This investment has created further efficiencies in our systematic trading products, which we have been rolling out to more product lines.

Research & Distribution performance

Despite the macroeconomic environment and the significant decline in UK equity volumes in FY22, Research & Distribution returned a resilient performance of £30.2m. This reflects long-term growth in revenue and market share from our institutional clients. Revenue from servicing retail wealth management platforms with overseas equity execution was lower compared to the prior year due to market volumes falling back from the highs experienced during the pandemic.

During FY22, we increased our number of research agreements with institutional clients. We also increased market share from our existing client base to 2%, continuing the trend of the last five years, during which we have doubled our overall market share.

Operating costs