Annual Results for the year ended 31 December 2019

RNS Number : 4036L

Cenkos Securities PLC

30 April 2020

 

30 April 2020

Cenkos Securities plc

Annual Results for the year ended 31 December 2019

Cenkos Securities plc (the "Company" or "Cenkos" or the "Firm") today announces its results for the year ended 31 December 2019. Cenkos is an independent, specialist institutional securities group, focused on small and mid-cap companies and investment funds. The Group's principal activity is institutional stockbroking.

Cenkos' shares are admitted to trading on the AIM Market of the London Stock Exchange ("LSE"). The Company is authorised and regulated by the Financial Conduct Authority ("FCA") and is a member of the LSE.

Highlights	31-Dec-19	31-Dec-18
Revenue	£25.9 m	£45.0 m
Profit before tax	£0.1 m	£3.2 m
Profit after tax	£0.0m	£2.4m
Cash	£18.3 m	£33.6 m
Net assets	£24.7m	£27.6m
Basic earnings per share	(0.2)p	4.4p
Full year dividend per share paid and proposed (1)	3.0p	4.5p

 ⁽¹⁾ Includes a proposed final dividend of 1.0p (2018: 2.5p)

Since being admitted to trading on AIM in 2006, the Company has returned £114.1 million of cash to shareholders, equivalent to 176.3p per share, before the payment of the proposed 2019 final dividend of 1.0p per share.

Commenting the Company's Chief Executive Officer, Jim Durkin said:

"Difficult markets in 2019, and uncertainty surrounding the UK's exit from the European Union, has resulted in a reduction in revenue compared to last year. This result was set against the backdrop of a 30% reduction in the total funds raised by AIM companies in 2019. Performance related payments to staff have been reduced in line with net revenue, leading to a modest pre-tax profit for the year.

The outlook for 2020 is clouded by the, as yet unknown, economic impact of COVID-19. I am however, pleased to report that we have started the year well, completing the largest IPO on AIM so far this year and despite unprecedented market circumstances have also executed a number of secondary fund raisings. We are continuing to work closely with our corporate clients to assess the impact of COVID-19 and the disruption that many of them are currently experiencing.  We have a good pipeline, a cost base that is significantly below the 2019 level and a strong balance sheet, so I look forward to 2020 with tempered optimism. We are well placed to face the challenges ahead."

For further information contact:
Cenkos Securities plc
Jim Durkin - Chief Executive Officer		[phone]
Nominated Adviser Spark Advisory Partners Limited
Matthew Davis		[phone]
Public Relations Buchanan Communications
David Rydell		[phone]

Chief Executive Officer's statement

This year's Annual Report is my first as Chief Executive since my re-appointment in August 2019. Although 2019 was a difficult year nobody could have foreseen the enormous impact of the Coronavirus ("COVID-19") in 2020 to date. However, we are operating from a position of robust financial health both from the viewpoint of cash and capital resources and due to the quality and flexibility of our people and the strengths of our business we as a Company are well placed to face the challenges ahead. I look forward to building on Cenkos' strengths going forward for all our stakeholders.

Performance

I was formally appointed as CEO in August 2019 at a challenging time for Cenkos. The first half of the year had seen revenues plummet to £10.6 million. At the same time overheads were rising due to increased legal and regulatory fees, costs associated with data and other outsourced suppliers and, in addition, the Company was obliged to extend the contracts of various Board members to provide control function cover, ahead of my approval by the regulator. Although I am pleased to report that revenues in the second half of the year increased to £15.3 million, this performance combined with the consequences of MIFiD II, prompted me to conduct an in-depth review of overheads, leading to a consultation process involving a number of employees. This review incurred an additional £1.3 million of one-off costs associated with the restructuring but will result in our fixed cost base being some £3 million lower in 2020.

Markets have been very difficult in 2019, reflecting uncertainties around Brexit and the General Election. I am, however, pleased to report that we performed well in terms of market share executing three of the 10 IPOs on the AIM market and raising £664 million for our corporate clients. Although down on last year due to the rotation of several investment trusts, some de-listings and a generally quieter period of M&A activity, our client base remains solid at 100 companies and investment trusts. Of these, 45% have been with Cenkos over 5 years reflecting our ethos of building and developing long-term relationships.

I am pleased to report that the implementation of the new SMCR regime was successful and proceeded according to plan. As with other firms we continue to invest in people, systems and technology to meet the requirements of new regulation and legislation. Delivering good client outcomes lies at the heart of the Firm and we believe that all regulation must be accompanied by a strong internal culture underpinned by the highest ethical and professional standards. The highest standards need to be set by the Board, but ultimately all our staff must take responsibility for the way in which they conduct business and work with colleagues.

The Board

There have been several changes to the Board in 2019. In July 2019, Jeremy Miller joined the Board as a Non-Executive Director and has brought further independence and challenge to the Board. Joe Nally and Paul Hodges, founder shareholders of Cenkos, stepped down as Executive directors in September 2019. On behalf of the Board, I would like to thank them for their valuable contribution. I would also like to thank Jeff Hewitt for 11 years of service as a director and acting chairman of Cenkos. In November 2019, it was announced that Julian Morse, the head of our Growth Companies team, would join the Board as an Executive Director subject to regulatory approval, this approval has just been received and his appointment to the Board will be confirmed shortly.

I am pleased to report that following a search for a new Chairman, in February 2020 we announced the appointment of Lisa Gordon as your new Chairman subject to regulatory approval.

Assessment of Coronavirus impact

Cenkos responded to COVID 19 promptly by enacting its business continuity plan and successfully implementing a comprehensive remote working capability. These procedures are working well and have enabled us to ensure both the wellbeing of our staff and the ability to continue servicing our clients during this period of uncertainty. Due to the quality and flexibility of our people and the strengths of our business, our ability to attract and win new high-quality corporate clients remains strong. We continue to sign up clients and have the capacity to add many more to our stable.  We are operating from a position of robust financial health both from the viewpoint of cash and capital resources and, in addition, the actions referred to above reduce the fixed cost base, thus providing an even stronger foundation for future growth.

Outlook

The outlook for 2020 is clouded by the as yet unknown economic impact of COVID-19. I am however, pleased to report that we have started the year well, completing the largest IPO on AIM so far this year and despite unprecedented market circumstances have also executed a number of secondary fund raisings. We are continuing to work closely with our corporate clients to assess the impact of COVID-19 and the disruption that many of them are currently experiencing. Our pipeline is good, so I look forward to 2020 with tempered optimism and with a cost base that is significantly below the 2019 level. We are well placed to face the challenges ahead.

Dividend

Our confidence in Cenkos over the long term remains undimmed and so we are pleased to announce a 1.0p final dividend which brings the full year dividend to 3.0p a share. We remain in a strong position from a capital and cash point of view. Since being admitted to AIM we have returned £114.1m of cash to shareholders, equivalent to 176.3p per share, before the payment of the proposed 2019 final dividend of 1.0p per share.

Income statement

For the year ended 31 December 2019

					2019	2018
					£ 000's	£ 000's
Continuing operations
Revenue					25,916	44,953
Administrative expenses					(25,801)	(41,814)
Operating profit					115	3,139
Investment income - interest income					106	103
Finance costs - interest on lease liability					(76)	-
Profit before tax from continuing operations for the year					145	3,242
Tax					(101)	(805)
Profit after tax for the year					44	2,437
Attributable to:
Equity holders of Cenkos Securities plc					44	2,437
Basic earnings per share					(0.2)p	4.4p
Diluted earnings per share					n/a	n/a

Statement of comprehensive income

For the year ended 31 December 2019

					2019	2018
					£ 000's	£ 000's
Profit for the year					44	2,437
Amounts that will not be recycled to income statement in future periods
Loss on FVOCI financial asset					(46)	(180)
Tax on FVOCI financial asset					9	29
Other comprehensive losses					(37)	(151)
Total comprehensive income for the year					7	2,286
Attributable to:
Equity holders of Cenkos Securities plc					7	2,286

Statement of financial position

As at 31 December 2019

					Restated	Restated
				2019	2018	1 Jan 2018
				£ 000's	£ 000's	£ 000's
Non-current assets
Property, plant and equipment				517	558	525
Right-of-use assets				4,540	-	-
Intangible asset				67	100	-
Deferred tax asset				486	520	738
Investments in subsidiary undertakings				1	1	1
				5,611	1,179	1,264
Current assets
Trade and other receivables				13,455	18,830	20,814
FVOCI financial assets				60	220	250
Other current financial assets				8,973	12,648	10,615
Cash and cash equivalents				18,333	33,635	36,627
				40,821	65,333	68,306
Total assets				46,432	66,512	69,570
Current liabilities
Trade and other payables				(14,715)	(32,640)	(36,203)
Other current financial liabilities				(1,840)	(6,018)	(3,341)
				(16,555)	(38,658)	(39,544)
Net current assets				24,266	26,675	28,762
Non-current liabilities
Trade and other payables				(5,219)	(263)	(366)
Total liabilities				(21,774)	(38,921)	(39,910)
Net assets				24,658	27,591	29,660
Equity
Share capital				567	567	567
Share premium				3,331	3,331	3,331
Capital redemption reserve				195	195	195
Own shares				(5,436)	(5,663)	(3,845)
FVOCI reserve				(141)	(93)	58
Retained earnings				26,142	29,254	29,354
Total equity				24,658	27,591	29,660

Cash flow statement

For the year ended 31 December 2019

						Restated
					2019	2018
					£ 000's	£ 000's
Profit for the year					44	2,437
Adjustments for:
Deferred consideration for Nomad business					-	(100)
Net finance income					(30)	(103)
Tax expense					101	805
Depreciation of property, plant and equipment, ROU assets and intangible asset					899	247
Fair value adjustment to deferred consideration					40	-
Shares and options received in lieu of fees					(3,987)	(1,970)
Share-based payment expense					1,115	1,852
Operating cash flows before movements in working capital					(1,818)	3,168
Decrease in net trading investments and FVOCI financial assets					3,598	2,492
Decrease in trade and other receivables					5,212	1,998
Decrease in trade and other payables					(17,861)	(2,932)
Net cash flow from operating activities before interest and tax paid					(10,869)	4,726
Tax paid					(351)	(1,664)
Net cash flow from operating activities					(11,220)	3,062
Investing activities
Interest received					90	90
Purchase of property, plant and equipment					(197)	(280)
Acquisition of Nomad business					(140)	-
Net cash outflow from investing activities					(247)	(190)
Financing activities
Net outflow under lease arrangement					(113)	-
Dividends paid					(2,485)	(3,573)
Proceeds from sale of shares to employees on dividend reinvestment					40	62
Acquisition of own shares					(1,277)	(2,353)
Net cash used in financing activities					(3,835)	(5,864)
Net decrease in cash and cash equivalents					(15,302)	(2,992)
Cash and cash equivalents at beginning of year					33,635	36,627
Cash and cash equivalents at end of year					18,333	33,635

Statement of changes in equity

For the year ended 31 December 2019

    Equity attributable to equity holders

	Share capital	Share premium	Capital redemption reserve	Own shares held in treasury	FVOCI reserve	Retained earnings	Total
	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's
At 1 January 2018 (restated)	567	3,331	195	(3,845)	58	29,354	29,660
Profit for the year	-	-	-	-	-	2,437	2,437
Loss on FVOCI financial assets net of tax	-	-	-	-	(122)	-	(122)
Derecognition of FVOCI financial asset	-	-	-	-	(29)	23	(6)
Total comprehensive income for the year	-	-	-	-	(151)	2,460	2,309
Transfer of shares from share plans to employees	-	-	-	535	-	(473)	62
Acquisition of own shares	-	-	-	(2,353)	-	-	(2,353)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	1,486	1,486
Dividends paid	-	-	-	-	-	(3,573)	(3,573)
At 31 December 2018 (restated)	567	3,331	195	(5,663)	(93)	29,254	27,591
Balance at 1 January 2019	567	3,331	195	(5,663)	(93)	29,254	27,591
Profit for the year	-	-	-	-	-	44	44
Loss on FVOCI financial assets net of tax	-	-	-	-	(37)	-	(37)
Gain on derecognition of FVOCI financial assets net of tax	-	-	-	-	(11)	11	-
Total comprehensive income for the year	-	-	-	-	(48)	55	7
Issue of shares to employees on dividend reinvestment	-	-	-	65	-	(25)	40
Transfer of shares from share plans to employees	-	-	-	1,439	-	(1,439)	-
Acquisition of own shares	-	-	-	(1,277)	-	-	(1,277)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	775	775
Current tax on share-based payments	-	-	-	-	-	7	7
Dividends paid	-	-	-	-	-	(2,485)	(2,485)
At 31 December 2019	567	3,331	195	(5,436)	(141)	26,142	24,658

Notes to the financial statements

1. Accounting policies

General information

Cenkos Securities plc is a public company limited by shares incorporated in England, United Kingdom under the Companies Act 2006 (Company Registration No. 05210733). The financial information contained within this announcement does not constitute statutory accounts for the year ended 31 December 2019 within the meaning of Section 434 of the Companies Act 2006, but is derived from those audited accounts. The auditors reported on those accounts and their report was unqualified and did not contain any statement under section 498(2) or section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar of Companies in due course. The annual report and audited statutory accounts will be sent to shareholders and will be made available to the public on the Company's website: www.cenkos.com or, upon request, copies may be obtained from the Company Secretary at the registered office of Cenkos Securities plc, 6.7.8. Tokenhouse Yard, London, EC2R 7AS. The Company's Annual General Meeting will be held on 25 June 2020.

The financial information contained within these financial statements has been prepared on the historical cost

basis, except for the revaluation of certain financial instruments.

Going concern

The Company's business activities, together with the factors likely to affect its future development and performance, the financial position of the Company, its cash flows, capital and liquidity position are set out in the Strategic report in the Annual Report.

Coronavirus ('COVID-19') was recognised as a pandemic by the World Health Organization (WHO) on 11 March 2020. In response, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. These actions have severely restricted the level of economic activity around the world and impacted the health of the financial markets. Cenkos responded to COVID-19 promptly by enacting its business continuity plan and successfully implementing a comprehensive remote working capability. These procedures are working well and have enabled us to ensure both the wellbeing of our staff and the ability to continue servicing our clients during this period of uncertainty.

The full extent of the pandemic is, as of today, unknown and there is a degree of uncertainty over what the impact on the Company will be. However, since the pandemic was declared, Cenkos has been appointed by several new clients and has completed a number of secondary placing transactions, which could suggest a period of increased activity as companies look to bolster their balance sheets to tide them over the period of lockdown. Alternatively, the recent significant decline in asset prices may dissuade companies from approaching the markets to raise further capital, leading to a period of inactivity. Whilst it is not possible to quantify the overall impact of COVID-19, as described above, if it were to lead to a period of inactivity this would most likely lead to a reduction in fees generated from placing and corporate finance and a decline in fair values of listed equities, options and warrants as observed in March 2020. Management continues to monitor the impact of the COVID-19 pandemic on the Company and the financial markets.  

In order to mitigate the risk associated with fluctuations in the financial markets, the Company operates a flexible business model which links risk adjusted variable remuneration to corporate performance. Fixed costs are kept low and controlled and, in addition, the review of overheads conducted in 2019 has resulted in a significantly reduced fixed cost base going forward, so providing an even stronger foundation. Cenkos is not reliant on external borrowings but is funded entirely by share capital and retained earnings. The business is not capitally intensive. The trading book is tightly controlled by book limits and, apart from shares received in lieu of fees, is held for market making purposes or to facilitate client business. Cenkos has a positive cash cycle and does not run any liquidity mismatches. Cash is the largest asset on the statement of financial position and consequently its exposure to credit risk is largely due to its bank deposits before risk weighting. As at 31 December 2019, capital resources in excess of Pillar 1 regulatory capital requirements amounted to £13.5m (2018: £11.2m) equating to a solvency ratio of 226% (2018: 183%).

Management has also performed an impact analysis as part of its going concern assessment using information available to the date of issue of these financial statements. As part of this analysis, a number of adverse scenarios have been modelled to assess the potential impact on the Company's revenue streams, in particular corporate finance fees and on asset values, liquidity and capital adequacy. In addition, a reverse stress test has been modelled to assess the stresses the balance sheet has to endure before there is a breach of the relevant regulatory capital requirement or insufficient cash resources and including an assessment of any relevant mitigations management has within their control to implement. Having performed this analysis, management believes regulatory capital requirements continue to be met and the Company has sufficient liquidity to meet its liabilities for the next 12 months and that the preparation of the financial statements on a going concern basis remains appropriate as the Company expects to be able to meet its obligations, as and when they fall due, for the foreseeable future.

Basis of accounting

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, with the prior period being presented on the same basis.

2. Dividends

Amounts recognised as distributions to equity holders in the year:

					2019	2018
					£ 000's	£ 000's
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2018 of 2.5p (2017: 4.5p) per share					1,398	2,484
Interim dividend for the period to 30 June 2019 of 2.0p (June 2018: 2.0p) per share					1,087	1,089
					2,485	3,573

A final dividend of 1.0p per share has been proposed for the year ended 31 December 2019 (2018: 2.5p). The proposed final dividend is subject to approval at the Annual General Meeting and is not recognised as a liability as at 31 December 2019. The final dividend will be paid on 2 July 2020 to the shareholders on the register at 5 June 2020, subject to approval at the Annual General Meeting to be held on 25 June 2020.

3. Events after the reporting period

COVID-19 is considered to be a non-adjusting post balance sheet event and, as such, there is no financial impact on the financial statements as at 31 December 2019. For further discussion concerning the Management's assessment the impact of COVID-19 on the Company, refer to the Going Concern section in note 1 Accounting Policies.

4. Market abuse regulation (MAR) disclosure

Certain information contained in this announcement would have been deemed to be inside information for the purposes of article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

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