Final Results

RNS Number : 5032P

Cenkos Securities PLC

26 March 2009

 



Cenkos Securities plc ('the Company') together with its subsidiaries ('the Group')

ANNUAL FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2008

Cenkos Securities plc today announced its audited final results for the year to 31 December 2008. The highlights of the results comparing them with the prior year are:

Financial Highlights

• Revenue is £28.3 million (2007: £53.8 million)
  
  
• Profit before tax for the year is £5.1 million (2007: £23.8 million)
  
  
• Basic earnings per share is 4.9p (2007: 22.8p)
  
  
• Diluted earning per share is 4.9p (2007: 22.6p)
  
  
• £6.0 million net cash generated from operating activities (2007: £16.2 million) 
  
  
• The Board proposes a final dividend of 5p per share compared to last year's final dividend of 12p per share. This makes a total dividend of 10p for the year and reflects the Company's dividend policy of only retaining profits when the Board considers that it is required to fund the existing business or where attractive investment opportunities have been identified.

Business Highlights 

• Continued success in attracting new institutional and corporate clients helping to grow the Cenkos franchise.

• Taking advantage of market conditions to organically grow our existing teams, particularly in our 50% owned wealth management operations based in the Channel Islands and in the later part of the year our institutional equities team.

• We continue in very difficult markets to raise funds for our clients. This has continued into the new year with a £130 million of  funds raised for Omega Insurance.

• Voted AIM broker of the year at the 2008 Growth Company Awards. 

Andrew Stewart - Chief Executive Officer commented:

'We are experiencing market and economic conditions the like of which I have not seen before. The weak have been found wanting and the strong have been severely tested. Cenkos, due to its robust business model and the quality, dedication and experience of our employees has survived, weather beaten but intact.

I do not anticipate that these global conditions will change in the near future. I believe, however, that Cenkos is well positioned to take advantage of the fall-out that has resulted.'

Chairman's Statement

When I announced the Group's interim results last September I said that market conditions had been very difficult. Subsequent to this the market place in which we and most other companies operate has suffered a further sharp deterioration resulting in the demise of a number of well-known financial institutions and wide spread panic within the financial markets. As has been well documented elsewhere, during this period the banks stopped lending, asset prices fell sharply, liquidity in quoted shares virtually vanished and capital fund raisings all but dried up.

Given this background I am pleased to say that the Group has again had a profitable year, whilst continuing to expand and diversify its business. The Group has weathered the current financial tsunami well, this is in part due to the Cenkos business model which enables us to control the cost base quicker than some of our competitors, given our low fixed costs and performance driven remuneration policy. It is also due to the dedication, experience and skill of our employees and our loyal institutional and corporate client base.

Through these unprecedented times we kept calm and focused on our strengths. As a result we have managed to service our existing clients and attract new ones. Even when capital markets have in effect closed we have continued to raise funds for our clients. Cenkos has always prided itself in putting the interests of its clients first and providing them with an excellent service. As I believe our performance this year shows by adopting this approach we can survive and indeed continue to grow.

The devastation that has been caused over recent months inevitability gives rise to opportunities. I believe that Cenkos with its ability to react quickly, its simple understandable client focused philosophy and its partnership culture is well positioned to take advantage of these opportunities. During the latter part of the year and indeed since the year end we have managed to attract some high quality teams and we will continue to grow organically when the appropriate opportunities arise.

The Group continues to maintain healthy regulatory capital ratios and cash levels and as a result the Board are declaring a final dividend of 5p per share (2007: 12p per share). This is consistent with our dividend policy. The dividend will be payable on  26 May 2009 to all shareholders on the register at 24 April 2009.

John Hodson 

Chairman

26 March 2009

Business and Financial Review

We are experiencing market and economic conditions the like of which I have not seen before. The weak have been found wanting and the strong have been severely tested. Cenkos due to its robust business model and the quality, dedication and experience of our employees has survived, weather beaten but intact. We are now officially in a recession and the effects of the credit crunch continue to unwind. Cenkos, however now has a well balanced business and during the year, whilst inevitably affected by these events, has shown itself to be comparatively resilient in the present financial turmoil. Revenue for the year is £28.3 million (2007: £53.8 million) which I believe shows the relative strength of Cenkos' revenue streams given the current exceptionally challenging business environment. The table below shows an analysis of how these revenues are made up.

	31 December 2008 £000’s	31 December 2007 £000’s
Placing fees	15,322	32,146
Corporate finance fees	9,365	10,109
Commission income	4,643	7,680
Market making	(3,919)	1,969
Wealth management	2,864	1,887
Total Revenue	28,275	53,791

This table shows there has been a diversification of income streams and whilst placing fees are still a major component of our revenue, M&A corporate finance fees and commission income from secondary trading make a significant contribution to total revenue.

Corporate broking and advisory

The results this year have inevitability been affected by the general lack of equity capital raising activity. We are therefore pleased to announce that our clients raised a total of £360 million (2007: £1,100 million).  According to the latest statistics released in the Hemscott Corporate Advisers guide, the Company was ranked 8th by the number of AIM clients advised and 2nd in respect of the number of AIM clients by market capitalization.  During the year we continued to grow the number of retained corporate clients. The Group was nominated advisor or corporate broker to 55 (2007: 45) companies as at 31 December 2008 with a market capitalisation of £3 billion (2007: 6 billion). Given the effect markets have had on some of our competitors we feel that there is a good opportunity to increase our client base, further adding to our recurring revenues.

In the year we have also increased the amount of pure M&A corporate finance fees as opposed to those related to placings, being involved in 13 transactions.

Institutional equities

The institutional equities team currently provides research driven investment recommendations to institutional clients. At present the team produces research on 79 companies and has a particular expertise in the business services, retail and consumer sectors having recruited professionals who were previously top ranked analysts in these sectors. In recent months we have added to our team of analysts and enhanced our execution services by the recruitment of a number of experienced sales traders. Our execution business is strictly focussed on client facilitation rather than generating proprietary trading profits. Given that this activity is affected by the move to unbundled services, it is pleasing to note that the research produced is perceived by clients to be important to them and an increasing number have now elected to pay for research separately in addition to paying commission. I believe that the continued organic growth of this area will enhance our overall offering and like the growth in retainer income mentioned above will increase the amount of recurring revenue coming into the Group.

Market making

The Group continues to run market making activities in order to support other services that it provides to its clients. The Group makes markets in the securities of all companies where it has a broking relationship. The Group does not engage in proprietary trading and applies a range of position limits and monitoring procedures to any position taking. Despite having these strong procedures in place we were affected by the disappearance of liquidity in equity markets and incredible downward pressure on asset prices in October and November of last year and this is reflected in this revenue stream.

Investment funds

The team provides a broad range of services including corporate broking, corporate finance, research, market making and sales with a sole focus on investment fund investors and has a detailed knowledge of their asset allocation strategies enabling successful secondary distributions and primary sales. The Group makes markets in approximately 200 (2007: 200) investment fund securities and by 31 December 2008 the Group has been appointed as corporate broker to 48 (2007: 27) investment funds and has raised £149 million (2007: £600 million) in the year. This area of our business was affected by the events in the fourth quarter of 2008 when activity in investment funds almost dried up and the discount to net assets at which the funds traded deepened significantly. However the turmoil in the sector also allows us to pick up a significant number of new brokerships as other institutions retreated from the market or teams changed employer. We have also recently seen an increasing number of mandates to provide advisory work, reflecting the many restructurings that are taking place in the sector.

Off shore wealth management and stockbroking services

Offshore wealth management and stockbroking services are primarily provided through Cenkos Channel Islands Limited, a 50% owned subsidiary, based in Guernsey and its own subsidiary based in Jersey. Varying levels of stockbroking services from discretionary to execution only are provided primarily to high net worth individuals and also financial intermediaries and institutions. During the second half we took the opportunity to add significant capacity to our operations in the Channel Islands by recruiting a team of 10. Prior to the year end we also successfully launched two funds raising £26 million as we pursue a strategy of building an offshore asset management business. The business during the year has grown both in terms of the number of clients and funds managed. These now stand at 1150 (2007: 530) and £476 million (2007: £186 million) respectively.

Fund management business

Our fund management business is primarily provided by Cenkos Fund Management Limited. This operation already has an investment management agreement with AIM quoted fund which has a market capitalisation of circa. £54 million (2007: £60 million). The fund specialises in making investments principally in unquoted companies who may come to market within a few years. The team has a well established track record in this particular area. A significant amount of the fund is invested and the company is now making a positive contribution to the Group.

Income statements

The Group's revenue is £28.3 million compared to last year's £53.8 million. The reasons for this movement have been dealt with in the Chairman's Statement and Business Review. Administrative expenses have been reduced from £33.7 million to £24.3 million.

This decrease reflects Cenkos' ability to control its costs in periods when there are significant reductions in revenue. Cenkos has a low fixed cost base and a remuneration policy which results in the payment of low basic salaries and rewards income generation. We do not operate a system where bonuses are guaranteed. Our head count has increased during the year principally reflecting the recruitment of income generating individuals. We have only modestly increased the head count in infrastructure areas that support the front office functions. This has resulted in an adjusted profit before tax of £5.3 million compared to £21.9 million in 2007.

The adjusted profit before tax figures have been calculated by adjusting out various non-recurring items that impacted the results.

	31 December 2008 £000’s	31 December 2007 £000’s
Profit before tax per the consolidated income statement	5,124	23,819
Other gains and losses related to part disposal of Cenkos Channel Islands Ltd.	-	(1,709)
Gain from disposal of employees B shares	-	(804)
Costs associated with aborted take-over bids for Close Brothers Group plc and Arden Partners plc	100	841
	5,224	22,147

Adjusted diluted EPS has fallen from 20.4p per share to 5p per share. This figure has been subject to the same adjustments as above and set out in note 11 so as to give a better view of the Group's performance on an ongoing basis.

Diluted EPS has fallen from 22.6p per share to 4.9p per share.

Balance sheet

During the year our net trading investments reduced by £6million from £14.8 million to £8.8 million thereby reducing our exposure to future volatility in the market price of our investments. Most of this reduction took place in the second half of the year. This reduction resulted in higher cash levels than reported in our interim accounts despite paying our interim dividend during the period. The reduction in trading investments has been carried out without affecting our ability to facilitate our clients' business. Some of the reduction was also caused by the fall in asset prices during the period. During the year the fair value of the Group's available for sale investment in Plus Markets Group plc fell by £2.8 million. This fall is recognized as a movement through reserves and results in a negative available for sale reserve of £243,000 as we believe the fair value decline to be temporary.

Cash levels although lower than last year are more than sufficient to cover the working capital requirements of the business on an ongoing basis. Since the year end we have continued to generate cash particularly due to the successful completion of the Omega Insurance fundraising which impacted in January 2009 and as at 28 February 2009 cash resources were £11.1 million.

At the year end the levels of secondary trading were lower than those at 31 December 2007. This has had the effect of reducing both our trade receivables and payables, as these captions include outstanding trades at the reporting date.

Our regulatory capital ratios continue to be strong, reflecting a sizable buffer over the FSA requirements. These requirements reflect the implementation of the new Internal Capital Adequacy Assessment Process (ICAAP) regime which has been reviewed by and agreed with the FSA.

Internal control and risk management

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place for the period and up to the date of approval of the financial statements. This process has been reviewed by the Board.

The system of internal control is designed to manage rather than eliminate the risk. As such it can provide only reasonable not absolute assurance against material misstatement or loss.

The Group is exposed to a number of business risks. The Board is responsible for determining the Group's risk appetite and for ensuring that the Group's risk management processes are appropriate and operating effectively. Day to day management of risk is delegated to the executive members of the Board and the risk committee and, where appropriate to preserve Chinese Walls within the business, to the new business committee. Whilst encouraging an entrepreneurial and commercial culture, the Board seeks to minimise avoidable, value destroying risk exposures.

Principle risks and controls  

Market risk exposure

The Group is exposed to market risk arising from its short-term positions in predominantly market making stocks. The Group manages market risk by establishing individual stock limits and overall trading book limits. There are daily procedures in place to monitor the utilisation of these limits.

Foreign currency and interest rate risk

The Group does not have any material dealing in foreign currency, the majority of transactions are in UK based equities and hence denominated in sterling. Neither does the Group have any significant exposure to movements in interest rate.  

Reputational risk

The Group believes that one of the greatest risks to the Group comes from the potential loss of its reputation. Whilst entrepreneurial employees are encouraged to develop new clients and streams of revenue, all new business is subject to a rigorous appraisal process from the New Business Committee to ensure that it meets the Group's strict criteria.

Operational risk

Operational risk is the risk that the Group suffers a loss directly or indirectly from inadequate or failed internal processes, people, and systems or from external events. Compliance and senior management closely ensure that any significant operational risks and their controls are continually reviewed and assessed and where applicable corrective action plans are put in place.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. These parties may default on their obligations due to the bankruptcy, lack of liquidity, operational failure and other reasons. The vast majority of the Groups credit risk arises from the settlement of security transactions. However, the settlement model primarily used by the Group, does not expose the Group to a risk as a principle to a trade; rather the Group's exposure lies only with Pershing - a wholly owned subsidiary of the Bank of New York, a AA (2007: AAA) rated bank. Given the present economic climate these ratings continue to be monitored. In addition, in circumstances in which the Group does act as principal, when acting as a market maker, the counterparty will normally be a FSA regulated market counterparty, rather than a corporate or individual trader.
Our cash resources also give rise to credit risk and these are presently deposited with HSBC Bank plc. The banks with which we deposit money are reviewed on an annual basis by the Board.

Trade receivables not related to the settlement of market transactions consist of outstanding corporate finance retainers and fees and are spread across a range of industries. As they relate to clients of ours they are subject to a review by our new business committee. This Committee considers, amongst other issues, the financial soundness of any client taken on.

In 2006 we issued various tranches of partly paid B shares to a number of our employees. The carrying value of the unpaid portion is included in financial assets and is currently due to be repaid on 1 July 2011. As at the reporting date these had a carrying value of between 77p and 125p per share, whilst the Company's share price was 101p. The recoverability of these amounts is reviewed on a monthly basis. These shares are capable of converting into the Company's ordinary shares and as a result they have a positive intrinsic value if the market price of the company's shares is greater than the value at which they were issued. At the reporting date, there were 505,000 shares with a negative intrinsic value, which amounted to £118,915.

The Group does not have any significant credit risk exposure to any single counterparty with the exception of Pershing, HSBC and the B shareholders to the extent of their unpaid share premium.

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board. It has however delegated this to the Group Finance Director. The Group has in place an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group has additional undrawn borrowing facilities at its disposal to further reduce liquidity risk. Given the nature of the Group's business, the Group does not run any liquidity mismatches, financial liabilities are on the whole short term and the Group has sufficient cash retained to cover all of these liabilities.

Employee risk

The Group's employees are its greatest asset and the future success of the Group depends on the Group's ability to attract and retain high quality executives and employees. The Group seeks to minimize this risk by rewarding employees through an overall remuneration package which is heavily skewed towards performance and share based payments which align the interests of the employees and shareholders.

Business continuity risk

Continuity planning is in place across the business in order to sustain operations with a minimum of disruption with a combination of business continuity planning, duplicated infrastructure and remote facilities. Regular testing of the business continuity plan is undertaken.

As an organisation the management of risk is embedded in our culture, in the way we operate and the way we manage all aspects of our business.

People 

The present market conditions and its uncertainties are difficult ones for employees but I am proud to lead a group of such committed and competent individuals. Their skill and calmness have enabled us to come through these troubled times and provide us with a solid platform on which to build.

Outlook

I do not anticipate that the present global conditions will change in the near future and trading will continue to be difficult. However, we have made a satisfactory start to the year. I believe that Cenkos is well positioned to take advantage of the fall out that has resulted. We have the capacity and will to be able to expand our franchise so as to take advantage of more benign markets when they eventually return.

Forward-looking statements

This final results announcement contains forward-looking statements with respect to the financial condition, results, operations and businesses of Cenkos Securities plc. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Such statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this statement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Responsibility Statement

We confirm that to the best of our knowledge:

a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of Cenkos Securities plc, and 

b) the management report includes a fair review of the development and performance of the business and the position of Cenkos Securities plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Andrew Stewart                            Simon Melling

Chief Executive Officer                        Group Finance Director

26 March 2009                            26 March 2009

Consolidated income statement for the year ended 31 December 2008
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
	Notes				£ 000's	£ 000's
Revenue	3				28,275	53,791
Administrative expenses					(24,317)	(33,664)
Operating profit					3,958	20,127
Investment income - interest receivable	4				1,277	1,997
Finance costs - interest payable	5				(111)	(14)
Other gains and losses	8				-	1,709
Profit before tax	7				5,124	23,819
Tax	9				(1,404)	(7,057)
Profit for the year					3,720	16,762
Attributable to:
Equity holders of the parent					3,545	16,552
Minority interests					175	210
					3,720	16,762
Earnings per share
Basic	11				4.9p	22.8p
Diluted	11				4.9p	22.6p
All amount shown in the consolidated income statement derive from continuing operations of the Group.
The profit attributable to the Company in the year ended 31 December 2008 was £3,337,910 (31 December 2007: £16,571,015).
Consolidated balance sheet as at 31 December 2008
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Non-current assets
Property, plant and equipment					1,111	944
Available for sale investments					763	3,543
Deferred taxation					67	321
					1,941	4,808
Current assets
Trading investments - long positions					11,392	26,597
Trade and other receivables					41,493	56,763
Cash and cash equivalents					6,337	16,244
					59,222	99,604
Total assets					61,163	104,412
Current liabilities
Trading investments - short positions					(2,506)	(11,803)
Trade and other payables					(23,430)	(46,761)
					(25,936)	(58,564)
Net current assets					33,286	41,040
Non-current liabilities
Deferred tax liabilities					-	(761)
Total liabilities					(25,936)	(59,325)
Net assets					35,227	45,087
Equity
Share capital					727	726
Share premium account					22,700	22,700
Revaluation (deficit) / reserves					(243)	1,776
Retained earnings					11,614	19,633
Equity attributable to equity holders of the parent
					34,798	44,835
Minority interests					429	252
Total equity					35,227	45,087
Consolidated cash flow statement for the year ended 31 December 2008
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Profit for the year					3,720	16,762
Adjustments for:
Finance income					(1,165)	(1,984)
Tax expense					1,404	7,057
Depreciation of property, plant and equipment					341	227
Other gains and losses					-	(1,709)
Share based payment expense					928	1,349
Operating cash flows before movements in working capital					5,228	21,702
Decrease / (increase) in net trading investments					5,909	(6,798)
Decrease / (increase) in trade and other receivables					15,198	(17,056)
(Decrease) / increase in trade and other payables					(20,358)	18,574
Distributions to ex members of a subsidiary					-	(209)
Net cash flow from operating activities					5,977	16,213
Interest paid					(111)	(14)
Taxation paid					(4,272)	(5,942)
Net cash flow from operating activities					1,594	10,257
Investing activities
Interest received					1,348	1,912
Net proceeds from the part disposal of subsidiary					-	2,021
Purchase of property, plant and equipment					(508)	(434)
Net cash flows from investing activities					840	3,499
Financing activities
Dividends paid					(12,344)	(7,259)
Proceeds from issue of equity shares					1	-
Fees related to issue of equity shares					-	(33)
Increase in investment in subsidiary					(20)	-
Issue of capital by subsidiary to minority interests					22	-
Net cash used in financing activities					(12,341)	(7,292)
Net (decrease)/increase in cash and cash equivalents					(9,907)	6,464
Cash and cash equivalents at beginning of year					16,244	9,780
Cash and cash equivalents at end of year					6,337	16,244
Consolidated statement of changes in equity for the year ended 31 December 2008
	Equity attributable to equity holders of the parent
	Share capital	Share premium	Available for sale reserve	Retained earnings	Minority interests	Total
	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's
At 1 January 2007	726	22,733	1,556	8,843	26	33,884
Interest acquired by minority interest	-	-	-	-	313	313
Profit for the year	-	-	-	16,552	-	16,552
Profit allocated to minority interests	-	-	-	-	210	210
Distribution of profit to minority interest	-	-	-	-	(208)	(208)
Transfer of amounts to payables on retirement of minority interest members	-	-	-	-	(89)	(89)
Revaluation of available-for-sale investments	-	-	314	-	-	314
Deferred tax liability on revaluation of available-for-sale investments	-	-	(94)	-	-	(94)
Credit to equity for equity settled share based payments	-	-	-	1,349	-	1,349
Deferred tax on share based payments	-	-	-	148	-	148
Share issue costs taken through premium	-	(33)	-		-	(33)
Dividends paid	-	-	-	(7,259)	-	(7,259)
At 31 December 2007	726	22,700	1,776	19,633	252	45,087
Shares issued	1	-	-	-	-	1
Interest acquired by minority interest	-	-	-	-	22	22
Increase in investment in subsidiary	-	-	-	-	(20)	(20)
Retained profit for the period	-	-	-	3,545	-	3,545
Profit allocated to minority interests	-	-	-	-	175	175
Revaluation of available-for-sale investments	-	-	(2,780)	-	-	(2,780)
Reversal of deferred tax liability on revaluation of available-for-sale investments	-	-	761	-	-	761
Credit to equity for equity settled share based payments	-	-	-	928	-	928
Deferred tax on share based payments	-	-	-	(148)		(148)
Dividends paid	-	-	-	(12,344)	-	(12,344)
At 31 December 2008	727	22,700	(243)	11,614	429	35,227
Notes to the financial statements for the year ended 31 December 2008
1. Accounting policies
General information
Cenkos Securities plc is a company incorporated in the United Kingdom under the Companies Act 1985. The Group's principal activity is the provision of investment banking services. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.
Basis of accounting
The accounting policies used in arriving at the figures in this announcement are consistent with those which were set out in the audited financial statements for the year ended 31 December 2007. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs. The Group's 2008 Statutory Accounts comply with IFRSs.
Adoption of new and revised standards
In the current year, the Group has adopted IFRS 8: Operating Segments, which is effective for annual reporting periods on or after 1 January 2009. The impact of the adoption of IFRS 8 has been to expand the disclosures in these financial statements regarding the Group's business and geographical segments (see note 3). At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 2 (amended)                    Share-based Payment - Vesting Conditions and Cancellations  IAS 1 (revised 2007)            Presentation of Financial Statements The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
No income statement is presented for the Company as provided by section 230(2) of the Companies Act 1985.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority interests consist of the amounts of these interests at the date of the original business combination plus the minority's share of undistributed reserves.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Going concern
The Group's business activities, together with the factors likely to affect its future development and performance, the financial position of the Group, its cash flows and liquidity position are set out in the Business and Financial Review. In addition, it also includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk. The Directors have considered forecasts taking account of the current uncertain market conditions which demonstrate that the Group shall continue to operate within its own resources without recourse to the banking facilities available to it. The forecasts used for this exercise are based on various assumptions regarding expected levels of income and cost.  They have stress tested these basic assumptions and this testing reveals that the Group can maintain acceptable cash levels even if it relies only on recurring revenue streams and maintains its existing cost base. A major factor allowing this to be the case is the flexible nature of the Group's performance related remuneration policy. As a result, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook and that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they consider it appropriate to adopt the going concern basis in preparing the annual report and accounts.
2. Critical accounting judgement and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on managements best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are set out below:
a) Equity-settled share-based payments
The fair value of share-based payments is calculated by reference to a Monte Carlo simulation model. Inputs into the model are based on management's best estimates of appropriate volatility, discount rate and share price growth.
b) Valuation of investments
Trading investments include options over securities which have been received as consideration for corporate finance services rendered. The fair value of these investments have been calculated by reference to a Monte Carlo simulation model. Inputs into the model are based on management's best estimates of appropriate volatility, discount rate and share price growth.
c) Bad debt policy
The Group regularly reviews all outstanding balances including the unpaid amounts relating to the partly paid 'B' shares and provides for amounts it considers irrecoverable.
3. Business and geographical segments
The Directors consider that there is only one activity undertaken by the Group, that being investment banking. A geographical analysis of the Group's revenue is as follows:
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
Geographical segment					£ 000's	£ 000's
UK					25,411	51,904
Channel Islands					2,864	1,887
					28,275	53,791
Investment income					1,277	1,997
Other gains and losses					-	1,709
					29,552	57,497
Segment information about these businesses is presented below:
	1 January 2008 to 31 December 2008			1 January 2007 to 31 December 2007
	UK	Channel Islands	Consolidated	UK	Channel Islands	Consolidated
	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's
Revenue	25,411	2,864	28,275	51,904	1,887	53,791
Segment operating profit	3,589	369	3,958	19,740	387	20,127
Investment income - interest receivable			1,277			1,997
Finance costs - interest payable			(111)			(14)
Other gains and losses			-			1,709
Profit before tax			5,124			23,819
Tax			(1,404)			(7,057)
Profit for the year			3,720			16,762
3. Business and geographical segments (continued)
			1 January 2008 to 31 December 2008
			UK	Channel Islands	Elimination	Consolidated
			£ 000's	£ 000's	£ 000's	£ 000's
Other information
Capital additions			376	132	-	508
Depreciation and amortisation			300	41	-	341
Assets
Segment assets			47,684	13,656	(177)	61,163
Liabilities
Segment liabilities			13,416	12,520		25,936
			1 January 2007 to 31 December 2007
			UK	Channel Islands	Elimination	Consolidated
			£ 000's	£ 000's	£ 000's	£ 000's
Other information
Capital additions			401	3		404
Depreciation and amortisation			185	20		205
Assets
Segment assets			100,784	3,699	(71)	104,412
Liabilities
Segment liabilities			56,170	3,067	88	59,325
4. Investment income - interest receivable					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
Interest income generated from:					£ 000's	£ 000's
Bank deposits					457	584
Other loans and receivables					820	1,413
					1,277	1,997
Interest income generated from other loans and receivables represents the recognition of the unwinding of the discount factor applied to the partly paid B shares.
5. Finance costs - interest payable
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Interest on bank overdrafts and loans					111	14
6. Staff costs
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Staff costs comprise:
Wages and salaries					13,811	25,371
Social security costs					1,802	2,462
IFRS 2 share based payments					1,125	1,380
					16,738	29,213
The Group does not operate any pension schemes.
The average number of employees (including executive directors) was:
					2008	2007
					No.	No.
Corporate finance					10	9
Broking					59	42
Administration					28	19
					97	70
					£ 000's	£ 000's
The total emoluments of the highest paid director were:					608	2,161
7. Profit before tax
Profit for the period has been arrived at after charging/(crediting):					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Operating lease rentals					625	624
Auditors' remuneration (refer to analysis below)					114	139
Depreciation of property, plant and equipment					341	227
Staff costs (see note 6)					16,738	29,213
Change in fair value of financial assets designated as at fair value through profit or loss					503	699
Costs associated with aborted takeover bid					100	841
Gain from disposal of B shares by employees					-	(804)
The analysis of auditors' remuneration is as follows:					£ 000's	£ 000's
Fees payable to the Group's auditor for the audit of the Group's financial statements and consolidation					86	75
Fees payable to the Group's auditor for other services:
- The audit of the Group's subsidiaries, pursuant to legislation					13	10
- Other services, pursuant to legislation					15	15
- Tax services					-	39
					114	139
Disposal of B shares by employees
During 2007, two employees, who were holders of partly paid B shares, left the Group. The B shares they held were subsequently fully paid up and as a result converted into ordinary shares which were placed with various institutions. This resulted in a profit in the hands of the employees. It was agreed between the employees and the Group that the after tax profit resulting from these transactions were remitted to the Group and this gain is shown in the table above.
8. Other gains and losses			1 January			1 January
			2008 to			2007 to
			31 December			31 December
			2008			2007
			Revenue	Expenses	Net gain	Net gain
			£ 000's	£ 000's	£ 000's	£ 000's
Gain on part disposal of a subsidiary			-	-	-	1,709
Total other gains and losses			-	-	-	1,709
Part disposal of subsidiary
On 15 November 2007 the Group disposed of part of its holding in Cenkos Channel Islands Limited amounting to 11% of its share capital. A further 14% was disposed of on 11 December 2007, when Cenkos Channels Islands Limited was successfully floated on the Channel Islands Stock Exchange. These disposals of shares have reduced the Group's holding from 75% to 50%. However, control is still maintained by the Company and as such the results of Cenkos Channel Islands Limited have continued to be consolidated.
8. Other gains and losses (continued)
			31 December	15 November	11 December	31 December
			2008	2007	2007	2007
			£ 000's	£ 000's	£ 000's	£ 000's
Non-current assets			54	18	17	16
Current assets			6,863	2,813	3,161	2,227
Cash and cash equivalents			(45)	1,370	1,057	1,125
Current liabilities			(6,259)	(3,525)	(3,561)	(2,735)
Net assets at date of disposal and year end			613	676	674	633
				15 November	11 December	Total
				2007	2007	2007
				£ 000's	£ 000's	£ 000's
Share of net assets disposed				218	94	313
Fees related to disposal				-	129	129
Cost of sale				218	223	442
Gain on disposal				532	1,177	1,709
Total consideration				750	1,400	2,150
Satisfied by cash				750	1,400	2,150
Cash inflow arising on disposal:
Cash consideration				750	1,400	2,150
9. Tax
The tax charge comprises:					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Current tax
United Kingdom corporation tax at 28.5% (2007 - 30%) based on the profit for the period					1,391	7,072
Overseas tax charge borne by subsidiaries operating in other jurisdictions					6	-
Adjustment in respect of prior period					(99)	-
Total current tax					1,298	7,072
Deferred tax
Credit on account of timing differences					-	(15)
Charge on account of timing differences					106	-
Total deferred tax					106	(15)
Total tax on profit on ordinary activities					1,404	7,057
The tax charge for the period differs from that resulting from applying the standard rate of UK corporation tax of 28.5% to the profit before tax for the reasons set out in the following reconciliation.
9. Tax (continued)
					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Profit on ordinary activities before tax					5,124	23,819
Tax on profit on ordinary activities at the UK corporation tax rate of 28.5% (2007: 30%)					1,460	7,146
Tax effect of:
Depreciation in excess of capital allowances					25	2
Expenses that are not deductible in determining taxable profits					411	596
Different tax rates of subsidiaries operating in other jurisdictions					(150)	(13)
Income not subject to corporation tax					(396)	(735)
Adjustment for IFRS2 relating to staff options					106	25
Adjustment for loss relief not claimed					47	36
Adjustment in respect of prior period					(99)	-
Tax expense for the period					1,404	7,057
In addition to the amount charged to the income statement, deferred tax relating to the fair value of the Group's available for sale investments amounting to £761,216 (2007: £94,184 charged directly to equity) has been credited directly to equity.
10. Dividends
Amounts recognised as distributions to equity holders in the year:					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Final dividend for the year ended 31 December 2007 of 12p (31 December 2006: nil) per share					8,711	-
Interim dividend for the period to 30 June 2008 of 5p (June 2007: 10p) per share					3,633	7,259
					12,344	7,259
A final dividend of 5p per share has been proposed for the year ended 31 December 2008 (2007: 12p).
The proposed final dividend has not been included as a liability in these financial statements. Subject to shareholders approval at the Annual General Meeting, the final dividend will be paid on 26 May 2009 to all shareholders on the register of members as at 24 April 2009. The Annual General Meeting of the Company will be held on 21 May 2009 at 12 noon at 6.7.8 Tokenhouse Yard, London, EC2R 7AS.
11. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:					1 January	1 January
					2008 to	2007 to
					31 December	31 December
					2008	2007
					£ 000's	£ 000's
Earnings
Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent					3,545	16,552
Effect of dilutive potential ordinary shares:
Share options					-	-
Earnings for the purposes of diluted earnings per share					3,545	16,552
					No.	No.
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share					72,616,990	72,593,670
Effect of dilutive potential ordinary shares:
Share options					95,060	520,806
Weighted average number of ordinary shares for the purpose of diluted earnings per share					72,712,050	73,114,476
The denominators for the purposes of calculating both basic and diluted earnings per share have been adjusted to reflect the sub-division of shares on 31 October 2006. The weighted average number of shares considered for the current period also includes the total number of B shares, even though they are partly paid shares, as these shares are entitled to a full dividend payout.
Adjusted earnings
Earnings for the purposes of basic and diluted earnings per share					3,545	16,552
Other gains and losses					-	(1,709)
Gain from disposal of employee B shares					-	(804)
Costs associated with aborted takeover bid					100	841
Adjusted earnings for the purposes of adjusted basic and diluted earnings per share					3,645	14,880
Adjusted EPS
Basic					5p	20.5p
Diluted					5p	20.4p
Additional Information
The financial information in this announcement does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 but is derived from those accounts. The auditors have reported on the statutory accounts for the year ended 31 December 2008. Their report was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. Those accounts have not been delivered to the Registrar of Companies, but will be delivered following the Company's Annual General Meeting. Statutory accounts for the year ended 31 December 2007 have been delivered to the Registrar of Companies. The auditors have reported on those accounts. Their report was unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.

 

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