Final Results

RNS Number : 6829I

Cenkos Securities PLC

23 March 2018

 

23 March 2018

Cenkos Securities plc

Annual Results for the year ended 31 December 2017

Cenkos Securities plc (the "Company" or "Cenkos") and together with its subsidiaries (the "Group" or the "Firm"), today announces its results for the year ended 31 December 2017. 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-17	31-Dec-16
Revenue	+ 36%	£59.5 m	£43.7 m
Profit before tax on continuing operations	+ 97%	£10.0 m	£5.1 m
Profit after tax on continuing operations	+ 155%	£8.2 m	£3.2 m
Profit after tax on continuing and discontinued  operations	+ 183%	£7.2 m	£2.5 m
Cash	+ 55%	£36.8 m	£23.8 m
Net assets	+ 9%	£29.7m	£27.2m
Basic earnings per share on continuing operations	+ 154%	15.0 p	5.9 p
Basic earnings per share on continuing and discontinued operations	+ 181%	13.2 p	4.7 p
Full year dividend per share paid and proposed (1)	+ 50%	9.0 p	6.0 p

 ⁽¹⁾ Includes a proposed final dividend of 4.5p (2016: 5p)

Since being admitted to trading on AIM in 2006, the Company has returned £108.0 million of cash to shareholders, equivalent to 165.3p per share, before the payment of the proposed final dividend of 4.5p per share.

Commenting the Company's Chief Executive Officer, Anthony Hotson said:

"We live in an uncertain geopolitical environment where market volatility has a significant impact upon investor sentiment. With a resilient business model and being ranked as one of the leading brokers in London for Growth companies and investment trusts, we look forward to the future with cautious optimism."

For further information contact:

Cenkos Securities plc

Anthony Hotson - Chief Executive Officer                                                        [phone]

Smith & Williamson Corporate Finance Limited 

Dr Azhic Basirov / David Jones / Ben Jeynes                                                 [phone]

Nominated Adviser

Whitman Howard

Nick Lovering                                                                                                        [phone]

Joint Broker

Buchanan Communications

David Rydell                                                                                                         [phone]

Chief Executive's Statement

"Building long-term relationships, borne out of good client outcomes, lies at the heart of the Firm's ethos."

Anthony Hotson Chief Executive Officer

The 2017 Annual Report is my first as Chief Executive following my appointment in August 2017, having served as a Non-executive Director of the Company since 2012. I look forward to building on Cenkos' strengths and delivering further growth for all our stakeholders.

Dividend

We are proposing a final dividend of 4.5p per share (2016: 5.0p per share) which brings the total dividend for the year to 9.0p per share (2016: 6.0p per share). Since we have been admitted to trading on AIM in 2006 we have returned £108.0 million of cash to shareholders, equivalent to 165.3p per share, before the payment of the proposed 2017 final dividend of 4.5p per share.

Performance

Cenkos has had a good year delivering revenues, profit and dividends well ahead of 2016. Corporate finance and placing fees generated across the Firm underpinned by several large deals demonstrate our capability in this area. We helped our clients raise £2.5bn (2016: £1.3bn) of equity finance. Our corporate client base remains solid reflecting our ethos of building and maintaining long-term relationships.  Delivering good client outcomes lies at the heart of the Firm's ethos.

Brexit, the economy and regulatory environment

The UK's decision to leave the European Union creates uncertainty for both the UK's financial industry and the wider markets. Macro-economic factors including inflationary pressures and the possibility of further interest rate rises, compounded by geopolitical events further afield, create a higher risk of disruption in 2018. These ever-present risks are at the forefront of the Board's thinking and have been reflected in the Firm's principal risks in the 2017 Annual Report.

Along with other firms, Regulatory obligations within the financial services sector are significant and the pace of change is set to increase in 2018. We continue to invest in people as well as systems and controls to meet the requirements of new regulation and legislation.

In 2017, the implementation of MiFID II was a key focus.  I am pleased to note that, whilst early days, the implementation has gone well.

In our 2016 Annual Report we reported that, following an investigation by the FCA into our role as sponsor to Quindell plc, we undertook an extensive remediation program. We have worked through 2017 to embed the recommendations and will continue to do so in 2018.

To provide further regulatory support we are introducing a new operating model for the compliance team. This was initiated in the latter part of 2017 and will be completed in 2018.

We believe that all regulation must be accompanied by a strong internal culture underpinned by the highest ethical and professional standards. An overarching governance framework is critical with the highest standards being set by the Board as a role model. Details of our governance framework will be set out in full in the 2017 Annual Report.

The Board

Several important changes were made to the Board in 2017. On 31 July 2017 Jim Durkin retired as Chief Executive Officer after 7 years in the position, having been with the Firm since its formation in 2004. I was named as his successor and I would like to reiterate the Board's thanks to Jim Durkin for his contribution to Cenkos.

Four further changes took place in the year. Nick Wells (Executive Director) stepped down from the Board with effect 17 May 2017 to focus on leading the Corporate Finance team and Mike Chilton (Finance Director) resigned with effect from 4 August 2017. Mike Chilton left the Company on 30 September 2017 after more than 6 years of service. On 17 November 2017 Andrew Boorman was appointed as a Non-executive Director of the Company. Philip Anderson was appointed as Finance Director and Head of Compliance on 31 January 2018 following regulatory approval being received.

The Board has gone through a number of changes over the past twelve months and having reviewed its composition and structure, we are satisfied with the balance between Executive and Non-executive members and that no individual or group of individuals dominate. This is explained in more detail in the Corporate Governance Report in the 2017 Annual Report. 

People

The reputation of our business is reliant on the quality, expertise and conduct of every person at Cenkos. Our teams always set out to deliver outstanding client outcomes. The Board is fully committed to our people and is focused on developing and retaining a pool of diversified talent with a shared set of values and strategic goals.

On behalf of the Board, I would like to thank our people and the management team for their contribution in 2017.

Outlook

We live in an uncertain geopolitical environment that makes it very difficult to predict either the direction of the markets or health of investor sentiment.  There has been significant market volatility leading to a correction in all main global indices.

This market volatility does appear to have had an impact on investor sentiment with a pause in the momentum the Firm experienced in the second half of 2017.  Despite this, we remain ranked as one of the leading brokers in London for growth companies, institutional investor appetite to fund high quality companies is likely to return and our business model is resilient.  Consequently, we look forward to the future with cautious optimism.

Review of performance

Revenues increased by 36% to £59.5m and profit before tax on continuing operations rose by 97% to £10.0m.

Revenue

We are pleased to report that Cenkos has produced revenues significantly ahead of last year.  All of our core business activities have contributed to this despite some pressure falling on our research and commission revenue due to uncertainties associated with and the impact of MiFiD II.

Market conditions have provided a positive backdrop for trading in UK equities and investor confidence generally in the UK.  Steadily rising equity indices coupled with sterling placed at competitive values through the year had resulted in favourable conditions for placing equity stock.  This has compared markedly from conditions in 2016 where, against the backdrop of Brexit and wider macro-economic uncertainty, markets and investor confidence were benign.  This year total funds raised by AIM companies rose by 33% to £6.4bn (2016: £4.8bn) - (Source: LSE AIM factsheet December 2017), with Cenkos responsible for raising £1,346m, equivalent to 21% (2016: £641m equivalent to 13%) of all funds raised on AIM.

A summary of the revenues from the core business activities is set out in the table below:

Revenue streams					2017	2016
					£ 000's	£ 000's
Corporate finance					44,030	29,720
Nomad and broking					5,273	5,481
Research					2,949	5,033
Execution					7,252	3,509
					59,504	43,743

The uplift across the Firm's core activities reflects the hard work and diligence of all the client facing teams, helped along by good market conditions.

Business activities

Corporate finance

It is part of our culture to build strong, long-term relationships with our corporate and investment trust clients providing bespoke solutions to their needs.  During 2017 we completed 41 transactions (2016: 36) of which 6 were IPOs (2016: 4) and 4 (2016: 10) were M&A advisory roles. We raised £2.5bn (2016: £1.3bn) for our clients of which £1.3bn (2016: £0.6bn) was raised on AIM.

Notable deals completed during the year include the IPO of Eddie Stobart Logistics plc raising £393m, the secondary raisings of £302m for Civitas Social Housing plc, £408m for Hurricane Energy plc and £150m for Smart Metering Systems plc.

Nomad and Broking

Our client base is made up of 117 companies and investment funds (2016: 116), of which 77 are AIM clients (2016: 72). We pride ourselves in the service we provide those clients, which is underpinned by our own requirements to comply with AIM rules. Our corporate advisory capabilities are borne out of an experienced and long-standing corporate finance team. 

Research

High quality research and sales are at the heart of our research business.  This creates relationships of trust with our institutional clients and is at the core of our distribution capability.  Covering over 170 companies (2016: 195) and 8 sectors (2016: 12) our relatively small team of analysts is well placed to continue to provide consistent high research levels in an area where there is some uncertainty following the roll out of MiFiDII.

Execution services

We make markets in over 300 stocks of which 151 are listed on the Main Market of LSE.  During the year we maintained a top three market share in 83% (2016: 73%) of our clients' stock and number one market share in 55% of our clients' stock (2016: 48%).  With access to multiple trading venues and liquidity providers, we are able to deliver strong execution capability to our clients.

Our market makers provide skill and human effort that cannot be found in dark pools or standalone electronic trading venues. During 2017, in addition to market making gains, Execution services included £2.47 million of realised gains (2016: £0.83 million losses) on the sale of shares received in lieu of fees.  

Administrative expenses

Administrative expenses on continuing operations for the year increased by £10.7m to £49.5m (2016: £38.8m) mainly reflecting increased bonus payments to front line staff. In 2017 there has also been a number of reorganisation costs associated with Board changes, investment in the compliance operating model and regulatory projects. These are set out in the table below:

		2017	2016
Administrative expenses		£ 000's	£ 000's
Other administrative expenses		47,719	38,064
Reorganisation costs		715	30
Regulatory projects		1,094	669
		49,528	38,763

Average headcount increased to 123 (2016: 119) although we ended the year with a headcount of 115 (2016: 121) following rationalisation of some areas including closure of our Singapore office and a reduction in the Edinburgh office.  Headcount is expected to rise in 2018 as we roll out the new compliance operating model, invest in our surveillance and monitoring systems and grow, selectively, all existing strategic business units.

Discontinued operations

Following a review of the long term prospects of Cenkos Securities Asia Pte Limited by the Board, the business was closed in November 2017. This change in strategy has reduced the conduct risk profile of the Group. The losses for the period have been disclosed as "discontinued operations" in the Consolidated Income Statement. 

Profit and earnings per share

Profit before tax on continuing operations increased by 97% to £10.0m (2016: £5.1m). The tax charge for the year of £1.8m (2016: £1.9m) equates to an effective tax rate of 20.1% (2016: 42.2%) on continuing and discontinued operations. This reflects the non-allowable loss in relation to the closure of Cenkos Securities Asia Pte Limited offset by movements in current and deferred tax relating to share-based payments. Profit after tax increased by 183% to £7.2m (2016: £2.5m). Basic earnings per share from continuing operations increased by 154% to 15.0p (2016: 5.9p). 

Financial position

Our Consolidated statement of financial position strengthened further during the year with net assets increasing to £29.7m (2016: £27.2m).  The increase in net asset position was underpinned by an increase in cash and cash equivalents to £36.8m (2016: £23.8m) due primarily to the improvement in business performance. This was partially offset by an increase in trade and other payables to £36.3m (2016: £32.6m) mainly due to an increase in the accrual for performance related pay, a fall in the resources tied up in net trading investments to £7.5m (2016: £11.7m) and a fall in trade and other receivables to £20.8m (2016: £24.5m). The fall in trade and other receivables was mainly due to the inclusion within accrued income in 2016 of an amount receivable from the Company's insurers in full and final settlement for the insurable costs arising from the FCA's investigation.

As at 31 December 2017, Cenkos had a capital resources surplus of £9.6m (2016: £9.8m) in excess of the Pillar 1 regulatory capital requirements. The Board continues to review the amount of capital we hold over and above our minimum regulatory requirement as part of the ICAAP and the cash balances required to meet the working capital needs of the business as part of the ILAA process,.

The Board's intention is to use earnings and cash flow to underpin shareholder returns through a combination of dividend payments and share buy backs into treasury.  Our goal is to pay a stable ordinary dividend, reinvest into our Firm and return excess cash to shareholders subject to capital and liquidity requirements and the prevailing market conditions and outlook.  In view of this, the Board is recommending a final dividend of 4.5p per share (2016: 5.0p per share) which results in a total dividend for the year of 9.0p per share (2016: 6p per share).

From time to time, we intend to repurchase shares to match unvested share awards and manage our issued share capital.

Consolidated income statement

For the year ended 31 December 2017

						Restated
					2017	2016
					£ 000's	£ 000's
Continuing operations
Revenue					59,504	43,743
Administrative expenses					(49,528)	(38,763)
Operating profit					9,976	4,980
Investment income - interest receivable					23	83
Profit before tax from continuing operations for the year					9,999	5,063
Tax					(1,815)	(1,858)
Profit after tax from continuing operations for the year					8,184	3,205
Discontinued operations
Loss after tax from discontinued operations for the year					(973)	(661)
Profit for the year					7,211	2,544
Attributable to:
Equity holders of Cenkos Securities plc					7,211	2,544
From continuing operations
Basic earnings per share					15.0p	5.9p
Diluted earnings per share					15.0p	n/a
From continuing and discontinued operations
Basic earnings per share					13.2p	4.7p
Diluted earnings per share					13.2p	n/a

Consolidated statement of comprehensive income

For the year ended 31 December 2017

					2017	2016
					£ 000's	£ 000's
Profit for the year					7,211	2,544
Amounts that will be recycled to the income statement in future periods
(Loss) / gain on available-for-sale financial assets					(133)	79
Tax on available-for-sale financial assets					26	(16)
Exchange differences on translation of foreign operations					(105)	105
Other comprehensive (expense) / income for the year					(212)	168
Total comprehensive income for the year					6,999	2,712
Attributable to:
Equity holders of Cenkos Securities plc					6,999	2,712

Consolidated statement of financial position

As at 31 December 2017

					2017	2016
					£ 000's	£ 000's
Non-current assets
Property, plant and equipment					525	389
Deferred tax asset					738	236
					1,263	625
Current assets
Trade and other receivables					20,798	24,526
Available-for-sale financial assets					250	560
Other current financial assets					10,615	13,811
Cash and cash equivalents					36,829	23,795
					68,492	62,692
Total assets					69,755	63,317
Current liabilities
Trade and other payables					(36,300)	(32,560)
Other current financial liabilities					(3,341)	(2,694)
					(39,641)	(35,254)
Net current assets					28,851	27,438
Non-current liabilities
Trade and other payables					(366)	(880)
Total liabilities					(40,007)	(36,134)
Net assets					29,748	27,183
Equity
Share capital					567	567
Share premium					3,331	3,331
Capital redemption reserve					195	195
Own shares					(3,845)	(3,556)
Available-for-sale reserve					58	165
Foreign currency translation reserve					-	105
Retained earnings					29,442	26,376
Total equity					29,748	27,183

Consolidated cash flow statement

For the year ended 31 December 2017

					2017	2016
					£ 000's	£ 000's
Profit for the year					7,211	2,544
Adjustments for:
Net finance income					(23)	(82)
Tax expense					1,815	1,858
Depreciation of property, plant and equipment					242	182
Shares and options received in lieu of fees					(3,888)	(5,770)
Share-based payment expense					1,560	803
Operating cash flows before movements in working capital					6,917	(465)
Decrease in net trading investments and available-for-sale financial assets					7,908	4,886
(Increase) / decrease in trade and other receivables					3,623	(6,055)
(Decrease) / increase in trade and other payables					1,959	(218)
Net cash flow from operating activities before interest and tax paid					20,407	(1,852)
Tax paid					(1,334)	(2,533)
Net cash flow from operating activities					19,073	(4,385)
Investing activities
Interest received					23	93
Purchase of property, plant and equipment					(378)	(272)
Net cash inflow / (outflow) from investing activities					(355)	(179)
Financing activities
Dividends paid					(5,201)	(4,367)
Proceeds from sale of own shares to employee share plans					66	58
Acquisition of own shares by EBT					(549)	(438)
Net cash used in financing activities					(5,684)	(4,747)
Net increase in cash and cash equivalents					13,034	(9,311)
Cash and cash equivalents at beginning of year					23,795	33,106
Cash and cash equivalents at end of year					36,829	23,795

Consolidated statement of changes in equity

For the year ended 31 December 2017

	Equity attributable to equity holders of the parent
	Share capital	Share premium	Capital redemption reserve	Own Shares	Available-for-sale reserve	Foreign currency translation reserve	Retained earnings	Total
	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's	£ 000's
At 1 January 2016	567	3,321	195	(3,193)	102	-	27,576	28,568
Profit for the year	-	-	-	-	-	-	2,544	2,544
Gain on available-for-sale financial assets net of tax	-	-	-	-	63	-	-	63
Exchange differences on translation of foreign operations	-	-	-	-	-	105	-	105
Total comprehensive income for the year	-	-	-	-	63	105	2,544	2,712
Transfer of shares to employee share plans	-	10	-	48		-	-	58
Transfer of shares from share plans to employees	-	-	-	27	-	-	(27)	-
Acquisition of own shares by EBT	-	-	-	(438)	-	-	-	(438)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	803	803
Deferred tax on share-based payments	-	-	-	-	-	-	(153)	(153)
Dividends paid	-	-	-	-	-	-	(4,367)	(4,367)
At 31 December 2016	567	3,331	195	(3,556)	165	105	26,376	27,183
Profit for the year	-	-	-	-	-	-	7,211	7,211
Gain on available-for-sale financial assets net of tax	-	-	-	-	(107)	-	-	(107)
Exchange differences on translation of foreign operations	-	-	-	-	-	(105)	-	(105)
Total comprehensive income for the year	-	-	-	-	(107)	(105)	7,211	6,999
Transfer of shares to employee share plans	-	-	-	66	-	-	-	66
Transfer of shares from share plans to employees	-	-	-	194	-	-	(194)	-
Acquisition of own shares by EBT	-	-	-	(549)	-	-	-	(549)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,250	1,250
Dividends paid	-	-	-	-	-	-	(5,201)	(5,201)
At 31 December 2017	567	3,331	195	(3,845)	58	-	29,442	29,748

Notes to the condensed consolidated financial statements

1. Accounting policies

General information

The consolidated financial information contained within this announcement does not constitute statutory accounts for the year ended 31 December 2017 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 2017 will be delivered to the Registrar of Companies in due course. The annual report and 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 15 May 2018.

The consolidated 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 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 Strategic Report. The financial statements of the Group have been prepared on a going concern basis as the Directors have satisfied themselves that, at the time of approving the financial statements and having taken into consideration the strength of the Group's statement of financial position and cash balances, the Group has adequate resources to continue in operational existence for at least the next 12 months from the signing of these financial statements.

Basis of accounting

The consolidated financial information contained within these financial statements has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, and are in accordance with the accounting policies that were applied in the Group's statutory accounts for the year ended 31 December 2017.

2. Dividends

					2017	2016
Amounts recognised as distributions to equity holders in the year:					£ 000's	£ 000's
Amounts recognised as distributions to equity holders in the year:
Second interim dividend for the year ended 31 December 2015 of 6p per share					-	3,269
Final dividend for the year ended 31 December 2016 of 5.0p (2015: 1p) per share					2,743	550
Interim dividend for the period to 30 June 2017 of 4.5p (June 2016: 1.0p) per share					2,458	548
					5,201	4,367
A final dividend of 4.5p per share has been proposed for the year ended 31 December 2017 (2016: 5.0p). The proposed final dividend is subject to approval at the Annual General Meeting and is not recognised as a liability as at 31 December 2017.Subject to this final dividend being approved by Shareholders at the Annual General Meeting on 15 May 2018, the final dividend will be paid on 31 May 2018 to all shareholders on the register at 4 May 2018. Under the CAP, the payment of a dividend to ordinary shareholders will trigger a cash payment to holders of options under the CAP. The payment of the final dividend will increase staff costs by £0.52 million in the first half of 2018 (2016 final dividend of 5p increased staff costs by £0.58 million in the first half of 2017). See note 22 for details of the CAP scheme.

3. Events after the reporting period

There were no material events to report on that occurred between 31 December 2017 and the date at which the Directors signed the Annual Report.

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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