Half-year Report

RNS Number : 7679R
Cenkos Securities PLC
26 September 2017
 

26 September 2017

Cenkos Securities plc

Interim Results for the six months ended 30 June 2017

 

Cenkos Securities plc (the "Company" or "Cenkos") together with its subsidiaries (the "Group"), today announces its interim results for the six months ended 30 June 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.

 

 

 

Financial Highlights

 

30-Jun-17

30-Jun-16

Revenue

+ 91%

£29.2 m

£15.3 m

Profit before tax

+ 156%

£4.2 m

£1.7 m

Cash

- 1%

£19.8 m

£20.1 m

Basic earnings per share

+ 406%

6.1 p

1.2 p

Interim dividend per share declared

+ 350%

4.5 p

1.0 p

 

Commenting on the interim results, Chief Executive Officer Anthony Hotson noted:

 

"Revenue for the first half of 2017 increased by 91% to £29.2m (H1 2016: £15.3 million), with profits increasing by 156% to £4.2m (H1 2016: £1.7m). We are well placed to benefit from improvements in market conditions and have made a very good start to the second half of the year. There is institutional demand to fund high quality companies and ideas and since the period end we have been engaged in a number of significant fund raisings. Our current pipeline of transactions is encouraging.

 

We have been profitable in every year since our formation in 2005 and have raised in excess of £17 billion of equity capital for our clients."

 

For further information contact:

Anthony Hotson                                                                    +44 20 7397 8900

Chief Executive Officer

Cenkos Securities plc                                                                                        

 

Dr Azhic Basirov / David Jones / Ben Jeynes                  +44 20 7131 4000

Nominated Adviser

Smith & Williamson Corporate Finance Limited

 

David Rydell

Buchanan Communications                                              +44 20 7466 5066

 

Interim management report

Review of performance

 

Overall performance

 

I am pleased to report that we delivered £29.2 million of revenues and £4.2 million of profit before tax in the six months ending 30 June 2017. We continue to demonstrate the strength of our equity placing capabilities and raised a total of £982m in aggregate for our clients in H1 2017. Indeed, we have now raised £17 billion of equity for clients - mainly acting as sole broker - over our 12 year history.

 

Revenues

 

Revenue for the period increased by 91% to £29.2 million (H1 2016: £15.3 million). In H1 2017 we raised £982 million for our corporate clients (H1 2016: £529 million), including £386 million on the IPO of Eddie Stobart Logistics plc. H1 2017's results were helped by this larger IPO and by a general improvement in market conditions - total funds raised by AIM companies rose by 4% to £2,016 million in H1 2017, when compared to H1 2016 (source: LSE AIM factsheet June 2017).

 

We remain ranked as one of the leading brokers in London for growth companies, as demonstrated by Adviser Rankings Limited's July 2017 'AIM Adviser Rankings Guide' where we were ranked number 2 Nominated Adviser by number of AIM clients. We were also ranked top Nominated Adviser for 'Oil and Gas' and 'Industrials' (by client market capitalisation), number 2 Nominated Advisor for 'Consumer Goods' and 'Consumer Services' (by number of clients) and number 3 Nominated Adviser for 'Technology' companies (by number of AIM clients). The size of our corporate client base (where the Company is retained as Nominated Adviser / broker and / or financial adviser) rose slightly to 120 at 30 June 2017 (H1 2016: 119). This includes 33 main market listed investment trust and 9 main market listed corporate clients.

 

Our corporate broking, research and commission  revenue fell by 15% to £4.4 million (H1 2016: £5.1 million) due to a continued squeeze on commission rates, while our market making profits increased by 555% to £3.7 million (H1 2016: £0.6 million) due to gains made on shares received in lieu of fees and improvements in market conditions. We make markets in the securities of all the companies where we have a broking relationship to support the other services we provide to our clients. We provide liquidity to the market and facilitate institutional business in both small and large cap equities. Our trading desks now make markets in the shares of 308 (H1 2016: 339) companies and investment funds. Importantly, we maintained a top three market share in 79% of our corporate clients' shares and the top market share in 50%.

 

Costs

 

Costs rose 82% to £25.0 million (H1 2016: £13.7 million) in the period, due, mainly, to higher performance-related pay on the back of higher levels of net revenue. Our costs in 2016 reflected the extensive remediation programme the Company undertook in order to enhance and improve our systems and controls in relation to the provision of sponsor services. We continue to invest in staff, systems and processes in the run up to MiFID II and the Senior Managers and Certification Regime. We have also incurred an expense of £0.6 million (H1 2016: £0.9 million) due to staff costs resulting from the Compensatory Award Phantom Dividend Plan 2009 (the "CAP"). Payments under this scheme are triggered only by the payment of a dividend to ordinary shareholders. A CAP cost was incurred during the period as a result of the final dividend for 2016 totalling 5p paid in H1 2017. This compares to a H1 2016 CAP cost incurred in respect of 7p for the second interim and the final dividend for 2015.

 

Profit and earnings per share

 

Profit before tax increased by 156% to £4.2 million (H1 2016: £1.7 million) and profit after tax increased by 409% to £3.3 million (H1 2016: £0.7 million) on the back of a lower effective tax rate. Our basic earnings per share ("EPS") rose by 406% to 6.1p (H1 2016: 1.2p).

 

Statement of consolidated financial position and cash flow

 

At 30 June 2017, our net trading investments were £17.3 million (H1 2016: £6.6 million) and cash held was £19.8 million (H1 2016: £20.1 million). During the six months to 30 June 2017 there was a net decrease in cash and cash equivalents of £4.0 million. This is due, mainly, to the payment of accrued bonuses in respect of 2016, increases in trading investments (including shares received in lieu of fees) and the 2016 final dividend payment which were offset partly by operating cash flow in H1 2017.

 

Dividend and capital levels

 

We aim to retain sufficient capital and reserves to meet our regulatory capital and cash requirements after taking account of the likely future working capital needs and potential growth requirements.

 

Since our flotation on AIM in October 2006, we have paid out 121.5p in dividends (prior to the 4.5p proposed interim dividend for 2017) and bought back 19.5 million shares at a cost of £25.4m for cancellation, thereby increasing the Group's prospective earnings per share. We have therefore returned £105.6m of cash to shareholders, equivalent to 160.8p per share (before 2017's interim dividend) since our flotation in 2006.

 

The Board proposes an interim dividend of 4.5p per share reflecting the earnings per share of H1 2017. The payment of this interim dividend will trigger payments to staff under the CAP of £0.5 million in H2 2017 (H2 2016: £0.1 million). The dividend will be paid on 9 November 2017 to all shareholders  on the register at 13 October 2017.

 

On 28 April 2016 Cenkos announced that the trustees of the Cenkos Employee Benefit Trust ("EBT") had launched a share purchase plan to buy up to £50,000 of Cenkos shares a month, and this plan was extended for another year on 23 May 2017. 304,498 shares were purchased in H1 2017 under this plan at a cost of £299,834. The increase in the size of the Company's EBT reflects, in part, the potential future demand for Cenkos' shares to satisfy share awards under the Group's deferred bonus scheme.

 

People

 

During the period and since the period end a number of changes to the Board have been made.

 

Jim Durkin retired as an Executive Director and from the position of Chief Executive Officer on 1 August 2017 and was replaced by Anthony Hotson. Nick Wells, head of Corporate Finance, stood down from the Board on 17 May 2017. Mike Chilton resigned as Finance Director on 4 August 2017 and Philip Anderson was appointed as his successor (subject to FCA approval) on 13 September 2017.

 

We continue to look to recruit staff who are attracted by our culture and business model.

 

Principal risks and uncertainties

 

We continue to see some uncertainty in equity markets since the Brexit referendum and we continue to monitor the situation. Aside from this, the principal risks and uncertainties that Cenkos currently faces, and how these are managed, have not materially changed from those outlined in the Strategic Report section of our 2016 Annual Report, namely the health of UK equity markets as well as reputational, operational, regulatory, conduct and market risk. Notwithstanding these, the key changes that may impact Cenkos' risk profile over the next six months - and how they are being managed - relate to:

 

•  The pace of change in the regulatory environment - we continue to focus heavily on our regulatory risks to ensure the appropriate systems and controls, reporting, capital and liquidity requirements, resources, conduct and culture are all in place to meet the ongoing obligations of an FCA regulated (IFPRU investment) firm, including those related to MiFID II and the extension of the Senior Managers and Certification Regime to Cenkos in 2018; and

 

•  Ensuring that we continue to retain and attract high quality staff.

 

Outlook

 

We have made a very good start to the second half of the year. There is institutional demand to fund high quality companies and ideas. Since July we have been engaged in relation to a number of significant fundraisings and our pipeline for the rest of the year is encouraging.

 

Anthony Hotson

Chief Executive Officer

 

25 September 2017

 

 

Responsibility statement

 

We confirm that to the best of our knowledge:

 

a)   The condensed set of 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 the undertakings included in the consolidation taken as a whole as at 30 June 2017; and

 

b)   The interim 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 the Group faces.

 

Forward-looking statements

 

These financial statements contain 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.

 

Condensed consolidated income statement

For the six months ended 30 June 2017

 

 

 

 

 

 

six months ended

six months ended

year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

 

 

 

 

 

 

six months ended

six months ended

year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of financial position

As at 30 June 2017

 

 

 

 

 

Unaudited

Unaudited

Audited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

 

 

 

27,733

25,605

27,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated cash flow statement

For the six months ended 30 June 2017

 

 

 

 

 

six months ended

six months ended

year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Condensed consolidated statement of changes in equity

For the six months ended 30 June 2017

 

 

Share capital

Share premium

Capital redemption reserve

Own shares

Available-for-sale reserve

Foreign currency translation reserve

Retained earnings

Total

 

 

 

 

 

 

 

 

 

Gain on available-for-sale financial assets net of tax

-

-

-

-

31

-

-

31

Exchange differences on translation of foreign operations

-

-

-

-

-

83

-

83

Proceeds from sale of own shares to employee share plans

-

13

-

38

-

-

-

51

Transfer of shares from the SIP to employees

-

-

-

18

-

-

(18)

-

Credit to equity for equity-settled share-based payments

-

-

-

-

-

-

334

334

 

 

 

 

 

 

 

 

 

Gain on available-for-sale financial assets net of tax

-

-

-

-

32

-

-

32

Exchange differences on translation of foreign operations

-

-

-

-

-

22

-

22

Proceeds from sale of own shares to employee share plans

-

(3)

-

10

-

-

-

7

Transfer of shares from the SIP to employees

-

-

-

9

-

-

18

27

Credit to equity for equity-settled share-based payments

-

-

-

-

-

-

442

442

Dividends paid

-

-

-

-

-

-

(548)

(548)

 

 

 

 

 

 

 

 

 

Loss on available-for-sale financial assets net of tax

-

-

-

-

(132)

-

-

(132)

 

 

 

 

 

 

 

 

 

Proceeds from sale of own shares to employee share plans

-

-

-

36

-

-

(1)

35

Acquisition of own shares by the EBT

-

-

-

(300)

-

-

-

(300)

Balance at 30 June 2017

567

3,331

195

(3,684)

33

102

27,189

27,733

 


 

 

Notes to the condensed consolidated financial statements

 

1. Accounting policies

 

General information

The interim condensed consolidated financial statements of Cenkos Securities plc (the "Company" or "Cenkos") together with its subsidiaries (the "Group") for the six months ended 30 June 2017 are unaudited and were approved by the Board of Directors for issue on 25 September 2017.

 

The Company is incorporated in England under the Companies Act 2006 (company registration No. 05210733) and its shares are publicly traded. The Group's principal activity is as an institutional stockbroker to UK small and midcap companies and investment funds. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates.

 

The preparation of financial statements in conformity with International Financial Reporting Standards 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 management's best knowledge of the amount, event or actions, actual results ultimately may differ from those of estimates.

 

These financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.

Where appropriate, prior year figures have been restated to conform to the current year presentation.

 

Basis of accounting

The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2016.

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2016, which are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

The financial information contained in these interim condensed consolidated financial statements does not constitute the Group's statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative information contained in this report for the year ended 31 December 2016 does not constitute the statutory accounts for that financial period. Those accounts have been reported on by the Company's auditors Ernst & Young LLP and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development and performance, its principal risks and uncertainties, the financial position of the Group, its cash flows and liquidity position are set out in the Strategic Report in the Group's Annual Report for the year ended 31 December 2016.

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the Directors continue to adopt a going concern basis in preparing the interim financial statements.

 

Adoption of new and revised standards

During the period, a number of amendments to IFRS became effective and were adopted by the Group, none of which had a material impact on the Group's net cash flows, financial position, statement of comprehensive income or earnings per share.

 

2. Dividends

 

The proposed interim dividend for 30 June 2017 of 4.5p (30 June 2016: 1.0p) per share was approved by the Board on 25 September 2017 and has not been included as a liability as at 30 June 2017. The dividend will be payable on 09 November 2017 to all shareholders on the register at 13 October 2017.

 

Under the Compensatory Award Plan ("CAP"), as described in the 2016 Annual Report, the payment of a dividend to ordinary shareholders will trigger a cash payment to holders of options under the CAP. The payment of this interim dividend will increase staff costs by £0.5 million in the second half of 2017 (1.0p 2016 interim dividend increased staff costs by £0.1 million in the second half of 2016).

 

3. Events after the reporting period

 

There were no material events to report on that occurred between 30 June 2017 and the date at which the Directors signed this Interim Report.

4. Contingent liabilities

 

From time to time the Group may become subject to various litigation, regulatory or employment related claims. The Directors have considered any current matters pending against the Group and, based on the evidence, the facts and circumstances and insurance cover available, concluded that the outcome of these will be resolved with no material impact on the Group's financial position or results of operations.

 

5. 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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