Interim Results for six months ended 30 June 2019

RNS Number : 6829M

Cenkos Securities PLC

18 September 2019

 

18 September 2019

Cenkos Securities plc

Interim Results for the six months ended 30 June 2019

Cenkos Securities plc (the "Company" or "Cenkos") and together with its subsidiaries (the "Group" or the "Firm"), today announces its results for the six months ended 30 June 2019. Cenkos is an independent, specialist institutional securities group, focused on small and mid-cap companies and investment funds. The Group's principal activity is institutional stockbroking.

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

Financial highlights

Continuing operations	30 June 2019	30 June 2018
Revenue *	£10.6m	£18.1m
(Loss) / profit before tax	£(0.2)m	£0.5m
(Loss) / profit after tax	£(0.2)m	£0.3m
Cash	£14.7m	£21.7m
Net assets	£26.0m	£26.3m
Basic Earnings per share	(0.6)p	0.6p
Interim dividend per share	2.0p	2.0p

* Revenue includes net trading gains of £0.9m (H1 2018: £2.1m)

Operational highlights

·        Cenkos has maintained a strong cash position and a healthy capital surplus of £15.9 million (2018: £12.0 million) above its Pillar 1 capital requirement.

·        Reduction in H1 2019 revenue as a result of market conditions

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

 "As a result of the weak first half, revenue for the full year may be below that recorded in 2018, however the second half has started well with a number of transactions completed including an IPO. This means Cenkos has completed two of only seven IPO's whose shares were admitted to trading on the AIM market in the period to August 2019, which demonstrates that Cenkos remains the leading AIM broker, raising money even in very difficult market conditions. Pipeline for the remainder of the year and for 2020 is encouraging. We continue to evolve our business to adapt to market changes and remain at the forefront in providing capital and solutions for growth companies."

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

Interim management report

Performance

Following the announcement of my proposed appointment as Executive Director and Chief Executive on 5 November 2018, I am able to report that I received regulatory approval from the FCA on 12 August 2019 and I am pleased to present Cenkos Securities plc (Cenkos) Interim Report for the six months ended 30 June 2019. I would like to thank my predecessor Anthony Hotson for staying in post over the last 9 months and steering the Group through what has been a challenging landscape.

During 2019, the financial markets and investor sentiment have been severely tested by global issues and the economic and political uncertainty surrounding the UK's exit from the European Union. Transaction volumes in the equities markets in the first half were extremely low as investors maintained a cautious approach. This in turn led to a 41% reduction in Cenkos' H1 2019 revenue to £10.6 million (2018: £18.1 million). Despite these challenging market conditions, the strength and flexibility of our business model has meant that we have still achieved a broadly break-even result. A summary of the revenue streams in H1 2019 compared to H1 2018 is set out below.    

Revenue streams				Six months ended	Six months ended
				30 June	30 June
				2019	2018
				£ 000's	£ 000's
Corporate finance				6,245	11,925
Nomad and broking				2,521	2,552
Research				938	1,538
Total fee and commission income				9,704	16,015
Execution - net trading gains				921	2,085
				10,625	18,100

Corporate finance

Corporate finance fees decreased by 48% to £6.2 million (H1 2018: £11.9 million) as a result of both lower transaction volumes and smaller deal sizes. Only one IPO was completed in H1 2019 compared with 3 in H1 2018. This result was against a backdrop of falling investor sentiment evidenced by the reduction in funds raised on the AIM market from £3.2bn in H1 2018 to £2.1bn in H1 2019 (Source: LSE) and the reduction in the number of IPO's from 28 in H1 2018 to 5 in H1 2019.

During H1 2019, we raised £343 million (H1 2018: £666 million) for our corporate and investment trust clients.

Nomad and broking

Nomad and broking retainer fees stayed broadly flat at £2.5 million (H1 2018: £2.6 million).

As at 30 June 2019, Cenkos' client base comprised 110 (H1 2018: 116) companies and investment trusts of which 77 (H1 2018: 80) were clients whose shares were admitted to trading on the AIM market and 32 (H1 2018: 36) clients were main market listed.

We remain ranked as one of the leading brokers in London for growth companies, as demonstrated by Adviser Rankings Limited's July 2019 'AIM Adviser Rankings Guide' where we were ranked second Nominated Adviser by total number of AIM clients and third by client market capitalization. We were also ranked first for 'Financials clients' by number of clients and second for 'Consumer services clients' and 'Oil and Gas clients' by number of clients.

Research

Research fees and commission decreased by 39% to £0.9 million (H1 2018: £1.5 million) as a result of a general squeeze on commission rates over the past few years and a reduction in 'buy-side' research budgets since the introduction of MiFID II in 2018.

Execution - net trading gains

Execution gains from trading activities decreased by 56% to £0.9 million (H1 2018: £2.1 million) largely due to a fall in the market value of shares held during H1 2019.

Administrative expenses

Administrative expenses decreased by £6.8 million to £10.9 million in H1 2019 (H1 2018: £17.7 million) of which £6.4 million relates to the fall in staff costs. In addition, reductions in staff numbers across the business, combined with the falling away of certain one off costs related to the period while awaiting FCA approval of a new Chief Executive, is expected to lead to an annualized saving of over £2.0 million going forward. 

Administrative expenses				Six months ended	Six months ended
				30 June	30 June
				2019	2018
				£ 000's	£ 000's
Staff costs				6,537	12,982
Other administrative expenses				4,339	4,692
				10,876	17,674

Other administrative expenses decreased by £0.4 million to £4.3 million in H1 2019 (H1 2018: £4.7 million). This reduction related mainly to the reversal of a provision for expected credit losses received after the period end and the reversal of the dilapidations provisions associated with the leases for Cenkos' London office. The Company has opted to stay at Tokenhouse Yard and in August 2019 signed new 10 year leases fixing the rental cost for the next five years at slightly below current levels.

Loss and Earnings per share

A loss before tax on continuing operations of £0.2 million was generated during H1 2019 (H1 2018: profit of £0.5 million). Our basic earnings per share ("EPS") was -0.6p (H1 2018: 0.6p).

Financial position

The consolidated statement of financial position shows net assets of £26.0 million at 30 June 2019, flat with the position last year (2018: £26.3 million). The increase in non-current assets related mainly to the initial recognition under IFRS16 of a right-to-use asset relating to the Company's leases. The reduction in net trading investments resulted from the sale of shares received in lieu of fees and a fall in market prices around the period end. The movements in trade and other receivables, trade and other payables and cash reflected the settlement of share trades and the payment of discretionary performance-related awards accrued at the end of 2018.

In addition to the movements in working capital described above, the decrease in cash was also impacted by the payment of the 2018 final dividend of 2.5p and the acquisition of own shares by the Cenkos Securities plc Employee Benefit Trust ('EBT').

Net assets summary				30 June	30 June
				2019	2018
				£ 000's	£ 000's
Non-current assets				1,538	1,191
FVOCI financial assets				534	164
Other current financial assets				10,168	10,334
Other current financial liabilities				(4,157)	(3,451)
Net trading investments				6,545	7,047
Trade and other receivables				28,592	40,039
Trade and other payables - current & non-current				(25,381)	(43,658)
Cash and cash equivalents				14,660	21,722
				25,954	26,341

Dividend and capital

Cenkos' dividend policy, as stated in the 2018 Annual Report, 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 in the firm and return excess cash to shareholders subject to capital and liquidity requirements and the prevailing market conditions and outlook. As at 30 June 2019, Cenkos had a capital resources surplus of £15.9 million (30 June 2018: £12.0 million) above the Pillar 1 regulatory capital requirement.

The Board proposes an interim dividend of 2.0p per share. The payment of this interim dividend will trigger payments to staff under the Compensatory Award Plan 2009 ('CAP') of £0.03 million in H2 2019 (H2 2018: £0.2 million). The dividend will be paid on 5 November 2019 to all shareholders on the register at 3 October 2019.

Since our flotation on AIM in October 2006, we have paid out 135p in dividends (prior to the 2.0p proposed interim dividend for 2019) and bought back 19.5 million shares at a cost of £25.4 million for cancellation, thereby increasing the Group's prospective earnings per share. We have therefore returned £113.0 million of cash to shareholders, equivalent to 174.3p per share (before 2019's interim dividend).

Outlook

As a result of the weak first half, revenue for the full year may be below that recorded in 2018, however the second half has started well with a number of transactions completed including an IPO. This means Cenkos has completed two of only seven IPO's whose shares were admitted to trading on the AIM market in the period to August 2019, which demonstrates that Cenkos remains the leading AIM broker, raising money even in very difficult market conditions. The pipeline for the remainder of the year and for 2020 is encouraging. We continue to evolve our business to adapt to market changes and remain at the forefront in providing capital and solutions for growth companies.

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 2019; 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.

Jim Durkin

Chief Executive Officer

17 September 2019

Condensed consolidated income statement for the six months ended 30 June 2019

				Unaudited	Unaudited	Audited
				Six months ended	Six months ended	Year ended
				30 June	30 June	31 December
				2019	2018	2018
				£ 000's	£ 000's	£ 000's
Continuing operations
Revenue				10,625	18,100	44,953
Administrative expenses				(10,876)	(17,674)	(41,902)
Operating (loss) / profit				(251)	426	3,051
Investment income - interest income				65	38	103
Finance costs				(10)	-	-
(Loss) / profit before tax from continuing operations				(196)	464	3,154
Tax				(5)	(123)	(805)
(Loss) / profit after tax				(201)	341	2,349
Attributable to:
Equity holders of Cenkos Securities plc				(201)	341	2,349
Basic earnings per share				(0.6)p	0.6p	4.2p
Diluted earnings per share				n/a	0.6p	4.2p

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2019

				Unaudited	Unaudited	Audited
				Six months ended	Six months ended	Year ended
				30 June	30 June	31 December
				2019	2018	2018
				£ 000's	£ 000's	£ 000's
(Loss) / profit				(201)	341	2,349
Amounts that will not be recycled to the income statement in future periods
Gain / (loss) on FVOCI financial asset				14	(65)	(180)
Tax on FVOCI financial asset				(3)	7	29
Other comprehensive gains / (losses)				11	(58)	(151)
Total comprehensive (expense) / income				(190)	283	2,198
Attributable to:
Equity holders of Cenkos Securities plc				(190)	283	2,198

Condensed consolidated statement of financial position as at 30 June 2019

				Unaudited	Unaudited	Audited
				30 June	30 June	31 December
				2019	2018	2018
				£ 000's	£ 000's	£ 000's
Non-current assets
Property, plant and equipment				441	569	558
Right-of-use assets				502	-	-
Intangible asset				83	-	100
Deferred tax asset				512	622	520
				1,538	1,191	1,178
Current assets
Trade and other receivables				28,592	40,039	18,831
FVOCI financial assets				534	164	220
Other current financial assets				10,168	10,334	12,648
Cash and cash equivalents				14,660	21,722	33,635
				53,954	72,259	65,334
Total assets				55,492	73,450	66,512
Current liabilities
Trade and other payables				(25,210)	(43,582)	(32,640)
Other current financial liabilities				(4,157)	(3,451)	(6,018)
				(29,367)	(47,033)	(38,658)
Net current assets				24,587	25,226	26,676
Non-current liabilities
Trade and other payables				(171)	(76)	(263)
Total liabilities				(29,538)	(47,109)	(38,921)
Net assets				25,954	26,341	27,591
Equity
Share capital				567	567	567
Share premium				3,331	3,331	3,331
Capital redemption reserve				195	195	195
Own shares				(5,004)	(5,260)	(5,663)
FVOCI reserve				(82)	-	(93)
Retained earnings				26,947	27,508	29,254
Total equity				25,954	26,341	27,591

Condensed consolidated cash flow statement for the six months ended 30 June 2019

				Unaudited	Unaudited	Audited
				Six months ended	Six months ended	Year ended
				30 June	30 June	31 December
				2019	2018	2018
				£ 000's	£ 000's	£ 000's
(Loss) / profit				(201)	341	2,349
Adjustments for:
Net finance income				(55)	(38)	(103)
Tax expense				5	123	805
Depreciation of property, plant and equipment				498	118	247
Shares and options received in lieu of fees				(374)	(378)	(1,970)
Share-based payment expense				736	741	1,852
Operating cash flows before movements in working capital				609	907	3,180
Decrease in net trading investments and FVOCI financial assets				692	790	2,492
(Increase) / decrease in trade and other receivables				(9,925)	(19,234)	1,981
(Decrease) / increase in trade and other payables				(7,783)	8,173	(3,029)
Net cash flow from operating activities before interest and tax paid				(16,407)	(9,364)	4,624
Tax paid				(200)	(1,301)	(1,664)
Net cash flow from operating activities				(16,607)	(10,665)	2,960
Investing activities
Interest received				49	31	90
Purchase of property, plant and equipment				(7)	(162)	(280)
Acquisition of Nomad business				-	-	(100)
Net cash inflow / (outflow) from investing activities				42	(131)	(290)
Financing activities
Payment of lease liabilities				(357)	-	-
Dividends paid				(1,398)	(2,484)	(3,573)
Proceeds from sale of own shares to employee share plans				23	41	62
Acquisition of own shares				(678)	(1,868)	(2,353)
Net cash used in financing activities				(2,410)	(4,311)	(5,864)
Net decrease in cash and cash equivalents				(18,975)	(15,107)	(3,194)
Cash and cash equivalents at beginning of period				33,635	36,829	36,829
Cash and cash equivalents at end of period				14,660	21,722	33,635

Condensed consolidated statement of changes in equity for the six months ended 30 June 2019

	Share capital	Share premium		Capital redemption reserve		Own shares		FVOCI reserve		Retained earnings	Total
	£ 000's	£ 000's		£ 000's		£ 000's		£ 000's		£ 000's	£ 000's
Balance at 1 January 2018	567	3,331		195		(3,845)		58		29,442	29,748
Profit	-	-		-		-		-		341	341
Loss on FVOCI financial assets net of tax	-	-		-		-		(29)		-	(29)
Derecognition of FVOCI financial asset	-	-		-		-		(29)		-	(29)
Total comprehensive income	-	-		-		-		(58)		341	283
Transfer of shares to employee share plans	-	-		-		41		-		-	41
Transfer of shares from share plans to employees	-	-		-		412		-		(412)	-
Acquisition of own shares by EBT	-	-		-		(1,868)		-		-	(1,868)
Credit to equity for equity-settled share-based payments	-	-		-		-		-		621	621
Dividends paid	-	-		-		-		-		(2,484)	(2,484)
Balance at 30 June 2018	567	3,331		195		(5,260)		-		27,508	26,341
Profit	-	-		-		-		-		2,008	2,008
Loss on FVOCI financial assets net of tax	-	-		-		-		(93)		-	(93)
Derecognition of FVOCI financial asset	-	-		-		-		-		23	23
Total comprehensive income	-	-		-		-		(93)		2,031	1,938
Transfer of shares from share plans to employees	-	-		-		82		-		(61)	21
Acquisition of own shares by EBT	-	-		-		(485)		-		-	(485)
Acquisition of own shares into Treasury	-	-		-		-		-		-	-
Credit to equity for equity-settled share-based payments	-	-				-		-		865	865
Dividends paid	-	-		-		-		-		(1,089)	(1,089)
Balance at 31 December 2018	567	3,331		195		(5,663)		(93)		29,254	27,591
Loss	-	-		-		-		-		(201)	(201)
Gain on FVOCI financial assets net of tax	-	-		-		-		11		-	11
Total comprehensive income	-	-		-		-		11		(201)	(190)
Transfer of shares to employee share plans	-	-		-		36		-		(13)	23
Transfer of shares from share plans to employees	-	-		-		1,301		-		(1,301)	-
Acquisition of own shares by EBT	-	-		-		(678)		-		-	(678)
Credit to equity for equity-settled share-based payments	-	-		-		-		-		606	606
Dividends paid	-	-		-		-		-		(1,398)	(1,398)
Balance at 30 June 2019	567	3,331		195		(5,004)		(82)		26,947	25,954

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 2019 are unaudited and were approved by the Board of Directors for issue on 17 September 2019.

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 mid- cap 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 ("IFRS") as adopted by the European Union 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.

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of the Company's financial condition are those relating to provisions, valuation of derivative financial assets and valuation of unlisted securities. These critical accounting policies and judgements are described on page 60 of the Cenkos Securities plc's 2018 Annual Report and Accounts.

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 2019 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 2018.

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 2018 except for the adoption of new standards in the period as mentioned below.

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 2018 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 2018.

In light of internal forecasts and the current pipeline of transactions, 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

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 consolidated financial statements for the year ended 31 December 2018, except for the adoption of new standards effective as of 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. For the first time the Group applies IFRS 16 Leases. As required by IAS 34, the nature and effect of the impact of this new standard is disclosed below. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim condensed consolidated financial statements of the Group.

IFRS 16 'Leases' is effective for the year ending 31 December 2019 and will require all leases to be recognised under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.

Transition to IFRS 16

The Company has adopted IFRS 16 on a cumulative catch-up basis and has not applied the standard to prior year comparatives. The lease liability has been measured as the present value of the remaining rental payments under the leases. The right-of-use asset has been measured at an amount equal to the lease liability and adjusted for lease prepayments at 31 December 2018. The net impact on the statement of financial position as at the date of transition is nil. The leases on Cenkos' London office at Tokenhouse Yard contained a break option on 31 January 2020. Consequently, at 30 June 2019 under the old leases, the Company had only two more payments to make, the last of which was due to be made on 25 December 2019. After the period end, the Company signed new 10 year leases effective from 8 August 2019. The lease on Cenkos' Edinburgh office expires on 19 March 2022. As at 30 June 2019, the Company was obliged to make a further 10 payments under the lease on the usual quarter days. Cenkos has applied IFRS 16 from 1 January 2019 and recognised a lease liability of £0.68 million and a right-of-use asset of £0.86 million, including a prepayment of £0.18 million. The lease liability has been calculated by discounting the quarterly lease payments over the remaining term of the lease using a discount rate which represents the incremental cost of borrowing.

2. Dividends

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

The proposed interim dividend for the period ended 30 June 2019 of 2.0p (30 June 2018: 2.0p) per share was approved by the Board on 17 September 2019 and has not been included as a liability as at 30 June 2019. The dividend will be payable on 5 November 2019 to all shareholders on the register at the close of business on 3 October 2019.                                                                                   

Under the Compensatory Award Plan ("CAP"), as described in the 2018 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 £0.03 million in the second half of 2019 (2.0p 2018 interim dividend increased staff costs by £0.2 million in the second half of 2018).                    

3.  Events after the reporting period

There were no material events to report on that occurred between 30 June 2019 and the date at which the Directors' signed the Interim 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.

 

END

 

 

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