Preliminary Results

Cenkos Securities PLC 22 March 2007 CENKOS SECURITIES plc ('THE COMPANY') TOGETHER WITH ITS SUBSIDIARIES ('THE GROUP') PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS OF THE GROUP FOR THE 13 MONTH PERIOD ENDED 31 DECEMBER 2006 ('THE PERIOD') 'A strong set of debut results' Financial Highlights â€¢ Turnover up 110% to Â£32.7 million (2005: Â£15.6 million) â€¢ Profit before tax up 88% to Â£20.8 million (2005: Â£11.0 million) â€¢ Pro forma profit before tax up 112% to Â£13.0 million (2005: Â£6.1 million) (Based on pro forma figures set out in the appendix to this announcement) â€¢ Basic and diluted EPS down 12% to 16.2p (2005: 18.4p), reflecting the issue of partly paid B shares to new teams recruited prior to the IPO â€¢ Net assets up 208% to Â£33.9 million (2005: Â£11.0 million) â€¢ As set out in our admission document, no dividend declared for this year â€¢ The Board establishes a dividend policy for future years based on a low dividend cover, reflecting the cash generative nature of the business Business Highlights â€¢ Oversubscribed IPO and admission to AIM â€¢ Good success in attracting new institutional and corporate clients â€¢ Expertise significantly enhanced with the recruitment of two well respected teams and strengthening of existing teams â€¢ Infrastructure developed for the next stage of growth â€¢ Strong start to the current year Commenting on the results, Andrew Stewart, Chief Executive Officer said: 'In a good year which saw Cenkos Securities plc admitted to AIM, we have delivered significant success across all of our business streams. The Company has continued to attract new institutional and corporate clients and this remains our strategy for growth. We have also added two well respected teams: one specialising in investment funds and the other in providing corporate broking services to small cap companies. During the period we have also continued to widen and deepen our research capability. As a result of this growth and our admission to AIM, we have also strengthened our infrastructure in order to deal with the increased activity levels. We continue to look for high quality teams which will augment and complement our existing ones; an approach which we believe will continue to be beneficial to the ongoing growth of the Group.' Enquires: Andrew Stewart - CEO Tel. 020 7397 8900 Chairman's Statement I was delighted to be appointed Chairman of Cenkos Securities plc ('Cenkos') prior to the Company's successful flotation on AIM in October 2006. The Company was formed in 2005 by a small team of individuals, most of whom had previously worked together for a number of years at Collins Stewart. Even with this well established track record, in a remarkably short period of time they have turned the Company into a highly profitable financial services company with a reputation for offering an entrepreneurial and innovative service to its client base. This team provides corporate broking and advisory services to small and medium sized companies quoted on the London Stock Exchange, both on the Official List and on AIM. During the current period we have managed to attract two high calibre teams which complement the original team, one specialising in investment funds and the other in providing corporate broking services to small cap companies. In addition, we have added to our institutional equities team which now provides coverage of a number of important industry sectors. This expansion now means that the Company employs 67 focused and high quality individuals. At the time of writing, this client base includes 53 listed companies with a combined market capitalisation of approximately Â£8 billion. It is very much the Company's intention to continue to enlarge this base without compromising the quality of our client base. We have specialist research, sales and market making resources, all of which contributed to a strong set of results for the Group. Corporate finance has also been active during the period to the end of December 2006. In addition to being involved in substantial fundraisings, it has also advised on mergers and acquisitions for our corporate clients. Some commentators have expressed caution concerning the current climate for investment banking, questioning the continuing demand for listings on AIM and noting that, after such a successful bull run in mergers and acquisitions activity, the rapid and profitable pace of corporate activity may slow down. For our part, given the solid performance in delivery of corporate finance transactions and an encouraging pipeline, we continue to view the future with optimism and will concentrate on expanding our business on all fronts. If the markets were to turn against us we believe that, given our low fixed cost base and an overall remuneration package heavily skewed towards performance, we are in a better position than most to deal with such an event. We also believe that there may be some further consolidation within our industry and we will continue to be alert to opportunities which will enhance shareholder value. The current year has started well, and in the years ahead we aim to offer our shareholders an above average dividend return, together with growth within the core business. This objective can, of course be affected by the market conditions prevailing during the period. The Company is not a capital intensive business and is cash generative and the board does not seek to retain profits unless it can produce superior returns by doing so. As a result we will be adopting a distribution policy reflecting a low dividend cover. Finally, to create and list a business of this quality, within such a short time frame, demonstrates the skills and commitment of our staff and the loyalty of our corporate and institutional clients and we are proud of this significant achievement. John Hodson Chairman 22 March 2007 Operating and Financial Review Financial Review In order to provide greater clarity about the 2006 performance, unaudited pro forma financial information is included as an appendix to this announcement. The pro forma statement of profits has been prepared to illustrate the effect on the profits of the Group if all individual members and employees of Cenkos Securities LLP had been employed by the Group during the periods to 31 December 2006 and 30 November 2005. On the basis of these pro forma figures turnover in the thirteen month period ended 31 December 2006 rose by 110% to Â£32.7 million (2005: Â£15.6 million) and profit before tax increased by 112% to Â£13.0 million (2005: Â£6.1 million). These profit figures are based on the unaudited pro-forma statement of profits set out in the Appendix. Basic and diluted earnings per share decreased by 12% to 16.2p from 18.4p. This decrease is predominantly due to the fact that the weighted average number of shares in the current period includes the total number of B shares granted to the new teams, even though they are partly paid shares, as these shares are entitled to a full dividend payout. These shares were predominantly issued in July and August 2006 and the teams joined us some months later due to previous employer restrictions and therefore were only able to produce revenues at the end of the year. We are delighted by the performance of the Group, which was achieved against a backdrop of a difficult IPO market, since May 2006. We have seen an increase in both secondary issues and other corporate transactions including mergers and acquisitions advisory work. The Group has declared an interim dividend of Â£1.00 (2005: Â£nil) per share during the current period. As set out in the Group's admission document, the directors do not propose to pay a final ordinary dividend (2005: nil) but do expect to pay an interim dividend in respect of 30 June 2007. Corporate broking and advisory We have seen another year of growth, not only in turnover, but the number of transactions completed and funds raised. With the widely reported tightening of the IPO market, it is pleasing to report that we have also seen the Company participate in a number of corporate transactions not involving the raising of funds, including advising on various mergers and acquisitions. In addition, we have continued to grow the number of retained corporate clients and have a firm strategy in place to attract new clients. The Company was nominated adviser or corporate broker to 32 companies as at 31 December 2006. During the period, the Company also raised more than Â£800 million for its clients. The Company was granted sponsor status from the UK Listing Authority on 4 August 2006, enabling it to act as sponsor to companies listed on the Official List. During the period we have added to this team which will allow us to continue the growth in this area. Institutional equities The institutional equities team currently provides research-driven investment recommendations to institutional clients. At present, the team has particular expertise in the business services, chemicals and consumer sectors, having recruited professionals who were previously top-ranked analysts in these sectors. The Group intends to expand its institutional equities team by recruiting further professionals with specific sector expertise. The team focuses on servicing large institutional and hedge fund clients, as we believe that this avoids the reduction in margins caused by servicing a larger number of smaller clients. Market making The Group has market making capabilities to support the other services that it provides to its clients. The Company makes markets in the securities of all companies where it has a broking relationship, its strategy being to take small positions in a wide range of stocks, thereby providing liquidity. The Company does not engage in proprietary trading. Investment funds In August 2006, the Company recruited an investment funds team. This team provides a broad range of services, including corporate broking, corporate finance, market making and sales, with a sole focus on investment funds. They act as counterparty for a large number of investment fund investors, and have detailed knowledge of their asset allocation strategies enabling successful secondary distribution and primary sales. The Group currently makes markets in approximately 200 investment fund securities, and by 31 December 2006, the Company had been appointed as corporate broker to 14 investment funds raising over Â£100 million having completed two transactions. The investment funds team uses (and will continue to use) significant levels of capital to take positions in the shares of quoted investment funds. These positions primarily facilitate institutional client trading and support the strategies of its investment fund clients. As the investment funds business grows, the level of capital used is expected to increase. Offshore wealth management and stockbroking services Offshore wealth management and stockbroking services are provided through Cenkos Channel Islands Limited, a 75 per cent. owned subsidiary of the Company, which was founded in August 2005 and is based in Guernsey. Varying levels of stockbroking services, from discretionary to execution-only, are provided primarily to high net-worth individuals, and also to financial intermediaries and institutions. People We have continued to invest in our staff whilst maintaining a tight control over on overhead base and are looking to acquire further high quality teams and businesses. We believe that these teams should be rewarded by a mixture of bonus and equity based payments that align their interests with that of our shareholders. However, unlike some of our competitors we will not grant cheap options which would under international accounting standards give rise to a high share based payments charge. Our concentration on controlling overheads has ensured a flat operating margin of 37% (2005: 38%), which is after fully charging bonuses and payments to the Cenkos LLP. We have assembled an excellent team and I should like to thank them all for their achievements and hard work. We have made a commitment to grow the business and we look forward to their continued support. Outlook We are pleased to have started the new financial year on a positive note. Our pipeline of business is encouraging and we are confident that our entrepreneurial philosophy will help the continued growth in our revenues. We will continue to expand our corporate client base and believe that our ability to attract high quality individuals will serve the Company well in its objective of being a first class, relationship based stock broking business. Andy Stewart Chief Executive Officer 22 March 2007 Consolidated income Statement 13 month period ended 31 December 2006 1 December 2005 to 20 August 2004 to 31 December 2006 30 November 2005 Note Â£ Â£ Continuing Operations Revenue 2 32,670,329 15,571,727 Administrative expenses 3 (12,715,410) (4,743,275) Operating profit 19,954,919 10,828,452 Investment income - interest receivable 811,526 215,770 Finance costs - interest payable (13,740) (5,498) Profit before tax 20,752,705 11,038,724 Tax 4 (3,978,747) (1,843,680) Profit for the period 16,773,958 9,195,044 Attributable to: Equity holders of the parent 9,011,374 4,281,774 Minority interests 7,762,584 4,913,270 16,773,958 9,195,044 Earnings per share Basic 6 16.2p 18.4p Diluted 6 16.2p 18.4p All amounts shown in the consolidated financial statements derive from continuing operations of the Group. The profit attributable to the Company for the thirteen month period ended 31 December 2006 was Â£8,762,275 (period ended 30 November 2005: Â£4,299,756). Consolidated Balance Sheet 31 December 2006 31 December 30 November 2006 2005 Â£ Â£ Non-current assets Property, plant and equipment 737,174 364,445 Available for sale investments 3,229,164 4,327,797 Deferred tax asset 158,356 - 4,124,694 4,692,242 Current assets Trading investments - long 13,123,643 977,363 positions Trade and other receivables 39,620,045 7,701,859 Cash and cash equivalents 9,780,584 12,261,523 62,524,272 20,940,745 Total assets 66,648,966 25,632,987 Current liabilities Trading investments - short positions (5,127,238) (954,823) Trade and other payables (26,968,091) (12,265,481) (32,095,329) (13,220,304) Net current assets 30,428,943 7,720,441 Non-current liabilities Deferred tax liabilities (669,032) (996,622) Preference shares - (400,000) Total liabilities (32,764,361) (14,616,926) Net assets 33,884,605 11,016,061 Equity Share capital 725,936 440,283 Share premium account 22,733,114 3,962,551 Revaluation reserves 1,556,408 2,325,452 Retained earnings 8,843,146 4,281,774 Equity attributable to equity holders of the parent 33,858,604 11,010,060 Minority interests 26,001 6,001 Total equity 33,884,605 11,016,061 The financial statements were approved by the board of directors and authorised for issue on 22 March 2007. They were signed on its behalf by: Andrew Stewart Simon Melling Chief Executive Officer Director Consolidated cash flow statement 13 month period ended 31 December 2006 1 December 2005 to 20 August 2004 to 31 December 2006 30 November 2005 Â£ Â£ Profit for the period 16,773,958 9,195,044 Adjustments for: Finance costs (797,786) (210,272) Tax 3,978,747 1,843,680 Depreciation of property, plant and equipment 133,552 50,620 Share-based payment expense 372,832 - Operating cash flows before movements in working capital 20,461,303 10,879,072 Net increase in trading investments (7,973,865) (22,540) Increase in trade and other receivables (14,198,456) (7,701,859) Increase in trade and other payables 13,452,715 10,421,801 Distributions to minority interests (7,762,584) (4,913,270) Net cash inflow from operating activities 3,979,113 8,663,204 Interest paid (13,605) (5,498) Taxation paid (2,891,208) - Net cash inflow from operating activities 1,074,300 8,657,706 Investing activities Interest received 535,729 215,770 Purchase of property, plant and equipment (506,281) (415,065) Purchase of available-for-sale investments - (1,005,723) Net cash generated by/(used in) investing activities 29,448 (1,205,018) Financing activities Dividends paid (4,822,834) - Proceeds from issue of equity shares 1,612,147 4,402,834 (Redemption of)/issue of preference shares (400,000) 400,000 Issue of capital by subsidiary to minority interests 26,000 6,001 Net cash (used in)/generated by financing activities (3,584,687) 4,808,835 Net (decrease)/increase in cash and cash equivalents (2,480,939) 12,261,523 Cash and cash equivalents at beginning of period 12,261,523 - Cash and cash equivalents at end of period 9,780,584 12,261,523 Consolidated statement of changes in equity 13 month period ended 31 December 2006 Share Share Revaluation Retained Minority Note capital premium reserve earnings Interests Total Â£ Â£ Â£ Â£ Â£ Â£ On incorporation - - - - - - Shares issued 440,283 3,962,551 - - - 4,402,834 Capital contributed by minority interest - - - - 6,001 6,001 Retained profit for the period - - - 6,607,226 - 6,607,226 Profit allocated to minority interests - - - - 4,913,270 4,913,270 Distribution of profit to minority interest - - - - (4,913,270) (4,913,270) At 30 November 2005 440,283 3,962,551 - 6,607,226 6,001 11,016,061 Implementation of IFRSs Increase in fair value of available-for-sale investments - - 3,322,074 (3,322,074) - - Deferred tax liability arising on fair valuation of available-for-sale investments - - (996,622) 996,622 - - At 30 November 2005 440,283 3,962,551 2,325,452 4,281,774 6,001 11,016,061 Shares issued 285,653 20,819,945 - - - 21,105,598 Capital contributed by minority interest - - - - 26,000 26,000 Retained profit for the period - - - 9,011,374 - 9,011,374 Profit allocated to minority interests - - - - 7,762,584 7,762,584 Distribution of profit to minority interest - - - - (7,762,584) (7,762,584) Transfer of amounts to payables on retirement of minority interest members - - - - (6,000) (6,000) Decrease in fair value of available-for-sale investments - - (1,098,634) - - (1,098,634) Reversal of deferred tax liability on fair valuation of available-for-sale investments - - 329,590 - - 329,590 Credit to equity for equity-settled share-based payments - - - 372,832 - 372,832 Share issue costs taken through premium - (2,049,382) - - - (2,049,382) Dividends paid 5 - - - (4,822,834) - (4,822,834) At 31 December 2006 725,936 22,733,114 1,556,408 8,843,146 26,001 33,884,605 Notes to the financial information 1. Statement of accounting policies The accounting policies used in arriving at the preliminary figures are consistent with those which were set out in the Financial Information for the six month period ended 31 May 2006, included in the Company's AIM admission document. Whilst the financial information included in this preliminary 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 2006 statutory accounts comply with IFRSs. All financial information has been prepared in accordance with IFRSs. The comparative results for the period ended 30 November 2005, which were originally reported in accordance with UK Generally Accepted Accounting Practice, have been restated accordingly. 2. Business and geographical segments The directors consider that there is only one activity undertaken by the Group, that being investment banking. The majority of this activity is undertaken in the United Kingdom. 3. Staff costs and numbers 1 December 20 August 2005 to 2004 to 31 December 30 November 2006 2005 Â£ Â£ Staff costs comprise: Wages and salaries 8,430,140 3,151,618 Social security costs 976,386 395,415 9,406,526 3,547,033 The Group does not operate any pension schemes. The average number of employees (including executive directors) was: 1 December 20 August 2005 to 2004 to 31 December 30 November 2006 2005 Corporate finance 7 7 Corporate broking 23 3 Administration 10 3 40 13 Notes to the financial information (continued) 4. Tax The tax charge comprises: 2006 2005 Â£ Â£ Current tax United Kingdom corporation tax at 30% (2005 - 30%) based on the profit for the period 4,091,258 1,843,680 Adjustment in respect of prior period 43,845 - Total current tax 4,135,103 1,843,680 Deferred tax Credit on account of timing differences (158,356) - Charge on account of timing differences 2,000 - Total deferred tax (156,356) - Total tax on profit on ordinary activities 3,978,747 1,843,680 The tax charge for the period differs from that resulting from applying the standard rate of UK corporation tax of 30% to the profit before tax for the reasons set out in the following reconciliation. 2006 2005 Â£ Â£ Profit on ordinary activities before tax 20,752,705 11,038,724 Tax on profit on ordinary activities at the UK corporation tax rate of 30% (2005: 30%) 6,225,812 3,311,617 Tax effect of: Depreciation in excess of capital allowances (22,990) (382) Expenses that are not deductible in determining taxable profits 91,161 (43,998) Different tax rates of subsidiaries operating in other jurisdictions (31,632) 6,043 Income not subject to corporation tax (2,327,449) (1,429,600) Adjustment in respect of prior period 43,845 - Tax expense for the period 3,978,747 1,843,680 In addition to the amount charged to the income statement, deferred tax relating to the fair value of the Group's available for sales investments amounting to Â£329,590 (2005: Â£996,622 charged to equity) has been credited directly to equity. 5. Dividends Amounts recognised as distributions to equity holders in the period: 2006 2005 Â£ Â£ Interim dividend for the period of Â£1.00 (2005: nil) per share. 4,822,834 - There is no final dividend proposed for the period (2005: Â£nil). Notes to the financial information (continued) 6. Earnings per share The calculation of the basis and diluted earnings per share is based on the following data: 2006 2005 Â£ Â£ Earnings Earnings for the purpose of basic earnings per share being net profit attributable to equity holders of the parent 9,011,374 4,281,774 Effect of dilutive potential ordinary shares: Share options - - Earnings for the purpose of diluted earnings per share 9,011,374 4,281,774 No. No. Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share 55,503,588 23,270,380 Effect of dilutive potential ordinary shares: Share options 57,870 - Weighted average number of ordinary shares for the purpose of diluted earnings per share 55,561,458 23,270,380 The denominators for the purpose of calculating both basis 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 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. 7. 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 thirteen month period ended 31 December 2006. 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, and will be delivered following the Company's Annual General Meeting. Statutory accounts for the period ended 30 November 2005 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. 8. Annual general meeting The Company's Annual General Meeting will be held at 12.00 pm on 27th April 2007 at 2nd Floor 6.7.8 Tokenhouse Yard, London, EC2R 7AS. Appendix The following pro forma financial information set out below has been prepared to illustrate the effect on the profits of the Group if all individual members and employees of the Cenkos LLP had been employed by the Company during the thirteen month period to 31 December 2006 and during the period from 20 August 2004 to 30 November 2005. These unaudited pro forma statements have been prepared for illustrative purposes only and may not, because of its nature, give a true picture of the financial results of the Group. 1 December 2005 to 20 August 2004 to 31 December 2006 30 November 2005 Note Â£ Â£ Continuing Operations Revenue 32,670,329 15,571,727 Administrative expenses 1 (20,477,994) (9,656,545) Operating profit 12,192,335 5,915,182 Investment revenues - interest receivable 811,526 215,770 Finance costs - interest payable (13,740) (5,498) Profit before tax 12,990,121 6,125,454 Tax (3,978,747) (1,843,680) Profit for the period 9,011,374 4,281,774 Attributable to: Equity holders of the parent 9,011,374 4,281,774 Minority interests 1 - - 9,011,374 4,281,774 Earnings per share Basic 16.2p 18.4p Diluted 16.2p 18.4p Notes: 1. In the statements for each period the administrative expenses have been increased by the amount of the minority interest of Â£7,762,584 (2005 - Â£4,913,270) as this would be the estimated increase in the Group's costs if all members of the Cenkos LLP were to be employed by the Company. As a result the minority interest has been eliminated. This information is provided by RNS The company news service from the London Stock Exchange

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