CNKS.L Regulatory News (CNKS)

30 April 2020

Cenkos Securities plc

Annual Results for the year ended 31 December 2019

Cenkos Securities plc (the "Company" or "Cenkos" or the "Firm") today announces its results for the year ended 31 December 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.

 (1) Includes a proposed final dividend of 1.0p (2018: 2.5p)

Since being admitted to trading on AIM in 2006, the Company has returned £114.1 million of cash to shareholders, equivalent to 176.3p per share, before the payment of the proposed 2019 final dividend of 1.0p per share.

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

"Difficult markets in 2019, and uncertainty surrounding the UK's exit from the European Union, has resulted in a reduction in revenue compared to last year. This result was set against the backdrop of a 30% reduction in the total funds raised by AIM companies in 2019. Performance related payments to staff have been reduced in line with net revenue, leading to a modest pre-tax profit for the year.

The outlook for 2020 is clouded by the, as yet unknown, economic impact of COVID-19. I am however, pleased to report that we have started the year well, completing the largest IPO on AIM so far this year and despite unprecedented market circumstances have also executed a number of secondary fund raisings. We are continuing to work closely with our corporate clients to assess the impact of COVID-19 and the disruption that many of them are currently experiencing. We have a good pipeline, a cost base that is significantly below the 2019 level and a strong balance sheet, so I look forward to 2020 with tempered optimism. We are well placed to face the challenges ahead."

Chief Executive Officer's statement

Performance

I was formally appointed as CEO in August 2019 at a challenging time for Cenkos. The first half of the year had seen revenues plummet to £10.6 million. At the same time overheads were rising due to increased legal and regulatory fees, costs associated with data and other outsourced suppliers and, in addition, the Company was obliged to extend the contracts of various Board members to provide control function cover, ahead of my approval by the regulator. Although I am pleased to report that revenues in the second half of the year increased to £15.3 million, this performance combined with the consequences of MIFiD II, prompted me to conduct an in-depth review of overheads, leading to a consultation process involving a number of employees. This review incurred an additional £1.3 million of one-off costs associated with the restructuring but will result in our fixed cost base being some £3 million lower in 2020.

Markets have been very difficult in 2019, reflecting uncertainties around Brexit and the General Election. I am, however, pleased to report that we performed well in terms of market share executing three of the 10 IPOs on the AIM market and raising £664 million for our corporate clients. Although down on last year due to the rotation of several investment trusts, some de-listings and a generally quieter period of M&A activity, our client base remains solid at 100 companies and investment trusts. Of these, 45% have been with Cenkos over 5 years reflecting our ethos of building and developing long-term relationships.

I am pleased to report that the implementation of the new SMCR regime was successful and proceeded according to plan. As with other firms we continue to invest in people, systems and technology to meet the requirements of new regulation and legislation. Delivering good client outcomes lies at the heart of the Firm and we believe that all regulation must be accompanied by a strong internal culture underpinned by the highest ethical and professional standards. The highest standards need to be set by the Board, but ultimately all our staff must take responsibility for the way in which they conduct business and work with colleagues.

The Board

There have been several changes to the Board in 2019. In July 2019, Jeremy Miller joined the Board as a Non-Executive Director and has brought further independence and challenge to the Board. Joe Nally and Paul Hodges, founder shareholders of Cenkos, stepped down as Executive directors in September 2019. On behalf of the Board, I would like to thank them for their valuable contribution. I would also like to thank Jeff Hewitt for 11 years of service as a director and acting chairman of Cenkos. In November 2019, it was announced that Julian Morse, the head of our Growth Companies team, would join the Board as an Executive Director subject to regulatory approval, this approval has just been received and his appointment to the Board will be confirmed shortly.

I am pleased to report that following a search for a new Chairman, in February 2020 we announced the appointment of Lisa Gordon as your new Chairman subject to regulatory approval.

Assessment of Coronavirus impact

Cenkos responded to COVID 19 promptly by enacting its business continuity plan and successfully implementing a comprehensive remote working capability. These procedures are working well and have enabled us to ensure both the wellbeing of our staff and the ability to continue servicing our clients during this period of uncertainty. Due to the quality and flexibility of our people and the strengths of our business, our ability to attract and win new high-quality corporate clients remains strong. We continue to sign up clients and have the capacity to add many more to our stable. We are operating from a position of robust financial health both from the viewpoint of cash and capital resources and, in addition, the actions referred to above reduce the fixed cost base, thus providing an even stronger foundation for future growth.

Outlook

The outlook for 2020 is clouded by the as yet unknown economic impact of COVID-19. I am however, pleased to report that we have started the year well, completing the largest IPO on AIM so far this year and despite unprecedented market circumstances have also executed a number of secondary fund raisings. We are continuing to work closely with our corporate clients to assess the impact of COVID-19 and the disruption that many of them are currently experiencing. Our pipeline is good, so I look forward to 2020 with tempered optimism and with a cost base that is significantly below the 2019 level. We are well placed to face the challenges ahead.

Dividend

Our confidence in Cenkos over the long term remains undimmed and so we are pleased to announce a 1.0p final dividend which brings the full year dividend to 3.0p a share. We remain in a strong position from a capital and cash point of view. Since being admitted to AIM we have returned £114.1m of cash to shareholders, equivalent to 176.3p per share, before the payment of the proposed 2019 final dividend of 1.0p per share.

Income statement

For the year ended 31 December 2019

Statement of comprehensive income

For the year ended 31 December 2019

Statement of financial position

As at 31 December 2019

Cash flow statement

For the year ended 31 December 2019

Statement of changes in equity

For the year ended 31 December 2019

Equity attributable to equity holders

Notes to the financial statements

1. Accounting policies

General information

Cenkos Securities plc is a public company limited by shares incorporated in England, United Kingdom under the Companies Act 2006 (Company Registration No. 05210733). The financial information contained within this announcement does not constitute statutory accounts for the year ended 31 December 2019 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 2019 will be delivered to the Registrar of Companies in due course. The annual report and audited 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 25 June 2020.

The 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 Company's business activities, together with the factors likely to affect its future development and performance, the financial position of the Company, its cash flows, capital and liquidity position are set out in the Strategic report in the Annual Report.

Coronavirus ('COVID-19') was recognised as a pandemic by the World Health Organization (WHO) on 11 March 2020. In response, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. These actions have severely restricted the level of economic activity around the world and impacted the health of the financial markets. Cenkos responded to COVID-19 promptly by enacting its business continuity plan and successfully implementing a comprehensive remote working capability. These procedures are working well and have enabled us to ensure both the wellbeing of our staff and the ability to continue servicing our clients during this period of uncertainty.

The full extent of the pandemic is, as of today, unknown and there is a degree of uncertainty over what the impact on the Company will be. However, since the pandemic was declared, Cenkos has been appointed by several new clients and has completed a number of secondary placing transactions, which could suggest a period of increased activity as companies look to bolster their balance sheets to tide them over the period of lockdown. Alternatively, the recent significant decline in asset prices may dissuade companies from approaching the markets to raise further capital, leading to a period of inactivity. Whilst it is not possible to quantify the overall impact of COVID-19, as described above, if it were to lead to a period of inactivity this would most likely lead to a reduction in fees generated from placing and corporate finance and a decline in fair values of listed equities, options and warrants as observed in March 2020. Management continues to monitor the impact of the COVID-19 pandemic on the Company and the financial markets.

In order to mitigate the risk associated with fluctuations in the financial markets, the Company operates a flexible business model which links risk adjusted variable remuneration to corporate performance. Fixed costs are kept low and controlled and, in addition, the review of overheads conducted in 2019 has resulted in a significantly reduced fixed cost base going forward, so providing an even stronger foundation. Cenkos is not reliant on external borrowings but is funded entirely by share capital and retained earnings. The business is not capitally intensive. The trading book is tightly controlled by book limits and, apart from shares received in lieu of fees, is held for market making purposes or to facilitate client business. Cenkos has a positive cash cycle and does not run any liquidity mismatches. Cash is the largest asset on the statement of financial position and consequently its exposure to credit risk is largely due to its bank deposits before risk weighting. As at 31 December 2019, capital resources in excess of Pillar 1 regulatory capital requirements amounted to £13.5m (2018: £11.2m) equating to a solvency ratio of 226% (2018: 183%).

Management has also performed an impact analysis as part of its going concern assessment using information available to the date of issue of these financial statements. As part of this analysis, a number of adverse scenarios have been modelled to assess the potential impact on the Company's revenue streams, in particular corporate finance fees and on asset values, liquidity and capital adequacy. In addition, a reverse stress test has been modelled to assess the stresses the balance sheet has to endure before there is a breach of the relevant regulatory capital requirement or insufficient cash resources and including an assessment of any relevant mitigations management has within their control to implement. Having performed this analysis, management believes regulatory capital requirements continue to be met and the Company has sufficient liquidity to meet its liabilities for the next 12 months and that the preparation of the financial statements on a going concern basis remains appropriate as the Company expects to be able to meet its obligations, as and when they fall due, for the foreseeable future.

Basis of accounting

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, with the prior period being presented on the same basis.

2. Dividends

Amounts recognised as distributions to equity holders in the year:

A final dividend of 1.0p per share has been proposed for the year ended 31 December 2019 (2018: 2.5p). The proposed final dividend is subject to approval at the Annual General Meeting and is not recognised as a liability as at 31 December 2019. The final dividend will be paid on 2 July 2020 to the shareholders on the register at 5 June 2020, subject to approval at the Annual General Meeting to be held on 25 June 2020.

3. Events after the reporting period

COVID-19 is considered to be a non-adjusting post balance sheet event and, as such, there is no financial impact on the financial statements as at 31 December 2019. For further discussion concerning the Management's assessment the impact of COVID-19 on the Company, refer to the Going Concern section in note 1 Accounting Policies.

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.