CNKS.L Regulatory News (CNKS)

9 September 2021

Cenkos Securities plc

Interim Results for the six months ended 30 June 2021

Cenkos Securities plc (the "Company" or "Cenkos" or the "Firm"), the independent institutional stockbroking firm, today announces its results for the six months ended 30 June 2021.

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) Underlying profit is profit before restructuring costs and charges related to the Cenkos incentive plans and tax.

(2) Prior year comparatives have been restated to conform with current interpretation of IAS 33 such that there is no adjustment for dividends on shares held in SIP & DBS in arriving at Earnings for the purpose of basic earnings per share.

Since being admitted to trading on AIM in 2006, the Company has returned £116.4 million of cash to shareholders, equivalent to 180.8p per share, before the payment of the proposed 2021 interim dividend of 1.25p per share.

Outlook:

Since the end of the period, the completion of 2 IPOs and a further 8 fundraisings further demonstrate the ongoing strength of the business and its pipeline. Whilst we cannot always assume favourable conditions within equity markets, by continuing to lay the groundwork for growth and through our tenacity and long-term partnering with clients, we see reasons for optimism for the remainder of 2021 and beyond.

Julian Morse, Chief Executive Officer commented: "The healthy performance in the first six months of the year, with a 44% increase in underlying profits of £2.8m, a 37% increase in revenues to £18.2m and a 25% increase in our interim dividend, is testament to the quality of our clients and the focus and commitment of our colleagues. Our people are our greatest asset and I want to thank everyone for their hard work on delivering these results and setting us up with a strong pipeline. In recognition of the importance of our people, we are proud to have implemented a company-wide TSR-based share incentive scheme for the first time to align all our key stakeholders and ensure everyone at the firm is able to share in our success."

Chairman's statement

With a new leadership team in place, bringing energy and focus to delivering our strategic goals and further developing the firm's collaborative and entrepreneurial culture, I am heartened by our performance in the first six months of the financial year.

Against the backdrop of the ongoing challenges presented by Covid-19 and remote working, the leadership team have created a flexible and inclusive work environment for our employees and these results show how the firm's values of professionalism and teamwork are a key part of our recent success.

The Board is committed to building Cenkos to the number one position in our key markets and to achieve this, we must look beyond the short-term cyclicality of the markets. Our long-term strategy requires investment in both people and systems, and I am delighted to report that we continue to attract and develop the best talent to achieve this.

With an energised team, a strong balance sheet and a clear focus on our strategic goals, we are well-positioned to build further from here, creating value for our entire shareholder base.

Lisa Gordon

Non-Executive Chairman

8 September 2021

Chief Executive Officer's statement

The healthy performance in the first six months of the year, with a 44% increase in underlying profits of £2.8m, a 37% increase in revenues to £18.2m and a 25% increase in our interim dividend, is testament to the quality of our clients and the focus and commitment of our colleagues. Our people are our greatest asset and I want to thank everyone for their hard work on delivering these results and setting us up with a strong pipeline. In recognition of the importance of our people, we are proud to have implemented a company-wide TSR-based share incentive scheme for the first time to align all our key stakeholders and ensure everyone at the firm is able to share in our success.

Our drive and ambition helped us win twelve new clients across the business during the first six months of the year and successfully secure more than 10% of all funds raised on AIM during that time, as well as execute significant follow-on placings for a number of our main list investment company clients. 2 IPOs and a further 8 fundraisings since the end of the first half further demonstrate the ongoing strength of the business and its potential to continue to grow both revenue and market share.

We are seeing the benefits of our strategy begin to emerge. Maintaining a low-cost base and a strong balance sheet have allowed us to invest in people, systems and technology, provide high-touch service levels to our clients and create a resilient platform from which we can grow.

With 12 new hires in the first half, we continue to deepen our talent pool across the firm and will look to make further high-quality hires to deliver our mission of building market share.

The market for UK equities has been strong during the period, and while we see no reason for this to change in the near term, we cannot always assume favourable conditions. That said, a large proportion of our business is focused on raising money for corporates trading on AIM, which has seen the aggregate value of companies on the market double over the last seven years, and those companies consistently raise funds, with the amount raised each year on AIM ranging from £3.8 billion to £6.4 billion. By continuing to lay the groundwork for growth and through our tenacity and long-term partnering with innovative clients, we see reasons for optimism for the remainder of 2021 and beyond.

Performance

I am pleased to report that H1 2021 revenue increased by 37% to £18.2 million (H1 2020: £13.3 million) while underlying profit increased by 44% to £2.8 million (H1 2020: £2.0 million).

A summary of H1 2021 performance compared to H1 2020 is set out in the table below:

Corporate finance

Corporate finance fees increased by 38% to £12.7 million (H1 2020: £9.2 million) reflecting an increased level of corporate activity across the market during the period. Cenkos completed 16 (H1 2020: 11) placing transactions helping its clients raise £0.58 billion in equity finance. Of this, £0.40 billion was raised on the AIM market which equates to just over 10% (H1 2020: 9%) of the £3.96 billion (H1 2020: £2.89 billion) raised by Companies during the period to 30 June 2021.

Nomad, broking and research

The number of clients represented by Cenkos increased over the first half of 2021 from 94 to 100 (June 2020: 97), although for timing reasons this is not fully reflected in the Nomad, broking and research fees generated, which decreased by 5% to £3.1 million (H1 2020: £3.2 million).

Execution

Net trading gains increased by 199% to £2.4 million (H1 2020: £0.8 million) against a backdrop of heightened market activity which had followed on from the final quarter of 2020 and continued throughout the first half of 2021. During this period, we maintained a top 5 market share in 90% (H1 2020: 94%) of our clients' stocks and overall made markets in 219 (H1 2020: 185) equities and Investment Trusts.

Other operating income

Other operating income includes the fair value gains and losses on options and warrants, which this year has been shown separately from execution - net trading gains under the revenue caption as the Directors believe this provides a clearer view of the performance of the business by separating out from revenue the gains and losses on level 3 instruments. To 30 June 2021, this showed a loss of £45k against the prior period loss of £361k, reflecting the fair value movement of the warrants received in lieu of fees and those acquired during the period.

Administrative expenses

Administrative expenses - staff costs

Staff costs increased by 59% to £11.8 million (H1 2020: £7.4 million) primarily due to an increase in the accrual for variable remuneration in line with the significant improvement in performance, but also as a result of a targeted increase in staff to 92 employees at 30 June 2021 (June 2020: 89) from 90 at 31 December 2020. This is in-line with Cenkos' aim to recruit ahead of the curve, so it may continue to provide a premium service to its clients as the business grows.

Administrative expenses - other

Other administrative expenses remained largely flat at £3.6 million (H1 2020: £3.5 million) reflecting continued tight control over the cost base offset by considered investment.

Administrative expenses - restructuring costs and Incentive Plans (STIP, LTIP & CSOP)

Costs associated with the restructuring and incentive plans decreased by 8% to £1.1 million (H1 2020: £1.2 million). In addition to the charges associated with the STIP ("Short Term Incentive Plan"), the incentive plan launched in April 2020, this caption also includes charges associated with the LTIP ("Long Term Incentive Plan") and CSOP ("Company Share Option Plan"). These schemes were launched in May 2021, aimed at retaining and incentivizing staff, with the LTIP focused on senior management and the CSOP all employees. The charge of £0.6 million (H1 2020: £0.5 million) in respect of these plans represents the portion of the fair value of the schemes allocated to this period.

Profit and earnings per share

Underlying profit increased by 44% to £2.8 million (H1 2020: £2.0 million). Underlying profit is disclosed before restructuring costs and costs associated with the incentive plans as the Directors believe this provides a clearer view of the performance of the business.

Statutory profit before tax for the period increased by 124% to £1.7 million (H1 2020: £0.8 million). The tax charge for the period of £0.2 million (H1 2020: £0.2 million) equates to an effective tax rate of 11% (H1 2020: 22%). Profit after tax for the period was £1.5 million (H1 2020: £0.6 million).

Basic earnings per share for the period was 3.1p (H1 2020 Restated: 1.2p).

Financial position

The statement of financial position shows net assets increased to £25.4 million as at 30 June 2021 (30 June 2021: £24.6 million), which reflects the profits generated over the period being partially offset by the cost of shares acquired by the EBT and dividends paid.

The decrease in non-current assets relates to the amortization of the right of use asset recognized in respect of the London and Edinburgh office leases, which has a corresponding impact on trade and other payables.

The increase in net trading investments is mainly due to the increase in asset prices and activity over the period. The increase in activity and the settlement of share trades is also reflected in the movements in trade and other receivables and trade and other payables. Profitable trading during the period has resulted in an increase in the accrual for variable remuneration and cash and cash equivalents.

Capital and Liquidity

The Board continuously assesses the Company's cash and capital requirements with the intention of maintaining a strong balance sheet, including a significant surplus over and above its Pillar 1, Individual Capital Guidance ('ICG') and Combined Capital Buffer ('CCB') requirements and sufficient liquid resources to cover at least 12 months of fixed overheads.

The new Investment Firms Prudential Regime ('IFPR') is due to come into force in January 2022. Whilst the legislation is subject to final approval, Management has conducted a high-level review and expect there to be little change to Cenkos' capital requirement under the new IFPR.

At 30 June 2021, Cenkos had a capital resources surplus of £17.0 million (H1 2020: £15.8 million) above its Pillar 1 regulatory capital requirement.

The Board

As previously announced, Jim Durkin retired from the Company on the 12 May 2021. Subsequent to the Annual General Meeting, Julian Morse took up the position of Chief Executive Officer and Jeremy Osler took up his role as an Executive Director of the Company, both positions having received regulatory approval from the Financial Conduct Authority.

Going concern

The Coronavirus ('COVID-19') continues to have a major impact worldwide. Many countries still have measures in place restricting travel, business operations and peoples' activities to contain the spread of the virus. In the UK, restrictions have been removed largely due to the success of the vaccination programme resulting in a fall in the number of new cases and hospitalizations. This is being closely monitored, as is the emergence of new variants and their resistance to the vaccines. Cenkos' offices are open and fully operational, although should restrictions be re-imposed, the business continuity plan will once again be enacted. Management has performed an impact analysis as part of its going concern assessment using information available to the date of issue of these financial statements. Having performed this analysis, management believes: (a) regulatory capital requirements will continue to be met; (b) the Company has sufficient liquidity to meet its liabilities for the next 12 months; and (c) 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.

Outlook

Since the end of the period, the completion of 2 IPOs and a further 8 fundraisings further demonstrate the ongoing strength of the business and its pipeline. Whilst we cannot always assume favourable conditions within equity markets, by continuing to lay the groundwork for growth and through our tenacity and long-term partnering with clients, we see reasons for optimism for the remainder of 2021 and beyond.

Dividend

The Board recognises the importance of dividends to our shareholders, and since being admitted to AIM we have returned the equivalent of 180.8p per share of cash to shareholders. The Board will continue to look to return significant value to shareholders while seeking to establish a level of consistency of dividend payments throughout variable market conditions.

The Board proposes an interim dividend of 1.25p (H1:2020 1.0p) per share. The dividend will be paid on 4 November 2021 to all shareholders on the register at 8 October 2021.

Julian Morse

Chief Executive Officer

8 September 2021

Condensed income statement

For the six months ended 30 June 2021

* Prior year comparatives have been restated to conform with IAS 33 such that there is no longer any adjustment for dividends on shares held in SIP & DBS in arriving at Earnings for the purpose of basic earnings per share.

Condensed statement of comprehensive income

For the six months ended 30 June 2021

Condensed statement of financial position

As at 30 June 2021

Condensed cash flow statement

For the six months ended 30 June 2021

Condensed statement of changes in equity

For the six months ended 30 June 2021

Equity attributable to equity holders

Notes to the financial statements

1. Accounting policies

General information

The interim condensed financial statements of Cenkos Securities plc (the "Company" or "Cenkos") for the six months ended 30 June 2021 are unaudited and were approved by the Board of Directors for issue on 8 September 2021.

The Company is incorporated in England under the Companies Act 2006 (company registration No. 05210733) and its shares are publicly traded. The Company'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 UK-adopted International Accounting 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.

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions considered to be the most important to the portrayal of the Company's financial condition are those relating to equity-settled share-based payments, valuation of derivative financial assets, provisions and revenue recognition. These critical accounting policies and judgements are described on page 68 of the Cenkos Securities plc's 2020 Annual Report and Accounts. In addition to this, to the extent that derivative financial assets are traded, reference is made to recent bargains in estimating the fair value of these financial assets. The Directors consider that this reflects fair consideration for the services provided.

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

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Cenkos Securities PLC transitioned to UK-adopted International Accounting Standards in its Financial Statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

The interim condensed financial statements for the six months ended 30 June 2021 have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The interim condensed 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 2020.

The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2020 apart from in relation to derivative financial assets, where to the extent that they are traded, reference is made to recent bargains in estimating the fair value of these financial assets.

The financial information contained in these interim condensed financial statements does not constitute the Company'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 2020 does not constitute the statutory accounts for that financial period. Those accounts have been reported on by the Company's auditors, BDO 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 2020.

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.

The Coronavirus ('COVID-19') continues to have a major impact worldwide. Many countries still have measures in place restricting travel, business operations and peoples' activities to contain the spread of the virus. In the UK, restrictions have been removed largely due to the success of the vaccination program resulting in a fall in the number of new cases and hospitalisations. This is being closely monitored as is the emergence of new variants and their resistance to the vaccines. Cenkos offices are open and fully operational, although should restrictions be re-imposed, the business continuity plan will once again be enacted.

In its 6th assessment report released in August 2021, the Intergovernmental Panel on Climate Change ('IPCC') highlights the catastrophic impact human activity is having on global warming and its links to recent extreme worldwide weather patterns. This report is timed to focus the minds of the governments, across 195 countries, ahead of the UN Climate change conference (COP26) in October this year and encourage multilateral agreement to significantly reduce greenhouse gas emissions. This potentially will have a wide-ranging impact on the conduct of business and our daily lives.

Cenkos has performed well in the first six months of the year and since the period end, has completed a number of equity fundraisings for our clients, including two IPOs. This could suggest the current favourable market conditions are set to continue. Alternatively, although our current pipeline is encouraging and we continue to win new clients, we recognize that our performance is reliant on the success of Government efforts to stimulate the economy; any commitments made at COP26 resulting in opportunities for Growth companies rather than having a negative impact on the economy; and the continued success of the vaccination program in combatting COVID-19 and any new variants, meaning further measures to control the spread of the virus such as lockdowns are not required.

Whilst it is not possible to quantify the overall impact of the events, 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. Management continues to monitor the impact of the COVID-19 pandemic and Climate Change 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. 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.

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.

2. Dividends

Amounts recognised as distributions to equity holders in the year:

The proposed interim dividend for 30 June 2021 of 1.25p (30 June 2020: 1.0p) per share was approved by the Board on 8 September 2021 and has not been included as a liability as at 30 June 2021. The dividend will be payable on 4 November 2021 to all shareholders on the register at 8 October 2021.

3. Events after the reporting period

There were no material events to report on that occurred between 30 June 2021 and the date at which the Directors signed the Annual Report.

4. Market abuse regulation (MAR) disclosure

This announcement contains certain inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.