Frenkel Topping Regulatory News (FEN)

LEI 213800I5L3K7AT7A4R20

Frenkel Topping Group plc

("Frenkel Topping" or "the Company" or "the Group")

Results for the 12 months ended 31 December 2019

Strong revenue and profit growth through the successful execution of our strategy

Frenkel Topping Group (AIM: FEN), a specialist independent financial advisor and wealth manager focused on asset protection for clients, announces its final results for the 12 months ended 31 December 2019. The announcement follows on from a strong performance in the second half of 2019 and the Board is pleased to report a solid set of results which are in line with management's expectations.

Financial Summary

Business Highlights

· Eleventh consecutive year of high client retention (99%) for investment management services

· Assets under management ("AUM") up 15% to £898m (as at 31 December 2018: £779m)

· Ascencia - Assets on a discretionary mandate up 32% to £399m (as at 31 December 2018: £302m)

· Strong balance sheet maintained with net cash and marketable securities of £2.1m

· Frenkel Topping Academy first cohort successfully completing the scheme and taking up full-time roles across the business

A Strong Start to the New Financial Year

· First three months of trading has been robust - substantial AUM mandates won, outperforming internal targets for the first quarter of the new financial year

· Strong momentum in new expert witness instructions with high levels of new business wins

· Ascencia established joint venture with Truly Independent to broaden DFM distribution to a wider IFA marketplace

· IFA business established joint venture with Horwich Cohen Coghlan Ltd, a law firm, to develop new and innovative investment products for the personal injury market

· IFA business established joint venture with Hudgell Solicitors, a law firm specialising in personal injury, medical negligence, travel litigation, civil liberties and abuse 

· Appointment of Elaine Cullen-Grant, formerly the Group's financial controller, as CFO

· Frenkel Topping Academy apprentice won 'Overall Apprentice of the Year' and 'Financial and Accountant Apprentice of the Year' at the Salford City College Annual Apprenticeship Awards in Q1 2020

· Current trading is line with management expectations

Richard Fraser, CEO of Frenkel Topping, said:

"Our strong performance provides a clear example of the positive outcomes achieved when commercial astuteness is anchored by a strong moral obligation to do the right thing by customers, employees and the wider society. Despite the uncertain geo-political and macroeconomic backdrop, we have achieved an increase of 15% in AUM, 12% in revenue and 9% in pre-tax profit. Our client retention rate remained high at an impressive 99% which reflects our clients' trust and confidence in us to manage their money conservatively and generate returns.

"The year has begun robustly. We have won significant AUM mandates together with new business from our expert witness work, the latter a key pipeline for future AUM growth. It is particularly encouraging that the defensive nature of our investment philosophy limited negative market movement to 7.6%, which reduced AUM by 4.1% to £849m as at 31 March. Our conservative approach to investments and customer centric ethos has demonstrated, thus far, that we are resilient and we are currently trading in line with management's expectations; however, the impact of the effects of COVID-19 is difficult to quantify at this stage and we continue to monitor the situation carefully. Our priority is the safety and wellbeing of all our stakeholders. Our team is successfully working remotely and making use of technology to ensure that they are continuing to support each other and their clients.

"The outbreak of COVID-19 is tragic and has already impacted so many lives and indeed businesses across the world and I do want to take this opportunity to express my heartfelt thanks to the nation's frontline workers whose courage and commitment to the nation's safety and wellness is truly humbling and an inspiration to us all."

For further information: 

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

About Frenkel Topping Group: www.frenkeltopping.co.uk 

The financial services firm consists of Frenkel Topping Limited, Ascencia Investment Management, Obiter Wealth Management and Equatas Accountants.

The group of companies specialises in providing financial advice and asset protection services to clients at times of financial vulnerability, with particular expertise in the field of personal injury and clinical negligence.

With more than 30 years' experience in the industry, Frenkel Topping Group has earned a reputation for commercial astuteness underpinned by a strong moral obligation to its clients, employees and wider society, with a continued focus on its Environmental, Social and Governance (ESG) impact.

Through its core business, Frenkel Topping Limited, the firm supports litigators pre-settlement in achieving maximum damages, by providing expert witness services, and post-settlement to achieve the best long-term financial outcomes for clients after injury. It boasts a client retention rate of 99%.

The Group's discretionary fund manager, Ascencia, provides bespoke financial portfolios for clients in unique circumstances. In recent years Ascencia has diversified its portfolios to include a Sharia-law-compliant portfolio and a number of ESG portfolios in response to increased interest in socially responsible investing (SRI).

Obiter provides a generalist wealth management service - including advice on Savings; Tax planning; Life Insurance; Critical Illness and Income protection; Endowment advice and Keyman Insurance, with a particular specialism in financial advice on pensions and pension sharing orders for the clients of divorce and family lawyers. Obiter applies the same core principles of honesty, transparency, responsibility and reliability to individuals, regardless of background or situation.

In 2019, Frenkel Topping launched its accountancy arm, Equatas, to assist clients with tax planning and move closer to providing a full end-to-end service under the Group brand, improving the experience for clients and maintaining the Group's standards throughout the client journey.

Chairman's Statement

Overview

On behalf of Frenkel Topping's Board of Directors, I am pleased to report that the Group has had a robust year in 2019, in which we continued to deliver excellent results for our shareholders and in line with the Board's expectations. Last year, we made investing in the future of the business a key pillar of our strategy, which formed part of our objective of mitigating risk. It is pleasing to see that this investment and the continued implementation of our strategy has delivered substantial improvement both financially and operationally.

The results and achievements outlined in the Chief Executive Officer's Statement and Strategic Report are testament to the commitment of the Group's talented and passionate people. The business is led by an experienced leadership team who deserve the credit for steering the Group through a year of challenging macroeconomic and geo-political events which impacted global financial markets. It is pleasing to note that the hard work has delivered strong growth across all of our key performance indicators. Our client retention rate is at an impressive 99% for the eleventh consecutive year. This is possible because of our ability to conservatively manage money and our commitment to integrity and care provided to all clients.

People

Post-period end, Elaine Cullen-Grant, formerly the Group's Financial Controller was appointed Chief Financial Officer following Stephen Bentley's retirement. On behalf of everyone at Frenkel Topping, I would like to express our heartfelt thanks to Stephen for his contribution and commitment to the business. The Board strongly believes it is important to have the right balance of skills, experience and background to support the growth of the business.

Our growth would not have been achieved without the great efforts of the entire team at Frenkel Topping and I would like to take this opportunity to say thank you to everyone.

Outlook

The first three months of trading has been strong and the Group has won substantial AUM mandates, outperforming internal targets for the first quarter of the new financial year. Expert witness instructions experienced strong momentum and new business wins will support this key pipeline for future AUM growth. However, we are mindful of the effects of COVID-19 which is impacting many people and businesses globally. Notwithstanding the potential impact from the effects of COVID-19, which the Board is monitoring closely and at this stage are difficult to quantify, Frenkel Topping is strongly positioned to grow, underpinned by our proven strategy which has generated impressive and record levels of new business wins since 2010. We are trading in line with management's expectations and therefore remain confident about the future.

Dividend

Reflecting the Board's confidence in the Group, total dividends (paid and proposed) are up 4.7% to 1.35p per share (FY 2018: 1.29p).

Future dividends will take account of our ambitions to grow the business through acquisitions over the next few years.

Chief Executive Officer's Statement

Overview

I am proud to report this has been another a year of strong delivery against our strategy which we outlined in our 2018 report. We have also made excellent progress to develop our position as a leading and responsible employer of choice which is key to retaining and attracting talent.

The performance during 2019 reflects the Board's commitment to:

· improving Frenkel Topping's ability to manage increased assets under management (AUM), including those on a discretionary basis with Ascencia Investment Management Limited ("Ascencia")

· improving the customer journey to maintain our strong client retention

· laying the foundations for future years' profitability

Revenue for the year increased to £8.6m (2018: £7.7m) up 12%, of which £6.7m or 77.9% (2018: £6.0m or 78.5%) related to recurring revenues. The balance in each year was from new business which was 12% higher than the comparative period in 2018.

Gross profit was up 6% to £5.0m (2018: £4.7m) and underlying profit from operations (as defined in our Accounting Policies) was £2.5m (2018: £2.4m). Pre-tax profit increased by 9% to £1.2m (2018: £1.1m). The Group has a strong Statement of Financial Position with total assets of £13.7m (2018 £13.1m) and as at 31 December 2019, net cash and marketable securities stood at £2.1m (2018 £2.0m). Cash generated from operating activities was up 18% to £1.3m (2018: £1.1m).

Our client retention rate remains exceptionally high at 99% reflecting positive performance from our portfolios and our focus on excellent customer service.

The net assets added in 2019 (£53m) and market movements (£66m) resulted in AUM increasing by 15% to £898m. Similarly, Ascencia's AUM on a discretionary mandate grew strongly by 32% to £399m (2018: £302m).

Strategic Progress

I am pleased to report that the Group made excellent progress against its strategic objectives which provides a guide to what we are capable of in future years.

1. Growing our core business, Frenkel Topping Limited (FTL) - independent financial advice for personal injury and clinical negligence awards.

We have made significant progress growing FTL and delivered good organic growth in the period under review. Our advisers have worked hard to maintain excellent client relationships and win AUM and to continue to do so, we have to ensure our services and solutions remain market leading. Our key areas of focus are:

· Digitisation - as an IFA, client interaction is an important element to our business, however, digital innovation is vital to ensure clients have instant access to their investments. During the year, we launched LUCI, our own platform where clients will be able to view their investment portfolio in one place, trade and make withdrawals and importantly assess performance and risk levels to ensure they meet their long-term investment goals.

· Innovation and expanding our client base - to ensure we continue to remain market leaders, we have to innovate to provide better solutions to our clients and expand our network of clients. Post-period end, we established joint ventures with:

o Horwich Cohen Coghlan Ltd, a law firm with a 25-year track record specialising in personal injuries. The joint venture named HCC Investment Solutions will develop new and innovative investment products for the personal injury market. The joint venture will also support Ascencia to create bespoke investment solutions and support future AUM growth.

o Hudgell Solicitors ("Hudgell"), a leading law firm specialising in personal injury, medical negligence, travel litigation, civil liberties and abuse. The joint venture will be named Hudgells Financial Management Services. FTL will become Hudgell's preferred partner for clients who require investment advice post settlement. The Company is expected to benefit from new client referrals and lead to future AUM growth.

· Recruiting talent - over the last two years, we have made significant investments in the Frenkel Topping Academy which has proven to be very successful. We launched the Academy in 2017 and since then we have graduated five graduates all of whom are working full-time within the business. These home-grown talents are winning new business, adding to AUM and, importantly, maintaining existing client relationships.

2. To increase the strength of Ascencia and broaden its distribution

Ascencia has made excellent progress:

· Generated positive returns - our model portfolios in the investment management business achieved positive returns, each posting growth of between 7.5% and 18.5% according to the risk criteria set for the fund, despite the geopolitical backdrop. The confidence shown in Ascencia has led AUM to grow by 32% to £399m.

· Environmental, Social and Governance (ESG) - Ascencia's ESG strategy was launched early in 2018 in response to growing client interest in socially responsible investing (SRI).

o In 2019, Ascencia's ESG investment strategies, across all risk levels, outperformed their respective benchmarks and 'non-ESG' equivalents by 2-3% as a result of investing in future-proof themes and avoiding sectors with social and environmental legacy concerns.

o Ascencia has delivered robust risk-adjusted performance for clients from the outset of the coronavirus (COVID-19) market dislocation:

§ Ascencia ESG Portfolio Risk Level 3 returned -4.48% for the period 01/01/20-31/03/20 compared to -23.84% for the FTSE 100 and -20.10% for MSCIWorld over the same period. Ascencia ESG Portfolio Risk Level 4 returned -7.73% over the same period.

· Diversified portfolio - we launched the Ascencia Islamic Portfolio, a Sharia Law compliant investment portfolio which was developed to support the needs of our Muslim clients. The Ascencia Islamic Portfolio is essentially multi-asset and consists of a blend of Shariah compliant equity focused exchange traded funds, managed fixed income solutions, together with an element of physically backed gold exposure. The new portfolio complements our existing SRI Portfolios as there are number of synergies between the two.

· Broadened distribution - post period-end, Ascencia established a 50:50 joint venture with Truly Independent Ltd ("Truly"). Ascencia will provide DFM services to Truly's 50 Registered Individuals and thereby, for the first time, will broaden its DFM distribution to external IFAs. The Company expects this partnership will support the growth of its future AUM. 

3. To grow the business through selective acquisitions to widen our market reach

· Acquisitions - we continue to seek strategic acquisitions which would be of value to the Group and particularly complement Obiter. We are reviewing a number of opportunities, but we have a strict acquisition policy and will not make any acquisitions unless they meet our criteria. Our aim in the medium to long term is to grow Obiter, our generalist wealth management brand which was first developed through market demand from the legal sector and incumbent client relationships. In a market which has been criticised for fees which lack transparency, Obiter charges sensible fees and delivers a blended approach through a combination of passive and active funds, which further strengthens the positioning in the market, and builds trust and confidence.

Current Trading

We have entered 2020 with a renewed vigour to continue to build on our solid, 40-year legacy and strong 2019. A continued focus on innovation and on attracting and retaining the best talent will see us maintain the group's position as a driving force in its field.

Our 2019 results demonstrate the cumulative impact of clearly-defined commercial goals coupled with a sense of duty to deliver the best outcomes for clients.

The first three months of trading has been robust and the Group is performing resiliently in comparison to the rest of the market which is, in part, a result of its conservative approach to managing money. The Board remains confident in its market-leading position, rooted in principles of integrity and good judgement. With the outbreak of COVID-19, the Company has implemented its Business Continuity Plan and is following Government advice. The number one priority is the safety and wellbeing of all our stakeholders. The Frenkel Topping team is successfully working remotely and making use of technology to ensure that they are continuing to support each other and their clients. The Group's Statement of Financial Position is robust and the Board's expectations for FY2020 remain strong, however, the potential impact from the effects of COVID-19 are difficult to quantify at this stage and the Board is monitoring the situation carefully, particularly in light of any potential temporary reduction in recurring income as a result of movements in global stock markets.

group STATEMENT of comprehensive income

for the year ended 31 December 2019

The share capital represents the number of shares issued at nominal price.

The merger reserve represents the cost of the shares issued to purchase the non-controlling interest at market value at the date of the acquisition and the excess of fair value over nominal value of shares issued to acquire Ascencia Investment Management Limited (formerly Frenkel Topping Investment Management Limited).

The share premium represents the amount paid over the nominal value for new shares issued.

The other reserve represents the excess paid for the non-controlling interest over the book value at the date of the acquisition. This transaction occurred in 2013.

The revaluation reserve reflects the cumulative surplus arising on the revaluation of freehold property to market value, net of deferred tax.

The own shares reserve represents the cost of the 3,105,708 shares (2018: 3,067,576) held by the Company and the 6,648,016 (2018: 6,648,016) shares held by the Frenkel Topping Group Employee Benefit Trust. The open market value of the shares held at 31 December 2019 was £3,599,124 (2018: £2,826,222).

Retained earnings represents the profit generated by the Group since trading commenced, together with dividends paid, share premium cancelled and share based payment credits.

The non-controlling interest is in respect of Frenkel Topping Associates Limited.

The Group has conformed with all capital requirements as imposed by the FCA.

GROUP CASH FLOW STATEMENT

For the year ended 31 December 2019

General information

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 December 2019 and 31 December 2018. The figures for the year ended 31 December 2019 are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 December 2019. Those accounts upon which the auditors issued an unqualified opinion, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies following the Annual General Meeting.

Statutory accounts for the year ended 31 December 2018 have been filed with the registrar of Companies. The auditors report on those accounts was unqualified did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498(2) or (3) of the Companies Act 2006.

While the financial information included in this preliminary report has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standard (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRS.

Frenkel Topping Group Plc is incorporated and domiciled in the United Kingdom.

1 revenue and SEGMENTAL REPORTING

All of the Group's revenue arises from activities within the UK. Management considers there to be only one operating segment within the business based on the way the business is organised and the way results are reported internally.

Revenue arising from recurring and non-recurring sources is as follows:

Factors affecting tax charge for year

The standard rate of tax applied to reported profit on ordinary activities is 19 per cent (2018: 19 per cent). The corporation tax rate for the 2020 financial year, commencing 1 April 2020, was included in the Finance Act 2016 at 17%, and this rate was substantively enacted on 6 September 2016. However, in the budget speech on 11 March 2020, the Chancellor announced that the corporation tax rate would remain at 19%, the rate in force for the 2019 financial year. On 17 March 2020 a resolution having statutory effect was passed under the Provisional Collection of Taxes Act 1968, setting the rate at 19%.

There is no expiry date on timing differences, unused tax losses or tax credits.

The charge for the year can be reconciled to the profit per the income statement as follows:

A total of £nil (2018: £nil) was recognised in other comprehensive income in relation to deferred taxation on a revaluation uplift. The revaluation gain has been shown on a net basis in other comprehensive income.

In addition, a debit of £21 (2018: £10,936 debit) deferred taxation was recognised directly in equity in relation to share options.

The calculation of the basic and diluted earnings per share is based on the following data: 

4 EVENTS AFTER THE REPORTING DATE

COVID-19

The Global outbreak of COVID-19 has resulted in the Group swiftly implementing its Business Continuity Plan. Our number one priority is the safety and wellbeing of all our stakeholders. Our entire team is successfully using technology to work remotely and are continuing to support our clients and each other. The Group is robust, with a strong balance sheet and cash reserves. The first quarter has seen us add substantial new AUM mandates and a pleasing level of new business income. The potential impact of COVID - 19 is difficult to quantify, however management are monitoring the situation closely, particularly in light of any potential temporary reduction in recurring income as a result of movements in global stock markets. Many of our products continue to perform well in comparison to the market, for example, Ascencia ESG Portfolio Risk Level 3 returned -4.48% for the period 01/01/20-31/03/20 compared to -23.84% for the FTSE 100 and -20.10% for MSCIWorld over the same period. Ascencia ESG Portfolio Risk Level 4 returned -7.73% over the same period. Forecasts have been produced with a variety of possible outcomes, the Board have reviewed these and remain confident of the Group's position.