TIDMCNKS
RNS Number : 3869Z
Cenkos Securities PLC
15 March 2012
Cenkos Securities plc (the "Company") together with its
subsidiaries (the "Group")
ANNUAL FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31
DECEMBER 2011
Cenkos Securities plc today announced its audited final results
for the year to 31 December 2011. The highlights of the results,
comparing them with the prior year, are:
Financial highlights
31 December 31 December
2011 2010
Revenue on continuing operations GBP43.7m GBP58.5m
Underlying operating profit on continuing operations* GBP5.7m GBP11.7m
Operating profit on continuing operations GBP5.7m GBP6.4m
Profit before tax on continuing operations GBP6.0m GBP6.6m
Basic and diluted earnings per share on continuing
operations 5.6p 5.0p
Basic and diluted earnings per share on continuing
and discontinued operations 5.2p 5.2p
Dividends per share (interim and proposed final) 5p 8p
Capital resources in excess of Pillar 1 and GBP7.7m GBP7.7m
2 regulatory capital requirements
-------------------------------------------------------- ------------- -------------
Business highlights
Funds raised for clients GBP838 million GBP1.44 billion
Nominated adviser or corporate broker / financial 111 companies 104 companies
adviser to
Funds raised since period end GBP158 million
--------------------------------------------------- ---------------- -----------------
Commenting on the final results, Chief Executive Officer Jim
Durkin noted:
"Whilst not immune to events in the general economy, our
pipeline remains strong and we have made an encouraging start to
2012. Since 31 December 2011, we have undertaken a number of
corporate and issuance transactions and raised GBP158 million for
our clients."
For further information contact:
Jim Durkin 020 7397 8900 David Rydell 020 7861 3886
Chief Executive Officer Pelham Bell Pottinger
Cenkos Securities plc
* The Group uses a non-Generally Accepted Accounting Practice
("non-GAAP") financial measure, "underlying operating profit and
continuing operations", in addition to those reported under IFRS.
This is since this gives a clearer picture of the underlying
financial and operating performance of the Group, for example by
adjusting for the impact of significant "one-off" income or
expenses.
STRATEGY
Cenkos was founded in 2005 and has, over the past six years,
established a successful platform that has been profitable in every
year of its existence and delivered a strong dividend stream. The
Company's prime strategy is to build from this base to become the
principal UK institutional broker to growth companies based in the
UK and abroad. Cenkos aims to achieve this through:
- Successful fund raising and advice to clients through an
innovative and entrepreneurial approach;
- Delivering sustainable, diversified and growing income streams;
- Operating a transparent and meritocratic model for staff;
- Adding high quality individuals to the teams; and
- Managing costs and risks carefully,
thereby providing shareholder value through share price growth
and a strong dividend yield.
CHIEF EXECUTIVE OFFICER'S REPORT
I am pleased to report that, despite the difficult economic
conditions that prevailed during the period, Cenkos and its
subsidiaries (together the "Group") remained profitable in both the
first and second half of 2011. This has been achieved against a
backdrop of fragile and volatile equity markets. Cenkos' robust
business model ensures a low fixed cost base and a remuneration
structure highly geared to performance. We have a positive cash
cycle and a limited exposure to credit and market risk. This,
combined with the high quality, dedication and experience of our
employees, has enabled the Group to produce this performance.
Despite difficult markets, the Group has continued to raise
equity capital for its corporate clients with the result that we
are now one of the leading brokers in London for growth companies.
In May 2011 Cenkos was voted "Alternative Investment Market (AIM)
broker of the year" at the Growth Company Awards 2011. Cenkos
remains highly placed in its chosen markets, as noted in
Morningstar Professional Services Rankings Guide for Q1 2012, where
Cenkos was ranked first in terms of nominated advisers (Nomad) to
the top 50 and top 100 companies listed on AIM.
Financial results
After a strong first half in 2011, the second half was far more
challenging as the economic slowdown started to have an impact on
financial markets. I am therefore pleased that we remained
profitable in the second half even at this historically low level
of corporate activity on AIM.
Total revenue on continuing operations for the year decreased by
25% to GBP43.7 million (2010: GBP58.5 million). This is against a
market backdrop of a 39% year on year fall to GBP4.3bn in the total
money raised by all companies on AIM in 2011, with new issues by
all companies on AIM falling by as much as 50% on the levels seen
in 2010 (source: LSE AIM factsheet December 2011). This fall in
deal flow has materially impacted the industry's profitability. A
number of our competitors have been acquired by larger partners, or
have chosen to close their broking businesses altogether. This
turmoil has provided us with a window of opportunity to win new
clients and add high quality individuals to our existing teams.
Revenues from Fund and Wealth Management also fell when compared
to last year. Our offshore Fund and Wealth Management business
(Cenkos Channel Islands) experienced lower stock broking revenues
in the second half of the year. We are currently undertaking a
strategic review of this business. Our onshore fund management
business also experienced decreased revenues. A decision to sell
this business was made in 2011 and the sale completed in February
2012, hence their results are shown as discontinued operations.
The Group's underlying cost base fell by GBP8.8m (19%) in the
period, mainly reflecting a fall in performance-related pay, driven
by lower net revenues.
Profit before tax on continuing operations was GBP6.0 million
(2010: GBP6.6 million). This 9% fall reflected the fall in revenues
noted above, offset by falls in performance-related pay and the
fact that the significant "one-off" costs on continuing operations
experienced in 2010 did not reoccur in 2011.
Cenkos continues to maintain a firm control over risk, enjoys
healthy cash levels and remains well capitalised against regulatory
requirements.
People
Whilst the market in which we operate remains unsettled, the
continued professionalism of our employees has enabled us to
continue our strong performance. I am proud to lead a group of such
dedicated and talented individuals. Their skill, commitment and
determination will continue to provide us with a solid platform on
which to build our franchise.
During the year there were a number of changes to the Board. On
4 July Oliver Ellingham, a non-executive Director of the Company,
stepped down from the Board due to other business commitments.
Simon Melling stepped down from the position of Chief Executive
Officer on 13 December 2011 and resigned as a Director on 16
December 2011. The Board would like to thank Oliver and Simon for
their contributions to the Company. Following an executive search
and a review of the Company's executive structure, I was appointed
to the Board and to the position of Chief Executive Officer on 13
December 2011.
Dividend
As we have consistently stated, we only intend to retain
sufficient capital and reserves to meet the Group's regulatory
capital and cash requirements, after taking account of the likely
future working capital requirements of the Group. Since our
flotation onto AIM in October 2006, we have paid some 64 pence in
dividends.
The Board proposes a final dividend of 1p per share (2010: 4p).
This makes a total dividend of 5p for the year (2010: 8p).
Subject to approval at the Annual General Meeting to be held on
10 May 2012, the final dividend will be paid on 15 May 2012 to all
shareholders on the register at 13 April 2012.
Outlook
Whilst not immune to events in the general economy, our pipeline
remains strong and we have made an encouraging start to 2012. Since
31 December 2011, we have undertaken a number of corporate and
issuance transactions and raised GBP158 million for our
clients.
Jim Durkin
Chief Executive Officer
15 March 2012
Responsibility statement
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
- the management report, (which is incorporated into the Chief
Executive Officer's report, Business Review, Financial Review and
principal risks and uncertainties), includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole.
Forward-looking statements
These financial statements contain forward-looking statements
with respect to the financial condition, results, operations and
businesses of the Group. 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.
BUSINESS REVIEW
Key performance indicators (KPIs)
The Group's principal KPIs include, but are not limited to,
measures such as:
- the Group's overall profit before tax, the revenue and
profitability of each business segment, cost management, earnings
per share;
- our corporate client base (e.g. Nomad / broker appointments),
the aggregate funds raised for clients; and
- various key risk indicators, including regulatory ratios and cash flow measures.
Commentary on KPIs is included in this Business Review and in
the Financial Review.
Corporate Broking and Advisory
This business segment includes the results of our growth company
and investment funds activities, including the results of our
market making capability that supports these areas. Revenue in this
segment is made up of placing commission on fund raisings,
corporate finance fees and retainer income, market making profits
and commissions on secondary market transactions. Revenue was down
25% to GBP35.2 million (2010: GBP46.7 million) due largely to fewer
placings taking place in 2011 and a combination of both lower
transactional volumes and more turbulent trading conditions
experienced by our market making operations. Corporate finance
revenues fell from GBP36.4 million in 2010 to GBP25.8 million in
2011 and corporate broking and market making fees fell from GBP9.2
million in 2010 to GBP6.7 million in 2011. The segment result
before unallocated administrative expenses was down 14% to GBP16.2
million (2010: GBP18.9 million) as set out in note 3 to the
financial statements.
In our core market, AIM, the total value of all primary
admissions to AIM fell from GBP1,219 million in 2010 to GBP609
million in 2011, and subsequent placings on AIM fell from GBP5,738
million to GBP3,660 million in 2011(source: LSE AIM factsheet
December 2011). Against this backdrop, we are pleased to announce
that during the year we completed 23 transactions (excluding
investment funds) raising a total of GBP550 million (2010: GBP833
million), which included three primary issues.
As at 31 December 2011, the Group was nominated adviser, broker
or financial adviser to 111 companies or trusts (2010: 104). In the
period we also completed 21 "merger and acquisition" corporate
finance transactions (2010: 17). This performance is particularly
encouraging as it was achieved during a period of limited
transactional revenue and continued competitive pressure. Our
broking teams cover a wide range of sectors. We have been ranked
highly by Morningstar Professional Services Rankings Guide for Q1
2012, where we were the top Nomad by number of clients for the Oil
& Gas sector, and ranked second for both the Telecommunications
and Financial sectors.
Some of the transactions we were involved in are noted
below:
In February 2011, Cenkos acted as nominated adviser and broker
to OPG Power Ventures plc in its GBP60 million placing to fund
capacity expansion. Cenkos acted as nominated adviser, sole book
runner and joint broker to Providence Resources plc, an oil and gas
company, in raising approximately GBP41 million.
In May 2011, Cenkos acted as financial adviser, sponsor and
broker to Stobart Group Limited in its placing and open offer to
raise GBP120 million to fund the company's expansion strategy.
In July 2011, Cenkos acted as Nomad and sole broker to Smart
Metering Systems plc in connection with its placing and admission
to AIM with a market capitalisation of GBP50 million.
In August 2011 Cenkos helped NewRiver Retail Limited raise
GBP42.5 million in a share placing. This was used to acquire four
retail properties for approximately GBP68 million.
In November 2011, Cenkos acted as sponsor and joint broker to
Assura Group in its GBP35 million rights issue.
Our investment funds team provides a broad range of services to
investment companies including primary and secondary sales, market
making, research, corporate broking and corporate finance advice.
Their sales team services both institutional and wealth manager
clients. Some of the transactions we were involved in are noted
below:
In February 2011, Cenkos acted as the sole book runner and
financial adviser on a further GBP166 million equity issue for the
Anthony Bolton-managed Fidelity China Special Situations plc. Since
its flotation on the London Stock Exchange in April 2010, this
company has now raised a total of GBP676 million of equity with
Cenkos.
In April 2011, Cenkos acted as listing sponsor and sole placing
agent for the GBP50 million launch of The Diverse Income Trust plc,
a main market London-listed investment trust managed by Gervais
Williams.
These transactions helped bring the total raised for investment
funds in 2011to GBP288 million including GBP166 million for
Fidelity China Special Situations (2010: GBP609 million, including
GBP460 million for Fidelity China Special Situations).
The Group makes markets in the securities of all the companies
where it has a broking relationship to support the other services
it provides to its clients. During the period, we expanded our
market making service and our equity desk now covers 207 companies
and our investment trust desk 129. Despite this increase in
coverage, we continue to actively restrict the amount of capital
committed to this activity to limit the market risk exposure
without adversely affecting the revenue generated. The Group does
not engage in proprietary trading and applies position limits and
monitoring procedures to ensure it controls the risks taken. The
Group does from time to time take stock in lieu of fees and the
market movement on these items is also included in this income
stream.
Institutional Equities
The Institutional Equities team provides research-driven
investment recommendations to institutional clients. Whilst many of
our clients continue to pay for our research services directly,
more are choosing to transact business through Cenkos as well.
Institutional Equities suffered a decline in revenues in
comparison with the same period last year. Market volumes were
running at 30% below the levels of 2010, however, we continue to
look to grow the business. Recruiting has been somewhat challenging
given that rival firms were offering guaranteed packages, but
Cenkos refuses to change its business model and will only take on
people who embrace our transparent, performance-driven culture. We
believe that Cenkos has a good reputation in secondary equities,
but lacks scale. The impending shake-out amongst market
practitioners should give us the opportunity to rectify this and we
added two new sales people and one new analyst in 2011.
Revenues for Institutional Equities dropped by 56% to GBP2.2m
(2010: GBP5.0m), although secondary income fell by a smaller
amount, 43%, and the segment result was GBP0.5m (2010: GBP1.5m). We
are pleased to have made a profit under such market conditions, but
are disappointed not to have done better. Nevertheless, we will
continue to invest and use this turbulent period to improve the
service we provide to our clients.
Our execution business is strictly focused on client
facilitation. We do not engage in proprietary trading. We believe
that the continued organic growth of this area will enhance Cenkos'
overall service to its expanding client base.
Fund and Wealth Management
Our offshore fund and wealth management services are provided by
our 50% owned Guernsey based subsidiary Cenkos Channel Islands and
its own Channel Island based subsidiaries (together the "Cenkos
Channel Islands Group"). Varying levels of stock broking services
are offered, from fully discretionary to execution only, to high
net worth individuals, financial intermediaries and institutions.
In addition to stockbroking offices in both Guernsey and Jersey,
Cenkos Channel Islands also offers segregated investment management
services as well as managing the unitised Cenkos Channel Islands
Investment Fund range of funds, which launched a third sub-fund
during the year.
The offshore asset management business has continued to grow and
has made a positive contribution to the Group's results, with 2,643
clients (2010: 2,197) and GBP964 million funds under management
(2010: GBP1.10 billion). Lower stockbroking revenues in the second
half of the year compared with the same period in 2010 meant that
overall revenues fell 7% to GBP6.3m (2010: GBP6.8m).
The onshore fund management business is provided by Cenkos Fund
Managers Limited, a subsidiary 70% owned by Cenkos Fund Management
Limited, which is a 65% owned subsidiary of Cenkos Securities plc.
This operation has an investment management agreement with an
AIM-quoted fund. The fund has been put into run off and although
investment management fees continue to be generated, these are
declining over time. A decision was made by the Board to sell this
business to local management in November 2011 and this sale was
completed on 1 February 2012. The results for the year of this
business, and the loss on sale, are shown as "discontinued
operations" and the comparative results for 2010 have also been
restated accordingly. 2010 results for Cenkos Fund Managers Limited
included GBP0.7 million in performance fees that did not re-occur
in 2011, and a reduction in the net asset value of the fund it
advises has lead to reduced investment management fees in 2011.
The segment result on continuing operations (Cenkos Channel
Islands Group) decreased by 41% to GBP0.9 million (2010: GBP1.5
million) due to lower income and increased costs reflecting further
investment in the business.
FINANCIAL REVIEW
Income statement
We set out below a schedule which re-analyses information
included in the statutory income statement. The Group uses a
non-Generally Accepted Accounting Practice ("non-GAAP") financial
measure, "underlying operating profit," in addition to those
reported under IFRS. This gives a clearer picture of the underlying
financial and operating performance of the Group, as it removes the
"one-off" costs we incurred in 2010: namely the re-organisation of
the Edinburgh office; redundancy costs associated with the closure
of the Credit Markets operation; aborted acquisition costs and the
net cost of settlement of litigation with a sub-broker. These
adjusting items amount to GBP5.3 million in 2010. In 2011,
underlying operating profit on continuing operations decreased by
51% to GBP5.7 million from GBP11.7 million.
Total Group revenue on continuing operations was GBP43.7 million
compared to GBP58.5 million last year, a decrease of 25%. There
were no significant "one-off costs" in 2011, and therefore, despite
a large fall in revenues, our operating profit on continuing
operations only fell 12% to GBP5.7m. Our earnings per share on
continuing operations increased by 13% to 5.6p.
2011 2010
---------------------------------------- ----------------------------------------
Underlying Adjusting GAAP Underlying Adjusting GAAP
'non-GAAP' items income 'non-GAAP' items income
income statement income statement
statement statement
GBP 000's GBP GBP 000's GBP 000's GBP 000's GBP 000's
000's
Continued operations
Revenue 43,704 - 43,704 58,531 - 58,531
Administrative expenses (2010
restated) (38,003) - (38,003) (46,833) - (46,833)
One off costs in 2010 noted
above
(re-organisation of Edinburgh
office,
closure of Credit Markets
operations,
aborted acquisition costs and
sub
broker litigation) - - - - (5,254) (5,254)
Operating profit from continuing
operations 5,701 - 5,701 11,698 (5,254) 6,444
Investment income - interest
receivable 325 - 325 454 - 454
Finance costs - interest payable (9) - (9) (1) - (1)
(Loss)/gain on sale of
available-for-sale
financial asset - - - (294) - (294)
------------- ----------- ------------ ------------- ----------- ------------
Profit before tax from
continuing
operations 6,017 - 6,017 11,857 (5,254) 6,603
Tax (1,549) - (1,549) (3,916) 1,753 (2,163)
------------- ----------- ------------ ------------- ----------- ------------
Profit for the year from
continuing
operations 4,468 - 4,468 7,941 (3,501) 4,440
Discontinued operations
(Loss)/ profit after tax for the
year from operations
discontinued
in 2011 - (457) (457) - 384 384
Profit for the year 4,468 (457) 4,011 7,941 (3,117) 4,824
------------- ----------- ------------ ------------- ----------- ------------
Attributable to:
Equity holders of the parent 4,168 (457) 3,711 6,843 (3,117) 3,726
Non-controlling interests 300 - 300 1,098 - 1,098
------------- ----------- ------------ ------------- ----------- ------------
4,468 (457) 4,011 7,941 (3,117) 4,824
============= =========== ============ ============= =========== ============
Earnings per share on continuing
operations
Basic 6.3p 5.6p 9.4p 5.0p
Diluted 6.3p 5.6p 9.3p 5.0p
Earnings per share on continuing
and discontinued operations
Basic and diluted 5.8p 5.2p 9.6p 5.2p
Underlying results for 2010 have been restated for operations
discontinued in 2011. Administrative expenses are shown after
charging GBP2.4 million relating to staff bonuses resulting from
the Compensatory Award Phantom Dividend Plan 2009 (2010: GBP2.1
million). Payments under this scheme are only triggered by the
payment of a dividend to ordinary shareholders. This charge was
excluded from underlying operating profit shown in our 2010 Annual
Report. For consistency, the comparator for underlying profit shown
in the financial highlights for 2010 has been restated for
this.
The reduction in underlying operating margins to 13% from 20%
reflects a number of factors. We have seen a change in the mix in
revenue by team, with large falls in corporate activity on AIM,
therefore lowering our fees generated on placings and corporate
finance advice. In addition, our back office costs have remained
relatively static as we believe these costs already reflect what we
believe we need to spend to operate and control a business of our
size and complexity. The largest fall in our cost base was due to
lower performance-based pay on the back of lower revenues. We
endeavour to remunerate our staff to a level which not only retains
but also motivates them to behave in line with the longer-term
growth objectives of the Company. We continue to pursue a policy of
maintaining a low fixed cost base and a remuneration policy of low
basic salaries and rewarding net income generation.
Underlying operating profit on continuing operations fell by 51%
to GBP5.7 million (2010: GBP11.7 million). This fall is primarily
due to a large fall in revenue across all segments, offset by a
decrease in performance-related pay.
Operating profit on continuing operations fell by 12% to GBP5.7m
(2010: GBP6.4 million). In 2010 this was after charging for a
number of significant "one-off" items which have not re-occurred in
2011.
Profit before tax on continuing operations fell by 9% to GBP6.0
million (2010: GBP6.6 million). This decrease is due to the factors
noted above and that 2010's results also included a GBP0.3 million
loss on sale of the Company's remaining holding in PLUS Markets
Group plc.
The tax charge for the year on continuing operations was GBP1.5
million (2010: GBP2.2 million), which equates to an effective rate
of tax of 26% (2010: 33%).
Basic and diluted earnings per share for the year on continuing
operations are 5.6p (2010: 5.0p).
Balance sheet and cash flow
As mentioned above, we continue to manage the amount of capital
committed to our market making activities closely and consequently
have net trading investments of GBP7.7 million (2010: GBP7.5
million).
We currently hold healthy cash levels at GBP14.0 million (2010:
GBP28.5 million). Our cash holdings include GBP0.5 million held on
trust for creditors as a result of the cancellation of our share
premium account in 2010 (2010: GBP5m held on trust for creditors).
The year to 31 December 2011 saw an outflow of cash from operating
activities of GBP7.8 million against an inflow of GBP15.6 million
in 2010. The outflow in 2011 reflects a number of factors including
the payment of the second interim and final dividend in respect of
2010, the settlement of litigation with a sub broker and the
payment of accrued 2010 performance related pay (reflecting the
materially higher revenues of that year).
The Group retains sufficient capital to satisfy the UK Financial
Services Authority's capital requirements. These requirements vary
from time to time depending on the business conducted by the Group.
As at 31 December 2011, Cenkos had a solvency ratio based on
capital resources against Pillar 1 capital requirement of 227%
(2010: 212%) based on audited profits and a capital resources
surplus (including GBP0.5m held on trust for creditors) of GBP7.7
million (2010: GBP7.7 million) in excess of our Pillar 1 and 2
regulatory capital requirements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties currently faced by the
Group, and how these are managed, are outlined below. The
fundamental risk to the Group is that Cenkos' income is dependent
on the health of financial markets and in particular the economic
conditions of the UK.
Notwithstanding this risk, the remaining risks outlined below
are those that the Group believes have the potential to have a
significant detrimental impact on its financial performance and
future prospects. These risks should not be regarded as a
comprehensive list of all the risks and uncertainties that the
Group may potentially face, which could adversely impact its
performance.
As part of general corporate governance requirements, Cenkos has
a risk framework covering all aspects of its risks. This enables it
to identify, assess and manage its key risks. Cenkos' senior
management review and evaluate the business processes and
associated risks within each area of the firm's business,
identifying and assessing the mitigating controls and procedures in
place as well as the action plan to address any weaknesses in
control. This framework includes a formal approach to risk event
reporting, which involves the identification of an event,
assessment of its materiality, analysis of the cause, the
establishment of remedial action required and escalation to the
Chief Executive Officer, the Group Risk and Compliance Committee
and Audit Committee as required, within an overall framework and
associated risk appetite that is set by the Board.
This framework and associated reporting and stress testing form
the basis of the Group's Individual Capital Adequacy Assessment
Process (ICAAP) and Individual Liquidity Adequacy Assessment
process (ILAA). Cenkos' website shows the Pillar 3 disclosures
which the firm is required to make under FSA regulations concerning
the Group's capital, risk exposures and risk assessment
processes.
The risk framework is supported and validated by a dedicated
internal audit function which is outsourced to KPMG LLP. A
three-year internal audit programme has been approved by the Audit
Committee and is progressing to plan.
In addition to the economic risks noted above, the key risk
areas that could impact the Group's future performance, and how
they are managed, are categorised as follows:
- reputational risk;
- operational risk, including regulatory risk, people risk and litigation risk;
- credit risk; and
- market risk and liquidity risk.
Reputational risk The Group believes that one of the greatest
risks it faces comes from the potential loss of its reputation.
Whilst entrepreneurial employees are encouraged to develop new
clients and streams of revenue, all new business is subject to a
rigorous appraisal process from the New Business Committee to
ensure that it meets the Group's strict criteria. The Group also
aims to demonstrate a high level of integrity in all of its
activities. The Executive Management Committee as well as Group
Compliance instils awareness in all employees of the need to
display the highest ethical standards and confidentiality in all
the work that they undertake for the Group. Operational risk
Operational risk is the risk that the Group suffers a loss directly
or indirectly from inadequate or failed internal processes, people,
systems, or external events. Group Compliance and senior management
closely ensure that the risk framework is working well and that any
significant operational risks and their controls are continually
reviewed, tested and assessed and, where applicable, corrective
action plans are put in place. There is also an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Group, including fraud. Cenkos' low cost and responsive
business model relies on consistent delivery from its key suppliers
for its trading systems (primarily Fidessa) and settlements
(Pershing). Cenkos maintains regular dialogue and meetings with
these vendors and the risk framework ensures there is the necessary
oversight of the risks associated with outsourcing.
The Group continuously reviews its business continuity plans,
and has disaster recovery facilities in place in order to mitigate
any substantial disruption to its operations. This was reviewed by
our internal audit team in May 2011 and in February 2012 the
Company's annual Business Continuity Plan was tested. No issues of
concern were raised in respect of this test.
Other specific operational risks that are material to the
Group's performance are regulatory risk, people risk and litigation
risk. These are commented on in more detail below. Regulatory risk
The Company and its principal subsidiaries are regulated entities.
The Board, Executive Management Committee and Group Compliance have
established a strong culture of regulatory and legal compliance
throughout the Group. There is strict adherence to applicable
regulation, focusing particularly on our ongoing obligations and
responsibilities as an AIM nominated advisor (Nomad) and a UK
Listing Authority (UKLA) Sponsor. Cenkos continues to focus heavily
on prudential risks to ensure the appropriate systems and controls,
reporting, capital and liquidity requirements are in place to meet
the ongoing obligations of an FSA regulated (BIPRU Investment)
firm.
During the year a number of reviews were undertaken,
specifically focusing on regulatory reporting, controls around
operations and market making limit setting and monitoring.
People risk The Group's employees are its greatest asset and the
future success of the Group depends on Cenkos' ability to attract
and retain high quality employees. Failure to recruit or retain
such employees could significantly affect the performance of the
Group. Cenkos seeks to minimise this risk by creating the right
culture and working environment and by rewarding employees through
an overall remuneration package that is geared towards performance
and share-based payments that aims to align the interests of the
employees and shareholders. People risk is also mitigated via a
succession planning process overseen by the Remuneration
Committee.
Litigation risk There is always a risk that some form of
litigious action may be taken against the Group. Before any
decision to enter into litigation is made the Board, senior
management and the Group's legal advisers will review all aspects
of the case to assess and consider if it is in the best interests
of the Group and ultimately the shareholders to either instigate
proceedings or defend itself against litigation.
Credit risk
The Group faces limited credit risks in the normal course of
business as its market making activities are carried out on a
delivery versus payment basis. Hence any counterparty exposure here
will manifest itself as either an operational risk (in the form of
settlement risk), or a market risk in terms of an underlying
exposure to equities. Although Cenkos' transaction fees are
generally paid out of the proceeds of any funds raised, Cenkos
faces some credit risk in respect of collecting fees due for other
advice provided, such as Nomad fees. Overdue fees are reviewed
regularly and appropriate action taken to ensure
recoverability.
Market risk The Group is exposed to market risk arising from its
short-term positions in predominantly market making stocks in AIM
listed companies. To mitigate this risk the Group manages market
risk by establishing individual stock limits and overall trading
book limits. There are daily procedures in place to monitor the
utilisation of these limits. These limits are reviewed on a
continuous basis by the Chief Executive Officer and also by the
Group Risk and Compliance Committee. Some AIM listed stocks are
subject to low levels of underlying liquidity. Liquidity risk The
Group is also exposed to liquidity risk being that it is unable to
fund its commitments as and when they arise. To mitigate this risk,
the Group has in place an appropriate liquidity risk management
framework for the management of the Group's short, medium and
long-term funding and liquidity management requirements. The Board
has oversight and approves the liquidity risk management framework
and ILAA at least annually. The Group manages liquidity risk by
maintaining adequate reserves and banking facilities, by
continuously monitoring forecast and actual cash flows and matching
the maturity profiles of financial assets and liabilities.
Given the nature of the Group's business, the Group does not run
any significant liquidity mismatches, financial liabilities are on
the whole short-term and the Group has sufficient cash retained to
cover all these liabilities.
Cenkos continues to focus heavily on prudential risks to ensure
the appropriate systems and controls and reporting requirements are
in place to meet the obligations of a BIPRU Investment firm.
Changes in Cenkos' risk profile in 2011 and 2012
In terms of material risks that have changed during the period
from 1 January 2011 to the date of signing of this report, the
economic outlook has been depressed, which may lead to a
continuation of the slowdown in primary and secondary fundraising
seen in the second half of 2011. This could impact Cenkos' revenues
in 2012.
As noted in the 'People' section of the Chief Executive
Officer's report, there have been a number of Board changes in
2011. Jim Durkin's transition from senior management to Chief
Executive Officer was helped by the fact that he has been working
for Cenkos since it was founded, and that he was previously a Board
member.
Consolidated income statement for the year ended
31 December 2011
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
Notes GBP 000's GBP 000's
Revenue 3 43,704 58,531
Administrative expenses (38,003) (52,087)
Operating profit 5,701 6,444
Investment income - interest
receivable 4 325 454
Loss on sale of available-for-sale financial
assets - (294)
Interest expense 5 (9) (1)
Profit before tax 7 6,017 6,603
Tax 8 (1,549) (2,163)
Profit for the year from continuing operations 4,468 4,440
Discontinued operations
(Loss) / profit on discontinued
operations 9 (457) 384
Profit for the year 4,011 4,824
Attributable to:
Equity holders of the parent 3,711 3,726
Non-controlling interests 300 1,098
4,011 4,824
Earnings per share
From continuing operations
Basic 11 5.64p 4.99p
Diluted 11 5.64p 4.96p
From continuing and discontinued operations
Basic 11 5.21p 5.24p
Diluted 11 5.21p 5.21p
The profit attributable to the Company in the year ended 31 December 2011
was GBP3,933,666 (31 December 2010: GBP3,382,141).
Consolidated statement of comprehensive income for the year ended
31 December 2011
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Profit for the year 4,011 4,824
------------- -------------
Available-for-sale financial
assets:
Gains arising during the year - 48
Other comprehensive income
for the year - 48
Total comprehensive income
for the year 4,011 4,872
Attributable to:
Equity holders of the parent 3,711 3,774
Non-controlling interests 300 1,098
4,011 4,872
Consolidated statement of financial position as at 31
December 2011
31 December 31 December
2011 2010
GBP 000's GBP 000's
Non-current assets
Property, plant and equipment 1,133 931
Deferred tax asset 97 123
Trade and other receivables 3,839 4,448
5,069 5,502
Current assets
Financial assets 10,263 10,962
Trade and other receivables 21,800 27,142
Cash and cash equivalents 14,010 28,468
46,073 66,572
Total assets 51,142 72,074
Current liabilities
Financial liabilities (2,539) (3,481)
Trade and other payables (23,518) (41,338)
(26,057) (44,819)
Net current assets 20,016 21,573
Total liabilities (26,057) (44,819)
Net assets 25,085 27,255
Equity
Share capital 728 728
Own shares (2,190) (2,147)
Retained earnings 25,142 27,134
Equity attributable to equity holders
of the parent 23,680 25,715
Non-controlling interests 1,405 1,540
Total equity 25,085 27,255
The financial statements were approved by the Board of Directors and authorised
for issue on 15 March 2012. They were signed on its behalf by:
Peter Sullivan Jim Durkin
Chief Executive
Chairman Officer
15 March 2012 15 March 2012
Registered Number: 05210733
Consolidated cash flow statement for the year ended 31
December 2011
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
Notes GBP 000's GBP 000's
Profit for the year 4,011 4,824
Adjustments for:
Net Finance income 4,5 (315) (454)
Loss on sale of available-for-sale
financial asset - 294
Tax expense 8 1,549 2,318
Depreciation of property, plant
and equipment 362 346
Profit on sale of fixed assets (1) -
Attributable tax expense on discontinued
operations 9 (105) -
Fair value less costs to sell of 296 -
discontinued operations
Non-controlling interests adjustment for discontinued (162) -
operations
Shares and options received
in kind (607) (1,143)
Share based payment expense 195 570
Operating cash flows before movements in working capital 5,223 6,755
Decrease / (Increase) in net trading
investments 365 (243)
Decrease / (Increase) in trade and
other receivables 6,138 5,157
(Decrease) / Increase in trade and
other payables (17,376) 6,425
Net cash flow from operating
activities (5,650) 18,094
Interest paid (9) (1)
Tax paid (2,172) (2,543)
Net cash flow from operating
activities (7,831) 15,550
Investing activities
Interest received 124 65
Acquisition of interest in a subsidiary by a (8) -
subsidiary
Net proceeds from the sale of fixed 5 -
assets
Purchase of property, plant
and equipment (568) (405)
Proceeds from the sale of available-for-sale
investments - 265
Net cash flows from investing
activities (447) (75)
Financing activities
Dividends paid 10 (5,699) (6,416)
Distributions made to non-controlling
interests (345) (395)
Payments in relation to pre-IPO
share options (69) (81)
Proceeds from issue of equity
shares - 1
Acquisition of own shares (43) (110)
Acquisition of own shares by (24) -
a subsidiary
Net cash used in financing activities (6,180) (7,001)
Net (decrease) / increase in cash and cash equivalents (14,458) 8,474
Cash and cash equivalents at beginning of year 28,468 19,994
Cash and cash equivalents at
end of year 14,010 28,468
Consolidated statement of changes in equity for the year ended 31 December
2011
Equity attributable to equity holders of
the parent
------------------------------------------------------------------------------
Share Share Own Available-for-sale Retained Non-controlling
capital premium Shares reserve earnings Total interests Total
GBP GBP GBP GBP GBP
000's 000's 000's GBP 000's GBP 000's 000's GBP 000's 000's
At 1 January
2010 727 22,700 (2,037) (48) 6,626 27,968 837 28,805
--------- ---------- --------- -------------------- ----------- --------- ----------------- ---------
Profit for the
year - - - - 3,726 3,726 1,098 4,824
Other
comprehensive
income for the
year - - - 48 - 48 - 48
Total
comprehensive
income for the
year - - - 48 3,726 3,774 1,098 4,872
Shares issued 1 - - - - 1 - 1
Cancellation of
share premium
account - (22,700) 22,700 - - -
Own shares
acquired in the
year - - (110) - - (110) - (110)
Credit to equity
for equity
settled
share based
payments - - - - 570 570 - 570
Payments in
relation to
pre-IPO share
options - - - - (81) (81) - (81)
Deferred tax on
share based
payments - - - - 9 9 - 9
Dividends paid - - - - (6,416) (6,416) (395) (6,811)
At 31 December
2010 728 - (2,147) - 27,134 25,715 1,540 27,255
--------- ---------- --------- -------------------- ----------- --------- ----------------- ---------
Profit for the
year - - - - 3,711 3,711 300 4,011
Total
comprehensive
income for the
year - - - - 3,711 3,711 300 4,011
Own shares
acquired in the
year - - (43) - - (43) - (43)
Increase in
investment in
subsidiary - - - - (62) (62) 54 (8)
Subsidiary's
acquisition of
own shares - - - - - - (24) (24)
Share of
profit/(loss)
of discontinued
operation
attributable to
Non-controlling
interests - - - - - - (162) (162)
Credit to equity
for equity
settled
share based
payments - - - - 153 153 42 195
Payments in
relation to
pre-IPO share
options - - - - (69) (69) - (69)
Deferred tax on
share based
payments - - - - (26) (26) - (26)
Dividends paid - - - - (5,699) (5,699) (345) (6,044)
At 31 December
2011 728 - (2,190) - 25,142 23,680 1,405 25,085
Notes to the financial statements for the year ended 31 December
2011
1. Accounting policies
General information
Cenkos Securities plc is a company incorporated in the United Kingdom under
the Companies Act 2006 (Company Registration No. 05210733). These financial
statements are presented in pounds sterling because that is the currency of
the primary economic environment in which the Group operates. The Company has
taken advantage of the exemption under section 408 of the Companies Act 2006
and therefore has not produced a Company income statement or accompanying notes.
Prior year comparatives have been amended to conform to the presentation in
the current period, due to the discontinued operation as required by IFRS 5,
in the Consolidated income statement, Consolidated statement of financial position,
Company statement of financial position, Consolidated cash flow statement and
Company cash flow statement. This includes reclassifying from current assets
to non-current assets the loans due in respect of the partly paid B shares,
as the amounts are due for repayment in July 2013.
Basis of accounting
The Group's consolidated 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.
Adoption of new and revised standards
During the year, a number of amendments to IFRS became effective and were adopted
by the Group, none of which had a material impact on the Group's net cash flows,
financial position, Consolidated statement of comprehensive income or earnings
per share.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company made up to 31 December each
year. Control is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from its
activities.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately from the Group's equity therein. Non-controlling interests
consist of the amount of those interests at the date of the original business
combination and the Non-controlling party's share of changes in equity since
the date of the combination. Losses applicable to the Non-controlling party
in excess of the Non-controlling party's interest in the subsidiary's equity
are allocated against the interests of the Group except to the extent that the
Non-controlling party has a binding obligation and is able to make an additional
investment to cover the losses.
The results of subsidiaries acquired or disposed of during a year are included
in the consolidated income statement from the effective date of acquisition
or up to the effective date of disposal, as appropriate.
The Company continues to consolidate the Cenkos Channel Islands Group on the
basis of the ownership of 50% of the voting shares and the control it exerts
over the subsidiaries.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Going concern
The Group's business activities, together with the factors likely to affect
its future development and performance, the financial position of the Group,
its cash flows and liquidity position are set out in the Business Review and
Financial Review.
The Directors have considered forecasts taking account of the current uncertain
market conditions which demonstrate that the Group can continue to operate within
its own resources without recourse to the banking facilities available to it.
The forecasts used for this exercise are based on various assumptions regarding
expected levels of income and cost. They have stress tested these basic assumptions
and this testing reveals that the Group can maintain acceptable cash levels
even if it relies only on recurring revenue streams and maintains its existing
cost base. A major factor allowing this to be the case is the flexible nature
of the Group's performance related remuneration policy.
As a result, the Directors believe that, at the time of approving the financial
statements, the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook and that the Company and the
Group has adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they consider it appropriate to adopt the going concern
basis in preparing the financial statements of the Group and the Company.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's balance
sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Investments are recognised and derecognised on trade date when the purchase
or sale of an investment is under a contract whose terms require delivery of
the investment within the time frame established by the market concerned, and
are initially measured at fair value, net of transaction costs except for those
financial assets classified as fair value.
Financial assets are classified into the following specified categories: financial
assets as "at fair value through profit or loss" (FVTPL), "available-for-sale"",
and "loans and receivables". The classification depends on the nature and purpose
of the financial assets and is determined at the time of initial recognition.
Financial assets at fair value through profit or loss
Financial assets are classified as at FVTPL when the financial asset is either
held for trading or it is designated as at FVTPL.
Trading investments pertain to investment securities which are held for trading
purposes. These investments comprise both long and short positions and are initially
measured at fair value excluding transaction costs. Subsequently and at each
reporting date, these investments are measured at their fair values, with the
resultant gains and losses arising from changes in fair value being taken to
the income statement. Trading investments include securities and options over
securities which have been received as consideration for corporate finance services
rendered.
Financial assets are classified as financial assets at FVTPL where the Group
acquires the financial asset principally for the purpose of selling in the near
term, the financial asset is a part of an identified portfolio of financial
instruments that the Group manages together and has a recent actual pattern
of short-term profit taking as well as all derivatives that are not designated
as FVTPL and hedging instruments. Financial assets at fair value through profit
or loss are stated at fair value, with any resulting gain or loss recognised
in the income statement. The net gain or loss recognised in the income statement
incorporates any dividend or interest earned on the financial asset.
Held to maturity investments
Debentures with fixed or determinable payments and fixed maturity dates that
the Group has the positive intent and ability to hold to maturity are classified
as held-to-maturity investments. Held-to-maturity investments are measured at
amortised cost using the effective interest method less any impairment, with
revenue recognised on an effective yield basis.
Available-for-sale investments
Listed shares held by the Group that are traded in an active market are classified
as available for sale investments and are initially measured at fair value,
including transaction costs. At each reporting date, these investments are measured
at their fair values and the resultant gains and losses, after adjusting for
taxation, are recognised directly in equity, until the security is disposed
of or is determined to be impaired, at which time the cumulative gain or loss
previously recognised in equity is included in the net profit or loss for the
period.
Trade and other receivables
Market debtors are measured at fair value. Unpaid share premium and loans due
from staff are initially measured at fair value and revalued to amortised cost
at each subsequent reporting date. All other debtors are measured at amortised
cost using the effective interest method, less any impairment. Appropriate allowance
for estimated irrecoverable amounts is recognised in the profit or loss when
there is objective evidence that the asset is impaired. The allowance recognised
is measured as the difference between the assets carrying amount and the present
value of estimated future cash flows discounted at the effective interest rate
computed at initial recognition.
Impairment of financial assets
Financial assets, other than those held for trading purposes or held at fair
value through profit or loss, are assessed for indicators of impairment at each
reporting date. Financial assets are impaired where there is objective evidence
that as a result of one or more events that occurred after the initial recognition
of the financial asset the estimated future cash flows of the investment have
been impacted. For loans and receivables the amount of the impairment is the
difference between the asset's carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Derecognition of financial
assets
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the
Group recognises its retained interest in the asset and an associated liability
for amounts it may have to pay. If the Group retains substantially all the risks
and rewards of ownership of a transferred financial asset, the Group continues
to recognise the financial asset and also recognises a collateralised borrowing
for the proceeds received.
Financial liabilities
Financial liabilities are classified as either financial liabilities 'at FVTPL'
or 'other financial liabilities'.
Financial liabilities
at FVTPL
Financial liabilities are classified as at FVTPL where the financial liability
is either held for trading or it is designated as at FVTPL upon initial recognition.
A financial liability is classified as held for trading if:
* it has been incurred principally for the purpose of
disposal in the near future; or
* it is part of an identified portfolio of financial
instruments that the Group manages together and has a
recent pattern of short term profit taking; or
* it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may
be designated as at FVTPL upon initial recognition if:
* such designation eliminates or significantly reduces
a measurement or recognition inconsistency that would
otherwise arise; or
* the financial liability forms part of a group of
financial assets or financial liabilities or both,
which is managed and its performance is evaluated on
a fair value basis, in accordance with the Group's
documented risk management or investment strategy,
and information about the Group is provided
internally on that basis; or
* it forms part of a contract containing one or more
embedded derivatives, and IAS 39 Financial
Instruments: Recognition and Measurement permits the
entire combined contract (asset or liability) to be
designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any resultant
gain or loss recognised in profit or loss. The net gain or loss recognised in
profit or loss incorporates any interest paid on the financial liability.
Other financial liabilities
Trade payables are initially measured at fair value. At each reporting date,
these trade payables are measured at amortised cost using the effective interest
rate method.
Other financial liabilities, including borrowings, are initially measured at
fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using
the effective interest method, with interest expense recognised on an effective
yield basis.
The effective interest method is a method of calculating the amortised cost
of a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated
future cash payments through the expected life of the financial liability, or,
where appropriate, a shorter period, to the net carrying amount on initial recognition.
De-recognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or expire.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Group are recognised at the proceeds received, net of direct issue
costs.
Derivative financial instruments
The Group has no significant exposure to derivative financial instruments but
will occasionally enter into futures to manage its exposure to market risk.
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair value
at each reporting date. The resulting gain or loss is recognised in the profit
or loss immediately.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the balance sheet date, taking
into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present obligation,
its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognised as an
asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount and fair value less costs to sell. Non-current
assets and disposal groups are classified as held for sale if their carrying
amounts will be recovered principally through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale
is highly probable and the asset or disposal group is available for immediate
sale in its present condition. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale within one
year from the date of classification.
In the statement of comprehensive income, income and expenses from discontinued
operations are reported separately from income and expenses from continuing
operations, down to the level of profit after taxes, even when the Group retains
a non-controlling interest in the subsidiary after the sale. The resulting profit
or loss (after taxes) is reported separately in the statement of comprehensive
income.
Property, plant and equipment and intangible assets once classified as held
for sale are not depreciated or amortised.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are reported at the rates of exchange prevailing
at that date. Gains and losses arising during the period on transactions denominated
in foreign currencies are translated at the prevailing rate and included in
the income statement.
Investments in subsidiary undertakings
Investments held as fixed assets are stated at cost, less any provision for
diminution in value.
Operating leases
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease. Where a rent free period or discount
is negotiated it is amortised over the period of the lease.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any
provision for impairment. Depreciation is provided at rates calculated to write
off the cost, less estimated residual value, of each asset evenly over its estimated
useful life as follows:
Leasehold improvements: Ten years
Fixtures and fittings: Three years
IT equipment: Three years
The carrying values of property, plant and equipment are subject to annual review
and any impairment is charged to the income statement.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable profit
differs from net profit as reported in the income statement because it excludes
items of income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising
on investments in subsidiaries and associates, and interests in joint ventures,
except where the group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax
is charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the group
intends to settle its current tax assets and liabilities on a net basis.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable
and represents amounts receivable for services provided in the normal course
of business, net of discounts, VAT and other sales related taxes.
Revenue comprises fees for corporate finance advisory services which are taken
to the income statement when contractual entitlement is met. Revenue also comprises
profits on dealing operations, being gains less losses, both realised and unrealised,
on financial assets, arrived at after taking into account attributable dividends
and directly related interest, together with commission income receivable.
Interest income is recognised at the effective interest rate applicable, which
is the rate that discounts estimated future cash receipts through the expected
life of the financial asset to that asset's net carrying amount.
Dividend income from investments is recognised when the shareholders' rights
to receive payment have been established.
Revenue includes the fair value of options over securities which have been received
as consideration for corporate finance services rendered.
Segment reporting
IFRS 8 requires that an entity disclose financial and descriptive information
about its reportable segments, which are operating segments or aggregations
of operating segments. These operating segments are identified on the basis
of internal reports that are regularly reviewed by the Chief Executive Officer
to allocate resources and to assess performance. Using the Group's internal
management reporting as a starting point, the reporting segments set out in
note 3 have been identified.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment. The Group
issues equity-settled share-based payments to certain employees. Equity-settled
share-based payments are measured at fair value (excluding the effect of non
market-based vesting conditions) at the date of grant. The fair value determined
at the grant date of the equity-settled share-based payments is expensed on
a straight-line basis over the vesting period, based on the Group's estimate
of shares that will eventually vest. At each balance sheet date, the Group revises
its estimate of the number of equity instruments expected to vest as a result
of the effect of non market-based vesting conditions. The impact of the revision
of the original estimates, if any, is recognised in profit or loss such that
the cumulative expense reflects the revised estimate, with a corresponding adjustment
to the equity-settled employee benefits reserve.
2. Critical accounting judgement and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of judgements, 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 estimates. The estimates and assumptions that have a significant
effect on the carrying amounts of assets and liabilities are set out below:
a) Equity-settled share-based payments
The fair value of share based payments is calculated by reference to a Monte
Carlo simulation model. Inputs into the model are based on management's best
estimates of appropriate volatility, discount rate and share price growth.
b) Valuation of investments
Trading investments include options over securities which have been received
as consideration for corporate finance services rendered. The fair value of
these investments has been calculated by reference to a Monte Carlo simulation
model. Inputs into the model are based on management's best estimates of appropriate
volatility, discount rate and share price growth. The volatility input has been
calculated based on the volatility of historic share price movements.
c) Bad debt policy
The Group regularly reviews all outstanding balances, including the unpaid amounts
relating to the partly paid B shares, and provides for amounts it considers
irrecoverable.
d) Provisions and contingent liabilities
Provisions are measured at the Directors' best estimate of the expenditure required
to settle the obligation. These judgements and estimates are based on a detailed
consideration of the issues and relevant legal advice, leading to an assessment
of the probability of litigation and subsequent cash outflow.
e) Consolidated financial statements
The Company continues to consolidate the Cenkos Channel Islands Group on the
basis of the ownership of 50% of the voting shares, the dispersed nature of
other shareholders and the on-going business relationship with the entity.
f) Related party disclosures
Key management personnel comprise Board members of the Group and members of
the Group's Executive Management Committee who exert significant influence over
the financial and operating policies of the Group.
3. Business and geographical segments
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the Group that are regularly reviewed by the Chief
Executive Officer to monitor segment performance and to allocate resources between
segments.
Services from which reportable segments derive their revenues
Based on its internal management reporting, the Group has identified three reportable
segments and the following services provided by these segments:
Corporate Broking and Advisory
This segment provides corporate finance, corporate broking and market making
services to growth companies and investment funds.
Institutional Equities
The institutional equities team currently provides research-driven investment
recommendations and execution capabilities to institutional clients.
Fund and Wealth Management
Offshore wealth management and stockbroking services are provided through the
Cenkos Channel Islands Group.
The onshore fund management business is provided by Cenkos Fund Management Limited.
This onshore business has been classified as a discontinued operation - see
note 9.
An analysis of the Group's revenue and result by reportable segment is as follows:
1 January 2011 to 31 December 2011
Corporate Fund Less:
Broking and Institutional and Wealth Discontinued Group
Advisory Equities Management Operations* Total
GBP
Segment revenues and results GBP 000's GBP 000's GBP 000's GBP 000's 000's
Corporate finance 25,754 239 - - 25,993
Corporate broking & market making 6,666 548 - - 7,214
Research fees & commission 2,760 1,394 - - 4,154
Management fees & stockbroking
services - - 6,745 (402) 6,343
--------------- ----------------- ------------ -------------- ----------
Segment revenue 35,180 2,181 6,745 (402) 43,704
Administrative
expenses (18,995) (1,638) (6,226) 780 (26,079)
--------------- ----------------- ------------ -------------- ----------
Segment results 16,185 543 519 378 17,625
Unallocated Administrative expenses (11,924)
Operating Profit 5,701
Investment income - interest
receivable 325
Finance costs - interest payable (9)
Profit before tax 6,017
Tax (1,549)
Loss after tax for the year from discontinued operations (in
Fund and Wealth Management)* (457)
Profit for the year 4,011
*See note 9 for details. Loss after tax for the year from discontinued operations
is arrived at after reviewing the carrying value of Cenkos Fund Managers Limited.
1 January 2011 to 31 December
2011
Corporate Fund Less:
Broking and Institutional and Wealth Discontinued Group
Advisory Equities Management Operations* Unallocated Total
GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's
Other segment information:
Assets 13,475 - 8,141 (300) 29,826 51,142
Liabilities (2,539) - (4,984) 4 (18,538) (26,057)
Depreciation and
amortisation 21 4 85 (1) 253 362
Additions to non-current
assets - - 368 - 200 568
=========== =============== ============ ============== ============= ===========
Segment assets have been allocated on the basis of the internal reports received by
the Chief Executive Officer for the purposes of monitoring segment performance and allocating
resources between segments.
1 January 2010 to 31 December 2010
Corporate Fund Less:
Broking and Institutional and Wealth Discontinued Group
Advisory Equities Management Operations Total
GBP GBP
Segment revenues and results 000's GBP 000's GBP 000's GBP 000's 000's
Corporate finance 36,356 - 5 - 36,361
Corporate broking & market making 9,188 - - - 9,188
Research fees & commission 1,189 4,955 - - 6,144
Management fees & stockbroking services - - 8,614 (1,776) 6,838
---------- ----------------- -------------- -------------- ----------
Segment revenue 46,733 4,955 8,619 (1,776) 58,531
Administrative expenses (27,862) (3,421) (6,572) 1,237 (36,618)
---------- ----------------- -------------- -------------- ----------
Segment results 18,871 1,534 2,047 (539) 21,913
Unallocated Administrative expenses (15,469)
Operating Profit 6,444
Investment income - interest receivable 454
Loss on sale of available-for-sale financial asset (294)
Finance costs - interest payable (1)
Profit before tax 6,603
Tax (2,163)
Profit after tax for the year from discontinued operations (in Fund
and Wealth Management) 384
Profit for the year 4,824
1 January 2010 to 31 December 2010
Corporate Fund Less:
Broking and Institutional and Wealth Discontinued Group
Advisory Equities Management Operations* Unallocated Total
Other segment information: GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's
Assets 13,254 - 8,317 - 50,503 72,074
Liabilities (3,481) - (5,832) - (35,506) (44,819)
Depreciation and
amortisation 27 6 66 - 247 346
Additions to Non-current
assets - - 44 - 361 405
=========== =============== ============ ============== ============= ===========
The accounting policies of the reportable segments are the same as the Group's accounting
policies described in note 1. Segment profit represents the profit earned by each segment
without allocation of the parent's central administration costs, investment revenue and
finance costs, and income tax expense. This is the measure reported to the Chief Executive
Officer for the purpose of resource allocation and assessment of segment performance.
An analysis of the Group's revenue and result
on continuing operations by geographical location
is as follows:
Geographical information 1 January 2011 to 31 December 2011 1 January 2010 to 31 December 2010
United Channel Group United Channel Group
Kingdom Islands Total Kingdom Islands Total
GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's
Revenue (a) 37,361 6,343 43,704 51,688 6,843 58,531
Non-current assets 1,133 - 1,133 875 56 931
(a) Revenues are attributed on the basis of the entities
location. All discontinued operations were located in
the United Kingdom.
Major clients
No revenue from one particular client amounted to more than
10% of the Group's total revenue.
4. Interest income 1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
Interest income generated from: GBP 000's GBP 000's
Cash and cash equivalents 62 47
Held to maturity investments 22 19
Trade and other receivables 241 388
325 454
Interest income generated from trade and other receivables includes the recognition
of the unwinding of the discount factor applied to loans due from staff related
to the issue of the partly paid B shares, which amounted to GBP209,513 (2010:
GBP387,720).These loans were fair valued when granted and the discount factor
unwinds over the period until they are due to be repaid.
5. Interest expense 1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Interest on bank overdrafts and loans 9 1
6. Staff costs
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Staff costs comprise:
Wages and salaries 24,479 31,702
Social security costs 2,804 4,075
IFRS 2 share based payments 259 489
27,542 36,266
The Company does not operate or contribute to any pension scheme on behalf of its employees.
It does, however, provide access to a Company designated stakeholder pension scheme.
2011 2010
The average number of employees (including
executive Directors) was: No. No.
Corporate finance 18 12
Corporate broking 75 85
Administration 44 42
137 139
GBP 000's GBP 000's
The total emoluments of the highest paid director serving
during the year were: 457 1,002
7. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Continuing operations Discontinued operations Total
1 1
January January
2010 to 2010 to
1 January 1 January 1 January 31 1 January 31
2011 to 2010 to 2011 to December 2011 to December
31 December 31 December 31 December 2010 31 December 2010
2011 2010 2011 GBP 2011 GBP
GBP 000's GBP 000's GBP 000's 000's GBP 000's 000's
Operating lease
rentals 703 676 23 - 726 676
Auditors' remuneration
(refer to analysis
below) 138 539 5 5 143 544
Depreciation of
property, plant
and equipment 362 346 1 - 363 346
Staff costs (see
note 6) 27,542 36,266 672 - 28,214 36,266
Change in fair
value of financial
assets designated
as at FVTPL 323 108 - - 323 108
Costs associated
with aborted takeover
bid - 1,285 - - - 1,285
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
The analysis of auditors' remuneration is as follows: GBP 000's GBP 000's
Fees payable to the Company's auditor for the audit of the
Group's annual accounts and consolidation 112 112
Fees payable to the Company's auditor for other services:
- The audit of the Company's subsidiaries, pursuant to legislation 5 41
* Fees payable to other auditors for the audit of the
Company's subsidiaries, pursuant to legislation 42 -
Total Audit Fees 159 153
----------------- --------------------
- Other services, pursuant to legislation: half year review 18 43
- Fees paid to the predecessor auditor for corporate finance
services (associated with aborted takeover bid) - 348
- Fees payable to other auditors for the half year review
of the Company's subsidiaries, pursuant to legislation 14 -
----------------- --------------------
32 391
----------------- --------------------
191 544
8. Tax 1 January 1 January
The tax charge comprises: 2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Current tax
United Kingdom corporation tax at 26.5% (2010: 28%)
based on the profit for the year 1,473 2,200
Overseas tax charge born by subsidiaries operating
in other jurisdictions 12 5
Adjustment
in respect
of prior
period
United Kingdom corporation tax at 26.5% (2010: 28%) 63 -
Total current tax 1,548 2,205
Deferred
Tax
Credit on account of temporary differences (94) -
Charge on account of temporary differences 95 113
Total deferred tax 1 113
Total tax on profit on ordinary
activities 1,549 2,318
The tax expense in the income statement is
disclosed as follows:
Income tax expense on continuing operations 1,549 2,163
Income tax (credit) / expense on discontinued
operations (105) 155
------------- -------------
1,444 2,318
The tax charge for the year differs from that resulting from applying the
standard rate of UK corporation tax of 26.5% (2010: 28%) to the profit before
tax for the reasons set out in the following reconciliation.
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Profit before tax on continuing operations 6,017 6,603
(Loss) / profit on discontinued operations before tax (378) 539
------------- -------------
Profit before tax on continuing and discontinued operations 5,639 7,142
Tax on profit on ordinary activities at the UK corporation
tax rate of 26.5% (2010: 28%) 1,494 2,000
Tax effect
of:
Expenses that are not deductible in determining
taxable profits 172 443
Non-allowable loss on sale of available-for-sale financial
asset - 294
Different tax rates of subsidiaries operating in other
jurisdictions (226) (419)
Income not subject to corporation tax (61) -
Expenses not allowable on disposal of discontinued (13) -
operations
Adjustment for loss relief not 15 -
claimed
Adjustment in respect of prior 63 -
period
Tax expense for the year 1,444 2,318
The prior year figures have been restated due to updated disclosure requirements.
This change does not impact the primary statements.
In addition to the amount charged to the income statement, deferred tax
relating to share-based payments amounting to GBP25,992 has been charged
directly to equity (2010: GBP10,353 credited directly to equity).
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
Deferred
tax GBP 000's GBP 000's
Arising on share-based payments (26) 10
Total income tax recognised directly in equity (26) 10
9. Discontinued operations
In 2012, the Group disposed of its entire holding in Cenkos Fund Managers
Limited, which carried out all of the Group's onshore fund management activity.
This operation has an investment management agreement with an AIM-quoted
fund. The fund has been put into run off and although investment management
fees continue to be generated, Cenkos Fund Managers Limited made a loss
in 2011. The disposal was effected in order to remove the impact of future
losses from the Group. The decision to dispose of Cenkos Fund Managers Limited
was taken in November 2011 and as at 31 December 2011, Cenkos Fund Managers
Limited was classified as held for sale and as a discontinued operation,
given it was a separate major line of business. The disposal was completed
on 1 February 2012, at which date control of Cenkos Fund Managers Limited
passed to the acquirer for the consideration of GBP1.
The results of the discontinued operations, which have been included in
the consolidated income statement, were as follows:
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Revenue 402 1,776
Administrative expenses (780) (1,237)
Profit before tax (378) 539
Income tax (credit) / expense 105 (155)
Loss on disposal of discontinued operations (184) -
Net loss attributable to discontinued operations (attributable
to the owners of the Company) (457) 384
The major classes of assets and liabilities of Cenkos Fund Managers Limited
as at 31 December 2011 were as follows:
31 December
2011
GBP 000's
Property, plant and equipment 1
Deferred tax asset 105
Trade and other receivables 194
Trade and other payables (4)
Fair value less costs to sell (296)
Assets held for resale -
----------------------
10. Dividends 1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
Amounts recognised as distributions to equity holders
in the period: GBP 000's GBP 000's
Final Dividend for the year ended 31 December 2010
of 4p (December 2009: 5p) per share 2,849 3,565
Interim dividend for the period to 30 June 2011 of
4p (June 2010: 2p) per share 2,850 1,425
Interim dividend for the period to 30 November 2011
of nil (November 2010: 2p) per share - 1,426
5,699 6,416
A final dividend of 1 pence per share has been proposed for the
year ended 31 December 2011 (2010: 4p).
11. Earnings per share 1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Earnings from continuing and discontinued operations
The calculation of the basic and diluted earnings per
share is based on the following data:
Earnings
Earnings for the purposes of basic earnings per share
being net profit attributable to equity holders of
the parent 3,711 3,726
Effect of dilutive potential ordinary shares:
Share options - -
Earnings for the purpose of diluted earnings
per share 3,711 3,726
No. No.
Number of shares
Weighted average number of ordinary shares for the
purposes of basic earnings per share 71,250,584 71,164,543
Effect of dilutive potential ordinary
shares:
Share options - 401,417
Weighted average number of ordinary shares for the
purpose of diluted earnings per share 71,250,584 71,565,960
The weighted average number of shares considered for the current 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.
On 22 October 2009, 1,428,750 shares were transferred to the Cenkos Securities
Employee Benefit Trust (CSEBT). On 31 March 2010 it acquired a further 90,000
shares, on 20 December 2011 a further 20,000 shares and on 21 December 2011
a further 45,000 shares. These shares are held by the trust in treasury
and have been excluded from the weighted average number of shares calculation
up to this date.
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Earnings from continuing operations
Earnings for the purposes of basic earnings per share
being net profit attributable to equity holders of
the parent 3,711 3,726
Adjustment to exclude parent share of discontinued
operation 308 (174)
Earnings from continuing operations for the purpose
of basic earnings per share excluding discontinued
operations 4,019 3,552
Effect of dilutive potential ordinary
shares:
Share options - -
Earnings from continuing operations for the purpose
of diluted earnings per share excluding discontinued
operations 4,019 3,552
The denominators used are the same as those detailed above for both basic
and diluted earnings per share from continuing and discontinued operations.
1 January 1 January
2011 to 2010 to
31 December 31 December
2011 2010
GBP 000's GBP 000's
Earnings from discontinued operations
Basic (0.43)p 0.24p
Diluted (0.43)p 0.24p
12. Provisions and accruals
A provision was set up in 2010 for legal fees on a case concerning litigation
with a sub broker, which was determined in 2011. The provision was utilised
in 2011 when the case was settled in full.
A cash-settled shadow equity scheme was set up in 2009 for the Cenkos team
based in Edinburgh. The Company re-organised this office in the second half
of 2010 resulting in the cessation of this arrangement and a number of staff
leaving the Company. A provision for this re-organisation was established
in 2010 to cover any resultant liabilities. The Company is currently in
dispute with a former member of staff. After taking legal advice, the Directors
are of the opinion that appropriate accruals have been made in these financial
statements for any potential liability. A breakdown of the amount accrued
has not been given as any additional disclosure could, in the opinion of
the Directors, prove seriously prejudicial to the interests of the Group.
13. Contingent liabilities
During the reporting period, certain underlying clients of a 50% owned subsidiary,
Cenkos Channel Islands Limited (CCIL), had exposure to MF Global UK Limited
when that company entered the Special Administration Regime on 31 October
2011 and this exposure still remains unsettled. Further details of the exposures
have not been given as any additional disclosures could, in the opinion of
the Directors of both CCIL and the Company, prove seriously prejudicial to
the interests of CCIL and its clients due to the ongoing special administration
process. Based on information received to date, the Boards of both CCIL and
the Company are currently of the view that the situation should be resolved
without a material impact on the financial or trading position of CCIL or
the Group.
14. Subsequent events
The Group's onshore fund management business, Cenkos Fund Managers, was sold
on 1 February 2012. As a decision to sell this business was made in November
2011, this has been treated as a discontinued operation in these financial
statements. Aside from this, there have been no events subsequent to the year-end
which have had a material impact on the estimates and provisions made within
these financial statements.
Additional Information
The financial information included in this statement does not
constitute the Group's statutory accounts (within the meaning of
section 434 of the Companies Act 2006) for the years ended 31
December 2011 or 2010, but is derived from those accounts.
Statutory accounts for 2010 have been delivered to the Registrar of
Companies and those for 2011 will be delivered following the
Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not draw
attention to any matters by way of emphasis without qualifying
their report and did not contain statements under s498(2) or (3)
Companies Act 2006 or equivalent preceding legislation.
The Annual General Meeting of Cenkos Securities plc will be held
at 6.7.8. Tokenhouse Yard, London EC2R 7AS on 10 May 2012 at 12.00
noon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JAMMTMBMBMRT
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