TIDMFCAP
RNS Number : 8595F
finnCap Group PLC
13 July 2023
13 July 2023
finnCap Group plc ("finnCap" or the "Company" or the
"Group")
Results for the year ended 31 March 2023
FY23 in line with expectations; Cenkos merger on track; Q1 FY24
revenue +32% up on prior year
finnCap today announces its audited results for the year ended
31 March 2023.
-- Merger with Cenkos announced in March remains on track for completion in Q3
o Cenkos finnCap - creation of a leading financial services firm
for the mid-market with >200 clients supported by >200
employees and pro forma revenue(3) of >GBP50m and cash of c.
GBP20m
o Shareholder approvals achieved; integration planning well underway
o Completion expected in Q3 following FCA and final Court approval
-- Delivering for clients: 52 transactions in FY23 with aggregate deal value of GBP1.1bn
o Raised c.GBP160m equity through 19 public market placings (FY22: 25 deals; GBP660m raised)
o Advised on 18 private M&A deals with aggregate value of c.GBP625 million (FY22: 22; GBP1.3bn)
o Advised on 6 public company M&A deals with an aggregate value of c.GBP150m (FY22: 7; GBP820m)
o Completed 8 debt financing mandates raising c.GBP160m (FY22: 8 deals raising c.GBP350m)
-- Controlling our costs
o Significant reduction in fixed cost base implemented from September 2022
o Reduced discretionary spend and headcount reduction without impacting client service levels
o FY24 fixed cost base substantially reduced to c.GBP28m from c.GBP31.5m H123 run rate(2)
o Cenkos merger will deliver further attractive cost synergies
across both businesses, in particular in shared IT systems, real
estate and operations functions
-- Operating environment remains challenging in ECM
o UK equity issuance subdued since the invasion of Ukraine -
FY23 decline in AIM issuance of c.70%(3)
o Economic uncertainty, rising interest rates and inflation impacting investor confidence
o Private and plc M&A activity market has improved in early FY24; ECM pipeline building for H2
FY23 - Financial highlights
o Total revenue GBP32.9m (FY22: GBP52.5m) down 37% vs FY23 record revenue performance
o finnCap Capital Markets revenue GBP19.3m (FY22: GBP28.3m)
o finnCap Cavendish revenue GBP13.6m (FY22: GBP24.3m)
o Adjusted LBT(1) of GBP(1.7)m (FY22: Adjusted PBT of GBP9.3m);
LBT of GBP(6.3)m (FY22: PBT of GBP8.1m)
o Adjusted basic EPS:(1) (0.9)p (FY22: 4.5p); Basic EPS: (3.3)p (FY22: 4.0p)
o Cash balance: GBP9.4m at 31 March 2023 (31 March 22: GBP24.4m)
post investment in Energise Limited; FY22 final dividend; FY22
corporation tax and FY22 discretionary compensation payments
Current trading and dividends
o FY24 has started well with Q1 revenue of GBP8.7m up 32% on Q1 FY23 (GBP6.6m)
o At 30 June 2023, cash was GBP9.1m broadly in line with position at 31 March 2023
o ECM market remains subdued but FY24 revenue is expected to be better FY23
o M&A activity has improved - 6 deals closed in Q1 -with
deal value of GBP400m; pipeline is encouraging
o As already announced in conjunction with the Cenkos merger in
March, no final dividend will be paid in respect of FY23
Commenting on the results, John Farrugia, Chief Executive
Officer, said:
"Since I became CEO in September, we have re-focused our
strategy, reduced our fixed cost base and successfully launched a
highly attractive merger as a first mover in a consolidating
sector. FY23 was challenging in particular in ECM where market
conditions limited corporate activity and investor appetite. We
have started the current year well with activity in both ECM -
including the IPOs of Fadel Capital Partners LLP and Ocean Harvest
Technology plc and placings for SRT Marine Systems PLC, Kromek plc
and Lok'n Store Group PLC and our M&A team has already closed 6
deals with an aggregate transaction value of c.GBP400m. Our balance
sheet remains substantially stronger than when we entered the 2020
pandemic.
Our merger with Cenkos - which is expected to complete in Q3 -
will create a leading financial services group for the mid-market
with a diverse range of products and services and strong expertise
whilst delivering improved profitability through attractive cost
synergies.
I am truly excited about uniting our teams and delivering on the
huge potential we see for our combined businesses."
Contacts
finnCap Group plc Tel: +44 (0) 20
John Farrugia, Chief Executive Officer 7220 0500
Richard Snow, Chief Financial Officer investor.relations@finncap.com
Grant Thornton UK LLP (Nominated Adviser) Tel: +44 (0) 20
Philip Secrett/Samantha Harrison/George Grainger 7383 5100
Oberon Capital (Joint broker) Tel: +44 (0) 20
Mike Seabrook 3179 5344
finnCap Ltd (Joint Broker) Tel: +44 (0) 20
Tim Redfern 7220 0500
Hudson Sandler (PR adviser) Tel: +44 (0) 20
Dan de Belder/Rebekah Chapman 7796 4133
Notes to Editors
About finnCap Group
finnCap Group is a diversified financial advisory firm offering
a full range of services across M&A advice, equity and debt
capital raising and related services to corporate and institutional
clients and high net worth investors including private equity and
family offices. It has particular strength in the technology, life
sciences, consumer and business services sectors. finnCap Group has
global reach through its affiliation with the Oaklins partnership
and access to net zero and carbon economy consultancy through its
partnership with Energise Limited.
Notes: (1) Adjusted LBT, PBT and EPS are calculated excluding
share-based payments, amortisation of intangible assets from the
acquisition of Cavendish Corporate Finance LLP, non-recurring costs
and includes, for EPS, an adjustment to normalise tax. The weighted
average number of shares in issue during the period excludes shares
held by the Group's Employee Benefit Trust.
(2) Being total fixed employee costs (ie excluding IFRS 2
share-based payments charges and discretionary compensation) plus
non-employee costs except for third party introduction fees.
(3) AIM placings >GBP5m per London Stock Exchange for the
year to 31 March 2023.
(4) Pro forma revenue has been calculated using the sum of
consolidated audited revenue of Cenkos for the year ended 31
December 2022 of GBP20.3m and the consolidated audited revenue of
finnCap of GBP32.9m for the year ended 31 March 2023. Pro forma
combined cash has been calculated using the sum of audited cash for
Cenkos of GBP14.2m in its consolidated balance sheet at 31 December
2022 and the audited cash for finnCap of GBP9.4m in its
consolidated balance sheet at 31 March 2023 less the aggregate
final dividend and proposed dividend payable shortly before merger
completion to Cenkos shareholders of c.GBP2m.
CEO Statement
FY23 was an eventful year, both complex and challenging and with
some of the most difficult equity market conditions we have
experienced. After I became CEO in September 2022, we reviewed and
re-focused our strategy, took decisive and necessary actions to
manage our cost base for the extended downturn in equity capital
markets (ECM), and engaged in two major corporate transactions,
leading to our merger with Cenkos Securities plc (Cenkos),
announced just before our year end.
Our people have responded exceptionally well to all these
challenges and I thank them for their energy and drive as we now
focus on realising the huge potential of the merger.
Resilience in a challenging equity environment
Our operating environment was hit hard following the Ukraine
invasion, which led to economic uncertainty, sharply rising
inflation and interest rates, and investor outflows. This adversely
affected issuer and investor confidence, particularly in ECM.
Volumes of UK equity issuance - our key driver of ECM revenues -
fell substantially in FY23, with overall equity placings over GBP5m
on AIM, down 70% to c.GBP1.7bn (FY22: GBP5.6bn). ([1])
Despite the challenging markets, we executed 52 transactions in
FY23, with an aggregate deal value of c.GBP1.1bn (FY22: 62
transactions, aggregate value GBP3bn). Our strategy of diversifying
outside ECM into new products and services has supported our
performance, giving us an edge over our direct competitors and
increased relevance to our clients.
finnCap Capital Markets (ECM) generated GBP19.3m in FY23 (FY22:
GBP28.3m).
Retainers - Total fees from retainer agreements increased to
GBP7.0m (FY22: GBP6.6m), driven primarily by RPI adjustments. Our
client base remained stable at 117 (FY22: 118), despite continued
M&A activity on AIM and widely reported de-listings.
Transactions -Total ECM fees from transactions in the period
were GBP9.0m (FY22: GBP15.8m). Deal fee revenue trends improved in
H2 compared to H1, as expected. In FY23, we raised over GBP160m
(FY22: GBP661m) across 19 (FY22: 25) equity fundraisings for listed
clients. We continue to generate plc M&A activity where we have
great depth of expertise and a strong market position. Our plc
advisory team completed six plc M&A transactions (FY22: seven)
with an aggregate value of c.GBP150m (FY22: GBP820m). Our debt
advisory team, which works across both finnCap Capital Markets and
finnCap Cavendish, completed eight (FY22: 8) fundraising mandates
raising c.GBP160m (FY22: GBP350m).
Trading - Trading revenues were GBP3.3m (FY22: GBP5.9m),
reducing in line with the wider equity issuance markets and lower
levels of liquidity.
finnCap Cavendish (M&A) delivered another good performance
in FY23. We closed 18 deals (FY22: 22) with an aggregate market
value of c.GBP625m (GBP1.3bn) and with average success fees of
c.GBP675,000, above our target level of GBP650,000. We generated
revenues of GBP13.6m (FY 22: GBP24.3m), down compared to our record
FY22 performance, but ahead of our five-year average revenue
levels. Although there has been turmoil in the commercial banking
market, particularly in the US, the availability of deal financing
has improved in 2023, improving buyer confidence from trade and
private equity. We are encouraged by the quality of our
pipeline.
Strategic update - focus on strategic financial advisory
services
In my first month as CEO, we undertook a review of our strategy
and concluded that broadening and deepening our strategic financial
advisory capabilities would remain a key focus for the Group. We
will continue with our sector-based approach to maximise our
relevance to our institutional, private equity, corporate and high
net worth individual clients. We believe this approach puts us in a
strong position to withstand market cyclicality. To scale, we will
consider strategic M&A opportunities and focus on businesses
and teams with services within or directly adjacent to our
financial services advisory offering.
With reduced revenue and a clear strategy, we undertook a cost
restructuring programme, including voluntary and mandatory
redundancies across the Group. We reviewed and cut our
discretionary spend, including marketing, events, branding and
external advisers. This process significantly reduced non-recurring
expenditure and has placed the Group in a stronger financial
position. In aggregate, the cost reduction actions should reduce
our fixed cost base(2) to c.GBP28m for FY24 (excluding the impact
of the Cenkos merger), substantially below the run rate in H1
23.
Our merger with Cenkos
During mid-2022, we received a take-over approach from UK
investment bank Panmure Gordon. Terms could not be agreed and we
discontinued discussions towards the end of 2022. However, we
remained convinced of the commercial and strategic merits of our
strategy of building scale for our ECM business through acquisition
and in late 2022 and early 2023 we held preliminary talks with a
number of potential candidates.
In early 2023, we entered into discussions with Cenkos, and in
March we announced a formal merger to create Cenkos finnCap Group,
a market-leading, full-service advisory firm for growth and
investment companies. We are nearing completion of the regulatory
process to effect the merger and we expect completion will occur in
the next few months. The merger is being effected by way of an
acquisition for all of the issued and to be issued share capital of
Cenkos by finnCap.
Cenkos finnCap Group has (on a proforma combined basis) over 200
retained listed or quoted clients and will employ c.230 colleagues,
with shared ambitions to build on strong existing foundations
across capital markets, M&A advisory, debt advisory, and
private growth capital fundraising. The new Group has over GBP50m
of proforma combined revenues and over GBP20m combined cash.
This combination is expected to yield attractive cost synergies
primarily from property savings and through combining our
operations teams and systems. This will enable us to offer more
liquidity to our institutional and corporate clients, in addition
to providing access to a more diverse range of financial advisory
services. Cenkos finnCap Group will be jointly led by the existing
CEOs of finnCap and Cenkos. Lisa Gordon, the existing Chair of
Cenkos, will chair the enlarged group, and the combined Board will
comprise equal numbers of finnCap and Cenkos directors.
Operating Costs
Administrative costs decreased by 21% primarily driven by lower
employee variable compensation payments with employee costs
declining overall by c.30%. Although employee costs declined
significantly, employee costs as a percentage of revenue increased
to 69%. This compares to the c.60% paid in prior years and reflects
the need to pay some level of variable compensation to key
contributors, particularly in in the M&A team to retain them.
Non-employee costs increased in part due to high inflation.
Once it became clear that the post-Ukraine impact on our key ECM
market would persist for the medium-term, we undertook a Group-wide
cost rationalisation programme in H2 FY23 to mitigate the effects
as much as possible, while maintaining key capabilities across the
Group, particularly in client-facing roles. After a period of
strong revenue growth and investment in people, our fixed cost base
- employee costs excluding discretionary pay, plus non-employee
operating expenses - rose from c.GBP22.0m in FY20 to c.GBP32m in
FY23, (annualising our H1 performance). This increase of c.50% was
substantially ahead of our growth in headcount (c.20%) and was
driven by several factors including: high wage inflation across the
sector for client -facing employees; the substantial cost of the
Group's new property; higher corporate costs; and investment in IT
systems to support sales and trading, CRM and cyber risks.
As a result of our cost reduction programme, non-employee costs
reduced in H2 against H1 on an underlying basis. Non-employee costs
per employee - a key efficiency measure - were broadly stable at
GBP73,000 (FY 22: GBP70,000). With the benefit of a full year, we
expect that non-employee operating expenses will be c.GBP10.5m in
FY24, before the impact of the merger with Cenkos is taken into
account.
Non-recurring expenditure
FY23 FY22
GBPm GBPm
Transaction costs 0.4 -
Group restructuring
costs 3.1 -
Total 3.5 -
------------------------ --------- ---------
Group restructuring costs relate to changes in leadership of the
Group during FY23 and the redundancy programme we implemented in Q3
FY23.
Transaction costs relate to fees paid to financial and legal
advisers for the proposed takeover offer received from Panmure
Gordon during FY23, which mutually terminated in November. There
will be further restructuring costs in FY24 as we bring Cenkos and
finnCap together following completion of the merger. Although we
have undertaken significant integration planning, we cannot yet
quantify these costs and commensurate benefits.
Loss before tax and earnings per share
FY23 FY22
GBPm GBPm
(Loss)/profit before taxation (6.3) 8.1
Adjusted (LBT)/PBT (1.7) 9.3
Basic (loss)/earnings per
share (p) (3.3) 4.0
Adj. basic (loss)/earnings
per share (p)* (0.9) 4.5
As a result of the significant reduction in revenue in FY23, our
restructuring programme and our high fixed operating costs, we
recorded a loss before tax and loss per share.
On an adjusted basis earnings per share were also negative,
primarily because the benefits of our cost reduction programme were
only delivered during Q4 FY23.
Our revised cost base gives us the ability to continue to
provide our clients with high-quality service while capitalising on
potential market improvement in FY24, thereby improving both our
financial performance and our ability to continue to pay key
employees in line with our market peers.
Cash flow, capital, liquidity and FY23 dividends
Cash balances have reduced during the year driven by the payment
of FY22 bonuses and corporation tax liability; a fit out of our
additional office space (increasing our capacity for client meeting
rooms and also creating a space suitable for occupation and
sub-letting, if appropriate); our GBP2m FY22 final dividend to
shareholders; our GBP2.1m investment in Energise; and the outflow
of non-recurring costs relating to restructuring and potential
corporate transactions. Cash is stated before the GBP0.9m balance
of the fit-out loan, payable in instalments over the next three
years.
Maintaining a strong liquidity position means we are in a better
position to withstand challenging operating conditions and our
balance sheet will be strengthened following our merger with
Cenkos. Although we have substantially cut our fixed cost base, our
cash position has reduced. To preserve cash, stay true to our
capital discipline approach, and ensure we are fit for the future,
as announced in March with our proposed merger with Cenkos, the
Board has resolved not to pay a dividend for FY23.
Energise
In May 2022, we invested c.GBP2m for a 50% interest in Energise,
an energy efficiency and net zero consultancy. For its financial
year to 30 September 2022, Energise recorded unaudited revenue of
GBP1.5m, up c.40% on the previous year, and an unaudited pre-tax
loss of cGBP0.3m, in line with its plans. This is consistent with
Energise's strategy to drive revenue growth through hiring
consultants to increase client growth over the next three
years.
Energise has started its new financial year well and is
benefiting from growth in its core net zero and energy consulting
business, as well as from fees derived from the three yearly
building efficiency ESOS certification cycle in 2023.
Outlook
With a more efficient cost base and a solid balance sheet we are
well placed to maximise the benefits of our merger with Cenkos and
we remain confident in the long-term prospects for the Group.
Despite the challenging backdrop, our pipeline of potential
transactions in both plc M&A and equity fund raising in ECM
remains encouraging.
Since the year end, we have already completed two IPOs bringing
Fadel Capital Partners LLP and Ocean Harvest Technology plc to the
AIM market and placings for SRT Marine Systems PLC, Kromek plc and
Lok'n Store Group PLC. Equity market activity remains muted but we
believe overall ECM deal fees in FY24 will be greater than in FY23,
albeit weighted towards H2. Activity levels remain good for the
M&A team with 6 deals already completed in Q1 with an aggregate
value of GBP400m and, given our pipeline, we expect FY24 M&A
revenue will be in line with or ahead of FY23.
Unaudited total revenue for Q1 FY24 was GBP8.7m up c.32% on FY23
(GBP6.6m) and, at 30 June 2023, our cash position was GBP9.1m after
payment of FY23 bonuses, primarily within the M&A team.
I look forward to the opportunity to scale the business with
Cenkos and firmly believe the merger creates a group fit to face
the challenges of a consolidating market and capitalise on a
potential market improvement in FY24. Furthermore, I am confident
that we have the right cultural and operational fit to make the
merger a success.
John Farrugia
Chief Executive Officer
13 July 2022
Consolidated statement of comprehensive income
There are no items of other comprehensive income.
All results derive from continuing operations.
Consolidated statement of financial position
Consolidated statement of cashflows
Consolidated statement of changes in equity
Notes to the financial statements
1. Accounting policies
a. Basis of preparation
These consolidated Financial Statements contain information
about the Group and have been prepared on a historical cost basis
except for certain Financial Instruments which are carried at fair
value. Amounts are rounded to the nearest thousand, unless
otherwise stated and are presented in pounds sterling, which is the
currency of the primary economic environment in which the Group
operates.
These consolidated Financial Statements have been prepared in
accordance with UK Adopted International Accounting Standards.
The preparation of Financial Statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies.
The consolidated financial information contained within these
financial statements does not constitute statutory accounts within
the meaning of Section 434 of the Companies Act 2006. The auditor
has reported on the statutory financial statements and the audit
report was unqualified. The annual report and accounts for the year
ended 31 March 2023 is expected to be filed with the Registrar of
Companies and posted to Shareholders in August. Further copies will
be available from the Company Secretary at the Company's registered
office and on the Company's web-site www.finncap.com.
b. Basis of consolidation
The Group's consolidated Financial Statements include the
Financial Statements of the Company and all its subsidiaries.
Subsidiaries are entities over which the Group has control if all
three of the following elements are present: power over the
investee, exposure to variable returns from the investee and the
ability of the investor to use its power to affect those variable
returns. Subsidiaries are fully consolidated from the date on which
control is established and de-consolidated on the date that control
ceases.
The acquisition method of accounting is used for the acquisition
of subsidiaries. Transactions and balances between members of the
Group are eliminated on consolidation and consistent accounting
policies are used throughout the Group for the purposes of
consolidation.
c. Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement. The Strategic Report and
Directors' Report describe the financial position of the Group; the
Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; and its exposure
to credit risk and liquidity risk.
The Directors believe that the company has adequate resources to
continue trading for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the Annual
Report and Accounts.
2. Dividends
Dividends are proposed at the discretion of the Board.
3. Post balance sheet events
On 23 March the Group announced it would be merging with Cenkos
Securities plc post year end. More details can be found in the
relevant RNS.
4. Market abuse regulation (MAR) disclosure
Certain information contained in this announcement would have
been deemed to be inside information for the purposes of article 7
of Regulation (EU) No 596/2014 until the release of this
announcement.
5. Website publication
The full Financial Statements are included in our Annual Report
and Accounts, which will be published on the Company's website in
accordance with legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements, which may
vary from legislation in other jurisdictions.
[1] source: London Stock Exchange.
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