Results for year ended 31 March 2023
13/07/2023 07:00
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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 >£50m and cash of c. £20m
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 £1.1bn
o Raised c.£160m equity through 19 public market placings (FY22: 25
deals; £660m raised)
o Advised on 18 private M&A deals with aggregate value of c.£625
million (FY22: 22; £1.3bn)
o Advised on 6 public company M&A deals with an aggregate value of
c.£150m (FY22: 7; £820m)
o Completed 8 debt financing mandates raising c.£160m (FY22: 8 deals
raising c.£350m)
· 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.£28m from c.£31.5m
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 £32.9m (FY22: £52.5m) down 37% vs FY23 record revenue
performance
o finnCap Capital Markets revenue £19.3m (FY22: £28.3m)
o finnCap Cavendish revenue £13.6m (FY22: £24.3m)
o Adjusted LBT((1)) of £(1.7)m (FY22: Adjusted PBT of £9.3m); LBT of
£(6.3)m (FY22: PBT of £8.1m)
o Adjusted basic EPS:((1)) (0.9)p (FY22: 4.5p); Basic EPS: (3.3)p (FY22:
4.0p)
o Cash balance: £9.4m at 31 March 2023 (31 March 22: £24.4m) 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 £8.7m up 32% on Q1 FY23
(£6.6m)
o At 30 June 2023, cash was £9.1m 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
£400m; 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.£400m. 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 7220 0500
John Farrugia, Chief Executive Officer investor.relations@finncap.com
Richard Snow, Chief Financial Officer
Grant Thornton UK LLP (Nominated Adviser) Tel: +44 (0) 20 7383 5100
Philip Secrett/Samantha Harrison/George Grainger
Oberon Capital (Joint broker) Tel: +44 (0) 20 3179 5344
Mike Seabrook
finnCap Ltd (Joint Broker) Tel: +44 (0) 20 7220 0500
Tim Redfern
Hudson Sandler (PR adviser) Tel: +44 (0) 20 7796 4133
Dan de Belder/Rebekah Chapman
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 >£5m 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 £20.3m and
the consolidated audited revenue of finnCap of £32.9m for the year ended 31
March 2023. Pro forma combined cash has been calculated using the sum of
audited cash for Cenkos of £14.2m in its consolidated balance sheet at 31
December 2022 and the audited cash for finnCap of £9.4m 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.£2m.
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 £5m
on AIM, down 70% to c.£1.7bn (FY22: £5.6bn).(( 1 (#_ftn1) ))
Despite the challenging markets, we executed 52 transactions in FY23, with an
aggregate deal value of c.£1.1bn (FY22: 62 transactions, aggregate value
£3bn). 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 £19.3m in FY23 (FY22: £28.3m).
Retainers - Total fees from retainer agreements increased to £7.0m (FY22:
£6.6m), 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 £9.0m
(FY22: £15.8m). Deal fee revenue trends improved in H2 compared to H1, as
expected. In FY23, we raised over £160m (FY22: £661m) 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.£150m (FY22: £820m). Our debt advisory team,
which works across both finnCap Capital Markets and finnCap Cavendish,
completed eight (FY22: 8) fundraising mandates raising c.£160m (FY22:
£350m).
Trading - Trading revenues were £3.3m (FY22: £5.9m), 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.£625m
(£1.3bn) and with average success fees of c.£675,000, above our target level
of £650,000. We generated revenues of £13.6m (FY 22: £24.3m), 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.£28m 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 £50m of proforma combined revenues and over £20m 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.£22.0m in FY20 to c.£32m 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 £73,000 (FY 22: £70,000). With
the benefit of a full year, we expect that non-employee operating expenses
will be c.£10.5m in FY24, before the impact of the merger with Cenkos is
taken into account.
Non-recurring expenditure
FY23 FY22
£m £m
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
£m £m
(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 £2m FY22
final dividend to shareholders; our £2.1m investment in Energise; and the
outflow of non-recurring costs relating to restructuring and potential
corporate transactions. Cash is stated before the £0.9m 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.£2m 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 £1.5m, up c.40% on the previous
year, and an unaudited pre-tax loss of c£0.3m, 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 £400m 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 £8.7m up c.32% on FY23 (£6.6m) and,
at 30 June 2023, our cash position was £9.1m 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 (#_ftnref1) source: London Stock Exchange.
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