finnCap Group plc ("finnCap" or "the Company")

Results for the year ended 31 March 2022

Record revenue performance

Financial Highlights

·           Revenue up 13% to £52.5m (FY21: £46.6m)

·           finnCap Cavendish revenue up 101% to £24.3m (FY21: £12.1m)

·           finnCap Capital Markets revenue down 18% to £28.3m (FY21: £34.5m)

·           Adjusted PBT⁽¹⁾ of £9.3m (FY21: £9.6m); PBT of £8.1m (FY21: £8.4m)

·           Adjusted EPS:⁽¹⁾ 4.51p (FY21: 4.80p); Basic EPS: 3.95p (FY21: 4.41p)

·           Total dividends 1.75p per share (FY21: 1.5p)

·           Cash at the year-end: £24.4m (31 Mar 2021: £20.4m)

FY22 Key Achievements - delivering diversified revenues and services

·           Deal and advisory fees of £40.0m (FY21: £33.4m) with c50% from non-ECM services

·           Completed transactions with aggregate deal value of over £3.2 billion:

o    raised £700m equity

o    advised on 29 public and private M&A transactions with an aggregate value of c2.1 billion:

o    raised c.£400m debt finance

·           Key hires to support client service and revenue generation:

o    Consumer M&A

o    Life Sciences: Senior ECM and Research

o    Series A private growth capital fund raising

o    Senior M&A execution; and

o    Expanded origination/lead generation function to support private M&A activity

·           finnCap Analytics launched: servicing larger hedge funds and institutional investors

·           Post year end, acquired 50% of Energise Limited, a UK based sustainability consultancy

ESG - Operating Responsibly

·          Sustainability: second external audit of our operating carbon footprint completed; offset measures implemented

·     Social Responsibility - Education Focus: supported four charities and enterprises focused on encouraging       entrepreneurship skills and understanding of business at junior and senior schools

Current Trading (unaudited)

·        Start to FY23 in ECM has been challenging across the market with very low deal volumes; private and public M&A activity remains good and the finnCap Cavendish M&A deal pipeline remains strong

·          FY23 outlook: expect revenue and financial performance to be substantially below FY22 levels

FY22 Dividends

·        Proposed final dividend for FY22 to be 1.15p per share paid after AGM in September. Total dividends for FY22 of   1.75p per share (FY21: 1.5p)

Commenting on the results, Sam Smith, Chief Executive Officer, said:

"Our FY22 results reflect the benefit of our sustained investment in our team over many years, and to their absolute focus on delivering our clients' ambitions.  We completed transactions worth over £3.2 billion, further strengthened our balance sheet and delivered 50% of revenue from services established since our acquisition of Cavendish in 2018.

With weak and volatile equity markets, the start to FY23 has been challenging in ECM across the market although we do continue to see good transaction levels in M&A, both plc and private, where our pipelines remain good.  Inevitably these conditions will mean substantially lower results in FY23 but we remain confident that, through the teams we have developed and the client base and reputation we have established over many years, finnCap is well placed to resume growth once market conditions permit.

A few weeks ago, I announced that I intended to step back from the CEO role and leave the Board after 24 years leading the finnCap businesses and move into an advisory role from early September. 

These will be my last results and I would like to thank all my colleagues in finnCap for their hard work in delivering an amazing FY22 and also wish the new team - which will be ably led by our future CEO John Farrugia - the very, very best for the future."

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain. 

Contacts

finnCap Group plc                                                                                Tel: +44 (0) 20 7220 0500

Sam Smith, Chief Executive Officer                                                       investor.relations@finncap.com

Richard Snow, Chief Financial Officer

Grant Thornton (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

Rhys Williams / 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 leading advisory firm for the business of tomorrow. The sector specialist service offering ranges from ECM and IPO, to Plc strategic advisory, debt advisory, M&A and private growth capital. finnCap Group comprises finnCap Capital Markets, finnCap Cavendish as a market-leading strategic M&A firm and has a global reach through its membership of Oaklins. 

Notes:(1) Adjusted PBT and EPS are calculated excluding share-based payments, amortisation of intangible assets from the acquisition of Cavendish, non-recurring costs, the uplift from the sale of the Group's stake in PrimaryBid Limited in FY21  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.

Record Results

In the year ended 31 March 2022, we delivered another record revenue performance, with our second-best result in the finnCap Capital Markets ("ECM") business and doubling revenues in finnCap Cavendish, our private M&A business.

In FY22 total revenue was £52.5m, up 13% on FY21 (£46.6m).  Adjusted PBT at £9.3m was broadly in line with last year.   Our cash position remained strong and, at the year end, stood at c.£24.4m (FY21: £20.4m).

Post year end, we also made further progress with our strategy of building a more broadly based advisory business through our acquisition of a 50% stake in Energise Limited, a rapidly growing sustainability consultancy.  Energise brings us a new set of advisory services outside the Group's historic, financial services focus and I am pleased that we have the option to acquire the remainder after September 2025.

Market Dynamics

Overall equity issuance on the AIM market was again high with c.£6bn raised in the year.  Our market share was c.11% (fundraisings greater than £5m) reflecting our particular strength and historic investment in the technology, life sciences and consumer sectors.  Volumes and activity reduced during Q4 with issuance reduced to levels not seen since the summer of 2019.  The start to FY23 has been very quiet across the market reflecting investor uncertainty around the implications of the war in Ukraine and the challenges for the global economic outlook.

The M&A market was vibrant in the UK, our primary geographic market, with strong interest in assets from both private equity and strategic buyers.  This was driven by significant liquidity, in particular from PE investors and pent-up corporate demand from COVID-19 related disruption.  In 2021, total deals completed were up c.33% on 2020 by number and up c.75% by aggregate value.

Strong Divisional Performance

finnCap Capital Markets generated its second highest level of revenue at £28.3m, 18% down on last year's record performance (FY21: £34.5m).               

Retainers - Total fees from retainers in the period were up 3% at £6.6m (FY21: £6.4m).  We won 18 new clients during FY21  and, reflecting normal levels of M&A, de-listing and client turnover, client numbers were essentially stable at 118 at the year end. (FY21: 119).

Transactions - Total fees received from transactions in the period were £15.8m (FY21: £21.3m). 

During the year, finnCap Capital Markets executed 34 transactions, raising over £661m (FY21: £720m) across 21 equity fundraisings for listed clients and three IPOs.

Notable equity deals (>£10m) included:

Life Sciences: Angle PLC (£20m)

Tech: Access Intelligence (£50m); Argo Blockchain (£126m); Ideagen (£104m)

Consumer: BOTB (£60m); Revolution Bars (£21m)

Resources: Chariot Oil & Gas (£16m); Savannah Resources (2 deals: £59m)

Other key deals: K3 Capital (£10m); GRIT (£57m)

It was pleasing to bring three great companies to market in the year:

IPOs: Poolbeg Pharma (£25m); Eneraqua (£20m); and Gelion (£19m).

We also advised on a total of 7 plc M&A deals with an aggregate deal value of £822m.

PLC M&A transactions included:

The sale of Telit Communications PLC (£307m); Cambria Bidco's offer for Cambria Automobiles PLC (£83m); a mandatory offer for Gulfsands Petroleum PLC (£23m); the sale of Proactis Holdings PLC (£75m); a mandatory offer for Photo-Me International PLC (£285m); the sale of Universe Group PLC (£33m); and an offer by Polygon for Watchstone Group PLC (£17m). 

The debt advisory team, which works across both finnCap and Cavendish, completed 9 mandates raising £370m.

Trading - Trading revenues were £5.9m (FY 21: £6.8m).   Although market activity was substantially lower than in FY21 - where we benefitted from significant COVID-19 related trading by institutional clients - this decline in revenue was offset by a good contribution from our Analytics team and an increased volume of block trades for owners of corporate clients.

Following the commencement of the war in Ukraine and development of broader concerns over inflation and economic growth, equity market activity in Q1 was lower and our pipeline is much quieter than in the comparative period last year.

finnCap Cavendish took advantage of strong M&A market conditions and, having built a sizeable book of sale mandates throughout FY21, delivered excellent outcomes for both sellers and buyers.

finnCap Cavendish generated revenues of £24.3m, up 101% on FY21 (£12.1m).   In total, it closed 22 private M&A transactions with an aggregate value of over £1.3bn.

Key deals included the sales of: Reward Gateway; Pimlico Plumbers;  Sentenial; Xexec; Rayware; Responsible Life; KM Products; Wood Thilsted; Boku; Mail Manager; Intelling; Soundbite Learning;  Datrix and Big Green Smile.

In Q1 22, activity levels remain good across the M&A market and in finnCap Cavendish.  We have around 40 live deals under execution,and, if conditions in the M&A market remain good, this should provide a sound basis to deliver a good result in the current year.

Diversified services - Delivering our Strategy

In 2018, before our IPO, finnCap's business was concentrated almost entirely on services related to the Equity Markets - a cyclical business with performance highly linked to equity market performance.  The IPO enabled the acquisition of Cavendish, a private M&A business and since then we have grown other areas of adjacent service -  public market take-over advice, debt advisory, private capital raising, PE coverage and a focused origination team  We have also expanded the scope of our institutional equities business into large and hedge fund investors through our Analytics team

In FY22, the revenue from these new services represented around half of the Group's total.

Whilst the Group's current set of services have their own market cycle, this diversification is a key part of building a different type of advisory firm that can service the needs of boards, private equity and institutional investors focused on mid-market companies.  As we broaden our range of services we should increase our relevance to clients and potential clients and, ideally, reduce market related cyclicality.

We continued to invest in people to drive our broad financial services strategy across the business.

In FY22, we have made key hires across:

·      Consumer M&A;

·      Life Sciences: Senior ECM and Research;

·      Series A private growth capital fund-raising;

·      Senior M&A execution; and

·      expanded of our origination/lead generation function to primarily support our M&A efforts

In Sales and Trading, our Analytics team started operating and made a good contribution to sales and trading revenues.  Our debt advisory business delivered just under £1m revenue  and, in Q1, our Private Growth Capital team completed their first material mandate.

In M&A we have made good progress in developing stronger relationships with Private Equity firms through our origination team.  This has been rewarded with an increased number of PE sell-side mandates and a number of PE buy-side mandates.  Our lead generation team, which we hired in late FY21, has developed our in-house database of potential sale candidates, begun active marketing of all the group's products and originated its first pitches and mandates.  We have also sectorised our M&A teams and developed our sector teams across all disciplines of the firm to increase our idea generation and the quality of coverage we give to existing and target clients.

We have also made good progress with our inorganic strategy. In late 2020 we began to review potential M&A opportunities including business services sectors and specific companies that might form part of a third leg of the finnCap group, with a particular emphasis on professional service companies that focus on advising boards on sustainability, diversity, inclusion and related areas.  We believe that these services have become increasingly important to boards in the mid-market in the past two to three years and that there will be continued growth for companies that offer good advice at an appropriate price level for mid-market companies, ideally coupled with a tech or software aspect.

In April 2022 we were delighted to announce the acquisition of a 50% stake in Energise Limited, a net zero and sustainability consultancy, for c.£2.1m.  Energise offers a broad range of services from strategic advice to Boards around energy efficiency, net zero planning and risk management to more regular annual services such as SECR and carbon footprint calculations.  In late 2021, it launched a tech enabled service - the Net Zero Club for smaller businesses to use to measure carbon footprints and evolve their net zero plans.  Energise is a rapidly growing business.  It generated revenue of c£1.1m for its year ended 30 September 2021 and is on track to increase this by c.50-70% in its current financial year. Most of the group's investment has been put into Energise to fund its expansion, including into the Diversity and Inclusion advisory business.  It will continue to be led by its founders as co-CEOs and we have the option to acquire the remaining 50% interest in the 12 months after the accounts for the year ended 30 September 2025 have been drawn up.

Administrative expenses and FY22 costs expectations

Administrative costs increased by 17% over FY21 reflecting higher employee compensation arising from the Group's strong financial performance in particular in the M&A division where competition for professionals remains intense.  Staff costs (excluding share based payments) as a percentage of revenue were 61% - broadly in line with FY21 and within our 58-62% guidance range. Our staff costs percentage remains in line with or below much of our peer group. 

Non-employee costs were markedly higher reflecting the full year costs of our new office - which provides substantial scope for expansion - as well as additional trading platform and IT costs and recruitment fees.  We also saw a return to more normal levels of travel and entertaining costs as market activity normalised post COVID-19.

Non-people costs per employee - a key efficiency measure - have remained stable at £70k per employee. 

Looking forward to FY23, non-staff costs (excluding third party introductory fees) are expected to remain broadly stable at c.£11m.

Non-recurring items

There were no non-recurring items in FY22 (FY23: £1.0m)

Capital and liquidity

The Group's year end cash position improved again to £24.4m from £20.4m at 31 March 2021 as a result of the strong financial performance.

In FY21, the significant working capital inflow is driven by the payment to employees (and related payroll taxes) of the FY21 discretionary bonus after the year end and the absence of such an accrual for FY20.  In FY22, we saw more normal accruals and working capital flows.

Cash is stated before the balance of the £1.2m fit-out loan which will be repaid over the next 4 years.  We completed the fit out of our offices in FY22 and these costs will be written off over the remaining life of the 10 year lease. 

In April 2021 we received £708k in cash for the sale of part of our stake in PrimaryBid Limited.

Our liquidity objective is to hold more than £10m free cash after taking account of market making funding together with expected dividends, financial and capital commitments, corporation tax liabilities and employee discretionary bonuses.

A stronger liquidity position and the longer-term financing of our office move means that the Group is better able to withstand challenging operating conditions, to support dividend payments to shareholders and also allows us to consider further strategic investment over time. 

Operating Responsibly

finnCap continues to operate responsibly and engaging actively with its key stakeholders and the wider community, in particular encouraging youth entrepreneurship through education.

We believe that businesses should be involved in social good, and, in terms of wider social engagement, we have since the start of FY22:

·   Acted as lead sponsor for the "Your Side Hustle" youth entrepreneurship competition with our partners YourGamePlan and ACCA.  Staff members have signed up to provide regular business mentoring which is offered to all competitors who made the final in London.  We are running the second event in the Summer of 2022.

·   Created an Entrepreneurship Module with YourGamePlan educational products to support young people who would like to start their own business or develop key life skills to improve their career opportunities.  Over 1,200 students have completed the module to date.

·  Supported the All-Party Parliamentary Group for Entrepreneurship to develop a white paper on Entrepreneurship Education to advise government on the benefits of including entrepreneurship into the UK school curriculum.

·   Continued our support (both financial and through volunteering) for icanyoucantoo which seeks to turn inequality into opportunity for non-privileged young people.

·   Sponsored ten Ukrainian refugees to gain English language and UK accreditation through sponsorship of Refuaid - part of the Ukraine Business Consortium.

·    Supported the Whitechapel Mission (an East London based charity that provides food, clothing and support for people in need) through employee volunteering.

We have now operated our Employee Volunteer scheme for over 12 months. Staff members have volunteered over 300 hours to clean up canals, train as swimming judges, run winter coat collections, and raise money for a wide variety of charities.

We have also hosted client education events around ESG, targeting NEDs, executives and investors focused on ESG reporting.

Rewarding Shareholders

Given the strong financial performance in FY22 and the improved balance sheet position of the Group, the Directors have proposed a final dividend of 1.15p per share - up 15% on FY21 - bringing a total dividend for FY22 to 1.75p.

The final dividend will be approved by shareholders at and paid after our AGM in September.

As we grow and diversify the Group it is important that we continue to reward shareholders with regular and attractive dividends.  Although results in the current year will be substantially lower than in FY22 due primarily to equity market conditions, we expect to pay an attractive dividend for the current financial year but will make the decision on quantum later in the year once market conditions and our financial performance become clearer.

Q1 Trading and Outlook

The current financial year has been complicated by the tragic conflict in Ukraine and rising macro risk including rising inflation, high energy prices, concerns over food prices and the consequent impact on consumer confidence in key markets.  This has significantly impacted the level of ECM activity, IPOs and equity issuance across all market participants.

Equity issuance through our Capital Markets division has been very low but we continue to execute plc M&A mandates.  Sales and trading activity has remained broadly stable.

In contrast, the private M&A market and our team's M&A performance has been strong and we have closed several private M&A transactions post year end. 

As we enter Q2, our public and private M&A pipeline remains good and we have seen some marginal signs of improvement in ECM activity.  The outcome for the year will remain highly influenced by the geopolitical and macroeconomic factors outlined above.

As a result of market conditions, we expect revenue and financial performance to be substantially lower than in FY22.  However, we have a strong client base and a growing range of services to offer them and will continue to selectively invest in people to drive future growth in the medium-term. 

We have a stronger balance sheet than before the COVID-19 pandemic and are confident, with our broader product offering across the Group, that the business will grow once external conditions improve. 

Sam Smith

Chief Executive Officer

14 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 consolidated 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 2022 is expected to be filed with the Registrar of Companies and posted to Shareholders in July.  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 28 April 2022, finnCap announced that it had acquired a 50% interest in Energise Limited ("Energise") a net zero and sustainability consultancy, based near Cambridge.

Energise was established in 2008 by Simon and Tamsin Alsbury with the initial objective of developing energy saving options for corporate and public sector clients.  It has since grown into a full-service Net Zero and energy efficiency practice assisting c.180 clients in meeting their climate change challenge with a core focus on regulatory compliance, best practice, measurement and emission reduction programmes to drive effective climate-focused business transformation.  Energise was awarded B-Corp status in February 2022.

For the 12 months ended 30 September 2021, Energise generated unaudited revenue of c£1.1m and EBITDA of c.£0.1m.  The current financial year has started well and, for the 6 months to 31 March 2022, Energise has invested in people and client growth with consulting revenue increasing c.90% over the prior period and with profits at breakeven level.

finnCap has acquired its 50% interest for consideration of c.£2.1m payable as cash of c.£1.9m and 902,090 new finnCap ordinary shares.  Of the cash consideration, c.£1.5m will be subscribed for new ordinary shares in Energise, providing the capital to fund revenue growth in its existing practice and to establish a culture and diversity practice.  The remaining cash and ordinary shares will be predominantly paid to the co-CEOs of Energise.  finnCap has also agreed to loan up to a further £0.3m to support growth over the next three years.

In addition to its investment, finnCap will provide Energise with marketing expertise; access, where appropriate, to its client base; and broader growth advisory services.

finnCap has an option to acquire the remaining equity interests in Energise for 12 months after approval of the accounts for the year to 30 September 2025 based on normalised EBITDA for that year and an EBITDA multiple of between 6-8x linked to the achievement of its business plan and the proportion of revenue from digital products.  The option exercise consideration can be paid up to 50% in new finnCap shares at finnCap's option.

After the year end, arrangements were entered into with Stuart Andrews, a former director on 15 May 2022, and with Samantha Smith, the CEO and a director of the company on 20 June 2022 relating to their departure from the Group.  The aggregate payments that could be made by the Group under these arrangements is up to c.£1m subject to their future re-employment and other conditions.  The majority of these costs will be borne in the FY23 financial year and relevant details will be disclosed in the FY23 Remuneration Report.

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, 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.