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RNS
Frenkel Topping Group PLC   -  FEN   

Final Results

Released 07:00 10-Apr-2019

RNS Number : 6762V
Frenkel Topping Group PLC
10 April 2019
 

10 April 2019

Frenkel Topping Group plc

("Frenkel Topping" or "the Company")

 

Results for the 12 months ended 31 December 2018

 

Frenkel Topping (AIM: FEN), a specialist independent financial advisor and asset manager focused on asset protection for vulnerable clients, announces its full year results for the year ended 31 December 2018.

 

The first six months of the year saw a period of significant investment in marketing, HR, the Frenkel Topping Academy and technology, stabilising the business and preparing it for future growth. The benefits of these investments began to be realised in the second half of the year and delivered a record £92m of new investment mandates in a twelve month period. 

 

Financial Highlights:

 

 

FY 2018

HY 2018

FY 2017

Revenue

£7.7m

£3.6m

£7.3m

Recurring revenue

£6.0m

£2.9m

£5.9m

Gross profit

£4.7m

£2.1m

£4.8m

Profit from operations*

£1.7m

£0.9m

£2.2m

Pre-tax profit

£1.1m

£0.3m

£1.9m

Basic EPS

1.11p

0.32p

2.24p

Cash from operations

£1.4m

£0.5m

£2.1m

Net cash and marketable securities

£2.0m

£1.8m

£1.9m

Total dividends (paid and proposed)

1.29p per share

0.32p per share

1.22p per share

 

* Profit from Operations is before share based compensation and reorganisation costs

 

Operational Highlights

·     Tenth consecutive year of very high client retention (98%) for investment management services

·     Assets under management ("AUM") £779m (as at December 2017: £752m), up 3.6%

·     Assets on a discretionary mandate £302m (as at 31 December 2017: £303m)

·     Expert Witness new instruction, a key pipeline for future AUM growth, increased by 33%

 

Richard Fraser, CEO of Frenkel Topping, commented: "The Board is pleased to report a year of progress, underpinned by significant investment across the business.

"Last year we identified a number of risks to Frenkel Topping's development and embarked on an investment strategy to help grow and protect the business in a challenging market environment and mitigate these risks. During the year we invested £0.7m across the business mainly on IT systems, FTG Academy and marketing. This resulted in a 43% rise in new investment mandates and a 33% increase in Expert Witness instructions, the latter a key pipeline for future AUM growth.

"The Company is in a good position as we scale up for our next period of growth. We remain focused on delivering outstanding service to our clients and sustaining our very high client retention rate, as well as consolidating our position as the UK's leading asset manager for personal injury and clinical negligence awards. Current trading is encouraging and we have had a solid start to the new financial year, underpinned by recent investment and our conservative investment approach."

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

 

For further information:

 

About Frenkel Topping: www.frenkeltopping.co.uk 

Frenkel Topping provides specialist independent financial advice focussed on asset protection for clients. The specialist independent financial adviser has a market leading position providing advice and fund management services for personal injury and clinical negligence awards and is well placed to provide services to a wider customer base.

The Company provides a range of wealth management services including bespoke investment portfolios, personal and corporate financial advice and tax planning. It is focused on increasing its assets under management by continued growth of the business by an increase in the number of highly qualified fee earners for the provision of its industry leading specialisms.

It has a national presence with offices in Manchester, Birmingham, Cardiff, London and Leeds and has relationships and infrastructure in place to further grow its reach and target markets.

 

Chairman's Statement

 

Overview

I am pleased to report a year of good progress underpinned by a significant programme of targeted investments in developing talent, marketing and technology. Total investments amounted to £0.7m which has enabled the Company to deliver a record £92m of new investment mandates and a 33% increase in Expert Witness instructions, a key pipeline for future AUM growth.  Importantly, we have retained a high client retention rate of 98% for the tenth consecutive year which reflects our positive portfolio performance and the exceptional services the Company provides. As highlighted in my previous reports, we have invested heavily to establish a strong platform for growth that is able to support future acquisitions.

At the period end Frenkel Topping was managing funds on behalf of our clients totalling £779m (as at 31 December 2017: £752m) and despite difficult financial markets all our model portfolios in the investment management business (Ascencia Investment Management) achieved positive returns reflecting the conservative approach we are obliged to take in protecting our client's money and generating returns.  Ascencia has expanded its asset management capabilities and launched a Socially Responsible Model Portfolio which is in line with the UN's Sustainable Development Goal Framework, in response to growing demand from investors who want their investments to have a positive social and environmental impact.  

Digital innovation is vital to any asset management business and as such, we have invested in technology to provide our clients with instant access to their investments and ensure we have numerous touch points. This, however, does not negate the importance of the human interaction our consultants have with their clients and the requisite emotional intelligence they require when advising someone who has been through a catastrophic, life changing event.

We established the Obiter brand in 2018 in response to demand from the solicitors and clients we work with, widening our expert witness services to include divorce cases, wills and probates and MBOs (Management Buy Outs). Frenkel Topping has an excellent reputation as a "care taker" of investments for vulnerable people and Obiter will benefit from its track record. We continue to seek acquisitions that offer complimentary services to build this business in a bid to maximise on existing relationships.

For the last 40 years, Frenkel Topping has served the legal sector and recipients of personal injury claims. It is a trusted brand and much work has been done to ensure that solicitors in this space are aware of our services and are strengthening our commercial arrangements through Joint Ventures ("JV") to secure new mandates. The Company's Expert Witness division has proven successful and is crucial to new AUM pipeline.

Key drivers

In line with our objective to increase shareholder value and create long-term sustainable growth the Company has established a five-year plan which is outlined in detail in the CEO report. While investments have been made, the Board is mindful that there needs to be a consistent drive to ensure the business continues on its growth trajectory and maintains its position as the UK's market leading asset manager for personal injury and clinical negligence awards in order to widen our market appeal. The key drivers of our business are multi-fold. 

Ogden Rate

The Company specialises in multi-track claims and the main issues arising in 2019 will be surrounding the Ogden Rate and the impact of the Discount Rate. The Civil Liability Bill gained Royal Ascent in December 2018 following a year of uncertainty. In response, Mark Holt, Commercial Director, presented his expert views to the legal sector, and how Frenkel Topping is positioned in the market. He has spoken at the main actuarial committee meeting in July 2018 to pre-empt and help in shaping the future setting of the new rate. The new rate is to be set over the coming months, and we predict it will be between 0.5-1.25%. This will see a shift from the current negative discount rate to a positive one. The change in the Ogden rate is not predicted to have a significant impact on Frenkel Topping and we view it as an opportunity for potential clients and solicitors to seek our expertise.

Client Retention

Client retention is key, particularly as we implement our M&A strategy. Consumer confidence in financial services has room for improvement and we endeavour to strive to achieve the highest possible standards of customer service in our industry.

As a rule, the British do not find it easy to talk about money. Often, clients are seeking to validate how they are managing their finances and whether their peers are pursuing the same approach.  Building trust happens over time and although statistics show people regularly switch providers, it is not an easy thing to get right.  The Group will continue with its multi-faceted approach to investment in order to improve touchpoints, use data to enhance client relationships and consider all areas of the business within our client retention strategy.

Socially Responsive Investing - Impact Investing

Investors, particularly millennials, are increasingly seeking to make investments in socially responsible businesses. Millennials will receive more than $30 trillion of inherited wealth in the coming years and we believe they will drive the growth of impact investing. Frenkel Topping is well-positioned to develop this, potentially across all of its  portfolios, as it presents a good cultural fit with our vision and the people that we serve.

People Development Strategy

Frenkel Topping is a leader and innovator in the space for specialist financial planning which requires high degrees of IQ (Intelligence Quotient) and EQ (Emotional Quotient). The foundation of this business has been built on the ability to be able to understand and empathise with clients who have suffered catastrophic injuries or illnesses. Some illnesses are regressive and therefore investments have to work exceptionally hard to generate a return. The business has strived to generate innovative products and services to meet the needs of clients and which will support the growth of the business. 

Further investments will be made in the Graduate Academy and extended to our apprenticeship programme. The people strategy will focus on experienced professionals throughout the business.  The M&A strategy will help mitigate some of the risks of finding further talent in the business.

Our objective is to create a high-performance business that is driven by talented individuals at varying levels. Creating internal opportunities will be equally as important as external recruitment as we seek to become an 'employer of choice'.

As announced in our interim report, we were pleased to welcome Tim Linacre to the Board during the period as a non-executive director. I also announced that I was moving from the role of Executive Chairman to Non-Executive Chairman. The Board now consists of two non-executive directors and three executive directors, Richard Fraser, Stephen Bentley and Mark Holt.

Our people

On behalf of the Board, I would like to thank our employees for their hard work and commitment to Frenkel Topping. The business has been through a year of investment and change and it is the dedication and team effort of our staff that has enabled us to deliver a solid set of results.  We are committed to developing "home-grown talent" and fostering a positive workplace which brings out the very best in our people. 

Dividends

Reflecting the Board's confidence in the Company's growth trajectory, the Directors intend to continue the Company's progressive dividend policy and total dividends (paid and proposed) are up 5.7% to 1.29p per share (FY 2017: 1.22p).

Subject to shareholder approval at the Company's Annual General Meeting on 30 May 2019, the final dividend will be paid on 28 June 2019 to shareholders on the register at the close of business on 31 May 2019. The ex-dividend date is 30 May 2019.

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

Outlook

Our focus in 2019 is to deliver growth, both organically and through selective acquisitions. With a clear strategy and a strong foundation in place following a period of investment, we are well placed to generate shareholder value. While our conservative approach is suited to investing through uncertain times and we do not envisage our business being affected on a day to day basis by Brexit, we are highly vigilant and monitor macroeconomic indicators continuously to mitigate risk.

We have made good progress in 2018 and the first three months of trading in 2019 is encouraging. The Board is confident of the future and looks forward to delivering further growth.

 

 

CEO Statement

Introduction

This has been a year of two clear halves; in H1 we made significant investments in marketing, HR, the Frenkel Topping Academy (the "Academy") and technology in order to normalise the business and reposition it for a return to growth in a changing market environment. Pleasingly, in H2, the return on these investments started to materialise and enabled us to win a record £92m of new investment mandates, a 43% increase on the prior year. We now have a strong platform in place to grow the business and consolidate our position as the UK's market leading asset manager for personal injury and clinical negligence awards and widen our market appeal.

The Group's revenue increased by c.5% to £7.7m (FY 2017: £7.3m). Profit from operations (before share based payments and reorganisation costs) was £1.7m (FY 2017: £2.2m) and profit before tax was £1.1m (FY 2017: £1.9m).

The reduction in profit compared to last year reflects the planned investment into the business of £0.7m, the benefits of which began to emerge in in the second half of the year, enabling the Group to increase our Assets under Management ("AUM") to £779m (FY 2017: £752m).  

Cash generated from operations was £1.4m (FY 2017: £2.1m). Total dividends (paid and proposed) are up 5.7% to 1.29p per share (FY 2017: 1.22p), reflecting the Board's confidence in the Company's growth trajectory. In November, we announced a share buy-back programme to repurchase ordinary shares of 0.5p in the capital of the Company up to a maximum value of £50,000, in order to facilitate a reduction in the share capital of the Company.

Despite the well documented uncertainties of the market, our client retention rate for the investment management services has remained high at 98%.

This is mainly due to the unique demographic of our clients in the core business from personal injury and clinical negligence. This protects us to a greater extent from the potential downsides mentioned above.

We have delivered a positive investment performance and secured a record £92m of new investment mandates.

Our Expert Witness new instructions a key pipeline for future AUM growth increased by 33% on the previous year, which has ensured a solid start to the Company's 2019 financial year.

Our investments

There were a number of risks that were identified in last year's annual report which related to the ongoing development of the business. We took action and targeted investments were made to mitigate these risks over the course of the year. These investments are critical to the future growth of this business both within the specialist market it operates in and to widen our appeal.

Specifically, the de-risking strategy included the following:

·    Increasing exposure within the legal sector through marketing and lead generation activities. This has supported the increase of expert witness instructions which rose by 33% YOY and has a close correlation to future AUM. In addition to this, there was an additional £92m added to AUM in 2018, the largest amount added to AUM in any given year for the last 30 years

·    Investing in our graduate programme and developing an apprenticeship programme in order to ensure that regular talent enters the business in a timely manner enabling relationships to be built. This has been a good investment for the Group with graduates already completing cases and adding AUM

·     Improving client retention (now at 98%) and protection of AUM - regular contact is important to ensure an effective client journey. In addition to this, many of the systems have been integrated and there are a number of projects in place to improve management information so that client information is easily accessible

·    Widening our specialist Expert Witness area to cover a more generalist proposition and build a challenger wealth management brand through Obiter Wealth Management

·    Evolution of Ascencia Investment Management (formerly FTIM) as the Company's DFM (discretionary fund manager) which is now bearing fruit as we have reached £320m at the end of Q1 2019

In summary, the following has been undertaken in 2018:

2017/18 RISK IDENTIFIED

2018 INVESTMENT AREAS

2018 OUTPUTS / RESULTS

·    Increased competitor activity

·    Protecting AUM

·    Consistent client service levels

·    Pricing proposition

·    Compliance

·    Succession planning / talent

·    M&A strategy

·    Too specialised with FTL Proposition, limited widening appeal

 

·  Investment in infrastructure-people / processes / business development

·  Graduate scheme and inception of apprenticeship graduates

·  Migration and development of IO CRM system

·  Development of leading expert in setting the Ogden Rate

·  Initial due diligence of potential acquisitions

·  Client relationship team inception

·  Marketing and business development activities increased

·  Development of Obiter

·   Record year of AUM additions at £92m

·   33% increase in Expert Witness instructions

·   Additional graduates taken on under scheme

·   First £1.5m case signed by new trainee consultant

·   Mark Holt, key figurehead for Ogden rate with high exposure

·   General increase in coverage in specialist press

·   Re-brand across all the major brands

·   Creation of additional JVs

·   Launch of SRI portfolios bearing fruit within the first six months despite volatile markets

 

 

1.    Investment in People and the Graduate Academy

A risk identified in 2018 was the threat of new entrants in this specialist IFA space. In addition, we wanted to ensure the quality of consultants (IFAs) that have been trained and developed within the Frenkel Topping Group are of the highest standard. The business development and client nurturing process, whether it is with the legal expert, deputy or claimant (end client) requires our consultants to have emotional quotient (EQ) alongside intelligence quotient (IQ). The ability to create personable relationships and emotionally connect with the claimant is critical. The consultant must also have the ability to think laterally, taking a range of factors into consideration, including expert witness reports and the ongoing requirements of an injured claimant throughout their life. 

As a Group we have always been very proud to nurture and promote these skills in our employees, however due to the departure of some senior members of staff in 2017, it was clear that we needed a strategy to sustain our leading position in the market as a specialist IFA by investing in our people.  The business has invested heavily in our graduate programme and created the Academy last year. All members of the Academy follow a programme designed to help them understand the different areas of the business and all the external and internal touchpoints for the target markets we serve.  Considering the thousands of graduates that enter the market each year, we see a substantial opportunity for us to develop 'home grown' talent. 

In addition to this, the development of Obiter Wealth Management has also attracted a different breed of IFAs which complements the overall business proposition. This strategy will be further developed and in 2019 we will extend our apprenticeship programme to include Obiter.

2.    Marketing & Brand Development

A significant area of investment has been in marketing and business development to reinvigorate Frenkel Topping. The first strand of this investment was re-branding businesses within the Group, a process which started in 2018 and will continue throughout 2019. Part of this rebranding strategy has been to increase the exposure of the core brand, Frenkel Topping Limited, at conferences and events, as well as ensuring that the brand is seen at the forefront of key issues affecting legal services especially the personal injury market. The key areas where investment has been made are as follows:

·     Brand development across all businesses within the Frenkel Topping Group

·     Increased lead generation activities in order to stimulate and keep Frenkel Topping front of mind

·     Increased exposure through events in the legal sector through conferences and events

·  Promotion of Frenkel Topping's expertise on the Ogden Rate / discount rate and an increase in opportunities to participate in expert panel reviews and debates

·     Increased market exposure through a range of media, including key legal publications

·    Launched Obiter Wealth Management, a generalist IFA brand in response to demand from the legal sector and leveraging incumbent relationships with our solicitor network 

·    Development and evolution of Ascencia Investment Management, replacing the original DFM brand FTIM (Frenkel Topping Investment Management)

·    Creation of distinct brands within the Group which both serve the core Frenkel Topping Limited brand but also widen its potential market reach over the next five years

This investment has generated momentum and much of the traction that had been lost in 2017 and early 2018 has now been recovered. We expect this to continue through 2019 and over the next five years, through our exposure in different markets and as we grow the Frenkel Topping Group.

3.    A Specialist IFA Serving the Legal Sector and Recipients of Personal Injury Claims

In the UK Personal Injury Market Report 2018, it was reported that the personal injury market is valued at c. £4bn with the catastrophic claims market representing c. 5% of these, totalling around £200m of opportunity on an annual basis.  The Frenkel Topping Group has been providing support to this market for around 40 years and we believe that the total personal injury market is greater than the report suggests, with the catastrophic claims market potentially being double the reported size. This represents significant opportunities for Frenkel Topping.  However, due to the perceived risk of competitors in this specialist space, it is crucial that the Company is consistently serving this market and is front of mind within the legal sector.  We have been particularly focused on promoting our brand and offering to the legal sector, as well as keeping abreast of continuing market changes e.g. the Ogden Rate / Discount Rate. 

Our data has consistently demonstrated the correlation between Expert Witness Report production and selection of the IFA to manage the AUM award post settlement.  Enquiries for this area are increasing on a monthly basis, and building this pipeline is a key metric for future growth and forecasting.

We use applications which will enable the business to 'smarter' utilise data to predict certain outcomes and manage clients especially between pre and post settlement thereby ensuring we are front of mind with the solicitor or deputy managing the caseload. One ongoing strategy for Frenkel Topping is pursuing further JVs, first initiated in 2017. The strength of these commercial relationships is already being realised, with increased Expert Witness work and a pipeline of future AUM. We are currently working on further JV opportunities and this will continue as an objective in 2019.

4.    Client retention and protecting AUM including improvements in infrastructure 

It is crucial for Frenkel Topping to protect AUM and retain clients. Client retention has increased from c. 95% to 98% in 2018 and there will be a concerted effort to retain this high level in the coming year. Client retention within Frenkel Topping has a two-fold objective:

·   Strengthening relationships with the law firms we work with and with professional deputies. (Also referred to as 'introducers' of work)

·     Strengthening relationships with clients across all Frenkel Topping's businesses

The business has made considerable improvements in this area through increased market exposure and regular communication to introducers of work. We have also made improvements to how we manage our clients:

·    We have invested heavily in consolidating several different operating systems and modernising to a single Cloud-based Customer Relationship Management (CRM) system called IO - a specialised system for IFAs

·    The data strategy is extended to integration with any claims management portals being used by legal firms with whom we have JV arrangements so that instructions can be passed seamlessly to Frenkel Topping

·    We have made considerable headway to move to a flexible and agile system that is both efficient and provides a single platform to view client investments and our interactions with them. This has been introduced in under 12 months with a measurable impact on the business

·     In addition to this, Frenkel Topping has invested in the development of an app which is due for release in 2019. It will allow clients to view valuations, provide document storage, receive secure encrypted communication they have with Frenkel Topping and provide alerts when insurance documents are due for renewal

Clients can feel aggrieved when they do not have easy access to information especially given recent market volatility. Therefore, ensuring that we communicate effectively with our clients is more important than ever. 

Frenkel Topping is in a period of digital transformation and this will continue as a theme and objective into 2019 and the next five years of growth.

In addition to the technical enhancements, the Company has developed a dedicated Client Relationship Team which examines every client touchpoint, so that we humanise the interaction with clients both pre and post settlement. Investment in technology for Frenkel Topping is a stepping stone to nurturing client relationships, ensuring we continually engage with our clients and use the data sources intelligently to facilitate client relationships as opposed to replacing face-to-face interaction.

5.    Launch of Obiter Wealth Manager - A Challenger Generalist IFA Brand

2018 saw the development of the Obiter brand within the Frenkel Topping group of companies.  This is a generalist proposition which has been developed through market demand from the legal sector and the incumbent client relationships. The benefit of this generalist brand is that it widens our expert witness services to include divorce cases, MBO's, probate - several of which will complement the current proposition and serve as a 'stepping-stone' to further IFA services. Obiter is positioned as a challenger brand within the wealth management space and our focus is to provide exceptional services and charge sensible fees. Obiter delivers a blended approach through a combination of passive and active funds, which further strengthens the positioning in the market, and builds trust and confidence.

6.    Development of Ascencia Investment Management

In the year under review, all our model portfolios in the investment management business achieved positive returns, reflecting our expertise and the conservative approach we have to take in protecting our clients' money and generating returns. Early in 2018, we appointed Wellian Investment Solutions Limited as our portfolio research partner to significantly expand our asset management capabilities and offer a broader range of products. Ascencia Investment Management's innovative investment proposition, characterised by competitive fee structures with a capital preservation focus, has been well received.  

There is an increasing focus on socially responsible investing. Investors, particularly millennials, are becoming more selective by looking for companies that have a positive impact. In response to this, we launched our Socially Responsible Model Portfolio which is managed by Ascencia Investment Management. The Frenkel Topping SRMP is in line with the UN's Sustainable Development Goal Framework and aims to provide long-term asset growth through investments that achieve a positive impact on social and environmental factors, while excluding those that are ethically unpalatable. Investments are screened and scored on Environmental, Social and Governance (ESG) factors and we proactively seek out ESG focused thematic investments.

Pleasingly, these funds are performing well despite market volatility and we are seeking to expand our offering in this space.   

Strategy

I am very pleased with the investments the team has made over the last 12 months and that the strategies we have pursued have put us in a good position as we scale up for our next period of development. Our scale up strategy entails further investment in key areas with an emphasis on the following objectives:

1.    Continued development of the strategies set in 2018

2.    Widening our market reach through our M&A strategy and development of the Obiter WM brand

3.    Increasing the strength of the DFM through Ascencia and developing SRI / ESG Portfolios 

4.    Developing a digitised offering and using technology across all touchpoints within our business

5.    Continually nurturing and developing our talent across all levels of the business

6.    Launch of Equatas - an accountancy practice to add value to the client relationship

7.    Creating excellence in everything we do

 

2019 RISK IDENTIFIED

2019 OBJECTIVES AND INVESTMENT AREAS

·     Lack of confidence in financial markets

·     Integration strategy for new acquisitions

·     Economies of scale

·     Competitors at heels consistently

·     Client Retention on generalist IFA Proposition

·     Managed and sustainable growth

·     People - scope / structure / talent

·     Consistency of effort - too many projects

·     Consistent service levels

·     Monetising all marketing and business development opportunities

 

·  Developing our positioning in the market as leaders in the 'vulnerable' space specifically around financial abuse

·  Successful Integration of acquisitions from a people, processes and asset transfer perspective

·  Ongoing investment in the Graduate Academy and development of apprenticeship programme

·  Further investment in marketing and business development

·  Continual programmes to improve client experience

·  Retention and cross-selling opportunities through Equatas

·  New websites across all the business with online enquiry management, conference booking and report payment tools

·  App development

·  Campaigns to develop Ascencia and Obiter as standalone brands

·  Development of the Frenkel Topping Charitable Foundation

·  Implementation of white-labelled Hubwise platform

 

M&A Strategy and the Generalist IFA Market

In 2018, Frenkel Topping launched Obiter Wealth Management in response to demand from law firms that we currently work with. The development of Obiter and the opportunities within this sector are extensive. The IFA market faces a number of challenges including client mistrust (the 2018 Financial Life Survey from the FCA revealed that 39% of consumers do not trust their financial advisor) presenting us with an opportunity to leverage our reputation as a trusted asset manager with a conservative approach. We are exploring acquisitions to expand Obiter in FY2019 and FY2020.  Any brands acquired will eventually be merged under the Obiter brand.  

Current Trading

We are pleased to announce that Q1 trading is encouraging and that those areas invested into are already supporting growth in 2019. Our recent investments in training and development have helped to underpin that growth and provide a strong platform for the future. Our business model remains robust, supported by a conservative investment approach that ensures we look after the complex needs of our clients throughout the investment cycle and look to the future with optimism.

Strategic Report

This strategic report should be read in conjunction with the Chairman's statement which also covers our strategy and future developments.

Results

Revenue for the year amounted to £7.7m (2017: £7.3m), of which £6.0m or 78.5% (2017: £5.9m or 80.8%) related to recurring revenues and the balance in each year was from new business. Gross Profit was £4.7m (2017: £4.8m) and profit from operations before share based compensation charge and reorganisation costs was £1.7m (2017: £2.2m). Cash generated from operations was £1.4m (2017: £2.1m).

The performance during 2018, in terms of profitability, has reflected the Board's focus to develop Frenkel Topping's ability to gear up to manage increased AUM, including those on a discretionary basis with Ascencia Investment Management Limited and laying the foundations for a step change in profitability in future years.

Assets added in 2018 of £92m significantly exceeded business lost of £17.7m, amounts paid to clients of £33m and market movements of £15.9m accordingly AUM grew from £752m to £779m.

We are pleased to report that for the tenth consecutive year we have maintained our very high client retention rate 98% for the period.

Closing cash and marketable securities as at 31 December 2018 amounted to £2.0m (2017 £1.9m), this after paying £0.9m in dividends to shareholders in 2018.

Total Assets as at 31 December 2018 were £13.1m (2017: £12.7m).

Business Model

The main activity of the Group is providing independent financial advice and investment management services to personal injury and clinical negligence victims.

The business model of the Group is to earn income from providing expert witness reports to the court for clients who are in the process of litigation as a result of a personal injury or clinical negligence claim. Once the claims have been settled the Group then seeks to give advice to the clients on how to invest their damages award. Once the client has been given financial advice the Group seeks to service the clients with continued investment and financial advice for which it charges the client a fee.

Strategy

The Board's strategy is to develop the business by:

·   continuing to offer expert witness and Independent Financial Advice to clients who have suffered personal injury or medical negligence claims as the established market leader

·     continuing to offer low risk investment products through Ascencia Investment Management Limited that are designed to preserve our clients' assets, but also offer higher return products that are more exposed to equities. The Group will seek to expand Ascencia's services to a wider audience

·   continuing to offer financial advice to clients, who may include professionals, such as lawyers and accountants, the vendors of recently sold family businesses, divorcees and retirees who have large sums they need to invest. This advice is provided through the recently launched Obiter Wealth Management Limited

Objectives

The primary objective of the Group is to grow the assets under management (AUM).

Risks

Set out below are the key risks and uncertainties which affect the Group. This does not represent a comprehensive list of all the risks the Group faces but focuses on those that are currently considered to be most relevant at the present time. This assessment may change over time:

·     Competitor activity - the activity of competitors may result in a reduction in the level of AUM.

·     Client service - shortfalls in the service we provide could lead to compensation, regulatory investigation and sanction and reputational damage and reduction in the level of AUM.

·     Pricing, service and market changes - if the pricing proposition becomes uncompetitive in the  marketplace, this may lead to failure to win new business and/or retain existing business.

·     Regulatory, legal and tax developments - the environment in which the Group operates is susceptible to change by Government, legislation or regulatory developments.

·     Compliance - failure to comply with the regulatory requirements to which the Group is subject may have an adverse effect on the Group and its business.

·     People, recruitment, training and retention - the Group's ability to recruit, train and retain its staff.

·     Advice - failure to provide appropriate advice to clients may lead to regulatory investigation or sanction, claims or reputational damage.

·     Economic and political changes - change in the economic or political environment could result in increased costs or operational challenges.

The Group's income is driven from fees on initial investment but also recurring income from maintaining its relationship and servicing of its clients.

The main KPIs that the Board considers are:

·     Client retention

·     Growth in AUM, and

·     Delivery against a target level of fees from new business.

The Board monitors client retention on a monthly basis and, during 2018, 2% (2017: 5%) of clients were lost. The Board agrees new business targets with the FCA authorised individuals at the start of each year and reviews delivery against these targets on a monthly basis. During 2018, 84% of the new business target was achieved (2017: 95%).

Working capital is monitored daily against forecast and the Board is satisfied that cash resources are adequate for the Group's requirements.

Personal injury claims continue to grow and whilst this market continues to be competitive, the Directors believe the Group's brand name, expertise and knowledge provide a degree of protection. The Directors actively monitor our competitors, our own pricing structure and proactively market the Group brand to ensure we remain leaders in our field.

The Group's employees are an important factor in the success of the Group and the Board seeks to ensure employees are motivated and rewarded fairly for their contributions to the business. Employee remuneration represents the largest cost to the Group. The Board reviews market rate for key employees and ensures the remuneration package is consistent with market levels.

The Group needs to maintain its authorisation with the Financial Conduct Authority (FCA) in order to continue trading and has to adhere to principles and guidelines set down by the FCA. The Group has responsibility allocated at Board level to ensure all those standards are monitored and maintained. The Group has a contract in place with a third party compliance consultancy firm to review internal controls and to work with the Board to ensure the Board is made aware of developments that impact on the business. The Group has a proportion of client files reviewed by the consultancy firm and has professional indemnity insurance in place to protect the assets of the Group.

The Group finances its operations through retained cash.

The Group has no overseas assets or liabilities and therefore has no foreign currency risk.

Review of the year

The review of the year is included in the Chairman's and Chief Executive Officer's Statement.

Future Outlook

The future outlook for the Group is noted in the Chairman's and Chief Executive Officer's Statement.

 

Frenkel Topping Group Plc

group STATEMENT of comprehensive income

for the year ended 31 December 2018

 

 

Group

Group 

 

 

2018

2017 

 

 

 

 

 

Notes

 

£ 

 

 

 

 

REVENUE

1

7,660,551

7,321,509 

Direct staff costs

 

(2,942,534)

(2,561,057)

 

 

_______

 _______

GROSS PROFIT

 

4,718,017

4,760,452 

 

 

 

 

ADMINISTRATIVE EXPENSES

 

 

 

Share based compensation

 

(386,243)

(417,372)

Formal sale and reorganisation costs

 

(164,717)

(254,557)

Investment in developing business

 

(700,985)

(142,774)

Other

 

(2,309,319)

(2,433,325)

 

 

_______

 _______

TOTAL ADMINISTRATIVE EXPENSES

 

(3,561,264)

(3,248,028)

 

 

 

 

Profit from operations before share based compensation and 

 

 

 

reorganisation costs

 

1,707,713

2,184,353

- share based compensation

 

(386,243)

(417,372)

- formal sale and reorganisation costs

 

(164,717)

(254,557)

 

 

 

 

Other gains and losses

 

-

150,000 

 

 

_______

_______              

profit from operations

 

1,156,753

1,662,424 

 

 

 

 

Finance income

 

-

234,284 

Finance costs

 

(12,579)

-  

Share of profit of investments accounted for using the equity method

 

-

13,925 

 

 

_______

 _______

profit BEFORE TAX

 

1,144,174

1,910,633

 

 

 

 

Income tax expense

2

(348,750)

(378,796)

 

 

_______

 ________

PROFIT FOR THE YEAR

 

795,424

    1,531,837

ITEMS THAT WILL NOT BE SUBSEQUENTLY RECLASSIFIED TO REPORT

OR LOSS:

 

 

 

Gains on property revaluation arising net of tax

 

26,776

80,336

 

 

_______

_______

TOTAL COMPREHENSIVE INCOME FOR YEAR

 

822,200

1,612,173

 

 

_______

_______

PROFIT ATTRIBUTABLE TO:

Owners of the parent undertaking

Non-controlling interests

 

 

766,735

28,689

 

1,612,173

-

 

TOTAL COMPREHENSIVE INCOME

ATTRIBUTABLE TO:

 

 

 

Owners of the parent undertaking

 

793,511

1,612,173

Non-controlling interests

 

28,689

-

 

 

_______

_______

 

 

 

 

Earnings per ordinary share - basic (pence)

3

1.11p

2.24p

Earnings per ordinary share - diluted (pence)

3

1.11p

2.24p

 

 

_______

_______

 

 

Frenkel Topping Group Plc

group STATEMENT of FINANCIAL POSITION

As at 31 December 2018

 

 

 

 

 

 

  Group

 

Group

 

 

Notes

 

2018

2017

 

 

 

 

£

£

assets

NON CURRENT ASSETS

 

 

 

 

 

Goodwill

 

 

 

7,020,287

7,020,287

Property, plant and equipment

 

 

 

1,423,837

1,405,750

Investments

 

 

 

-

13,975

Deferred taxation

 

 

 

10,290

31,306

 

 

 

 

_______

                     ______ 

 

 

 

 

8,454,414

8,471,318

CURRENT ASSETS

 

 

 

 

 

Accrued income

 

 

 

981,558

731,092

Trade receivables

 

 

 

1,535,537

1,329,826

Other receivables

 

 

 

160,127

274,839

Investments

 

 

 

1,136,222

117,916

Cash and cash equivalents

 

 

 

848,391

1,815,935

 

 

 

 

_______

                    _______ 

 

 

 

 

4,661,835

4,269,608

 

 

 

 

_______

                   _______  

total assets

 

 

 

13,116,249

12,740,926

 

 

 

 

_______

_______

equity and liabilities

equity

 

 

 

 

 

 

Share capital

 

 

 

393,287

393,287

Share Premium

 

 

 

400,194

400,194

Merger reserve

 

 

 

5,314,702

5,314,702

Revaluation reserve

 

 

 

178,103

151,327

Other reserve

 

 

 

(341,174)

(341,174)

Own share reserves

 

 

 

(4,566,926)

(4,448,906)

Retained earnings

 

 

 

10,552,643

10,252,775

 

 

 

 

_______

_______

 

 

 

 

11,930,829

11,772,205

 

 

 

 

 

                              

Non-controlling interests

 

 

 

42,877

-

 

 

 

 

_______

_______

TOTAL EQUITY

 

 

 

11,973,706

11,722,205

 

 

 

 

_______

_______

CURRENT LIABILITES

 

 

 

 

 

Current taxation

 

 

 

216,413

138,592

Trade and other payables

 

 

 

926,130

880,129

 

 

 

 

_______

_______

TOTAL LIABILITIES

 

 

 

1,142,543

1,018,721

 

 

 

 

_______

_______

TOTAL EQUITY AND LIABILITIES

 

 

 

13,116,249

12,740,926

 

 

 

 

 

                  

 

 

 

 

_______

_______

 

 

Frenkel Topping Group Plc

group STATEMENT of Changes in Equity

For the year ended 31 December 2018

 


Share

Capital


Share Premium


Merger reserve


Other

Reserve


Own shares

Reserve


Retained Earnings

 

Revaluation reserve

Total

controlling

interest

Non controlling interests

 


Total

 

£

£

£

£

£

£

£

£

£

£

 

 

 

 

 

 

 

 

 

 

 

Balance 1 January 2017

384,954

361,028

5,314,702

(341,174)

(774,197)

9,346,735

70,991

14,363,039

-

14,363,039

 

 

 

 

 

 

 

 

 

 

 

New shares issued

8,333

39,166

-

-

-

-

-

47,499

-

47,499

Purchase of own shares

-

-

-

-

(3,674,709)

-

-

(3,674,709)

-

(3,674,709)

Share based payments (note 4)

-

-

-

-

-

231,521

-

231,521

-

231,521

Tax credit relating to share option scheme

-

-

-

-

-

10,936

-

10,936

-

10,936

Dividend paid

-

-

-

-

-

(868,254)

-

(868,254)

-

(868,254)

 

_______

_______

_______

_______

_______

_______

_______

_______

_______

_______

Total transactions with

owners recognised in equity

8,333

39,166

-

-

(3,674,709)

(625,797)

-

(4,253,007)

-

(4,253,007)

 

_______

_______

_______

_______

_______

_______

_______

_______

_______

_______

Profit for year

-

-

-

-

-

1,531,837

-

1,531,837

-

1,531,837

Other comprehensive income

-

-

-

-

-

-

80,336

80,336

-

80,336

 

_______

_______

_______

_______

_______

_______

_______

_______

_______

_______

Total comprehensive income

-

-

-

-

-

1,531,837

80,336

1,612,173

-

1,612,173

 

_______

_______

_______

_______

_______

_______

_______

_______

_______

_______

Balance at 1 January 2018

393,287

400,194

5,314,702

(341,174)

(4,448,906)

10,252,775

151,327

11,722,205

-

11,722,205

 

 

 

 

 

 

 

 

 

 

 

Purchase of own shares

-

-

-

-

(118,020)

-

-

(118,020)

-

(118,020)

Share based payments (note 4)

-

-

-

-

-

404,402

-

404,402

-

404,402

Tax credit relating to share option scheme

-

-

-

-

-

(10,936)

-

(10,936)

-

(10,936)

Dividend paid

-

-

-

-

-

(860,333)

-

(860,333)

-

(860,333)

Acquisition of subsidiary

-

-

-

-

-

-

-

-

14,188

14,188

 

 _______

 _______

_______

_______

_______

_______

_______

_______

_______-

_______

Total transactions with owners recognised in equity

-

-

-

-

(118,020)

(466,867)

-

(584,887)

14,188

(570,699)

 

 _______

 _______

_______

_______

_______

_______

_______

_______

_______

_______

Profit for year

-

-

-

-

-

766,735

-

766,735

28,689

795,424

Other comprehensive income

-

-

-

-

-

-

26,776

26,776

-

26,776

 

 _______

 _______

_______

_______

_______

_______

_______

_______

_______

_______

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

-

-

-

-

-

766,735

26,776

793,511

28,689

822,200

 

 _______

 _______

_______

_______

_______

_______

_______

_______

_______

_______

Balance at 31 December 2018

393,287

400,194

5,314,702

(341,174)

(4,566,926)

10,552,643

178,103

11,930,829

42,877

11,973,706

 

 _______

 _______

_______

_______

_______

_______

_______

_______

_______

_______

                       

 

 

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

 

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

 

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

 

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

 

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

 

The own shares reserve represents the cost of the 3,067,576 shares (2017: 3,040,000) held by the Company and the 6,648,016 (2017: 6,348,016) shares held by the Frenkel Topping Group Employee Benefit Trust. The open market value of the shares held at 31 December 2018 was £2,826,222 (2017: £5,069,529).

 

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

 

The addition of the non-controlling interest during the year is in connection with the change in treatment of Frenkel Topping Associates Limited.

 

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

 

 

Frenkel Topping Group Plc

GROUP CASH FLOW STATEMENT

For the year ended 31 December 2018

 

 

 

 

 

Year ended

Year ended

 

 

31 December

2018

31 December 2017

 

 

£

£

 

 

 

 

Profit before tax

 

1,144,174

1,910,633

Adjustments to reconcile profit for the year to cash (used in)/generated from operating activities:

 

 

 

Finance income

 

-

(234,284)

Finance cost

 

12,579

-

Other gains and losses

 

-

(150,000)

Share based compensation

 

404,402

231,521

Depreciation and loss of on disposal

 

95,460

70,659

Share of profit of investments accounted for using the equity method

 

 

-


(13,925)

(Increase)/decrease in accrued income, trade and other receivables

 

 

(291,831)


40,631

Increase/(decrease) in trade and other payables

 

26,576

209,783

 

 

 

                            

                            

Cash generated from operations

 

1,391,360

2,065,018

Income tax paid

 

(267,550)

(112,345)

 

 

 

                            

 

                              

Cash generated from operating activities

 

1,123,810

1,952,673

 

 

 

 

Investment activities

 

 

 

Acquisition of property, plant and equipment

 

(86,771)

(132,217)

Cash acquired on the acquisition of control in the subsidiary

 

4,655

-

Acquisition of shares in joint ventures

 

-

(50)

Investment purchases

 

(1,765,000)

(4,468,085)

Investment disposals

 

734,115

7,511,638

Disposal of shares in investment

 

-

150,000

 

 

 

                           

                            

Cash (used in)/generated from investment activities

 

(1,113,001)

3,061,286

Financing activities

 

 

 

Shares issued

 

-

47,499

Own shares purchased

 

(118,020)

(3,674,709)

Dividend paid

 

(860,333)

(868,254)

Interest on loans and borrowings

 

-

-

Interest received on loans

 

-

134,795

Dividend received

 

-

-

 

 

 

                              

                              

Cash used in financing

 

(978,353)

(4,360,669)

 

(Decrease)/Increase in cash and cash equivalents

 

 

(967,544)


653,290

 

Opening cash and cash equivalents

 

 

 

1,815,935


1,162,645

 

 

 

                              

                            

Closing cash and cash equivalents

 

848,931

1,815,935

Reconciliation of cash and cash equivalents

 

 

 

 

 

 

 

Cash at bank and in hand

 

848,391

1,162,645

    Cash and cash equivalents are held at National Westminster Bank Plc.

 

 

General information

 

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 December 2018 and 31 December 2017. The figures for the year ended 31 December 2018 are audited.  The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 December 2018.  Those accounts, upon which the auditors issued an unqualified opinion, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and made no statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies following the Annual General Meeting.

 

Statutory accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies.  The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

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

 

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

 

1.             revenue and SEGMENTAL REPORTING

 

All of the Group's revenue arises from activities within the UK. Management considers there to be only one operating segment within the business based on the way the business is organised and the way results are reported internally.  There was no material impact from application of IFRS 15 on the reported figures.

 

 

2.             TAxation

 

Group

Group

               

2018

2017

 

£

£

Analysis of charge in year

 

 

Current tax

 

 

 

UK corporation tax

321,989

264,860

 

Adjustments in respect of previous periods

16,681

(27,741)

 

 

                  

                  

 

Total current tax charge

338,670

237,119

 

 

                  

                  

 

Deferred tax

 

 

 

Temporary differences, origination and reversal

10,080

141,677

 

 

                  

                  

 

Total deferred tax charge

10,080

141,677

 

 

                  

                  

 

Tax on profit on ordinary activities

348,750

378,796

 

 

                  

                  

       


                Factors affecting tax charge for year

 

The standard rate of tax applied to reported profit on ordinary activities is 19 per cent (2017: 19.25 per cent). The applicable tax rate has changed following the substantive enactment of the Finance Act 2015. Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2016 on 6 September 2016. These include reductions to the main rate, to reduce the rate to 17% from 1 April 2020.

 

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

 

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

 

 

Group

Group

 

2018

2017

 

£

£

Profit before taxation

1,144,174

1,910,633

 

                  

                  

Profit multiplied by main rate of corporation tax in the UK of 19% (2017: 19.25%)

217,393

367,797

Effects of:

 

 

Expenses not deductible

96,722

83,705

Exercise of share options

-

(170,493)

Share based payments

73,386

80,344

Other charges/(deductions) in period

(38,751)

17,443

 

                  

                  

Total tax expense for year

348,750

378,796

 

                  

                  

 

 

 

3.            EARNINGS PER SHARE


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


 

 

2018

2017

 

£

£

Earnings

 

 

Earnings for the purposes of basic earnings per share (net profit for the year attributable to equity holders of the parent)


766,735

1,531,837

Earnings for the purposes of diluted earnings per share

766,735

1,531,837

 

 

 

Number of shares

 

 

Weighted average number of ordinary shares for the purposes of basic earnings per share

Weighted average shares in issue

78,657,349

77,785,203

Less: own shares held

 

(9,715,592)

(9,388,016)

 

 

 

Effect of dilutive potential ordinary shares:

68,941,757

 

68,397,187

 

- Share options

-

-

 

 

 

Weighted average number of ordinary shares for the purposes of diluted earnings per share

68,941,757

68,397,187

 

 

 

Earnings per ordinary share - basic (pence)

1.11p

2.24p

Earnings per ordinary share - diluted (pence)

1.11p

2.24p

 

 

 

 

4.            Basis of the preliminary announcement

 

The board of directors of Frenkel Topping Group Plc approved the Preliminary Results on 9th April 2019.

 

The statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar of Companies following the Annual General Meeting.  The statutory accounts will be posted to shareholders on 29th April 2019.  Further copies will be available to the public, free of charge, at the Company's registered office, Frenkel House, 15 Carolina Way, Salford, Manchester, M50 2ZY and the Company's website at www.frenkeltopping.co.uk

 

5.            ANNUAL GENERAL MEETING

 

The Annual General Meeting will be held on 30 May 2019 at 12 noon at Frenkel House, 15 Carolina Way, Salford, Manchester, M50 2SY.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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