Fiske : Annual Report and Accounts for the year ended 31 May 2021 View the document (pdf 685Kb)

Contents

FISKE plc  Page 1

Chairman's and Chief Executive's Report

Trading

After the Covid-19lock-down induced fall in market values in March 2020, a hesitant recovery promptly began but only really took hold in October 2020. Overall, portfolio values took until the latter part of our trading year to recover past their late 2019 values which was an impediment to our management fee income. Nevertheless, both commissions on trading and management fees each increased, even after a strong performance last year. We continue to attract new clients and to migrate clients from advisory to discretionary services.

Overall, full year revenues rose by 13% to £6.1m (2020: £5.4m).

Costs

Over the last five years we have invested heavily: in new back-office systems, in the acquisition of Fieldings, in strengthening operational capacity and in compliance. We have also engaged external resources where appropriate to minimise long term increases in staff levels, and such consultancy pushed up the short-term operating expenses. Whilst we have every intention of continuing to invest in growth, we can say that we have got past the surge in such costs.

Operating expenses level pegged at £5.7m in the year to 31 May 2021 (2020: £5.7m).

Outturn

After reporting a pre-tax loss of £27,000 in the first half-year, we have made a profit of £637,000 in the second half which has resulted in a full year pre-tax profit of £610,000 (2020: loss £127,000). The second half of the year benefitted from increased commission revenues and increases in management fees as markets rose.

The cash flow arising from this is greater by some £160,000 that is set aside annually for amortisation or impairment of goodwill or customer bases arising from past acquisitions.

Ocean UK Equity

In May 2021 our unit trust, Ocean UK Equity, passed its third anniversary. With a total return of 24.6%, being 7.6% annualised, the fund is in the top quartile over those three years. The fund has outperformed its benchmark (CBOE UK All Companies) and sector (IA UK All Companies) by a significant margin. As at the end of May 2021 the fund was valued at £9.8m (2020: £7.6m).

Euroclear

During the year, we took advantage of an unsolicited offer to acquire some of our shares in Euroclear by releasing 28% of our holding. Euroclear has been a very profitable investment for Fiske: we have now realised a profit of £1.2m and we still retain £3.6m worth of Euroclear shares. The realisation of this profit has further strengthened our balance sheet and capital adequacy position, providing an extra £1.4m of cash.

Euroclear's business income margin increased from 28% in 2019 to 33% in the year to December 2020 as a result of positive operating leverage achieved during the year, whilst their operating margin decreased from 43% to 40% in 2020. Net earnings per share increased to €137.2 in 2020 compared to €136.9 in 2019.

Taking into account recent transaction prices in Euroclear shares, we have marked the carrying value of our investment to €1,600 per share being £3.6m in total. This represents a significant store of value on our balance sheet and an asset that continues to pay dividends.

Net assets

Shareholder's funds amount to some £8.1m and within this we now hold some £3.5m of cash.

Share capital

In November 2020, the company made a deferred consideration payment due to the vendors of Fieldings Investment Management, of £198,000. Part of this was settled by the allotment of 61,069 Ordinary Shares. This was the third and final such payment and thus there will be no further such share issues to the vendors of Fieldings. The Company's share capital now comprises 11,754,859 ordinary shares.

Dividend

The Board has resolved not to pay a dividend for the year to 31 May 2021 (2020: £nil).

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Impact of Covid-19

Last year the transition to remote working was swiftly executed and working with lockdown and other restrictions has become normal. Indeed, if anything, we enjoyed the benefit of increased productivity in certain areas of the business as a result of working-from-home. For those members of staff with young families, working-from-home has been a challenge and the lifting of restrictions and a move to mixed office and home-based working will be welcomed.

Staff

We would like to thank all members of staff for their unswerving commitment and perseverance during the last year as the pandemic ran its course. As a Company we have worked very effectively in both an entirely remote manner as well as adapting quickly to a hybrid model when we were able to access our offices again.

Strategy

We continue to implement our ongoing strategy to welcome new investment managers with established client relationships to increase our assets under management and advice. We believe that with our traditional values, modern systems and up to date regulatory framework we provide an attractive place to work for aspiring, independently minded private client investment managers.

As part of our strategy, we are redeveloping our website this year to show case our services more clearly whilst also continuing our focus on migrating clients to our fee-paying services.

Markets

Global equity markets advanced strongly during the year led higher by the U.S with the technology heavy NASDAQ up 45%. Improving macroeconomic conditions, continued rollout of the vaccine program, a strong corporate earnings recovery, synchronised global growth expectations, continued monetary and fiscal support and pent-up demand/build up in excess savings by consumers are all factors which helped to drive markets higher. Sterling was also strong against the US Dollar moving from a depressed post Brexit level of US$1.23 to US$1.42.

Many investors and strategists are now asking how far equity markets can run on given their impressive gains from the post pandemic lows recorded in March 2020. Caution might be warranted given that there are plenty of uncertainties to ponder; policymakers could scale back fiscal and monetary support, taxes will have to rise at some stage to help pay for the extraordinary level of government spending during the pandemic and investors remain fixated on whether the recent uptick in inflation is transitory or not. On the latter, if inflation becomes more entrenched, Central Banks may have to raise interest rates sooner and faster than they are currently forecasting. Despite these uncertainties, markets remain incredibly sanguine with the volatility index, the 'Vix', continuing to trend down.

UK equity markets were encouraged by signs of a rebound in the UK economy with the FTSE 100 closing above 7,000 in April for the first time in 14 months and the FTSE 250 hitting all-time highs. Macroeconomic data being released was exceeding expectations and this led the Organisation for Economic Co-Operation and Development (OECD) to raise its GDP growth forecast for the UK to 7.2% in 2021, up from its March projection of 5.1%. Some of this optimism was overshadowed by rising inflation and an increase in covid cases linked to the variant first detected in India. This led the government to delay the reopening of the economy on 21 June. UK markets have been stuck in a sideways trading range in May and June and we have seen some rotation back into more 'growth' orientated and 'quality' stocks away from 'early cycle' and 'recovery' or 'value' ones.

The UK market is trading at a discount to its international peers and UK plc continues to attract interest from private equity firms. Morrisons, the food retailer, is the latest acquisition target with a £6.3 billion bid from a Fortress led consortium. The UK market still offers value relative to bonds, from a yield perspective, with the FTSE 100 offering a prospective dividend yield of c. 3.9% versus c. 0.7% on offer from UK 10-year gilts. We have recently witnessed a flattening in the UK gilt yield curve as yields at the long end of the curve have gently retreated.

Internationally, the first half of calendar 2021 has seen growth rates accelerating as corporate sales and profits recover and economies open up from lockdown and are combined with Central Bank stimulus in nearly all markets.

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But by the latter part of the year Central Banks will slow their money creation and begin to tighten. Announcements to this effect have already been given by the European Central Bank and by the Bank of Canada. It seems likely the US Federal Reserve will soon follow suit. Only Japan continues with its programme of buying equities using exchange traded funds. If inflation rises faster than expected or fails to fall back from expected levels, a rise in interest rates should follow. Similarly, in emerging markets the tightening is already more advanced with China and eastern Europe raising rates, and with South American nations and Turkey now recording very high inflation rates.

In summary, as world economies rebound from the very worst effects of Covid, a combination of supply chain disruption, shortages of materials and labour together with a strong recovery in demand is causing prices to rise. The spectre of inflation is naturally of concern to investors. It is too early to tell if this will prove to be transitory, as most Central Banks are guiding us, or more long-lasting. Whilst US, UK and European indices are gradually pushing to new post Covid highs the main laggard is China which has witnessed sharp falls following the crack down by the regulatory authorities. China's speculative market remains a serious concern with scope to further unsettle global markets.

Outlook

We have had a good start to our new financial year. Whilst the first few months have seen trading volumes soften a little, in line with more traditional summer levels, portfolio values are rising with markets which will enhance our fee revenues.

We look forward to another positive year although with a degree of caution due to the likely impact of tightening monetary policy and the probable volatility that may ensue in global markets.

AGM

Shareholders' views are important, and the Board encourages shareholders to submit their votes via the CREST system. Shareholders may also submit questions in advance of the AGM to the Company Secretary via email to info@fiskeplc.com or by post to the Company Secretary at the address set out on page 55 of this report.

In light of the recent lifting of most restrictions relating to Covid-19, the forthcoming AGM, which is to be held on Friday 22 October 2021 at 12.30pm, will be run as a physical meeting at our offices in Salisbury House.

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