Final Results
Berkeley Berry Birch PLC
29 July 2002
Berkeley Berry Birch plc
Maiden results report strong growth in revenues
Berkeley Berry Birch plc, one of the UK's largest IFA groups which was formed
following the reverse take-over of Berry Birch & Noble plc by the Berkeley
Financial Services Group in January 2002, today reports its maiden preliminary
results for the fourteen months to 31 March 2002.
Key points:
• Integration of the two companies now essentially completed
• Turnover increases significantly by 131% to £24.9 million from £10.8
million last year
• Number of advisers has increased to 633
• Pre-tax loss, before goodwill and amortisation, of £1.8 million over
the period
• Launch of Berry Birch and Noble Advisers to drive the acquisition of
regional IFA practices
• Formation of Group Support Services unit to provide Group with
centralised back office services to capitalise on economies of scale
and keep tight control of costs
Clifford Lockyer, Chief Executive Officer of Berkeley Berry Birch, commenting on
the results said:
'This has been a year of fundamental change for the Group but we are now
significantly better placed to take advantage of the significant changes within
the UK's financial services distribution sector as we strive to become the UK's
premier financial services distribution group for higher value customers.
'The Group's performance must be judged against a background of growing market
uncertainty which has made trading conditions considerably more volatile and
difficult than originally anticipated and hence BBB's development in the year to
date has been slower than expected. We now expect to return to operating
profitability in the first part of the financial year commencing April 2003.
'Since January 2002 considerable progress has been made in integrating the two
groups, although the Board is under no illusion that there is still much work to
be done in order to improve performance and returns to shareholders. However,
the work carried out so far this year will provide a solid platform for the
Group's planned growth in the future'.
For further information please contact:
Berkeley Berry Birch plc
Stephen Ingledew, Group Deputy Chief Executive 020 7638 9571
(today until 12.30pm)
Craig Butcher, Finance Director 07774 185 779
(thereafter)
Citigate Dewe Rogerson
Patrick Toyne Sewell/Vaughan Andrewartha 020 7638 9571
Preliminary statement
This year has seen a significant transformation of the Group into one of the
largest independent financial services distribution groups in the UK.
In January 2002 shareholders approved the reverse take-over of Berry Birch &
Noble plc (BBN) by the Berkeley Financial Services Group (BFSG) resulting in the
formation of the combined Berkeley Berry Birch plc (BBB). The enlarged Group
was then re-listed on the London Stock Exchange on 7 January 2002.
The creation of BBB has allowed the Group to strengthen significantly its
strategic and financial position, which will enable it to take full advantage of
the growth opportunities being created by the fast-changing dynamics in the
market.
The IFA sector has entered a period of rapid change due to economic, social and
political pressure, and the Group, which is already one of the top five largest
IFA groups in the UK, is now strategically poised to take advantage of this new
era.
Since January 2002 considerable progress has been made in integrating the two
groups, although the Board is under no illusion that there is still much work to
be done in order to improve performance and returns to shareholders. However,
the work carried out so far this year will provide a solid platform for the
Group's planned growth in the future.
Financial Results
The financial results must be considered in the light of the formation of the
enlarged Group at the beginning of the fourth quarter of BBB's financial year.
The results presented include BFSG from 4 January 2002 and the old BBN Group for
the 14 month period to 31 March 2002, the Group's new reporting date.
Over the period there has been a significant increase in turnover of 131% to
£24.9 million from £10.8 million last year. Of this £11.3 million is BFSG's
contribution in the final quarter.
For the 14 month period the BBN Group's revenue was £13.6 million, which if
annualised and compared to last year shows a 7.8% increase. Eliminating the
exceptional income of £1.3 million reveals a decrease in revenue of 2.5%
compared to last year. This reflects the considerable difficulties posed to the
Group at that time, arising largely from the financial strain imposed by the
Pension Review. The result was that the new management team had to focus
efforts internally before moving onto externally focused activity.
The number of advisers has increased to 633 from 40, largely reflecting the
acquisition of the BFSG.
During the period, and particularly since the merger, the management team has
had to address a number of significant operational issues within BBN. These
include integration post-merger, further cleaning up of the old BBN Financial
Services business which has taken longer than expected, and agreeing the Group's
strategy going forward.
Most of these issues have had a negative impact on costs this year, which, along
with the planned investment in the Group's infrastructure, has resulted in the
Group making a loss before goodwill amortisation of £1.8 million over the
period. The resultant pre tax loss is £2.5 million, which gives a loss per share
of 14.1p (2001: loss per share 31.3p).
Dividend
Due to the financial performance of the Group the Directors believe it
inappropriate to declare a final dividend.
Progress this year
The Chairman's statement in the circular to shareholders issued at the time of
the reverse take-over of BBN by the BFSG gave an update on the progress of the
businesses since my last statement in May 2001.
Since January 2002 the significant progress the Group made last year has been
further built upon, with important business developments now being undertaken to
prepare BBB for the significant growth opportunities that exist within the
financial services arena.
The key developments since the beginning of the year are as follows:
• Targeting of potential acquisition opportunities. BBB has accelerated
the creation and launch of BBN Advisers (BBNA) to drive the acquisition of
regional IFA practices. BBNA has initially been set up as an acquisition
vehicle aimed at businesses with a turnover of £1-5 million per annum but in
time will become a national IFA brand aiming at the 'mass affluent', a market
sector which is not well served by existing providers.
• Developed economies of scale. BBB has formed a Group Support Services
unit to supply all its businesses with centralised back office services, such as
compliance, administration and training. This will enable the Group to
capitalise on economies of scale and control cost more effectively now and
during periods of expansion.
• Achieved regulatory improvements. The new FSA regulatory requirements
have now been implemented across all BBB's relevant businesses and it has now
completed its Pensions Review in line with regulatory deadlines. Completion of
the review process now draws a line under BBB's problems related to this issue
and ensures it has now fully provisioned against the outcome.
• Corporate Governance. BBB has complemented the implementation of the
work above with the initiation of a project to tighten its existing protocols on
risk assessment and corporate governance.
• Created new business plans. The development and implementation of new
business plans for each of the Group's main subsidiaries is now completed. These
new business plans will ensure each of the subsidiaries remains focused on their
core customer target markets, while developing new products and services to add
further value to the Group.
• Expanded the product range. A range of new products and services,
such as Berkeley Support Services for directly authorised IFA firms, have been
developed and launched to expand on the Group's offerings in the intermediary
market. These products have been enthusiastically received and BBB expects them
to lead to significantly improved revenues in the future.
• Focused management structure. BBB has introduced a more focused
management structure across the Group as well as recruiting new senior
management with excellent track records in its own and complementary markets.
Each of these activities contributes to the development of a strong,
increasingly efficient Group structure and a tightly focused market proposition
for target customer segments.
The strength of the enlarged Group has meant that progress has been made within
each of the four main subsidiaries:
Berkeley Independent Advisers (BIA)
BIA, which is a national IFA network focusing on providing financial advice to
the self-employed, entrepreneurs and small businesses, increased its turnover
over the year to 31 March 2002 by 21% to £41 million, with the number of
advisers growing from 443 to 579 over the same period.
This growth was achieved by improving adviser productivity, adding new member
firms, as well as the number of advisers within each member firm. Advisers are
being attracted by the strong compliance, training and development culture
within the BIA network. During this period the average proposal value increased
from £688 to £794, an increase of 15.4%.
In June 2002 BIA launched a new product, Berkeley Support Services, aimed at IFA
firms who only wanted to buy selected services, such as compliance, from the
Group. This new service has been very well received and will make an important
contribution towards achieving BIA's business plan objectives over the next few
years.
Berry Birch & Noble Financial Services (BBN FS)
BBN FS, which primarily markets financial products and services to the managers
and employees of large companies such as BP, Dupont and Nestle, achieved
turnover growth of 1.8% (annualised) to £9 million, with the number of its
advisers increasing to 49 over the period.
BBN FS has been successful in recruiting from competitors quality management and
financial planning advisers who share our vision of developing a large national
IFA within an independently owned distribution group. This in turn has enabled
the business to develop additional corporate connections to which it can provide
its financial services.
In June, a strategic alliance was entered into with the Tenon Group, the
professional services company, to provide additional tax planning services to
target customers.
Berry Birch & Noble Trustees (including Employee Benefits) (BBN T& EB)
BBN T & EB, which provides professional trustee services and employee benefits
advice to small and medium sized companies, also grew its turnover by 2%
(annualised) to £2 million.
This has been achieved by advising new corporate clients on their employee
benefits arrangements, particularly in respect of employers switching from
defined benefit to defined contribution pension schemes. BBB expects the recent
Pickering Report on pensions, the impact of which will accelerate this migration
towards defined contribution schemes, to have a positive effect on this business
going forward.
Berry Birch & Noble Insurance Broking (BBN IB)
BBN IB mainly markets a range of personal insurance products, including home,
motor and travel, to employees and pensioner group members, via its telephone
call centre. In addition it markets commercial insurance products to small and
medium sized businesses where rating increases by insurers have enhanced income.
Increased direct marketing to target customer groups, such as customers over
fifty, has enabled it to increase its turnover by 14% (annualised) to £3.4
million.
Strategy for the Future
Once the creation of BBB was completed in January, the executive management team
began preparing the Group for the next stage of its development in line with a
strategic vision put together by the Board over two years ago.
The Group's strategic vision is to take advantage of the significant changes
within the UK's £7.5 billion financial services distribution sector and
become the UK's premier financial services distribution group for higher value
customers.
There is no doubt that the anticipated transformation of the financial services
sector has begun and this will now gather pace as a result of:
• The consolidation of the intermediary sector accelerating with
acquisitions of IFA businesses by both product manufacturers and other financial
services distribution groups.
• Regulatory reform leading to the Financial Services Authority taking
on its full powers in December 2001 and the announcement of further changes such
as depolarisation.
• Proposed additional Government intervention in the market to address
the UK savings gap of £27 billion as outlined in the Sandler Review and
Pickering Report.
The dynamics arising from these developments were anticipated in the strategy
detailed in the documents issued to shareholders as part of the formation of the
new enlarged Group.
We also believe that there were no surprises in the recently published Sandler
Review and Pickering Report and that their interpretations of the market and how
it will evolve were very much in line with the Group's ongoing corporate
strategy.
The strategic objective is to create shareholder value through the development
of a multi-channel advice group focused on high productivity advisers.
The Board has now identified the following opportunities for growth over the
medium term:
• Continuing successful recruitment of quality independent financial
advisers, adding to the 633 already operating within the Group
• Acquisition of regional financial advice practices
• The launch of two new business-to-business distribution channels to
tap into new market segments
• Capitalise on the ability of Group Support Services to deliver
improved economies and thereby facilitate improved business margins
These objectives take into account the market uncertainty outlined earlier.
However, BBB believes that the development undertaken across the Group this
year, and the clear strategy outlined above, provides the Group with an
excellent base for growth in the future.
Board Changes
Sir Jeremy Black, in his fifth year as Chairman, has stated it is now his
intention to hand over the reins to a new non-executive chairman, supported by a
new team of independent non-executive directors, towards the end of the year.
In this respect BBB is currently engaged in identifying suitable, independent
individuals whose experience and skills will complement, contribute to and
challenge those already around the Board table.
The market will be kept fully informed on these new appointments as and when
they are made.
Current Trading
The Group's development and performance over the last 12 months must be seen
against a background of growing market uncertainty. The poor performance of the
equity markets is also causing some customers to delay making financial
purchases of investment and savings products. This uncertainty has made trading
conditions considerably more volatile and difficult than originally anticipated
and hence BBB's development in the year to date has been slower than expected.
BBB has also found the limited progress of proposed regulatory change, such as
the introduction of depolarisation, is causing some potential targets for
recruitment and acquisition to delay decisions on joining the Group. Despite
this the Group has continued its program of investment in people and
infrastructure to ensure firm foundations are in place for the expected growth.
This policy of continued investment, combined with market conditions, will
result in a delay in BBB's return to operating profitability which is now
expected to be achieved in the first part of the financial year commencing April
2003.
Unaudited Consolidated Profit and Loss Account
For the 14 Month period ended 31 March 2002
14 month Audited
period Year
ended ended 31
31 March January
2002 2001
Continuing Acquisitions Total Total
Operations
note
reference £'000 £'000 £'000 £'000
Turnover 2 13,580 11,337 24,917 10,799
Operating costs 3 15,284 12,244 27,528 12,773
Operating loss before goodwill (1,640) (247) (1,887) (1,920)
amortisation
Goodwill amortisation (64) (660) (724) (54)
Operating loss (1,704) (907) (2,611) (1,974)
Net interest receivable 4 67 37
Loss before taxation 2 (2,544) (1,937)
Taxation 5 - (108)
Retained loss for the period (2,544) (2,045)
Loss per share 6 (14.1p) (31.3p)
- basic
- diluted 6 - (31.3p)
Loss per share before goodwill
amortisation
- basic 6 (10.1p) (30.5p)
- diluted 6 - (30.5p)
There are no recognised gains or losses other than those included in the profit
and loss account.
Unaudited Consolidated balance sheet
As at 31 March 2002
Audited
As at As at
31 31 January
March
note 2002 2001
reference £'000 £'000
Fixed assets
Intangible 52,638 479
Tangible 2,322 1,831
54,960 2,310
Current assets
Debtors 11,101 2,494
Cash at bank 8,693 780
19,794 3,274
Creditors: Amounts falling due within one year 13,014 3,599
Net current assets/(liabilities) 6,780 (325)
Total assets less current liabilities 61,740 1,985
Creditors: Amounts falling due after more than one year 606 645
Provisions for liabilities and charges 2,968 3,200
Net assets/(liabilities) 58,166 (1,860)
Capital and reserves
Called up share capital 6,026 655
Share premium account 812 102
Revaluation reserve 482 482
Merger reserve 56,239 -
Profit and loss account (5,643) (3,099)
Equity shareholders' funds 9 57,916 (1,860)
Minority interests (non-equity) 250 -
58,166 (1,860)
Unaudited Consolidated cash flow statement
For the 14 Month period ended 31 March 2002
14 month period Year ended
ended 31 March 31
January
note 2002 2001
reference £'000 £'000
Net cash outflow from operating activities 10 (2,882) (220)
Returns on investment and servicing of finance
Interest received 164 101
Interest paid (97) (64)
Net cash inflow from returns on investment and servicing of finance 67 37
Capital expenditure
Purchase of tangible fixed assets (292) (247)
Sale of tangible fixed assets 35 58
Net cash outflow inflow from capital expenditure (257) (189)
Acquisitions and disposals
Purchase of subsidiary undertakings (1,400) -
Cash acquired with subsidiaries 11,878 -
Purchase of business operations - (32)
Net cash inflow/(outflow) from acquisitions and disposals 10,478 (32)
Net cash inflow/(outflow) before management of
liquid resources and financing 7,406 (404)
Management of liquid resources
Increase in short term deposits (6,001) -
Net cash outflow from management of liquid resources (6,001) -
Financing
Issue of ordinary shares 775 -
Incremental bank loan - 250
Other loans - 250
Loan repayments (310) (45)
Exercise of share options - 27
Capital element of finance lease rental payments (18) -
Net cash inflow from financing 447 482
Increase in cash in the year 1,852 78
Balance at 1st February 768 690
Balance at 31st March/ 31st January 2,620 768
Notes to the unaudited financial statements
1. Basis of accounting
These financial results have been prepared on the basis of the accounting
policies set out in the Group's statutory accounts for the year ended 31st
January 2001, except, that the Group has now adopted FRS 19; Deferred Taxation
for the first time. The adoption of this standard does not affect the figures
reported during the previous year. The information contained in these financial
results for the period ended 31st March 2002 does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985.
The financial results of the preceding year have been extracted from the
statutory accounts for the financial year ended 31st January 2001. Those
accounts upon which the auditors issued an unqualified opinion have been
delivered to the Registrar of Companies.
2. Segmental Information
14 month period ended Year ended
31 31
March January
2002 2001
£'000 £'000
Turnover
Financial services 21,560 8,271
Insurance broking 3,357 2528
24,917 10,799
(Loss)/profit before taxation
Financial services (2,781) (1,945)
Insurance broking 170 (29)
Operating loss (2,611) (1,974)
Net unallocated interest
receivable 67 37
(2,544) (1,937)
The group's entire turnover and loss before taxation, arises within the United
Kingdom.
3. Exceptional Items
The loss for the period is after charging/(crediting) the following exceptional
items
14 month period ended Year ended
31 March 31 January
2002 2001
£'000 £'000
Pensions review (see note 8) 444 1,640
Commission commutations (1,302) -
(858) 1,640
4. Net interest receivable
14 month period ended Year ended
31 31 January
March
2002 2001
£'000 £'000
Interest receivable
- on bank balances 164 101
Interest payable (97) (64)
67 37
5. Taxation
14 month period ended Year ended
31 March 31 January
2002 2001
£'000 £'000
UK corporation tax
Advance corporation tax written off - 108
No tax is payable for the period due to the availability of losses.
6. Loss per share
The calculation of the basic loss per share of 14.1p (2001: loss of 31.3p) is
based on a loss after taxation of £2,544,000 (2001: £2,045,000) divided by the
weighted average number of shares in issue during the period of 18,061,641
(2001: 6,536,555). The diluted loss per share in 2001 of 31.3p was based on the
same loss after taxation of £2,045,000 divided by 6,536,555 shares.
At 31st March 2002 there were no outstanding share options that may have a
dilutive effect on the number of shares and hence no diluted loss per share.
The basic loss per share before goodwill amortisation of 10.1p (2001:loss of
30.5p) is based on a loss before goodwill amortisation but after taxation of
£1,820,000 (2001: £1,991,000) divided by the weighted average number of shares
in issue during the period of 18,061,641 (2001: 6,536,555).
7. Acquisition
On 4 January 2002 the Group acquired Berkeley Financial Services Group plc and
its subsidiary undertakings in a reverse take-over.
The following table details the cost of acquisition, fair value of net assets
acquired and goodwill arising in respect of the acquisition:
£'000
Shares issued (116p per share) 61,544
Acquisition costs 1,400
Total cost of acquisition 62,944
Fair value of net assets acquired 10,061
Goodwill arising on acquisition 52,883
The consideration represented by shares issued is calculated on the basis of the
mid market price of the company's ordinary shares of 116p on the date the offer
went unconditional which was 4 January 2002. In accordance with FRS 7: 'Fair
values in acquisition accounting'.
The Circular to shareholders dated 7 December 2001 valued the consideration
based on a share price of 90p per ordinary share, representing a premium of 7p
per ordinary share over the closing mid market price on the business day
immediately prior to the 29 October 2001 announcement that the company was in
discussions regarding the proposed acquisition.
The goodwill arising of £52,883,000 has been capitalised as an intangible fixed
asset and is being amortised over 20 years on a straight line basis from 4
January 2002.
The increase in the share price to 116p on 4 January 2002 has increased the
goodwill by £13,794,000 from that anticipated in the Circular to shareholders.
8. Pensions review
After taking into account payments made since 31st January 2001 and further work
carried out on outstanding cases, the directors have decided that the current
level of provision, as amended in our interim results, is adequate.
Every effort has been taken to accurately quantify and provide for all the
future potential liabilities arising from those reviews currently in progress.
The directors believe that no further provisioning in this respect will be
required.
Berry Birch & Noble Financial Services Limited ('BBN FS')
At 30th June 2002, the completion date for phase 2 of the pensions review, BBN
FS was 84% complete. The 16% of uncompleted cases amounted to 82, 76 of which
related to windfall cases, which under RU 94, have an extended completion
deadline of 31st December 2002. The remaining 6 cases relate to large loss cases
that were in the hands of our professional Indemnity insurers. Since June 2002,
3 cases have been completed and the other 3 remain outstanding.
The FSA have been notified of this situation.
Berkeley Independent Advisers Limited ('BIA')
At 30th June 2002, the completion date for phase 2 of the pensions review, BIA
was 99% complete. The 1% of uncompleted cases, which under RU 94, have an
extended completion deadline of 31st December 2002.
It should be noted that BIA became part of the group on 4th January 2002 as a
result of the reverse acquisition of the Berkeley Financial Service Group.
Unlike BBN FS it administers review exercises on behalf of its members and hence
any redress is passed back to the members to settle.
In line with guidelines issued in May 2000, the directors initiated a review of
all eligible FSAVC business in the group.
Berry Birch & Noble Financial Services Limited & Berkeley Independent Advisers
Limited.
By 30th June 2002 over 90% of cases were completed under the review, which met
FSA expected completion criteria. It is now expected that by 31st December 2002
we will complete the remainder of cases.
9. Reconciliation of movement in shareholders funds
14 month period ended Year ended
31 March 31 January
2002 2001
£'000 £'000
Loss for the financial period/year (2,544) (2,045)
Ordinary shares issued net of expenses 6,081 27
Merger reserve created 56,239 -
Opening shareholders funds (1,860) 158
Closing shareholders funds 57,916 (1,860)
10. Reconciliation of operating loss to net cash outflow from operating
activities
14 month period ended Year ended
31 31 January
March
2002 2001
£'000 £'000
Operating loss (2,611) (1,974)
Add back exceptional items (see note 3) (858) 1,640
Operating loss before exceptional items (3,469) (334)
Commutation of commission income 1,302 -
Exceptional item - net pension review payments (1,205) (1,085)
Amortisation of goodwill 724 54
Impairment provision for goodwill - 40
Depreciation charges 353 225
Profit on sale of fixed assets (5) -
Decrease/(Increase) in debtors 218 (137)
(Decrease)/Increase in creditors and provisions
(excluding the pensions review provision) (800) 1,017
Net cash outflow from operating activities (2,882) (220)
11. Reconciliation of net cash flow to movement in net debt
14 month period ended Year ended
31 31
March January
2002 2001
£'000 £'000
Increase in cash in the period/year 1,852 78
Cash outflow/(inflow) from
decrease/(increase) in debt 328 (455)
Cash outflow from increase in liquid 6,001 -
resources
Change in net debt resulting from cash flow 8,181 (377)
Finance lease acquired on acquisition of
subsidiary undertaking (108) -
Net debt at 1st February (687) (310)
Net funds/(debt) at 31st March/31st January 7,386 (687)
12. Analysis of net debt
Opening Non cash Closing
Balance cashflow movements Balance
£'000 £'000 £'000 £'000
Cash in hand, at bank 780 7,913 - 8,693
Overdrafts (12) (60) - (72)
Cash 768 1,852 - 2,620
Liquid resources - 6,001 - 6,001
Debt due after one year (645) - 78 (567)
Debt due within one year (810) 310 (78) (578)
Finance leases - 18 (108) (90)
Financing (1,455) 328 (108) (1,235)
(687) 8,181 (108) 7,386
This information is provided by RNS
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