Final Results
Berkeley Berry Birch PLC
30 June 2003
Berkeley Berry Birch plc
Preliminary Results 2003
30 June 2003 - Berry Birch plc (BBB), the financial services distribution group,
today announces its preliminary results for the 12 months to 31 March 2003.
Key Points
•Turnover increased from £24.9million for the 14 month period ended 31
March 2002 to £55.9m for the year ended 31 March 2003
•Operating loss of £6.9 million before exceptional items and goodwill,
this is in line with market expectations
•Insurance and Network divisions increased revenues by 20% and 4% on an
annualised basis
•Average productivity per adviser increased to £81,000
•Increasing financial adviser numbers from 634 to 750
•Raising £20m of new capital in October from institutional investors to
support the Group's strategy
•Increasing the number of institutional investors from 5 to 11
•Acquiring two financial advisory firms Weston (December) and PFS
(January)
•Launching new sales initiatives in each division encompassing non
regulated and employee benefit services and products
Commenting on the results, Stephen Ingledew, CEO of Berkeley Berry Birch, said:
' This has been a difficult year for our industry, sector and business. Despite
this we have increased revenue from our Insurance and Network divisions. Our
recent acquisition's Weston's and PFS are also generating good organic growth.
Our operating loss for the year has been primarily due to the underperformance
of the Financial Advisory division. As a result we have taken action to address
these issues and have inserted new management into this division who have
addressed the sales management issues and reduced cost. This will result in
annualized cost savings of approximately £2.5million. In addition we have closed
our acquisition vehicle and new network proposition. The annualized savings from
these measures will be approximately £1.5 million. We have taken the actions
necessary to rectify performance and given BBB's model, business plans and
financial strength, I remain confident that the group will deliver value to
shareholders.'
Commenting on the market outlook for the Group, Clifford Lockyer, Executive
Chairman, said:
'We are still experiencing harsh market conditions and are in a period of
rapid and radical change that is prevalent across the whole of the UK's
financial services market. Our strategy continues to be the UK's premier
financial services group focused on our current customer and business market
segments. We are very well placed to to continue growing our offer in the
financial services sector under our current divisional structure and making
acquit ions and implementing initiatives that will complement the shape of the
business.'
For further information:
Berkeley Berry Birch plc
Stephen Ingledew, Chief Executive 07774 185779
Craig Butcher, Finance Director 07968 486750
Grandfield
Matthew Jervois 0207 417 4170
CHAIRMAN'S STATEMENT
Overview
Great strides forward have been made since the formation of Berkeley Berry Birch
plc ('BBB') in January of last year. Integration following the merger of
Berkeley Financial Services Group ('BFSG') and Berry Birch & Noble plc has been
completed and our turnover as a combined group has increased from £24.9 million
for the 14 month period ended 31 March 2002 to £55.9 million for the year ended
31 March 2003. The acquisitions into our Financial Advisory division of Weston
Financial Group Limited ('Weston') in December 2002 and Professional Financial
Solutions Limited ('PFS') in January 2003 will fully contribute to our
performance in the year ending 31 March 2004.
Our Network division successfully launched its insurance protection product
proposition in July 2002, that has shown a profit in its first 9 months of
trading. We have now also completed the restructuring of the Financial Advisory
division, following significant financial under performance. The management
team has spent considerable time on this issue and is confident that the
operational issues have now been resolved which will lead to significantly
improved financial performance.
In addition to reorganising the Group into three divisions, we have taken
measures to withdraw from businesses that we feel will not be profitable in the
current depressed economic climate.
This has been achieved against a background of stock market depression and the
reduction in product sales in key areas such as pensions, due to lack of
consumer confidence and further government intervention.
The Group operating loss before the impact of exceptional items and goodwill of
£6.9 million and exceptional costs of £2.9 million incurred in the year ended 31
March 2003 reflect both the difficult market conditions for financial services
distributors and the time it has taken in this environment for the Group to
implement the appropriate infrastructural change in order to succeed in the
market place.
The goodwill impairment charge also reflects the changing market conditions in
financial services since the acquisition of BFSG.
Due to the financial performance of the Group, the board believes it
inappropriate to propose a final dividend.
We fully recognise the importance of a focused approach to our operational and
strategic development and the need to deliver shareholder value in the immediate
future. The strength of the Group's management in implementing the changes to
position BBB as one of the major players in financial services reinforces this
commitment.
The market environment
The financial services market is in a period of rapid and radical change. The
traditional models for manufacturing and distributing financial services
products are being seriously challenged by a number of market developments.
Along with the other major financial services distributors, the Group continues
to face a difficult market environment.
Regulatory changes and financial requirements thereon become more frequent and
increasingly onerous whilst difficult investment market conditions continue to
prevail. In addition, accounting and regulatory changes have negatively
impacted the demand for pension products and government uncertainty on how to
encourage private provision of pensions is further undermining consumer
willingness to save and invest for the future.
This is all contributing towards financial pressures on product providers, a
downward pressure on margins and consolidation amongst distributors.
Board changes
The recent board changes were a key development for the Group to enable it to
achieve the strategic vision. In April the Group announced the following:
• My appointment as Chairman. In my new role I will primarilyfocus on strategic
acquisitions and initiatives which are essential to continue the Group's
development.
• Stephen Ingledew was appointed Chief Executive. Stephen is
primarily responsible for the performance and management of the Group's
operating divisions as well as directing the strategic implementation.
• Craig Butcher continues as the Financial Director, responsible
for financial policymaking and management, but he has also taken on an expanded
role in directing risk management and shared support service facilities.
We recognise the value and importance of adhering to the standards of corporate
governance appropriate for a Group of our size.
We were delighted Nicholas Davenport and Kevin Higginson joined the board as non
executive directors at the beginning of 2003. Their contributions around the
board table have already been recognised and their experience is of tremendous
value to the executive management team and the Group.
A third new non-executive director will be appointed to join Nicholas and Kevin
and we are in the process of search and selection anticipating an appointment by
30 September 2003.
During the year the board has said goodbye to Sir Jeremy Black, David Birch and
Selwyn Herring. I would like to thank them all for their contribution and
support over the last few years, particularly Sir Jeremy who played a key role
leading the independent board in the build up to the reverse takeover.
Finally, I would like to thank all employees and advisers in the Group for their
contributions over the last financial year and for remaining focused on taking
the Group to the next stage of its strategic development.
Clifford Lockyer
Chairman
30 June 2003
CHIEF EXECUTIVE'S REVIEW
BBB has made significant operational and strategic progress during its first
full financial year and the Group has established itself as one of the UK's
major financial services distribution groups.
The BBB business model and distribution platform will now enable the directors
to take the Group to the next stage of its development and begin to move the
Group to a position where it can deliver shareholder value.
Group business highlights
Highlights for the Group in the financial year ended 31 March 2003 have been the
following:
• Increasing revenue from £24.9 million for the 14 month period
ended 31 March 2002 to £55.9 million for the year ended 31 March 2003.
• Increasing financial adviser numbers from 634 to 750 plus.
• Average productivity for financial advisers reaching £81,000.
• Raising £20 million before expenses of new capital in October
from institutional investors to support the Group's organic and acquisitive
growth strategy.
• Increasing the number of institutional investors from 5 to 11.
• Acquiring two financial advisory firms Weston (December 2002)
and PFS (January 2003).
• Launching new sales initiatives in each division encompassing
non regulated and employee benefit services and products.
• Forming one shared support service infrastructure to support the
operating divisions.
• Restructuring the Group to enhance operational focus, efficiency
and scalability.
Group financial performance
Group turnover for the year ended 31 March 2003 of £55.9 million showed a 125%
increase on the 14 month period to 31 March 2002. The increase in reported
turnover was mainly due to the inclusion of a full year's revenue for BFSG of
£43.8 million against £11.3 million for the post acquisition period in the 14
month period ended 31 March 2002. There were also underlying improvements in
turnover:
• The Insurance and Network divisions increased revenues by 20%
and 4% respectively on an annualised basis.
• Additional revenues were derived from newly launched businesses
in the Network and Financial Advisory divisions.
• The acquisitions into the Financial Advisory division of Weston
and PFS contributed £2 million of revenues post acquisition.
The operating loss, before the impact of exceptional items and goodwill, at £6.9
million was disappointing although in line with market expectations. The
equivalent operating loss for the 14 month period ended 31 March 2002 was £2.7
million. The key reasons for the operating loss in the year ended 31 March 2003
were:
• Significant operational issues leading to financial
underperformance in the Financial Advisory division resulting in an operating
loss for division for the year ended 31 March 2003 of £6.1 million.
• Delay in acquisition activity in response to the changing market
place.
• The failure of our acquisition vehicle and new network to
adequately penetrate their respective market segments.
Actions to address financial performance
In order to return the Group to profitability the following actions have been
taken:
• The Group has been reorganised into three divisions and a new
management structure has been introduced.
• All senior management remuneration has been linked to operating
performance in the divisions and the Group.
• The operational issues in the Financial Advisory division have
been addressed. New senior management have improved sales management and have
reduced costs, which will produce annualised savings of approximately £2.5
million.
• Central costs have been targeted to realign with current top
line performance.
• Our separate acquisition vehicle has been closed and this
activity has been absorbed into the divisions eliminating overheads of around £1
million per annum.
• Our new network initiative has been closed saving some £0.5
million of costs per annum.
• New marketing and product initiatives are being developed with
closer relationships with suppliers, launching new products and services for
customers.
Outlook
Year to date results have seen underlying revenues and operating losses broadly
in line with the corresponding period last year. The trading environment
continues to be very difficult for financial services distributors and this will
seriously challenge the Group's ability to make the progress previously
anticipated in the first half of the current financial year.
We are, however, very well placed to continue to grow in the financial services
sector, not only organically, but also by making infill acquisitions and
implementing initiatives that will complement the strategic direction of the
Group. Having taken the actions necessary to rectify performance and given
BBB's model, business plans and financial strength, I remain confident that the
Group will deliver value to shareholders in the medium and long term.
Stephen Ingledew
Chief Executive
30 June 2003
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 March 2003
----------------------------------------------------------------------------------------------------------------
Before
goodwill
impairment,
imortisation Goodwill Total Total
and Exceptional impairment Year ended 14 month
exceptional items and 31 March period ended
Note items (note 3) amortisation 2003 31 March 2002
£'000 £'000 £'000 £'000 £'000
Turnover 55,852 - - 55,852 24,917
--------------- ----- -------- -------- -------- -------- --------
Goodwill impairment 4 - - (26,563) (26,563) -
Goodwill amortisation - - (2,852) (2,852) (724)
--------------- ----- -------- -------- -------- -------- --------
Goodwill impairment and
amortisation - - (29,415) (29,415) (724)
Other operating costs (62,714) (2,882) - (65,596) (26,804)
--------------- ----- -------- -------- -------- -------- --------
Operating loss (6,862) (2,882) (29,415) (39,159) (2,611)
Net interest receivable 228 - - 228 67
--------------- ----- -------- -------- -------- -------- --------
Loss on ordinary activities
before taxation (6,634) (2,882) (29,415) (38,931) (2,544)
Taxation 5 (30) - - (30) -
--------------- ----- -------- -------- -------- -------- --------
Loss on ordinary activities
after taxation (6,664) (2,882) (29,415) (38,961) (2,544)
Minority interests - 99 - 99 -
--------------- ----- -------- -------- -------- -------- --------
Loss for the financial
period (6,664) (2,783) (29,415) (38,862) (2,544)
--------------- ----- -------- -------- -------- -------- --------
Loss per share 6
Adjusted basic and diluted (9.2p) (14.8p)
Basic and diluted (53.6p) (14.1p)
The analysis between continuing operations and acquisitions is set out in note
2.
UNAUDITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 March 2003
--------------------------------------------------------------------------------
Year ended 14 month
31 March period ended
2003 31 March 2002
£'000 £'000
Loss for the financial year (38,862) (2,544)
Unrealised loss on revaluation of property (124) -
--------- ---------
Total recognised gains and losses for the year (38,986) (2,544)
--------- ---------
UNAUDITED CONSOLIDATED BALANCE SHEET
As at 31 March 2003
--------------------------------------------------------------------------------
31 March 31 March
Note 2003 2002
£'000 £'000
Fixed assets
Intangible assets 7 33,561 52,638
Tangible assets 2,441 2,322
---------------------------- ------ --------- ---------
36,002 54,960
---------------------------- ------ --------- ---------
Current assets
Debtors 14,970 11,101
Cash at bank 14,575 8,693
---------------------------- ------ --------- ---------
29,545 19,794
Creditors: amounts falling due within one year (16,375) (13,014)
---------------------------- ------ --------- ---------
Net current assets 13,170 6,780
---------------------------- ------ --------- ---------
Total assets less current liabilities 49,172 61,740
Creditors: amounts falling due after more
than one year
Borrowings (823) (606)
Other creditors (416) -
Provisions for liabilities and charges (2,636) (2,968)
---------------------------- ------ --------- ---------
Net assets 45,297 58,166
---------------------------- ------ --------- ---------
Capital and reserves
Called up share capital 8,871 6,026
Share premium account 17,703 812
Shares to be issued 6,630 -
Revaluation reserve 358 482
Merger reserve 26,685 56,239
Profit and loss account (14,951) (5,643)
---------------------------- ------ --------- ---------
Equity shareholders' funds 8 45,296 57,916
---------------------------- ------ --------- ---------
Minority interests
Equity 1 -
Non-equity - 250
---------------------------- ------ --------- ---------
1 250
---------------------------- ------ --------- ---------
---------------------------- ------ --------- ---------
Capital employed 45,297 58,166
---------------------------- ------ --------- ---------
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March 2003
--------------------------------------------------------------------------------
14 month
period
Year ended ended
31 March 31 March
Note 2003 2002
£'000 £'000
Net cash outflow from operating activities 9 (8,802) (2,873)
---------------------------- ----- --------- ---------
Returns on investments and servicing of finance
Interest received 310 164
Interest paid (62) (95)
Interest element of finance lease rentals (14) (2)
---------------------------- ----- --------- ---------
Net cash inflow from returns on investments and
servicing of finance 234 67
---------------------------- ----- --------- ---------
Taxation (215) -
---------------------------- ----- --------- ---------
Capital expenditure
Purchase of tangible fixed assets (629) (292)
Sale of tangible fixed assets 4 35
---------------------------- ----- --------- ---------
Net cash outflow from capital expenditure (625) (257)
---------------------------- ----- --------- ---------
Acquisitions and disposals
Purchase of subsidiary undertakings (2,048) (1,400)
Net(overdraft)/cash acquired with subsidiary
undertakings (353) 11,878
Purchase of business operations (337) -
---------------------------- ----- --------- ---------
Net cash (outflow)/inflow from acquisitions and
disposals (2,738) 10,478
---------------------------- ----- --------- ---------
Net cash (outflow)/inflow before management of
liquid resources and financing (12,146) 7,415
---------------------------- ----- --------- ---------
Management of liquid resources
Decrease/(increase) in short term deposits 5,301 (6,001)
---------------------------- ----- --------- ---------
Net cash inflow/(outflow) from management of liquid
resources 5,301 (6,001)
---------------------------- ----- --------- ---------
Financing
Issue of ordinary shares 19,017 775
Redemption of preference shares held by a minority
interest ( 250) -
Loan repayments (598) (319)
Capital element of finance lease repayments (69) (18)
---------------------------- ----- --------- ---------
Net cash inflow from financing 18,100 438
---------------------------- ----- --------- ---------
Increase in cash in the year/period 10 11,255 1,852
Cash at 1 April/1 February 2,620 768
---------------------------- ----- --------- ---------
Cash at 31 March 11 13,875 2,620
---------------------------- ----- --------- ---------
SEGMENTAL INFORMATION
--------------------------------------------------------------------------------
14 month
Year period
ended ended
31 March 31March
2003 2002
£'000 £'000
Turnover
Network division 43,783 11,337
Financial Advisory division 8,595 10,223
Insurance division 3,474 3,357
------------------------------- --------- ---------
55,852 24,917
------------------------------- --------- ---------
Operating loss before goodwill amortisation and impairment
and exceptional items
Network division 1,510 (247)
Financial Advisory division (6,120) (2,451)
Insurance division 720 176
Central costs (2,972) (223)
------------------------------- --------- ---------
(6,862) (2,745)
------------------------------- --------- ---------
Exceptional items
Network division (446) -
Financial Advisory division (2,436) 858
Insurance division - -
------------------------------- --------- ---------
(2,882) 858
------------------------------- --------- ---------
Goodwill amortisation and impairment
Network division (28,895) (660)
Financial Advisory division (508) (58)
Insurance division (12) (6)
------------------------------- --------- ---------
(29,415) (724)
------------------------------- --------- ---------
Operating loss
Network division (27,831) (907)
Financial Advisory division (9,064) (1,651)
Insurance division 708 170
Central costs (2,972) (223)
------------------------------- --------- ---------
(39,159) (2,611)
------------------------------- --------- ---------
The Group's entire turnover and operating loss arises within the United Kingdom.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1 Accounting policies and basis of preparation
The unaudited financial information has been prepared under the historical cost
convention as modified by the revaluation of freehold buildings and in
accordance with applicable accounting standards using the accounting policies
set out in the Group's Annual Report and Accounts for the 14 month period ended
31 March 2002. The financial information has been extracted from the draft
unaudited financial statements which are expected to receive an unqualified
audit report.
The summary of results for the 14 month period ended 31 March 2002 does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. The full financial statements for the 14 months ended 31 March 2002
have been reported on by the Group's auditors and delivered to the Registrar of
Companies. The audit report was unqualified and did not contain a statement
under section 237(2) or section 237 (3) of the Companies Act 1985.
2 Acquisitions
The analysis of turnover and operating loss between continuing operations and
acquisitions is set out below:
Continuing Year ended
operations Acquisitions 31 March 2003
£'000 £'000 £'000
Turnover 53,831 2,021 55,852
------------------------- --------- -------- ---------
Operating loss (39,054) (105) (39,159)
------------------------- --------- -------- ---------
3 Exceptional items
14 month
Year ended period ended
31 March 31 March
2003 2002
£'000 £'000
Pensions Review and de-commissioning (900) (444)
Start up and restructuring costs (1,982) -
Commission commutations - 1,302
-------------------------------- --------- ---------
(2,882) 858
-------------------------------- --------- ---------
4 Goodwill impairment
The goodwill impairment is principally in respect of the goodwill arising from
the reverse take-over of Berkeley Financial Services Group plc ('BFSG') and its
subsidiary undertakings in January 2002.
5 Taxation
The taxation charge relates to prior year adjustments. No tax is payable for
the current year due to the availability of losses.
6 Loss per share
The calculation of the basic loss per share is based on the loss for the
financial period and the weighted average number of shares in issue during the
year of 72,537,000 (2002: 18,062,000). At 31 March 2003 there were no rights
over shares that have a dilutive effect on the loss per share and hence the
diluted loss per share is the same as the basic loss per share.
Additional disclosure has been provided in respect of loss per share as follows:
14 month
Year period
ended ended
31 March 31 March
2003 2002
Basic loss per share before exceptional items, goodwill
impairment and amortisation (9.2p) (14.8p)
Goodwill impairment and amortisation (40.6p) (4.0p)
Exceptional items (3.8p) 4.7p
------------------------------- --------- ---------
Basic loss per share (53.6p) (14.1p)
------------------------------- --------- ---------
7 Intangible assets
Goodwill
£'000
At 1 April 2002 52,638
Acquisitions 10,338
Amortisation provision for the year (2,852)
Impairment loss recognised in the year (note 4) (26,563)
--------------------------------------- ---------
Net book value at 31 March 2003 33,561
--------------------------------------- ---------
The goodwill arising in the year from acquisitions was principally in respect of
Weston Financial Group Limited. The fair value of the consideration was
£8,272,000, including £6,150,000 of deferred consideration, against a fair value
of the net liabilities acquired of £2,000 giving rise to goodwill of £8,274,000.
The deferred consideration is included in shares to be issued.
8 Reconciliation of movement in shareholders' funds
14 month
Year ended period ended
31 March 31 March 2002
2003
£'000 £'000
Loss for the financial period (38,862) (2,544)
Ordinary shares issued, net of expenses 19,736 6,081
Shares to be issued 6,630 -
Loss on revaluation of property (124) -
Merger reserve created - 56,239
Opening equity shareholders' funds 57,916 (1,860)
-------------------------------- --------- ---------
45,296 57,916
-------------------------------- --------- ---------
The ordinary shares issued are principally those issued on 23 October 2002 in
connection with a placing at 74p per ordinary share.
The shares to be issued are in respect of the estimated contingent consideration
arising from the Group's acquisitions of Weston Financial Group Limited and
Professional Financial Solutions Limited.
The impairment charge and amortisation relating to the goodwill on the
acquisition of BFSG has been charged through the profit and loss account and
then transferred to be offset against the merger reserve that arose on the
transaction.
9 Net cash outflow from operating activities
14 month
Year period
ended ended
31 March 31 March
2003 2002
£'000 £'000
Operating loss (39,159) (2,611)
Add/(deduct) exceptional items 2,882 (858)
------------------------------- --------- ---------
(36,277) (3,469)
Commutation of commission income - 1,302
Exceptional item - net Pension Review payments (2,822) (1,205)
Exceptional item - start up and restructuring costs (1,369) -
Amortisation of goodwill 2,852 724
Impairment provision 26,563 -
Depreciation charges 594 353
Profit on sale of fixed assets (3) (6)
(Increase)/decrease in debtors (2,288) 218
Decrease in creditors and provisions (excluding the effect
of exceptional items) 3,948 (790)
------------------------------- --------- ---------
Net cash outflow from operating activities (8,802) (2,873)
------------------------------- --------- ---------
10 Reconciliation of net cash flow to movement in net funds
14 month
Year period
ended ended
31 March 31 March
2003 2002
£'000 £'000
Increase in cash in the year/period 11,255 1,852
Cash outflow from decrease in debt and lease financing 667 337
Cash flow from change in liquid resources (5,301) 6,001
------------------------------- --------- ---------
Change in net funds/(debt)resulting from cash flows 6,621 8,190
Debt acquired on acquisition of subsidiary (456) -
undertaking
Finance leases acquired on acquisition of subsidiary
undertaking (30) (108)
Net funds/(debt) at start of period 7,395 (687)
------------------------------- --------- ---------
Net funds at end of year/period 13,530 7,395
------------------------------- --------- ---------
11 Analysis of net funds
Other
At 1 April non cash At 31
2002 Cash flow Acquisitions changes March 2003
£'000 £'000 £'000 £'000 £'000
Cash and bank
balances 2,692 11,183 - - 13,875
Overdrafts (72) 72 - - -
-------------- -------- -------- -------- -------- --------
2,620 11,255 - - 13,875
-------------- -------- -------- -------- -------- --------
Debt due after
one year (567) - (336) 101 (802)
Debt due within
one year (569) 598 (120) (101) (192)
Finance leases (90) 69 (30) - (51)
-------------- -------- -------- -------- -------- --------
(1,226) 667 (486) - (1,045)
-------------- -------- -------- -------- -------- --------
Short term
deposits 6,001 (5,301) - - 700
-------------- -------- -------- -------- -------- --------
Total 7,395 6,621 (486) - 13,530
-------------- -------- -------- -------- -------- --------
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