Final Results

Berkeley Berry Birch PLC 30 June 2004 Berkeley Berry Birch plc Preliminary Results 2004 30 June 2004: Berkeley Berry Birch plc (BBB), the financial services distribution group, today announces its preliminary results for the 12 months to 31 March 2004. HIGHLIGHTS • Group turnover increased by 24% from £53.7 million to £66.5 million • Operating loss before exceptional items, goodwill amortisation and impairment of £4.9 million in line with market expectations (2003: £7.1 million) • The Group moved into showing an operating profit before goodwill amortisation in February 2004 and March 2004 • Network division turnover increased by 10%, Financial advisory division by 90% and Insurance division by 23% • Gross margin increased from 21.0% to 26.4% • Cash on balance sheet of £11 million • Productivity per adviser increased from £78,000 to £84,000 (Industry average: £60,000) • Number of advisers increased from 750 to 825 Commenting on the preliminary results for the Group, Clifford Lockyer, Group Executive Chairman and Group Chief Executive, said: 'This year has seen the Group's continued progression towards its vision of becoming a unified Financial Services Business, with increases in turnover and margin across all our divisions. Additional cost savings implemented in the third quarter have further reduced costs in line with our expectations. By February 2004, the management accounts showed that the Group had moved into operating profit, before goodwill amortisation, one month earlier than expected. All divisions are now well placed to progress in the next 12 months.' Commenting on the market outlook, he said: 'In its short history the BBB Group has had to undertake significant challenges thrust upon it by the economic environment and historic factors. We have a sound financial and structural platform for the start of our current financial year, and we will continue to build on this during the rest of the year. I remain optimistic that the building blocks we have put in place will enable us to continue our progress.' For further information, please contact: Berkeley Berry Birch plc Clifford Lockyer, Executive Chairman and Group Chief Executive 07967 680565 Craig Butcher, Group Finance Director 07968 486750 Grandfield Charles Cook / Matthew Jervois 020 7417 4170 CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Overview This year has seen the Group's continued progression towards its vision of becoming a unified Financial Services business. This will be achieved by providing our advisers with the support to enable them to advise their clients across the three disciplines of asset management, risk management and debt finance. This in turn will enable them to become the comprehensive source of expertise that the consumer demands. Turnover for the Group increased by 24% from £53.7 million to £66.5 million. Productivity per adviser increased from £78,000 to £84,000 against an industry average of £60,000 per annum. Additional cost savings implemented in the third quarter have further reduced costs in line with our expectations and as a result overheads are now less than £20 million per annum. By February 2004, the Group's management accounts showed that the Group had moved into operating profit, excluding the effect of goodwill amortisation, one month earlier than expected. The Group continues to perform satisfactorily. We can report improved trading across our network, financial advisory and insurance divisions, with a gross margin improvement of 21.0% to 26.4%. All divisions are now well placed to progress in the next twelve months with particular emphasis on development in the insurance division. Network division In a difficult business-to-business market the division performed well, managing to increase its distribution capability in both the regulated and non regulated networks. At 31 March 2004, the division had 657 advisers and 1,169 agents, representing increases of 13% and 89% respectively on last year. Other key business performance indicators showed strong progress with Berkeley Independent Advisers ('BIA') increasing its average proposal value by 33% whilst Direct Protect's increased by 13%. Sales activity per adviser also increased in BIA by 17%. Rationalisation of the division's individual cost centres increased operational efficiency, whilst reducing unprofitable and unnecessary duplication. This has resulted in a firm structural foundation from which to deliver improved financial performance and to maintain high standards of service. The BIA network was again voted the Number One Network in the UK, by independent research, for the 8th time. Financial advisory division The financial advisory division is now fully integrated and has 73 employed and 95 self employed advisers. This is a 3% decrease on last year. Berry Birch & Noble Financial Planning ('BBN FP') has undergone a radical restructure in the last twelve months. Focus has been restored on its core business, working with affinity groups and professional introducers, and the branch structure reviewed to reduce premises costs. The management team of 21 has been reduced to 11. Only 34 advisers from the original team of 103 were retained. Numbers now exceed 90 and the division has a healthy pipeline. Productivity per head has been increased by 61% year on year with an average of £103,000 per annum and a declining cost per employee. An operating loss before goodwill amortisation in the March 2003 management accounts of £440,000 has been turned into a profit in March 2004. Professional Financial Solutions and the employee benefits capability of MacRobins have now been integrated into BBN FP. Significant progress has been made in the last twelve months to fully integrate Weston Financial Group ('Weston') into BBB. Weston's lead generation unit is now producing 46,000 leads for the Group, up 35% on last year. During this difficult period staff retention has been excellent. All of Weston's key managers have been retained and have adapted well to the new culture. Retention of advisers has also been far better than anticipated with no significant losses. Insurance division For our insurance division the year was one of significant development. Two acquisitions strengthened our commercial broking team. These increased the amount of premium to £30 million. For our personal lines team the year started with one of our major insurers discontinuing its operation. The team recovered well and as a result we have been able to improve our customer proposition in terms of range of products and service provided. We have continued to develop our affinity arrangements for employee and pensioner groups and have been appointed to provide products to one of the UK's major accountancy practices. Our boiler insurance product has signed up a number of new oil distributors during the year. This will give us a long term base to expand the distribution of this specialist product. Turnover, including the contribution from acquisitions, has increased by 23% to £4,259,000 and the operating profit before goodwill amortisation has remained broadly constant at £714,000. Our margin has reduced, however this reflects our investment in the future, particularly in respect of our direct mail marketing campaigns which have developed our database of potential customers. Acquisitions The acquisitions of Weston, in December 2002, and Professional Financial Services, in January 2003, have been fully integrated into our financial advisory division and have both become an integral part of our proposition. In July 2003 we acquired MacRobins, an insurance broker and employee benefits company. The company has been integrated into the relevant divisions within the Group. Its general insurance business was predominantly drawn from the corporate market, which has added to our existing capability in that area. In addition, we have acquired a number of books of business within the general insurance area which have profitably added to our customer base. We will consider further acquisitions of earning enhancing firms which complement the expansion plans of the distribution businesses. Berry Birch & Noble Financial Services Limited ('BBN FS') BBN FS was closed during the year and its trade was sold to a fellow subsidiary. This action was taken to protect the Group from legacy issues that had hampered the development of this business and potentially threatened the financial position of the Group going forward. The FSA has now formalised its approach to BBN FS going forward and has appointed investigators. The FSA has informed us that the appointment of investigators does not mean that it has determined that rule breaches and/or other contraventions have occurred. The Directors remain confident in the outcome of the investigation. Inter-Alliance Group ('IAG') merger Earlier in the year we entered into discussions with IAG about the possibility of a merger between the two companies. This was an opportunistic transaction in response to an approach by IAG which we felt could facilitate our growth plans, particularly for the financial advisory division. These discussions were well advanced and considerable due diligence had been undertaken when it became apparent that the terms of the deal could not be agreed. The lack of a successful outcome is disappointing, but the Board believe it was the correct decision. The market environment Last year we stated that the financial services sector in which we operate was in a period of rapid and radical change, predominantly led by a shift in the UK and European regulatory approach. This has continued throughout our current financial year and will remain the case for the foreseeable future. Change has indeed become the norm after many years of stability under the polarised regime. Depolarisation now looks likely to start from January 2005. In addition, the regulatory environment continues to grow, with mortgage and general insurance regulation being introduced from October 2004 and January 2005 respectively. Furthermore, Europe continues to legislate at a pace and the impact of the Insurance Mediation Directive and Markets in Financial Instruments Directive are set to be far reaching. These regulatory changes provide significant opportunities for BBB which have been anticipated and planned for. Our current scale and reputation has enhanced our position with product providers and placed us in a strong position as we approach the depolarised world. Our move to create a multi-channel financial services distribution group has attracted capital to execute the strategy and provide additional investment and regulatory capital. We continue to develop our financial advisory and insurance divisions to complement the contribution made by the network division. This gives a more balanced and sustainable business mix and provides a platform from which our advisers can meet consumer demand for the management of their assets, risk and debt finance. Board changes We started the year seeking a third non-executive director, in addition to Kevin Higginson and Nick Davenport, who joined us in the early part of 2003. During the year the Board reviewed this requirement in the light of other priorities and the final Higgs' report recommendations and decided to cease this search. At present there is no intention to add another non-executive director, but the Board reserves the right to review this from time to time. With the departure of Stephen Ingledew I have taken on the responsibilities of both Chairman and Chief Executive. Whilst today's corporate governance environment does not support these roles being combined, the Board believes that this is in the best interests of the business. Craig Butcher remains as Group Finance Director with a wider mandate covering commercial activities. Outlook In its short history the BBB Group has had to undertake significant challenges thrust upon it by the economic environment and historic factors. We have performed well and this is due to the support of our dedicated staff and advisers. We have a sound financial and structural platform for the start of our current financial year and we will continue to build on this during the rest of the year. We remain optimistic that the building blocks we have put in place will enable us to continue our progress. Finally, the Board would like to thank all employees, advisers and agents in the Group for their continued contribution over the last financial year and for remaining focused on taking the Group to the next stage of its operational and strategic development. Clifford P Lockyer Group Executive Chairman and Group Chief Executive 30 June 2004 UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 March 2004 Note 2004 2003 Restated (see note 1) £'000 £'000 Turnover 2 66,511 53,734 Cost of sales (48,922) (42,450) ---------------------------------- ------ -------- -------- Gross profit 17,589 11,284 Administrative expenses (27,234) (50,709) ---------------------------------- ------ -------- -------- Operating loss (9,645) (39,425) ---------------------------------- ------ -------- -------- Operating loss (before exceptional items, goodwill amortisation and impairment) 2 (4,903) (7,122) Exceptional items, goodwill amortisation and impairment 3 (4,742) (32,303) ---------------------------------- ------ -------- -------- Operating loss (9,645) (39,425) ---------------------------------- ------ -------- -------- Disposal of subsidiary undertakings 1,083 - Net interest receivable 252 228 ---------------------------------- ------ -------- -------- Loss on ordinary activities before taxation (8,310) (39,197) Taxation 4 70 (30) ---------------------------------- ------ -------- -------- Loss on ordinary activities after taxation (8,240) (39,227) Minority interests (11) 99 ---------------------------------- ------ -------- -------- Loss for the financial period (8,251) (39,128) ---------------------------------- ------ -------- -------- Loss per share 5 Adjusted basic and diluted (3.9p) (9.5p) Basic and diluted (9.2p) (53.9p) ---------------------------------- ------ -------- -------- The impact of acquisitions in the year ended 31 March 2004 was not material. UNAUDITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 March 2004 Note 2004 2003 Restated (see note 1) £'000 £'000 Loss for the financial year (8,251) (39,128) Unrealised loss on revaluation of property - (124) ---------------------------------- ------ -------- -------- Total recognised gains and losses relating to the year (8,251) (39,252) -------- Prior year adjustment 1 (1,538) ---------------------------------- ------ -------- Total recognised gains and losses recognised since last annual report (9,789) ---------------------------------- ------ -------- UNAUDITED CONSOLIDATED BALANCE SHEET As at 31 March 2004 Note 2004 2003 Restated (see note 1) £'000 £'000 Fixed assets Intangible assets 26,621 34,140 Tangible assets 2,259 2,441 ---------------------------- ------ --------- --------- 28,880 36,581 ---------------------------- ------ --------- --------- Current assets Debtors 7,512 5,478 Cash at bank 10,622 14,575 ---------------------------- ------ --------- --------- 18,134 20,053 Creditors: amounts falling due within one year (12,236) (9,000) ---------------------------- ------ --------- --------- Net current assets 5,898 11,053 ---------------------------- ------ --------- --------- Total assets less current liabilities 34,778 47,634 Creditors: amounts falling due after more than one year Borrowings (477) (823) Other creditors (328) (416) Provisions for liabilities and charges (3,332) (2,636) ---------------------------- ------ --------- --------- Net assets 30,641 43,759 ---------------------------- ------ --------- --------- Capital and reserves Called up share capital 8,987 8,871 Share premium account 17,019 17,703 Shares to be issued 1,231 6,630 Revaluation reserve 358 358 Merger reserve 26,319 26,685 Profit and loss account (23,482) (16,489) ---------------------------- ------ --------- --------- Equity shareholders' funds 6 30,432 43,758 Minority interests 209 1 ---------------------------- ------ --------- --------- Capital employed 30,641 43,759 ---------------------------- ------ --------- --------- UNAUDITED CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 March 2004 Note 2004 2003 Restated (see note 1) £'000 £'000 Net cash outflow from operating activities 7 (2,696) (8,802) ---------------------------- ----- --------- --------- Returns on investments and servicing of finance Interest received 325 310 Interest paid (73) (62) Interest element of finance lease rentals (8) (14) ---------------------------- ----- --------- --------- Net cash inflow from returns on investments and servicing of finance 244 234 ---------------------------- ----- --------- --------- Taxation 28 (215) ---------------------------- ----- --------- --------- Capital expenditure and financial investment Net purchase of tangible fixed assets (471) (625) Increase in bank deposit given as security (500) - ---------------------------- ----- --------- --------- Net cash outflow from capital expenditure and financial investment (971) (625) ---------------------------- ----- --------- --------- Acquisitions and disposals Purchase of subsidiary undertakings (392) (2,048) Net cash/(overdraft) acquired with subsidiary undertakings 665 (353) Purchase of business operations (257) (337) Disposal of subsidiary undertakings 116 - Cash in subsidiary undertakings disposed of (950) - ---------------------------- ----- --------- --------- Net cash outflow from acquisitions and disposals (818) (2,738) ---------------------------- ----- --------- --------- Net cash outflow before management of liquid resources and financing (4,213) (12,146) ---------------------------- ----- --------- --------- Management of liquid resources Decrease in short term deposits 700 5,301 ---------------------------- ----- --------- --------- Net cash inflow from management of liquid resources 700 5,301 ---------------------------- ----- --------- --------- Financing Issue of ordinary shares - 19,017 Redemption of preference shares held by a minority interest - (250) Loan repayments (203) (598) Capital element of finance lease repayments (37) (69) ---------------------------- ----- --------- --------- Net cash (outflow)/inflow from financing (240) 18,100 ---------------------------- ----- --------- --------- (Decrease)/increase in cash in the year 8 (3,753) 11,255 Cash at 1 April 13,875 2,620 ---------------------------- ----- --------- --------- Cash at 31 March 9 10,122 13,875 ---------------------------- ----- --------- --------- 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 year ended 31 March 2003 except as explained below. The financial information has been extracted from the draft unaudited financial statements which are expected to receive an unqualified audit report. In November 2003 the Accounting Standards Board published Application Note G, 'Revenue Recognition', in respect of FRS5 'Reporting the Substance of Transactions'. In January 2004 the Institute of Chartered Accountants in England and Wales ('ICAEW') issued a technical release giving guidance on the interpretation of the Application Note by intermediaries involved in the sale of insurance products and services. The directors have reviewed the Group's policy in respect of revenue recognition following the publication of these documents, and in particular the ICAEW technical release, and have amended the policy in respect of when revenue is recognised in respect of initial commissions. Previously, such commissions were taken to revenue when the proposal was submitted to the product provider, after taking account of provisions for those policies that would not be taken up and for the potential cancellation of policies where commission is received under indemnity terms. Under the revised policy, initial commissions are recognised when the policy is issued by the product provider with provision still being made for the potential cancellation of policies where commission is received under indemnity terms. This change in accounting policy has been recognised in the accounts as a prior year adjustment and comparative figures for 2003 have been restated. The effect of implementing the change in policy is to reduce shareholders' funds at the beginning of the year by £1,538,000 and to increase turnover for the year ended 31 March 2004 by £1,678,000. The impact on the operating loss for the year was negligible. The impact on the results for the year ended 31 March 2003 was to reduce turnover by £2,118,000 and to increase the operating loss by £266,000. The summary of results for the years ended 31 March 2004 and 31 March 2003 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The full financial statements for the year ended 31 March 2003 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 Segmental information 2004 2003 Restated £'000 £'000 Turnover Network division 46,010 41,697 Financial advisory division 16,242 8,563 Insurance division 4,259 3,474 -------------------------------- --------- --------- 66,511 53,734 -------------------------------- --------- --------- Operating loss before exceptional items, goodwill amortisation and impairment Network division 831 1,221 Financial advisory division (3,902) (6,091) Insurance division 714 720 Central costs (2,546) (2,972) -------------------------------- --------- --------- (4,903) (7,122) -------------------------------- --------- --------- The analysis of the operating loss before exceptional items, goodwill amortisation and exceptional items is shown before management charges levied by the parent company. The Group's entire turnover and operating loss arises within the United Kingdom. 3 Exceptional items, goodwill impairment and amortisation 2004 2003 Restated £'000 £'000 Exceptional items (1,335) (2,882) Goodwill impairment (1,872) (26,563) Goodwill amortisation (1,535) (2,858) -------------------------------- --------- --------- (4,742) (32,303) -------------------------------- --------- --------- Exceptional items comprise adviser fees in respect of the potential merger with Inter-Alliance Group PLC (£795,000) and provision for onerous property lease costs (£540,000). Exceptional items in the year ended 31 March 2003 were in respect of further charges for the Pensions Review and de-commissioning (£900,000) and start up and restructuring costs (£1,982,000). The goodwill impairment is in respect of the goodwill arising on the acquisition of Weston Financial Group Limited in December 2002. The goodwill impairment charge in the year ended 31 March 2003 was principally in respect of the goodwill arising on the acquisition of the Berkeley Financial Services Group in January 2002. 4 Taxation Taxation relates to amendments to prior years. No tax is payable for the current year due to the availability of losses. 5 Loss per share The calculation of the basic loss per share is based on the loss for the year and the weighted average number of shares in issue during the year of 89,485,000 (2003: 72,537,000). At 31 March 2004 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: 2004 2003 Restated Basic loss per share before exceptional items, goodwill impairment and amortisation (3.9p) (9.5p) Goodwill impairment and amortisation (3.8p) (40.6p) Exceptional items (1.5p) (3.8p) -------------------------------- --------- --------- Basic loss per share (9.2p) (53.9p) -------------------------------- --------- --------- 6 Reconciliation of movement in equity shareholders' funds 2004 2003 Restated £'000 £'000 Loss for the financial period (8,251) (39,128) Ordinary shares issued, net of expenses 323 19,736 Shares to be issued 427 6,630 Adjustment to deferred considerations (see below) (5,825) - Loss on revaluation of property - (124) -------------------------------- --------- --------- Net change in equity shareholders' funds (13,326) (12,886) -------------------------------- --------- --------- Opening equity shareholders' funds as previously reported 45,296 57,916 Prior year adjustment (note 1) (1,538) (1,272) -------------------------------- --------- --------- Opening equity shareholders' funds as restated 43,758 56,644 -------------------------------- --------- --------- Closing equity shareholders' funds 30,432 43,758 -------------------------------- --------- --------- The adjustment in respect of deferred considerations is principally in respect of Weston Financial Group Limited with an offsetting reduction in goodwill. 7 Net cash outflow from operating activities 2004 2003 Restated £'000 £'000 Operating loss (9,645) (39,425) Movement in debtors (2,132) 69 Movement in creditors and provisions 4,976 542 Goodwill amortisation and impairment 3,407 29,421 Other non cash items 698 591 ------------------------------- --------- --------- Net cash outflow from operating activities (2,696) (8,802) ------------------------------- --------- --------- 8 Reconciliation of net cash flow to movement in net funds 2004 2003 £'000 £'000 (Decrease)/increase in cash in the year (3,753) 11,255 Cash outflow from decrease in debt and lease financing 240 667 Cash flow from change in liquid resources (700) (5,301) ------------------------------- --------- --------- Change in net funds resulting from cash flows (4,213) 6,621 Debt acquired on acquisition of subsidiary undertaking - (456) Debt removed on disposal of subsidiary undertaking 158 - Finance leases acquired on acquisition of subsidiary undertaking (20) (30) Net funds at start of year 13,530 7,395 ------------------------------- --------- --------- Net funds at end of year 9,455 13,530 ------------------------------- --------- --------- 9 Analysis of net funds At 1 April Cash Disposals Other non cash At 31 March 2003 flow changes 2004 £'000 £'000 £'000 £'000 £'000 Cash and bank balances 13,875 (3,753) - - 10,122 -------------- -------- -------- -------- -------- -------- Debt due after one year (802) - 120 223 (459) Debt due within one year (192) 203 38 (223) (174) Finance leases (51) 37 - (20) (34) -------------- -------- -------- -------- -------- -------- (1,045) 240 158 (20) (667) -------------- -------- -------- -------- -------- -------- Short term deposits 700 (700) - - - -------------- -------- -------- -------- -------- -------- Total 13,530 (4,213) 158 (20) 9,455 -------------- -------- -------- -------- -------- -------- Cash and bank balances at 31 March 2004 shown above exclude a bank deposit of £500,000 which does not meet the definition of either cash or liquid resources under FRS1. This information is provided by RNS The company news service from the London Stock Exchange

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