Final Results

Millfield Group PLC 25 June 2002 Date: 25 June 2002 On behalf of: Millfield Group plc Embargoed until: 0700hrs Millfield Group results reflect strong progress Millfield Group plc, the AIM-listed national independent financial advisory organisation, today announced its results for the financial year ended 31 March 2002. The highlights of the results, which were in line with market expectations, are: • Turnover up 86% to £20.5m (2001: £11.0m); • Gross profit up 90% to £5.9m (2001: £3.1m); • Loss before amortisation of goodwill of £7.1m (2001: £0.3m) • Number of advisers total 362 (2001: 107); • Acquisition of HFP Holdings Limited ("Heritage") for £9.3m on 1 October 2001, together with the raising of a further £2.8m of working capital to support Heritage's development and integration into the Millfield Group; • Acquisition of Moncur Jackson on 8 March 2002, a specialist employee benefits business based in Newcastle for up to £2.2m; • Millfield Associate Partnership established, an initiative to harness and support IFA firms around the UK; • Millfield Private Clients s.a.r.l, a Guernsey-based private client business, was established on 1 January 2002 to provide offshore investment products; • Millfield Protection & Mortgages Limited, a specialist advisory business focusing on the protection and mortgage market places, was established in February 2002; and • Millfield Insurance Services Limited was launched as a joint venture with James Hampden Insurance Brokers Limited, a privately owned Lloyd's broker in May 2002. Millfield Insurance Services provides general insurance services to both private and corporate clients. The Group also announced the following initiatives: • Intention to participate in the consolidation of the IFA market place by acquiring and developing IFA businesses. This will be done building on the existing Millfield Associate Partnership acquisitions model, initially acquiring minority equity stakes (of around 25 per cent) which will then step up through a full share for share acquisition. • To support its stated intention of developing new ways to deliver IFA Services the Group is entering into a joint venture agreement with AM Corporation, a substantial provider of financial services in Australia. Under the agreement, Lifetime Portfolio Services Limited ("LPS"), will offer financial advisers and their clients a significantly improved investment and administration process, combining wide product choice with advice. It is intended that the service will enable clients to bring together products such as pensions, unit trusts, shares and life assurance in a single portfolio on-line. It is also intended that the service will provide access to a wide spectrum of financial institutions, product providers and investment funds. • The Group has announced share issues to raise £17.2m before expenses of £1.2m, £12.0m from product providers primarily to support its IFA acquisition programme and £5.2m from institutions and other existing shareholders for working capital primarily for investment in LPS and to replace cash used in the Moncur Jackson acquisition. Commenting on the results, the Chairman of Millfield Group, Richard Mansell-Jones, said: "These results underline the Group's impressive progress in its first full year since admission to AIM. Millfield's position remains strong, and I am confident that these results, and the new initiatives announced today, leave us very well placed to fully realise our business plan over the next twelve months." Chairman's Statement Millfield has now completed its first full financial year since it joined the Alternative Investment Market ("AIM") of the London Stock Exchange on 1 March 2001 and this Report reviews the trading and other achievements of the year. It also gives me the opportunity to comment on our plans and the outlook for the future. At the time of the flotation our plan was to build the business from 100 IFAs to 700 over a three-year period, with increasing turnover being reinforced by improvements in IFA productivity. The year's results, with turnover up 86% to £20.5m and year-end adviser numbers up to 362, reflect the first steps in implementing this plan, supplemented by the contribution of the two acquisitions which we made during the year. In order to support this rapid growth we needed to transform the infrastructure of the business. The money raised at the flotation has allowed us to do this, by putting facilities in place that will support future revenue growth. We have also been able to invest in development activity to enhance and bring forward our other plans. Total administrative expenses in the year were £13.8m, up from £3.4m in 2001, resulting in a loss for the year of £7.1m, before amortisation of goodwill. Acquisitions and organic growth Our strategy is to develop a focused and high quality financial advisory business, supported by ventures which complement this activity. The development and growth of the existing branch business has been supplemented by the acquisition on 1 October 2001 of HFP Holdings Limited (Heritage). In June 2001 we launched Millfield Associate Partnership enabling us to bring other firms under the Millfield umbrella, thus speeding growth and the depth of our geographic coverage. These moves were complemented by the acquisition of Moncur Jackson & Associates Limited, an IFA employee benefits business, on 8 March 2002, the launch of Millfield Private Clients s.a.r.l. to provide offshore investment capability for high net worth clients, and the establishment of Millfield Insurance Services Limited as a joint venture with James Hampden Insurance Brokers Limited to provide general insurance products. Financial services: the future In January 2002 the FSA published CP121, a consultation paper entitled " Reforming Polarisation". This paper, amongst other things, seeks responses to the proposition that the polarisation regime be reformed to enable firms of IFAs to restructure their businesses, so that those holding themselves out as offering independent advice should be remunerated on a defined payment basis (to remove the potential for commission bias) while allowing others to become distributor or "multi-tie" firms (also known as Authorised Financial Advisers or "AFAs"). CP121 raises important issues and opportunities for us. We consider that the changes proposed under CP121, if enacted, will most likely see the rapid development of AFA firms which could be expected to offer products from selected panels of approved product providers. These AFA firms will develop much closer relationships with such providers, sharing technology platforms and working methods in a way which aims to promote both increased cost control and quality management. We intend to participate in the consolidation of the IFA market place by acquiring and developing IFA businesses. We will do this by building on our existing MAP acquisitions model. Initially we will aim to acquire minority equity stakes (of around 25 per cent), which we will then step up by through a full share-for-share acquisition on a performance and profit related basis. This builds on our approach whereby we pay for proven value. Personal portfolio service We have entered into a joint venture agreement, conditional upon shareholder approval, with AM Corporation, a substantial provider of financial services in Australia. Under the joint venture agreement, Lifetime Portfolio Services Limited ("LPS"), a UK company formed for the purpose, will develop the systems and infrastructure and seek the necessary regulatory approvals to launch a personal portfolio business in the United Kingdom. The development of the business will utilise AM Corporation's knowledge and experience gained over 20 years in the Australian market. As stated at the time of Millfield's AIM flotation in March 2001, the Group intends to develop new ways of delivering IFA services in a way that will offer financial advisers and their clients a significantly improved investment and administration process, combining wide product choice and advice. It is intended that the service will enable clients to bring together products such as pensions, unit trusts, shares and life assurance in a single portfolio available on-line. It is also intended that the service will provide access to a wide spectrum of financial institutions, product providers and investment funds. I believe that such a portfolio management and investment system will be a key feature of the future financial services market and it is intended to accord with the proposed development of the IFA market under CP121, allowing IFAs to move away from commissions and towards fees based on total funds under advice. New share issues We are also announcing share issues to raise £17.2m before expenses of £1.2m, £12.0m from product providers primarily to support our IFA acquisition programme and £5.2m from institutions and other existing shareholders for working capital primarily for our investment in LPS and to replace the cash used to acquire Moncur Jackson. Our strategy at the float and at the time of the Heritage acquisition was to capitalise the business at a level sufficient to provide support until it turns cash positive. These new funds will largely be used to support the new opportunities. Millfield in the marketplace The distribution of financial services products in the UK continues to be more highly regulated particularly following the implementation of Financial Services and Markets Act 2000 (also known as N2) in November 2001 and we recognise more than ever the importance of maintaining a strong training and competence regime. Because of its comparatively recent formation, Millfield has no cases arising from the pensions mis-selling review. Furthermore, Millfield is unaffected by recent issues raised in the press concerning the sales of certain types of investment trust funds and endowments. The tragic events in the United States on 11 September 2001, and the weakening stock markets worldwide, have created economic uncertainty both in the UK and elsewhere. The fundamental need for financial services remains strong and may be even greater in such conditions. Clients, however, will almost certainly be more demanding of financial services organisations in this climate. Millfield is well positioned to advise clients and businesses through this uncertain period due to its focus on providing high quality service. Our integrity, our financial probity and our service standards leave us well placed for the future. Millfield's position is strong and I am confident of our ability to deliver the next stage of our business plan. The quality and tireless effort of our IFAs, our Directors and our employees underpins the Group. On behalf of all our shareholders I would like to thank them for their hard work over the last year. Richard Mansell-Jones Chairman 24 June 2002 Chief Executive's Review A leader in advisory services Millfield is today a leading advisory business, dedicated to giving its independent financial advisers the opportunity to develop specialist areas such as business assurance, professional connections and affinity marketing as well as servicing our core areas of life insurance, mortgages, pension planning and investment. The principal operating company of the Group, Millfield Partnership Limited, is characterised by the ability to provide timely, professional and practical advice to clients. This is based on an understanding of their needs and research of the financial marketplace to find the most appropriate solutions to those needs. Millfield's goal is to create security and wealth for its clients by building long-term relationships with them. Millfield has a structure that we believe is unique. It has a stakeholder culture, with over 344 current shareholders. Having a stake in the ownership of the company enables our advisers and employees to feel empowered. Our advisers also have representation in the running of the company: a practicing independent financial adviser is on the Board, and we also have an IFA Committee. Results The year under review was a successful one for Millfield. Your Chairman has already set out the most important results. I would single out the 86% increase in turnover as particularly significant. This was due to a substantial increase in the number of our independent financial advisers, and also to greater productivity. As an example, for the 82 advisers who joined us before 31 March 2000, their productivity in 2001 was £115,000; in 2002, this rose to £148,000. The productivity of advisers new to the group in 2002 was £70,000 against £46,000 in 2001 for those new to the group that year. The improvement in productivity was due to a number of factors: major improvements in our infrastructure, the putting in place of support staff in our branches including paraplanners, researchers and business development executives who hold extensive industry experience, and more effective head office operations such as marketing, training and IT. Furthermore, our new joiners in the year have made a strong start, reflecting the better quality environment and also the higher proportion of established IFAs joining us. We have boosted Millfield's brand awareness during the year, including sponsoring a Guide to Planning for Retirement in conjunction with the Guardian newspaper. We intend to build on these initiatives in the future. An in-depth review has taken place of the implications of N2, the new regulatory regime being introduced by the Financial Services Authority from the end of November and appropriate processes and procedures have been put in place. Distribution makes the difference Millfield is improving the effectiveness of its distribution, evolving our ability to service the needs of advisers and clients. Although founded as recently as March 1998, the Group today has grown to over 380 advisers operating from 34 UK locations. It also has an experienced and proven management team. The year under review saw a significant investment in our infrastructure. We relocated six of our branches as well as our head office, and opened five new branches. We appointed 12 development directors and 68 paraplanners. We established customer contact centres in Hull and Slough. The number of our employees rose to over 300, to complement and support our growing number of advisers. Heritage Your Chairman has spoken about the acquisitions and organic growth during the year. We acquired Heritage in October 2001: this company represents an excellent fit for Millfield, sharing our desire to create security and wealth by delivering the highest possible service standards, having a stakeholder culture and operating through advisers with a relatively young average age of 44. Its acquisition resulted in our leapfrogging the original business plan, bringing forward the rapid growth in the business. We have retained 112 Heritage advisers. Heritage had 12 branch offices mainly in Scotland, the north of England and the Midlands, complementing Millfield's predominantly southern bias. The integration of Heritage is now complete, with the business trading under the Millfield Partnership Limited name and the branches managed jointly with those in the south, resulting in a national network of 20 branches. Fitting out of the branches to Millfield's standards of telephony and IT is almost complete. Head Office functions have been consolidated in Croydon. Heritage head office staff not directly involved in branch management have relocated to our business centre in Hull and to our recruitment business. The infrastructure we established has allowed us to achieve the full integration of Heritage with minimum disruption and positions us well to roll out the next stages of our expansion plan. Millfield Associate Partnership Millfield Associate Partnership, established in June 2001, is now fully operational and provides other IFA companies with the opportunity to become a branded Millfield Associate and benefit from economies of scale, training, compliance, marketing support, IT support and Millfield best practice. Seven firms with 60 advisers had joined at the year end. Of these seven firms, three have taken the first steps along the path of Millfield's new stepped acquisition approach to acquiring IFA firms. This approach enables Millfield both to monitor and influence the development of these firms in terms of quality and revenue and to reward the entrepreneurial flair of the founders through an incentivised equity arrangement, whilst at the same time providing a pool of future talent within the Millfield group. Importantly, the IFAs within these firms are authorised through Millfield and are therefore subject to the high standards of compliance and competence associated with the Millfield brand. Our target for Millfield Associate Partnership is to have in place just 20 high-quality IFA firms. According to a report by Datamonitor published in March 2001, the IFA market comprises 508 businesses with turnover between £500,000 and £1 million, and 338 businesses with turnover in excess of £1 million. We will continue to add quality IFA firms up to our target, by offering working capital, marketing, compliance and training support as well as business development assistance. Moncur Jackson & Associates Limited ("Moncur Jackson") On 8 March 2002 we acquired Moncur Jackson, an IFA employee benefits business based in Newcastle, for £2.2m (including deferred consideration of up to £0.3m), of which the initial consideration was a cash backed loan note of £1.05m with the balance through issues of shares. We intend to maintain this as a separate business and the changes to the regulatory structure and relationships with head office and support functions have been established. Millfield Private Clients s.a.r.l. On 1 January 2002, we launched a Guernsey-based private client business focusing on high net worth individuals, primarily from overseas and investing offshore. The business is regulated by the Guernsey authorities. The company met its target for the first 3 months reflecting the quality of the Private Client Directors who have been attracted to the business from the Private Banking community in a variety of jurisdictions. Millfield Protection & Mortgages Limited This new subsidiary commenced trading in February 2002. It is regulated through the General Insurance Standards Council and the Mortgage Code Compliance Board. Specialist advisers are based in existing branches and MAP firms to provide focused advice on all types of mortgages and protection plans. Millfield Insurance Services Limited We issued, on 8 May 2002, new shares in this company to create a joint venture with James Hampden Insurance Brokers Limited ("James Hampden"), a privately owned Lloyd's broker. The company is regulated by the General Insurance Standards Council and will provide general and specialist insurance products to business and personal clients of the Millfield group. Millfield advisers will introduce clients to the business and James Hampden will provide the required management services and operations structure. New developments We intend to build on the significant advances made in the year under review by putting in place new ventures. We are announcing that we have entered into a conditional joint venture agreement with AM Corporation. This Australian company is a large, independently owned pension and investment company. It invests funds for over 160,000 clients and has over A$3.2bn in assets. The joint venture company will develop the systems, infrastructure and necessary regulatory approvals to launch the business in the UK. The significance of this development is that the joint venture company will offer an integrated advisory service, taking into account all aspects of a client's wealth and aggregating them to produce a more effective service. This model has already proved effective in Australia, and has become a preferred model for professional financial planners. We believe it will be equally successful in the UK. Paul Tebbutt Chief Executive 24 June 2002 Consolidated Profit & Loss Account For the year ended 31 March 2002 Before goodwill amortisation and Total before Goodwill acquisitions Acquisitions amortisation amortisation Total Total Audited Audited Audited Audited Audited Audited 2002 2002 2002 2002 2002 2001 £'000 £'000 £'000 £'000 £'000 £'000 TURNOVER 17,003 3,502 20,505 - 20,505 10,958 Gross profit 4,786 1,146 5,932 - 5,932 3,065 OPERATING LOSS (7,943) 102 (7,841) (266) (8,107) (360) Interest receivable and similar 699 - 699 - 699 102 income Interest payable and similar (3) (1) (4) - (4) - charges LOSS ON ORDINARY ACTIVITIES BEFORE TAX (7,247) 101 (7,146) (266) (7,412) (258) Taxation on ordinary activities - - - - - - LOSS ON ORDINARY ACTIVITIES AND RETAINED LOSS FOR YEAR (7,247) 101 (7,146) (266) (7,412) (258) Basic and diluted loss per share (Note 2) (13.86p) 0.19p (13.67p) (0.51p) (14.18p) (1.26p) Consolidated Balance Sheet 31 March 2002 2002 2001 (Audited) (Audited) £'000 £'000 FIXED ASSETS Intangible assets 12,275 22 Tangible assets 2,899 213 15,174 235 CURRENT ASSETS Debtors 7,641 1,258 Cash at bank and in hand 8,675 18,511 16,316 19,769 CREDITORS amounts falling due within one year (6,356) (2,376) NET CURRENT ASSETS 9,960 17,393 TOTAL ASSETS LESS CURRENT LIABILITIES 25,134 17,628 CREDITORS amounts falling due after more than one year (1,050) - 24,084 17,628 PROVISION FOR LIABILITIES AND CHARGES (752) (245) 23,332 17,383 CAPITAL AND RESERVES Called-up share capital 101 83 Deferred consideration 325 - Share premium account 19,462 16,624 Merger reserve 11,709 1,529 Profit and loss account (8,265) (853) EQUITY SHAREHOLDERS' FUNDS 23,332 17,383 Consolidated Cash Flow Statement For the year ended 31 March 2002 Year ended Year ended 31 March 31 March 2002 2001 (Audited) (Audited) £'000 £'000 Net cash (outflow) /inflow from operating activities (9,280) 1,094 Returns on investments and servicing of finance 466 32 Capital expenditure and financial investment (2,921) (136) Acquisitions and disposals (943) (5) (12,678) 985 Financing 2,842 16,980 (Decrease) / increase in cash in the year (9,836) 17,965 Reconciliation of net cash flow to movements in net funds (Decrease) / increase in cash in the year (9,836) 17,965 Changes in net funds resulting from cash flows (9,836) 17,965 Movement in net funds in the year (9,836) 17,965 Net funds 31 March 2001 18,511 546 Net funds 31 March 2002 8,675 18,511 Reconciliation of operating loss to net cash (outflow) / inflow from operating activities Operating loss (8,107) (360) Depreciation charge 361 75 Loss on disposal 98 6 Amortisation charge 266 1 Decrease in stocks - 1 Increase in debtors (6,385) (302) Increase in creditors 3,980 1,595 Increase in provisions 507 78 Net cash (outflow) / inflow from operating activities (9,280) 1,094 Notes 1. Abridged Accounts The preceding financial information does not constitute statutory accounts as defined in section 240 of the Companies' Act 1985. The financial information for the year to 31 March 2001 is based on the statutory accounts for that year. These accounts, upon which the auditors issued an unqualified opinion, and which did not contain any statement under section 237 (2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. The financial information for the year ended 31 March 2002 has been extracted from the statutory accounts approved by the directors on 24 June 2002. The auditors' report on those accounts was unqualified and which did not contain any statement under section 237 (2) or (3) of the Companies Act 1985. The statutory accounts will be posted to the shareholders on 31 July 2002. After that time they will also be available at the company's registered office at Knollys House, 17 Addiscombe Road, Croydon, Surrey, CRO 6SR. 2. Loss per share The calculation of loss per share on losses attributable to shareholders is based on losses after taxation of £7,412,667 (2001 - £258,000) and on 52,268,808 (2001 - 20,353,799) ordinary shares, being the weighted average number of shares in issue during the year. FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, the exercise of in-the-money options would reduce rather than increase the net loss per share and thus such options are not dilutive as defined in the FRS. Similarly, although net loss per share would be increased by the exercise of out-of-the-money options, it seems inappropriate to assume that option holders would act irrationally and exercise those options. Accordingly no adjustment has been made to diluted EPS for either in-the-money or out-of-the-money share options and, since there are no other diluting future share issues, the diluted loss per share is the same as the basic loss per share for the year. 3. Dividends No dividends have been paid or will be distributed for the year ended 31 March 2002. (2001: nil). Enquiries to: Paul Tebbutt, Chief Executive / Harry Roome, Finance Director Tel: 020 8680 5200 Millfield Group plc Emma Kane, Chief Executive Tel: 020 7955 1410 Redleaf Communications Ltd Mob: 07876 338339 Notes to Editors: About Millfield • Millfield was founded in March 1998 and is one of the fastest growing independent financial advisory companies in the UK offering truly independent advice, primarily in the pensions, life insurance, investment and mortgage sectors. • Millfield Group plc floated on the Alternative Investment Market ("AIM") of the London Stock Exchange on 1 March 2001 raising £16.6m net of expenses. • Millfield currently retains the services of approximately 380 self-employed IFAs and operates from 34 locations across England, Scotland and Northern Ireland. • Further information is available on the Millfield website: www.millfield-partnership.co.uk This information is provided by RNS The company news service from the London Stock Exchange

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