Final Results
Millfield Group PLC
06 August 2004
Date: 6 August 2004
On behalf of: Millfield Group plc
For immediate release
Millfield Group plc
Preliminary Results for the year ended 31 March 2004
Millfield Group plc, the independent financial services advisory group, today
announces its preliminary results for the year ended 31 March 2004, the key
highlights of which are:
Financial
• Turnover up 60% to £41.9m (2003: £26.1m)
• Operating losses, before goodwill charges and results relating to Lifetime
joint venture, reduced to £9.3m (2003: £12.6m)
• Like for like costs in existing businesses, excluding Simply Millfield and
Millfield associate Partnership companies, down 6%
• Directors expect the Group to be self-financing following two share issues
during the year to raise £12.3m (after expenses)
• Cash balances at year end for companies within the Group were £4.5m,
including £1.3m which was charged to holders of loan notes. A further
£3.9m was held by Lifetime.
Operating and Current Trading Update
• Results for the quarter ended 30 June were in line with the Directors'
expectations
• Turnover continues to grow at an annualised rate of over 50%
• Gross margins and administration costs remain tightly controlled
• Monthly losses are sharply reduced from those in the previous year
• The Directors remain confident of achieving their plans for the year
Post Balance Sheet Event
• Recommended merger offer for Inter-Alliance Group PLC announced today
resulting in £5m of cost savings across the Group
Commenting on the results, Paul Tebbutt, Chief Executive of Millfield, said:
"In just three years, Millfield has created a national independent advisory
organisation offering truly independent advice to both individuals and
businesses across the length and breadth of the UK.
"Millfield has continued to develop in line with its strategy and the plans we
set out at the time of our flotation and in subsequent announcements. We have
built a strongly based Group and the economy and the investment markets have
stabilised. There is still considerable change to occur across the financial
services market. Current trading is in line with Directors' expectations and we
remain confident of achieving our plans for the year. Our own positioning
combined with the opportunity presented by the proposed merger with
Inter-Alliance provides an exciting prospect for the future of this business."
Enquiries to:
Emma Kane/Sanna Lehtinen Tel: 020 7955 1410
Redleaf Communications Mob: 07876 338339
Chairman's Statement
Introduction
It is now three years since the flotation of Millfield on the Alternative
Investment Market ("AiM") on March 2001. In this report I will review our
progress towards achieving our original five year plan and comment on the new
opportunities that we are now pursuing in the light of changes to the market and
the regulatory environment.
Results
Our five year plan had three phases:
• Building the infrastructure. We have put in place a national IFA business
with 46 offices, most of which are satisfactorily located and equipped,
supported by a business centre in Hull. We have this year installed the
Swift operating system though more work remains to be done in the IT area.
• Increasing headcount. Our plan was to grow over three years from about 100
advisers to 700. At the year end we had 669 advisers and accounting
professionals and at today's date that number has grown to 716.
• Growing productivity. Our objective was to grow adviser productivity in
Millfield Partnership for submitted business from £100,000 to £200,000 over
five years. In the year under review, we have increased this back to over
£100,000, after it fell back to £85,000 in 2003 reflecting the difficult
economic environment and the short term effect of taking on new advisers.
In response to the changes in the environment, we have reduced the cost
base so that we will achieve planned profitability ratios with productivity
of £150,000 as compared to the original target of £200,000
Overall these results show us progressing satisfactorily towards achievement of
the plan.
The financial results for the year show turnover growth at 60% and
administrative expenses up 10%. Like-for-like costs in existing businesses
excluding Simply Millfield and Millfield Associate Partnership companies, were
down 6%. As a result, retained losses before goodwill charges and the results
of our Lifetime joint venture, were down from £12.1m to £9.0m.
New Share Issues
On 9 July 2003, we successfully completed a share issue through a placing with
institutional shareholders and an open offer to all shareholders to raise £8.7m,
after expenses of £1.4m. The primary purpose of the issue was to provide
additional working capital for the Group, particularly to fund the increasing
pipeline debtor, and to support the business plans of Group companies.
On 18 May 2004, we completed a further issue through a placing with
institutional shareholders to raise £3.6m, after expenses of £0.2m. The primary
purpose of the placing was to provide additional working capital for the Group,
particularly to fund the cost of the Swift software and to cover liabilities
from acquisitions undertaken in the previous year.
The Directors believe that the Group has sufficient funds and borrowing capacity
to continue trading without further share issues.
Trading Update
The Group's trading performance continues to improve in line with expectations.
Management accounts for the quarter ended 30 June 2004 show turnover growing at
an annualised growth rate of over 50% with gross margins and administration
costs remaining tightly controlled. Monthly losses are sharply reduced from
those in the previous year. The Directors remain confident of achieving their
plans for the year.
Proposed Merger with Inter-Alliance Group PLC
We are announcing today that we have reached agreement on the terms of a
proposed merger with Inter-Alliance Group PLC.
The merger will be achieved through a recommended all share offer. We have
secured up to £15m of loans to fund integration and working capital from five
leading financial institutions, AXA Sun Life plc, Friends Provident Life and
Pensions Limited, Prudential UK Services Limited, Scottish Widows plc and
Skandia Life Assurance (Holdings) Limited.
The UK Financial Services sector continues to face major demands for change
which are economic, political and regulatory in origin. The merger will allow
us to create a multi-tie business, which has critical mass, alongside the
existing IFA. Together they will have a wider scope following the broadening of
regulation by the FSA to encompass mortgages and general insurance.
We believe that a larger scale business will provide more leverage, to the
benefit of both the revenue and costs sides of the business. Millfield and
Inter-Alliance are two of the largest national firms of advisers in the UK with
a combined advisory force of approximately 1,850. We believe that the synergies
that exist between the two companies represent an excellent "business fit". This
fit will allow us to maximise our distribution capabilities, combining
competencies and skills to make best use of future opportunities as the market
consolidates.
Board
In February, Jeremy Bradburne and Derek Noone resigned from their positions on
the Board in order to concentrate on their full time executive roles in our
Lifetime joint venture. They both worked with the Group before the flotation
and joined the Board of Millfield at that time. They have made a major
contribution to the development of the business over this period and we thank
them for this. We wish them well in their development of Lifetime.
In May, two new directors joined the Board - Mike Walmsley as a non-executive
and Darrell Smith as Sales Director North. They will broaden the experience of
the Board as we take the business into its next phase.
Outlook
Over the last three years, Millfield has grown into a significant national
advisory business, with progress substantially in line with the objectives we
set in the five year plan at the time of the float. Our current trading results
show the business close to break even. We have the capacity within our existing
infrastructure for further increases in adviser numbers and we are now achieving
increases in productivity which together give the ability to achieve profits as
planned.
The merger with Inter-Alliance would provides us with the opportunity to create
an enlarged Group with strengthened capabilities and which would be well
positioned to take advantage of the new structure of the market following
anticipated regulatory changes.
Conclusion
Millfield has been built on the strength of its advisers and staff. Its
stakeholder culture has supported the achievements of the last three years,
building a substantial business in a difficult economic environment, and I would
like to thank everyone in the Group for their efforts.
Richard Mansell-Jones
Chairman
6 August 2004
Chief Executive's Review
In just three years, Millfield has created a national independent advisory
organisation offering truly independent advice to both individuals and
businesses across the length and breadth of the UK. This has been achieved in a
period of ongoing uncertainty about regulatory changes in the financial services
industry, continuing volatility in global stockmarkets, and low levels of
confidence by businesses and individuals in the UK. However, improvements during
the year in financial markets, supported by low interest rates and inflation,
are starting to increase confidence and the Group's diverse range of businesses
within the financial services arena and specialist services has enabled us to
react effectively to these changes.
During the year, Millfield has continued to grow the number of its high calibre
advisers and employees and to develop their businesses, utilising the investment
that has been made since the flotation in the Group's infrastructure.
Results
Results for the year show turnover up 60% to £41.9m (2003: £26.1m) and retained
losses increased to £14.1m (2003: £13.4m).
• Operating losses, before goodwill charges and results relating to our
Lifetime joint venture, were reduced to £9.0m (2003: £12.6m). This
reflects the increase in turnover which was achieved primarily through
organic growth and acquisitions made in the second half of last year,
together with tight control of costs which resulted in a 6% reduction in
overheads in the existing businesses, excluding Simply Millfield and
Millfield Associate Partnership companies.
• Goodwill charges of £3.6m include £2.2m relating to the write down of
goodwill relating to the reorganisation of the business of Millfield Moncur
Jackson Limited as well as amortisation charges of £1.4m.
• Changes in the corporate structure of our Lifetime joint venture have
resulted in a surplus of £2.2m which has been taken direct to reserves,
offsetting our share of the trading losses of the business of £1.4m.
At 31 March, companies within the Group held £4.5m of cash balances, including
£1.3m which was charged to holders of loan notes. A further £3.9m was held by
Lifetime.
The presentation of the accounts for this year has been affected by a change of
accounting policy arising from the publication of new guidance under FRS5.
Recognition of turnover now takes place when a policy is issued by a product
provider rather than at the earlier date at which it is submitted to the
provider, as was the case previously. Also the cost of lapses arising on old
policies is now treated as a reduction in turnover rather than a cost of sales.
The effect of these changes is to delay the recognition of turnover and profits
and to increase the gross margin percentage. Compared to the previous policy,
the negative impact on earnings in the year is estimated at £1.6m. Figures in
this report are all stated on the new basis with the prior year's figures
restated as appropriate.
The Group's debtor balance includes commission and fee receipts for issued
business for which payment has not been received, equivalent at the year end to
an average of 8 working days receipts. Following the change in accounting
policy the Group has an as yet unrecognised pipeline of business which has been
submitted to product providers and is being processed prior to issue. At 31
March 2003, this pipeline was equivalent to about seven weeks submitted business
and the debtor in the prior year balance sheet has been reduced by £5.8m under
the change in accounting policy. At 31 March 2004, the equivalent unrecognised
debtor for seven weeks business was £10.0m.
GROUP FACILITIES
Millfield provides support to the operating companies through its central
operations in order to promote cost effectively, the growth in the number and
the productivity of our advisers and to ensure the maintenance of quality
controls.
Millfield promotes the development of advisers across a range of specialist
areas and provides support for them through its marketing programmes.
Specialist areas include:
• Millfield Employer Partnership. Our positioning as a national IFA has
enabled us to develop a structure for the employee benefits market which
takes the traditional support for the employer and adds individual advice
for each employee.
• Millfield Business Solutions provides a range of services to the SME
market.
• Millfield Private Client Services specialises in the complex needs of
High Net Worth individuals.
• Millfield Care Partnership is now a leader in providing advice and
services to the long-term elderly care market.
• Millfield Mortgage Solutions, our mortgage service for advisers and
clients.
• Our professional connections programme develops business with other
professional firms, particularly solicitors, accountants and estate agents.
Specialist training, advanced qualifications and knowledge within niche market
segments is provided through Millfield Academy which is supported by leading
insurance groups, fund managers and specialist firms.
Group operations provide:
• Employment of 155 paraplanners/researchers and personal assistants in the
branches to support the advisers through the advice and pre-sale processes.
• Millfield Business Centre in Hull which is staffed by 103 employees who
deal with all telephony, proposal submission, business chasing and
post-sale administration.
• IT systems. This year we have installed the Swift operating system from
Sirius Financial Solutions plc at a cost of approximately £1m - of which
£404,344 had been paid as at 31 March 2004 - the first phase has been
completed and subsequent phases are planned to be rolled out during
2004/05.
The group head office in Croydon employs 74 people and provides all the other
support services required by the advisory businesses as well as the corporate
governance of the Group.
OPERATING COMPANIES
Millfield Partnership - creating value in a changing marketplace
Millfield Partnership is the Group's core business. It has a true stakeholder
culture, with the original founder group of IFAs in the south now having been
joined by a substantial number of like minded individuals, with the acquisition
of Heritage in 2002 giving coverage in the north and Scotland and with expansion
through subsequent recruitment. Much of the success of the Group comes from the
creative contribution of the advisers and their ability to work together to
create and deliver new opportunities.
The business had 397 self employed advisers at the year end operating from 14
main branches with satellites, down from 387 a year ago in 21 locations.
The prime focus during the year has been on growing the quality and productivity
of the operation. At the half year we announced that we were establishing a
minimum productivity standard for submitted business for IFAs of £60,000,
resulting in the departure during the year of 112 advisers, mainly low
producers. At the same time we brought in 122 high calibre recruits, resulting
in the net increase of 10 in the year.
The greater support provided to the advisers by the business together with this
quality improvement, the greater time and experience in the business of the
advisers and the improved economic environment have resulted in the reversal of
the trend in productivity which had dropped from £100,000 at the time of the
float to £85,000 last year. Last year overall productivity was increased again
to £100,000 on average, with the run rate at £108,000 at the year end.
The results show turnover of £30.2m, up 37% from £22.0m in the previous year.
Millfield Associate Partnership - growing the firms
Millfield Associate Partnership comprises 13 firms and had 220 advisers at the
year end operating from 28 locations. These are generally smaller than the
Millfield Partnership locations and often specialise in specific market
segments. Millfield provides a Board structure and a range of services to these
firms in order to implement corporate governance, develop their businesses and
ensure the achievement of their business plans. We have a stepped acquisition
model which allows Millfield to participate in industry consolidation and secure
additional firms and groups of advisers led by vigorous entrepreneurs, with
total consideration payable being linked to proven value. Millfield has in
place put and call option arrangements to acquire further shares in 9 of these
companies.
We supported the establishment of Legacy Protect Limited which was launched in
September 2003 and had grown to 85 advisers at the year end and we entered into
agreements with Parker Group Financial Services Limited, an existing firm with 9
advisers, on 10 September 2003. We supported the establishment of Millfield
Premier Associates Limited on 14 August 2003 and Millfield KBP Limited on 8
April 2004.
Results in the year have been most encouraging, with turnover of £5.4m, up from
£2.4m last year. A number of these firms specialise in the mortgage and
protection markets and they have been particularly successful during this
period.
Millfield Moncur Jackson - Innovative Employee Benefits solutions
This company has had a difficult year following the loss of its largest customer
and delays in recruitment and at the same time we have made significant
developments to our Employee Benefits proposition elsewhere in the Group. As a
result, we are undertaking a reorganisation of the way in which this business is
structured and run and anticipate that new business activity will be written in
a new Millfield Associate Partnership company. We therefore considered that it
was appropriate to write off the goodwill arising on the acquisition of this
company.
Simply Millfield - Developing a Direct business capability
During the year we established the operating infrastructure of this business so
that we were able to write direct non-advice financial services business.
Initially we based this in Manchester using the systems and operations of an
acquired business with customers sourced primarily through television
advertising. Later in the year we established a second team in our Hull
business centre who worked primarily with the existing customer base. Results
to date indicate that this approach should be most effective as a customer
relationship management activity supporting existing customers of the Group and
of our partners as well as providing a service for new enquiries generated
online. This is best supported within the Hull business centre and accordingly
we have closed the Manchester location since the year end and are not currently
incurring advertising spend.
RST Group Limited - broadening the client offering through complementary
financial services activities
RST Accountants Limited is a firm of accountants based in the north of England
and in Scotland. It has been created through the consolidation of a number of
small accounting practices and at the year end operated from 14 offices with 113
staff, including 40 accounting professionals. RST Financial Consultancy Limited
has 12 IFAs who work beside the accountants to provide financial services
advice. The group currently has some 4,000 clients, generally owner-managed
businesses with turnover of up to £5m. Millfield owns 20% of the Group and has
a stepped acquisition structure in place which allows it to acquire the
remaining shares in tranches up to 2007.
On 1 September 2003, RST acquired the Chartered Accountants and IFA firm Freeman
Rich, based in Preston. Total consideration is a maximum of £1.0m with initial
consideration of £0.4m having been paid in cash. This acquisition brings RST to
a size where we believe it has critical mass. Its short term objectives are now
to consolidate its activities to bring the operations of the existing locations
together to form a robust, professional and profitable business.
In the year turnover was £4.3m resulting in operating losses before goodwill
amortisation of £0.6m.
Product Innovations Limited - providing bespoke financial services solutions
Product Innovations designed and arranged the production of two specialist
products during the year in order to fill product gaps in the market for
Millfield IFAs. Further developments are taking place to ensure that our
advisers can provide clients with leading edge products.
Lifetime Group Limited
On 24 July 2003, we announced that we had reached agreement in principle with
Norwich Union Life and Pensions Limited ("Norwich Union") for them to invest in
and become a full partner in developing our Lifetime joint venture. As a
result, we converted our preference shares to ordinary shares and Lifetime
issued 1,024,998 new ordinary 1p shares to Norwich Union for £2.0m. Following
these transactions Millfield held 45.17% of the shares in Lifetime as an
investment and 31.17% for resale, and Norwich Union held 7.41%. These
transactions resulted in the value of Millfield's share in the Joint Venture
increasing by £0.8m and this increase in the net assets has been included in the
results as a movement on reserves.
On 4 December 2003, the second stage of the agreement with Norwich Union was
concluded, resulting in the agreement of a new business plan for the company.
Lifetime issued a further 11,736,354 shares to Norwich Union for a consideration
of £8.0m taking its shareholding to 49.9%. Millfield retains a shareholding of
41.3% following these transactions, 24.4% held as an investment and 16.9% held
for resale. The remaining 8.8% of the shares are held by the founders. This
transaction resulted in a further surplus for Millfield in the second half of
the year of £1.4m, which has also been taken direct to reserves.
During the period, the company continued its work on developing the
infrastructure and systems required to deliver its online personal portfolio and
wealth management and investment service. It is now expected that the service
will be launched in the autumn of 2004, following regulatory approval and live
testing. The new business plan developed in conjunction with Norwich Union aims
to deliver a service which will be used across the financial services industry.
Millfield's share of losses from this activity during the period was £1.4m.
Outlook
Millfield has continued to develop in line with its strategy and the plans we
set out at the time of our flotation and in subsequent announcements. Major
progress has been made in the year in quality improvements within the
organisation and in our advisers resulting in the encouraging improvements
achieved in productivity levels and also with the positioning of Lifetime as an
industry vehicle for the future with the new arrangements with Norwich Union.
We have built a strongly based Group and the economy and the investment markets
have stabilised.
Considerable changes will occur in the financial services market over the next 2
years. Our own positioning combined with the opportunity presented by the
proposed merger with Inter-Alliance provides an exciting prospect for the future
of this business.
Paul Tebbutt
Chief Executive
6 August 2004
Consolidated Profit & Loss Account
for the year ended 31 March 2004
Total before
goodwill
Before amortisation Goodwill
goodwill and amortisation Total
amortisation impairment and Total 2003
and losses impairment 2004 As
acquisitions Acquisitions losses restated
£'000 £'000 £'000 £'000 £'000 £'000
TURNOVER 41,335 564 41,899 - 41,899 26,121
Cost of sales (26,752) (305) (27,057) - (27,057) (16,699)
Gross profit 14,583 259 14,842 - 14,842 9,422
Administrative expenses (24,055) (114) (24,169) - (24,169) (21,986)
Impairment losses - - - (2,166) (2,166) -
Amortisation of goodwill - - - (1,388) (1,388) (794)
OPERATING LOSS (9,472) 145 (9,327) (3,554) (12,881) (13,358)
Share of operating loss
in:
Joint venture (1,457) - (1,457) (60) (1,517) (481)
Associate (53) - (53) - (53) -
Interest receivable and
similar income:
Group 198 - 198 - 198 378
Joint venture 39 - 39 - 39 16
Interest payable and
similar charges:
Group (153) - (153) - (153) (61)
LOSS ON ORDINARY
ACTIVITIES BEFORE TAXATION (10,898) 145 (10,753) (3,614) (14,367) (13,506)
Tax on loss on ordinary
activities (27) - (27) - (27) 2
LOSS ON ORDINARY
ACTIVITIES AFTER TAXATION (10,925) 145 (10,780) (3,614) (14,394) (13,504)
Equity minority interests 324 - 324 - 324 145
RETAINED LOSS FOR THE YEAR (10,601) 145 (10,456) (3,614) (14,070) (13,359)
Basic and diluted loss per
share 7 (12.56p) 0.17p (12.39p) (4.28p) (16.67p) (19.96p)
CONTINUING OPERATIONS
All of the group's activities are continuing.
Consolidated Statement Of Total Recognised Gains And Losses
2004 2003
As restated
£'000 £'000
Profit attributable to members of the company (14,070) (13,359)
Surplus arising in issue of shares in joint venture 2,227 -
Total recognised gains and losses relating to the year (11,843) (13,359)
Prior period adjustment (2,531)
Total gains and losses recognised since the last annual report (14,374)
Consolidated Balance Sheet
31 March 2004
2004 2003
As
Restated
£'000 £'000 £'000 £'000
FIXED ASSETS
Intangible assets 14,977 17,451
Tangible assets 4,098 3,825
Investments in joint venture:
Share of gross assets 2,212 2,558
Share of gross liabilities (368) (147)
Goodwill arising on acquisition less 1,591 275
amortisation
Investments in associate:
Share of net liabilities (53) -
Goodwill arising on acquisition less 2 -
amortisation
22,459 23,962
CURRENT ASSETS
Stocks 6 5
Debtors 9,922 6,926
Investments 251 251
Cash at bank and in hand 4,515 6,926
14,694 14,108
CREDITORS amounts falling due within one year (10,686) (7,761)
NET CURRENT ASSETS 4,008 6,347
TOTAL ASSETS LESS CURRENT LIABILITIES 26,467 30,309
CREDITORS amounts falling due after more than one
year (2,161) (2,308)
24,306 28,001
PROVISION FOR LIABILITIES AND CHARGES (1,364) (1,440)
MINORITY INTERESTS
Equity minority interests 280 (173)
NET ASSETS 23,222 26,388
CAPITAL AND RESERVES
Called up share capital 160 124
Deferred consideration 1,309 1,656
Share premium account 44,876 35,888
Merger reserve 11,709 11,709
Capital reserve 2,227 -
Profit and loss account (37,059) (22,989)
QUITY SHAREHOLDERS' FUNDS 23,222 26,388
These financial statements were approved by the Board of Directors on 6 August
2004.
Signed on behalf of the Board of Directors:
Richard Mansell-Jones Paul Tebbutt Harry Roome
Non-Executive Chairman Chief Executive Finance and Operations Director
Consolidated Cash Flow Statement
for the year ended 31 March 2004
2004 2003
As
Restated
£'000 £'000
Net cash outflow from operating activities (8,652) (12,012)
Returns on investments and servicing of finance 45 317
Taxation - 6
Capital expenditure and financial investment (1,478) (1,422)
Acquisitions and disposals (558) (6,117)
Cash outflow before financing (10,643) (19,228)
Financing 8,448 17,479
Decrease in cash in the year (2,195) (1,749)
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 2003 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 2004 has been
extracted from the statutory accounts approved by the directors on 6 August
2004. The auditors' report on those accounts was unqualified and 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 6 August
2004. 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 and equity minority interests after taxation of £14,070,000
(2003 - £13,358,000) and on 84,370,328 (2003 - 66,915,616) ordinary shares,
being the weighted average number of shares in issue during the year:
FRS 14 requires the 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 diluted future 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 2004 (2003: nil).
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