Final Results
Berry Birch & Noble PLC
31 May 2001
Berry Birch & Noble - Final Results
Berry Birch & Noble plc
Preliminary Results 2001
Financial Highlights
2001 2000 %
£'000 £'000 change
Turnover 10799 9340 15.62
Operating (Loss)/Profit before exceptional (334) 873 -138.26
item
(Loss)/Profit before exceptional item and (297) 943 -131.50
taxation
(Loss) before taxation (1937) (1357) -42.74
Dividend - 65
Basic (loss) / earnings per share before (6.2p) 11.8p -152.54
exceptional item
Average number of employees 250 207 20.77
Net (liabilities)/Assets (1860) 158 -1277.22
Chairman's Statement
My third full year as Chairman of the Group has witnessed some of the most
significant changes in its history. With mixed performance across the Group
we have made fundamental changes and significant progress towards
strengthening for the future.
Founding members of the Group retired after many years' service and much
energy was required to secure a firm future for the company at a time when
the financial services sector has been experiencing much change.
2000/2001 Year End Financial Results
Most disappointing has been the downturn of the financial performance of the
Group, which this year has resulted in a significant reduction in
profitability. This position was recognised and reflected in the Board's
decision to issue a profit warning in January 2001.
Whilst turnover of the Group has increased from £9.3 million in the 1999/2000
year to £10.8 million this year (an increase of 15.62% over the year), the
operating costs have risen from £8.5 million to £11.1 million (an increase of
31.5% over the year) This has resulted in the Group making an operating loss
before exceptional items of £334,000 over the full year.
Although revenue increased over the year it did not reach the levels
targeted. This was most notable in the financial services subsidiary. This
was due to the management delay in the refocusing of the financial services
business on the more profitable sectors of the market and not recruiting new
financial planning staff earlier in the financial year.
The insurance broking subsidiary has shown good performance with revenue
increasing by 22% over the year which reflects the success of marketing
initiatives in particular to the over fifty age group.
Operating costs rose thereby reducing margins. This was partly due to the
management delay in introducing new business processes to deliver greater
efficiencies following a reorganisation of the financial services division.
The higher costs were also a consequence of the transition in integrating and
consolidating the Bradstocks administration, an acquisition made in the last
financial year, with the Groups existing administration systems.
In addition, higher than expected non recurring costs, for example for
professional advice, resulted from seeking independent financial and legal
advice as the Board explored new strategic options for the Group and its
subsidiaries.
Improving The Financial Performance
I can confirm that specific actions are now in place to address last year's
underperformance.
A new financial services management team have been appointed and progress is
now being made to increase the revenue performance through active recruitment
of quality financial advisers and focusing on the right markets and customers
.
In addition, the new financial services management team is taking steps to
reduce costs by introducing new business processes and increased use of
technology. The number of support staff will reduce as a consequence of the
introduction of these new working practices by a combination of natural
wastage and redundancies.
The financial services company has already been successful in acquiring new
corporate and affinity customers to complement its existing strong corporate
connections. Progress has been made over the last couple of months, which has
demonstrated that the financial services company can deliver a positive
contribution to the Group.
This will be complemented by the successful development of the insurance
broking subsidiary, particularly with the marketing campaigns, aimed at
members of affinity groups and employees of large corporate bodies.
Pensions Review
I have written previously about the pensions review and our wish to complete
phase 2 of the review as quickly as possible. We are on target to complete
the review by the date set by the regulator of June 2002.
We are constantly monitoring the size of the remaining contingent liability
for phase 2 and the Board recently commissioned a more detailed assessment on
a sample basis by pensions and compliance review specialists in association
with consulting actuaries.
The result of this detailed sample analysis is that the provision for redress
made in previous years may not be sufficient to cover the expected
liabilities from the review. It is for these reasons that we have decided to
increase our pension review provision by a further £1.64 million. This
further provision of £1.64 million has significantly contributed to the
Group's loss before taxation of £1.94 million.
The reasons for the additional provision is that the independent analysis can
more accurately forecast the potential liability than the calculation methods
used previously in determining the costs. As in previous years I would like
to stress, that contrary to the media hype about 'pensions misselling' we
have not found evidence of misselling during our review work.
Dividends
Due to the disappointing financial performance of the Group the Directors
believe it inappropriate to propose a final dividend. The Board intends to
restore dividend payments as soon as is practical.
New BBN PLC Executive Management Team
The end of this financial year saw a complete change in the executive
management team of the Group.
After many successful years Derek Berry and Hazel Montague retired from the
Board while David Birch continues in a non executive role in order to
continue the handover process to the new management team.
The new executive team is headed by Clifford Lockyer, who is the acting Chief
Executive, Stephen Ingledew, Marketing Director and Craig Butcher, Finance
Director. The team brings new skills and experience to the Group together
with a new strategic vision and direction, which will enable the Group to win
in the competitive financial services market and deliver shareholder value.
Our technology knowledge is strengthened by the addition in a non-executive
role of Selwyn Herring whose experience and expertise in technology will be
of tremendous value to the Group as it introduces new business processes and
systems.
I commend to you the new team who have the vision, experience and
determination to take the Group to new heights of growth and shareholder
value in the coming years.
Even in the very short time they have been working together, there is no
doubt they have reinvigorated the Group and their appointments are already
giving rise to improved financial performance in the new financial year.
Appreciation
I would like to thank our shareholders for their support during unsettled
years. In addition thanks to management and staff to whom we owe so much in
an unsettling period. The dedication and hard work of management and staff is
one of the continuing strengths of the Group, which make me confident that
the new strategic plans and objectives will be delivered to everybody's
benefit.
Sir Jeremy Black, Chairman
Chief Executives Review of Operations
Berry Birch & Noble plc is ideally placed to take full advantage of the
current changes in the financial services market place and deliver increasing
shareholder value over the coming years.
The purpose of my statement as acting chief executive is to outline how the
Group will deliver its business and financial objectives and to explain the
progress already made since my appointment to the Board at the end of last
year.
The Changing Market
The financial services market is going through a period of rapid change and
the expectation is that the pace of change will accelerate over the next
three years.
The drivers for change are:
* The continuing success of the IFA channel relative to the product
manufacturers own distribution channels such as direct sales forces.
* The proposed shift from polarisation towards multi-ties is giving rise to a
'scramble for distribution' in financial services.
* Technology is increasingly playing a major role in changing financial
services distribution particularly in delivering significant efficiency
improvements.
* Margin squeeze on financial products (i.e. Stakeholder) and regulatory
requirements are encouraging IFA firms to pool resources together and
increase efficiency.
The combined effects of these market changes is giving rise to a shift in the
balance of power and value towards financial services distributors such as
Berry Birch & Noble plc. This represents an enormous opportunity for the
Group to deliver increased shareholder value.
Transforming Berry Birch & Noble PLC
The Group can only exploit the market opportunities and win in the
increasingly competitive financial services sector if the new management team
can transform the Group and create a business model, which will expand and
grow by focusing on profitable customer segments.
This will involve building on the Groups existing strengths of market brand,
reputation, strong customer relationships and quality staff.
We will transform business processes and systems to take advantage of new
technology and deliver greater efficiencies. To date this transformation has
not progressed at the pace required by the market nor customers and this goes
a long way to explain the disappointing financial performance of the Group
last year.
The new BBN plc executive management team clearly recognise the need to drive
the improvements in performance and financial controls in order to deliver
the increased shareholder value as well as customer confidence.
Progress To Date
Since my recent appointment to the Board we have made important progress and
I am pleased to say we have delivered the following:
* The introduction and appointment of a new executive management team. In the
short time since their appointment Stephen Ingledew and Craig Butcher have
made significant contributions to the transformation and development of the
Group. I introduced these two new directors knowing they are both experienced
winners who will excel in the challenges ahead.
* Raising new share capital through the introduction of New Media Spark plc as
a new institutional investor. The placing in February 2001 at a price of 119
pence was important in stabilising the financial position of the Group whilst
the new management team carried out a complete review of the business
operations.
* The production of a new strategic vision and direction of the Group. The
strategic vision has been adopted by the Board and lays the foundations on
how the Group will develop in light of the market changes noted above.
* The completion of an independent business and financial review of the Group's
trading subsidiaries. An assessment of the existing business operations was
essential in order to identify where financial improvements could be made in
respect of both revenue and costs.
* The appointment of new management for the trading subsidiaries. Once the
review was complete the new management teams could be appointed to implement
the business improvements required to deliver the required financial
performance.
These steps will deliver positive results within the business and mean the
Group has the initial foundations in place to lead changes in the market
place rather than being a spectator.
Delivering Shareholder Value
The next steps to the delivery of shareholder value in the coming months are:
* To commence the implementation of the three year strategic plans
* To reorganise the financial services subsidiary to ensure the business is
focused on profitable customer segments and operations are managed
efficiently. This will include a significant reduction in costs.
* To develop the corporate brand and enhance existing and new customer
relationships
However, the level of transformation required in the Group cannot be
underestimated particularly as there has been little improvement and
investment in the business capabilities in recent years.
As a management team we cannot dwell on what should have been done in the
past but simply recognise the business need and deliver the improvement in an
efficient and customer focused manner.
Becoming a Market Leader
I am certain we will succeed in delivering against our chosen strategy and
objectives for the following reasons:
* A clear market leading and focused strategic direction which differentiates
the Group from competitors
* A strong and quality plc executive management team all of whom have
successfully delivered in the financial services sector in the past
* The Groups existing strengths of brand, customers and staff all of which are
foundations, which can be built upon
* The introduction of a marketing and sales strategy to improve revenues
* The introduction of new business capabilities and technology to improve
efficiencies
* The introduction of improved management information systems to facilitate
decision making and control
I am delighted to have the opportunity to lead the executive team in
transforming the Group into a market force and delivering the success for
shareholders and staff
Appreciation
Finally, I would like to express my appreciation of the support I have
received from my fellow directors and staff.
I am delighted with the excellent relationships I have built up with the
management team and staff in the BBN subsidiary businesses in the very short
time since I became CEO, in particular the positive way in which they have
embraced the changes required to contribute towards increasing shareholder
value in the future.
The commitment and loyalty of staff in recent months has been invaluable and
demonstrate that we have the key assets in place to deliver increased
shareholder value and success in a changing market.
Clifford Lockyer, Chief Executive Officer
Unaudited Consolidated Profit & Loss Account
For The Year Ended 31st January 2001
2001 2000
Before After Before After
Except Except Except Except Except Except
-ional -ional -ional -ional -ional -ional
Item Item Item Item Item Item
(note (note
10) 10)
note £'000 £'000 £'000 £'000 £'000 £'000
reference
Turnover 2 10799 - 10799 9340 - 9340
Operating (11133) (1640)(12773) (8467) (2300) (10767)
costs
Operating 2 (334) (1640) (1974) 873 (2300) (1427)
(loss)/profit
Net interest 3 37 - 37 70 - 70
receivable
(Loss)/profit (297) (1640) (1937) 943 (2300) (1357)
before taxation
Taxation 4 (108) - (108) (175) 193 18
(Loss)/profit (405) (1640) (2045) 768 (2107) (1339)
after taxation
Dividends - - - (65) - (65)
Retained (405) (1640) (2045) 703 (2107) (1404)
(loss)/profit for the
year
(Loss) earnings
per share - basic (6.2) (25.1) (31.3) 11.8 (32.3) (20.5)
- diluted (6.2) (25.1) (31.3) 11.8 (32.3) (20.5)
Unaudited Consolidated Statement Of Total Recognised Gains and Losses
For The Year Ended 31st January 2001
2001 2000
£'000 £'000
(Loss)/ profit after taxation (2045) (1339)
Surplus on revaluation of property - 482
Total recognised gains and losses for the year (2045) (857)
Unaudited Consolidated Balance Sheet
As At 31st January 2001
note 2001 2000
reference £'000 £'000
Fixed assets
Intangible 479 506
Tangible 1831 1862
2310 2368
Current assets
Debtors 2494 2472
Cash at Bank 780 690
3274 3162
Creditors: Amounts falling due within (3599) (2270)
one year
Net current (325) 892
(liabilities)/assets
Total assets less current 1985 3260
liabilities
Creditors: Amounts falling due after more than one (645) (450)
year
Provisions for liabilities and (3200) (2652)
charges
Net (liabilities)/assets (1860) 158
Capital and reserves
Called up share capital 655 652
Share premium account 102 78
Revaluation reserve 482 482
Profit and Loss account (3099) (1,054)
6 (1860) 158
Unaudited Consolidated Cash Flow Statement
For The Year Ended 31st January 2001
note 2001 2000
reference £'000 £'000
Net cash outflow from operating 7 (220) (177)
activities
Returns on investment and servicing
of finance
Interest received 101 99
Interest paid (64) (29)
Net cash inflow from returns on investment and 37 70
servicing of finance
Taxation
Taxation recovered - 11
Net cash inflow from taxation - 11
recovered
Capital expenditure
Purchase of tangible fixed (247) (295)
assets
Sale of tangible fixed 58 317
assets
Net cash (outflow) / inflow from capital (189) 22
expenditure
Acquisitions and disposals
Purchase of business operations (32) (642)
Net cash outflow from acquisitions (32) (642)
and disposals
Equity dividends paid
Dividends paid - (196)
Net cash outflow from equity - (196)
dividends paid
Net cash outflow before (404) (912)
financing
Financing
Capital elements of finance lease - (366)
repayments
Incremental bank loan 250 500
Other loans 250 -
Loan repayments (45) -
Exercise of share options 27 -
Net cash inflow from financing 482 134
Increase / (decrease) in cash in the 78 (778)
year
Balance @ 1st February 690 1,468
Balance @ 31st January 768 690
Notes to The Unaudited Financial Statements
For The Year Ended 31st January 2001
1. Basis of accounting
These financial results have been prepared on the basis of the accounting
policies set out in the Group's statutory accounts for the year ended 31st
January 2000. The information contained in these financial results for the
year ended 31st January 2001 does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985.
The financial results of the preceding year have been extracted from the
statutory accounts for the financial year ended 31st January 2000. Those
accounts upon which the auditors issued an unqualified opinion have been
delivered to the Registrar of Companies.
2. Segmental Information
The analysis by class of the Group's turnover, all of which is derived from
external clients, and (loss) / profit before taxation is set out below.
2001 2000
£'000 £'000
Turnover
Financial services 8271 7270
Insurance broking 2528 2070
10799 9340
(Loss) before taxation
Financial services (1945) (1566)
Insurance broking (29) 139
Operating loss (1974) (1427)
Net unallocated interest
receivable 37 70
(1937) (1357)
The group's entire turnover and loss before taxation, arises within the
United Kingdom.
3. Net Interest Receivable
2001 2000
£'000 £'000
Interest receivable - on bank balances 101 99
Interest payable - on loans (64) -
on finance leases - (29)
37 70
4. Taxation
Before After Before After
exceptio exceptio exceptio exceptio exceptio exception
-nal -nal -nal -nal -nal -al
item item item item item item
2001 2000
£'000 £'000 £'000 £'000 £'000 £'000
UK Corporation - - - 175 (175) -
tax (2000 @
27%)
ACT written 108 - 108 - (18) (18)
off / (back)
108 - 108 175 (193) (18)
5. (Loss) / earnings per share
The calculation of the basic loss per share of 31.3p (2000: 20.5p) is based
on a loss after taxation of £2,045,000 (2000: £1,339,000) divided by the
weighted average number of shares in issue during the year of 6,536,555
(2000: 6,516,836). The diluted loss per share of 31.3p (2000: 20.5p) is based
on the same loss after taxation of £2,045,000 divided by 6,536,555 (2000:
6,516,836) shares.
The basic (loss) / earnings per share before exceptional item of (6.2p)
(2000:earnings of 11.8p) is based on a loss before exceptional item but after
taxation of £405,000 (2000: £768,000) divided by the weighted average number
of shares in issue during the year of 6,536,555 (2000: 6,516,836).
6. Reconciliation of movement in shareholders funds
2001 2000
£'000 £'000
(Loss) for the financial year (2045) (1339)
Dividends - (65)
Revaluation of property - 482
Net decrease in shareholders funds (2045) (922)
Opening shareholders funds 158 1080
Shares issued 27 -
Closing shareholders funds (1860) 158
7. Reconciliation of operating profit to net cash outflow from operating
activities
2001 2000
£'000 £'000
Operating (loss) / profit before exceptional item (334) 873
Exceptional item - net pensions review payments (1085) (961)
Amortisation of goodwill 54 16
Impairment provision for goodwill 40 -
Depreciation charges 225 257
(Profit) / loss on sale of fixed assets - 20
Increase in debtors (137) (532)
Increase in creditors 1017 150
Net cash outflow from operating activities (220) (177)
8. Reconciliation of net cash flow to movement in net debt
2001 2000
£'000 £'000
Increase / (decrease) in cash in the year 78 (778)
Cash inflow from increase in debt (455) (500)
Cash to repay finance leases - 366
Movement in net debt in the period (377) (912)
Net (debt) / funds @ 1st February (310) 602
Net debt @ 31st January (687) (310)
9. Analyst of net debt
At 1 Feb Cashflow Non Cash At 31 Jan
2000 changes 2001
£'000 £'000 £'000 £'000
Cash at bank 690 90 - 780
Overdrafts - (12) - (12)
Cash 690 78 - 768
Debt due after one year (450) (221) 26 (645)
Debt due within one year (550) (234) (26) (810)
Financing (excluding share (1000) (455) - (1455)
capital)
Net debt (310) (377) - (687)
10. Pensions review
The Securities and Investment Board issued a report 'Pensions Transfers and
Opt Outs, Review of Past Business' in October 1994 and a further report,
'Simplifying the Pensions Review' in November 1996 (Phase 1). The objective
was to secure compensation for individuals who since 29th April 1988, the
effective date of the Financial Services Act 1986, had been advised to
transfer or opt out of an occupational pension scheme and have thereby
suffered actual or potential loss.
Based on criteria and procedures set out in these reports, Berry Birch &
Noble Financial Services Ltd (BBNFS)(a subsidiary of Berry Birch & Noble
plc), as an intermediary regulated by the personal Investment Authority
(PIA), has been conducting a review of personal pensions business during the
relevant period. The purpose of this review was to assess the extent to which
any compensation should be paid to clients.
In March 1998, the Financial Services Authority (FSA) and the PIA issued a
consultation paper on proposals for a phase 2 of the 'Pension Transfers and
Opt Outs Review'. The purpose of the paper was to give guidance for the
review of those non - priority cases, the so called younger lives, that were
not reviewed in phase 1. The paper sets out certain estimations of the number
of cases concerned, and an estimate of the probable losses in respect of
transfers, in which the BBNFS was primarily involved. A further paper has
been issued by the FSA that amends certain assumptions about the numbers
likely to seek redress in phase 2.
At that time an estimate of the potential range of loss for BBN FS was
calculated, taking into account a review of the potential cases, experience
with phase 1 and the various assumptions in the paper. However, despite
limited progress made in phase 2 of the Pensions Review to date, it had
become apparent that the total provision for redress which already amounted
to £4.1 million in prior years would be insufficient.
As a result, the new board of directors commissioned an independent desk
based monitoring review of the pensions review phase 2. Following this, a
further more detailed reveiw on a sample basis was undertaken by a compliance
and pensions review specialist in association with consulting actuaries.
These exercises, along with those conducted previously, revealed a range of
potential redress levels.
After carefully considering the outcome of each of these exercises, the board
of directors felt, that it was prudent, that a further provision of £1.64
million was required to cover the potential additional redress and associated
costs to complete the review. The additional provision of £1.64 million has
been treated as an exceptional item in this years financial statements.
Whilst every effort has been taken to accurately quantify and provide for all
future potential liabilities arising from pensions review phase 2, the actual
liability may differ as more information becomes available.
Annual General Meeting
The Annual General Meeting will be held at Eaton House, No 1 Eaton Road,
Coventry, CV1 2FJ on Thursday 19th July 2001 at 9.00 am.
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