Final Results - Year Ended 31 January 2000

Berry Birch & Noble PLC 12 May 2000 Berry Birch & Noble, a leading Independent Financial Services Group, today announced preliminary results for the full year ended 31 January 2000. Berry Birch & Noble plc Preliminary Results 2000 FINANCIAL HIGHLIGHTS 2000 1999 % £000 £000 Change Turnover 9,340 8,308 +12% Operating profit before exceptional 873 750 +16% item Profit before exceptional item and 943 840 +12% taxation (Loss) profit before taxation (1,357) 321 Basic earnings per share before 11.8p 11.3p +4% exceptional item Dividend 1.0p 3.0p -67% Net (debt) funds (310) 602 Dividend cover before exceptional item 11.8 times 3.7 times Employees at 31 January 238 186 +28% Commenting today Sir Jeremy Black, Chairman, said 'I am pleased to report a further improvement in profitability for the year ended 31 January 2000. Group profit before exceptional item and taxation advanced to £943,000 (1999:£840,000), an increase of 12% on the previous year's figure'. Derek Berry, Chief Executive, said 'As indicated in the Chairman's Statement, revenue grew in our last half-year period by 23% year-on-year. This momentum has continued into the current financial year and the results for both February and March 2000 were above management's expectations. For further information: John Owen, Finance Director Berry Birch & Noble 020 8776 1297 CHAIRMAN'S STATEMENT In my second full year as Chairman, I am pleased to report a further improvement in profitability for the year ended 31 January 2000. Group profit before exceptional item and taxation advanced to £943,000 (1999:£840,000), an increase of 12% on the previous year's figure. It is encouraging to see that after a number of years, during which time operating results have fluctuated, we have at last been able to build a solid foundation from which we can deliver profitable and sustainable growth. The current year's results were achieved by an increase of 12% in both turnover and operating costs before exceptional item, when compared with the previous financial year. At the interim stage I had explained that operating costs had risen at a faster rate than revenue in the first half of the year. This was due to our wish to strengthen the organisational structure of the Group and the additional expenditure needed relating to the Year 2000 issue. I am pleased to confirm that this situation reversed significantly in the second half of the year with revenue having increased at a much faster rate than operating costs. Over the last few years the second half of our financial year has been historically weaker than the first, partly due to the fact that the end of the tax year in April falls into our first half, a time when many clients are seeking advice. However, due to continued organic growth and the positive effects of the acquisitions completed over the last months, revenue in the second half outstripped that of the first half - the first time for many years that it has done so - and represented revenue growth of 23% as compared with the same period last year. Equally, due to stringent efforts to keep operating costs under control, operating profit before exceptional item in the second half accelerated significantly as compared with the same period last year. As I mentioned to you at the interim stage, the Group has started to expand by acquisition and details of those acquisitions, including that of the personal financial planning business of Moores Marr Bradley were highlighted at that time. Since then the pace of expansion has accelerated following the acquisition in October 1999 of the major part of the financial services division of the Bradstock Group. This latter acquisition has significantly contributed to increased revenue and profit in the last three months of our financial year to 31 January 2000. Pensions Review I have written previously about the Pensions Review and our wish to complete phase 2 of the Review as quickly as possible. With this in mind, we have made a good start in reviewing cases where clients have expressed such a wish. However, as a result of this work, it has become apparent that the provision for redress which we had already made in previous years will now be insufficient to cover the expected liabilities from the Review. It is for this reason that we have decided, regrettably, to increase at this time our Pensions Review provision by a further £2,300,000. I would again like to stress that, contrary to all the media hype about 'pensions mis-selling', we have not found any evidence of mis-selling whatsoever during our review work. However, advice given up to 10 years ago, which we believe satisfied the regulations in place at that time, as well as the regulator, is now being judged against the stricter compliance regime in place today. Many observers have commented that natural justice has been overridden, whereby the industry is being requested to pay compensation to clients who have not suffered, and may never suffer, financial loss, and where the high cost of redress results mainly from the current low annuity rates and the reduced investment returns available to pension funds subsequent to the removal of the tax credit on dividend income. The total cost of redress will be higher than previously expected due to two major reasons. Firstly, indications are that the average cost of redress for phase 2 cases will turn out to be far higher than estimated in the FSA's consultation paper CP7, the basis on which our provision had previously been estimated. Secondly, the 'success' of the Government's well-publicised 'R.U.OWED?' campaign has generated levels of response far greater than those anticipated by the industry. Dividends Due to the additional provision that has been deemed necessary in relation to the Pensions Review, the directors believe it inappropriate to propose a final dividend. The Board intends to restore dividend payments as soon as is practicable. Change of name Last year we indicated a number of strategic objectives that the Board had set out to achieve. The main thrust of this strategy was to improve profitability, and to grow, both organically and by acquisition. As we move towards these goals, the Board has considered it appropriate, at this time, to modernise the image of the Company. For this reason, a proposal will be made at the Annual General Meeting this year to change the name of the Company to Berry Birch plc. Appreciation I would like to take this opportunity to thank our shareholders for their support, and my fellow Board members, as well as management and staff, for their hard work that has laid the foundation to our continuing expansion. Sir Jeremy Black Chairman 12 May 2000 CHIEF EXECUTIVE'S REVIEW OF OPERATIONS Whilst the Group has achieved increased revenue from ongoing business activities, the most significant boost during the financial year under review came from the acquisition of the major part of the financial services business of the Bradstock Group. This acquisition has enabled us to expand our representation across the United Kingdom by a further five branches, four of which are in City Centre locations in Birmingham, Nottingham, Manchester and Glasgow. This will strengthen the service the Group can provide to our expanding corporate client base. For a number of years the Group has been managed by an organisational structure based on four business streams. However, following the substantial expansion of the Group in the last year, the increased number of branches made it impractical and unwieldy to continue managing our financial services arm in this way, and as a result our business now operates under a regional structure encompassing twelve U.K. offices. Only our insurance broking operation is managed separately. Personal Financial Planning With the wealth of the population growing, there is an increasing need for financial advice. Our team of skilled financial planning consultants perform this vital role. The services we provide to employees and pensioners of major companies make up much of our work in this area. Our involvement in seminars ensures a healthy flow of new clients, added to our already impressive list of FTSE100 companies and activity has increased considerably. Mortgages A mortgage is likely to be one of the largest financial commitments any person will undertake, and thus it is essential to obtain quality advice. Our consultants continue to provide professional advice, which is paramount, especially with the very large number of schemes available. However, business in this area has declined during the last year and adverse publicity surrounding the future of the endowment mortgage has not been helpful. Whilst endowment mortgages can still be attractive in certain circumstances, the removal of MIRAS tax relief and lower bonus payments has made them less competitive. We are now active in repositioning our marketing to attract new clients through our call centre and intranet sites. Group Employee Benefits During the course of last year, our team of employee benefits advisers was strengthened. This operation provides advice to a wide spectrum of clients, particularly the small to medium-sized employer, covering most aspects of employee benefits, e.g. pension, life assurance, permanent health and private medical insurance. The latter is now being recognised as a very valuable part of an employee's package and, with the well-publicised problems of the National Health Service, looks set to continue in popularity despite ever increasing costs. Our legal and actuarial departments provide valuable support to our clients and offer a truly comprehensive service. With the advent of the stakeholder pension, due to start in April 2001, employers will be seeking independent advice on which route to take and how this would affect their existing occupational schemes. We are well placed to give that advice. Insurance Broking This operation has comfortably exceeded targets for the year and personal lines are doing particularly well. The hardening of rates by direct writers has meant that the public is beginning to appreciate that it is worthwhile to search the market for competitive quotes on household, motor and travel insurance. This division has developed some innovative schemes which are marketed to our affinity groups with excellent results. Our plans are to expand significantly our insurance broking business over the coming months and we have recently acquired additional premises adjoining our existing Summit House office to facilitate this strategy. Marketing We have been very active in this area during the past year, through regular mailings to our increased client base. Marketing the Group's services to employees and pensioners of our corporate clients continues through bulletins and other communications. This department also organises all seminars run on behalf of our corporate clients. Once again we have been very successful in building new relationships with corporate clients. Outlook There is a growing awareness amongst the public of the need for financial advice to protect their personal wealth. The Group is ideally placed to benefit from the consolidation of the IFA market, a result of the Pensions Review, and intends to remain one of the key players in the industry. As indicated in the Chairman's Statement, revenue grew in our last half-year period by 23% year-on-year. This momentum has continued into the current financial year and the results for both February and March 2000 were above management's expectations. Gratitude I am, as always, appreciative of the continued support given to me by my fellow directors and the staff. My thanks to them for their commitment and loyalty. Derek Berry Chief Executive 12 May 2000 UNAUDITED CONSOLITATED PROFIT AND LOSS ACCOUNT for the year ended 31 January 2000 Before Before except-ional Except except- Except-ional - ional ional item item Total item item Total (Note (Note 11) 1999 11) 2000 2000 2000 1999 1999 Note £000 £000 £000 £000 £000 £000 Turnover 2 9,340 - 9,340 8,308 - 8,308 Operating (8,467) (2,300)(10,767) (7,558) (519) (8,077) costs Operating 2 873 (2,300) (1,427) 750 (519) 231 (loss) profit Net 3 70 - 70 90 - 90 interest receivable (Loss) 2 943 (2,300) (1,357) 840 (519) 321 profit before taxation Taxation 4 (175) 193 18 (106) 163 57 (Loss) 768 (2,107) (1,339) 734 (356) 378 profit after taxation Dividends 5 (65) - (65) (196) - (196) Retained 703 (2,107) (1,404) 538 (356) 182 (loss) profit for the year (Loss) earnings per share - basic 6 11.8p (32.3p) (20.5p) 11.3p (5.5p) 5.8p - diluted 6 11.8p (32.3p) (20.5p) 11.3p (5.5p) 5.8p UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 January 2000 2000 1999 £000 £000 (Loss) profit after taxation (1,339) 378 Surplus on revaluation of property 482 - Total recognised gains and losses for the year (857) 378 BIRCH BERRY & NOBLE PLC UNAUDITED CONSOLIDATED BALANCE SHEET AT 31 JANUARY 2000 2000 1999 £000 £000 Fixed Assets Intangible 506 - Tangible 1,862 1,559 Investments in subsidiary companies - - 2,368 1,559 Current Assets Debtors 2,472 2,139 Cash at bank 690 1,468 3,162 3,607 Creditors: amounts falling due within one year (2,270) (3,386) Net current assets 892 221 Total assets less current liabilities 3,260 1,780 Creditors: amounts falling due after more than one (450) - year Provision for liabilities and charges (2,652) (700) Net assets 158 1,080 Capital and reserves Called-up share capital 652 652 Share premium account 78 78 Revaluation reserve 482 - Profit and loss account (1,054) 350 Equity shareholders' funds 158 1,080 Berry Birch & Noble plc UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for year ended 31 January 2000 2000 1999 £000 £000 Net cash (outflow) inflow from operating activities. Note 8 (177) 677 Returns on investments and servicing of finance Interest received 99 144 Interest paid (29) (54) Net cash inflow from returns on investments and servicing 70 90 of finance Taxation Taxation recovered (paid) 11 (48) Net cash inflow (outflow) from taxation recovered (paid) 11 (48) Capital expenditure Purchase of tangible fixed assets (295) (124) Sale of tangible fixed assets 317 183 Net cash inflow from capital expenditure 22 59 Acquisitions and disposals Purchase of business operations (642) - Net cash outflow from acquisitions and disposals (642) - Equity dividends paid Dividends paid (196) (130) Net cash outflow from equity dividends paid (196) (130) Net cash (outflow) inflow before financing (912) 648 Financing Capital element of finance lease repayments (366) (307) Incremental bank loan 500 - Net cash inflow (outflow) from financing 134 (307) (Decrease) increase in cash in the year (778) 341 Balance at 1 February 1,468 1,127 Balance at 31 January 690 1,468 NOTES TO THE UNAUDITED FINANCIAL RESULTS 1 Basis of Preparation 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 31 January 1999. The information contained in these financial results for the year ended 31 January 2000 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial results have been extracted from the unaudited accounts. The financial results for the preceding year have been extracted from the statutory accounts for the financial year ended 31 January 1999. 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: 2000 1999 £000 £000 Turnover Financial Services 7,270 6,589 Insurance broking 2,070 1,719 9,340 8,308 (Loss) profit before taxation Financial services (1,566) 74 Insurance broking 139 157 Operating (loss) profit (1,427) 231 Net Interest receivable 70 90 (1,357) 321 3 Net Interest receivable 2000 1999 £000 £000 Interest receivable - on bank balances 99 144 Interest payable - on finance leases (29) (54) 70 90 4. Taxation Before Except-ional Total Before Except-ional Total except-ional item except-ional item item item 1999 £000 2000 £000 2000 £000 1999 £000 2000 1999 £000 £000 UK 175 (175) - 109 (109) - corporation tax at 27% (1999:21%) Advance - (18) (18) - (54) (54) corporation tax written back Prior - - - (3) - (3) years 175 (193) (18) 106 (163) (57) The taxation charge for the year before exceptional item incorporates certain permanent disallowable expenses. The exceptional item taxation credit comprises appropriate relief for the Pensions Review provision together with advance corporation tax written back, which the directors believe will be relieved in the forthcoming financial year. At 31 January 2000 and at 31 January 1999, no provision for deferred tax was necessary under the Group's accounting policy in that there were no material timing differences. 5. Dividends 2000 1999 £000 £000 Interim dividend of 1p per share (1999:1p) 65 65 Final dividend passed (1999:2p) - 131 65 196 6. (Loss) earnings per share The calculation of the basic loss per share of 20.5p (1999: 5.8p earnings) is based on loss after taxation of £1,339,000 (1999: £378,000 profit) divided by the number of shares in issue during the year of 6,516,836 (1999: 6,516,836). The diluted loss per share of 20.5p (1999: 5.8p earnings) is based on the same loss after taxation of £1,339,000 (1999: £378,000 profit) divided by 6,516,836 (1999: 6,516,836) shares. The basic earnings per share before exceptional item of 11.8p (1999: 11.3p) is based on profit before exceptional item but after taxation of £768,000 (1999: £734,000) divided by the number of shares in issue during the year of 6,516,836 (1999: 6,516,836). 7. Reconciliation of movements in shareholders' funds 2000 1999 £000 £000 (Loss) profit for the financial year (1,339) 378 Dividends (65) (196) Revaluation of property 482 - Net (decrease) increase in shareholders' funds (922) 182 Opening shareholders' funds 1,080 898 Closing shareholders' funds 158 1,080 8. Reconciliation of operating profit to net cash (outflow) inflow from operating activities 2000 1999 £000 £000 Operating profit before exceptional item 873 750 Exceptional item-Pensions Review payments made net of (961) (622) recoveries Amortisation of goodwill 16 - Depreciation charges 257 284 Loss on sale of tangible fixed assets 20 3 (Increase) decrease in debtors (532) 57 Increase in creditors and provisions 150 205 Net cash (outflow) inflow from operating activities (177) 677 9. Reconciliation of net cash flow to movement in net (debt) funds 2000 1999 £000 £000 (Decrease) increase in cash in the year (778) 341 Cash to repay finance leases 366 307 Change in net (debt) funds resulting from cash flows (412) 648 Other non-cash items: new finance leases - (81) Incremental bank loan (500) - Movement in net (debt) funds in the period (912) 567 Net funds at 1 February 602 35 Net (debt) funds at 31 January (310) 602 10. Analysis of net (debt) funds At 1 February 1999 Cash flow At 31 January 2000 £000 £000 £000 Cash at bank 1,468 (778) 690 Loan (500) (500) (1,000) 968 (1,278) (310) Finance leases (366) 366 - Net (debt) 602 (912) (310) funds 11 Pensions Review The Securities and Investments Board issued a report 'Pension 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 29 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 (a subsidiary of Berry Birch & Noble plc), as an intermediary regulated by the Personal Investment Authority (PIA), has been conducting a review of personal pension 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 Group was primarily involved. The directors had estimated the potential range of loss, taking into account their review of the potential cases, their experience with phase 1 and the various assumptions in the paper. A further paper has been issued by the FSA that amends certain assumptions about the numbers likely to seek redress in phase 2. As a result of progress made in phase 2 of the Pensions Review it has become apparent that the total provision for redress already constituted of £1,819,000 in prior years will be insufficient. The need to increase the provision has resulted from the average cost of redress for Phase 2 turning out to be higher than previously estimated as well as higher numbers seeking redress. A further exceptional item of £2,300,000 was taken to cover the additional costs of redress and associated costs to complete the Review. The additional provision is based on up-to-date information, however, the actual liability may differ as more information becomes available. 12. The Annual General Meeting will be held at 32 Portland Place, London W1N 4JP on Wednesday, 21 June 2000 at 11.30 a.m.

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