Final Results
BEGBIES TRAYNOR GROUP PLC
PRELIMINARY RESULTS TO 30 APRIL 2007
Business & Financial Highlights
◠Group turnover £45m increased by 35% (2006: £33.2m)
◠Operating profit (EBITA) up 29% at over £10m (2006: £7.8m)
â— Adjusted annual earnings per share up 22% to 8.2 pence (2006: 6.7 pence)
â— Proposed final dividend of 1.5 pence, total of 2.5 pence for year
â— UK fee earners increased by 16% to 385
â— BGN extends its geographical cover to 41 countries
â— Entry into Fiscal Consulting and ICT systems enhancement arenas
â— Strategic acquisitive expansion continues with 7 acquisitions since 2006 year end
Ric Traynor, Executive Chairman said, "Our key resource continues to be the
expertise of our people and we are maintaining our policy of recruitment of
experienced and talented individuals to facilitate our pursuit of profitable
growth. I remain confident that we will be able to attract the people we need
and will achieve our goal of doubling the turnover, profits and value of the
Group over the next three years."
Ric Traynor - Exec Chairman Begbies Traynor Group PLC 0161 839 0900
Guy Peters Shore Capital & Corporate Ltd 0207 408 4090
Chairman's Statement
Begbies Traynor Group continues its strategy of development of a range of
specialist professional services, primarily to the business community. Our key
resource is the expertise of our people and I thank all of those who have
contributed to another year of profitable growth in our operations. We now have
385 direct fee earners (an increase of 16% from a year ago) and 120 in support
functions. As well as welcoming our new UK based people, I am particularly
pleased to report that we now have 26 approved members of our BGN international
network, covering 41 countries around the world and I also welcome all the
people in those organisations to the wider Begbies family. With applications to
join BGN from another 45 firms in process and our pipeline of UK acquisitions,
I look forward to welcoming many more people over the coming months.
Results and Financial Developments
The group had a turnover in the year to 30 April 2007 of £45m and passed a
milestone in its growth by delivering an operating profit (EBITA) of over £10m
for the first time. This is an increase of 29% over 2006 and translates into
adjusted earnings per share of 8.2pence, an increase of 22% in the year.
Operating margin held steady at over 22%. The spread of our central overhead
cost across a broader base was offset by two specific factors; our investment
in the initial set up of the BGN international network, which, due to the
initial success, will continue in the current year, and the difficulties
experienced in the consumer debt solutions market in England, from which the
Group was not wholly immune, despite our low exposure to this sector.
The combination of rising interest rates and our expenditure on acquisitions in
the summer of 2006 increased our cost of borrowing by some £300k in the year.
In response, the board took advantage of latent institutional demand for the
Company's shares in March of this year to raise £7.8m (net of costs) of new
equity investment through a placing. This also had the advantage of widening
our institutional shareholder base and I am pleased to welcome our new equity
partners. In particular, Caledonia Investments plc took the opportunity to
acquire a 9% holding in the Company as a long term investor and its support is
already beginning to assist us in our commercial development.
In the year, we converted 72% of EBITDA into cash, reflecting the working
capital absorption of our continuing growth profile.
The Group acquired five businesses in the year, all of which have performed to
expectations and have been fully integrated. Since 30 April 2007, we have made
(at the time of writing) two further acquisitions, which mark our entrance into
new professional service streams; fiscal consulting and ICT systems
enhancement.
Operational Review
Our traditional core activity of UK business rescue and recovery services
continues to operate in a stable and flat market. This is despite the macro
indicators of rising interest rates and increasing leverage in businesses in
the SME and mid market sectors, which point to impending instability. We
believe that the current ready availability of increased business credit
continues to postpone the need for action to address fundamental business
issues, but we stand ready to assist all stakeholders to resolve those issues
when they become critical. In the meantime, we continue our strategy of market
share capture in this specialist professional service, through acquisitions and
senior recruitment, as well as adding to our skill base to provide a wider
range of solutions to business challenges.
The addition of corporate finance services to the Group portfolio, which we
continue to expand, has augmented our ability to offer solutions to
underperforming businesses and we have plans in place to further widen our
support services beyond the realms of financial structuring into operational
and management change consulting. In addition, we have, through recruitment,
developed a national commercial finance expertise to assist businesses to
access appropriate funding to meet their working capital needs.
We do not, however, see corporate finance as a mere adjunct to our recovery
services. Our highly skilled professionals in the field are equally able to
secure finance for robust developing companies and to assist them with
acquisitions and disposals; an activity in which they continue to excel. We are
also developing transaction support services to providers of risk finance.
The forensic and wider investigative expertise within the Group also assist the
rescue and recovery and corporate finance operations, as well as providing
support to other professionals in litigation support, fraud investigations,
debt collection and risk management in their own right. We have evolved a plan
for this activity to concentrate our efforts on added value services to
optimise margins.
We continue to provide services to the over-extended consumer debt market.
In England, the dramatic growth in IVAs as the solution of choice has been
stifled by concerns voiced by creditor and consumer watchdog groups; a
development which we foresaw. In response, we took steps to widen our range of
professional service offering in this market, to include debt restructuring and
management, and decided to curtail growth in our activities in marketing the
provision of IVAs until new market norms emerge, which has yet to occur. This,
inevitably, has led to a reduction in operating margin in the short term. As a
result, the value of the conditional deferred considerations on the acquisition
of this business significantly reduced and have been settled out. We believe
that the inherent demand for solutions in the consumer debt market remains and
that a fair market for all parties will emerge, which will deliver an adequate
margin to us as providers of suitable professionally based solutions. Once that
platform is established, which I think may take at least a year, we will grow
our presence in this market.
In contrast, the market for consumer debt solutions in Scotland, which is
already Court regulated and, therefore, not the subject of criticism, continues
to expand. We have continued our profitable organic growth in this market,
through our expanding office network, to become a close second placed provider
of such services, hard on the heels of the specialist market leader.
Commercial Development
We continue to evolve and pursue our strategy of widening our 'business to
business' specialist professional consultancy services, which we offer through
our national network of independent professionals to their clients, as well as
promoting them directly to business managers, investors and proprietors.
During 2007, we have established, by recruitment, both the commercial finance
unit mentioned above and a new division providing valuation and disposal
services in respect of property, plant and equipment.
Since our financial year end, we have entered, through acquisition, the fields
of fiscal and ICT consulting. BTG Financial Partners provides expert advice on
complex taxation issues to businesses and individuals and BTG Servisional
provides consultancy and software enhancements to improve CRM systems and their
interface with other business systems. Both these acquisitions provide starting
points from which to grow our activities in these specialist areas, which will
be readily marketable through our network of professional contacts.
Looking to the Future
My 'crystal ball' is as cloudy as everyone's, so I cannot predict if and when a
general UK market downturn will occur. I do know, however, that the Begbies
Traynor Group is better placed than ever to respond to the needs of businesses
facing difficulties. A period of relative stability in the Company's share
price has allowed me to observe, for the first time, an element of
counter-cyclic behaviour in the market's assessment of our value by comparison
to the movements in the FTSE 100 index over the first six months of this year.
Business recovery services remain at the core of the Group and will underpin
that counter cyclical value when the level of business stress increases.
The Board is not, however, content to wait for an increase in business problems
alone to drive growth in shareholder value. We have developed a strategy for
profitable growth in specialist professional services and begun to enact that
plan. We now have six distinct service streams, all with growth potential, and
we are actively considering entry into more compatible areas of professional
expertise.
Pursuit of profitable growth demands increased senior management resource to
drive and control the Group; a need which we are addressing through the
recruitment of experienced and talented individuals. Consequently, I remain
confident of achieving our goal of doubling the turnover, profits and value of
the Group over the next three years.
Dividend
Your Board intends to recommend a final dividend of 1.5 pence per share at the
forthcoming annual general meeting. The shares will be declared ex dividend
on Wednesday 17th October and the final dividend will be paid on Friday 26th
October to shareholders on the register on 19th October 2007.
Ric Traynor
Executive Chairman
4 July 2007
Consolidated Profit & Loss Account
Year ended 30 April 2007 Year ended
Continuing Acquired Total 30 April 2006
£'000s £'000s £'000s £'000s
Turnover 40,097 4,961 45,058 33,242
Direct costs (18,332) (1,721) (20,053) (15,194)
Gross Profit 21,765 3,240 25,005 18,048
Administrative expenses (16,148) (2,753) (18,901) (12,862)
Other operating income 9 - 9 48
Operating profit from continuing operations 5,626 487 6,113 5,234
Interest payable and similar charges (792) (476)
Profit on ordinary activities before taxation 5,321 4,758
Tax on profits on ordinary activities (1,941) (1,737)
Profits on ordinary activities after taxation 3,380 3,021
Basic and diluted earnings per share 4.5 4.2
Fully diluted earnings per share are not materially different from basic earnings per share
Balance Sheet
Group at 30 April
2007 2006
£'000s £'000s
Fixed Assets
Intangible assets 39,535 37,616
Investments in subsidiary undertakings - -
Tangible assets 4,277 3,731
43,812 41,347
Current Assets
Debtors 25,854 19,972
Cash at bank and in hand 527 598
26,381 20,570
Creditors falling due within one year (13,489) (10,614)
Net Current Assets 12,892 9,956
Total assets less current liabilities 56,704 51,303
Creditors falling due after more than one year (7,916) (12,938)
48,788 38,365
Capital and Reserves
Called up share capital 4,044 3,744
Share Premium 21,696 13,009
Other reserves 17,584 18,023
Profit and loss account 5,464 3,589
Equity Shareholder Funds 48,788 38,365
Consolidated Cash Flow Statement
Year to Year to
30 April 2007 30 April 2006
restated
£'000s £'000s £'000s
Net cash flow from operating activities 8,054 5,733
Returns on Investment and Servicing of Financing
Net finance charges paid (700) (476)
Corporation tax paid (1,981) (1,192)
Capital Expenditure and Financial Investment
Capital expenditure payments (887) (1,112)
Proceeds of asset disposals 301 (586) 325
Acquisitions and disposals
Purchase of subsidiary undertakings in year (3,185) (6,962)
Deferred payments made in year (3,487) (674)
Net cash acquired with subsidiaries - (6,672) 201
Dividends paid on ordinary shares (1,505) (732)
Net cash outflow before financing (3,390) (4,889)
Financing Net proceeds of share issues for cash 7,787 6,223
Draw down/(repayment) of bank facility (3,529) 3,682
Loans repaid - (4,000)
Hire purchase capital payments (939) (549)
Movement in Net Cash (71) 467
Reconciliation to Movement in Net Debt
Movement in net cash (71) 467
Hire purchase capital repaid 939 549
868 1,016
Hire purchase capital raised (1,055) (924)
Bank facility (draw down)/ repaid 3,529 (3,682)
Movement in net funds 3,342 (3,590)
Opening net debt (8,613) (5,023)
Closing net debt (5,271) (8,613)
Statement of Adjustments from Operation Profit to Net Cash Flow from Operating Activities
Year to Year to
to 30 April 07 to 30 April 06
restated
£'000s £'000s
Total operating profit 6,113 5,234
Depreciation of tangible fixed assets 1,142 811
Amortisation of goodwill 3,951 2,556
(Profit)/loss on sale of fixed assets 27 (5)
(Increase) in debtors (4,348) (3,383)
Increase in creditors 1,169 520
Net cash flow from operating activities 8,054 5,733
Analysis of Changes in Net Debt
As at Cash flow As at
1 May 2006 movement 30 April 2007
Cash at Bank and in hand 598 (71) 527
Bank loans (8,035) 3,529 (4,506)
Cash & Bank (7,437) 3,458 (3,979)
Asset Finance (1,176) (116) (1,292)
(8,613) 3,342 (5,271)
The consolidated cash flow statement and its reconciliation to movement in net
debt for the prior year have been restated to show movements in the utilisation
of bank borrowing facilities as financing rather than part of the movement in
cash and overdraft balances.
Selected Notes to the Financial Statements
Note 1. Accounting policies
Basis of Accounting and Preparation
The financial statements have been prepared under the historical cost
convention and in accordance with applicable UK accounting standards.
Acquired businesses are consolidated from the date of their acquisition, using
the acquisition method of accounting.
Profit shares accruing to partners in subsidiary entities are shown in the
consolidated profit and loss account as direct or indirect operating costs as
appropriate.
Note 2 Earnings per Share
Basic earnings per share are calculated by dividing the Group profits after
taxation of £3,380k (2006; £3,021k) by the weighted average number of shares
in issue in the year ended 30 April 2007 of 75,783,977 (2006; 71,852,093).
There are no options or other dilutive arrangements in respect of shares in
the company at 30 April 2007. The dilution effect of an obligation to issue
shares to a value of £439k at 30 April 2006 was negligible.
Adjusted earnings per share for the year ended 30 April 2007 were 8.2 pence
(2006; 6.7 pence). These reflect earnings after tax after adding back the net
of tax cost of goodwill amortisation.
Note 3. Tax on Profits on Ordinary Activities
The tax charge in the profit and loss account comprises:-
Current corporation tax on profit for the period 1,907 1,705
Less net change in deferred tax on timing differences - 32
Prior year charge in subsidiaries 34 -
1,941 1,737
The current charge to tax can be reconciled to the standard rate of 30% on the
profit for the period as follows:-
Profit before tax 5,321 4,758
Standard UK corporation tax on profit for period 1,597 1,427
Tax on disallowed costs 216 153
Deferred tax not equalised 94 83
Other adjustments - 42
1,907 1,705
The tax on disallowed costs includes £94k relating to decreased capital
allowances which have not been equalised by the creation of a deferred tax
asset
Note 4. Statutory Accounts
The financial information set out above does not constitute the Group's
statutory information for the year ended 30 April 2007,
but is derived from those accounts. Statutory accounts for the year will be
delivered to the Registrar of Companies following the company's Annual General
Meeting.
The auditors have confirmed to the board that their report on those accounts
(assuming they correspond with this statement) will be unqualified and will not
contain statements under the Companies Act 1985 sections 237 (2) and (3).
Note 5. Distribution
Copies of the accounts will be distributed to shareholders and the AIM team
shortly and will also be available at the company's offices at Elliot House,
151 Deansgate, Manchester M3 3BP and on the company's website www.begbies-traynor.com.
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