Interim Results
Berkeley Berry Birch PLC
26 November 2002
26 November 2002
Berkeley Berry Birch plc
Interim results show good progress
Berkeley Berry Birch plc, one of the UK's ten largest IFA groups which was
formed following the reverse take-over of Berry Birch & Noble plc by the
Berkeley Financial Services Group in January 2002, today reports its interim
results for the six months to 31 September 2002.
Key points:
• Turnover for the half rises to £26 million, compared to £25 million
for the 14 months to 31 March 2002
• Basic loss per share, before goodwill amortisation, has improved
significantly to 6.0p from a 10.1p loss per share for the 14 months to 31 March
2002
• Number of advisers has increased to 670
• 20 million placing of new ordinary shares carried out in September
2002 to allow BBB to acquire a mix of National and Regional IFA firms and
complete the development of the infrastructure required to support the resulting
enlarged Group
• Since April BBB has launched three new distribution channels to take
advantage of recent market developments
• Berry Birch & Noble Advisers Limited, an acquisition vehicle to
acquire regional and national IFAs
• Direct Protect Limited, a national network of firms distributing
non-regulated financial products.
• Alpha to Omega UK Limited, a new IFA Network targeting IFA Firms with
turnover between £300,000 and £1 million.
Clifford Lockyer, Chief Executive Officer of Berkeley Berry Birch, commenting on
the results said:
'This has been a half of continuing development for the Group and we are
therefore pleased to report results which reflect the important progress BBB has
made over the period. The Group is now ideally placed to build on the
performance over the last six months and exploit the significant market
developments taking place in the financial services distribution sector.
'As outlined in our Placing statement at the end of September, we believe our
programme of continued investment, coupled with the poor performance of equity
markets in recent times will contribute to a delay in the Group's return to
operating profitability, which is now expected from the beginning of the new
financial year However, looking forward to the second half of the year, we
remain confident of the Group's prospects for the future.'
For further information please contact:
Berkeley Berry Birch plc 07774 185 779
Stephen Ingledew, Group Deputy Chief Executive
Craig Butcher, Finance Director 07968 486 750
Citigate Dewe Rogerson 020 7638 9571
Patrick Toyne Sewell/Vaughan Andrewartha
Berkeley Berry Birch plc
Interim Report
For the Six Months to 30 September 2002
Chairman's and Chief Executive's Statement
Introduction
This is the first interim report since the formation of the Berkeley Berry Birch
plc group ('the Group') in January 2002, when shareholders approved the reverse
take-over of Berry Birch & Noble plc ('BBN') by the Berkeley Financial Services
Group ('BFSG') to create the enlarged Group.
For the six months from April 2002 to September 2002 the Group's operating
performance before exceptional items is in line with expectations and reflects
the important progress the Group has made since its formation.
The Group is now one of the UK's ten largest independent financial services
distribution groups with in excess of 670 advisers and a multi distribution
capability focused on the main customer markets.
The Group is now ideally placed to build on its first six months' performance
and exploit the significant market developments taking place in financial
services distribution. The main market dynamics include:
• Reform of distribution regulation. On 22 November 2002 the Financial
Services Authority confirmed that they would be proceeding with depolarisation
of the financial services' market place. This regulatory development presents
significant opportunities for large financial services groups such as Berkeley
Berry Birch plc.
• Pensions reform. In December 2002 the Government is expected to issue a
Green Paper encouraging a higher level of pension provision amongst UK consumers
which should present additional business benefits for the Group's subsidiaries
which focus on providing pensions advice to consumers.
• Industry consolidation. It is anticipated that consolidation amongst
IFA companies will accelerate as a result of increasing costs of regulation,
professional indemnity insurance and technology. These are now being recognised
by IFA practitioners who are demonstrating a strong desire to be part of a
financially strong distribution group.
Results at a glance
Following the creation of the enlarged Group, the year-end was changed from 31
January to 31 March. As a result, this interim statement, which include the
results of the enlarged Group for the entire period, is for the six months to 30
September 2002.
The comparative numbers for 2001, which relate solely to the BBN Group, are for
the six months ended 31 July 2001.
The results for the 14 months ended 31 March 2002, however, include fourteen
months trading for the old BBN Group in addition to the trading of BFSG for the
period from 4 January 2002 to 31 March 2002.
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Turnover 25,959 5,870 24,917
Operating loss before goodwill amortisation (3,668) (541) (1,887)
Loss before taxation (4,962) (571) (2,544)
==== ==== ====
Basic loss per share before goodwill amortisation
(6.0p) (7.6p) (10.1p)
==== ==== ====
Group structure
At the beginning of the new financial year in April 2002 the Group operated
through four main operating subsidiaries:
• Berry Birch & Noble Insurance Brokers Limited ('BBN IB')
• Berry Birch & Noble Trustees Limited ('BBN Trustees')
• Berry Birch & Noble Financial Services Limited ('BBN FS')
• Berkeley Independent Advisers Limited ('BIA')
Since April 2002 the Group has launched three new distribution channels to take
advantage of recent market opportunities
• Berry Birch & Noble Advisers Limited ('BBNA'), an acquisition vehicle
to acquire regional and national IFAs.
• Direct Protect Limited, a national network of firms distributing non
regulated financial products under the ABI code.
• Alpha to Omega UK Limited ('A2O'), a new IFA Network targeting IFA
Firms with turnover between £300,000 and £1 million.
In addition, in July 2002 the Group formed Berkeley Berry Birch Group Support
Services Limited ('BBBGSS'), a centralised back office and support operation for
all of the Group's distribution companies.
Financial results
An analysis of turnover and operating profit before goodwill amortisation by
operating subsidiary is set out below:
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
BBN IB 1,639 1,355 3,357
BBN FS 1,846 4,047 9,064
BBN Trustees 1,001 468 1,159
------- ------- --------
BBN Group 4,486 5,870 13,580
BFSG group 21,213 - 11,337
Direct Protect 260 - -
--------- ------- -------
BFSG Group 21,473 - 11,337
Turnover 25,959 5,870 24,917
BBN IB 399 (22) 176
BBN FS (2,532) (430) (1,556)
BBN Trustees (1) (78) (37)
-------- ------- --------
BBN Group (2,134) (530) (1,417)
BFSG group 639 - (247)
A2O (200) - -
Direct Protect (53) - -
BBNA (445) - -
-------- ------- --------
BFSG Group (59) - (247)
Unallocated central costs (1,475) (11) (223)
-------- ------- --------
Operating loss before goodwill amortisation (3,668) (541) (1,887)
====== ====== ======
Turnover from the BFSG group, which is principally in respect of BIA,
contributed £21.2 million in the six months to September 2002, an increase of
15% on the corresponding six month period ended 30 September 2001.
The BFSG group contributed an operating profit before goodwill amortisation of
£0.6 million in the six months to 30 September 2002 against a small loss in the
same period last year.
Turnover from the BBN Group for the first half of the year showed a reduction of
£1.4 million (24%) on the first half of last year. However, turnover for the
first half of last year included exceptional income of £0.5 million in BBN FS in
respect of commuted commissions. Excluding this income, the underlying
reduction in turnover, which is attributable entirely to BBNFS, was £0.9 million
(16%).
The increase in the BBN Group operating loss to £2.1 million (2001: £0.5m) is
entirely attributable to the performance of BBN FS. In addition to the adverse
impact of reduced turnover, and the cost associated with restructuring the sales
force, as set out below in 'BBN Performance', the increased operating loss also
includes a charge of £0.6 million in respect of the Pensions Review, further
details of which are set out in note 3 on pages 9 and 10.
Direct Protect, which was launched during the period, produced turnover of £0.3
million and recorded a small operating loss, reflecting the costs of
establishing the business. Start up costs in respect of BBNA and A2O amounted
to £0.6 million. Unallocated central costs were £1.5 million, reflecting the
restructuring of the Group's operations post the reverse takeover and a revised
approach to allocating central costs.
Goodwill amortisation amounted to £1.3 million, virtually all of which was in
respect of the acquisition of BFSG.
BBN performance
Since the reverse takeover, the Directors and management have been devoting
considerable time and resources to the turnaround of BBN FS. The actions taken
have included the replacement of a substantial proportion of the sales force
which has impacted significantly on turnover and costs in the first half of the
year. Although the sales force is now approaching a critical mass deemed
sufficient to achieve breakeven there is a three or four month time lag before
target revenues are generated by new salespeople. As a result, BBN FS is not
expected to achieve target revenues until the end of the current financial year.
Capital raising to capture consolidation opportunities
Having substantially integrated the BFSG and BBN businesses and established the
foundations for growth, as outlined above, the Group announced on 30 September
2002 the intention to raise approximately £19 million (net of expenses) via a
share placing to implement the next stages of its strategy.
This placement was successfully completed on 23 October 2002 with the issue of
27,027,028 new ordinary shares at 74 pence per share.
The net proceeds will largely be used to acquire a mix of National and Regional
IFA Firms and to complete the development of the infrastructure required to
support the resulting enlarged Group.
Dividends
Due to the financial performance of the Group, the Directors believe it
inappropriate to declare an interim dividend.
Outlook
Despite the first half result being impacted by the continued programme of
investment and the poor performance of equity markets, the Directors are pleased
with the underlying operating loss before goodwill amortisation and exceptional
items (£3.1 million) in the first half, which was in line with expectations.
Looking forward to the second half of the year, the trading outlook remains
unchanged from the expected position on 30 September 2002, the date of
publication of the Company's listing particulars in respect of its recent
fundraising and we remain confident of the Group's prospects for the future.
Sir Jeremy Black Clifford Lockyer
Chairman Chief Executive
26 November 2002
Unaudited consolidated profit and loss account
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Turnover (note 2) 25,959 5,870 24,917
------- ------- ------
Operating loss before goodwill amortisation (3,668) (541) (1,887)
Goodwill amortisation (1,349) (27) (724)
------- ------- -------
Operating loss (notes 2 and 3) (5,017) (568) (2,611)
Net interest 55 (3) 67
------- ------- -------
Loss before taxation (4,962) (571) (2,544)
Taxation (note 4) - - -
------- ------- -------
Loss for the financial period (4,962) (571) (2,544)
===== ==== ====
Loss per share (note 5)
- Basic (8.2p) (8.0p) (14.1p)
- Diluted (8.2p) (8.0p) (14.1p)
Loss per share before goodwill amortisation (note 5)
- Basic (6.0p) (7.6p) (10.1p)
- Diluted (6.0p) (7.6p) (10.1p)
===== ==== ====
All amounts relate to continuing activities.
There are no recognised gains or losses other than those included in the profit
and loss account.
Unaudited consolidated balance sheet
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Fixed assets
Intangible assets 51,289 451 52,638
Tangible assets 2,378 1,806 2,322
--------- -------- -------
53,667 2,257 54,960
-------- --------- --------
Current assets
Debtors 9,932 2,091 11,101
Cash at bank 5,347 864 8,693
-------- --------- --------
15,279 2,955 19,794
Creditors: amounts falling due
within one year (13,521) (3,407) (13,014)
-------- --------- --------
Net current assets/(liabilities) 1,758 (452) 6,780
-------- --------- --------
Total assets less current liabilities 55,425 1,805 61,740
Creditors: amounts falling due
after more than one year (537) (611) (606)
Provisions for liabilities and
charges (1,684) (2,850) (2,968)
-------- --------- --------
Net assets/(liabilities) 53,204 (1,656) 58,166
===== ===== ======
Capital and reserves
Called up share capital 6,026 720 6,026
Share premium account 812 812 812
Revaluation reserve 482 482 482
Merger reserve 56,239 - 56,239
Profit and loss account (10,605) (3,670) (5,643)
-------- --------- --------
Equity shareholders' funds
(note 6) 52,954 (1,656) 57,916
Minority interests (non-equity)
(note 7) 250 - 250
-------- --------- --------
53,204 (1,656) 58,166
===== ===== ======
Unaudited consolidated cash flow statement
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Net cash outflow from operating
activities (note 8) (4,085) (747) (2,873)
Returns on investment and servicing
of finance 55 15 67
Taxation (56) - -
Capital expenditure and financial
investment (319) (93) (257)
Acquisitions and disposals - - 10,478
------- ------- ------
Net cash flow before management of
liquid resources and financing (4,405) (825) 7,415
Management of liquid resources 6,001 - (6,001)
Proceeds from issue of shares - 775 775
Decrease in debt (566) (32) (337)
Financing (566) 743 438
------- ------- ------
Increase/(decrease) in cash in the
period (note 9) 1,030 (82) 1,852
Opening cash 2,620 768 768
------- ------- ------
Closing cash (note 9) 3,650 686 2,620
===== ===== =====
Reconciliation on net cash flow to
movement in net funds/(debt)
Increase/(decrease) in cash in the
period 1,030 (82) 1,852
Decrease in debt 566 32 337
(Decrease)/increase in liquid
resources (6,001) - 6,001
==== ==== ====
Change in net funds/(debt) resulting
from cash flows (4,405) (50) 8,190
Finance leases acquired on
acquisition of subsidiary undertaking - - (108)
Net funds/(debt) at start of period 7,395 (687) (687)
------- -------- -------
Net funds/(debt) at end of period 2,990 (737) 7,395
==== ===== =====
Notes
1. Accounting policies and basis of preparation
The financial statements comprise the Group's unaudited results for the six
months ended 30 September 2002 and 31 July 2001 and the audited results for the
fourteen months ended 31 March 2002.
The unaudited financial information has been prepared under the historical cost
convention as modified by the revaluation of freehold buildings and in
accordance with applicable accounting standards using the accounting policies
set out in the Group's Annual Report and Accounts for the 14 month period ended
31 March 2002.
The summary of results for the 14 month period ended 31 March 2002 does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. The full financial statements for the 14 months ended 31 March 2002
have been reported on by the Group's auditors and delivered to the Registrar of
Companies. The audit report was unqualified and did not contain a statement
under section 237(2) or section 273 (3) of the Companies Act 1985.
2. Segmental information
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Turnover
Financial services 24,320 4,515 21,560
Insurance broking 1,639 1,355 3,357
------- ------- ------
25,959 5,870 24,917
===== ===== =====
Operating loss
Financial services (5,414) (544) (2,781)
Insurance broking 397 (24) 170
-------- ------- --------
(5,017) (568) (2,611)
==== ===== =====
3. Exceptional items
The loss for the period is after charging/(crediting) the following exceptional
items:
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Pensions Review (see below) 600 444 444
Commission commutations - (502) (1,302)
-------- ----- ------
600 (58) (858)
===== ==== ====
The Group has previously announced that Phases 1 and 2 of the Pensions Review
have been by and large completed in line with regulatory deadlines. So called
RU94 cases however, having a later deadline of 31 March 2003, could not be
processed or settled pending publication of further guidance by the FSA.
Following the publication of such further guidance on 31 July 2002, all such
cases (approximately 80 in total) were sent for assessment by independent
actuaries. The majority of RU94 cases have now been returned to the Group and it
has become apparent that previously provided amounts in respect of such cases
were insufficient. This was despite these provisions having been based on actual
experience of settlement amounts in respect of Phase 1 and 2 claims. Actuarial
calculations have revealed that average compensation payable in respect of RU94
cases was approximately £5,000 per case in excess of our previous experience of
Phase 1 and 2 settlement patterns. The findings have necessitated an additional
provision of approximately £400,000 (including related professional costs) in
respect of these cases. In addition further provisions totalling £200,000 have
been made in respect of Phase 1 and 2 of the Pensions Review, the FSAVC review
and associated professional costs. The additional provisions referred to above
have resulted in an exceptional charge of £600,000, in total, in the six months
ended 30 September 2002.
4. Taxation
No tax is payable for the period due to the availability of losses.
5. Loss per share
The calculation of the basic loss per share is based on the loss for the
financial period and the weighted average number of shares in issue during the
period. At 30 September 2002 there were no share options that may have a
dilutive effect on the number of shares and hence the diluted loss per share is
the same as the basic loss per share.
Additional disclosure has been provided in respect of loss per share as follows:
6 months to 14 months to
30.9.02 31.7.01 31.3.02
Basic loss per share before goodwill
amortisation (6.0p) (7.6p) (10.1p)
Goodwill amortisation (2.2p) (0.4p) (4.0p)
------- ------ -------
Basic loss per share (8.2p) (8.0p) (14.1p)
===== ==== =====
6. Reconciliation of movement in shareholders' funds
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Loss for the financial period (4,962) (571) (2,544)
Ordinary shares issued, net of
expenses - 775 6,081
Merger reserve created - - 56,239
Opening shareholders' funds 57,916 (1,860) (1,860)
--------- ------- -------
Closing shareholders' funds 52,954 (1,656) 57,916
===== ===== ======
7. Minority interests
Minority interests represent 2,500,000 9% cumulative preference shares of 10p
each in a subsidiary undertaking which are held by C P Lockyer. These shares
were redeemed at par during November 2002.
8. Net cash outflow from operating activities
6 months to 14 months to
30.9.02 31.7.01 31.3.02
£'000 £'000 £'000
Operating loss (5,017) (568) (2,611)
Add/(deduct) exceptional items 600 (58) (858)
-------- ----- --------
(4,417) (626) (3,469)
Commutation of commission income - 502 1,302
Exceptional item - net Pensions
Review payments (1,724) (766) (1,205)
Amortisation of goodwill 1,349 27 724
Depreciation charges 265 118 353
Profit on sale of fixed assets (2) - (6)
Decrease in debtors 962 359 218
Decrease in creditors and provisions
(excluding the Pensions Review
provision) (518) (361) (790)
------- -------- --------
Net cash outflow from operating
activities (4,085) (747) (2,873)
===== ====== ======
9. Analysis of net funds
Non cash
movements
1.4.02 Cash flow 30.9.02
£'000 £'000 £'000 £'000
Cash and bank balances 2,692 2,655 - 5,347
Overdrafts (72) (1,625) - (1,697)
---------- -------- --------- -------
2,620 1,030 - 3,650
Debt due after one year (567) - 38 (529)
Debt due within one year (569) 536 (38) (71)
Finance leases (90) 30 - (60)
Short term deposits 6,001 (6,001) - -
-------- -------- -------- ----------
7,395 (4,405) - 2,990
====== ===== ===== =====
10. Post balance sheet event
On 23 October 2002 the Company issued 27,027,028 ordinary shares in connection
with a placing at 74p per ordinary share. Further information in respect of the
placing is set out in the circular to shareholders dated 30 September 2002.
11. General
The interim report was approved by the Board of Directors on 26 November 2002.
This report will be sent to shareholders and will be made available to the
public, upon request, from the Registered Office, Eaton House, 1 Eaton Road,
Coventry, CV1 FJ.
Independent review report to Berkeley Berry Birch plc
Introduction
We have been instructed by the Company to review the financial information for
the half year ended 30 September 2002 on pages 6 to 12. We have read the other
information in the interim report and considered whether it contains any
apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them are disclosed.
Review work performed
We conclude our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the half year ended
30 September 2002.
BDO STOY HAYWARD
Chartered Accountants
London
26 November 2002
Shareholder information
The Company's share price is quoted daily and classified under the business
sector 'Speciality & Other Financial' in The Financial Times and under the
business sector 'Other Financial' in The Times and The Express. The price is
also available on the Financial Times Cityline telephone service, on 0891
431315. Calls are charged at premium call rates at all times.
Enquiries concerning holdings of the Company's shares (i.e. notification of
change of address or the loss of a share certificate) should be referred to the
Company's registrars, Capita IRG plc, Bourne House, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, Tel: 0870 1623100. Shareholders' who receive more
than one copy of this interim report may have more than one account on the
Company's register of members. To amalgamate their holding, shareholders should
contact the registrars giving details of the accounts concerned and how they
wish them to be amalgamated.
Information about the Group, and the services it offers, can be found on the
corporate internet site www.bbb.co.uk.
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