Annual Report and Accounts

Millfield Group PLC 06 September 2005 Millfield Group plc Results for the year ended 31 March 2005 Millfield Group plc ("Millfield" or the "company" or the "group"), a leading independent financial services advisory group, today announces its audited results for the year ended 31 March 2005. The successful integration of the Inter-Alliance Group Plc ("Inter-Alliance") has created the UK's largest branded independent financial advisory distribution group. The merger necessitated large-scale reconstruction of the business over the past year and this will create significant cost savings going forward. With improved stock market conditions, coupled with a favourable interest rate environment, the group is confident that it will reap the rewards of that reconstruction and is on target to achieve operating profitability from the fourth quarter 2005. Highlights â€¢ Turnover up 103% to Â£85million (2004: Â£41.9million) â€¢ On a proforma basis, including twelve month's results for Inter-Alliance, the group generated combined turnover of Â£123 million â€¢ Gross profit up 76% to Â£26 million (2004: Â£14.8 million) â€¢ Operating loss before goodwill amortisation, impairment losses and exceptional items of Â£8.9 million (2004: Â£9.3 million loss) â€¢ Loss before amortisation and tax of Â£18.1 million (2004: Â£10.8 million loss) â€¢ On target to achieve operating profitability from the fourth quarter 2005 onwards â€¢ Lifetime's sale to Norwich Union expected to result in an exceptional gain of at least Â£4.9 million â€¢ Three major business initiatives launched â€¢ 26% reduction in the run rate for overhead costs from Â£49 million at time of merger to Â£36 million now â€¢ Further annualised savings of Â£4 million expected in fourth quarter of 2005 Commenting on the results, Paul Tebbutt, Chief Executive of Millfield, said: "Our view has always been that effective implementation of the merged businesses will deliver enhanced profitability and growth. Our grounds for optimism are based on the fact that we can now focus on working more effectively with our advisers and Principals of our advisory firms to increase turnover, margin, profitability, recruitment and retention in the knowledge that the long term savings market is recovering after several difficult years. "Improved stock market conditions, the reduction of interest rates and the growth in pensions business in the third and fourth quarters, ahead of key government reforms next year, will boost distribution businesses that have scale in terms of advisers and clients, both of which we now have. Therefore, we are on schedule to achieve operating profitability from the fourth quarter 2005 onwards." Enquiries Millfield Group plc Paul Tebbutt, Chief Executive - 020 8604 2607 Arthur Milton, Interim Finance Director - 020 8604 2623 Llewellyn-Slade PR Limited Mark Llewellyn-Slade - 01444 242792 Sabine Raabe - 07050-123095 Notes to editors â€¢ Millfield Group plc was floated on the Alternative Investment Market of the London Stock Exchange in March 2001 â€¢ Millfield Group plc is a national independent financial advisory group offering truly independent financial advice to both businesses and individuals, primarily in the pensions, life assurance, investment and mortgage sectors. It has two authorised companies in the UK, Millfield Partnership Limited and Sage Financial Services. â€¢ Further information available on the Millfield website: www.millfield-partnership.co.uk Chairman's Statement Introduction This year has seen the merger of Millfield and Inter-Alliance Group Plc (" Inter-Alliance") which has transformed the scale of these two businesses to create a financial services distributor with critical mass. Activity around the merger and the integration of the businesses has dominated the year. The Millfield Inter-Alliance Merger We announced on 6 August 2004 that the Boards of Millfield and Inter-Alliance had reached agreement on the terms of the proposed merger of the two groups and the transaction completed on 1 October 2004. The merger was structured as the acquisition of the entire share capital of Inter-Alliance by Millfield in an all share offer, which resulted in the shareholdings in the new group being owned 84% by the original Millfield shareholders and 16% by the Inter-Alliance shareholders. Working capital to support the new group was provided by way of Â£15 million of loans from five leading financial institutions, namely 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. The drivers of this change are economic, political and regulatory in origin. The implementation in December 2001 of major parts of the Financial Services and Markets Act 2000, followed by the issue of CP121 "Reforming Polarisation" consultation paper in January 2002 and in 2004 by the issue of CP 04/03 " Reforming Polarisation: a menu for being open with consumers" placed a greater regulatory burden on market participants. In November 2004 the FSA published the rules for the new depolarised and multi-tie environment which we implemented on 1 June 2005 and regulation of General Insurance also came within the ambit of the FSA with effect from 14 January 2005. This continuous regulatory change in the sector has encouraged a trend towards consolidation. Millfield intends to remain as a regulated business and is now distinctively positioned with a range of regulated distribution channels from which advisers and Principals of firms can choose. These different channels are supported by a group service functions which provides cost effective support services such as IT, compliance, finance and a framework for marketing and networking within the group. The combination of the two businesses has created a market leader which has critical mass. Results The results for the year fall into two halves, pre and post merger. â€¢ First half results continued the trend of recent years with turnover up by 48% to Â£27.3m (Â£18.4m in the comparative period), through organic growth and margins; costs also held flat, resulting overall in sharply reduced losses. â€¢ In the second half turnover of the combined businesses was maintained at the same level as in the first half while activity was focused on integration. A reduced gross margin of 27.6% compared to the first half reflects the change to a lower margin mix in the combined business. â€¢ Exceptional costs of Â£8.0m were incurred in integrating the new group and reducing the cost base for the future. The overall result was an operating loss before goodwill amortisation and exceptional items of Â£8.9m. Trading Update Turnover has grown modestly in the first four months of this year, reflecting the reduced level of distraction with the completion of most of the actions in the integration programme. Margins were at around 27%. Overhead costs have been reduced by 26% and now run at a rate of Â£3 million per month. New Share Issue On 17 May 2004, we successfully completed a placing to raise Â£3.84 million, before expenses of Â£0.22 million. The primary purpose of the issue was to provide additional working capital. Lifetime Group Limited During the year, Lifetime continued its work on developing the infrastructure and systems required to deliver its online personal portfolio service. The service was launched in April 2005. On 8 October 2004 Norwich Union agreed to make a further investment of Â£13.0 million into Lifetime, taking their shareholding from 49.9% to 70%. Under the terms of the subscription Â£824,400, before expenses of Â£80,000, was paid to Millfield. This transaction resulted in Millfield's fixed asset investment being below 25% of Lifetime's capital and the business was subsequently accounted for as an investment rather than as a joint venture. On 5 August 2005 the group's shareholding in Lifetime was sold to Norwich Union for Â£9m of initial consideration, with an additional contingent deferred consideration of up to Â£6m (see note 32 to the financial statements), a portion of which will be ceded to advisers. The sale will allow Norwich Union to continue to invest in and develop the business whilst allowing Millfield to retain a participation in the upside as the business grows. The sale will result in an exceptional gain of at least Â£4.9m for Millfield and will enhance the capital adequacy position of the group. Board The Board of the company consists of myself as chairman, Paul Tebbutt, Bryan Beeston, Mike Duncan and Arthur Milton as executive directors and Mike Walmsley, Tom Morton and Peter Connell as non-executive directors. Following the merger with Inter-Alliance, Keith Carby and Michael Burne joined the Board and then on 10 November 2004 ceased to be directors. Following the merger Roger Brosch has resigned from the Board, as has Darrell Smith although he remains as an important executive within the Group. Since the year end David Stockdale, the IFA representative director, has resigned from the Board to concentrate on his primary role as a Millfield IFA. He has been replaced as IFA representative director by Peter Connell. Also after the year end, Harry Roome has resigned as Group Finance Director and been replaced in that role on an interim basis by Arthur Milton. I should like to thank Roger Brosch, Darrell Smith, David Stockdale and Harry Roome for the significant contribution which they have made at board level to the development of the group. The Group Executive Board, the main operational board for the group, is now made up of Paul Tebbutt, Chief Executive, Bryan Beeston, Group Sales Director, Mike Duncan, Operations Director, Arthur Milton, Interim Finance Director, Frank Gorrie, Managing Director Sage Network, Darrell Smith, Millfield Partnership Sales Director and Neil Stevens, Marketing Director. Outlook Although the group has made losses for the financial year, and continues to make losses at a reduced level to date, a number of the integration initiatives have now been completed and further cost savings are expected to achieve operating profitability in the fourth quarter 2005; accordingly, the directors believe the business is a going concern. We have laid the foundations for the new group to move ahead successfully. We have implemented a structure which allows us to focus on the growth of a core group of businesses, each with a single operational base. The group is now very distinctively positioned in the IFA and advisory market which is otherwise predominantly served by non-regulated service providers and networks. As a result we have a strong recruitment pipeline and have seen growth in turnover recommence. The group's gross margin for the current year will be dependent on the mix of business between the different channels. Current margins are around 27% and we anticipate progressive growth through the year, as income from complementary business initiatives develops, with the aim of achieving margin levels of 30%. As a result of the integration and restructuring of the group, we have achieved a 26% reduction in the run rate for overhead costs from Â£49 million at the time of the merger to Â£36 million now. We consider that this is still too high and expect to achieve annualised savings of a further Â£4 million commencing in the fourth quarter of 2005. We now have a group which has the critical mass to be a major force in a rapidly changing and consolidating distribution marketplace. We have made excellent progress towards building the successful and profitable business that we envisaged at the time of the merger. Conclusion Millfield has been built on the strength of its advisers and staff. Inevitably the merger of the two groups caused considerable strains and as we move forward I would particularly like to thank everyone in the group for their efforts over the last year under particularly trying circumstances. Richard Mansell-Jones Non-Executive Chairman 5 September 2005 Chief Executive's Review Results I set out below the results for the group for the year ended 31 March 2005: Six months to Six months to Year ended 30 September 2004 31 March 2005 31 March 2005 Â£m Â£m Â£m Turnover 27.3 57.7 85.0 Cost of sales (17.2) (41.8) (59.0) Gross profit 10.1 15.9 26.0 Administrative expenses before (12.4) (22.5) (34.9) goodwill and exceptional items Operating loss before goodwill (2.3) (6.6) (8.9) amortisation and exceptional items At 31 March 2005, companies within the group held Â£7.8m of cash balances. The above results for the six months to 31 March 2005 include Inter-Alliance results post-merger. On a proforma basis, including twelve month's results for Inter-Alliance, the group generated combined turnover of Â£123m. Our main focus in the six months to 31 March 2005 was to complete the corporate restructure and integration programme following the merger with Inter-Alliance in October 2004. As part of this we reduced the cost base of the group from Â£49m to Â£36m. We achieved this within 6 months, however not without impact on the level of exceptional items which came in at Â£8.0m. These comprised property closures and onerous lease charges, Â£4.9m, redundancy and legal costs Â£1.9m, integration corporate restructuring costs Â£350k and fixed asset write-offs of Â£760k. Our integration programme is now substantially complete but has been more time-consuming and costly than originally expected. We are implementing further annualised cost savings of Â£4m between September 2005 and January 2006. In consequence the Board expects the business to achieve operating profitability in the fourth quarter 2005 onwards with an annualised cost base of Â£32m. The group now has significantly greater scale with annualised revenues of Â£123m and is now much better positioned to capture opportunities from the rapidly evolving marketplace. Our view has always been that effective implementation of the merged businesses will deliver enhanced profitability and growth. The merger created the UK's largest branded independent financial advisory distribution group. There will always be a premium for face-to-face advice and ongoing services; our specialist advisers have demonstrated substantial increases in their fee and commission income. The UK market is coming to terms with the fact that high quality financial advice has to be paid for either by way of fees or a combination of fees and commissions. Our grounds for optimism are based on the fact that we can now focus on working more effectively with our advisers and Principals of advisory firms to increase turnover, margin, profitability, recruitment and retention in the knowledge that the long term savings market is recovering after several difficult years. Improved stock market conditions, the reduction in interest rates and the growth in pensions business in the third and fourth quarters ahead of key government reforms next year will boost distributor businesses that have scale in terms of advisers and clients, both of which we now have. Operating Companies Millfield Partnership - high quality professional IFAs / advisers with strong brand image which is distinctive, relevant and consistent. This is Millfield's National branch based business where the advisers are referred to as partners. Our commitment to independent advice is paramount to the advisers and their client proposition; we are focusing on making it easier for advisers and their clients to do business with us in what continues to be a highly regulated marketplace. There were 708 advisers at 31 March 2005 (2004 in Millfield and Inter-Alliance - 942) operating from 30 company-let offices with a small number choosing to operate remotely from home offices. On a proforma basis, turnover for the combined group in the year was Â£61.5 million, giving productivity per adviser of Â£71,000. Millfield Enterprise - a group of entrepreneurial firms building their businesses within the framework of Millfield Millfield Enterprise incorporates the firms within Millfield Associate Partnership ("MAP") and those previously in Inter-Alliance Group Practices. The firms within Millfield Enterprise provide their own premises and local facilities whilst receiving all of the Millfield central services. There were 81 firms (22 MAP and 59 others) with 551 advisers (238 MAP and 313 others) at 31 March 2005 (2004 in Millfield and Inter-Alliance - 466). On a proforma basis, turnover for the combined group in the year was Â£31.5 million, giving productivity per adviser of Â£60,000. Millfield owns 30% of one of the MAP firms and 25% of four others; there were previously stepped acquisition agreements in place for MAP firms which are currently being renegotiated and Millfield does not expect to own more than 49% of any of these firms. Sage Financial Services - a premium network. Sage provides core services to its member firms encompassing compliance, training & competence, commission processing and professional indemnity insurance. There were 262 firms with 377 advisers at 31 March 2005 (2004 in Inter-Alliance - 168 firms with 338 advisers). On a proforma basis, turnover for the combined group in the year was Â£15.3 million and productivity per adviser was approximately Â£47,000. RST Group - an Accounting business specialising in the small business market RST comprises a firm of accountants based in the north of England and Scotland and a financial services firm providing services to the client base. There are 18 accounting professionals and 10 financial advisers. During the year the business has been through a period of consolidation and there are now 10 offices and 102 staff (2004 - 14 offices and 113 staff). Turnover in the year was Â£4.8 million (2004 - Â£4.3 million) and resulted in a loss before goodwill amortisation and interest of Â£0.2 million (2004 - Â£0.7 million). They are currently on plan and making a small operating profit. Inter-Alliance International - a freestanding offshore financial advisory business with headquarters in Cyprus The international business operates in 20 countries and has 111 advisers (2004 in Inter-Alliance - 20 countries and 124 advisers) in the Middle East, the Far East and Africa, predominantly offering services to expatriates. On a proforma basis, turnover for the combined group in the year was Â£9.1 million and resulted in profits before interest and goodwill amortisation of Â£0.3 million. Marketing / coaching One of the key features that has attracted so many advisers to Millfield is the appeal of working in an entrepreneurial and sharing culture, which focuses on teamwork, networking, innovation, a positive approach and a "can do" attitude. People seldom improve without a model so we are taking the attributes of our top achievers and specialists in order to develop other advisers to enhance their business performance and client services going forward. Other specialist areas include: â€¢ 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; â€¢ Millfield Business Solutions provides a range of services to the SME market; â€¢ Millfield Private Client Services specialises in the complex needs of High Net Worth individuals; â€¢ Millfield Care Partnership is now a leader in providing advice and services to the long-term elderly care market; and â€¢ 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. Since the year end we have launched three major business initiatives: 1. Multi-tie. Depolarisation was implemented on 1 June 2005 and at the same time we launched our multi-tie division, Millfield Alliance. This allows advisers to offer over 100 products from our six multi-tie partners (Axa, Friends Provident, Norwich Union, Prudential, Scottish Widows and Skandia) and to operate over 'whole of market' to facilitate the servicing of existing client policies. 2. Mortgages. On 12 May 2005 we launched phase 1 of the Millfield Mortgage Solutions Club, providing specialist support to advisers and their clients in this complex market which is continuously evolving with new product offerings. 3. Lifetime. Lifetime was set up in June 2002 to provide a multi-asset class distribution and administration Wrap Account platform for IFA's which includes the transmission and settlement of orders on behalf of clients of IFAs. A "Wrap Account" is an Internet based investment service which enables advisers and their clients to view all their financial assets on one platform. The business was launched with a pilot group of Millfield advisers on 25 April 2005 and is now being progressively rolled out throughout the group. Integration of the Merged Group Since the merger, we have achieved our key objective of undertaking all of the main elements of the integration of the two businesses. The group structure has now been considerably simplified and we have successfully exited non-core businesses, details of which are set out below. As a result, the group is now positioned to focus on the growth and development of its main trading activity. The main areas involved in the integration and restructuring of the group have been: Corporate Structure and Branding - at 31 March 2005, the businesses of Inter-Alliance Group Plc and Inter-Alliance (Group Practices) Limited were transferred to Millfield Partnership Limited. The UK National advisory business now trades under the Millfield brand and the Inter-Alliance brand is only used for the group's International business. Chief Executive's Review (continued) Integration of the Merged Group (continued) Training - we have integrated the internal training arrangements for the group into Millfield Academy, a non-profit making company funded by the product providers. Operations - the operations of the businesses have been merged. The main changes were: â€¢ Premises. A rationalisation plan is being implemented to reduce group properties from 46 at the merger to 14 strategic locations and 7 satellites. 13 properties have already been closed, including the Inter-Alliance head office buildings, and the balance will be closed by 31 December 2005. Our Hull operations centre has moved to new premises. â€¢ Staffing. Staff numbers in the core business engaged in overhead activities have been reduced by 29% from 546 at the time of the merger to 389 at 31 August 2005. â€¢ Systems. Millfield Partnership has been migrated onto the Atlas system. We have transferred to a new purpose built, hosted IT operations centre and switched to Telstra, the AAA rated carrier, as a single telecoms supplier. â€¢ Business Processes. A single set of processes has been implemented for each distribution channel. â€¢ Purchasing. A review has taken place of the group's main suppliers. Commissions - Common fee and commission terms were implemented across the group with effect from 1 April 2005. Business Closures / Disposals In order to focus on the opportunities in the core business and to contain costs a number of non-core businesses are being closed or divested. Millfield Moncur Jackson Limited - this company was closed on 10 August 2004 and its business transferred to a new Millfield Associate Partnership firm. Simply Millfield - the operations of this company were transferred from Manchester to our Hull business centre in May 2004 and the business transferred into Millfield Partnership from 31 March 2005. Product Innovations Limited - this firm was sold to its management on 14 January 2005. Inter-Alliance (Mortgages) Limited - this company was sold to its management on 9 February 2005 and has become a member of the Sage network. Intelliflo - the external software business of Intelliflo was sold to its management on 17 December 2004. The company has been renamed Millfield Atlas Plc and it retains ownership of the Atlas source code. Trinon Limited - this non-regulated network which had 86 advisers ceased trading following regulatory changes. The majority of these advisers and related business now fall under Sage Financial Services Limited. Legacy Protect Limited - this company's business was no longer viable following regulatory changes and it ceased taking on new business from 14 July 2005 and its remaining advisers transferred to Millfield Partnership, resulting in a net reduction in adviser numbers in the group of 32. Millfield Packaging 4 Mortgages Limited - this company closed to new business on 16 August 2005 following the group's decision to fully outsource mortgage packaging. Future Distribution Landscape In my opinion the current regulatory and policy initiatives will do little to change the fundamentals of the industry. The existing IFA market will remain largely untouched as it focuses on specialist advice, fees and higher net worth clients, parts of the IFA industry serving the mid market will continue to convert to multi-tie status as this facilitates more streamlined processing and servicing. Product providers have taken direct equity stakes in excess of 10% in IFA companies and networks, this follows depolarisation and allows vertical integration as providers have been seeking to capitalise distributors. Overall product providers naturally want to focus on larger businesses so scaling up has important capital benefits. This trend will continue throughout 2005/2006. The balance of power between manufacturers and distributors is shifting. The advent of Wrap accounts will accelerate this and it will present IFAs with the ability to transform their businesses through valuing their client assets under advice and building recurring fee income. The main drivers of profitability are adviser numbers, productivity, gross margin and expenses. We will reduce administration expenses such that improving revenues and operational performance will increase profitability over the next 2 years. I believe that some of the above factors combine to present a once in a generation opportunity for the group. Millfield can be "the sector transformer" creating new kinds of value in the marketplace through treating its advisers fairly and advisers treating their clients fairly. Paul Tebbutt Chief Executive 5 September 2005 Consolidated Profit & Loss Account for the year ended 31 March 2005 Existing Total Total Note operations Acquisitions 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 TURNOVER 1, 2 ,3 51,929 33,027 84,956 41,899 Cost of sales (33,922) (25,069) (58,991) (27,057) Gross profit 18,007 7,958 25,965 14,842 Operating loss before goodwill amortisation, impairment losses and exceptional items (5,821) (3,044) (8,865) (9,327) Impairment losses - - - (2,166) Amortisation of goodwill (1,542) (373) (1,915) (1,388) Exceptional items 5 (4,026) (3,944) (7,970) - Administrative expenses (29,396) (15,319) (44,715) (27,723) OPERATING LOSS 3, 4 (11,389) (7,361) (18,750) (12,881) Share of operating loss in: Joint venture (1,444) - (1,444) (1,517) Associate (105) - (105) (53) Profit on disposal of subsidiaries 19 - 19 - Profit on disposal of joint venture interest 12 824 - 824 - Interest receivable and similar income: Group 208 120 328 198 Joint venture 20 - 20 39 Interest payable and similar charges: Group (924) (18) (942) (153) Joint venture (11) - (11) - LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (12,802) (7,259) (20,061) (14,367) Tax on loss on ordinary activities 8 8 (1) 7 (27) LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (12,794) (7,260) (20,054) (14,394) Equity minority interests 399 (11) 388 324 RETAINED LOSS FOR THE YEAR 21,22 (12,395) (7,271) (19,666) (14,070) Basic and diluted loss per share 9 ( 18.4p) (16.7p) CONTINUING OPERATIONS All of the group's activities of significance are continuing. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2005 2004 Â£'000 Â£'000 Loss attributable to members of the company (19,666) (14,070) Surplus arising on issue of shares in joint venture 1,713 2,227 (note 12) Total recognised gains and losses relating to the year (17,953) (11,843) Consolidated Balance Sheet 31 March 2005 Restated 2005 2004 Note Â£'000 Â£'000 Â£'000 Â£'000 FIXED ASSETS Goodwill 10 28,665 14,977 Tangible assets 11 3,001 4,098 Investments 12 3,980 3,384 35,646 22,459 CURRENT ASSETS Stocks 15 5 6 Debtors 16 21,944 12,894 Investments 17 251 251 Cash at bank and in hand 7,773 4,515 29,973 17,666 CREDITORS: amounts falling due within one year 18 (21,804) (10,686) NET CURRENT ASSETS 8,169 6,980 TOTAL ASSETS LESS CURRENT LIABILITIES 43,815 29,439 CREDITORS: amounts falling due after more than one year 19 (14,731) (2,161) 29,084 27,278 PROVISION FOR LIABILITIES AND CHARGES 20 (12,430) (4,336) MINORITY INTERESTS Equity minority interests 32 280 NET ASSETS 16,686 23,222 CAPITAL AND RESERVES Called up share capital 21 207 160 Deferred consideration 21 1,751 1,309 Share premium account 21 48,482 44,876 Merger reserve 21 19,031 11,709 Capital reserve 21 3,940 2,227 Profit and loss account 21 (56,725) (37,059) EQUITY SHAREHOLDERS' FUNDS 21,22 16,686 23,222 Company Balance Sheet 31 March 2005 2005 2004 Note Â£'000 Â£'000 Â£'000 Â£'000 FIXED ASSETS Goodwill 10 43 246 Investments 12 56,812 64,522 56,855 64,768 CURRENT ASSETS Debtors 16 20,441 8,409 Cash at bank and in hand 50 1,457 20,491 9,866 CREDITORS: amounts falling due within one year 18 (27,216) (20,454) NET CURRENT LIABILITIES (6,725) (10,588) TOTAL ASSETS LESS CURRENT LIABILITIES 50,130 54,180 CREDITORS: amounts falling due after more than one year 19 (11,151) (1,340) NET ASSETS 38,979 52,840 CAPITAL AND RESERVES Called up share capital 21 207 160 Deferred consideration 21 1,694 1,309 Share premium account 21 48,482 44,876 Merger reserve 21 17,502 10,180 Profit and loss account 21 (28,906) (3,685) EQUITY SHAREHOLDERS' FUNDS 21 38,979 52,840 Consolidated Cash Flow Statement for the year ended 31 March 2005 Note 2005 2004 Â£'000 Â£'000 Net cash outflow from operating activities 28 (10,578) (8,652) Returns on investments and servicing of finance 29 (86) 45 Taxation 29 (12) - Capital expenditure and financial investment 29 (601) (1,478) Acquisitions and disposals 29 (327) (558) Cash outflow before financing (11,604) (10,643) Financing 29 14,949 8,448 Increase/(decrease) in cash in the year 3,345 (2,195) 1. ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom law and accounting standards, on the going concern basis. The group made a loss for the financial year of Â£19.7m (2004: Â£14.1m) and has continued to make losses at a reduced level up to the date of signing these financial statements. A number of integration initiatives subsequent to the merger with Inter-Alliance Group Plc have now been completed and the directors expect to achieve further cost savings which will bring the business to operating profitability in the fourth quarter 2005. The directors have prepared cash flow forecasts and believe that the group will generate increasing levels of income and be able to satisfy regulatory capital adequacy requirements. Accordingly, the directors have prepared the financial statements on a going concern basis consistent with this assumption. In the event that these forecasts are not achieved it may be necessary to raise additional funds to maintain the group's regulatory capital adequacy position. The directors intend to implement further measures to strengthen the group balance sheet over the next year and are confident that it will be possible for the group to obtain funding from other sources. No sources of additional capital have yet been committed. The financial statements do not include any adjustments that would result from either a failure to achieve these forecasts or, if necessary for regulatory solvency purposes, further funding. Basis of consolidation The group financial statements consolidate the financial statements of the company and its subsidiaries, joint ventures and associates drawn up to the year ended 31 March 2005, the results of subsidiaries acquired and sold during the year being consolidated from and until the date on which control passed respectively. One exception to this is that the overseas subsidiaries that formed part of the Inter-Alliance Group acquired during the year, Inter-Alliance International Group (Cyprus) Limited, Sterling Associates Limited, PGMS Holdings Limited and their subsidiaries, have been consolidated based on their financial statements drawn up to 31 December 2004 as a result of certain overseas regulatory restrictions and the need to avoid unreasonable delays to financial information. Hence only three months results are consolidated in the year ended 31 March 2005. The directors believe that this will have no significant impact on the users of these financial statements. All subsidiaries use the group accounting policies. Joint ventures are those undertakings not recognised as subsidiaries in which the group has a participating interest and are jointly controlled. These are accounted for under the gross equity method, the group's share of net assets included in investments in the consolidated balance sheet and the group's share of results included in the consolidated profit and loss account. Associates are those undertakings, not recognised as subsidiaries, in which the group has a participating interest and exercises significant influence. The group's share of the results of associates, accounted for under the gross equity method, is included in the profit and loss account and its share of their net assets is included in investments in the group balance sheet. Millfield Group plc has taken advantage of section 230(3) of the Companies Act 1985 exempting it from producing an individual profit and loss account. The profit and loss of the company has been approved by the Board of Directors in accordance with section 230(3). The loss after taxation of the company for the year amounted to Â£25,221,170 (2004 - Â£3,353,440). 1. ACCOUNTING POLICIES (continued) Turnover Initial policy commission income is recognised at the date of inception of policies, provision being made for expected lapses based on lapse experience. Renewal commission is recognised as it falls due. Fee based business is recognised when services have been provided and an invoice issued. Investments Fixed asset investments are held at historic cost and a provision is made for any impairment where necessary. Current asset investments are held at the lower of cost and net realisable value. Tangible fixed assets Tangible fixed assets are stated at cost or valuation, net of depreciation and any provisions for impairment. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life: Long leasehold premises Straight line over period of lease Land and buildings 5% reducing balance Motor vehicles 25% on cost Office equipment 20% on cost Fixtures and fittings 20% on cost Computer equipment 33% on cost Software 25% on cost Intangible fixed assets Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life, which is a maximum of 20 years. The directors regard this as a reasonable maximum for the estimated useful life of goodwill since it is difficult to make projections exceeding this period. Provision is made for any impairment. Goodwill on investments made in small independent financial advisory businesses is written off on a straight line basis over the term of the earn-out agreements which are between 15 and 44 months in length. Stocks and Work in Progress Stocks and work in progress are valued at the lower of cost and net realisable value. Cost includes all direct expenditure and an appropriate proportion of variable overheads. Work in progress is valued at book value less any element of profit contained in that value. Due allowance is made for any work in progress which has not been billed for an excessive period of time. Operating lease commitments Rentals paid under operating leases are charged to the profit and loss account as incurred. Pension contributions The group made contributions to personal pension plans for certain employees. Contributions payable for the year are charged in the profit and loss account as they become payable. Foreign currency Transactions in foreign currencies are recorded in sterling at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing on the balance sheet date and gains and losses on translation are included in the profit and loss account. 1. ACCOUNTING POLICIES (continued) Deferred taxation Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. 2. TURNOVER Turnover was substantially derived from within the United Kingdom and from the principal activity of the group, that of independent financial advisers. The group also provides accountancy services through its subsidiary RST Accountants Limited. 3. SEGMENT INFORMATION Turnover in respect of accountancy services contributed less than 10% of total group revenue and the directors do not consider this a separately identifiable business segment. Therefore, information by business segment has not been disclosed. Results by origin and destination were as follows: Geographical Segments United Kingdom Rest of the World Group 2005 2004 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover: Sales to third parties 82,090 41,899 2,866 - 84,956 41,899 Segment and operating (loss)/profit Segment and operating (loss)/profit (18,898) (12,881) 148 - (18,750) (12,881) Share of operating loss in joint venture (1,444) (1,517) - - (1,444) (1,517) Share of operating loss in associate (105) (53) - - (105) (53) Profit on disposal of subsidiaries 19 - - - 19 - Profit on disposal of joint venture 824 - - - 824 - interest Interest payable/(receivable) and similar (605) 84 charges (net) Loss on ordinary activities before taxation (20,061) (14,367) Net assets 16,833 23,222 (147) - 16,686 23,222 The results from the United Kingdom include Â£30,161,000 derived from acquisitions during the year. The results from Rest of the World were derived entirely from acquisitions during the year. Since the overseas subsidiaries have been consolidated to 31 December 2004, these reflect only three months' results. 4. OPERATING LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 2005 2004 Â£'000 Â£'000 The operating loss is stated after charging/(crediting): Depreciation of tangible fixed assets - owned assets 1,546 1,205 Loss on disposal and amounts written-off fixed assets 842 - Amortisation of goodwill 1,915 1,388 Government grants (30) - Operating leases - rent and service charges - plant and machinery 1,036 750 - other 3,256 1,604 Auditors' remuneration for audit services - group 332 291 - company - - Auditors' remuneration - non audit services - group 144 49 - company 41 - Audit costs for the company in the current and prior years were borne by a subsidiary. In addition to the amount for non audit services charged to the profit and loss account for the year, the group paid Â£376,028 in fees to Deloitte & Touche LLP for a working capital review in connection with the acquisition of Inter-Alliance Group Plc. This is capitalised in investments and goodwill in the company and group balance sheets respectively. In 2004, fees of Â£456,678 relating to the placing were charged to share premium. The following is a more detailed and comprehensive analysis of auditor's remuneration: Group Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Services as auditors - current year charges 324 291 - - - under accrued for previous year 8 - - - 332 291 - - Further assurance services - Working capital review 376 - 376 - - Tax compliance 91 49 - - Tax advisory services 29 - 29 - Consulting services 24 457 12 457 852 797 417 457 Group services as auditors includes Â£66,000 (2004 - Â£22,000) which relates to fees derived from subsidiary company auditors other than the group auditors Deloitte & Touche LLP. 5. EXCEPTIONAL ITEMS 2005 2004 Â£'000 Â£'000 Fixed asset write-off 764 - Property closure and onerous lease charges 4,920 - Redundancy and legal costs 1,931 - Integration and corporate restructuring costs 355 - 7,970 - 6. DIRECTORS' INTERESTS Aggregate directors' remuneration 2005 2004 Â£'000 Â£'000 Directors' emoluments 942 1,004 Compensation for loss of office 383 - Group contributions to money purchase plans 25 47 Total 1,350 1,051 Emoluments of the highest paid director 269 231 Group contributions to money purchase plan on behalf of the highest paid - 28 director included in emoluments above Number Number The number of directors whose money purchase plans received contributions 2 4 The directors made gains totalling Â£44,399 upon exercise of share options. Options granted to directors during the year totalled 2,821,000 the terms of which are disclosed in note 26. 7. STAFF COSTS 2005 2004 Â£'000 Â£'000 Staff costs during the year (including directors) Wages and salaries 16,851 16,182 Social security costs 1,673 1,662 Pension contributions 312 239 18,836 18,083 The average number of employees during the year comprised: Number Number Administration staff (includes ex-paraplanners and PAs, recharged to advisers) 711 535 8. TAX ON LOSS ON ORDINARY ACTIVITIES The group corporation tax charge on ordinary activities for the year is Â£7,319 (2004 - Â£26,690) comprising deferred tax charged of Â£Nil (2004 - Â£Nil). Factors affecting tax charge for the current year The tax assessed for the period is lower than that resulting from applying the standard rate of corporation tax in the UK: 30% (2004 - 30%). The differences are explained below: 2005 2004 Â£'000 Â£'000 Loss before tax per consolidated Profit & Loss Account (20,061) (14,367) Tax at 30%: 6,018 4,310 Effects of: Expenses not deductible for tax purposes (734) (759) Depreciation in excess of capital allowances (298) (587) Creation of tax losses (3,666) (2,744) Movement in short term timing differences 9 49 Amortisation of goodwill (488) (294) Exceptional items (834) - Prior period adjustments - (2) Current tax charge 7 (27) Factors that may affect the future tax charge A deferred tax asset has not been recognised in respect of timing differences relating to revenue losses and timing differences on the plant and machinery general pool as the group has not generated taxable profits to date. The amount of the asset not recognised is Â£28,005,000 (2004 - Â£9,112,000). The asset will be recognised to the extent that sufficiently reliable evidence exists of its being recoverable in the foreseeable future. 9. 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 Â£19,665,931 (2004 - Â£14,070,000) and on 107,150,350 (2004 - 84,370,328) 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. 10. GOODWILL Group Company Â£'000 Â£'000 COST At 1 April 2004 19,593 458 Additions 15,185 - Revaluations 686 - Adjustments to fair value 290 - Disposals (561) - Transfers to associates (520) - At 31 March 2005 34,673 458 AMORTISATION At 1 April 2004 4,616 212 Charge for the year 1,915 203 Disposals (449) - Transfers to associates (74) - At 31 March 2005 6,008 415 NET BOOK VALUE At 31 March 2005 28,665 43 At 31 March 2004 14,977 246 In accordance with FRS 11, 'Impairment of fixed assets and goodwill', the carrying value of goodwill has been reviewed for impairment if there is some indication that impairment has occurred. On this basis the directors have decided that it is not necessary to write down the value of goodwill in the year. The discount rate used in determining this was 15%. Analysis of acquisitions made during the year - group Name % Cost Fair value of Total net tangible Goodwill assets/ (liabilities) Â£'000 Â£'000 Â£'000 Inter-Alliance Group Plc (and its subsidiaries) 100% 8,593 (6,268) 14,861 Independent financial advisory businesses 100% 324 - 324 8,917 (6,268) 15,185 Details of the purchase of acquired assets and liabilities in respect of Inter-Alliance Group Plc and its subsidiaries are included in note 13. No fair value adjustments have been made at 31 March 2005 in respect of acquisitions in the current or prior year as in the directors' opinion the book and fair values were equal. 11. TANGIBLE FIXED ASSETS Group Land and Long leasehold Motor Office Fixtures and Software Computer Total buildings premises vehicles equipment fittings equipment Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 COST At 1 April 2004 72 243 16 2,180 2,759 409 1,108 6,787 Additions - 6 - 137 70 542 198 953 Acquired with - 42 1 - 113 231 471 858 subsidiaries Disposal/transfer of - - - (53) (22) - (223) (298) subsidiaries Disposals (72) (49) (13) (29) (38) (1,177) (107) (1,485) At 31 March 2005 - 242 4 2,235 2,882 5 1,447 6,815 DEPRECIATION At 1 April 2004 5 106 3 931 950 - 694 2,689 Charge for the year - 40 1 399 561 184 361 1,546 Disposal/transfer of - - - (27) (9) - (94) (130) subsidiaries Disposals (5) (2) (3) (15) (18) (182) (66) (291) At 31 March 2005 - 144 1 1,288 1,484 2 895 3,814 NET BOOK VALUE At 31 March 2005 - 98 3 947 1,398 3 552 3,001 At 31 March 2004 67 137 13 1,249 1,809 409 414 4,098 Disposals include Â£764,000 relating to the write-off of commissions software system costs and Â£231,000 being both the value and proceeds relating to the licensing to a third party for the use of the new Atlas commission software acquired as part of the Inter-Alliance Group Plc acquisition. 12. FIXED ASSET INVESTMENTS Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Subsidiary undertakings - - 52,943 61,369 Joint venture - 3,435 - 3,151 Associates 267 (51) 718 2 Other investments 3,713 - 3,151 - 3,980 3,384 56,812 64,522 12. FIXED ASSET INVESTMENTS (continued) Acquisitions of subsidiaries and associates in the year and the prior years comprise: Consideration Date Company % Cash Loan note Shares Costs Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 1 October 2004 Inter-Alliance Group Plc 100 - - 7,357 1,236 8,593 Year ended 31 March 2005 - - 7,357 1,236 8,593 4 September 2003 Legacy Protect Limited 25 - - - 2 2 Year ended 31 March 2004 - - - 2 2 1 August 2002 Millfield South East Limited 30 132 - - 8 140 18 November 2002 Simply Millfield Limited 90 - - - 2 2 18 November 2002 Millfield (MSC) Limited 25 224 - - 22 246 20 November 2002 Millfield (SW) Limited 25 77 - - 4 81 20 November 2002 Millfield Sureline Limited 50 20 312 266 91 689 Millfield Sureline Limited 50 - 151 618 - 769 27 November 2002 Millfield Fountain Limited 25 130 - - 8 138 4 December 2002 Millfield (JP Associates) Limited 25 105 - - 6 111 9 December 2002 Millfield (AAP) Limited 25 445 - - 27 472 5 February 2003 RST Group Limited 20 630 - - 492 1,122 RST Group Limited 80 - - 1,137 150 1,287 Year ended 31 March 2003 1,763 463 2,021 810 5,057 1 October 2001 HFP Holdings Limited 100 - - 9,370 693 10,063 8 March 2002 Moncur Jackson & Associates Limited 100 - 1,050 1,150 90 2,290 Year ended 31 March 2002 - 1,050 10,520 783 12,353 The company holds directly or indirectly the percentage of the issued ordinary share capital of each company listed in the table that follows. The interests held are all in respect of the ordinary share capital of those companies. All of the subsidiary undertakings are included in the consolidated financial statements. 12. FIXED ASSET INVESTMENTS (continued) Principal Investments The company and the group's principal investments comprised the following at 31 March 2005: Percentage of equity held by the group Country of Name of company Principal activity Incorporation Subsidiary undertakings Millfield Partnership Limited Independent financial 100% Great Britain advisers Millfield Management Services Limited Management services 100% Great Britain HST Financial plc Intermediate holding 100% Great Britain company Sage Financial Services Limited Independent financial 100% Great Britain advisers Trinon Limited Ceased trading 100% Great Britain Inter-Alliance (Group) Plc Ceased trading 100% Great Britain Inter-Alliance (Group Practices) Limited Ceased trading 100% Great Britain PMH Alliance Limited Ceased trading 100% Great Britain Millfield (ATLAS) Plc (formerly IntelliFlo ATLAS system provider 100% Great Britain Plc) Millfield Academy Limited Financial services 100% Great Britain training Millfield Search & Selection Limited Ceased trading 100% Great Britain Millfield Group Holdings Limited Intermediate holding 100% Great Britain company Millfield Private Clients Holdings S.A. Intermediate holding 100% Luxembourg company Millfield Private Clients s.a.r.l. Offshore financial 100% Guernsey advisers Inter-Alliance International Group (Cyprus) Intermediate holding 100% Cyprus Limited company Inter-Alliance Financial Services Financial services 100% Cyprus Limited Inter-Alliance Worldnet Limited Financial services 50% Cyprus Inter-Alliance International (Kenya) Financial services 100% Kenya Limited Inter-Alliance International (Uganda) Financial services 100% Uganda Limited Sterling Associates Limited Intermediate holding 100% BVI company Inter-Alliance International (SEA) Financial services 100% Malaysia Limited Inter-Alliance International (Thailand) Financial services 100% Thailand Limited Inter-Alliance International Financial services 100% Singapore (Singapore) Limited Inter-Alliance International Corporate Offshore insurance broker 51% Malaysia Benefits Limited PGMS Holdings Limited Financial services 100% Mauritius Inter-Alliance International (Zimbabwe) Financial services 100% Zimbabwe Limited Millfield Moncur Jackson Limited Ceased trading 100% Great Britain Millfield Protection & Mortgages Limited Ceased trading 100% Great Britain 1st Protect Partnership Limited Ceased trading 100% Great Britain Contractor Support Network Limited Ceased trading 100% Great Britain Simply Millfield Limited Financial services 90% Great Britain telesales Millfield Insurance Services Limited General insurance services 51% Great Britain Millfield Sureline Limited Independent financial 50%* Great Britain advisers Millfield Packaging 4 Mortgages Limited Mortgage packaging 31.58%* Great Britain RST Group Limited Intermediate holding 20%* Great Britain company RST Accountants Limited Accountants 20% Great Britain Wood & Partners Limited Accountants 20% Great Britain RST Financial Consultancy Limited Independent financial 20% Great Britain advisers Associates Legacy Protect Limited Financial advisers 25% Great Britain Millfield (MSC) Limited Independent financial 25% Great Britain advisers Millfield (JP Associates) Limited Independent financial 25% Great Britain advisers Earl Elwood Limited Independent financial 25% Great Britain advisers Millfield Fountain Limited Independent financial 25% Great Britain advisers Millfield (SW) Limited Independent financial 25% Great Britain advisers Millfield South East Limited Independent financial 30% Great Britain advisers Other investments Lifetime Group Limited Portfolio wrap development 14.63% Great Britain * At 31 March 2005 the company had put and call option agreements with the other shareholders of these companies. Under the terms of these agreements Millfield Group plc may exercise the option to purchase and the other shareholders may exercise the option to sell the balance of shares not already held by the company on a stepped basis between 1 April 2005 and 30 September 2007 at a multiple of the companies' profits (or for Millfield Sureline Limited a multiple of turnover) based on agreed performance targets, in each case with a two year earn out period. Given these share interests and the dominant influence exercised over their financial and operating policies by Millfield Group plc, these companies have been treated as subsidiaries. RST Group Limited and Millfield Sureline Limited are accounted for as 100% owned with amounts payable for the balance of shares still to be purchased, estimated and treated as deferred consideration; the share of net assets in Millfield Packaging 4 Mortgages Limited represented by the equity not yet owned by Millfield Group plc is reflected in minority interests. 12. FIXED ASSET INVESTMENTS (continued) Shares in subsidiary undertakings: Company Company 2005 2004 Â£'000 Â£'000 Cost At 1 April 63,659 51,465 Acquisitions in year 8,593 - Transfers from other group companies 752 - Investment in subsidiary companies 976 12,000 Transfers to associates (716) - Disposals (471) - Fair value adjustment to cost - 194 At 31 March 72,793 63,659 Provisions for impairment At 1 April 2,290 - Impairment 17,560 2,290 At 31 March 19,850 2,290 Net book value at 31 March 52,943 61,369 A fair value review was carried out during the year resulting in an impairment provision of Â£17,560,000 against the carrying value of investments. Shares in joint venture: Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Cost/share of assets/liabilities at 31 March: Cost - - - 3,151 Share of gross assets - 2,212 - - Share of gross liabilities - (368) - - Goodwill on acquisition less amortisation - 1,591 - - - 3,435 - 3,151 Cost/share of net assets At 1 April 1,844 2,411 3,151 3,151 Share of retained loss for the year (1,393) (1,418) - - Unrealised surplus arising on issue of shares 1,713 2,227 - - Transfer to other investments (2,164) - (3,151) - Preference shares converted to ordinary shares - (1,376) - - At 31 March - 1,844 - 3,151 Goodwill At 1 April 1,591 275 - - Amortisation charge for the year (42) (60) - - Transfer to other investments (1,549) - - - Preference shares converted to ordinary shares - 1,376 - - At 31 March - 1,591 - - Net book value at 31 March - 3,435 - 3,151 12. FIXED ASSET INVESTMENTS (continued) Shares in joint venture (continued) The shares in joint venture were held in Lifetime Group Limited and have since been sold (see note 32). Following an agreement dated 8 October 2004 Lifetime Group Limited allotted 9,226,299 shares to Norwich Union on that date and a further 7,908,257 shares also to Norwich Union on 4 January 2005. As a result of these share issues, the group's total holding reduced from 41.3% to 24.73%, 14.63% of which is accounted for as a fixed asset investment and 10.10% as a current asset investment. The deemed disposal caused by the reduced percentage holding gives rise to an economic gain of Â£1,713,060 that has been taken to reserves since it arises from a capital injection and is therefore unrealised. Also under this agreement, a premium totalling Â£824,400 was received by the group on 8 October 2004 to recognise the transfer of its share of joint control rights to Norwich Union. This is included in the result for the year. Since 8 October 2004 the group no longer had any influence over Lifetime Group Limited so the carrying value of Â£3,712,994, following recognition of the group's share of the net loss and the above gains, was transferred to other investments. Shares in associates: Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Share of net assets/Cost At 1 April (53) - 2 - Acquisitions in year - - - 2 Transfers from subsidiaries (23) - 716 - Share of retained loss for the year (105) (53) - - At 31 March (181) (53) 718 2 Goodwill At 1 April 2 - - - Acquisitions in year - 2 - - Transfers from subsidiaries 446 - - - At 31 March 448 2 - - Net book value 267 (51) 718 2 The associates included above are as follows: Legacy Protect Limited ("Legacy") The company has held 25% of the issued share capital of Legacy and accounted for it as an associate throughout the year. At 31 March 2005 the aggregate amount of Capital and Reserves in Legacy was a deficit of Â£634,170 and the loss for the year amounted to Â£384,242. No dividends have been or will be received for the year ended 31 March 2005 from Legacy. The group's share of Legacy's net liabilities was Â£158,542 (2004 - Â£53,311). At 31 March 2005 the company had a put and call option agreement with Legacy's other shareholders. Under the terms of this agreement Millfield Group plc may exercise the option to purchase and the other shareholders may exercise the option to sell up to 24.99% of the balance of Legacy's shares not already held, on 31 March 2007 at a multiple of its profits based on agreed performance targets with a two year earn out period. However as explained in note 32 Legacy has since closed to new business. 12. FIXED ASSET INVESTMENTS (continued) MAP former subsidiaries transferred to associates The remaining associates are Millfield Associate Partnership ("MAP") companies included in the list of principal investments that were transferred from subsidiary undertakings to associates as of 31 March 2005. At 31 March 2005 the company had put and call option agreements with the other shareholders of these MAP companies. Under the terms of these agreements Millfield Group plc was able to exercise the option to purchase and the other shareholders may exercise the option to sell the balance of shares not already held by the company on a stepped basis between 1 April 2005 and 30 September 2007 at a multiple of the companies' profits based on agreed performance targets, in each case with a two year earn out period. The shareholder agreements were modified effective 31 March 2005 limiting the company's total holding that may be acquired under these agreements to 49% in each company. This brought the company's dominant influence over their financial and operating policies to an end but still left it retaining significant influence. Given these share interests and the dominant influence exercised over their financial and operating policies by Millfield Group plc until 31 March 2005, these companies have been treated as subsidiaries until then. The companies' results are therefore included in full in the consolidated profit and loss account for the full year as in 2004 and the minority interest reflects the proportions of results relating to the percentages of shares not held. However, owing to these changes, the positions at 31 March 2005 have not been fully consolidated and are instead included in the consolidated balance sheet on the net equity basis. The aggregate amount of Capital and Reserves in these companies was a deficit of Â£470,420 at 31 March 2005. Other investments Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Cost and net book value At 1 April - - - - Transfer from joint ventures 3,713 - 3,151 - At 31 March 3,713 - 3,151 - Other investments comprise shares held in Lifetime Group Limited transferred from Joint ventures. 13. ACQUISITION OF SUBSIDIARIES On 1 October 2004 the company acquired 100% of the issued share capital of Inter-Alliance Group Plc for consideration of 19,682,796 shares of 0.175p each in the company amounting to a fair value of Â£7,356,824. The total cost of investment including acquisition expenses of Â£1,236,661 amounted to Â£8,593,485. This acquisition has been accounted and consolidated using the acquisition method. 13. ACQUISITION OF SUBSIDIARIES (continued) The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the group: Book and Fair value to Group Â£'000 Fixed assets Tangible fixed assets 858 Current assets Debtors 11,183 Cash at bank and in hand - available on demand 1,446 Cash at bank and in hand - secured deposits 457 Total assets 13,944 Creditors Bank loans (457) Other loans (2,193) Trade creditors (5,914) Other creditors (399) Accruals (3,584) Provisions for liabilities and charges (7,674) Total liabilities (20,221) Equity minority interest 9 Net liabilities (6,268) Goodwill 14,861 8,593 Satisfied by Shares allotted 7,357 Adviser expenses 1,236 Total consideration 8,593 Net cash outflows/(inflows) in respect of the acquisition comprised: Adviser expenses 1,236 Cash at bank and in hand acquired (1,446) (210) 13. ACQUISITION OF SUBSIDIARIES (continued) Inter-Alliance Group Plc and its subsidiaries incurred a consolidated loss after taxation and minority interests of Â£17,913,000 in the 15 months ended 31 March 2005, of which Â£12,641,000 arose in the period from 1 January 2004 to 30 September 2004. The summarised consolidated profit and loss account for the period from 1 January 2004 to 30 September 2004, shown on the basis of the accounting policies of Inter-Alliance Group Plc prior to the acquisition is as follows: Â£'000 Turnover 52,954 Cost of sales (40,038) Gross Profit 12,916 Administrative expenses (25,662) Operating loss (12,746) Interest receivable and similar income 198 Interest payable and similar charges (33) Profit on ordinary activities before taxation (12,581) Tax on profit on ordinary activities (1) Profit on ordinary activities after taxation (12,582) Minority interests (59) Loss for the period (12,641) The consolidated loss after taxation and minority interests of Inter-Alliance Group Plc and its subsidiaries in the year ended 31 December 2003 was Â£33,475,000. There were no other recognised gains or losses in respect of Inter-Alliance Group Plc and its subsidiaries other than the above losses over those periods. 14. PROFIT ON DISPOSAL OF JOINT VENTURE INTEREST A control premium of Â£824,400 was received on 8 October 2004 in consideration for the transfer by the company to Norwich Union of its share of the joint control rights held in Lifetime Group Limited. 15. STOCKS Group Group 2005 2004 Â£'000 Â£'000 Raw materials and consumables 5 6 16. DEBTORS Restated Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Trade debtors 6,203 4,000 26 - Amounts owed by group undertakings - - 20,033 8,039 Amounts owed by associates 431 - 274 - Other debtors 1,831 1,084 107 348 Prepayments and accrued income 5,820 4,838 1 22 Accrued lapse recovery 7,659 2,972 - - 21,944 12,894 20,441 8,409 Certain group debtor comparatives have been restated to be consistent with current year presentation; these were modified to more fairly present their nature. Accrued lapse recovery from advisers is presented gross of the Lapse provision, whereas it was reported net against provisions in 2004. Commission income due but not received is included in Trade debtors, whereas the comparative debtor of Â£2,283,010 was reported in prepayments and accrued income in 2004. Prepayments include advanced commissions to advisers and associates of Â£2,960,596 net of bad debt provisions, whereas in 2004 the balance of Â£3,017,346 was reported under other debtors. 17. INVESTMENTS HELD AS CURRENT ASSETS. Cost and net book value Group Group 2005 2004 Â£'000 Â£'000 Lifetime Group Limited 251 251 The current asset portion of the investment in Lifetime Group Limited reflects a holding of 10.1% of the company's ordinary share capital and has been excluded from fixed asset investments as these shares were held for short term resale. The reduction in percentage interest from 16.9% at 31 March 2004 arises from the share issue explained in note 12. These shares have since been sold as explained in note 32. 18. CREDITORS: amounts falling due within one year Restated Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Bank loans and overdrafts 404 606 - - Other loans 4,166 - 4,000 - Trade creditors 9,327 5,210 26 46 Amounts owed to group undertakings - - 22,298 20,335 Corporation tax (14) 9 - - Other taxes and social security 1,068 1,686 9 3 Other creditors 1,031 1,635 79 - Accruals and deferred income 5,822 1,540 804 70 21,804 10,686 27,216 20,454 Certain group creditor comparatives have been restated to be consistent with the current year presentation; these were modified to more fairly present their nature. Commission due is included in trade creditors whereas in 2004 amounts of Â£2,386,248 and Â£930,838 were reported in Other creditors and Accruals and deferred income respectively. 19. CREDITORS: amounts falling due after more than one year Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Bank loans 41 223 - - Other loans 11,000 - 11,000 - Loan notes - 1,340 - 1,340 Other creditors 422 598 151 - Accruals 3,268 - - - 14,731 2,161 11,151 1,340 Borrowings are repayable as follows: Group Group Company Company 2005 2004 2005 2004 Â£'000 Â£'000 Â£'000 Â£'000 Bank loans Between one and two years 40 125 - - Between two and five years 1 98 - - 41 223 - - Other loans Between one and two years 1,000 - 1,000 - Between two and five years 10,000 - 10,000 - 11,000 - 11,000 - 20. PROVISION FOR LIABILITIES AND CHARGES Group Lapse provision Complaints Deferred tax Total provision Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 April - restated 4,336 - - 4,336 Acquired with subsidiaries 6,147 1,527 - 7,674 Disposal/transfer of subsidiaries (199) - - (199) Charged to profit and loss account 792 140 - 932 Utilised in year - (321) - (321) Transfer (13) - 21 8 Balance at 31 March 11,063 1,346 21 12,430 The lapse provision is a provision against commission received on an indemnity basis to cover the liability of repayment in the event that premiums cease within the indemnity period. This was previously reported net of amounts expected to be recovered from advisers but now reflects the gross position, the accrued lapse recovery being included in debtors, as this is considered a fairer presentation; the reported 2004 comparative of Â£1,364,000 has accordingly been restated. The complaints provision is the estimated probable liability relating to customer claims arising against the former Inter-Alliance Group to the extent that they are not covered by professional indemnity cover. These are partially funded by an experience account deposit with an insurer of Â£591,000 that is included within other debtors. 21. COMBINED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' FUNDS AND STATEMENT OF MOVEMENTS ON RESERVES Ordinary Deferred Share Merger Capital Profit and Total share consideration premium reserve reserve loss capital account account Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Group At 1 April 2004 160 1,309 44,876 11,709 2,227 (37,059) 23,222 Retained loss for year - - - - - (19,666) (19,666) Shares issued 47 - 3,828 7,322 - - 11,197 Share issue expenses - - (222) - - (222) Surplus arising on issue of shares by Joint Venture - - - - 1,713 - 1,713 Goodwill adjustments - 442 - - - - 442 At 31 March 2005 207 1,751 48,482 19,031 3,940 (56,725) 16,686 Company At 1 April 2004 160 1,309 44,876 10,180 - (3,685) 52,840 Retained loss for year - - - - - (25,221) (25,221) Shares issued 47 - 3,828 7,322 - - 11,197 Share issue expenses - - (222) - - - (222) Deferred consideration - 385 - - - - 385 At 31 March 2005 207 1,694 48,482 17,502 - (28,906) 38,979 Cash raised in respect of the placing of 6,400,000 Millfield Group plc ordinary shares of 0.175p amounted to Â£3,840,000 represented by a nominal value of Â£11,200 and premium of Â£3,828,800, with issue costs of Â£222,316. The issue of 19,682,796 shares to the value of Â£7,356,824 as consideration for the acquisition of Inter-Alliance Group Plc increased nominal share capital by Â£34,445 and the premium of Â£7,322,379 was credited to the merger reserve. Deferred consideration consists of the following: Â£847,200 relates to RST Group and comprises Millfield Group plc ordinary shares to be issued between 1 June 2006 and 30 September 2008 in respect of acquiring further shares in RST Group Limited which are subject to put and call options. Final determination of the value of the deferred consideration will be calculated using a multiple of profits in the five years ending 31 March 2008 and the number of Millfield Group plc shares to be issued will be based on their market price at the time of announcement of results of Millfield Group plc for each of the relevant financial years. Â£617,488 represents Millfield Group plc ordinary shares to be issued between 1 June 2006 and 30 September 2007 in respect of shares in Millfield Sureline Limited which are subject to put and call options. Final determination of the value of the deferred consideration will be calculated using a multiple of turnover in the two years ending 31 March 2004 and 31 March 2005 and the number of Millfield Group plc shares to be issued will be based on the market price at the time of the announcement of the results for those two financial years. Â£229,800 represents 381,594 Millfield Group plc ordinary shares issuable between 1 March 2005 and 30 November 2007 in respect of three Independent Financial Advisory businesses acquired by the company in prior years. Â£56,789 represents 136,842 Millfield Group plc ordinary shares issuable between 1 June 2006 and 31 January 2008 in respect of further Independent Advisory businesses acquired during the year by a subsidiary of the group. 22. MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS 2005 2004 Â£'000 Â£'000 At 1 April 23,222 26,388 Retained loss for year (19,666) (14,070) Shares issued 11,197 10,154 Share issue expenses (222) (1,455) Surplus arising on issue of shares by Joint Venture 1,713 2,227 Deferred consideration 442 (22) At 31 March 16,686 23,222 23. CALLED UP SHARE CAPITAL 2005 2004 Â£'000 Â£'000 AUTHORISED 257,142,857 (2004 - 200,000,000) Ordinary shares of 0.175p each 450 350 ALLOTTED: CALLED UP AND FULLY PAID 118,119,212 (2004 - 91,624,442) Ordinary shares of 0.175p each 207 160 The movements in share capital during the year were as follows: i) On 18 May 2004 Millfield Group plc completed a placing and open offer of 6,400,000 new ordinary shares of 0.175p each at 60p per share for a total cash consideration of Â£3,840,000. ii) 19,682,796 shares were issued in respect of the acquisition of 100% of the issued share capital of Inter-Alliance Group Plc on 1 October 2004. iii) During the year 411,974 options were exercised at a price of 0.175p. See note 26 for details on outstanding options. 24. FINANCIAL COMMITMENTS Capital commitments are as follows: Group Group 2005 2004 Â£'000 Â£'000 Contracted for but not provided for - other - 594 Annual commitments under non-cancellable operating leases are as follows: Group Land and Other Land and Other buildings buildings 2005 2005 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 Expiring: Within one year 709 297 93 136 Between two and five years 1,416 427 1,213 510 Over five years 976 - 511 - 3,101 724 1,817 646 Included in other debtors is the sum of Â£590,258 (2004 - Â£210,670) representing rental deposits secured in respect of the above lease obligations. 25. RELATED PARTY TRANSACTIONS Advantage has been taken of the exemption under Financial Reporting Standard No. 8 paragraph 3(c) not to disclose transactions between group undertakings. Included in commission payable are payments to David Stockdale of Â£232,425 (2004 - Â£125,281) who was a director of the company. These amounts were paid at the same rates of commission paid to all other financial advisers dealing with the group. At 31 March 2005 the following amount was included in debtors representing commission due from a director of the company:- David Stockdale Â£4,876 (2004 - Â£6,651). Support services were provided to Legacy Protect Limited ("Legacy") during the period. These services included the processing of commissions and accountancy. Legacy was charged Â£85,695 (2004 - Â£63,327) by the group for these services. Legacy also sub-leased premises from the group with rent and associated costs payable of Â£136,497 (2004 - Â£37,409) for the period. Legacy was charged Â£24,814 during the year in respect of inter-company indebtedness (2004 - Â£Nil). At 31 March 2005 the following amount was included in debtors representing the balance owed by Legacy:- Â£591,560 (2004 - Â£219,761) against which there is a provision of Â£435,255. At 31 March 2005 the following gross amounts, comprising commission advances, trading balances and short-term loans owed by related parties, were included net of provisions within debtors, amounts falling due within one year. Â£ Millfield (MSC) Limited 73,514 Millfield (JP Associates) Limited 496,761 Earl Elwood Limited 22,048 Millfield Fountain Limited 179,133 Millfield (SW) Limited 13,433 Millfield South East Limited 141,918 26. SHARE OPTIONS AND INCENTIVE SCHEMES On 18 January 2005, 2,729,966 options were granted to members of staff (including 272,727 granted to directors) under the company's Approved Executive Share Option Scheme and a further 4,586,210 options were granted to members of staff (including 2,548,273 granted to directors) under the company's Unapproved Executive Share Option Scheme. The total of these options i.e. 7,316,176 were capable of being exercised between 31 March 2008 and 18 January 2015, subject to achievement of performance conditions. The exercise price is Â£0.33p for all options. The following share options were exercised in the year: Date Number Exercise price 20/5/04 18,062 0.175p 12/8/04 7,336 0.175p 19/8/04 21,358 0.175p 20/8/04 83,749 0.175p 26/8/04 10,061 0.175p 30/9/04 66,072 0.175p 3/12/04 144,037 0.175p 6/12/04 41,299 0.175p 23/12/04 20,000 0.175p 26. SHARE OPTIONS AND INCENTIVE SCHEMES (continued) At the end of March 2005 the total number of options granted but not exercised totals 13,082,790, that is 11.08% of the issued share capital. Number Date between which exercisable Exercise price Aggregate value Â£ 197,573 5 July 2002 to 5 July 2006 0.175p 346 319,298 12 April 2003 to 12 April 2007 0.175p 559 333,879 21 February 2004 to 21 February 2008 0.175p 584 2,312,530* 21 February 2004 to 21 February 2011 Â£1.18p 2,728,786 866,134 22 April 2007 to 22 April 2012 Â£1.363p 1,180,541 1,037,200 19 August 2008 to 19 August 2013 Â£0.535p 554,902 700,000+ 19 August 2008 to 19 August 2013 Â£0.65p 455,000 2,159,088(1) 31 March 2008 and 18 January 2015 Â£0.33p 712,499 2,159,088(2) 31 March 2008 and 18 January 2015 Â£0.33p 712,499 2,998,000 (3) 31 March 2008 and 18 January 2015 Â£0.33p 989,340 * 816,326 options are exercisable on achieving market capitalisation of Â£100 million. + options are exercisable on condition that the company's share price has reached a price of Â£1.50. (1) on condition that the company's share price has reached a price of Â£0.60p (2) on condition that the company's share price has reached a price of Â£0.80p (3) on condition that the company's share price has reached a price of Â£1.18p 27. CONTINGENT LIABILITIES VAT assessment The group has received a VAT assessment of Â£480,000 in respect of VAT recovered by Inter-Alliance Group Plc prior to the merger but which HM Revenue & Customs ("HMRC") now consider repayable. An appeal against this assessment has been made and on 12 August 2005 HMRC upheld their decision that the assessment had been correctly made. Subsequent to this they have agreed to reconsider certain technical aspects of this assessment, the impact of which could reduce the claim to an insignificant amount. The group is engaged in further discussions with HMRC in respect of these outstanding technical aspects and is taking additional professional advice to determine whether it will contest this claim in the event that agreement with HMRC cannot be reached. No provision has been made for this since it is not possible to determine the amount that may ultimately be payable. Lincoln sales force transfer The group may incur a claim from a product provider under a sales force transfer agreement entered into by Inter-Alliance Group Plc in September 2000. Under this agreement the product provider was to be refunded commission for any of its business replaced by alternative provider contracts in the period from September 2000 through to December 2005. The cost of this refund is rechargeable by the company to the advisers concerned. Incomplete accounting for this complex issue has occurred and the age of the underlying transactions now makes this particularly difficult. The company and product provider are currently pursuing a commercial resolution of this issue that avoids damage to either party and enables a future commercial relationship to be maintained in their mutual interests. The company has not disclosed additional details of this potential claim on the grounds that this would prejudice the current discussions. The directors remain optimistic that this matter can be resolved by mutually beneficial commercial initiatives. 28. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2005 2004 Â£'000 Â£'000 Operating loss (18,750) (12,881) Depreciation charge 1,546 1,205 Loss on disposal of fixed assets 842 - Amortisation of goodwill 1,915 1,388 Impairment of goodwill - 2,166 Decrease/(increase) in stocks 1 (1) Decrease/(increase) in debtors 1,872 (2,996) Increase in creditors 1,522 3,218 Increase/(decrease) in provisions 474 (76) Deferred consideration - (589) Reclassification of intangible - 10 Restatement of intangible value due to prior year adjustment - (96) Net cash outflow from operating activities (10,578) (8,652) 29. ANALYSIS OF CASH FLOWS 2005 2004 Â£'000 Â£'000 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 285 198 Interest paid (371) (153) Net cash (outflow)/inflow (86) 45 TAXATION UK corporation tax paid (12) - Net cash outflow (12) - CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (953) (1,478) Sale of fixed assets 352 - Net cash outflow (601) (1,478) ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings (150) (379) Acquisition expenses (1,236) (52) Net cash acquired with subsidiaries 1,446 - Net cash disposed with subsidiaries (12) - Cash of associates formerly subsidiaries (175) - Payments for unincorporated businesses (1,024) (127) Proceeds from disposal of joint venture interests 824 - Net cash outflow (327) (558) FINANCING Issue of ordinary share capital 3,840 10,154 Expenses paid in connection with share issue (222) (1,455) Repayment of bank loans (754) (251) Receipt of secured bank deposits 457 - Proceeds of new loans 13,000 - Repayment of other loans (1,372) - Net cash inflow 14,949 8,448 30. ANALYSIS AND RECONCILIATION OF NET FUNDS At Cash flow Acquisitions At and disposals* 1 April 31 March 2004 2005 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 4,515 3,258 7,773 Overdrafts (376) 87 (289) 4,139 3,345 7,484 Debt due within one year (230) (3,858) (193) (4,281) Debt due after more than one year (1,563) (7,021) (2,457) (11,041) Net funds 2,346 (7,534) (2,650) (7,838) * Excluding cash and overdrafts. 2005 2004 Â£'000 Â£'000 Increase/(decrease) in cash in the year 3,345 (2,195) Cash (inflow)/outflow from (increase)/decrease in debt (10,879) 251 Change in net funds resulting from cash flows (7,534) (1,944) Loans acquired with subsidiaries (2,650) - Other non-cash movements in loan notes - 22 Movement in net funds in year (10,184) (1,922) Net funds at 1 April 2,346 4,268 Net funds at 31 March (7,838) 2,346 31. INTEREST RATE EXPOSURE The group does not enter into derivative or hedging transactions and held no significant foreign currency assets or liabilities at 31 March 2005. The group policy is to maximise investment income by investing surplus funds in short term deposits, where exposure to fluctuating returns and liquidity risks can be minimised. There are no material differences between the book value and fair value of the group's financial assets and liabilities at 31 March 2005. 31. INTEREST RATE EXPOSURE (continued) The group's interest rate exposure includes only non-trading debtors and creditors and is summarised below: At 31 March 2005 Within three Between three Between six Between one Non Total months and six and twelve and five interest months months years bearing Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Non trading assets Cash at bank and in hand 1,953 - - - 15 1,968 Deposits 5,805 - - - - 5,805 7,758 - - - 15 7,773 Non trading liabilities Bank overdrafts (289) - - - - (289) Bank loans (38) (34) (43) (41) - (156) Other loans (808) (1,750) (1,608) (11,000) - (15,166) (1,135) (1,784) (1,651) (11,041) - (15,611) Non trading net assets 6,623 (1,784) (1,651) (11,041) 15 (7,838) At 31 March 2004 Within three Between three Between six Between one Non Total months and six and twelve and five interest months months years bearing Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Non trading assets Cash at bank and in hand 487 - - - 105 592 Deposits 2,873 1,050 - - - 3,923 3,360 1,050 - - 105 4,515 Non trading liabilities Bank overdrafts (376) - - - - (376) Bank loans (40) (49) (141) (223) - (453) Loan note (290) (1,050) - - - (1,340) (706) (1,099) (141) (223) - (2,169) Non trading net assets 2,654 (49) (141) (223) 105 2,346 The terms and interest rates of other loans at 31 March 2005 are as follows: Lender Repayment Interest Rate Â£'000 Prudential UK Services Ltd 4 quarterly instalments LIBOR + 4% 3,000 Friends Provident Life 5th Anniversary LIBOR + 4% 3,000 and Pensions Ltd Friends Provident rolling deferred repayment LIBOR + 1% 108 International Ltd Zurich International Life Ltd 9 monthly instalments LIBOR + 4% 58 Scottish Widows plc 3rd Anniversary by 6 instalments Base + 5% 3,000 AXA Sun Life Plc 5th Anniversary Gilt + 2.75% 300 AXA Sun Life Plc 5th Anniversary Gilt + 2.75% 700 AXA Sun Life Plc 5 annual instalments LIBOR + 2.75% 2,000 Skandia Life Assurance (Holdings) Ltd 5 annual instalments LIBOR + 5% 3,000 15,166 32. POST BALANCE SHEET EVENTS Sale of Lifetime Group On 5 August 2005, the group's 24.73% shareholding in Lifetime Group Limited was sold by the joint holders, the company and its subsidiary Millfield Partnership Limited, to Norwich Union Life Investment Partnership Limited. Consideration for the sale was an initial amount of Â£9m paid on completion together with deferred consideration of up to a maximum Â£6m, contingent upon certain performance targets being achieved, a portion of which will be ceded to advisers. The deferred consideration is payable in four instalments as follows: 31 May 2006 Â£2.0m 30 April 2007 Â£1.5m 30 April 2008 Â£1.5m 30 April 2009 Â£1.0m The excess of initial proceeds net of expenses over the carrying value of the investment is approximately Â£4.9m, the gain to be reflected in the consolidated profit and loss account for the coming year. Loan agreements The terms attaching to the following loans (see note 31) were amended by supplemental agreements in August 2005 to provide a deferral of the capital repayment terms as follows: Lender Rescheduled Repayment Prudential UK Services Ltd Payable in 4 quarterly instalments commencing 30 January 2006 (originally commencing 30 April 2005) AXA Sun Life Plc (Â£2m) Payment of the first and second of 5 the annual instalments is deferred by 9 months Skandia Life Assurance (Holdings) Ltd Payment of the first and second of 5 the annual instalments is deferred by 9 months The combined effect of these supplemental agreements is to defer repayment of these loans and therefore Â£3.25m of the Â£4m shown by the company within Creditors: amounts falling due within one year at 31 March 2005 in note 18, now falls due in more than one year after the balance sheet date. Legacy Protect Limited On 13 July 2005 one of the group's associates, Legacy Protect Limited, closed to new business. Millfield Packaging 4 Mortgages Limited On 16 August 2005, Millfield Packaging 4 Mortgages Limited, a subsidiary undertaking, closed to new business. 33. 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 2004 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 2005 has been extracted from the statutory accounts approved by the directors on 5 September 2005. 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 14 September 2005. After that time they will also be available at the company's registered office at Knollys House, 17 Addiscombe Road, Croydon, Surrey, CRO 6SR. This information is provided by RNS The company news service from the London Stock Exchange

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