Interim Results

Millfield Group PLC 09 December 2002 Date: 09 December 2002 On behalf of: Millfield Group plc ("Millfield") Embargoed until: 0700hrs Millfield Group plc Interim Results 2002 Millfield Group plc, the AIM-listed national independent financial advisory organisation, today announced its results for the six months period to 30 September 2002. The highlights are: • Turnover more than doubled to £14.2m (2001: £6.7m); • Gross profit up 172% to £4.9m (2001: £1.8m). Loss before amortisation of goodwill and share of joint venture loss of £5.4m (2001: £2.2m); • Increase in total number of advisers to 422 (106 at 30th September 2001); • Increase in number of UK locations to 31 (September 2001: 8); • Formation of Lifetime Portfolio Services ("Lifetime") a joint venture company to provide online portfolio management services to IFAs and their clients; • Unique stepped acquisition programme devised to participate in the consolidation of the advisory market funded by £12m Placing with five leading product providers; • Establishment of Adviserco Limited, a vehicle to service advisers clients at an enhanced margin with fees and commissions shared between the adviser & Millfield; and • Appointment of Terry Stannard as a Non-Executive Director. Commenting on the results, Richard Mansell-Jones, Chairman of Millfield, said: "Our focus since our successful flotation on AIM in March 2001 has been to create a robust, scaleable infrastructure, to develop a network of offices spanning the length and breadth of the UK, and to recruit several hundred high calibre IFAs. We have successfully achieved these objectives in an environment of low investor confidence, volatile stockmarkets and uncertainty about the nature of change in the regulatory regime in the financial services sector. Our primary goal now is to drive profitability from these investments." Enquiries to: Paul Tebbutt, Chief Executive, Millfield Group plc Tel 020 8604 2607 Mob 07958 992812 Harry Roome, Finance Director, Millfield Group plc Tel 020 8604 2623 Mob 07855 259148 Simon Atkinson, Collins Stewart, Stock brokers Tel 020 7523 8000 Emma Kane, Redleaf Communications, City PR Consultants Tel 020 7955 1410 CHAIRMAN'S STATEMENT Since its flotation in March 2001, Millfield has created a national independent financial advisory organisation offering truly independent financial advice to both individuals and businesses across the length and breadth of the UK. This has been achieved against a background of economic uncertainty, high levels of volatility in global stockmarkets and significant, on-going uncertainty about regulatory changes in the financial services industry. While this has impacted on investors' confidence generally, Millfield's diverse range of specialist services has enabled the Group to minimise the impact of these conditions. During the period, Millfield has continued its investment programme and today has a robust, scaleable infrastructure, and a nationwide network of offices. Most importantly it has recruited excellent, high calibre advisers and employees - essential foundations for this long-term, fast growing business. RESULTS Results for the first half of the year, historically the slower half, show turnover more than doubled to £14.2 million (2001: £6.7m), administration costs before goodwill amortisation at £10.5 million (2001: £4.5m), and losses of £5.9 million (2001: £2.2m). Against the second half of last year costs before goodwill amortisation are up 13 per cent with flattening infrastructure spend, resulting in an 11 per cent increase in losses before goodwill amortisation and our £0.2 million share of the losses of our joint venture company, reflecting its initial investment costs. At 30 September 2002, companies within the Group held £14.4 million of cash balances with a further £3.3 million held by Lifetime. On 18 July 2002,we successfully completed share issues to raise £17.2 million before expenses of £1.1 million, £12.0 million from product providers to support our stepped acquisition programme and £5.2 million from institutional and other existing shareholders for working capital primarily for investment in Lifetime and to replace cash deployed in the acquisition of Moncur Jackson. ACHIEVING CRITICAL MASS AND DRIVING PROFITABILITY The level of business in the second half of our financial year is historically higher than in the first half of the year. This coupled with the continuing growth in the number of our advisers means that we expect turnover to increase substantially in the second half of the year and in our next financial year. The key to Millfield's success is its ability to recruit top quality IFAs and drive profitability. This is the primary focus of the Group. During the period, we increased the number of advisers operating within the Group to 422 (2001: 106). Our recruitment programme remains strong and is focused on established IFAs. The goal is to achieve in excess of 750 professional advisers. We are continually developing internal procedures, initiatives and support mechanisms to maximise the full potential of each of our advisers. Our business plan envisages the average new adviser delivering annual turnover of between £75,000 and £100,000, increasing to an average of £200,000 in a four year period. We have found that through recruiting established IFAs their initial business plans exceed £100,000. The significant growth in the number of advisers during this period means that many have yet to achieve the higher levels of productivity. The 422 advisers at 30 September 2002 are net of 25 advisers who left because they unfortunately failed to achieve the required productivity levels. Millfield drives profitability through specialisation, continuous development and by providing our advisers with a time and cost efficient environment in which to operate. Substantial progress has been made in this area during the first six months of the financial year, including: • Establishment of the Millfield Business Centre in Hull which is staffed by 70 people who deal with all telephony and proposal submission administration; • Employment of over 100 paraplanners and personal assistants in the branches to support the advisers; • The appointment of specialist advisers in areas such as employee benefits, specialist tax advice, inheritance tax planning, pensions, protection and long term care; • Creation of lead generation programmes, principally through our affinity groups, a growing number of accountants and solicitors, our corporate appointment programme, and the pensions campaign we have been running in a leading national newspaper; and • Specialist training and advanced qualifications for advisers through the Millfield Academy which is supported by leading insurance groups and fund managers. OFFERING FLEXIBLE SOLUTIONS FOR CUSTOMERS AND ADVISERS Developments arising from Government reports through Sandler on investments, Pickering on pensions and Consultative Paper 121 from the FSA on depolarisation and the future structure of the industry, continue to endorse the approach we are taking. Millfield has developed a structure which it believes will enable it to maximise the full potential of these developments for the benefit of all its advisers, employees and clients. We are delighted that the question of adviser remuneration raised within Consultative Paper 121 has been settled, in principle, with the adoption of a menu based system for our clients. • Millfield Partnership This is Millfield's core business with 347 advisers, (of which 11 are Millfield Protection & Mortgages advisers), in 14 locations, including those acquired through the acquisition of HFP Holdings Limited (Heritage) on 1 October 2001. The turnover of Millfield Partnership in the first half of the year was £11.8 million, up from £6.6 million in the first half of last year. This is a satisfactory result, demonstrating the continued growth of the business. The gross margin earned was 35.5 per cent in the first half, up from 25.7 per cent in the first half of last year, as a result of our progressive commissions and fee structure for our advisers. • Millfield Associate Partnership We have developed a model for bringing firms into the Millfield Group, participating in the industry trend of consolidation and, securing for Millfield existing firms and groups of advisers, led by vigorous entrepreneurs, where payment is linked to proven value. Millfield provides a Board structure and a range of services to these firms in order to develop their businesses and ensure the achievement of their business plan. Following the fund raising completed in July this year, we have been looking to take equity stakes in qualifying firms for cash and shares, to provide working capital to support the development of these businesses, with stepped acquisitions over two to six years to acquire 100 per cent of the equity, in return for Millfield Group plc shares, at a price based on a multiple of post tax profits. The stepped acquisition programme was delayed during the first half of this year while we raised the funds required and developed the deal structure. Accordingly, during the first half of the year, we took on just one additional firm with a resulting aggregate turnover of £1.3 million, compared to £0.6 million turnover in the second half of the last financial year. At 30 September 2002, we had eight associate firms with 63 advisers including 13 Millfield Protection & Mortgages advisers. • Millfield Private Clients S.a.r.l MPC is a Guernsey based financial services advisory company that has 12 advisers offering a variety of offshore products to high net worth offshore investors. EVENTS SINCE 30 SEPTEMBER 2002 On 21 November 2002, Millfield announced the acquisitions of three financial services businesses - Sureline, Mortgage Savings Centre and Simply Online. • Sureline Asset Management Limited Millfield has entered into a stepped acquisition agreement with Sureline Asset Management Limited ("Sureline") an IFA business based in Hertford with 14 advisers and an audited turnover of over £1 million with the growth potential and culture that fits our model. • Contemporary Life Limited (Trading as Mortgage Savings Centre "MSC") Millfield has entered into a stepped acquisition agreement with MSC, a specialist mortgage advisory business based in Edgware with 10 advisers and an unaudited turnover of £500,000 in the year ended 31 July 2002.This business has excellent potential and fits our model. • Simply Millfield Limited (providing on-line term assurance direct to customers) Simply Millfield has been established as a 90% owned subsidiary following the acquisition of the assets including the intellectual property rights of Simply Online Limited from the liquidators. This expands our distribution capability by generating new business through advertising and online which will commence in January 2003. The purchase of this company has enabled us to bring forward our plans for electronic processing by some 12-18 months and we now have the vehicle to deliver simple products online. • Millfield Associate Partnership In the last week of November, we signed new stepped acquisition transactions with five of the firms that joined us based on our original MAP contract, where we acquired 10% equity in year 1 with an option to increase this in year 3. Our new contract starts at 25%, provides working capital and a new Board structure on completion. In total, these five firms now comprise 54 advisers. Cash expenditure on these five acquisitions amounts to £888,500. Including the acquisitions announced on 21 November 2002 we now have 73 advisers. Cash expenditure and loan note commitments on all these acquisitions amounts to £1.5 million. Company Primary Location Initial % Acquired Millfield (AAP) Ltd Northern Ireland/Scotland 25% Millfield (JP Associates) Ltd Cambridge 25% Millfield Fountain Ltd Cheltenham 25% Millfield (SW) Ltd Devon 25% Millfield (SE) Ltd Croydon 30% • Product Innovations Limited PIL has been recently formed as an offshore product design and consulting business. It provides consulting services to asset managers and investment banks. • Lifetime Lifetime was established in June 2002 as a joint venture with AM Corporation Ltd to provide online portfolio and wealth management services to IFAs and their clients. Millfield has recently increased its stake in Lifetime to acquire a controlling interest of 78.2% which is expected to diminish as the shareholder base of the business is expanded. The service is scheduled to be launched during the course of the next financial year following regulatory approval. • Driving Revenues and Servicing Clients within Millfield Partnership Limited Millfield today also announces arrangements that will enable it to provide services direct to its advisers' clients, giving these clients the option of dealing direct through Millfield's Business Centre in Hull thereby providing the clients with a choice of services, at an enhanced margin with fees and commissions being shared between the adviser and Millfield. For a consideration of 5 million Millfield Group plc shares of 0.175p, Millfield will acquire the "A" shares of Adviserco Limited, a new company which has been set up to acquire servicing rights for selected clients which were serviced by Millfield advisers. The number of Millfield shares acquired by each adviser will be dependent on the levels of business written during the 5 year period to 31 March 2006. Advisers will have a two year earn out period to 31 March 2008. This initiative secures long term retention benefits for advisers, clients and shareholders. • The plc Board The Board is pleased to announce the appointment of Terry Stannard as an independent Non-Executive Director with effect from 19 December 2002. Terry, aged 52, has held executive directorships of several major plc companies including his appointment as Chief Executive of Uniq plc (formerly Unigate plc). He brings a wide range of skills particularly in the area of brand management and distribution which we believe will make a strong overall contribution to our business. In addition to his directorship in the Company, he holds or has held the following directorships and/or been a partner in the following partnerships within the last five years: Current - Alpha Airports PLC, S.Daniels PLC, James Beattie PLC. Past - Hillsdown Holdings PLC,Terranova Foods PLC, Unigate PLC, Uniq PLC. Derek Noone and Jeremy Bradburne who became Non-Executive Directors on 21 February 2001 and 1 April 2002 respectively are now both developing the Lifetime business as Executive Directors. OUTLOOK Millfield has continued to develop in line with its strategy and the plans we set out at both the flotation last year and the fundraising in the summer. Our Associate Partnership is now moving ahead strongly following the fundraising and restructuring of the existing companies and the new firms that have joined. The uncertainty of the financial markets has affected business levels across the Group, and a number of our business clients have deferred implementing the advice that we have given them. Because Millfield offers a broad range of advice across all areas this means that our performance has been relatively resilient despite the current economic environment. Our focus for the second half is to increase turnover and manpower. I am confident that we have the people and the infrastructure to deliver this plan. Richard Mansell-Jones Non-Executive Chairman 6 December 2002 Consolidated Profit & Loss Account Year Six months ended ended 30 September 31 March 2002 2001 2002 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 TURNOVER 14,175 6,742 20,505 Cost of sales (9,280) (4,900) (14,573) Gross profit 4,895 1,842 5,932 ADMINISTRATIVE EXPENSES Goodwill amortisation (316) (1) (266) Other (10,484) (4,521) (13,773) (10,800) (4,522) (14,039) OPERATING LOSS (5,905) (2,680) (8,107) Share of operating loss in joint venture (190) 0 0 Interest receivable and similar income Group 190 432 699 Joint venture 4 0 0 Interest payable and similar charges (16) 0 (4) LOSS ON ORDINARY ACTIVITIES BEFORE AND AFTER TAXATION (5,917) (2,248) (7,412) Equity minority interests (3) 0 0 LOSS FOR THE FINANCIAL PERIOD ATTRIBUTABLE TO SHAREHOLDERS (5,920) (2,248) (7,412) Deficit brought forward (8,265) (853) (853) DEFICIT CARRIED FORWARD (14,185) (3,101) (8,265) Loss per share (9.82p) (4.77p) (14.18p) Consolidated Balance Sheet 30 September 31 March 2002 2001 2002 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 FIXED ASSETS Intangible assets 11,960 21 12,275 Tangible assets 3,235 1,244 2,899 Investments 98 0 0 Investments in joint venture: Share of gross assets 2,803 0 0 Share of gross liabilities (121) 0 0 Goodwill arising on acquisition less amortisation 282 0 0 18,257 1,265 15,174 CURRENT ASSETS Debtors 9,026 3,163 7,641 Cash at bank and in hand 14,409 14,063 8,675 23,435 17,226 16,316 CREDITORS: Amounts falling due within one year (6,183) (3,010) (6,356) NET CURRENT ASSETS 17,252 14,216 9,960 TOTAL ASSETS LESS CURRENT LIABILITIES 35,509 15,481 25,134 CREDITORS: Amounts falling due after more than one year (1,050) 0 (1,050) 34,459 15,481 24,084 PROVISIONS FOR LIABILITIES AND CHARGES (856) (346) (752) MINORITY INTERESTS Equity minority interests (3) 0 0 NET ASSETS 33,600 15,135 23,332 CAPITAL AND RESERVES Called up share capital 123 83 101 Deferred consideration 325 0 325 Share premium account 35,628 16,624 19,462 Merger reserve 11,709 1,529 11,709 Profit and loss account (14,185) (3,101) (8,265) EQUITY SHAREHOLDERS' FUND 33,600 15,135 23,332 These financial statements were approved by the Board of Directors on 6 December 2002. Signed on behalf of the Board of Directors: Richard Mansell-Jones Paul Tebbutt Harry Roome Consolidated Cash Flow Statement Year Six months ended ended 30 September 31 March 2002 2001 2002 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Operating loss (5,905) (2,680) (8,107) Depreciation charge 364 205 361 Loss on disposal 0 0 98 Goodwill amortisation charge 316 1 266 Increase in debtors (1,385) (1,695) (6,385) (Decrease)/increase in creditors (173) 634 3,980 Increase in provisions 104 101 507 Net cash outflow from operating activities (6,679) (3,434) (9,280) Returns on investments and servicing of finance Interest received 190 222 470 Interest paid (16) 0 (4) 174 222 466 Capital expenditure and financial investment Purchase of tangible fixed assets (700) (1,236) (3,013) Sale of tangible fixed assets 0 0 92 (700) (1,236) (2,921) Acquisitions and disposals Acquisition expenses 0 0 (853) Overdraft acquired with subsidiary 0 0 (90) Purchase of fixed asset investments (98) 0 0 Purchase of joint venture interest (3,151) 0 0 (3,249) 0 (943) Financing Cash receipts from share issues 17,238 0 2,945 Expenses paid in connection with share issues (1,050) 0 (103) 16,188 0 2,842 Increase/(decrease) in cash in the period 5,734 (4,448) (9,836) Reconciliation of net cash flow to movements in funds Increase/(decrease) in cash in the period 5,734 (4,448) (9,836) Net funds at beginning of period 8,675 18,511 18,511 Net funds at end of period 14,409 14,063 8,675 Notes 1. BASIS OF PREPARATION The interim accounts, which are unaudited, have been prepared on the basis of the accounting policies set out in the 2002 group accounts. The figures shown for the full year ended 31 March 2002 represent an abridged version of the full accounts of Millfield Group plc for that year, which have been filed with the Registrar of Companies and on which the auditors have given an unqualified report. The financial information contained in this interim report does not constitute the Group's statutory accounts within the meaning of section 240 of the Companies Act 1985. 2. LOSS PER SHARE The calculation of loss per share on losses attributable to shareholders is based on losses after taxation of £5,919,670 (2001: £2,248,000) and on 60,303,016 (2001: 47,120,401) ordinary shares, being the weighted average number of shares in issue during the six months. FRS 14 requires 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 diluting future share issues, the diluted loss per share is the same as the basic loss per share for the year. 3. POST BALANCE SHEET EVENTS Since 30 September 2002, Millfield Group plc has signed stepped acquisition transactions with five of the existing eight Millfield Associate Partnership firms and with two additional firms. The cost of the initial tranches was satisfied with £1,512,637 of cash/loan notes and 272,822 Millfield Group plc shares. £468,598 of loans outstanding at 30 September 2002 are being repaid by the firms. Existing MAP Firms Initial % Acquired Millfield (AAP) Limited 25% Millfield (JP Associates) Limited 25% Millfield Fountain Limited 25% Millfield (SW) Limited 25% Millfield (SE) Limited 30% New MAP Firms Millfield Sureline Limited 50% Contemporary Life Limited 25% (T/A Mortgage Savings Centre) The remaining shareholdings will be acquired between 2004 and 2007 at a multiple of profits or turnover based on agreed performance targets, with a two year earn out period. Independent Review Report to Millfield Group plc INTRODUCTION We have been instructed by the Company to review the financial information for the six months ended 30 September 2002, which comprises the profit and loss account, the balance sheet, the cash flow statement and related notes 1 to 3.We have read the other information contained 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 also responsible for ensuring that the accounting polices and presentation applied to the interim figures are 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 conducted our review in accordance with the 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 six months ended 30 September 2002. Deloitte & Touche Chartered Accountants and Registered Auditors London 6 December 2002 NOTES TO EDITORS: Profile • Millfield Group plc is today a national independent financial advisory group offering independent financial advice to both businesses and individuals through its principal operating company Millfield Partnership Limited. • Millfield currently retains the services of 450 self-employed advisers, up from 422 at September 2002, operating from 31 locations across the United Kingdom including a small number of advisers offering offshore products through its Guernsey based company. • Millfield concentrates on providing specialist and holistic financial advice to individuals, companies and affinity groups focusing on strategies that achieve financial security and wealth for our clients. This is accomplished by utilising the full range of products and services that are available within the independent marketplace. Our advisers specialise in pensions planning pre and post retirement, the full range of protection, investment, long term care, inheritance tax planning and the most up to date mortgage solutions for our clients. • Millfield intends to maintain its focus on these target markets and significantly increase its market presence and professionalism through sector specialists, working closely with lawyers, accountants, stockbrokers to benefit their corporate and individual clients. • Millfield's business model continues to meet the changing environment in which modern financial advisers find themselves. We have recently completed training programmes for all of our advisers based on the findings and outputs from the Sandler report. The report recommended that independent financial advisers improve their knowledge of investment advice, aggregation, risk profiling and fund selection. This is part of our continuous development programme for our advisers. • Millfield's goal is to continue to create an organisation that is geared to protecting and enhancing the productive time, abilities, energies and achievements of its financial advisers. Our success to date has been built on offering a friendly, professional service to our advisers and their clients in order to create security and wealth for them. This information is provided by RNS The company news service from the London Stock Exchange

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