Placing/open offer & JV

Millfield Group PLC
25 June 2002


NOT FOR DISTRIBUTION IN THE UNITED STATES, CANADA, JAPAN, THE REPUBLIC OF
IRELAND, SOUTH AFRICA OR AUSTRALIA

Date:                      25 June 2002
On behalf of:              Millfield Group plc
Embargoed until:           0700hrs

Millfield Group plc

•         Programme of Strategic Acquisitions of IFA Businesses

•         Joint Venture To Set Up A Personal Portfolio Services Business

•         Firm Placing and Placing and Open Offer to Raise a Total of £17.2m
          before expenses

•         Preliminary Results for the year ended 31 March 2002

Summary

Millfield, the financial services group, today announced that it is seeking to
develop further a focused and high quality financial advisory business,
supported by ventures which complement this activity, through its:



•         Proposed undertaking of a programme of strategic acquisitions of
smaller IFA businesses; and

•         Creation of a joint venture with AM Corporation and AM Financial Pty
Limited ("AM") to set up a personal portfolio services business.



These developments are in line with the Group's objective of seeking to improve
the delivery of its financial services through enhanced relationships with
product providers, maximise the productivity of IFAs and provide additional,
complementary services for its IFAs and their customers.



In order to fund these developments, the Group is seeking to raise a total of
£16 million net of expenses through a:



•        £11.2 million Firm Placing with financial product provider
institutions of 8,823,530 new ordinary shares at 136p per share - primarily to
fund the proposed programme of strategic acquisitions of IFA businesses.
Institutions investing comprise:

         -  Aegon UK plc, Friends Provident Life & Pensions Limited, Norwich 
         Union Life & Pensions Limited, Scottish Widows plc, and Skandia.



•         £4.8 million Placing and Open Offer by Collins Stewart of 3,851,204
new ordinary shares at 136p per share - primarily to provide additional working
capital, largely to fund a joint venture with AM to set up a personal portfolio
services business



The Open Offer is being made to qualifying shareholders on the basis of:



                 1 Offer Share for every 15 Existing Ordinary Shares



at a price of 136p per share.  These proposals are subject to shareholder
approval at the Company's EGM which will be held on 18 July 2002.



In addition, the Group today announced its preliminary results for the year
ended 31 March 2002. A full copy of the Company's preliminary results statement
has been issued separately today, the highlights of which are:



•         Turnover up 86% to £20.5m (2001: £11.0m)

•         Gross profit up 90% to £5.9m (2001: £3.1m)

•         Loss before amortisation of goodwill of £7.1m (2001: £0.3m)

•         Number of advisers total 362 (2001: 107)

•         Acquisition of HFP Holdings Limited ("Heritage") for £9.3m on 1
October 2001

•         Acquisition of Moncur Jackson on 8 March 2002, a specialist employee
benefits business based in Newcastle for up to £2.2m

•         Millfield Associate Partnership established, an initiative to
harness and support IFA firms around the UK

•         Millfield Private Clients s.a.r.l, a Guernsey-based private client
business, was established on 1 January 2002 to provide offshore investment
products

•         Millfield Protection & Mortgages Limited, a specialist advisory
business focusing on the protection and mortgage market places, was established
in February 2002

•         Millfield Insurance Services Limited was launched as a joint venture
with James Hampden Insurance Brokers Limited, a privately owned Lloyd's broker
in May 2002. Millfield Insurance Services provides general insurance services to
both private and corporate clients.



Commenting on the announcement, Paul Tebbutt, Chief Executive of Millfield Group
plc, said:



"Our proposed acquisition programme of IFA businesses and joint venture with AM
represent major steps towards delivering our strategic objectives and targeted
growth plans. We are delighted to have achieved support for our acquisition
programme from quality product providers such as Aegon, Friends Provident,
Norwich Union, Scottish Widows and Skandia. The significant investment of £2.4m
each gives us confidence that we have the right formula. We feel that the
financial services industry is undergoing a significant period of change and our
actions are designed to keep us at the forefront of the provision of high
quality independent financial advisory services.  Our goal continues to be to
create security and wealth for our IFA partners, employees, clients and
shareholders."



This summary should be read in conjunction with the full text of this
announcement



For further information or photographs, please contact:



Emma Kane/Scott Convoy, Redleaf Communications           Tel:  [phone]
Paul Tebbutt, Chief Executive, Millfield Group plc       Tel:  [phone]
Richard Clarke, KPMG Corporate Finance                   Tel:  [phone]
Kripa Radhakrishnan, Collins Stewart Limited             Tel:  [phone]

Further information is available on Millfield Group plc at:
www.millfield-partnership.co.uk

Programme of Strategic Acquisitions of IFA Businesses, Joint Venture to Set up a
Personal Portfolio Services Business and Firm Placing and Placing and Open Offer



Introduction



Millfield's objective is to develop a focused and high quality financial
advisory business, supported by ventures which complement this activity.  In
line with this objective, Millfield has set the following priorities:



•         To improve delivery of financial services through enhanced working
relationships with product providers

•         To take advantage of consolidation opportunities in the IFA market
place

•         To maximise the productivity of its IFAs

•         To enter into complementary business areas such as personal
portfolio services and employee benefits advice for corporate clients.



With these objectives in mind Millfield is seeking to raise funds through a firm
placing and a placing and open offer, primarily to facilitate a programme of
strategic acquisitions of IFA businesses and a joint venture to create a
personal portfolio services business, details of which are set out below.

The Company proposes to raise a total of £16 million, net of expenses, by way of
a Firm Placing with the Investors of 8,823,530 new ordinary shares and a
separate Placing and Open Offer by Collins Stewart of 3,851.204 new ordinary
shares, in each case at the issue price of 136p per share.  The Investors
include Aegon, Friends Provident, Norwich Union, Scottish Widows and Skandia.

The Share Issues are conditional, inter alia, on approval by Shareholders and an
EGM will be held at 10.00am on 18 July 2002.

Proposals for future acquisitions of IFA businesses



In January 2002, the FSA published CP121, a consultation paper entitled
"Reforming Polarisation".  This paper, amongst other things, seeks responses to
the proposition that the polarisation regime be reformed to enable firms of IFAs
to restructure their businesses so that those holding themselves out as offering
independent advice should be remunerated on a defined payment basis to remove
the potential for commission bias, while allowing others to become distributor
or multi-tie firms (also known as Authorised Financial Advisers "AFAs") which
would not be so restricted. The paper also proposes that direct sales forces and
other tied agents should be permitted to sell and promote regulated financial
products that conform to certain minimum standards (such as stakeholder pensions
and CAT standard ISAs) even though these products are those of providers to
which they are not tied.



CP121 raises important issues and opportunities for Millfield. Millfield
considers that the changes proposed under CP121, if enacted, will see the rapid
development of AFA distributor or multi-tie firms which could be expected to
offer products from carefully selected panels of approved product providers.
These firms will develop much closer relationships with such providers, sharing
technology platforms and working methods in a way which aims to promote both
increased cost control and quality management. Even if the proposals are not
enacted in full in their current form, Millfield believes that it is highly
likely that the marketplace will develop in this way.



By participating in the consolidation of the IFA market place by acquiring and
developing IFA businesses, Millfield will increase the level of its IFA
distribution capacity, which the Board believes should increase Millfield's
importance to the product providers, regardless of the precise future shape of
the regulatory environment.



The Board of Millfield also believes that, for these IFA businesses, acquisition
by Millfield will offer a way to address the issues which they now face through
increased regulation and the anticipated consolidation in the market place.



Millfield has an established framework whereby IFAs can be recruited either
directly into the firm or, by virtue of being a member of a firm which Millfield
is seeking to nurture and ultimately acquire, as part of its Millfield Associate
Partnership ("MAP") strategy. This represents an approach to the acquisition of
IFA firms whereby Millfield pays for proven value.



Millfield is raising funds to enable it to build on its existing MAP acquisition
model as a technique for the funding and acquisition of selected smaller IFA
firms which have a turnover of up to £5 million and which meet its acquisition
criteria. Millfield believes that with adequate funding it would be able to
increase the range and number of the firms that it targets for acquisition, help
the acquired firms achieve their business plans more effectively and at the same
time benefit from the infrastructure and resources that Millfield has
established to move forward in this changing market place. Millfield intends to
manage the acquired businesses so as to drive growth in a controlled manner in
accordance with its own standards of compliance and risk management. In
particular, these businesses would be able to benefit from any distribution
arrangements agreed by Millfield with product providers.



The Board believes that many product providers should find this proposal
attractive as it will enable them to enlarge their distribution capability
through these businesses by negotiating directly with Millfield on standard
terms under CP121. This would constitute a substantial saving of time, expense
and ultimately risk for the product providers. It would also provide important
benefits of scale for the IFA businesses, who might otherwise be too small to
negotiate competitive terms. The Board believes that Millfield will therefore be
in a strong position to bring both parties together for their mutual benefit.



Under this acquisition model, Millfield will initially aim to acquire a minority
equity stake (of around 25 per cent.) which it will then step up through a full
share-for-share acquisition. It is envisaged that the price paid for the equity
stakes so acquired will be calculated by reference to the profit of these IFA
businesses in such a way as to be earnings enhancing to Millfield.



Millfield will seek to improve the profitability of acquired IFA businesses
through a combination of the following:

•         investment to recruit top quality advisers

•         replacing locally sourced support services with services from
Millfield's Administration & Operations centre in Hull (such as data processing,
client relationship management, commissions management) thereby enabling
advisers to spend more time on revenue generation

•         standardising software and technology platforms to interface with
Millfield and product providers

•         streamlining links with product providers through the administration
and operations centre to create economies of scale

•         enhancing the use of professional assistants, known as paraplanners,
to maximise the time that advisers spend generating revenues

•         promoting quality through Millfield's training and compliance
management resources and specialist development programmes

•         encouraging the firm's principals to remain highly entrepreneurial
and ambitious through an equity participation culture

•         enhancing the management team of the acquired businesses by
appointing a member of the management team to its board and by appointing its
company secretary

•         enhancing the Millfield management team and infrastructure to
facilitate the growth and development of acquired businesses.



Personal portfolio services: joint venture with AM



Millfield announced today that it has entered into a conditional joint venture
agreement with AM, a substantial provider of financial services in Australia.
Under the joint venture agreement, Lifetime Portfolio Services Limited ("LPS"),
a UK company formed for the purpose and jointly owned by Millfield, AM and
certain members of the Boards of Millfield and AM who have been instrumental in
the development of the proposal, will create the systems and infrastructure and
seek the necessary regulatory approvals to launch a personal portfolio business
in the United Kingdom. The development of the business will utilise AM's
knowledge and experience gained over 20 years in the Australian market, which is
regulated by the Australian Prudential Regulatory Authority and the Australian
Securities and Investment Commission. The AM group was established in 1975 and
currently administers over Aus $3.2 billion in pension and investment assets for
more than 160,000 investor clients. The joint venture agreement is conditional
on approval by shareholders at Millfield's EGM on 18 July 2002, in light of the
interests of the directors of Millfield referred to above.



In recent months, there has been much debate regarding the potential funding
deficits that exist in relation to personal pension provision and individuals'
long-term investment plans. The Board of Millfield believes that a large
proportion of consumers are not yet in a position to take on the greater level
of responsibility for their own pension arrangements and provision which will
probably be necessary in the future. In the Board's view, consumers are
currently faced with complexity of choice and lack of timely or useful
information on which to make decisions. Millfield considers that there is a real
need for new initiatives to address this issue.



As stated at the time of Millfield's AIM flotation in March 2001, the Group
intends to develop new ways of delivering IFA services in a way that will offer
financial advisers and their clients a significantly improved investment and
administration process, combining wide product choice with advice. It is
intended that the service will enable clients to bring together products such as
pensions, unit trusts, shares and life assurance in a single portfolio available
on-line. It is also intended that the service will provide access to a wide
spectrum of financial institutions, product providers and investment funds.
Also, the Board intends that there will be a single portfolio report from which
all analysis and statements would be constructed. Instead of having separate
plans and investment products, it is the intention that clients and their
advisers will be able to see their holdings in the context of a consolidated
financial strategy with individual product elements, which they can access by
telephone, fax, internet or face to face. With their advisers, it is intended
that clients will be able to tailor their portfolios according to their attitude
to risk, objectives and priorities.



Each IFA which uses the service will build up a portfolio of funds under advice
for which he or she will receive fees based on the value of assets invested. It
is envisaged that IFAs will be able to use the system to assist in making
investment decisions, using sophisticated analytics and full administrative
reporting of all matters relating to their clients' portfolios. The Millfield
Board believes that this will eventually replace much of the IFA's own back
office systems, thus saving costs. It is intended that the system will not be
provided by or tied to any particular product provider and will therefore not
threaten the IFA's independent status and should appeal to a broad range of
distributor firms, whether for independent operations or AFA distributors or for
multi-tied operations, if and when permitted.



The Directors believe that such a portfolio management and investment service
will be a key feature of the future financial services market. It will directly
accord with the proposed development of the IFA market under CP121, allowing
IFAs to move away from commissions towards fees for funds under advice and will
facilitate transparency.



The Board's view is that the costs, particularly technology costs, and business
risk to Millfield in building such a business on its own could be considerable.
Millfield is delighted to have been able to identify an overseas partner with a
proven track record which is interested in developing such a business in the
United Kingdom.



LPS will seek to attract funds for administration and management from retail
investors.  It is intended that LPS will earn its revenues by charging an
introductory fee on receipt of the assets and on-going portfolio fees based on
the value of funds held.



It is intended that the service should be launched next year. It will be
marketed to selected IFAs, both inside and outside the Millfield Group and will
not be Millfield branded although it is expected that a significant proportion
of Millfield's own advisers will be users of the service.



Under the joint venture agreement each of Millfield and AM will subscribe £0.5
million for ordinary shares of LPS and, in addition, Millfield will subscribe
£2.5 million for 5% per cent. Participating Convertible Redeemable Non-voting
Preference Shares of LPS, which will be convertible into ordinary shares on a
flotation or sale of LPS. Jeremy Bradburne and Derek Noone, who are currently
non-executive directors of Millfield, have been asked, in light of their
experience in the financial services sector, to undertake key management roles
at LPS under service contracts for a period of at least two years to establish
the business of the company.  They will have an interest in the ordinary share
capital of LPS, along with Alan Rich and Barry Egan, who are both senior
directors of AM who are also to be closely involved with the establishment of
LPS' business. Paul Tebbutt, who has been instrumental in the development of
the proposal, will also have an interest in ordinary shares of LPS. Each of
these individuals will hold ordinary shares which will represent approximately
5.5 per cent. of the ordinary share capital of LPS immediately following the
subscriptions by Millfield and AM. These interests will be diluted to
approximately 4.4 per cent of the ordinary share capital of  LPS following
conversion of the preference shares to be subscribed by Millfield referred to
above. It is intended that a flotation of LPS should be sought within a
relatively short timeframe, enabling LPS to raise additional funds, if required,
to develop its business.



Preliminary announcement of results for the year ended 31 March 2002



The Company's preliminary results statement has been issued separately today.



Current Trading and Prospects



Since the end of last financial year, turnover has continued to increase.  The
rate of increase in April and May 2002 compared to April and May 2001 is
consistent with the increase achieved by the Company for the whole of the year
to 31 March 2002, against the preceding year.  The Board sees no reason why the
Group should not achieve its plans.



Details of the Firm Placing



The Company is proposing to raise approximately £11.4 million net of expenses by
way of the Firm Placing.   The Investors have conditionally agreed pursuant to
the Firm Placing Agreement to subscribe for, in aggregate, 8,823,530 New
Ordinary Shares at the Issue Price. The Firm Placing Agreement is conditional,
inter alia, on the passing of the Resolution at the EGM and on Admission of the
Firm Placing Shares. The Firm Placing is not conditional on the Placing and Open
Offer Agreement becoming unconditional.  The net proceeds of the Firm Placing
will be applied primarily in funding the acquisition cost of, and additional
investment in, IFA businesses and in expanding Millfield's management
infrastructure to support those firms.



Details of the Placing and Open Offer



The Company is proposing to raise approximately £4.8 million net of expenses, by
way of a Placing and Open Offer of 3,851,204 Offer Shares.



Collins Stewart has agreed to use reasonable endeavours to procure institutional
investors (Placees) to subscribe for the Offer Shares, subject to recall to
satisfy valid applications under the Open Offer.  The Placing has been
underwritten by Collins Stewart.



Qualifying Shareholders may subscribe for Offer Shares pro rata to their
shareholdings on the Record Date on the basis of :



1 Offer Share for every 15 existing Ordinary Shares



held at the close of business on the Record Date at a price of 136p per share.



The net proceeds of the Placing and Open Offer will be used as working capital,
largely to fund the capital contribution which the Company is to make under the
joint venture agreement with AM and to replace funding already used for the
acquisition of Moncur Jackson & Associates Limited.



Application forms will be sent to Qualifying Shareholders today.  Application
forms are personal to Shareholders and may not be transferred except to satisfy
bona fide market claims.  To be valid, Application Forms must be received by
Capita IRG plc not later than 3.00pm on 16 July 2002.



The New Ordinary Shares will, when issued, rank pari passu in all respects with
the existing issued Ordinary Shares, including the right to receive all
dividends and other distributions declared, made or paid on or after, or by
reference to a record date on or after, the date of their issue and will be
issued free of all liens, charges and encumbrances. It is expected that
Admission of the New Ordinary Shares will become effective and trading in them
will commence on 19 July 2002.



Extraordinary General Meeting



An extraordinary general meeting of the Company has been convened for 10.00am on
18 July 2002.



Ends



KPMG Corporate Finance, a division of KPMG LLP which is authorised by the
Financial Services Authority for investment business activities, is acting as
Nominated Adviser to the Company in relation to the Firm Placing and the Placing
and Open Offer and for no other person, and will not be responsible to any
person other than the Company for providing the protections afforded to clients
of KPMG Corporate Finance or for providing advice in relation to the Firm
Placing and the Placing and Open Offer or any other matter referred to in this
document.





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