11 December 2013

Begbies Traynor Group plc

 

Half year results

for the six months ended 31 October 2013

 

Begbies Traynor Group plc (the 'company' or the 'group'), the UK's leading independent business recovery practice, today announces its half year results for the six months ended 31 October 2013.

 

Financial highlights

 

·      Revenue of £22.3m (2012: £26.1m)

·      EBITA* (pre-exceptional items and net acquisition-related items) of £2.6m (2012: £3.7m)

·      Adjusted profit before tax** of £2.1m (2012: £3.2m)

·      Profit before tax of £2.0m (2012: £2.0m)

·      Profit for the period of £1.6m (2012: £1.4m)

·      Earnings per share:

-      adjusted basic and diluted EPS*** of 1.8p (2012: 2.5p)

-      basic and diluted EPS of 1.7p (2012: 1.5p)

·      Interim dividend maintained at 0.6p (2012: 0.6p)

·      Net debt reduced to £17.8m (Oct 2012: £18.3m)

 

* Earnings before interest, tax and amortisation of intangible assets arising on acquisitions

 

** Profit before tax of £2.0m (2012: £2.0m) plus amortisation of £0.1m (2012: £0.2m) plus exceptional and net acquisition-related items  of £nil (2012: £1.0m)

*** See reconciliation in note 5

Operational highlights

 

·      Difficult market conditions persisted as expected with a 10% reduction in number of UK corporate insolvencies in the first three quarters of the calendar year

·      Cost reduction programme delivered savings of £2.9m, in excess of the £2.0m previously anticipated

·      Completed acquisition of Manchester-based insolvency boutique with a strong internet presence

·      Continued to develop advisory services through BTG Financial Consulting, with several complex assignments completed

 

Commenting on the results, Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

 

"This half year period has seen a continuation of the trends seen in the recent past, as we had expected. The continuing benign financing environment in the UK has led to further reductions in corporate insolvencies, with a consequent reduction in the group's revenue.

 

"We anticipate some improvement in trading levels in the second half of the financial year, over the traditionally busier winter months, and will benefit from the contribution from the recently completed acquisition.

 

"With the benefit of our reduced cost base, a stable financial position and committed medium and long-term bank facilities, the group remains in a strong position to take advantage of opportunities to develop and enhance the business, both organically and through selective acquisitions."

 

 

A meeting for analysts will be held today at 9.00am at the offices of MHP Communications, 60 Great Portland Street, London, W1W 7RT.  Please contact Giles Robinson on 020 3128 8788 if you would like to attend.

 

 

 

Enquiries please contact:

 

Begbies Traynor Group plc	0161 837 1700
Ric Traynor - Executive Chairman
Nick Taylor - Group Finance Director
Canaccord Genuity Limited	020 7523 8350
(Nominated Adviser and Joint Broker)
Bruce Garrow / Philippa Underwood
Shore Capital	020 7408 4090
(Joint Broker)
Pascal Keane
MHP Communications
Reg Hoare / Katie Hunt / Giles Robinson	020 3128 8100

 

               

                                                                                               

 

                                                                                                 

 

                                                                                                                               

 

                                                                                                               

 

 

Information on Begbies Traynor Group can be accessed via the Group's website at

www.begbies-traynorgroup.com

 

CHAIRMAN'S STATEMENT

 

INTRODUCTION

 

This half year period has seen a continuation of the trends seen in the recent past, as we had expected. The continuing benign financing environment in the UK has led to further reductions in corporate insolvencies, with a consequent reduction in the group's revenue.

 

We have continued to manage our cost base, which has delivered year on year efficiencies of £2.9m, £0.9m higher than the £2m previously reported. These savings have mitigated the reduction in revenues and enabled the group to continue trading profitably in difficult market conditions.

 

As announced in October, we have invested in the business through the acquisition of Cooper Williamson, a Manchester-based insolvency boutique with a strong internet presence, which is now fully integrated into our operations and is generating new insolvency cases for the wider group. 

 

Net debt has reduced from the position one year ago to £17.8m (2012: £18.3m). This debt position, together with the group's profitable trading and expectations for the remainder of the financial year, has enabled the board to maintain the interim dividend at 0.6p.

 

RESULTS

 

The group's revenue in the half year to 31 October 2013 decreased to £22.3m (2012: £26.1m). Earnings before interest, tax and amortisation ('EBITA') (pre-exceptional and net acquisition-related items) decreased to £2.6m (2012: £3.7m).  Adjusted profit before tax* decreased to £2.1m (2012: £3.2m).  Exceptional and net acquisition-related items were £nil (2012: £1.0m). Profit before tax was unchanged at £2.0m (2012: £2.0m).

 

Earnings per share ('EPS')^**, adjusted for the net of tax impact of the amortisation of intangible assets arising on acquisitions, exceptional and net acquisition-related items, decreased to 1.8p (2012: 2.5p). Basic and diluted EPS were 1.7p (2012: 1.5p).

 

Net debt at 31 October 2013 was £17.8m (Apr 2013: £17.2m; Oct 2012: £18.3m), having made £0.5m of acquisition payments in the period. These borrowings are comfortably within the group's bank facilities, with gearing of 31% (Apr 2013: 30%; Oct 2012: 32%) and interest cover of 4.7 times.

 

* Profit before tax of £2.0m (2012: £2.0m) plus amortisation of £0.1m (2012: £0.2m) plus exceptional and net acquisition-related items  of £nil (2012: £1.0m)

** See reconciliation in note 5

 

DIVIDEND

 

The board remains committed to its long-term progressive dividend policy, which takes account of underlying growth in earnings, whilst acknowledging short-term fluctuations in profits and the requirement for continuing investment in the business.

 

Having considered financial performance in the current year, the outlook for the remainder of the financial year and the on-going requirements of the business, the board has declared a maintained interim dividend of 0.6p (2012: 0.6p).

 

The interim dividend will be paid on 9 May 2014 to shareholders on the register as at 11 April 2014, with an ex-dividend date of 9 April 2014.

 

 

OPERATIONAL REVIEW

 

Insolvency and restructuring

 

Begbies Traynor is the UK's leading independent business recovery practice, providing a partner-led service to stakeholders in troubled businesses.

 

Results

 

Segmental profits in the period decreased to £5.2m (2012: £6.0m) as a result of a reduction in revenue to £20.9m (2012: £24.0m). Operating margins were 24.7% (2012: 25.0%).

 

The insolvency market remains challenging, with a further reduction in UK corporate insolvency appointments in the calendar year to date. This reduced level of market activity led to lower insolvency appointments for the group, which combined with pressure on fee rates,caused the reduced revenue levels in the period. 

 

As we have previously reported, we have kept our cost base under constant review due to the continuing market pressures, which has mitigated the impact of the reduction in revenue. The number of people employed in the group's insolvency division has decreased to 400 as at 31 October 2013 (including 12 new joiners from the Cooper Williamson acquisition) from 415 at the start of the financial year.

 

Acquisition of Cooper Williamson

 

On 1 October 2013, we completed the acquisition of Cooper Williamson, a Manchester-based corporate insolvency boutique, in line with our strategy to strengthen our position as the UK's leading independent business recovery practice.

 

Cooper Williamson had successfully developed its own business rescue website (www.realbusinessrescue.co.uk), which was a significant driver of new cases for the acquired firm. However, as an independent business, the firm was largely only able to fulfil cases in its local region. The acquired business has now been fully integrated into our existing operations and the website has already begun to generate new insolvency cases for the group on a national level. The acquisition is expected to be earnings enhancing, both initially and after any additional consideration is paid.

 

Strategy

 

Begbies Traynor remains the market leader in UK mid-market insolvency and we believe that the combination of our full national coverage, strong relationships with all major UK banks and excellent referral networks from other professional services organisations leaves the business well placed to take full advantage of this market.

 

We have continued to develop our advisory services through the BTG Financial Consulting business, which was launched in the last financial year. In addition to completing several complex restructuring assignments in the period, we have also been appointed to advise on some significant debt advisory matters with debt levels in the £50m - £300m range.

 

We will continue to develop our core division through a combination of senior recruitment, selective acquisitions and staff development, with the intention of progressively increasing our market share. Further development over the medium term will come from winning higher value, more complex instructions from existing clients and prospects, by demonstrating our growing capabilities and credentials.

 

Global risk partners

 

Global risk partners is a specialist risk consulting and forensic investigation consultancy. Its services include forensic technology and accountancy; risk and security consultancy; and corporate intelligence and investigations.

 

Revenues in this segment decreased to £1.4m (2012: £2.2m), resulting in a loss of £0.2m (2012: profit £0.2m). Whilst losses have reduced from the £0.4m experienced in the second half of the previous financial year, activity levels remain lower than those required to generate a profitable return from the operations. The board is currently reviewing options to improve the financial performance of the division, through a combination of business development opportunities and cost savings.

 

The number of people employed in global risk partners decreased to 27 on 31 October 2013 from 30 at the start of the financial year.

 

 

INSOLVENCY MARKET

 

The number of corporate insolvencies (Source: The Insolvency Service) for the nine months ended 30 September 2013 was 14,436 (nine months ended 30 September 2012: 16,048), a decrease of 10%. Activity levels stabilised in the third quarter of the calendar year, with 4,717 national appointments, a reduction of 3% on 2012. Overall, this reflects the continuing benign financing environment in the UK, supported through base rates being maintained at 0.5% since May 2009.

 

In previous economic cycles, the number of corporate appointments has peaked after recessions when the economy enters a recovery phase. This is due to a combination of financially stressed companies being unable to finance working capital requirements; higher interest rates giving an increased cost of finance for financially stressed businesses; and banks being willing to crystallise losses on distressed loans, supported by additional purchasers for distressed assets.

 

Although there are currently signs of economic recovery (the most recent Begbies Traynor Red Flag Alert research has shown continuing decreases in critical financial problems for UK companies), this has not yet impacted on the level of corporate insolvency appointments. With the current Bank of England guidance for interest rates to remain at current levels through to 2015, there are no signs of any immediate short-term economic pressures which would cause a marked increase in insolvency levels.

 

OUTLOOK

 

As the UK insolvency business with the largest market share by volume, any change in national insolvency numbers, which remain difficult to predict in the current climate, has a direct impact on our operational volumes. As noted above, the number of corporate insolvencies for the first three quarters of calendar year 2013 is 10% lower than in 2012.

 

We anticipate some improvement in trading levels in the second half of the financial year, over the traditionally busier winter months, and will benefit from the contribution from the recently completed acquisition.

 

With the benefit of our reduced cost base, a stable financial position and committed medium and long-term bank facilities, the group remains in a strong position to take advantage of opportunities to develop and enhance the business, both organically and through selective acquisitions.

 

The group also retains the capacity and expertise to handle an increase in activity levels should they arise, which would result in improved profit and margins due to the inherent operational gearing in the business.

 

We will provide an update on third quarter trading in early March 2014 when the impact of fourth quarter corporate insolvency statistics will be known.

 

 

Ric Traynor

Executive chairman

11 December 2013

 

 

FINANCIAL REVIEW

 

FINANCIAL HIGHLIGHTS

 

Group revenue for the period was £22.3m (2012: £26.1m), a decrease of £3.8m.

 

EBITA (pre-exceptional and net acquisition-related items) decreased to £2.6m (2012: £3.7m), as a result of lower activity levels mitigated by cost reductions resulting from the restructuring completed in the prior year.

 

Net acquisition-related items in the period include acquisition costs relating to the Cooper Williamson acquisition of £0.1m, offset by a £0.1m credit from adjustments to contingent consideration on prior year acquisitions. No restructuring costs were incurred in the current period (2012: £1.0m).

 

Amortisation of intangible assets arising on acquisitions was £0.1m (2012: £0.2m).

 

Finance costs increased to £0.6m (2012: £0.5m), due to the increased cost of the new medium and long-term bank facilities entered into in April 2013.

 

Adjusted profit before tax was £2.1m (2012: £3.2m). Profit before tax was £2.0m (2012: £2.0m). The reconciliation between these profit measures is as follows:

 

	Six months ended 31 October 2013		Six months ended 31 October 2012
	£m		£m
Adjusted profit before tax	2.1		3.2
Less:
Amortisation of intangible assets arising on acquisitions	(0.1)		(0.2)
Exceptional and net acquisition-related items	-		(1.0)
Profit before tax	2.0		2.0

 

The tax charge for the period was £0.4m (2012: £0.7m), based on a weighted average expected tax rate for the full year of 20%. This reflects an expected tax credit in the current year, resulting from a reduction in deferred tax liabilities due to the decrease in the UK corporation tax rate to 20% by 2015.

 

Profit for the period was £1.6m (2012: £1.4m).

 

EARNINGS PER SHARE ('EPS')

 

EPS*, adjusted for the net of tax impact of the amortisation of intangible assets arising on acquisitions, exceptional and net acquisition-related items, was 1.8p (2012: 2.5p). Basic and diluted EPS were 1.7p (2012: 1.5p).

 

* See reconciliation in note 5

 

ACQUISITION

 

On 1 October 2013, the group completed the acquisition of the trade and assets of Cooper Williamson Ltd, the Manchester-based corporate insolvency specialist. The acquisition was for an initial consideration of £0.9m, satisfied in cash of £0.45m and through the issue of 1,141,842 new ordinary shares. 

 

Under the terms of the acquisition, there is contingent consideration of up to £1.1m payable, subject to financial performance hurdles over the three years from completion, which may be satisfied in cash or by issuing new ordinary shares at the group's discretion.  The group has also agreed to further consideration of up to £0.5m, subject to financial performance in the following two years.

                                                              

In accordance with IFRS 3 (revised), a liability of £0.6m has been recognised in respect of contingent consideration (giving expected total consideration of £1.5m) and acquisition costs of £0.1m have been charged to the income statement.

 

The acquisition is expected to be earnings enhancing, both initially and after any additional consideration is paid.

 

 

 

CASH FLOWS

 

Net cash flows from operating activities (after interest and tax) in the period decreased to £0.5m (2012: £2.8m), due to previously anticipated working capital outflows of £3.0m including utilisation of prior year provisions and reduced levels of trade and other payables.

Investing cash flows of £0.6m (2012: £0.5m), include acquisition payments of £0.5m (2012: £nil), deferred consideration payments of £nil (2012: £0.3m) and net capital expenditure of £0.1m (2012: £0.3m).

 

Financing cash outflows of £0.6m (2012: £1.6m) include dividend payments of £0.5m (2012: £0.5m), a net repayment on the group's principal bank facilities of £nil (2012: £1.0m), and a net repayment of other finance of £0.1m (2012: £0.1m).

 

FINANCING

 

Net borrowings at 31 October 2013 were £17.8m (2012: £18.3m), with a reduction in gearing to 31% (2012: 32%) and significant headroom within the total facilities of £35m. During the period, all bank covenants were met and the group's financial position remains robust.

 

The group's principal unsecured, committed facilities of £30m provide the group with medium and long-term financing with maturity dates from 2017 to 2021.

 

NET ASSETS

 

At 31 October 2013 net assets were £57.7m (2012: £57.6m), equivalent to net assets per share of 64p (2012: 64p), and are analysed as follows:

 

	31 Oct 2013	30 Apr 2013	31 Oct 2012
	£m	£m	£m
Non-current assets	53.8	52.6	53.2
Current assets	39.0	40.2	44.1
Net borrowings	(17.8)	(17.2)	(18.3)
Current tax	(0.6)	(0.5)	(0.5)
Other liabilities	(16.7)	(17.4)	(20.9)
			________
Net assets	57.7	57.7	57.6

 

 

 

 

Nick Taylor

Group finance director

11 December 2013

 

 

 

 

 

 

 

		Six months ended 31 October 2013 (unaudited) £'000				Six months ended 31 October 2012 (unaudited) £'000				Year ended 30 April 2013 (audited) £'000
	Before				Before				Before
	exceptional		Exceptional		exceptional		Exceptional		exceptional		Exceptional
	and net		and net		and net		and net		and net		and net
	acquisition-		acquisition-		acquisition-		acquisition-		acquisition-		acquisition-
	related items		related items	Total	related items		related items	Total	related items		related items	Total
	£'000		£'000	£'000	£'000		£'000	£'000	£'000		£'000	£'000
Revenue	22,308		-	22,308	26,136		-	26,136	51,092		-	51,092
Direct costs	(12,090)		-	(12,090)	(14,402)		(914)	(15,316)	(27,966)		(3,320)	(31,286)
Gross profit	10,218		-	10,218	11,734		(914)	10,820	23,126		(3,320)	19,806
Other operating income	91		-	91	195		-	195	343		-	343
Administrative expenses	(7,682)		25	(7,657)	(8,277)		(44)	(8,321)	(15,815)		(578)	(16,393)
Earnings before interest, tax and amortisation	2,627		25	2,652	3,652		(958)	2,694	7,654		(3,898)	3,756
Amortisation of intangible assets arising on acquisitions	(140)		-	(140)	(182)		-	(182)	(364)		-	(364)
Finance costs	(561)		-	(561)	(494)		-	(494)	(977)		-	(977)
Profit before tax	1,926		25	1,951	2,976		(958)	2,018	6,313		(3,898)	2,415
Tax	(379)		-	(379)	(893)		230	(663)	(1,854)		857	(997)
Profit for the period	1,547		25	1,572	2,083		(728)	1,355	4,459		(3,041)	1,418
Total comprehensive income for the period	1,547		25	1,572	2,083		(728)	1,355	4,459		(3,041)	1,418
Earnings per share
Basic and diluted				1.7p				1.5p				1.6p

 

 

All of the profit and comprehensive income for the period is attributable to equity holders of the parent