Bigblu Broadb. Regulatory News (BBB)

29 Jul 2005 16:31

Berkeley Berry Birch PLC29 July 2005 Preliminary Results 2005 29 July 2005: Berkeley Berry Birch plc ("the Group"), the financial services distribution group, today announces its preliminary results for the 12 months to 31 March 2005. Highlights • Turnover broadly in line with previous year at £67 million• Gross profit margin improved from 26.4% to 27.3%• Operating loss before goodwill amortisation and impairment and other exceptional items significantly reduced from £4.9 million to £1.6 million• Operating loss of £24.5 million after goodwill impairment charge of £19.6 million• Subject to finalising the terms of a past business review, closure of the FSA investigation into BIA's sales of life and regular savings products expected to be announced shortly• BBN FS has been informed by the FSA that the investigation into the sale of its business has been discontinued• The Directors are pursuing all options to enable the regulatory capital position to be resolved Commenting on the preliminary results for the Group, Clifford Lockyer, Executive Chairman and Group Chief Executive, said: "Although the operating loss before goodwill amortisation and impairment andother exceptional items has been substantially reduced, the growth of thebusiness has been hindered by the impact of the FSA investigations. Subject tofinalising the terms of a past business review, I am pleased to report that BIAand the FSA are close to settling the investigation into BIA's sales of life andregular savings products. In addition, BBN FS has been informed by the FSA thatthe investigation into the sale of its business has been discontinued. Theclosure of these investigations will assist us in addressing the regulatorycapital position and return management's focus to the development of thebusiness." Commenting on the outlook, he said: "The trading performance in the first quarter of the new financial year has beendisappointing. However, the Directors are confident that, should the FSAinvestigations be concluded in the form and timeframe currently anticipated, animprovement will be achieved through higher sales, further cost reductionmeasures and other income generating initiatives." For further information, please contact: Berkeley Berry Birch plcClifford LockyerExecutive Chairman and Group Chief Executive Telephone - 07967 680565 CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Introduction The last year has been a very challenging period for the board of Berkeley BerryBirch plc. We have been faced with two FSA investigations, one into the sale ofthe business of Berry Birch & Noble Financial Services Limited ("BBN FS") to afellow group company and related matters and the other into the sales ofcertain savings products, as well as issues over the regulatory capital positionof the Group's financial advisory subsidiaries. Subject to finalising the terms of a past business review, I am pleased toreport that Berkeley Independent Advisers Limited ("BIA") and the FSA are closeto settling the investigation into BIA's sales of life and regular savingsproducts, the anticipated costs of which are reflected in these results. Inaddition, BBN FS has been informed by the FSA that the investigation into the sale of its business has been discontinued. The closure of these investigations will assist us in addressing the regulatory capital position, which the directors are making their utmost efforts to resolve. Turnover for the year at £67 million was broadly unchanged from that achieved inthe previous year. Turnover growth has been hindered by the effects of the FSAinvestigations, which have resulted in sales of certain products being suspendedand difficulties over recruiting and retaining advisers. The gross profit marginshowed further improvement, increasing from 26.4% last year to 27.3% in thecurrent year. The operating loss, before the impact of goodwill and other exceptional items,has been significantly reduced from £4.9 million last year to £1.6 million thisyear, largely due to cost reduction measures. Exceptional items included in the operating loss amounted to £1.8 million,comprising £1.4 million for anticipated costs arising from the BIA regulatoryinvestigation and a further charge of £0.4 million for onerous lease costs.Following a review of the carrying value of the goodwill that arose on theacquisition of the Berkeley Financial Services Group, principally in respect ofBIA, a goodwill impairment provision of £19.6 million has been included. Afterallowing for goodwill amortisation of £1.5 million the operating loss was £24.5million compared with £9.6 million in the previous year. During the year, we sold part of our database of customers to the originalvendors of Professional Financial Solutions Limited ("PFS") which we acquired inJanuary 2003. The sale resulted in a loss of £1.1 million, included in theprofit and loss account under the caption 'disposal of subsidiary undertakingsand businesses', largely reflecting the write off of the goodwill arising on thePFS acquisition. The total charge under this caption was £1.7 million, whichalso includes a reduction of £0.6 million in respect of the gain reported lastyear on the liquidation of BBN FS as described below. Liquidation of BBN FS We have reached agreement with the liquidator over his claim that the businessof BBN FS was sold to another group company at under-value. Whilst we maintainthat we did not act improperly in respect of the sale, and that the price atwhich the business was transferred is supported by external valuations, thedirectors considered that reaching a swift conclusion was in the best interestsof the Group. Therefore, we have agreed to make an ex-gratia payment of £600,000to the liquidator without accepting any liability. The charge, included indisposal of subsidiary undertakings and businesses in the profit and lossaccount, is £554,000, which also takes into account legal fees incurred and aprovision made in the March 2004 accounts. Regulatory investigation in respect of BIA The FSA investigation into the sales of whole of life and regular savings planproducts by members of the Group's regulated network, BIA, commenced inSeptember 2004. Whilst we believe that current surrender values of theseproducts exceed the premiums paid, we are investigating if clients have sufferedany opportunity loss. In the FSA's view there were management and proceduralfailings in BIA, which have resulted in a fine from the FSA. The BIA managementconcerned are no longer with the Group and we have taken action to prevent thisreoccurring. We have agreed to undertake a past business review into the salesof these products, which will be overseen by a 'skilled person', and we are inthe process of finalising the terms of this review with the FSA. We haveincluded an exceptional charge of £1,396,000 for the anticipated costs that willarise in respect of this investigation which comprise the fine, the costs of the'skilled person' for the past business review and legal costs incurred. Capital adequacy At 31 March 2005 the Group's three regulated financial services subsidiaries hada combined capital resource requirement deficit of around £10 million based ontheir unaudited year-end FSA returns. The unaudited returns as at 30 June 2005,which are based on unaudited management accounts, indicate a combined deficit ofapproximately £12 million. The deficit at the end of March 2005 is substantiallyhigher than the £2.4 million reported in the announcement made on 25 April 2005.The increase is due to the change in policy to report provisions gross ofamounts recoverable from third parties and the impact of year-end adjustments.Under the FSA rules, the debtor created by the change in policy is excluded inarriving at the regulatory capital position. We are in the process of applyingfor a waiver to this rule which, if granted, would reduce the deficits at 31March 2005 and 30 June 2005 by approximately £4 million and £6 millionrespectively. The FSA has commenced formal regulatory enforcement action, which could resultin the FSA cancelling the permissions granted to the subsidiaries to act asIndependent Financial Advisers. If these permissions were to be withdrawn, thegoing concern basis on which these results have been prepared would beinappropriate. Auditors' report Our auditors have indicated to us that, if the uncertainty regarding the capitaladequacy and ultimately the going concern basis on which the results areprepared is not resolved by the time they come to issue their audit report onthe published financial statements, they will need to refer to it in thatreport. Network division The performance of the Network division was hindered by the impact of the FSAinvestigation into sales of certain products by members of BIA. In December2004, we took the decision to suspend sales of the products concerned, whichreduced sales in the final quarter of the Group's financial year. The number ofadvisers authorised by the BIA Network fell from 623 at 31 March 2004 to 452 at31 March 2005, reflecting the adverse publicity surrounding the Group and thegeneral move in the industry towards advisers being directly authorised. Thislatter factor was reflected in the number of directly authorised advisers usingBIA's services increasing from 34 to 134 over the same period. Turnover for BIAfell by 3% year on year. The Group's non-regulated network, Direct Protect Limited, ceased to accept newbusiness from 14 January 2005 when general insurance business became regulatedby the FSA. As a result, sales from this network were 6% lower than the previousyear. As previously announced, Direct Protect Limited entered into creditors'voluntary liquidation in June 2005. Direct Protect Limited's balance sheet at 31March 2005 has been adjusted to reflect the anticipated effect of theliquidation with additional charges being made to the profit and loss account asa result. Despite the lower revenues and the charges in respect of adjusting DirectProtect Limited's balance sheet, the Network division's operating profit, beforeexceptional items and the impact of goodwill, only fell from £0.8 million to£0.7 million, largely due to underlying cost reduction. Financial Advisory division Adviser numbers in the Financial Advisory division increased by 5% year on year.At 31 March 2005, the division had 71 employed and 105 self-employed advisers.Turnover for the division increased by 12% to £18.1 million reflecting thehigher number of advisers and improved productivity. The operating loss, before exceptional items and the impact of goodwill, for theFinancial Advisory division was reduced from £3.9 million to £2.0 million. Thissignificant reduction was due to the improved margin from the increased revenueand the benefit of cost reduction. Insurance division Turnover from the Insurance division increased by 7% to £4.6 million, largelyfrom organic growth within Berry Birch & Noble Insurance Brokers Limited as wellas a full year's contribution from the MacRobins plc insurance broking businessacquired in July 2003. This improvement is due to a stable business environment,particularly for the personal lines business, which has previously been affectedby insurers discontinuing their products and services. Operating profit, before exceptional items and the impact of goodwill, inrespect of the Insurance division increased from £0.7 million to £0.9 million,with the benefit of the higher sales revenue and cost reduction. Central costs Central costs, which largely comprise the overheads of the parent company andthe underwriting result from the Group's captive insurance company, fell from£2.5 million to £1.3 million. This gain reflects both cost reductions in respectof the parent company and an improved underwriting result from the captive. Board changes Following the board changes over recent months, the board currently comprisestwo executive directors and one non-executive director. I am confident that theconclusion of the FSA investigations and the resolution of the regulatorycapital position will enable the board to be properly re-constituted with theappropriate experience, skills and mix of executive and non-executive directors. As part of our cost reduction measures, the board had to take the difficultdecision to make the Divisional Chief Executive roles redundant. Following thisdecision, Michael Cleary, the Financial Services Division Chief Executive, leftthe Group on 30 June 2005. Nicholas Davenport, who was Chief Executive for theInsurance division, has remained with the Group as a director on the plc boardand has been playing a vital role in assisting the Group in resolving the issuesit faces. Our non-executive director is John Joyce, who joined us on 1 February 2005. Johnhas supported the executive directors during the Group's current difficulties,for which the Group owes him a considerable debt of gratitude. Outlook The first quarter of the new financial year has been disappointing in terms oftrading performance, which continues to be impacted by the ongoing FSAinvestigations. However, the Directors are confident that, should theinvestigations be concluded in the form and timeframe currently anticipated, animprovement can be achieved in the current unsatisfactory trading performance ofthe Group. This improvement will be achieved through higher sales, further costreduction measures and other income generating initiatives. Clifford P LockyerExecutive Chairman and Group Chief Executive 29 July 2005 UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 March 2005 Note 2005 2004 £'000 £'000 Turnover 2 67,283 66,511Cost of sales (48,914) (48,922) -------- --------Gross profit 18,369 17,589Administrative expenses (42,828) (27,234)(including exceptional items in note 3) -------- --------Operating loss (24,459) (9,645) -------- --------Operating loss 2 (1,624) (4,903)(before goodwill amortisation and impairment and other exceptional items) Goodwill amortisation and impairment and other 3 (22,835) (4,742) exceptional items -------- --------Operating loss (24,459) (9,645) -------- -------- Profit on disposal of property 64 -Disposal of subsidiary undertakings and 4 (1,693) 1,083 businessesNet interest receivable 375 252 -------- --------Loss on ordinary activities before taxation (25,713) (8,310)Taxation 5 27 70 -------- --------Loss on ordinary activities after taxation (25,686) (8,240)Minority interests 24 (11) -------- --------Loss for the financial period (25,662) (8,251) ======== ======== Restated (see note 6)Loss per share 6Adjusted basic and diluted (1.3p) (5.1p)Basic and diluted (28.2p) (9.2p) ======== ======== All recognised gains and losses in the current and prior year are included inthe profit and loss account. UNAUDITED CONSOLIDATED BALANCE SHEETAs at 31 March 2005 Note 2005 2004 Restated (see note 1) £'000 £'000Fixed assetsIntangible assets 3,806 26,621Tangible assets 998 2,259 -------- -------- 4,804 28,880 -------- --------Current assetsDebtors 10,075 13,594Cash at bank 12,749 10,622 -------- -------- 22,824 24,216Creditors: amounts falling due within one year (12,383) (12,236) -------- --------Net current assets 10,441 11,980 -------- -------- Total assets less current liabilities 15,245 40,860 Creditors: amounts falling due after more than one yearBorrowings (32) (477)Other creditors (310) (328)Provisions for liabilities and charges (10,901) (9,414) -------- --------Net assets 4,002 30,641 ======== ========Capital and reservesCalled up share capital 9,179 8,987Share premium account 17,019 17,019Shares to be issued - 1,231Revaluation reserve - 358Merger reserve 5,589 26,319Profit and loss account (27,970) (23,482) -------- --------Equity shareholders' funds 7 3,817 30,432Minority interests 185 209 -------- --------Capital employed 4,002 30,641 ======== ======== UNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 March 2005 Note 2005 2004 Restated (see note 1) £'000 £'000 Net cash inflow/(outflow) from operating activities 8 1,801 (2,696) -------- -------- Returns on investments and servicing of financeInterest received 411 325Interest paid (29) (73)Interest element of finance lease rentals (7) (8) -------- --------Net cash inflow from returns on investments andservicing of finance 375 244 -------- -------- Taxation 53 28 -------- --------Capital expenditure and financial investmentPurchase of tangible fixed assets (424) (481)Sale of tangible fixed assets 1,116 10Increase in bank deposit given as security (100) (500) -------- --------Net cash inflow/(outflow) from capitalexpenditure and financial investment 592 (971) -------- -------- Acquisitions and disposalsPurchase of subsidiary undertakings (19) (392)Cash acquired with subsidiary undertaking - 665Purchase of business operations (218) (257)Disposal of subsidiary undertakings - 190Costs paid in respect of disposal of subsidiary undertakings (121) (74)Cash in subsidiary undertakings disposed of - (950) -------- --------Net cash outflow from acquisitions and disposals (358) (818) -------- --------Net cash inflow/(outflow) before management of liquid resources and financing 2,463 (4,213) -------- --------Management of liquid resourcesDecrease in short term deposits - 700 -------- --------Net cash inflow from management of liquid resources - 700 -------- -------- FinancingLoan repayments (416) (203)Capital element of finance lease repayments (28) (37) -------- --------Net cash outflow from financing (444) (240) -------- -------- Increase/(decrease) in cash in the year 9 2,019 (3,753) Net cash at 1 April 10,122 13,875 -------- --------Net cash at 31 March 10 12,141 10,122 ======== ======== NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Accounting policies and basis of preparation These results have been prepared on a going concern basis. At 31 March 2005 the regulated companies in the Group had a combined regulatory capital resourcerequirement deficit of around £10 million based on their unaudited year-end FSAreturns. The FSA has commenced formal regulatory enforcement action, which couldresult in the FSA cancelling the permissions granted to the subsidiaries underPart IV of the Financial Services and Markets Act 2000 to act as IndependentFinancial Advisers. If these permissions were to be withdrawn, the going concernbasis on which these results have been prepared would be inappropriate. In suchcircumstances, adjustments are likely to have to be made to the net assets shownin the accounts to reduce assets to their more immediately recoverable amountsand to provide for further liabilities that may arise. The unaudited financial information has been prepared under the historical costconvention as modified by the revaluation of freehold buildings and inaccordance with applicable accounting standards using the accounting policiesset out in the Group's Annual Report and Accounts for the year ended 31 March2004 except as explained below. The financial information has been extractedfrom the draft unaudited financial statements. The auditors have indicated that,due to the uncertainties set out above, their audit report is likely to bemodified to draw attention to the fundamental uncertainty in respect of theability of the Group to continue as a going concern. As a result of a review of the Group's accounting policies in the context of itspresent trading arrangements with its network members and current accountingtrends in the industry, the directors have decided to revise the policies inrespect of the disclosure of certain provisions. These provisions, principallyin respect of indemnity commission, which were previously shown net of relatedamounts recoverable, are now to be shown gross of expected recoveries, which areto be shown separately as assets. This change in accounting policy has been recognised in the accounts as a prioryear adjustment and comparative figures for 2004 have been restated. The changeincreased both debtors and provisions at 31 March 2004 by £6,082,000 and at 31March 2005 by £6,595,000. There was no impact on the profit and loss accountsfor the years ended 31 March 2004 and 2005. The summary of results for the years ended 31 March 2005 and 31 March 2004 doesnot constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985. The full financial statements for the year ended 31 March2004 have been reported on under section 235 by the Group's auditors anddelivered to the Registrar of Companies. The audit report was unqualified anddid not contain a statement under section 237(2) or section 237 (3) of theCompanies Act 1985. 2. Segmental information 2005 2004 £'000 £'000TurnoverNetwork division 44,596 46,010Financial advisory division 18,120 16,242Insurance division 4,567 4,259 -------- -------- 67,283 66,511 -------- -------- Operating loss before goodwill amortisation and impairment and other exceptional itemsNetwork division 744 831Financial advisory division (2,037) (3,902)Insurance division 940 714Central costs (1,271) (2,546) -------- -------- (1,624) (4,903) ======== ======== The analysis of the operating loss before exceptional items, goodwillamortisation and exceptional items is shown before management charges levied bythe parent company. The Group's entire turnover and operating loss arises withinthe United Kingdom. 3. Goodwill amortisation and impairment and other exceptional items 2005 2004 £'000 £'000 Exceptional items included in the operating loss (1,776) (1,335)Goodwill impairment (19,559) (1,872)Goodwill amortisation (1,500) (1,535) -------- -------- (22,835) (4,742) ======== ======== Exceptional items included in the operating loss are in respect of costsincurred in connection with the FSA's investigation into the Group's Networksubsidiary, Berkeley Independent Advisers Limited, concerning the suitability ofsales of whole of life and regular savings plan products (£1,396,000) andprovision for onerous property lease costs (£380,000). Exceptional items in theyear ended 31 March 2004 were in respect of adviser fees arising from thepotential merger with Inter-Alliance Group PLC (£795,000) and provision foronerous property lease costs (£540,000). The goodwill impairment is in respect of the goodwill arising on the acquisitionof Berkeley Financial Services Group in January 2002. The goodwill impairmentcharge in the year ended 31 March 2004 was in respect of the goodwill arising onthe acquisition of the Berry Birch & Noble Financial Planning (Weston) Limitedin December 2002. 4. Disposal of subsidiary undertakings and businesses The loss comprises a reduction of £554,000 in respect of the gain reported lastyear on the liquidation of Berry Birch & Financial Services Limited and a chargeof £1,139,000 in respect of the sale of part of the Group's database ofcustomers. 5. Taxation Taxation relates to amendments to prior years. No tax is payable for the currentyear due to the availability of losses. 6. Loss per share The calculation of the basic loss per share is based on the loss for the yearand the weighted average number of shares in issue during the year of 90,826,000(2004: 89,485,000). At 31 March 2005 and 31 March 2004 there were no rights overshares that have a dilutive effect on the loss per share and hence the dilutedloss per share is the same as the basic loss per share. Additional disclosure has been provided in respect of loss per share as follows: 2005 2004 RestatedBasic loss per share before goodwill amortisation andimpairment and other exceptional items (1.3p) (5.1p)Goodwill impairment and amortisation (23.2p) (3.8p)Exceptional items (3.7p) (0.3p) -------- --------Basic loss per share (28.2p) (9.2p) ========= ======== Exceptional items include amounts in respect of the disposal of tangible fixedassets, subsidiary undertakings and businesses as well as exceptional itemsincluded as part of the operating loss. Previously, the exceptional itemsexcluded to arrive at the adjusted loss per share only related to those includedwithin the operating loss. The comparatives for the year ended 31 March 2004have been restated accordingly. 7. Reconciliation of movement in equity shareholders' funds 2005 2004 £'000 £'000 Loss for the financial period (25,662) (8,251)Ordinary shares issued, net of expenses 278 323Shares to be issued - 427Adjustment to deferred considerations (1,231) (5,825) -------- --------Net change in equity shareholders' funds (26,615) (13,326)Opening equity shareholders' funds 30,432 43,758 -------- --------Closing equity shareholders' funds 3,817 30,432 ======== ======== 8. Net cash inflow/(outflow) from operating activities 2005 2004 Restated £'000 £'000 Operating loss (24,459) (9,645)Movement in debtors 3,703 (3,860)Movement in creditors and provisions 900 6,704Goodwill amortisation and impairment 21,059 3,407Other non cash items 598 698 -------- --------Net cash inflow/(outflow) from operating activities 1,801 (2,696) ======== ======== 9. Reconciliation of net cash flow to movement in net funds 2005 2004 £'000 £'000 Increase/(decrease) in cash in the year 2,019 (3,753)Cash outflow from decrease in debt and lease financing 445 240Cash flow from change in liquid resources - (700) -------- --------Change in net funds resulting from cash flows 2,464 (4,213)Debt removed on disposal of subsidiary undertaking - 158Finance leases acquired on acquisition of subsidiary undertaking - (20)New finance leases (57) -Net funds at start of year 9,455 13,530 -------- --------Net funds at end of year 11,862 9,455 ======== ======== 10. Analysis of net funds At 1 April Cash flow Other At 31 March 2004 changes 2005 £'000 £'000 £'000 £'000 Cash and bank balances 10,122 2,027 - 12,149Overdrafts - (8) - (8) ------ ------ ------ ------ 10,122 2,019 - 12,141 ------ ------ ------ ------ Debt due after one year (459) 262 197 -Debt due within one year (174) 155 (197) (216)Finance leases (34) 28 (57) (63) ------ ------ ------ ------ (667) 445 (57) (279) ------ ------ ------ ------ ------ ------ ------ ------Total 9,455 2,464 (57) 11,862 ====== ====== ====== ====== Cash and bank balances at 31 March 2005 shown above exclude a bank deposit of£600,000 (2004: £500,000) which does not meet the definition of either cash orliquid resources under FRS1. EndJuly 29th, 2005 This information is provided by RNS The company news service from the London Stock Exchange