Bigblu Broadb. Regulatory News (BBB)

1 Dec 2005 07:31

Berkeley Berry Birch PLC01 December 2005 BERKELEY BERRY BIRCH PLC SUSPENSION OF TRADING IN THE COMPANY'S SHARES UPDATE ON CURRENT TRADING, FSA INVESTIGATION INTO BIA AND THE REGULATORY CAPITAL SHORTFALL PROPOSED FUNDRAISING BOARD CHANGES APPOINTMENT OF FINANCIAL ADVISER The Board of Berkeley Berry Birch PLC ('BBB' or the 'Company'), the financialservices distribution group, announces today that it has requested the temporarysuspension of trading in its shares with immediate effect pending clarificationof its financial position. The Company is also able to announce an update on current trading; the outcomeof the FSA investigation into sales of life and regular savings products byBerkeley Independent Advisers Limited ('BIA'); and progress in addressing itsregulatory capital shortfall and future working capital requirements. On 29 July 2005, the Financial Services Authority ('FSA') issued decisionnotices cancelling the permissions of three of BBB's regulated businesses due toregulatory capital shortfalls. The Company has referred these decision noticesto the Financial Services and Markets Tribunal ('FSMT') and is working onproposals to rectify the regulatory capital shortfalls by means of planneddisposals and an equity fundraising. These plans are well advanced but, to date,the FSA has not yet satisfied itself of the adequacy of these proposals. Pending resolution of these issues the Company considers that trading in itsshares should be suspended. Further details are set out below. Information on BBB and Current Trading BBB currently operates through four independently regulated financial servicesbusinesses. These are: (1) BIA, a network of independent financial advisers;(2) Berry Birch & Noble Financial Planning Limited ('BBNFP'), largely a directly employed sales force;(3) Berry Birch & Noble Financial Planning (Weston) Limited ('Weston'), largely a self-employed sales force; and(4) Berry Birch & Noble Insurance Brokers Limited ('BBNIB'), the Group's insurance broking subsidiary. In the year ended 31 March 2005, BBB reported an audited consolidated operatingloss before goodwill amortisation and impairment and other operating exceptionalitems of £1.6 million on turnover of £67.3 million. As at 31 March 2005, theGroup had equity shareholders' funds of £3.8 million (under UK GAAP). Since theyear end, trading has continued to be difficult and the Group's interim resultsfor the six months ended 30 September 2005, which are expected to be issued inDecember 2005 and will be reported under International Financial ReportingStandards ('IFRS'), will show continuing losses at an operating level,principally as a result of difficult trading conditions within its FinancialServices Division. These businesses are currently the subject of enforcementaction by the FSA as set out below and this has affected their ability to tradeprofitably. Once these issues are resolved, the Company believes it canstabilise the trading performance of these businesses. The Group's interim statements will also show a reduction in equityshareholders' funds, largely because of the requirement under IFRS to recognisethe deficit in respect of the Group's defined benefit pension scheme (which asat 31 March 2005 was £3 million as calculated under FRS17) as a liability on theGroup's balance sheet. Update on regulatory capital position As previously announced on 25 April 2005, the FSA started formal regulatoryenforcement action against BIA, Weston and BBNFP (the Group's 'Regulated FSBusinesses'). These businesses had not maintained adequate regulatory capitalresources and had therefore breached Threshold Condition 4 of theirauthorization. The Company had notified the FSA about this situation earlier inthe year. At 30 September 2005, the Regulated FS Businesses had a combinedcapital resource shortfall of £10.9 million, based on their un-audited FSAreturns. The Regulated FS Businesses do not hold client money and the Board believes thatthe enforcement process has not risked client assets. The Company has workedwith the FSA at all times throughout its investigation while seeking anacceptable solution to this shortfall. However, on 29 July 2005 the FSA decided to issue decision notices to cancel thepermissions of the Regulated FS Businesses. The businesses referred thisdecision to the FSMT on 25 August 2005 ('References') and the FSA hassubsequently applied to have the References struck out. The Company believesthat the References will proceed to a full hearing which it would anticipatetaking place in the New Year. A hearing of the FSMT to consider the FSA's motion to dismiss the References washeld on 29 November 2005 and will continue on 8 December 2005. Update on FSA investigations The Board can also report that the FSA's investigation into the selling of someregular savings plans and whole of life plans by network members of BIA betweenDecember 2001 and September 2004, has now concluded with a public censure ofBIA. This investigation identified certain management and proceduralshortcomings in BIA. The BIA management concerned are no longer with the Groupand the Board has taken steps to prevent this problem from reoccurring. The FSA were to impose a fine of £425,000 on BIA. However BIA's limitedfinancial resources and the FSA's desire to ensure that customers arecompensated in accordance with the past business review has led to a publiccensure being imposed instead. BIA is now undertaking a limited ''past business review'' to consider advisedsales of these products. PricewaterhouseCoopers LLP has been appointed tooversee the review and report back to the FSA. In the event that any unsuitableadvice has been given, causing a loss to be incurred, appropriate redress willbe paid. It is difficult to quantify its financial impact on the Group at thisearly stage in the review however, BIA has estimated that the total consumerloss could be between £500,000 and £1,000,000. The cost of this review includingpossible compensation for all consumers affected has been provided for in theCompany's accounts for the year ended 31 March 2005. Unfortunately the Board must now report that the FSA has commenced a furtherinvestigation, into BBNIB. The FSA are investigating a breach of the FSA'sclient money rules and the lack of systems and controls in relation to thehandling of client money. Many other UK insurance brokers have had difficulty ininterpreting and implementing the complex new client money rules which tookeffect earlier this year. The FSA is also investigating the speed with which thebreach of the client money rules was communicated to the FSA. The Board believesthat BBNIB acted swiftly to bring the breaches to the attention of the FSA, tookimmediate steps to address the issues relating to the handling of client money.Independent auditors have confirmed to BBNIB that at no time did any risk ofloss of client money arise. Furthermore, given the limited extent to which BBNIBhandles client money, it has already taken the decision to cease handling clientmoney. Proposed fundraising The Board has been seeking to address the regulatory capital shortfall in itsthree regulated FS businesses since it first became aware of the shortfall inMarch 2005. It has considered several possibilities but concluded that a sale ofany business in its entirety is not in the best interests of Shareholders,although certain business lines within BBNIB are capable of being sold to raisecapital for the Group. These are being actively pursued. The Board is progressing an equity fund raising that the Directors believe willbe sufficient to resolve the regulatory capital shortfall in the Regulated FSBusinesses. Discussions are in an advanced stage and it is likely that a numberof directors and senior managers of the Group will take part in this proposedfundraising. The Board will keep shareholders informed of progress in relation to theproposed fundraising so far as practicable. It is believed that once this fundraising is completed the Company will be able to resolve its regulatory capitalshortfall. The FSA is required to satisfy itself as to the adequacy of theseproposals. The Company is in active discussions with the FSA on the proposalsand it is hoped that, if a successful conclusion of these discussions isreached, the Company will be in a position to apply to have its securitiesrestored to trading. Board changes On 5 October, the Board announced the appointment of Jonathan Hall as anon-executive Director. Jonathan is an experienced corporate financier and hasbeen closely involved in the Company's restructuring and capital raising plans. The Company has today announced a further strengthening of the Board with theappointment of Andrew Shortis as Group Managing Director with immediate effect.A specialist in corporate turnaround, Andrew brings considerable experience ofgrowing thriving, profitable businesses. The Board also announces that John Joyce, the Company's senior independentdirector, has been appointed Non-Executive Chairman. Cliff Lockyer will remain on the BBB Board as Group Enterprise Director. Nick Davenport, who joined the Board as Executive Director in March 2005 todevelop the insurance broking business, has stepped down from the BBB Board, butwill continue his relationship with the Group as Non-Executive Chairman ofBBNIB. Appointment of Financial Adviser The Board of BBB today also announces the appointment of Arden Partners Limitedas its financial adviser. Enquiries: BBB plcJonathan Hall before 9a.m. 0121 632 2192 after 9a.m. 02476 232010 Arden PartnersAndrew Raca, Director, Corporate Finance 0121 423 8941 This information is provided by RNS The company news service from the London Stock Exchange