Begbies Regulatory News (BEG)

9 Jul 2008 07:00



Wednesday, 9 July 2008

Begbies Traynor Group plc

(the "Group" or the "Company")

Preliminary Results for the year ended 30 April 2008

Begbies Traynor Group plc, the specialist professional services organisation, today announces its preliminary results for the year ended 30 April 2008.

Financial highlights

EBITA was £8.1m (2007: £10m)

Adjusted* profit before tax was £7.0m (2007: £9.2m):

Profit before tax from continuing operations was £5.7m (2007: £8.5m)

Profit for the year of £1.1m (2007: £5.0m) after a £2.4m impairment charge relating to discontinued operations 

Earnings per share:

Total dividend maintained at 2.5p per share (2007: 2.5p)

* Profit before tax from continuing operations of £5.7m (2007: £8.5m) plus amortisation of £1.1m (2007: £0.5m) plus finance charge arising from the discounting of deferred consideration of £0.2m (2007:£0.2m)

** See reconciliation in note 6

Operational highlights

Continued investment in ongoing and new activities: 

Process underway to dispose of consumer insolvency activity and one other non-core business

Renewed and enhanced banking facilities agreed in April 2008 

Upswing in insolvency activity in 2008 continues

Ric Traynor, Executive Chairman, commented:

"The year being reported upon was an extraordinary period for our core business of insolvency administration, which accounts for over 75% of Group continuing revenues. Following one of the quietest periods for corporate insolvency in nearly 20 years, reflecting the ready availability of easy credit, the advent of the credit crunch through the autumn of 2007 resulted in a significant change in activity levels. I am therefore pleased to announce improved insolvency performance in the second half.

"We start the new financial year with an enhanced insolvency platform, a replenished insolvency case load and market indicators which continue to predict stronger demand in this, our counter-cyclical core business. We therefore look forward to a sustained period of improved new work flow and insolvency returns.

"Overall, activity levels at the start of the current financial year are well ahead of the same period last year and we will provide an update on progress at the time of the Company's AGM in October."

About Begbies Traynor Group:

Begbies Traynor Group plc is a specialist professional services organisation providing independent professional advice and solutions to businesses, financial institutions, the accountancy profession and individuals in the areas of corporate finance, recovery, investigation, risk management, commercial finance and specialist tax advice. It is listed on AIM (Ticker: BEG.L).

  Chairman's Statement

INTRODUCTION

The year being reported upon was an extraordinary period for our core business of insolvency administration, which accounts for over 75% of Group continuing revenues. Following one of the quietest periods for corporate insolvency in nearly 20 years, reflecting the ready availability of easy credit, the advent of the credit crunch through the autumn of 2007 resulted in a significant change in activity levels.

OPERATIONAL REVIEW - CONTINUING OPERATIONS

Insolvency

Insolvency revenues increased by nearly 4% over the previous year to £38.1m (2007: £36.7m). Segmental EBITA fell to £7.6m (2007: £9.3m). 

There has been a significant recovery in work flow in our core activity of business insolvency in the latter part of the financial year. This included some high profile engagements for the Group, such as Silverjet, Alphasteel and Carlyle Capital Corporation. The division had been impacted by the weak market conditions for our services in calendar year 2007, when the number of business insolvencies nationally fell by 10% over the previous year (source: Government's Insolvency Service). 

Our view at the time was that this was a temporary setback and for that reason we continued to invest in our insolvency operations. This has been both organically, in staff, new offices and support infrastructure and by the acquisition of two practices in Leeds and York during the financial year. In addition, two further insolvency practices in Southampton and Cardiff were acquired immediately following the year end.  The investment in the operating base is expected to bear fruit in the more favourable current market conditions. 

Corporate finance

Corporate finance reported revenues of £4.8m (2007: £2.8m). Segmental EBITA fell to £0.5m (2007: £0.9m). 

Revenue has increased as the Group has expanded its corporate finance activities, both through acquiring a successful practice in Newcastle in the second half of last year and organically. We have engaged five new partners across the country since the end of the prior year, who spent the early part of the financial year building their portfolio of engagements. Performance in the second half was therefore stronger as these new partners began to contribute more substantively, following a loss making first half for the division. The overall profit is lower than 2007, when operating margins reflected the strong general market conditions for corporate finance services.

Other (including tax)

Revenues in this segment increased by £2.8m to £5.2m (2007: £2.4m). Segmental EBITA was broadly break-even (2007: loss of £0.3m).

These operations include the Group's newly acquired tax consulting practice, as well as its existing forensics and investigations businesses. Our tax activities, which focus principally on providing outsourced specialist tax advice via fellow professionals, have performed strongly in the year and provide a solid platform from which to grow into a major service line. The forensics and investigations activities were broadly flat when compared to the previous year. The Group has also invested in some new start up service lines of commercial finance and asset management consulting, which have incurred early stage costs in the year, but provide important support activity for other major service lines, particularly insolvency services. 

  STRATEGY AND OBJECTIVES

The Group's strategy is to develop a specialist professional services group, retaining strong counter cyclical revenues, by both organic growth and acquisition. We will:

focus on our core activity of mid market insolvency, taking advantage of the current upturn in cases resulting from the worsening economic outlook;

steadily grow our two existing additional service lines of corporate finance and taxation consultancy, taking into account the likely short and medium term outlook in their respective market places; and

broaden our professional services to other areas in due course, when prudent to do so in terms of management resource, funding and prevailing market conditions.

ACQUISITIONS

During the year, the Group acquired a number of businesses, as detailed below, for a total consideration of £11.8m. Since the year-end we have acquired the insolvency and corporate finance practice of Fanshawe Lofts in Southampton and a small insolvency practice in Cardiff.

Insolvency

In November 2007, the Group acquired the insolvency division of Bartfields (UK) Limited, which joined our existing Leeds practice. In December 2007, the Group acquired David Horner & Co Ltd, an insolvency practice with offices in York, Middlesbrough and Doncaster.

Both of these operations have now been successfully integrated and have performed in line with expectations.

Tax

In line with the strategy to extend the Group's professional services offering, three tax practices were acquired in the year.

In May 2007, the Group acquired Stellar Financial Partners LLP, which provides specialised fiscal structuring and investigations consultancy advice to independent financial advisors, financial institutions and general practice accountants and is based in Manchester.

In January 2008 the Group acquired Shaw Tax, previously the largest independent firm of dedicated Chartered Tax Advisors in the UK.  Its team specialises in the provision of corporate and personal taxation services including consultancy, compliance, wealth management and trustee services. The business operates from Birmingham and London.

Finally, in February 2008, the Group completed the acquisition of Coyle Clark LLP, a two partner specialist tax investigation practice, which operates from Manchester and Northern Ireland.

These three acquisitions, which have a combined pro-forma annual revenue of approximately £5m, are being  integrated into one operation, trading as BTG Tax, and have performed profitably in line with expectations.

Other

In May 2007, the Group invested in Servisional, a business improvement and customer relationship management (CRM) consultancy.

DISPOSALS

During the year, the Board decided to withdraw from the consumer insolvency market, in light of conditions in this sector and the sub-scale nature of the operation. It has taken the decision to initiate offers for the current case book. This process is underway and the Group is involved in discussions with a number of interested parties.

In addition, as a result of a recent review of non-strategic activities, the Board has decided to dispose of the non-core Servisional business. This business, although only relatively recently acquired to broaden the Group's service offering, has failed to develop any synergies from being within the Group. It is currently being actively marketed for sale.

DIVIDEND

In the light of these results, the Board has recommended a maintained final dividend for the year of 1.5p per ordinary share. If approved, the total dividend for the year ended 30 April 2008 will amount to 2.5p per share (2007: 2.5p).

Over the longer term the Board has adopted a progressive dividend policy, which takes account of the underlying growth in earnings, whilst acknowledging the requirement for continuing investment to underpin growth over the longer term. 

BOARD CHANGES

We have taken the opportunity to strengthen the Board this year with a number of appointments and responsibility changes.

John Gittins, who previously held the finance director role in a number of fast growing support services companies, joined the Board as Chief Financial Officer in October 2007. Graham McInnes, who served as Chief Financial Officer since our flotation in 2004, has taken on the role of Corporate Development Director and also executive responsible for the corporate finance practice.

Geoff Hill, who was a non-executive director until October 2007, has now taken on an executive role as board member responsible for bringing together the Group's recently acquired tax practices, as well as its forensic and intelligence activities. Geoff is a chartered accountant and was previously senior partner at a large independent practice in Leeds and led its merger with a top 15 UK accounting practice.  

Finally, John May joined the board in October 2007 as a non-executive director. John brings considerable experience of the management of growing service companies from his background as an executive director of Caledonia Investments plc and previously Hambros Group.

We believe these changes strengthen the Board and provide the appropriate focus on our three key service lines in order to implement our clearly defined growth strategy. 

PEOPLE

Our most valued asset is the expertise, professionalism and commitment of our people and I thank all of them for their contribution to our results this year. We now have 447 direct fee earners (an increase of 23% compared to a year ago) and 133 in support functions. 

In addition, we have recently redesigned the partner reward platform so that, going forward, partners are highly motivated and incentivised financially to deliver long-term, sustainable growth within our various markets. 

OUTLOOK

The Group starts the new financial year with an enhanced insolvency platform, a replenished insolvency case load and market indicators which continue to predict stronger demand in this, our counter-cyclical core business.  The Board therefore looks forward to a sustained period of improved new work flow and insolvency returns.

The 'Begbies Traynor Red Flag Alert' statistics, which we publish quarterly, monitor adverse actions and other corporate distress signals, such as the issue of county court judgements and winding-up petitions, which are early warning signs of potential insolvency activity. Our most recent survey published in May 2008 revealed that the number of UK companies experiencing critical or significant problems in the first quarter of 2008 had increased substantially over the same period in 2007. The statistics for the second quarter of 2008 are due for publication later this month and will show further significant deterioration.

We have broadly completed the roll out of our national corporate finance complement and, given the current economic environment, the mix of our work is expected to shift towards business and debt advisory and support activities and be less dependent on capital transactions. We believe this will generate a sustainable level of activity.

We have now established critical mass in our third major service line, taxation, and we believe this has significant growth potential, both organically and by acquisition.

Overall, activity levels at the start of the current financial year are well ahead of the same period last year and we will provide an update on progress at the time of the Company's AGM in October.  

Ric Traynor

Executive Chairman

9th July 2008  Financial Review

FINANCIAL HIGHLIGHTS

The Group's revenue from continuing operations in the year was £48.1m (2007: £41.9m), an increase of £6.2m or 15%. Current year acquisitions contributed £4.3m of this growth, with the remainder largely generated through organic growth in existing service lines, particularly in the second half of the year when we experienced a recovery in insolvency activities and generated returns from first half investments in our corporate finance practice. On an annualised basis, the acquisitions reported approximately £8m of revenues.

EBITA decreased to £8.1m (2007: £10.0m) at a reduced margin of 17% (2007: 24%). The decrease in margin is due to the difficult market conditions in the first half of the financial year in the insolvency division and the Group's continued investment in growth ahead of profit delivery. This included recruitment into existing service teams and support infrastructure, the establishment of new service lines, a new Manchester headquarters and the continued development of the BGN international network. The full year performance masks the improvement experienced in the second half year, with an 80% increase in EBITA in H2 to £5.2m from £2.9m in H1.

Amortisation increased to £1.1m (2007: £0.5m), due to the combination of the full year impact of prior year acquisitions and current year acquisitions. Finance costs increased to £1.3m (2007: £1.0m), due to increased levels of net debt due to our general investment activities and higher interest rates.

Adjusted profit before tax* was £7.0m (2007: £9.2m).  Profit before tax was £5.7m (2007: 8.5m).

The tax charge was £1.9m (2007: £3.0m), which represents an effective rate of 33% (2007: 35%). The reduction in effective rate in the year is largely due to the change in tax rate from 30% to 28% in relation to the Group's deferred tax liabilities.

Profit for the year from continuing operations was £3.8m (2007: £5.5m).

DISCONTINUED OPERATIONS 

As the Board has resolved to dispose of the Group's consumer insolvency and CRM consultancy operations, IFRS 5 'Nonߛcurrent assets held for sale and discontinued operations', requires the financial results for these activities to be disclosed as discontinued operations in the income statement and the carrying value of the net assets to be written down to the fair value of the assets less costs to sell. This has resulted in a non-cash adjustment to the net assets carrying value of £2.4m.

Discontinued operations, after non-cash write down costs noted above, generated a loss after tax of £2.8m (2007: loss £0.5m). The carrying value of the assets of £1.1m and liabilities of £0.5m are separately disclosed on the balance sheet.

EARNINGS PER SHARE ('EPS')

EPS from continuing operations**, adjusted for the net of tax impact of amortisation and the finance charge arising from the discounting of deferred consideration liabilities, was 6.0p (2007: 8.0p). Basic and fully diluted EPS from continuing operations was 4.7p (2007: 7.3p).

FINANCING

In April 2008, the Group renewed and increased its banking facilities to support future growth. The new facilities include a £20m, three year, revolving credit facility ('RCF') and a £5m overdraft. Interest on the RCF is charged at 1.4% over LIBOR and on the overdraft is 1.5% over bank base rate.  At 30 April 2008, £7m of the RCF and the entire £5m overdraft were undrawn. The Group continues to use other sources of finance as appropriate, including hire purchase contracts and bank loans.

Gross borrowings at 30 April 2008 were £18.4m (2007: £5.8m), giving gearing of 37% (2007: 12%). Interest cover was 6.2 times (2007: 10.4 times). 

CASH FLOWS

Operating cash flows in the year decreased to £5.8m (2007: £8.1m), principally due to the reduced levels of operating profits noted above. 2008 was a significant year of investment for the Group, with £4.5m of capital investment, including the development of the new head office, £6.3m of payments in relation to current year acquisitions and a further £2.8m of deferred consideration payments. This investment has been financed through a combination of new bank loans, hire purchase contracts and drawdown of the Group's RCF, resulting in an inflow from investing of £10.0m.

NET ASSETS

At 30 April 2008 net assets were £49.4m (2007: £49.8m).

Non-current assets increased to £57.2m (2007: £46.7m), as a result of goodwill and intangible assets recognised on acquisitions in the year and the Group's investments noted above.

Current assets increased to £31.3m (2007: £25.2m), principally from increased trade receivables and recoverable income and costs on cases, due to the combination of acquired businesses and working capital absorption of the Group's organic revenue growth in the year, particularly in the second half.

Total liabilities increased to £39.0m (2007: 22.1m) due to increased gross borrowings of £12.6m following the investing activities in the year noted above; additional deferred consideration of £2.6m due to current year acquisitions; and other increases in working capital liabilities of £1.7m. Total liabilities include £7.7m of deferred consideration payments, of which £3.9m is payable within one year.

INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')

This is our first year reporting under IFRS, the effect of which on comparative periods is set out in a separate announcement available on the Group's website at www.begbies-traynorgroup.com.

The principal adjustments relate to acquisition accounting. IFRS 3 'business combinations' requires the recognition of intangible assets separately from goodwill; goodwill is not amortised but is subject to annual impairment reviews; and deferred consideration is provided at net present value with the unwind of the discount rate charged to the income statement over the period to payment.

John Gittins

Chief financial officer

9th July 2008

  CONSOLIDATED INCOME STATEMENT

Year ended 30 April 2008

There are no recognised gains in either year other than the profit for that year.

  CONSOLIDATED BALANCE SHEET

30 April 2008

  CONSOLIDATED CASH FLOW STATEMENT

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

  NOTES

Basis of preparation

The results for the year ended 31 March 2008 have been prepared for the first time in accordance with IFRS and results for the comparative period have been restated under IFRS. The changes in accounting policies resulting from the IFRS restatement, together with the financial impacts of these changes and the full IFRS accounting policies of the Group are set out in the document entitled 'IFRS Restatement Report', which can be found on the Group's website, www.begbies-traynorgroup.com.

The financial information set out in this statement relating to the year ended 30 April 2008 does not constitute statutory accounts for that period as defined in section 240 of the Companies Act 1985. Statutory accounts for 2008 will be delivered to the Registrar of Companies following the company's annual general meeting. The auditors have reported on those accounts; their report is unqualified and does not contain a statement under either section 237(2) or (3) of the Companies Act 1985.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not contain sufficient information to comply with IFRS.

The comparative results for the year ended 30 April 2007 have been re-presented to reflect the disclosure of the Group's consumer insolvency operations and Servisional, the CRM consultancy, within discontinued operations (see note 5).

2. SEGMENTAL RESULTS

For management purposes, the Group is currently organised into three operating segments. These segments are the basis on which the Group reports its primary segmental information.

The principal activities are as follows

Insolvency;

Corporate finance; and

Other professional services, principally comprising the Group's tax consulting practice and its forensics and investigations businesses.

Selected segmental information about these businesses is presented below. 

3. FINANCE COSTS

4. TAX

Corporation tax is calculated at 30 % (2007 - 30 %) of the estimated assessable profit for the year.

5. DISCONTINUED OPERATIONS

During the year the Board decided to withdraw from the consumer insolvency market in light of conditions in this sector and the sub-scale nature of the operation, and has taken the decision to initiate offers for the current case book. The case book is being actively marketed for sale and there is an expectation that a transaction will qualify for recognition as a completed sale within one year.

In addition, as a result of a recent review of non-strategic activities, the Board has decided to dispose of the non-core Servisional business, a CRM consultancy. This business is being actively marketed for sale and there is an expectation that a transaction will qualify for recognition as a completed sale within one year.

These two businesses therefore meet the definition of a disposal group in accordance with IFRS 5 'Nonߛcurrent assets held for sale and discontinued operations' as at 30 April 2008 and are therefore classified as held for sale and discontinued operations.

The results of the discontinued operations which have been included in the consolidated income statement, were as follows:

6. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

The following additional earnings per share figures are presented as the directors believe they provide a better understanding of the trading position of the Group.

7. DIVIDENDS

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in this financial information.