Begbies Regulatory News (BEG)

12 December 2017

Begbies Traynor Group plc

Half year results

for the six months ended 31 October 2017

Begbies Traynor Group plc (the 'company' or the 'group'), the business recovery, financial advisory and property services consultancy, today announces its half year results for the six months ended 31 October 2017.

Financial overview

* Restated as detailed in note 1

** Profit before tax of £1.0m (2016: £0.9m) plus amortisation of intangible assets arising on acquisitions of £0.9m (2016: £1.3m) plus transaction costs of £1.0m (2016: £0.3m).

*** See reconciliation in note 5

Highlights:

· A good first half performance, results in line with expectations

· Business recovery and advisory services improved its performance:

o increase in insolvency market activity levels over the last twelve months

o revenue growth and improved margins

· Property services performed in line with expectations as we continued to invest in its service offering and geographical coverage

· Strong cash generation drove a significant reduction in net debt and supports the board's decision to declare an increased interim dividend, the first increase since 2011

Outlook:

· Well placed to deliver upon current market expectations for the full year

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

"I am pleased to report a good first half performance, in line with our expectations, reflecting a continuation of the improved performance in business recovery and advisory services experienced in the second half of last year, with property services performing as anticipated.

"Our good performance in the first half of the year leaves us well placed to deliver upon current market expectations for the full year; the delivery of which will enable the group to continue its recent track record of profit and earnings growth.

"The group is in its strongest position for many years, which enables us to execute our strategy and continue to invest in the growth of the business."

A meeting for analysts will be held today at 8:45am for 9.00am at the offices of MHP Communications, 6 Agar Street, London WC2N 4HN. Please contact Peter Lambie on 020 3128 8570 or via peter.lambie@mhpc.com 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 4588

(Nominated Adviser and Joint Broker)

Sunil Duggal

Andrew Buchanan

Margarita Mitropoulou

Shore Capital 020 7408 4090

(Joint Broker)

Mark Percy / Anita Ghanekar

MHP Communications 020 3128 8100

Reg Hoare / Katie Hunt

Information on Begbies Traynor Group can be accessed via the Group's website atwww.begbies-traynorgroup.com

CHAIRMAN'S STATEMENT

INTRODUCTION

I am pleased to report a good first half performance, in line with our expectations, reflecting an improved performance in business recovery and advisory services, with property services performing as anticipated.

In the business recovery and advisory division, we were encouraged to see a continuation of the increase in activity levels experienced in the second half of the prior year, with a strong year on year improvement in results. We remain the leading UK corporate appointment taker by volume, leaving us well positioned to take advantage of any sustained increase in activity levels, which remain close to historically low levels.

Property services performed in line with our expectations. We have continued to invest in the division to develop both our service offering and our geographical coverage, which we anticipate will benefit future years.

This strong financial performance has enabled the group to remain strongly cash generative, leading to reduction in net debt to £6.9m as at 31 October 2017 (2016: £12.2m) and allowing continued investment in growth opportunities.

The group's financial performance and cash generation in the first half, combined with our improved confidence in sustaining our recent earnings growth, has led the board to declare a 17% increase in the interim dividend to 0.7p. This is the first dividend increase since 2011.

RESULTS

Group revenue from continuing operations in the half year ended 31 October 2017 was £26.0m (2016: £24.5m). Adjusted profit before tax* increased to £2.9m (2016: £2.5m). Profit before tax was £1.0m (2016: £0.9m). Profit for the period from continuing operations was £0.4m (2016: £0.5m).

Earnings per share from continuing operations**, adjusted for the net of tax impact of amortisation of intangible assets arising on acquisitions and transaction costs, were 2.0p (2016: 1.8p). Basic and fully diluted earnings per share from continuing operations were 0.3p (2016: 0.5p).

Net debt at 31 October 2017 was £6.9m (30 April 2017: £10.3m, 31 October 2016: £12.2m). Gearing stood at 12% (Apr 17: 18%, Oct 16: 21%) and the group retains significant headroom in its committed banking facilities. Interest cover*** was 12.2 times (2016: 6.3 times).

* Profit before tax from continuing operations of £1.0m (2016: £0.9m) plus amortisation of intangible assets arising on acquisitions of £0.9m (2016: £1.3m) plus transaction costs of £1.0m (2016: £0.3m)

** See reconciliation in note 5

*** Before amortisation and transaction costs 

DIVIDEND

The board is pleased to declare an increased interim dividend of 0.7p (2016: 0.6p), an increase of 17%.

The full year dividend will be set in line with our commitment to a long-term progressive dividend policy, with any dividend growth taking account of both the market outlook and earnings growth.

The interim dividend will be paid on 10 May 2018 to shareholders on the register as at 13 April 2018, with an ex-dividend date of 12 April 2018.

OUTLOOK

Our good performance in the first half of the year leaves us well placed to deliver upon current market expectations for the full year; the delivery of which will enable the group to continue its recent track record of profit and earnings growth.

The group is in its strongest position for many years, which enables us to execute our strategy and continue to invest in the growth of the business. We will provide an update on third quarter trading in early March 2018.

Ric Traynor

Executive chairman

12 December 2017 

BUSINESS REVIEW

Begbies Traynor Group plc is a leading business recovery, financial advisory and property services consultancy, providing services nationally from a comprehensive network of UK locations through two complementary operating divisions.

Business recovery and financial advisory services

Begbies Traynor is the UK's leading independent business recovery practice, handling the largest number of corporate appointments, principally serving the mid-market and smaller companies.

BTG Advisory provides transactional support, valuations and advisory services.

We provide these services to businesses, professional advisors, other stakeholders, investors and financial institutions, working with all the major UK clearing banks.

Property services

Eddisons is a national firm of chartered surveyors, delivering advisory and transactional services to owners and occupiers of commercial property, investors and financial institutions. The division includes Pugh & Co, the largest regional firm of commercial property auctioneers by number of lots.

OPERATING REVIEW

Business recovery and financial advisory

Insolvency market

The number of corporate insolvencies (source: The Insolvency Service) increased by 8% in the twelve months ended 30 September 2017* to 15,572 (2016: 14,482). Corporate insolvencies in calendar years 2015 and 2016 were circa 14,700 per annum, representing the lowest level of corporate appointments since 2004.

*Source: The Insolvency Service quarterly insolvency statistics, excluding the one-off effect of 1,131 connected personal service companies which entered liquidation on the same date following changes to claimable expenses rules.

Financial performance

The increase in market activity levels (as noted above), combined with a success fee of £0.8m on a contingent insolvency case, increased revenue by 10% to £19.2m (2016: £17.4m). Segmental profits* increased to £4.1m (2016: £3.2m) with an improvement in operating margins to 21.4% (2016: 18.1%).

We have continued to develop our advisory services in the period and have recently launched BTG Advisory, which brings together our restructuring, financial advisory, corporate finance, forensic and investigation teams to operate as one national team.

The number of people employed in the division has increased to 342 as at 31 October 2017 from 337 at the start of the financial year. We retain the capacity to deliver growth in revenue and profits from our existing team in the event of a further increase in activity levels.

We have maintained our market share and remain the leading corporate appointment taker by volume. In the second half, we expect the division to perform broadly in line with the first half, excluding the benefit of the contingent fees.

* See note 2

Property services

Revenue decreased to £6.8m (2016: £7.1m) as anticipated, due to a one-off advisory fee of £0.4m which benefitted the comparative period. Operating costs increased to £5.5m (2016: £5.1m) due to the full year impact of prior year acquisitions, investment in new people and increased share-based payment charges.

Segmental profits* were £1.3m (2016: £2.0m) with operating margins of 19.7% (2016: 28.3%).

As noted above, we have continued to invest in the division and in the period have recruited a new team in Liverpool providing valuation and agency services operating from the group's existing office, which we anticipate will benefit future years. The number of people employed in the division has increased to 177 as at 31 October 2017 from 170 at the start of the financial year and 164 in October 2016.

We continue to seek opportunities to invest in the division through senior recruitment, in addition to seeking further acquisitions. These growth initiatives will develop both our service offering and geographical coverage. In the second half, we anticipate trading to continue at least at current levels.

* See note 2

FINANCE REVIEW

Financial summary

Revenue

Revenue in the period was £26.0m (2016: £24.5m).

Business recovery and financial advisory revenue increased by £1.9m, partially offset by reduced property services revenue of £0.3m.

Operating profit (before transaction costs and amortisation)

Operating profit increased to £3.1m (2016: £3.0m) with margins of 12.0% (2016: 12.1%).

Interest costs

Interest costs reduced to £0.3m (2016: £0.5m), as a result of the group's reduced borrowing costs following the refinancing in November 2016.

Transaction costs

Transaction costs in the period were £1.0m (2016: £0.3m) comprising:

· acquisition costs of £nil (2016: £0.1m);

· deemed remuneration charges of £0.7m (2016: £0.6m);

· charge relating to the put and call option over Begbies Traynor (London) LLP of £0.3m (2016: £nil), offset by:

· gain on acquisition of £nil (2016: £0.4m).

Amortisation of intangible assets arising on acquisitions

Amortisation costs decreased to £0.9m (2016: £1.3m).

Tax

The tax charge for the period was £0.6m (2016: £0.3m) based on the expected tax rate for the full year.

Earnings per share ('EPS')

EPS*, adjusted for the net of tax impact of amortisation and transaction costs were 2.0p (2016: 1.8p).

Basic and diluted earnings per share were 0.3p (2016: 0.5p).

* See reconciliation in note 5

Cash flows

Cash generated by operations (before interest and tax payments) in the period was £4.9m (2016: £2.2m). Tax payments in the period were £0.4m (2016: £0.7m). Interest payments were £0.2m (2016: £0.4m).

Cash outflows from investing activities were £0.3m (2016: £2.2m). Capital expenditure was £0.2m (2016: £0.1m). Deferred payments relating to prior year acquisitions were £0.1m (2016: £0.5m). Acquisition payments were £nil (2016: £1.6m, net of cash acquired).

Financing cash outflows were £2.6m (2016: £1.6m). During the period we reduced the level of drawn debt under our banking facilities by £2.0m (2016: £1.0m). Dividend payments were £0.6m (2016: £0.6m).

Financing

Net borrowings reduced to £6.9m at 31 October 2017 (Apr 2017: £10.3m, Oct 16: £12.2m), with gearing of 12% (Apr 17: 18%, Oct 16: 21%) and significant headroom within the committed banking facilities. During the period, all bank covenants were comfortably met and the group remains in a strong financial position. Interest cover* was 12.2 times (2016: 6.3 times).

The group's banking facilities are unsecured, mature on 31 August 2021 and comprise a £25m committed revolving credit facility and a £5m uncommitted acquisition facility.

* Before amortisation and transaction costs

Net assets

At 31 October 2017 net assets were £56.5m (2016: £58.6m) and are analysed as follows:

Ric Traynor Nick Taylor

Executive chairman Group finance director

12 December 2017 12 December 2017

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

The merger reserve arose on the formation of the group in 2004.

1. Basis of preparation and accounting policies

(a) Basis of preparation

The half year condensed consolidated financial statements do not include all of the information and disclosures required for full annual financial statements and should be read in conjunction with the group's annual financial statements as at 30 April 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

This condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 30 April 2017 were approved by the board of directors on 10 July 2017 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The directors have reviewed the financial resources available to the group and have concluded that the group is a going concern. This conclusion is based upon, amongst other matters, a review of the group's financial projections for a period of twelve months following the date of this announcement, together with a review of the cash and committed borrowing facilities available to the group. Accordingly, the going concern basis has been used in preparing these half year condensed consolidated financial statements.

The condensed consolidated financial statements for the six months ended 31 October 2017 have not been audited nor subject to an interim review by the auditors. IAS 34 'Interim financial reporting' is not applicable to these half year condensed consolidated financial statements and has therefore not been applied.

(b) Significant accounting policies

The accounting policies adopted in preparation of the half year condensed consolidated financial statements are consistent with those followed in the preparation of the group's annual financial statements for the year ended 30 April 2017.

(c) Prior period restatement

As disclosed in the group's statutory accounts for the year ended 30 April 2017, the group updated its accounting in respect of the acquisition of subsidiaries and businesses where the consideration payable requires post-acquisition service obligations to be performed by the selling shareholders. 

The net impact of these adjustments was a £549,000 credit to opening reserves at 1 May 2016 and a £307,000 credit to the consolidated statement of comprehensive income in the six months to 31 October 2016. The group's KPI's of adjusted profit before tax and adjusted EPS were not impacted by this restatement. There were no restatements to reported cashflows.

The impact on each line item on the primary financial statements is shown in the table below:

2. Segmental analysis by class of business

3. Finance costs

4. Transaction costs

5. 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:

6. Dividends

The interim dividend of 0.7p (2016: 0.6p) per share (not recognised as a liability at 31 October 2017) will be payable on 10 May 2018 to ordinary shareholders on the register at the close of business on 13 April 2018. The final dividend of 1.6p per share as proposed in the 30 April 2017 financial statements and approved at the group's AGM was paid on 8 November 2017 and was recognised as a liability at 31 October 2017.

7. Reconciliation to the cash flow statement