Begbies Regulatory News (BEG)

12 December 2012

Begbies Traynor Group plc

Half year results

for the six months ended 31 October 2012

Begbies Traynor Group plc ('the group'), the UK's leading independent business recovery practice, today announces its half year results for the six months ended 31 October 2012.

Financial highlights

·; Revenue of £26.1m (2011: £29.4m)

·; EBITA* (pre-exceptional items and acquisition-related costs) of £3.7m (2011: £4.6m)

·; Adjusted profit before tax** of £3.2m (2011: £4.1m)

·; Profit before tax of £2.0m (2011: £3.4m)

·; Profit for the period of £1.4m (2011: loss of £4.1m)

·; Earnings per share:

- adjusted basic and diluted EPS*** from continuing operations was 2.5p (2011: 3.1p)

- basic and diluted EPS from continuing operations of 1.5p (2011: 2.5p)

·; Interim dividend maintained at 0.6p (2011: 0.6p)

·; Net debt of £18.3m (Apr 12: £20.1m; Oct 11: £27.3m), comfortably within the banking facilities, with reduction in gearing to 32% (Apr 12: 34%; Oct 11: 46%) and strong interest cover of over seven times

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

** Profit before tax from continuing operations of £2.0m (2011: £3.4m) plus amortisation of £0.2m (2011: £0.2m) plus finance charge arising from the discounting of deferred consideration of nil (2011: £0.1m) plus exceptional items and acquisition-related costs of £1.0m (2011: £0.4m)

*** See reconciliation in note 6

Operational highlights

·; First period in which the group has operated in its new shape, following sale of non-core divisions last year

·; Revenues impacted by subdued summer insolvency market

·; Broadly stable group profit levels compared to second half of last year

·; Insolvency and restructuring:

- Challenging markets, exacerbated by summer events and continued low interest rate policy

- Operating margins improved slightly compared to second half of last year

- Notable cases in the period included Port Vale FC, Twickenham Film Studios and United Carpets

·; Global Risk Partners:

- Improved and profitable financial performance, from loss making position in second half of last year

Current trading 

·; The level of UK corporate insolvencies expected to remain broadly stable, notwithstanding seasonality in the quarterly Government statistics

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

"Challenging market conditions have persisted with lower levels of activity in the insolvency market over the summer months. Overall, this led to a group performance with lower revenues and profits than the comparative period. In spite of this, the business remains profitable and continues to generate good operating margins through on-going management of the group's cost base."

"We anticipate an improvement in activity in the second half of the financial year during the traditionally busier winter months. Given this, we currently anticipate that the group's performance for the year as a whole will be broadly in line with last year. We will provide an update on third quarter trading in early March 2013."

A meeting for analysts will be held today at 10.00am 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 / Adam Miller

Shore Capital 020 7408 4090

(Joint Broker)

Pascal Keane

MHP Communications 020 3128 8100

Reg Hoare / Katie Hunt / Giles Robinson

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 been the first in which the group has operated wholly in its new shape, focused on its core UK insolvency and restructuring business, following the sale of its non-core divisions last year.

Challenging market conditions have persisted with lower levels of activity in the insolvency market, which were exacerbated by an exceptional summer of national events in addition to the continuing low interest rate policy and creditor forbearance. Overall, this led to a group performance with lower revenue and EBITA than the comparative period.

In spite of this, the business remains profitable and continues to generate good operating margins through on-going management of the group's cost base. Over the last two years, the group has reduced like for like costs in its continuing businesses by £5m per annum, whilst maintaining the potential to significantly improve its financial performance should more favourable market conditions return.

The group has delivered broadly stable profit levels on a sequential basis, despite reduced revenues, with EBITA of £3.7m compared to £3.9m in the second half of last year. This is due to improved operating margins, reflecting the reduced cost base. This sustainable level of profitability has enabled us to continue to pay a dividend, whilst making progress in reducing our debt levels.

RESULTS

The group's revenue from continuing operations in the half year decreased to £26.1m (2011: £29.4m). Earnings before interest, tax and amortisation ('EBITA') (pre-exceptional and acquisition-related costs) decreased to £3.7m (2011: £4.6m). Adjusted profit before tax* decreased to £3.2m (2011: £4.1m). Profit before tax decreased to £2.0m (2011: £3.4m). Exceptional and acquisition-related costs relating to continuing operations were £1.0m (2011: £0.4m).

The results on a sequential basis are as follows:

Earnings per share ('EPS') from continuing operations**, adjusted for the net of tax impact of amortisation, exceptional and acquisition-related costs and the finance charge arising from the discounting of deferred consideration liabilities, decreased to 2.5p (2011: 3.1p). Basic and diluted EPS from continuing operations were 1.5p (2011: 2.5p).

Net borrowings at 31 October 2012 were £18.3m (Apr 12: £20.1m; Oct 11: £27.3m), comfortably within the group's bank facilities, with a reduction in gearing to 32% (Apr 12: 34%; Oct 11: 46%) and strong interest cover of over seven times.

* Profit before tax from continuing operations of £2.0m (2011: £3.4m) plus amortisation of £0.2m (2011: £0.2m) plus finance charge arising from the discounting of deferred consideration of nil (2011: £0.1m) plus exceptional items and acquisition-related costs of £1.0m (2011: £0.4m)

** See reconciliation in note 6

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 recommended the interim dividend be maintained at 0.6p (2011: 0.6p).

The interim dividend will be paid on 9 May 2013 to shareholders on the register as at 12 April 2013, with an ex-dividend date of 10 April 2013.

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.

Segmental profits decreased to £6.0m (2011: £7.2m) in the period as a result of a reduction in revenue to £24.0m (2011: £26.8m). Operating margins were 25.0% (2011: 26.9%).

The UK insolvency market remains challenging with lower levels of activity than expected, considering the levels of financial distress present in the wider economy. However, base rates of 0.5% (since May 2009) continue to provide a very benign financing environment for otherwise weak companies.

Our market was notably quieter over the summer months, with Government statistics showing national insolvencies to be 10% lower than the previous year for the quarter to September 2012. As the UK insolvency business with the largest market share, any volatility in national insolvency numbers has a direct impact on our operational volumes.

In light of the trading environment, we continue to keep our cost base under close review and aligned to current and projected activity levels. The number of people employed in the group's insolvency division has decreased to 449 as at 31 October 2012 from 466 at the start of the financial year. As a result of the lower cost base operating margins improved slightly on a sequential basis (compared to the second half of the previous financial year), from 24.7% to 25.0%.

We remain the market leader in UK mid-market insolvency and 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.

High profile cases in the period include the successful sale of Port Vale Football Club from administration as a going concern, the sale of Twickenham Film Studios out of administration, and the pre-pack administration of United Carpets (Northern) Limited, a 73 store chain of carpet superstores. The group continues to demonstrate strength and expertise in key sectors where financial distress has been most evident, notably including football clubs and high street retailers.

We will continue to develop this 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 £2.2m (2011: £2.6m), generating a profit of £0.2m (2011: £0.2m). Operating margins increased to 10.2% (2011: 7.3%).

Financial performance has improved, from a loss-making position in the second half of the previous financial year, as a result of a restructuring of the cost base to reduce the level of operational gearing.

Overall, this division has grown through organic investment to date, has low working capital requirements, as well as a growing reputation and good future medium-term growth prospects, with a stable outlook for the second half.

The number of people employed in global risk partners decreased to 29 on 31 October 2012 from 34 at the start of the financial year.

INSOLVENCY MARKET

Trends in Government insolvency data demonstrate a flat market over the course of the last three calendar years from 2010 through to 2012.

Insolvency statistics

The number of corporate insolvencies (Source: The Insolvency Service) for the nine months ended 30 September 2012 was 16,035 (nine months ended 30 September 2011: 16,516) compared to a total of 21,858 for the calendar year 2011, a run rate reflecting the broadly flat market.

There are currently no signs of an increase in insolvency volumes, in spite of the many indicators of financial stress. R3, the insolvency trade body, estimates that there is an increasing number of 'zombie' businesses (defined as businesses only able to pay the interest on their debt but not pay off the debt itself) in the UK. As of November 2012, R3 estimated the current number at 160,000. Market commentators believe that around a third may enter an insolvency process if interest rates were to increase.

The board's expectations are that these flat market conditions will remain whilst interest rates remain at their current low levels.

Red Flag Alert

'Begbies Traynor Red Flag Alert' statistics, which are published quarterly, monitor adverse actions and other corporate distress signals, such as the issue of county court judgments and winding-up petitions, which are early warning signs of potential insolvency activity.

The most recent survey, published in October 2012, showed marked increases in financial distress amongst businesses based in the North as well as SMEs, whilst southern based and larger businesses have shown improvements in financial health.

The quarter on quarter increase in 'significant' distress levels amongst SMEs (up 10.5%) also mirrors the increase in zombie businesses found by R3 (and referred to above) and the impact they are having on the UK recovery cycle.

OUTLOOK

We expect the level of UK corporate insolvencies to remain broadly stable, notwithstanding seasonality in the quarterly Government statistics. The general economic conditions remain uncertain and the insolvency market remains challenging. The group's focus in this climate is to continue to ensure our resource base remains appropriate for the levels of activity.

We anticipate an improvement in activity in the second half of the financial year during the traditionally busier winter months. Given this, we currently anticipate that the group's performance for the year as a whole will be broadly in line with last year. We will provide an update on third quarter trading in early March 2013.

Whilst our markets continue to be challenging, we remain committed to maximising the performance of and growing our cash-generative and profitable business, both organically and through selective acquisitions.

Ric Traynor

Executive chairman

12 December 2012

FINANCIAL REVIEW

FINANCIAL HIGHLIGHTS

Group revenue for the period from continuing operations was £26.1m (2011: £29.4m), a decrease of £3.3m. EBITA (pre-exceptional and acquisition-related costs) decreased to £3.7m (2011: £4.6m), as a result of lower activity levels partially mitigated by cost reductions.

The table below summarises financial performance on a sequential basis for the last 18 months.

During the current period, the group incurred exceptional restructuring costs of £1.0m (2011: £0.4m), related to the on-going activities to manage the group's cost base.

Amortisation of intangible assets arising on acquisitions was £0.2m (2011: £0.2m).

Finance costs reduced to £0.5m (2011: £0.6m), due to reduced borrowings compared to the comparative period.

Adjusted profit before tax was £3.2m (2011: £4.1m). Profit before tax was £2.0m (2011: £3.4m). The reconciliation between these profit measures is as follows:

The tax charge arising on pre-exceptional profit was £0.9m (2011: £1.2m), which represents an effective rate of 30% (2011: 33%). The tax charge for the period from continuing operations was £0.7m (2011: £1.1m), based on a weighted average expected tax rate for the full year of 33%.

Profit for the period from continuing operations was £1.4m (2011: £2.2m).

EARNINGS PER SHARE ('EPS')

EPS from continuing operations*, adjusted for the net of tax impact of the amortisation of intangible assets arising on acquisitions, exceptional costs, acquisition-related costs and the finance charge arising from the discounting of deferred consideration liabilities, was 2.5p (2011: 3.1p). Basic and diluted EPS from continuing operations was 1.5p (2011: 2.5p).

* See reconciliation in note 6

CASH FLOWS

Net cash flows from operating activities (after interest and tax) in the period increased to £2.8m (2011: outflow £0.7m), due to improved working capital cash flows compared to the comparative period.

Investing cash flows decreased to £0.5m (2011: £3.0m), due to lower acquisition and deferred consideration payments of £0.3m (2011: £2.6m). Net capital expenditure payments were £0.3m (2011: £0.5m).

Financing cash outflows of £1.6m (2011: inflow £0.2m) include a net repayment on the group's principal bank facilities of £1.0m (2011: drawdown £2.0m), dividend payments of £0.5m (2011: £1.1m) and a net repayment of other finance of £0.1m (2011: £0.8m).

FINANCING

Net borrowings at 31 October 2012 were £18.3m (2011: £27.3m), with a reduction in gearing to 32% (2011: 46%) 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.

NET ASSETS

At 31 October 2012 net assets were £57.6m (2011: £59.9m), equivalent to net assets per share of 64p (2011: 67p), and are analysed as follows:

Nick Taylor

Group finance director

12 December 2012

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

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

Consolidated balance sheet

Consolidated cash flow statement

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 2012, 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 2012 were approved by the board of directors on 5 July 2012 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 2012 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 2012.

2. Segmental analysis by class of business

3. Finance costs

4. Exceptional and acquisition-related costs

5. Discontinued operations

The prior year results for the group's former tax, red flag and insolvency offshore businesses were disclosed as discontinued operations. The results of these operations were as follows:

6. Earnings (loss) per share

The calculation of the basic and diluted earnings (loss) 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 interim dividend of 0.6p (2011: 0.6p) per share (not recognised as a liability at 31 October 2012) will be payable on 9 May 2013 to ordinary shareholders on the register at the close of business on 12 April 2013. The final ordinary dividend of 1.6p per share as proposed in the 30 April 2012 financial statements and approved at the group's AGM was paid on 7 November 2012 and was recognised as a liability at 31 October 2012.

8. Reconciliation to the cash flow statement