Begbies Regulatory News (BEG)

21 Jan 2010 07:00



 21 January 2010 

Begbies Traynor Group plc

Interim results

for the six months ended 31 October 2009

Begbies Traynor Group plc ("the group"), the specialist professional services organisation, today announces its interim results for the six months ended 31 October 2009.

Financial Highlights: 

Revenue from continuing operation increased by 21% to £34.2m (2008: £28.3m)

EBITA (pre-exceptional costs) increased by 13% to £4.6m (2008: £4.0m)

Adjusted profit before tax1 was up 32% to £4.3m (2008: £3.3m)

Profit before tax rose by 69% to £3.6m (2008: £2.1m)

Earnings per share:

Interim dividend increased by 9% to 1.2p (2008: 1.1p)

1 Profit before tax from continuing operations of £3.6m (2008: £2.1m) plus amortisation of £0.5m (2008: £0.6m) plus finance charge arising from the discounting of deferred consideration of £0.2m (2008: £0.3m) plus exceptional costs of nil (2008: £0.3m)

2 Earnings per share from continuing operations adjusted for the net of tax impact of amortisation, exceptional costs and the finance charge arising from the discounting of deferred consideration liabilities (see reconciliation in note 5)

Operational Highlights:

An increase in activity levels and the value of appointments in the insolvency division

Improved performance from Corporate Finance Resource base in Tax division aligned to current market conditions

Continued investment to underpin growth:

Outlook:

Historically high levels of insolvency activity; insolvency market growth anticipated once government support measures are relaxed

Continued improved performance in Corporate Finance

Tax division expected to return to profitability in the second half of the current financial year

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

"The group has delivered double digit organic growth in both revenues and profits in the first half, due to the excellent performance of our core insolvency and recovery business.

"The board expects the Group performance for the year as a whole to be comfortably ahead of last year, with our insolvency activities remaining at historically high levels. However, with our Red Flag Alert and other statistics demonstrating the impact of the continuing temporary economic support measures on the economy, the level of potential growth in insolvency for the year is now not expected to offset fully the weaker than anticipated performance of the tax practice. Accordingly, the board anticipates results for the year as a whole will be slightly below current consensus market expectations.

"Beyond the current financial year, we expect the Group to make considerable further progress as a result of anticipated rises in the level of insolvencies in the second half of the calendar year 2010, consistent with patterns experienced over the last three recessions."

Chairman's statement

Introduction

I am pleased to report continuing strong overall financial performance by Begbies Traynor Group plc in the six months ended 31 October 2009, in line with the board`s expectations. The group has delivered double digit organic growth in both revenues and profits, due to the excellent performance of our core insolvency and recovery business, which accounts for 86% of the group's revenue.

The performance of the group's tax practice has been significantly impacted both by its market environment and economic conditions, which has resulted in reduced revenues compared to the prior period and operating losses in the first half. The corporate finance business has been restructured and is now integrated within the group's insolvency and recovery division, enabling us to maximise resource utilisation and resulting in a significant improvement in financial performance.

Results

The group's revenue from continuing operations in the half year was up by 21% to £34.2m (2008: £28.3m), with a 13% increase in earnings before interest, tax and amortisation ('EBITA') (pre-exceptional costs) to £4.6m (2008: £4.0m). Adjusted profit before tax1 rose by 32% to £4.3m (2008: £3.3m). Profit before tax was up 69% to £3.6m (2008: £2.1m).

EPS from continuing operations 2, adjusted for the net of tax impact of amortisation, exceptional costs and the finance charge arising from the discounting of deferred consideration liabilities, was up 22% to 3.3p (2008: 2.7p). Basic and fully diluted EPS from continuing operations increased by 53% to 2.6p (2008: 1.7p).

Net borrowings at 31 October 2009, comprising bank debt of £16.0m and asset-related finance of £4.4m, totalled £20.4m (2008: £14.8m) giving gearing of 31% (2008: 24%).

1 Profit before tax from continuing operations of £3.6m (2008: £2.1m) plus amortisation of £0.5m (2008: £0.6m) plus finance charge arising from the discounting of deferred consideration of £0.2m (2008: £0.3m) plus exceptional costs of nil (2008: £0.3m)

2 See reconciliation in note 5

Operational review

Insolvency

Insolvency revenues increased by 28% to £29.5m (2008: £23.0m), with an increase in segmental EBITA of 47% to £5.7m (2008: £3.9m).

The division has continued its good progress in the half year, with both an increase in activity levels and in the value of new insolvency appointments, despite the volume of insolvency cases in the UK market not yet reaching predicted peaks. The group has continued to expand its capability in this area and total headcount in the division increased by 8% to 490 over the period. 

The group's corporate finance activities reduced their operating loss to £0.3m, compared to a loss of £1.0m in the comparative period, having been restructured and operationally integrated within the core insolvency division. This has allowed maximization of resource utilisation, particularly in recovery and turnaround activities, whilst maintaining capability for traditional corporate finance engagements. Its results are incorporated within the overall segmental result for the insolvency division.

These improvements in performance have resulted in improved operating margins in the period to 19% (2008: 17%).

In October 2009 the group entered into a joint venture with Mesirow Financial Consulting LLC, a full-service financial advisory consulting provider based in the United States. This joint venture, BTG Mesirow Financial Consulting, will provide the group with the opportunity to work on global transactions and raise the group's profile in the commercially important US market. 

In addition, during the first half the group invested in the commercial development of its `Red Flag Alert` system, which was formally launched as a fully supported web-based subscription service to third parties in December 2009.

The division also established or expanded offices in Cambridge and Birmingham within the UK, and has invested in the set up of insolvency operations in the Cayman Islands. 

These investments are expected to generate financial returns in forthcoming financial years.

Tax

Revenue in the period decreased to £2.5m (2008: £3.4m), resulting in a segmental loss of £1.1m (2008: profit of £0.2m).

The current economic environment has had a material impact on the demand for specialist tax consultancy services, worse than we had anticipated at the start of the recession. This resulted in a significant decrease in revenues of £0.9m compared to the prior period, due to the difficult business environment experienced by our corporate and private clients and fee pressure. The reduction in revenues, combined with the full year cost impact of recruitment in the prior year, resulted in a loss. During the period, where we have seen growth opportunities, we have made selective investments, whilst reviewing the resource base to ensure it aligned to current market conditions. Overall, tax headcount reduced from 75 to 70.  

Other segments

Revenue in this segment increased to £2.2m (2008: £1.9m). Segmental results were broadly  break-even (2008: £nil).

These operations include the group's forensic, financial investigation and corporate intelligence services, which enable us to provide a full range of services when combined with our work in insolvency, recovery and rescue.

Dividend

Having reviewed current trading, the group's continuing investment programme and cash availability, the board has approved an increase to the interim dividend of 9% to 1.2 pence per share (2008: 1.1 pence per share), to be paid on 1 April 2010 to shareholders on the register on 19 March 2010, with an ex dividend date of 17 March 2010.

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

Insolvency market

Trends in both the group`s Red Flag Alert statistics and Government insolvency data are currently indicating historically high levels of market activity, albeit at below anticipated peaks in the current insolvency cycle. We expect that peak to be reached over the next two financial years.

Red Flag Alert

'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 judgments and winding-up petitions, which are early warning signs of potential insolvency activity. Our most recent survey, published earlier this month, revealed that the number of UK companies experiencing critical or significant problems in the fourth quarter of 2009 has shown a 6% increase over the third quarter of 2009, but had decreased in absolute terms year on year by 14%.

The fall in adverse actions against companies compared to the previous year is, to some extent, in the group`s view, symptomatic of more lenient creditor attitudes, including HMRC and financial institutions. In addition, the extensive use of fiscal instruments, such as quantitative easing and low interest rates, is also, we believe, having an effect on the volume of adverse actions.

Insolvency statistics 

Government insolvency statistics for the third quarter of 2009 show an 11% increase in the number of corporate insolvencies compared to the same quarter in the prior year, but a 7% decrease compared to the second quarter.

We believe that the temporary support initiatives noted above are currently masking the level of financial distress in the UK economy and we expect a further rise in corporate insolvencies in the second half of the calendar year 2010. In addition, statistics from recessions over the past 35 years confirm that the level of insolvencies grow strongly for two to four years after GDP stops shrinking.

Outlook

Insolvency 

As a result of the above, we expect to see our counter cyclical work flow remain at historically high levels, albeit relatively flat in the second half of the current financial year, when compared to the first half, but with a modest increase in related corporate finance activity.  Beyond that, we anticipate a sustained period of growth as the number of corporate insolvencies rise in line with historical patterns experienced at this stage of the economic cycle and once the various support measures are relaxed. 

Tax

The group's tax practice is currently impacted by a reduced demand for the higher margin transactional support and specialist tax activities. The board anticipates an improvement in performance from this division in the remainder of the financial year, as activity levels in this business are traditionally weighted to the second half. We expect the business to return to profitability in the second half, but to be marginally loss making for the year as a whole. The board is confident that as the economic outlook improves the need for tax planning and advice will increase and the group will be well placed to provide these services.

Overall

Overall, the board expects the year as a whole to be comfortably ahead of last year. 

Our insolvency activities remain at historically high levels. However, with our Red Flag Alert and other statistics demonstrating the impact of the continuing temporary economic support measures on the economy, the level of potential growth in insolvency for the year is now not expected to offset fully the weaker than anticipated performance of the tax practice. Accordingly, the board anticipates results for the year as a whole will be slightly below current consensus market expectations.

Beyond the current financial year, we expect the group to make considerable further progress as a result of anticipated rises in the level of insolvencies in the second half of the calendar year 2010, consistent with patterns experienced over the last three recessions.

Ric Traynor

Executive Chairman

21 January 2010

  Financial review

Financial highlights

The group's revenue from continuing operations in the half year was £34.2m (2008: £28.3m), an increase of £5.9m or 21%, which was all generated through organic growth. The significant organic growth within the group's core insolvency business of 28% was partially offset by the reduction in revenue in the tax business.

EBITA (pre-exceptional costs) increased to £4.6m (2008: £4.0m), an increase of 13%. Margins decreased to 13.3% from 14.2% due to the first half operating losses within the tax division.

Exceptional costs in the period were £nil (2008: £0.3m relating to restructuring costs). Amortisation in the period was £0.5m (2008: £0.6m).

Finance costs decreased to £0.5m (2008: £1.0m) due to reduced interest rates compared to the comparative period.

Adjusted profit before tax 3 increased by 32% to £4.3m (2008: £3.3m). Profit before tax was £3.6m (2008: £2.1m).

The tax charge for the period is £1.2m (2008: £0.7m). This is an effective rate of 34.9%, which is in line with the effective rate (before exceptional items) for the year ended 30 April 2009.

Profit for the period from continuing operations was £2.3m (2008: £1.4m). Profit for the period was £2.3m (2008: £0.7m stated after a loss from discontinued operations in the period of £0.7m).

Earnings per share

EPS from continuing operations 4, adjusted for the net of tax impact of amortisation, exceptional costs and the finance charge arising from the discounting of deferred consideration liabilities, was 3.3p (2008: 2.7p), an increase over the prior period of 22%. Basic and fully diluted EPS from continuing operations was 2.6p (2008: 1.7p).

3 Profit before tax from continuing operations of £3.6m (2008:£2.1m) plus amortisation of £0.5m (2008: £0.6m) plus finance charge arising from the discounting of deferred consideration of £0.2m (2008: £0.3m) plus exceptional costs of nil (2008:£0.3m)

4 See reconciliation in note 5

Financing

The group remains in a strong financial position, with significant headroom in its committed facilities.

At 31 October 2009, the group's principal bank debt was £16.0m, comfortably within the group's existing bank facilities of £25.0m. The facilities include a £20.0m, three year revolving credit facility ('RCF'), which was entered into in April 2008, and a £5.0m overdraft. Interest on the RCF is payable at 1.4% (2008: 1.4%) over LIBOR and on the overdraft at 2.75% (2008: 1.5%) over bank base rate. During the period all covenant measures relating to these facilities were met.

In addition, the group had asset-related finance of £4.4m at 31 October 2009 (2008: £4.5m).

Net borrowings at 31 October 2009, comprising bank debt and asset-related finance net of cash balances, were £20.4m (2008: £14.8m), giving gearing of 31% (2008: 24%).

Cash flows

Net cash from operating activities increased to £1.1m (2008: outflow of £3.9m), due to increased operating profits, improved working capital movements and lower interest payments.

Investing cash flows reduced to £2.6m (2008: £4.4m), due to lower payments in respect of acquisitions. Acquisition payments in the current period of £1.2m comprise deferred payments relating to prior year acquisitions (2008: total payments of £3.1m comprise in year acquisition payments of £1.1m and deferred payments of £2.0m).

Financing cash flows of £2.2m (2008: £8.0m) are due to net drawdown from the group's principal facilities £3.8m (2008: repayment of £2.5m). The prior period included a net cash inflow of £12.5m from the share placing in August 2008. Cash outflows include dividend payments of £1.5m (2008: £1.2m) and net repayments of asset-related finance of £0.1m (2008: £0.8m).

Net assets

At 31 October 2009 net assets were £64.8m (2008: £61.4m).

Non-current assets were broadly unchanged at £60.4m (2008: £60.2m).

Current assets increased to £45.5m (2008: £35.5m), principally from increased trade and other receivables of £9.3m, due to the increased working capital requirement arising from the impact of the group's organic growth. Cash balances increased by £0.8m to £1.0m.

Total liabilities increased to £41.1m (2008: £34.3m), principally due to an increase in gross borrowings of £6.4m, an increase in working capital liabilities of £1.0m due to the group's organic growth and an increase in current and deferred tax liabilities of £2.3m; partially offset by a reduction in deferred consideration of £2.9m. Total liabilities include £5.0m of deferred consideration payments, of which £3.6m is payable within one year.

John Gittins

Chief Financial Officer

21 January 2010

Consolidated income statement for the six months ended 31 October 2009

Consolidated statement of comprehensive income for the six months ended 31 October 2009

Consolidated statement of changes in equity for the six months ended 31 October 2009 (unaudited)

Notes

(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 2009, 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 2009 were approved by the board of directors on 9 July 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not include a reference to any matters to which the auditors 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 half year condensed consolidated financial statements for the six months ended 31 October 2009 have not been audited or reviewed. 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 2009, except for the adoption of the new standards and interpretations as of 1 May 2009, noted below.

IFRS 8 'Operating Segments' requires that segmental disclosure be reported on a management basis and in a manner consistent with internal financial reporting to the board. In adopting this standard the directors considered the integration of the corporate finance business into the group's insolvency division. Accordingly, the group now reports its activities under IFRS 8 as three segments: insolvency, tax and all other segments.

IAS 1 (revised) 'Presentation of financial statements' requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing the changes in each component of equity for each period presented.

The group incurred exceptional costs in the period of £nil (2008: £295,000) in relation to restructuring costs.

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.

The interim dividend of 1.2p (2008: 1.1p) per share (not recognised as a liability at 31 October 2009) will be payable on 1 April 2010 to ordinary shareholders on the register at the close of business on 19 March 2010. The dividend disclosed in the cash flow statement represents the final ordinary dividend of 1.7p per share as proposed in the 30 April 2009 financial statements and approved at the group's AGM (not recognised as a liability at 30 April 2009).