CVH.L Regulatory News (CVH)

15 Mar 2007 08:00

Cavanagh Group PLC15 March 2007 Cavanagh Group plc ("Cavanagh" or "The Group") 15 March 2007 Audited Results for the year to 31 December 2006 Cavanagh Group plc, one of the leading firms of Independent Financial Advisers,announces its results for the year to 31st December 2006. Key Points • Turnover up by 17% to £14,112,000 (2005: £12,053,000) • EBITDA profit reaches £1,558,000 (2005: £338,000) • Significant improvement in Group operating profit to £931,000 from a loss of £230,000 in 2005 • Pre tax profit of £882,000 from a pre tax loss of £388,000 in 2005 • Operating cash inflow of £1,620,000 (2005: £451,000) Andrew Fay, Chief Executive comments: "2006 has seen Cavanagh's strategy of generating organic growth come to fruitionand as a result we have enjoyed an excellent twelve months with a strongperformance across all areas of our business activities. The Group has nowreturned to profit and the figures for year ended 31 December 2006 clearlydemonstrate Cavanagh's progress over the past year." Enquiries: Cavanagh Group plcAndrew Fay (Chief Executive) 01444 475000 Chairman's statementfor the year ended 31 December 2006 Financial results I am again extremely pleased to be able to report the Group's results which showan operating profit of £1,172,000 (2005: £30,000) before goodwill amortisationand share-based payment charges. This has been achieved on increased turnover of£14,112,000, 17% up on the previous year (2005: £12,053,000) and continued costcontrol of the overhead base. This trading result is underpinned by the £1,620,000 cash generated fromoperating activities (2005: £451,000) which has enabled us to almost halve ournet debt to £1,663,000 (2005: £3,194,000). The Board's key objective for 2006 was to move the Group back into profitabilityby generating controlled and sustainable growth in our business. I am delightedto report that this has been achieved and 2006 was a year when Cavanaghdelivered on its aims and saw significant progress in all areas of itsperformance, with the second half of the year outperforming the first,continuing to demonstrate that Cavanagh is now firmly established as one of thetop IFA groups in the UK. Operations Client assets under advice continue to grow above £1billion with recurringincome, including annual fees and trail commissions now in excess of £4 millionper annum representing over 28% of the Group's turnover, which is an area of thebusiness that we anticipate further growth. As I have stated in previous reports, attracting and retaining high qualityconsultants is a core part of our strategy. A demonstrable measure of both oursuccess at this, and the calibre of our consultants is the fact that theiraverage annual revenue generated in 2006 was in excess of £239,000, up from£191,000 in 2005, making our consultants among the highest producing individualsin the sector. I am pleased to report that the continued development of our backoffice system is generating tangible benefits with management informationbecoming noticeably quicker, more accessible and more efficiently produced. Theresulting benefits of running the business on one system has improved ourability to deliver new initiatives to market more quickly and has helped us toidentify a number of new opportunities which we will continue to develop in thecoming year. A recent internal reorganisation has brought the IT and Technical Advisordepartments closer to the administration function, resulting in the delivery ofa more consistent and integrated process throughout the business. With increased turnover and profit, the Group's specialist actuarial andadvisory service, CPRM, which was launched in September 2004, made a significantcontribution to the Group's overall progress in 2006 and we are anticipatingfurther growth from CPRM as its expertise in this sector will be in demand asthe pension landscape shows no sign of becoming easier to navigate for itscorporate clients. Business Opportunities Our range of introducers is currently expanding faster than at any time in ourhistory as Cavanagh's reputation of being able to deliver to the professionalmarket continues to grow. In addition we are looking to generate additionalprofitability from our existing asset base by maximising our client funds underadvice - this will be a key objective for 2007. Our client base now numbers many exceptionally loyal professional and high networth individuals with whom we can continue to offer ongoing planningopportunities. These include a number of professional connections with seniorpartners of law firms, an area which we anticipate will continue to flourish andgrow. Board and staff In November 2006 we announced the strengthening of the Board with theappointment of Paul Hogarth as a non-executive director. I believe that hisknowledge, experience and contacts in the financial services sector will be aninvaluable asset to Cavanagh. On a personal note I was delighted to be able to agree to step up fromnon-executive Chairman to executive Chairman and I look forward to working withmy colleagues on the Board together with all the staff of the Group. I amconfident that Cavanagh will continue on the path that has made it one of thetop IFAs in the UK in terms of both financial performance and the quality of itsclient offering. As mentioned above, one of the key differentiators of Cavanagh in the market isthe high calibre of its consultants; however, I would like to take thisopportunity to highlight the contributions made by the back office teams inmaking Cavanagh the successful business that it has become - without theircommitment the consultants would be unable to operate so efficiently. On behalfof the Board I would like to thank all the staff in the various nationwideoffices for their efforts during 2006. Reduction of Capital Although Cavanagh is now generating a satisfactory level of profits, the Companyis unable to pay dividends due to accumulated losses from prior years.Therefore, the board is considering a proposal to reduce the company's sharepremium account so as to eliminate this deficit and, subject to the workingcapital requirements of the Group, to bring closer the prospective date on whichthe company can commence paying dividends. This exercise will not result in areduction in the net assets of the company. A reduction of capital in thismanner requires approval by the High Court following which a special resolutionwill be put to shareholders at an extraordinary general meeting to be convenedlater in the year if deemed appropriate following discussions with ourprofessional advisers. Outlook The controlled growth demonstrated by the business over the past 12 months hasallowed, and will continue to allow, the senior management to concentrate on newbusiness developments. We anticipate that 2007 will be another year of growthfor the Cavanagh Group. John CampbellChairman14 March 2007 CHIEF EXECUTIVE'S REVIEWfor the year ended 31 December 2006 Overview 2006 has seen Cavanagh's strategy of generating organic growth come to fruitionand as a result we have enjoyed an excellent twelve months with a strongperformance across all areas of our business activities. The Group has nowreturned to profit and the figures for year ended 31 December 2006 clearlydemonstrate Cavanagh's progress over the past year. We have delivered on all our key objectives for 2006 and we continue to buildbrand awareness based on our strengthening reputation for delivering the rightresults to both our clients and shareholders. The Group continues to develop long-term relationships with its clients byproviding quality financial planning solutions tailored to professionals, highnet worth individuals and corporates. Business Highlights The headline financial results are reported in the Chairman's statement, but Iwould like to point out the outstanding turnaround achieved by the business inthe year which went from a Group operating loss of £230,000 to a Group operatingprofit of £931,000. Over 80% of the Group's new business was generated from pensions andinvestments, and we see the future in these areas remaining very strong giventhe increasing need for professional advice due to the complexity of the marketand the diversity of the products on offer. We also saw considerable activity in the 'Wrap' market. The Group currently has£55 million of client assets on Wrap products with a similar amount in thepipeline, all of which attracted regular income during 2006. This is an areathat we believe shows opportunity for growth with Cavanagh already being seen asa leader in this market sector. CPRM, the Group's specialist actuarial and advisory service, continues to growsteadily and is now attracting new corporate clients on a regular basis. It hasbuilt a solid and regular income with recurring income accounting for 53% of itsbusiness compared to 45% in 2005. The Group's average adviser productivity increased by 25% year-on-year, from£191,000 in 2005 to £239,000 in 2006. This average annual revenue per Cavanaghconsultant is, when compared to the rest of the IFA marketplace, already at thetop end of the productivity range and we are targeting a further increase inproductivity in 2007. We continue to have a clear focus on increasing thequality and quantity of business that is generated by our consultants fromadvising high net worth clients and we remain committed to attracting andretaining the highest quality and level of staff, including the technicaladvisers who are a key part of our operations. There is a real sense of achievement throughout the Group for delivering thisstrong performance across all areas of business activity. Organisation In 2006 there were two changes to the structure of the Board. We were delightedthat John Campbell agreed to step up from being non-executive Chairman to beingexecutive Chairman. We will benefit from his increased involvement in theactivities of the Group. November 2006 saw a further strengthening of the Board with the appointment ofPaul Hogarth as a Non-executive Director. Paul is a well-known and respectedfigure in the financial services sector and was one of the founders of theBankhall Group. Both John and Paul have many years experience in senior roleswhich I believe will contribute to the future success of Cavanagh. I am pleased to report that the growth in turnover has been achieved with stafflevels remaining unchanged from 2005; no new offices were opened in 2006, butthe Group's geographical reach and coverage continues to expand from our nineregional offices (including our City office in London's Chancery Lane) and ourCuckfield base. Strategic Focus & Outlook In 2007 and beyond the Group will continue to look to grow organically; however,we will consider suitable acquisitions when and where the enhancement ofbusiness and shareholder value can clearly be demonstrated. The concept of "treating customers fairly" (TCF) has always been part of theculture within Cavanagh and so I am pleased to report that the initiativeimplemented by the FSA has been largely completed. Investment in new and improved systems to assist growth has been and willcontinue to be a priority for the Group. We will also look to develop ourofferings to clients and the speed with which we can bring these to market andoffer greater long-term value to our client base. At this early stage of the 2007 we believe market conditions to be good forCavanagh's key areas of activity and hence for further profitable growth. Andrew FayChief Executive14 March 2007 PROFIT AND LOSS ACCOUNTfor the year ended 31 December 2006 2006 2005 (restated) £ £TURNOVER: Group and share of joint venture's 14,271,544 12,160,516turnoverLess: share of joint venture's turnover (159,358) (107,088) ------------ ------------TURNOVER 14,112,186 12,053,428Cost of sales 7,773,821 6,617,198 ------------ ------------Gross profit 6,338,365 5,436,230 ------------ ------------Administrative expenses- goodwill amortisation 195,900 201,660 - share based payment charges 45,161 57,739 - other 5,165,962 5,406,422 ------------ ------------Total administrative expenses 5,407,023 5,665,821 ------------ ------------Operating profit before goodwill amortisation and share 1,172,403 29,808based payment charges - share based payment charges (45,161) (57,739) - goodwill amortisation (195,900) (201,660) ------------ ------------GROUP OPERATING PROFIT/(LOSS) 931,342 (229,591)Share of joint venture operating profit 157,738 105,202 ------------ ------------TOTAL OPERATING PROFIT/(LOSS) 1,089,080 (124,389)Net interest payable (207,031) (263,569) ------------ ------------PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 882,049 (387,958)Tax on profit/(loss) on ordinary activities 3 (428,987) (123,552) ------------ ------------PROFIT/(LOSS) FOR THE FINANCIAL YEAR 453,062 (511,510) Minority interest (19,725) (2,334) ------------ ------------RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR 433,337 (513,844) ============ ============ Basic earnings/(loss) per share (pence) 4 3.99 (4.73) ============ ============Fully diluted earnings/(loss) per share (pence) 4 3.98 (4.73) ============ ============ The operating profit for the year arises from the Group's continuing operations. GROUP STATEMENT OF RECOGNISED GAINS AND LOSSESfor the year ended 31 December 2006 2006 2005 (restated) £ £Total recognised gains and losses relating to the 433,337 (513,844)year ============ ============Prior year adjustment * (55,042) ------------Total recognised gains and losses since last annual report 378,295 ============ * Impact of adopting FRS 20 "Share based payment" GROUP BALANCE SHEET31 December 2006 2006 2005 (restated)Notes £ £FIXED ASSETSIntangible assets 1,329,510 1,525,410Tangible assets 371,836 604,477Share of assets of joint venture 2,000 2,000 ------------------ ------------------ 1,703,346 2,131,887CURRENT ASSETSDebtors 2,298,664 3,280,492Cash at bank and in hand 1,836,595 906,472 ------------------ ------------------ 4,135,259 4,186,964 CREDITORS: amounts falling due within one year (2,454,482) (2,816,634) ------------------ ------------------NET CURRENT ASSETS 1,680,777 1,370,330 ------------------ ------------------TOTAL ASSETS LESS CURRENT LIABILITIES 3,384,123 3,502,217 CREDITORS: amounts falling due after more than one year (2,900,000) (3,500,000) PROVISIONS FOR LIABILITIES AND CHARGESOther provisions (231,365) (247,682) ------------------ ------------------ 252,758 (245,465) ================== ==================CAPITAL AND RESERVESCalled up share capital 5 108,684 108,684Share premium account 5 2,705,800 2,705,800Other reserve 5 157,942 112,781Profit and loss account 5 (2,736,438) (3,169,775) ------------------ ------------------EQUITY SHAREHOLDERS' FUNDS/(DEFICIT) 5 235,988 (242,510) Minority interests 16,770 (2,955) ------------------ ------------------ 252,758 (245,465) ================== ================== CASH FLOW STATEMENTfor the year ended 31 December 2006 2006 2005 (restated)Notes £ £NET CASH INFLOW FROM OPERATING ACTIVITIES 6 1,619,989 450,927RETURNS ON INVESTMENTS AND SERVICING OF FINANCEDividends received from joint venture 157,738 88,786Interest received 59,071 33,698Interest paid (266,102) (297,267) ------------ ------------NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS (49,293) (174,783) AND SERVICING OF FINANCETAXATION - -CAPITAL EXPENDITUREPayments to acquire tangible fixed assets (40,573) (159,382) ------------ ------------NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (40,573) (159,382)ACQUISITIONS AND DISPOSALSPurchase of subsidiary undertaking - 67,602 ------------ ------------NET CASH INFLOW FROM ACQUISITIONS - 67,602 ------------ ------------CASH INFLOW BEFORE FINANCING 1,530,123 184,364FINANCINGNew long term loans 1,500,000 -Repayment of bank loans (2,100,000) (400,000) ------------ ------------NET CASH OUTFLOW FROM FINANCING (600,000) (400,000) ------------ ------------INCREASE/(DECREASE) IN CASH IN THE YEAR 930,123 (215,636) ============ ============ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2006 2005 £ £Increase/(decrease) in cash in the year 930,123 (215,636)Cash flow in respect of long term loans 600,000 400,000 ------------ ------------CHANGE IN NET FUNDS 1,530,123 184,364NET DEBT AT 1 JANUARY 2006 (3,193,528) (3,377,892) ------------ ------------NET DEBT AT 31 DECEMBER 2006 (1,663,405) (3,193,528) ============ ============ NOTES TO THE RESULTS 1 presentation of financial information Information in this preliminary announcement does not constitutestatutory accounts of the Group within the meaning of Section 240 of theCompanies Act 1985. The figures for the year ended 31 December 2006 areaudited. The preliminary announcement is prepared on the same basis as set outin the previous year's statutory accounts except for the changes in accountingstandards as detailed below. FRS 20 "Share based payments" is effective for unlisted companies(including AIM companies) for accounting periods beginning on or after 1 January2006. In accordance with the standard, the cost of share options awarded toemployees measured by reference to their fair value at the date of grant isrecognised over the vesting period of the options based on the number of optionswhich in the opinion of the Directors will ultimately vest. An analysis of the impact of FRS 20 is as follows: Profit and loss account 2006 2005 £ £Profit/(loss) before adoption of new accounting standard 478,498 (456,105)Impact of FRS 20 (45,161) (57,739) ------------ ------------Restated profit/(loss) after adoption of new accounting 433,337 (513,844)standard ============ ============ There is a corresponding credit to an Other reserve and there is noimpact on the Group's cash position. The prior year adjustment and correspondingcredit to the other reserve at 1 January 2005 amounted to £55,042. Statutory accounts for the year ended 31 December 2005, which wereprepared under accounting practices generally accepted in the UK, have beenfiled with the Registrar of Companies. The auditors' report on those accountswas unqualified and did not contain any statement under Section 237 (2) or (3)of the Companies Act 1985. 2 Turnover and segmental analysis The total turnover, losses before tax and net assets are attributableto the one principal activity of the Group. 3 TAXATION ON ORDINARY ACTIVITIES (a) Analysis of charge in the year 2006 2005 £ £Current tax: UK Corporation tax based on the results for the year at 30% 16,285 - (2005: 30%) Share of joint venture corporation tax 31,035 16,416 ------------ ------------Total current tax 47,320 16,416Deferred tax: Decrease in deferred tax asset 381,667 107,136 ----------- ------------Tax on profit/(loss) on ordinary activities 428,987 123,552 ============ ============ (b) Factors affecting current tax charge The tax assessed on the profit on ordinary activities for the year ishigher than the standard rate of corporation tax in the UK of 30% (2005: 30%). 2006 2005 (restated) £ £Profit/(loss) on ordinary activities before taxation 882,049 (387,958) ============ ============Profit/(loss) on ordinary activities by rate of tax 264,615 (116,387)Decelerated capital allowances 39,011 7,902Expenses disallowed 61,677 119,733Income not taxable - (475)Unrelieved tax losses 108,069 25,999Losses utilised in the year (432,012) (5,281)Difference in rates (8,483) (11,589)Other 14,443 115Over provision in prior year - (3,601) ------------ ------------Total current tax (note 3(a)) 47,320 16,416 ============ ============ 4 EARNINGS/(LOSS) PER SHARE 2006 2005 (restated) £ £Profit/(loss) on ordinary activities after taxation 433,337 (513,844)Share based compensation charge 45,161 57,739 ------------ ------------Adjusted profit/(loss) after taxation 478,498 (456,105) ============ ============Weighted average number of shares (No)For basic earnings/(loss) per ordinary share 10,868,400 10,868,400Exercise of share options 33,109 - ------------ ------------For fully diluted earnings/(loss) per ordinary share 10,901,509 10,868,400 ============ ============ Earnings/(loss) per ordinary share - basic 3.99p (4.73)p ============ ============Earnings/(loss) per ordinary share - adjusted 4.40p (4.20)p ============ ============Earnings/(loss) per ordinary share - basic fully diluted 3.98p (4.73)p ============ ============ The loss for the year and the weighted average number of ordinary shares forcalculating the diluted loss per share for the year ended 31 December 2005 areidentical to those used for the basic loss per share. This is because theoutstanding share options and warrants would have the effect of reducing theprofit per ordinary share and would therefore not be dilutive under the terms ofFRS 22. 5 Reconciliation of movements in consolidated shareholders' funds Share Share Other Profit Total capital premium reserve and loss account account £ £ £ £ £ At 1 January 2005 - as previously reported 108,684 2,705,800 - (2,600,889) 213,595FRS 20 adjustment - - 55,042 (55,042) - ---------- ---------- ---------- ---------- ----------As restated 108,684 2,705,800 55,042 (2,655,931) 213,595Loss for the year - - - (513,844) (513,844)Share based compensation - - 57,739 - 57,739 ---------- ---------- ---------- ---------- ----------At 31 December 2005 108,684 2,705,800 112,781 (3,169,775) (242,510)Profit for the year - - - 433,337 433,337Share based compensation - - 45,161 - 45,161 ---------- ---------- ---------- ---------- ----------At 31 December 2006 108,684 2,705,800 157,942 (2,736,438) 235,988 ========== ========== ========== ========== ========== The Other reserve relates to share based compensation charges. 6 NOTES TO THE CASH FLOW STATEMENT RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW FROM OPERATINGACTIVITIES 2006 2005 £ £ Total operating profit/(loss) 1,089,080 (124,389)Share of joint venture operating profit (157,738) (105,202)Amortisation of goodwill 195,900 201,660Share based compensation 45,161 57,739Depreciation 273,214 260,533Decrease/(increase) in debtors 600,161 (154,669)(Decrease)/increase in creditors (409,472) 374,101Decrease in provisions (16,317) (58,846) -------------- ---------------Net cash inflow from operating activities 1,619,989 450,927 ============== =============== ANALYSIS OF CHANGES IN NET DEBT At Cash flows At 1 Jan 2006 31 Dec 2006 £ £ £Net cash:Cash in hand and at bank 906,472 930,123 1,836,595 ------------ ------------ ------------Debt:Bank loans (4,100,000) 2,100,000 (2,000,000)Other loans - (1,500,000) (1,500,000) ------------ ------------ ------------Net debt (3,193,528) 1,530,123 (1,663,405) ============ ============ ============ 7 Basis of the preliminary announcement The board of directors of Cavanagh Group plc approved these Results on 14 March2007. The statutory accounts for the year ended 31 December 2006 will be delivered tothe Registrar of Companies following the Annual General Meeting. The statutoryaccounts will be posted to shareholders shortly. Further copies will availableto the public, free of charge, from the company's registered office, TheCourtyard, Staplefield Road, Cuckfield, West Sussex. The Annual General Meeting will be held at The Courtyard, Staplefield Road,Cuckfield, West Sussex on Wednesday 25th April at 10.00. Enquiries: Cavanagh Group plcAndrew Fay (Chief Executive) 01444 475000 This information is provided by RNS The company news service from the London Stock Exchange