9 December 2015
Begbies Traynor Group plc
Half year results
for the six months ended 31 October 2015
Begbies Traynor Group plc (the 'company' or the 'group'), the business recovery and property services consultancy, today announces its half year results for the six months ended 31 October 2015.
Financial highlights*
|
2015 |
2014 |
|
£m |
£m |
Revenue |
25.5 |
20.8 |
Adjusted profit before tax** |
2.5 |
2.0 |
Profit before tax |
0.6 |
1.5 |
Adjusted basic and diluted EPS*** (p) |
1.8 |
1.6 |
Basic and diluted EPS (p) |
0.4 |
1.2 |
Interim dividend (p) |
0.6 |
0.6 |
Net debt (£m) |
11.9 |
16.2 |
* All figures stated from continuing operations
** Profit before tax of £0.6m (2014: £1.5m) plus amortisation of £1.4m (2014: £0.5m) plus exceptional and acquisition-related items of £0.5m (2014: nil)
*** See reconciliation in note 6
Operational highlights
· Solid financial performance with results in line with our expectations
· Strengthened the group through acquisitions in both divisions
Insolvency and restructuring:
· Challenging market with 10% year on year reduction in the number of UK corporate insolvencies in the six months to 30 September 2015
· Focus on cost management mitigated the effects of the continued difficult market
· Remain the leading UK corporate appointment taker by volume and have increased our market share
· Acquired the trade and certain assets of The P&A Partnership Ltd on 30 September 2015
Property consultancy:
· Eddisons, acquired on 17 December 2014, has performed in line with our expectations
· Integration progressing well and synergy savings have exceeded our original targets
· Acquisition of Taylors Business Surveyors and Valuers, subsequent to the period end, to add further depth to our valuation capabilities
Commenting on the results, Ric Traynor, Executive Chairman of Begbies Traynor Group, said:
"I am pleased to report a solid financial performance in the period with results in line with our expectations. The group has delivered growth in revenue and adjusted profit before tax, together with a strong cash performance, in addition to strengthening the business through acquisitions in both of our divisions, one subsequent to the period end.
"With no indications of a change to the benign financing environment in the UK which would cause an increase in insolvency levels, we remain cautious about activity levels in the insolvency division in the near term and will continue to focus on managing costs accordingly.
"The Eddisons business, which was acquired in December 2014, has continued to perform in line with expectations and the remainder of the financial year will benefit from the acquisition of the Taylors business.
"Overall, our expectations for the year as a whole remain unchanged. We will continue to look for opportunities to develop and enhance the group, both organically and through selective acquisitions. We will provide an update on third quarter trading in early March 2016."
A meeting for analysts will be held today at 9.15am for 9.30am at the offices of MHP Communications, 6 Agar Street, London WC2N 4HN. Please contact Charlie Bristow on 020 3128 8788 or via [email protected] 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 / Nilesh Patel
Shore Capital 020 7408 4090
(Joint Broker)
Pascal Keane / Anita Ghanekar
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
I am pleased to report a solid financial performance in the period with results in line with our expectations. The group has delivered growth in revenue and adjusted profit before tax as anticipated following the acquisition of Eddisons, our property consultancy, last year. We have also continued to strengthen the business through acquisitions in both of our divisions, one subsequent to the period end.
The insolvency market continues to be challenging with a further reduction in the number of UK insolvencies over the course of this calendar year, compounding the reductions seen in previous years. The number of UK insolvencies is at the lowest level since 2007.
The overall market conditions have led to reductions in revenue in our insolvency division but the impact of this has been largely mitigated through continued cost control. We have made progress in increasing our market share in this challenging climate and remain the leading UK corporate appointment taker by volume. The acquisition of the trade and certain assets of The P&A Partnership Ltd ("P&A") insolvency practice in Sheffield, completed in September 2015, has further enhanced our leading position.
The Eddisons property consultancy, which we acquired in December 2014, has performed in line with our expectations. The integration of the business into the group has proceeded well with synergy savings exceeding our original targets. Subsequent to the period end, we completed the acquisition of Taylors, a specialist business property valuation consultancy which, as the first acquisition by Eddisons as part of the group, will add further depth to our valuation capabilities.
Cash performance has been strong with a further reduction in the group's net debt to £11.9m (Oct 2014: £16.2m). Having considered the group's first half performance together with current market conditions and expectations for the remainder of the financial year, the board has maintained the interim dividend at 0.6p (2014: 0.6p).
RESULTS
The group's revenue from continuing operations in the half year to 31 October 2015 increased by 23% to £25.5m (2014: £20.8m). Adjusted profit before tax* increased by 25% to £2.5m (2014: £2.0m). Profit before tax was £0.6m (2014: £1.5m). Profit for the period from continuing operations was £0.4m (2014: £1.1m). Total comprehensive income for the period was £0.4m (2014: £0.9m).
Earnings per share ('EPS') from continuing operations**, adjusted for the net of tax impact of the amortisation of intangible assets arising on acquisitions and exceptional and acquisition-related items, increased to 1.8p (2014: 1.6p). Basic and diluted EPS from continuing operations were 0.4p (2014: 1.2p).
Net debt at 31 October 2015 was £11.9m (Apr 2015: £12.8m; Oct 2014: £16.2m), having invested £0.7m in the period in acquisitions and capital investment. These borrowings are comfortably within the group's bank facilities, with gearing of 20% (Apr 2015: 21%; Oct 2014: 28%) and interest cover of 5.7 times.
* Profit before tax of £0.6m (2014: £1.5m) plus amortisation of £1.4m (2014: £0.5m) plus exceptional and acquisition-related items of £0.5m (2014: nil)
** See reconciliation in note 6
DIVIDEND
The board remains committed to a long-term progressive dividend policy, which reflects the potential for earnings growth. In the near term, dividend decisions reflect short-term profit levels, as a result of market conditions, and the requirement for continuing investment.
Having considered financial performance in the current year to date, the outlook for the remainder of the financial year and the on-going requirements of the business, the board has declared a maintained interim dividend of 0.6p (2014: 0.6p).
The interim dividend will be paid on 6 May 2016 to shareholders on the register as at 8 April 2016, with an ex-dividend date of 7 April 2016.
OUTLOOK
Financial performance in our insolvency division is directly related to the cyclicality of the national insolvency market. The market remains difficult to predict and there are no indications of a change in the benign financing environment in the UK. We therefore remain cautious about activity levels in this division in the near term and will continue to focus on managing costs accordingly.
The Eddisons business has continued to perform in line with expectations and the remainder of the financial year will benefit from the acquisition of the Taylors business.
Overall, our expectations for the year as a whole remain unchanged. We will continue to look for opportunities to develop and enhance the group, both organically and through selective acquisitions. We will provide an update on third quarter trading in early March 2016.
Ric Traynor
Executive Chairman
9 December 2015
BUSINESS REVIEW
Begbies Traynor Group is a business recovery and property services consultancy, providing services nationally from a comprehensive network of UK locations, through two operating divisions: Begbies Traynor and Eddisons.
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. We provide a range of specialist professional services including insolvency, restructuring and risk management primarily to businesses, their professional advisors and the major banks.
Eddisons is a national firm of chartered surveyors, offering a wide range of specialist services to banks, insolvency practitioners, and owners and occupiers of commercial property. The services offered are valuation and sale of property, machinery and business assets, including fixed charge property receiverships; insolvency insurance brokerage; property management; and property consultancy services.
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.
Insolvency market
The number of corporate insolvencies (Source: The Insolvency Service) for the six months ended 30 September 2015 was 7,114 (six months ended 30 September 2014: 7,892), a decrease of 10%; continuing the trends seen in recent years of a decreasing number of insolvencies in the UK which are now at the lowest level since 2007.
With current economic indicators suggesting that interest rates will remain unchanged there are no signs of any immediate short-term economic pressures which would cause a marked increase in insolvency levels.
Results
Revenue in the period decreased to £19.4m (2014: £20.8m) with segmental profits* of £4.3m (2014: £4.7m).
The insolvency market remains very challenging, with a further reduction in UK corporate insolvency appointments in the calendar year to date, compounding the impact of reductions over recent years. However, in this climate we have increased our market share and we remain the leading corporate appointment taker by volume.
The lower level of market activity impacted revenue levels in the period, which we have largely mitigated through continued cost control. Operating margins were broadly maintained at 22.4% (2014: 22.5%) with operating costs in the period reduced to £15.1m (2014: £16.1m); representing an additional £0.5m of costs in relation to acquired businesses offset by cost savings of £1.5m.
The number of people employed in the division has increased to 358 as at 31 October 2015 from 354 at the start of the financial year; reflecting a combination of 37 new joiners as a result of the P&A acquisition, offset by a reduction of 33 due to the continued alignment of the cost base with current market conditions.
* see note 2
Acquisition
On 30 September 2015, we acquired the P&A Sheffield team who are a significant regional provider of business recovery and insolvency services, with a strength in asset based lender and creditor services. The P&A practice has now been rebranded as Begbies Traynor and is being integrated into our existing Yorkshire team, making it the leading appointment taker in Yorkshire.
Development
Begbies Traynor remains the market leader in UK mid-market insolvency and we 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 over the economic cycle.
We will continue to develop this 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 may come from winning higher value, more complex instructions from existing clients and prospects, by demonstrating our growing capabilities and credentials.
Property consultancy
Eddisons is a national firm of chartered surveyors, providing its services to banks, insolvency practitioners, and owners and occupiers of commercial property. The business was acquired on 17 December 2014 and therefore this period represents its first full half year contribution.
Revenue in the period was £6.1m with segmental profits* of £1.2m, compared to the comparative pre-acquisition period of £6.4m and £1.0m respectively. The business has performed in line with our expectations in the eleven months since the acquisition was completed and the integration and delivery of synergies is proceeding well. We have delivered the £0.5m of annual cost savings identified prior to completing the acquisition together with a further £0.5m of annual synergy savings.
Operating margins were 19.0%, an improvement on the 14.1% in the comparative pre-acquisition period due to both the cost savings noted above and the exit from non-profitable contracts. The Eddisons team is also being appointed on a number of the group's insolvency cases as anticipated prior to completing the acquisition.
The number of people employed in the division has decreased to 119 as at 31 October 2015 from 134 at the start of the financial year.
On 30 November 2015, subsequent to the period end, we acquired the Taylors Business Surveyors and Valuers ("Taylors") practice. Taylors was established in 1992 and specialises in providing commercial business and property valuations for secured lending purposes on a nationwide basis, on behalf of a wide range of financial institutions, including all of the major high street banks. The 20 strong team, including management, will be integrated with our existing valuations team, adding further depth to our commercial business valuations capability and strengthening our combined offering to lenders.
We will develop this division through a combination of senior recruitment and selective acquisitions with the intention of developing the service offering and geographical coverage.
* see note 2
FINANCE REVIEW
|
2015 |
2014 |
|
£m |
£m |
|
|
|
Continuing operations: Revenue |
25.5 |
20.8 |
EBITA (pre exceptional and acquisition-related items) |
3.0 |
2.5 |
Finance costs |
(0.5) |
(0.5) |
Adjusted profit before tax |
2.5 |
2.0 |
Exceptional and acquisition-related items |
(0.5) |
- |
Amortisation of intangible assets arising on acquisitions |
(1.4) |
(0.5) |
Profit before tax |
0.6 |
1.5 |
Tax |
(0.2) |
(0.4) |
Profit for the period from continuing operations |
0.4 |
1.1 |
Loss for the period from discontinued operations |
- |
(0.2) |
Profit for the period |
0.4 |
0.9 |
Revenue
Revenue in the period increased by £4.7m to £25.5m (2014: £20.8m) as a result of £6.1m of revenue from the Eddisons business, which was acquired in December 2014, partially offset by a £1.4m reduction in revenue in the insolvency division.
EBITA (pre exceptional and acquisition-related items)
Operating costs increased to £22.5m (2014: £18.3m). The impact of costs in the period relating to acquired businesses (net of synergy savings) is £5.6m; comprising £5.1m of Eddisons and £0.5m in relation to insolvency acquisitions. Cost savings realised as a result of the prior year restructuring and on-going management of the cost base have benefitted this period by £1.4m.
EBITA increased to £3.0m (2014: £2.5m) with operating margins maintained at 11.8%.
Finance costs
Finance costs were £0.5m (2014: £0.5m).
Exceptional and acquisition-related items
Exceptional and acquisition-related items in the period comprise:
· deemed remuneration charges of £0.4m (2014: £0.2m);
· acquisition costs of £0.1m (2014: £0.1m);
· gain on acquisition of nil (2014: credit of £0.3m).
Amortisation
Amortisation of intangible assets arising on acquisitions increased to £1.4m (2014: £0.5m) due to prior year acquisitions.
Tax
The tax charge for the period was £0.2m (2014: £0.4m), based on the expected tax rate for the full year.
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 and net acquisition-related items, were 1.8p (2014: 1.6p). Basic and diluted EPS from continuing operations were 0.4p (2014: 1.2p).
* See reconciliation in note 6
Acquisitions
On 30 September 2015, the group completed the acquisition of the trade and certain assets of The P&A Partnership Ltd out of administration in a pre-pack deal. The annual operating cost base of the acquired business is circa £3m, which includes the cost of 37 staff who have joined the group. The maximum cash consideration of £0.9m is as follows: initial consideration of £0.4m, deferred consideration payable after one year of £0.3m, together with a maximum contingent consideration of £0.2m payable by 30 September 2016.
Subsequent to the period end, on 30 November 2015, the group completed the acquisition of the entire issued share capital of TBS&V Limited, which trades as Taylors Business Surveyors and Valuers ("Taylors"), for a maximum consideration of £1.85m, on a cash-free, debt-free basis. The initial consideration of £1.1m was satisfied in cash of £0.5m, and through the issue of 1,389,661 new ordinary shares. Deferred consideration of up to £0.75m will become due subject to the financial performance of the Taylors business over the five years from completion, satisfied by issuing new ordinary shares at the prevailing market value. In its financial year ended 31 March 2015, Taylors reported annual revenue of £1.5m and pre-tax profits of £0.2m. It had gross assets of £0.6m as at 31 March 2015.
Cash flows
Net cash flows from operating activities (after interest and tax) in the period were £2.3m (2014: £0.4m). This cash flow is stated after £0.9m (2014: £0.9m) of payments relating to provisions made in prior periods.
Investing cash outflows of £0.7m (2014: £1.6m) include acquisition payments of £0.5m (2014: £0.6m) and capital expenditure of £0.2m (2014: £1.0m).
Financing cash outflows of £4.6m (2014: £0.6m) principally comprise a repayment under the group's revolving facility of £4.0m and dividend payments of £0.6m (2014: £0.5m).
Financing
Net debt at 31 October 2015 was £11.9m (Apr 2015: £12.8m; Oct 2014: £16.2m), with gearing of 20% (2014: 28%) and significant headroom within the committed banking facilities of £30m. During the period, all bank covenants were comfortably met and the group remains in a strong financial position.
The group's principal unsecured, committed facilities of £30m provide the group with medium and long-term financing with maturity dates from 2017 to 2021.
Net assets
At 31 October 2015 net assets were £59.1m (2014: £58.3m) and are analysed as follows:
|
31 Oct 2015 |
|
30 Apr 2015 |
|
31 Oct 2014 |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
Non-current assets |
60.0 |
|
60.3 |
|
54.1 |
Current assets |
34.9 |
|
34.9 |
|
36.3 |
Net borrowings |
(11.9) |
|
(12.8) |
|
(16.2) |
Current tax |
0.2 |
|
0.1 |
|
(0.6) |
Other liabilities |
(24.1) |
|
(21.5) |
|
(15.3) |
|
|
|
|
|
|
Net assets |
59.1 |
|
61.0 |
|
58.3 |
Ric Traynor Nick Taylor
Executive Chairman Group Finance Director
9 December 2015 9 December 2015