Company Announcements

10 December 2019

Begbies Traynor Group plc

Half year results

for the six months ended 31 October 2019

"Strong first half performance and confidence in full year outlook"

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 2019.

Financial overview *

* IFRS 16 'Leases' was adopted from the start of the financial period. All comparative figures included within this announcement have been restated in accordance with the new standard, which has been adopted on a fully retrospective basis. Further details are included in note 1(b) to this statement.

** The board uses adjusted performance measures to provide meaningful information on the performance of the business. The items excluded from our adjusted results are those which arise due to acquisitions in accordance with IFRS 3.  They are not influenced by the day-to-day operations of the group.

*** Profit before tax of £1.9m (2018: £0.5m) plus amortisation of intangible assets arising on acquisitions of £1.4m (2018: £1.1m) plus transaction costs of £0.7m (2018: £1.4m).

**** See reconciliation in note 5.

Highlights:

·      Revenue growth of 21% (10% organic) with improved operating profit margin of 13.2% (2018: 12.6%) 

·      Organic development of both divisions continued, with investment in new fee earning staff and teams

·      Completed three acquisitions towards the end of the period, enhancing both divisions

·      Raised net proceeds of £7.8m in placing in July 2019: meeting investor demand and funding acquisitions

·      13% increase in interim dividend building on increases of the previous two financial years

Outlook:

·      Confident of delivering results at least in line with current expectations with a further year of growth

·      Second half contribution from recent acquisitions

·      Aggregate impact of placing and acquisitions anticipated to be earnings enhancing in current year and thereafter

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

"I am pleased to report a strong half year financial performance with growth in revenue and earnings, together with improved operating margins.  This reflects the benefit of the recent organic development of the group and our investment in acquisitions.

"The increased scale of the group's activities, favourable conditions in the UK insolvency market and our strong financial position leaves the group well placed to continue our track record of revenue and profit growth.

"Following a strong financial performance in the first half of the year, the board remains confident of delivering results at least in line with current market expectations for the full year, including the benefit of the first-time contribution in the second half from our recent acquisitions. We will provide an update on third quarter trading in early March 2020."

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 Florence Mayo on 020 3128 8572 or via Begbies@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)

David Tyrrell / Sunil Duggal

Shore Capital                                                                                                                                     020 7408 4090

(Joint Broker)

Mark Percy / Anita Ghanekar

MHP Communications                                                                                                                      020 3128 8572

Reg Hoare / Katie Hunt / Pete Lambie

Notes to editors

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.  The group has 735 staff and partners and the professional staff include licensed insolvency practitioners, accountants, chartered surveyors and lawyers.

The group's services include:

Business recovery and financial advisory

·      Corporate and personal insolvency - we handle the largest number of corporate appointments in the UK, principally serving the mid-market and smaller companies.

·      Corporate finance - buy and sell side support on private company transactions.

·      Financial advisory - forensic accounting and investigations, debt advisory, business and financial restructuring, due diligence and transactional support.

Property advisory and transactional services

·      Valuations - valuation of property, businesses, machinery and business assets.

·      Property consultancy, management and planning - building consultancy, commercial property management, specialist insurance and vacant property risk management, transport planning and design.

·      Transactional services - sale of property, machinery and other business assets through physical and online auctions; business sales agency; commercial property agency focussed on northern and eastern England.

Further information can be accessed via the group's website at www.begbies-traynorgroup.com/investor-relations.

CHAIRMAN'S STATEMENT

INTRODUCTION

I am pleased to report a strong half year financial performance with growth in revenue and earnings, together with improved operating margins.  This reflects the benefit of investment both in organic development of the group and acquisitions. 

All areas of the group have continued to perform well:

·      business recovery saw the benefits of prior year organic investments and a continuing increase in insolvency numbers nationally;

·      advisory services experienced an increase in corporate finance transactions completing in the six months compared to the prior period; and

·      property advisory and transactional services benefitted from our ongoing organic development and prior year acquisitions.

Towards the end of the period, we completed three acquisitions:

·      Alexander Lawson Jacobs - a London-based insolvency and business recovery practice;

·      Ernest Wilson - a business sales agency, operating across a broad range of sectors ranging from food outlets and convenience stores to care homes, restaurants and hotels; and

·      Regeneratus - an advisory practice with expertise in restructuring, turnaround and legal issues.

In their last reported financial years prior to acquisition, these three businesses reported aggregate revenue of £5.9m and pre-tax profit of £1.8m.

In July 2019 we completed a share placing, which raised net proceeds of £7.8m, allowing us to meet investor demand for our shares whilst funding our recent transactions. We anticipate that the aggregate impact of these acquisitions and the increase in shares in issue following the placing, will be earnings enhancing for the benefit of all shareholders in the current financial year and thereafter.

The group is in a very strong position with a significant increase in our scale and capabilities and a breadth of service lines which generate strong operating margins and are highly cash generative. We have significant headroom in our committed bank facilities with net debt reduced to £2.3m, from £6.0m at the start of the financial year.

The increased scale of the group's activities, favourable conditions in the UK insolvency market and our strong financial position leaves the group well placed to continue our track record of revenue and profit growth for the full year and beyond.

RESULTS

IFRS 16 'Leases' was adopted from the start of the financial period. All comparative figures included within this announcement have been restated in accordance with the new standard, which has been adopted on a fully retrospective basis. Further details are included in note 1(b) to this statement.

Group revenue in the half year ended 31 October 2019 increased by 21% to £33.8m (2018: £28.0m). Adjusted* profit before tax** increased by 33% to £4.0m (2018: £3.0m). Statutory profit before tax was £1.9m (2018: £0.5m).

Adjusted basic earnings per share* *** increased by 24% to 2.6p (2018: 2.1p). Basic and fully diluted earnings per share were 1.1p (2018: nil).

Net debt at 31 October 2019 was £2.3m (30 April 2019: £6.0m, 31 October 2018: £6.3m) with leverage**** improving to 0.2 times from 0.7 times at 30 April 2019.

* The board uses adjusted performance measures to provide meaningful information on the performance of the business. The items excluded from our adjusted results are those which arise due to acquisitions in accordance with IFRS 3.  They are not influenced by the day-to-day operations of the group.

** Profit before tax of £1.9m (2018: £0.5m) plus amortisation of intangible assets arising on acquisitions of £1.4m (2018: £1.1m) plus transaction costs of £0.7m (2018: £1.4m).

*** See reconciliation in note 5.

**** Calculated as net debt to operating profit before transaction costs, amortisation, depreciation on tangible assets, software amortisation and after finance charge on lease liabilities (on a trailing 12 month basis).

DIVIDEND

The board is pleased to declare an increased interim dividend of 0.9p (2018: 0.8p), an increase of 13%, which builds on the increases over the two previous years and reflects our confidence in sustaining our financial track record of earnings growth.  We remain committed to a long-term progressive dividend policy which takes account of the market outlook, earnings growth and investment plans.

The interim dividend will be paid on 11 May 2020 to shareholders on the register as at 14 April 2020, with an
ex-dividend date of 9 April 2020.

OUTLOOK

Following a strong financial performance in the first half of the year, the board remains confident of delivering results at least in line with current market expectations for the full year, including the benefit of the first-time contribution from our recent acquisitions.

Overall, we continue to anticipate a further year of increased revenue and earnings.

With our strong financial position, we 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 2020.

Ric Traynor

Executive chairman

10 December 2019
 

BUSINESS REVIEW

OPERATING REVIEW

Business recovery and financial advisory

Revenue in the period increased by 15% (13% organic) to £23.0m (2018: £20.0m), reflecting the continuing development of the division, increased insolvency market activity levels, a strong performance from our advisory team, and the contribution from prior year acquisitions.

Operating costs increased by 12% to £18.2m (2018: £16.3m) as a result of the increased scale of the business from our continuing organic growth, increased people costs and costs associated with the acquired businesses.

Segmental profits* for the period were £4.9m (2018: £3.7m) with operating margins increasing to 21.1%
(2018: 18.5%).

Insolvency volumes nationally have continued to increase in the period, with the underlying number of corporate insolvencies increasing by 7% in the twelve months ended 30 September 2019** to 16,857 (2018: 15,699). In this improving market we have maintained our market share, continuing to take the largest number of corporate insolvency appointments in the UK.

We have continued to invest in the business recovery team through recruitment of fee earners, with a focus on business development and increasing capacity, and have also appointed four new partners: two of which were external appointments together with two internal promotions.

In October 2019, we acquired Alexander Lawson Jacobs ("ALJ"), a London-based insolvency and business recovery practice. The team of 24 directors and employees is being integrated into our existing strong network of offices across London and the South East.

We have continued to invest in our advisory fee earner team with the addition of five new partners: two of which were external appointments and three internal promotions. We have also seen an increase in corporate finance transaction completions compared with the comparative period, despite the economic and political uncertainty.

In September 2019, we acquired Regeneratus, an Exeter based advisory practice with particular expertise in restructuring, turnaround and legal issues.  The team have joined our existing South West practice, enhancing the services and advice we can provide to our clients across the region.

The number of people employed in the division has increased to 412 as at 31 October 2019 from 364 at the start of the financial year and at 31 October 2018.  This expansion provides the capacity to deliver growth in revenue and profits and we continue to consider further recruitment to continue to build capacity for long term growth.

* See note 2

**Source: The Insolvency Service quarterly statistics on the number of corporate insolvencies in England and Wales on a seasonally adjusted basis, excluding the one-off effect of 777 (2018: 1,561) bulk insolvencies as identified by The Insolvency Service

Property advisory and transactional services

Revenue increased to £10.7m (2018: £8.0m), principally due to the prior year acquisitions of Croft Transport Planning & Design and Barker Storey Matthews ('BSM'). Organic revenue was in line with the comparative period, with returns from our growth initiatives offset by the anticipated reduction in revenue following the completion of several property insolvencies (which enhanced margins in the prior period).

Operating costs increased to £8.6m (2018: £5.9m), principally due to costs associated with the acquired businesses.

Segmental profits* were £2.1m (2018: £2.1m), with operating margins reverting, as anticipated, to the more typical level of 19.9% (2018: margin of 26.3% was enhanced by revenue recognised on completion of property insolvencies as referred to above).

Our building consultancy team has continued to develop, notably with continuing growth in the education and wider public sector. We have continued to invest in and grow the team and its offering, which included the recruitment of a Cambridge-based team in the period. This has further developed our offering in Eastern England following the acquisition of BSM in April 2019.

Revenue from the property valuation team grew in the year, reflecting our continuing recruitment of experienced surveyors, which has improved our geographical coverage and service to our clients.

The property transactional teams (agency and auctions) have performed well in the period, with activity levels broadly in line with the prior year. However, we have experienced a reduced level of activity from our heavy plant disposal team in the period, with lower market activity levels in the current economic environment.

Our prior year acquisitions have performed in line with expectations and integration is progressing well.

In October 2019, we acquired Ernest Wilson, a Leeds-based business sales agent, which provides agency services for the sale of small businesses across the UK. The team operate across a broad range of sectors ranging from food outlets and convenience stores to care homes, restaurants and hotels. The acquisition enhances our transactional support services and is also complementary to the BTG Advisory and corporate finance offerings.

The number of people employed in the division has increased to 280 as at 31 October 2019 from 245 at the start of the financial year and 194 in October 2018.

We continue to seek opportunities to invest in the division through senior recruitment, in addition to seeking further acquisitions.

* See note 2

FINANCE REVIEW

Financial summary *

* IFRS 16 'Leases' was adopted from the start of the financial period and all comparative figures included within this announcement have been restated in accordance with the new standard. Further details are included below and in note 1(b) to this statement.

Operating result (before transaction costs and amortisation)

Revenue in the period increased by £5.8m to £33.8m (2018: £28.0m), an overall increase of 21%, of which 10% was organic and 11% acquired.

Operating margins increased in the period to 13.2% (2018: 12.6%), due to the benefit of operating leverage as the group has grown. Operating profit increased to £4.5m (2018: £3.5m).

Adjusted profit before tax increased by 33% to £4.0m (2018: £3.0m) in the period as a result of the increased operating profit, with finance costs in line with the prior period.

Tax

The tax charge for the period was £0.6m (2018: £0.5m), comprising a tax charge on adjusted profit before tax of £0.9m (based on the expected adjusted tax rate for the full year of 22%), partially offset by a deferred tax credit of £0.3m resulting from transaction costs and amortisation.

Earnings per share ('EPS')

Adjusted basic EPS* increased by 24% to 2.6p (2018: 2.1p). Basic EPS increased to 1.1p (2018: nil).

* See reconciliation in note 5.

IFRS 16

IFRS 16 'Leases' was adopted from the start of the financial period and seeks to align the presentation of leased assets more closely to owned assets. All comparative figures included within this announcement have been restated in accordance with the new standard, which has been adopted on a fully retrospective basis.

The adoption of IFRS 16 had the following impact on the group's financial results for the year ended 30 April 2019:

·      Increase in operating profit of £0.5m offset by an increase in finance costs of £0.5m;

·      Reduction in net assets of £1.4m at 30 April 2019;

·      No impact on total cash flow; however, net cash from operating activities increased by £2.2m and net cash used in financing activities increased by £2.2m.

Further details are included in note 1(b) to this statement.

Acquisitions

During the period, the group completed three acquisitions:

·      Alexander Lawson Jacobs on 24 October 2019 for initial consideration of £2.35m (£2.1m in cash and the issue of 296,195 new ordinary shares) with a maximum additional cash payment of £4.0m subject to financial performance in the five year period following the acquisition.

·      Ernest Wilson on 18 October 2019 for initial consideration of £4.0m (£3.0m in cash and the issue of 1,163,874 new ordinary shares) with a maximum additional cash payment of £1.63m subject to financial performance in the three year period following the acquisition.

·      Regeneratus on 23 September 2019 for initial consideration of £0.5m (in cash) with a maximum additional cash payment of £1.1m subject to financial performance in the four year period following the acquisition.

The net cash outflow from acquisitions in the period was £4.4m, comprising the cash consideration of £5.6m net of cash acquired of £1.2m.

A proportion of the consideration payable for these acquisitions requires post-acquisition service obligations to be performed by the selling shareholders. These amounts are accounted for as deemed remuneration and charged to the consolidated statement of comprehensive income over the period of the service obligation. The value of net assets acquired exceeds the accounting value of consideration and consequently a gain of £1.9m has been recognised within transaction costs in the period.

Financing

Net debt reduced to £2.3m at 31 October 2019 (30 April 2019: £6.0m, 31 October 2018: £6.3m). The group has significant headroom in its bank facilities which are committed until August 2023 and comprise a £25m unsecured, committed revolving credit facility and a £5m uncommitted acquisition facility.

The reduction in net debt of £3.7m in the period was generated from free cash flow of £3.1m and net proceeds from the share placing* of £7.8m which funded acquisition and deferred consideration payments of £6.3m and dividends of £0.9m.

Cash flow in the period is summarised as follows:

* Share placing of 11,041,440 new ordinary shares completed on 26 July 2019.

During the period, all bank covenants were comfortably met and the group remains in a strong financial position. As a result of the reduced debt levels and the increased profits our leverage* improved to 0.2 times (Apr 2019: 0.7 times).

* Calculated as net debt to operating profit (before transaction costs, amortisation, depreciation on tangible assets, software amortisation and after finance charge on lease liabilities on a trailing 12 month basis).

Net assets

Net assets at 31 October 2019 were £66.1m, compared to £58.3m at 30 April 2019. The movement represents an increase of £3.1m from post-tax adjusted earnings and £9.8m from the issue of new shares (resulting from the placing and acquisition consideration in the period); offset by dividends of £3.2m and the post-tax impact of acquisition-related transaction and amortisation costs of £1.9m.

Ric Traynor                                                                          Nick Taylor

Executive chairman                                                          Group finance director

10 December 2019                                                            10 December 2019