RNS Number:3262P
Broker Network Holdings plc
11 January 2007
11 January 2007
FOR IMMEDIATE RELEASE
Broker Network Holdings plc
(AIM:BNH)
Interim Results for the six month period to 31 October 2006
Broker Network Holdings plc ("Broker Network" or "the Group"), the network of
insurance brokers, today announces its interim results for the six month period
to 31 October 2006.
Operational Highlights
* Acquisition of Towry Law Insurance Brokers Limited for #12.5m
* 1 further acquisition completed making total number of brokers acquired 19
* Pipeline for acquisitions remains healthy
* Number of Network Members increased to 162 from 155
* Strong pipeline of new Network Members
* Progress across the Group continues in line with plans
Financial Highlights
* Turnover increased by 79% to #10.48m (2005: #5.85m)
* Turnover from continuing operations increased by 44% to #7.51m (2005:
#5.22m)
* Operating profit before amortisation up 87% to #2.80m (2005: #1.50m)
* Operating profit up 108% at #2.04m (2005: #0.98m)
* Group operating margin before amortisation 26.7% (2005: 25.6%)
* Profit before tax increased by 71% to #1.94m (2005: #1.13m)
* Profit before tax and goodwill amortisation up 64% at #2.70m (2005:
#1.65m)
* Fully diluted earnings per ordinary share up 74% at 8.10p (2005: 4.66p)
Commenting on these results, Chairman Faisal Rahmatallah said:
"Our strategy of expanding our network and acquiring broker businesses continues
to deliver value - the trading outlook remains favourable for the Group into
2007 and beyond."
Grant Ellis, Chief Executive, said:
"These results show, once again, our ability to achieve continued growth across
the Group. Despite difficult market conditions we have demonstrated that our
diverse model allows us to prosper at all points of the insurance cycle. I am
very excited by the opportunities that this will offer the Group in the future."
For further information, please contact:
Broker Network
Grant Ellis, Chief Executive 01423 877833
Julie Hale, Group Finance Director
Teather & Greenwood
James Maxwell/Tom Hulme 020 7426 9000
Buchanan Communications
Kelly-Ann Knight 07958 972164
020 7466 5000
FULL STATEMENT BELOW
CHAIRMAN'S STATEMENT
Introduction
It is pleasing to report another excellent set of results for Broker Network.
Our performance remains strong with an increase in turnover of 79% and an
increase in operating profit before amortisation of 87% over the corresponding
period last year. Retained profit increased by 54% after the payment of a
maiden dividend of 1p per ordinary share. This performance has been achieved in
spite of challenging market conditions with downward price pressure on insurance
premiums generally.
We completed the acquisition of two broker businesses including the general
insurance business of Towry Law which is now trading as TL Risk Solutions
Limited (TLRS). This purchase represents a significant achievement in our
acquisition strategy adding some #50 million premium to our retail broking
division.
Turnover has increased as a result of organic growth and acquisitions to #10.48
million. Excluding acquisitions in the period turnover was #7.51 million
representing an increase of 44%. Operating profit has increased by 108% to
#2.04 million whilst operating profit before amortisation also continued to grow
strongly and at #2.80 million was 87% higher than the corresponding period last
year.
The Group's operating margin grew from 16.8% to 19.5% and the operating margin
before amortisation has also increased from 25.6% to 26.7%. This is due
primarily to the continued strong performance in our membership based business,
Broker Network Limited (BNL). Insurance premiums have been depressed with a
hardening of the market not expected in the near term. This has resulted in
strong competition across the broking sector making growth in that part of our
business more challenging.
Profit after taxation and minority interest has increased by 76% to #1.26
million. The estimated tax rate for the year is 35% which is again higher than
the standard rate due to the impact of disallowable amortisation on the share
purchase acquisitions.
Cash inflow from operating activities was #1.68 million. Consideration payments
for the two acquisitions in the period plus deferred consideration on previous
acquisitions totalled #13.4 million. After further financing of #12.9 million,
predominantly through an increase in bank funding, the net increase in cash was
#0.2 million.
Total debt at the period end was #13.9 million which is repayable over 5 years.
This increased from #1.1 million at the end of the corresponding period last
year and is due to the acquisition of TLRS at a consideration of #12.5 million
net of fees.
The Network
Turnover in BNL grew by 23% from #3.69 million to #4.56 million. Operating
profit increased by 45% to #2.33 million.
Member numbers continued to increase steadily and stood at 162 at the period
end, with 10 new members recruited, 3 mergers within the network and no leavers.
The pipeline of new members is still strong with a further 9 members having
signed contracts to join before March 2007. Although Member satisfaction
remains high, we nevertheless continue to strive for further improvement as
evidenced by a recent refinement and upgrading of our service offering for 2007.
Our consistently strong performance in attracting and retaining network members
combined with further acquisitions enables us to consolidate the favourable
terms we have negotiated with our insurer partners. Many of our deals for 2007
were agreed in advance and we are confident that our continued strong
performance will secure this income stream going forwards.
Whilst our Members have experienced a 2.3% fall in like for like premiums in the
12 month period to 31 October, their earnings against this reduced figure have
increased by 5.0% - more than offsetting the fall.
We now see an increasingly positive attitude from brokers towards a network
organisation such as ours. We therefore plan to increase our recruitment
activity in 2007 to exploit this.
Retail Insurance Broking
The acquisition of TLRS was completed on 30 June 2006 at a total cost of #13.2
million including fees. I am very pleased with the way that this business has
already been integrated within the Group. All five of the offices that were
required to relocate as a result of the purchase have now done so and, despite
the challenging market conditions, the performance of the business has met
expectations to date. The management and their teams have dealt well with the
inevitable disruption caused by the office moves and staff retention has been
high.
As a result of TLRS, and the acquisition of Adam and Gaskell in May, we have now
made a total of 19 acquisitions for this division since the beginning of 2004.
Turnover grew in the period by 166% to #6.00 million whilst like for like
turnover grew by 86% to #3.03 million. The operating margin rose to 14.7% from
7.6% in the prior period and operating profit before amortisation rose 411% to
#0.88 million.
However the 'soft' insurance market has resulted in a more competitive
environment for new customers and this has made it more difficult to achieve
consistent growth across all sectors of the business.
Consolidation and Competition
The pace of broker consolidation continues to increase; in addition there are
recent examples of insurers acquiring brokers, particularly in niche areas.
However, we remain confident that our approach to integration gives us an edge
over competitors and will continue to allow us to secure acquisitions in the
face of consolidators with increasingly deep pockets.
Conclusion
These are another set of excellent results for our business and provide further
evidence of the very good work that has been completed over recent years. We
are demonstrating that our strategies of delivering increasing value to Members
and insurer partners in our network business, coupled with participation in
retail broking through acquisition, are both sound and complementary. I am
confident that the trading outlook for the Group remains favourable into 2007
and beyond.
Faisal Rahmatallah
Chairman
Broker Network Holdings plc
Consolidated profit and loss account
for the six months ended 31 October 2006
Unaudited Six Unaudited Six Audited Year
months ended months ended ended
31 October 31 October 2005 30 April
2006 #'000 2006
#'000 #'000
Gross commission receivable (unaudited) 25,007 23,628 45,185
Turnover
Continuing operations 7,506 5,215 10,189
Acquired operations 2,973 637 2,346
10,479 5,852 12,535
Administrative expenses (8,438) (4,869) (10,447)
Operating profit
Continuing operations 1,512 933 1,874
Acquired operations 529 50 214
2,041 983 2,088
Interest receivable 248 172 371
Interest payable (354) (22) (54)
Profit on ordinary activities before taxation 1,935 1,133 2,405
Tax on profit on ordinary activities (672) (399) (800)
Profit on ordinary activities after taxation 1,263 734 1,605
Minority interests - equity - (13) (13)
Dividend paid (154) - -
Retained profit for the financial period 1,109 721 1,592
Earnings per share
Basic 8.24p 4.79p 10.56p
Diluted 8.10p 4.66p 10.27p
Dividends per share 1.00p - -
All of the activities during the year relate to continuing operations.
The Group has no recognised gains or losses other than the results above and,
therefore, no separate statement of total recognised gains and losses has been
presented.
There is no difference between the profit on ordinary activities before taxation
and the profit sustained for the financial year stated above, and their
historical cost equivalents.
Consolidated balance sheet
at 31 October 2006
Note Unaudited Unaudited Audited
31 October 31 October 30 April
2006 2005 2006
#'000 #'000 #'000
Fixed assets
Intangible assets - Goodwill 19,333 5,901 5,659
Tangible assets 919 520 558
20,252 6,421 6,217
Current assets
Debtors 21,241 10,884 13,399
Insurance broking account 9,423 8,636 9,513
Cash at bank and in hand 2,102 2,127 1,943
32,766 21,647 24,855
Creditors: amounts falling due within one (30,442) (20,277) (22,848)
year
__________ __________ __________
Net current assets 2,324 1,370 2,007
_________ _________ _________
Total assets less current liabilities 22,576 7,791 8,224
Creditors: amounts falling due after more
than one year (14,937) (2,212) (1,809)
Provisions for liabilities and charges (25) (25) (19)
Net assets 7,614 5,554 6,396
Capital and reserves
Called up share capital 1 308 301 301
Share premium account 2 2,275 2,095 2,095
Capital reserve 2 454 454 454
Profit and loss account 2 4,577 2,675 3,546
Shareholders' funds - equity 7,614 5,525 6,396
Minority interests - 29 -
7,614 5,554 6,396
Consolidated cash flow statement
for the six months ended 31 October 2006
Unaudited Unaudited Audited
Note Six months Six months Year ended
ended ended 30 April
31 October 31 October 2006
2006 2005 #'000
#'000 #'000
Net cash inflow from operating 3 1,677 1,398 3,000
activities
_____ _____ _____
Returns on investment and servicing
of finance
Interest received 248 172 371
Interest paid (354) (22) (54)
_____ _____ _____
Net cash (ouflow)/inflow from returns
on investment and servicing of
finance (106) 150 317
Capital expenditure and investment
Purchase of tangible fixed assets (436) (130) (241)
______ ______ ______
Net cash outflow from capital
expenditure and investment (436) (130) (241)
Acquisitions and disposals
Purchase of subsidiary undertakings 5 (12,221) (1,856) (2,590)
and broker businesses
Deferred consideration paid in the (1,198) (735) (1,496)
period
______ ______ ______
Net cash outflow from acquisitions (13,419) (2,591) (4,086)
and disposals
Corporation tax paid (453) (27) (409)
Financing
Increase in bank loans 12,864 1,019 1,054
Issue of shares 186 - -
_____ _____ _____
Total financing 13,051 1,019 1,054
Dividend paid (154) - -
_____ _____ _____
Increase/(decrease) in cash 4 159 (181) (365)
Notes
1. Share capital
Number #'000
Authorised
At 1 May and 31 October 2006 22,650,000 453
Allotted, called up and fully paid
At 1 May 2006 15,064,906 301
Issued in the period 339,318 7
At 31 October 2006 15,404,224 308
2. Reserves
Share
premium Capital Profit and loss
account #'000 reserve #'000 account #'000
At 1 May 2006 2,095 454 3,546
Issue of shares 180 - -
Treasury shares - - (78)
Retained profit for the financial period - - 1,109
At 31 October 2006 2,275 454 4,577
3. Cash flow from operating activities
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 October 31 October 30 April
2006 2005 2006
#'000 #'000 #'000
Reconciliation of operating profit to net cash
inflow:
Operating profit 2,041 983 2,088
Amortisation charge 761 519 855
Depreciation charge 143 101 211
Increase in debtors (2,379) (530) (567)
Increase in creditors 1,111 325 413
Net cash inflow from operating activities 1,677 1,398 3,000
Movement in debtors and creditors shown above exclude amounts relating to
insurance transactions.
4. Analysis of net debt
1 May 2006 Cashflow 31 October 2006
#'000 #'000 #'000
Cash at bank and in hand 1,943 159 2,102
Bank loan (1,054) (12,864) (13,918)
889 (12,705) (11,816)
5. Purchase of subsidiary undertakings and broker businesses
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 April
31 October 2006 31 October 2005 2006
#'000 #'000 #'000
Cash outflow on acquisitions 13,417 1,856 2,590
Cash acquired (1,196) - -
12,221 1,856 2,590
6. Earnings per share
Earnings per share Weighted average
pence Earnings #'000 No. of shares
2006
Basic earnings per share 8.24 1,263 15,315,724
Diluted earnings per share 8.10 1,263 15,582,049
Adjusted for amortisation
Adjusted basic earnings per share 13.21 2,024 15,315,724
Adjusted diluted earnings per share 12.99 2,024 15,582,049
2005
Basic earnings per share 4.79 721 15,064,906
Diluted earnings per share 4.66 721 15,479,339
Adjusted for amortisation
Adjusted basic earnings per share 8.23 1,240 15,064,906
Adjusted diluted earnings per share 8.01 1,240 15,479,339
7. The unaudited results for the six months have been prepared on a
basis consistent with the accounting policies disclosed in Broker Network
Holdings' Group accounts for the year to 30 April 2006 and do not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
8. The figures for the year ended 30 April 2006 have been extracted from
Broker Network Holdings Group statutory accounts which have been delivered to
the Registrar of Companies and received an unqualified audit report.
9. The tax charge is based on the estimated tax rate for the year to 30
April 2007.
10. Copies of this interim report will be distributed to all holders of
Broker Network's ordinary shares. Copies will also be available at Broker
Network's registered office: Mowbray House, Mowbray Square, Harrogate HG1 5AU.
In addition, this report will be available on the website:
www.brokernetworkholdingsplc.co.uk .
ENDS
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