RNS Number:7616D
Broker Network Holdings plc
13 September 2007
Immediate Release 13 September 2007
Broker Network Holdings Plc
(AIM: BNH)
Preliminary Results for the year ended 30 April 2007
Broker Network Holdings Plc ("Broker Network" or "the Company"), the network
organisation for independent community insurance brokers, today announces its
preliminary results for the year ended 30 April 2007.
Operational Highlights
* Network Membership increased by over 10% and average size of new Member
64% higher
* Members performing well, with a number growing through acquisition
* Successfully completed integration of TL Risk Solutions into the Group
* Customer retention across retail division is consistently high
* Group wide re-brand successfully launched for each operating division
* Reputation as experienced acquirer consolidated
* Continued pursuit of expansion and acquisition opportunities building a
strong pipeline
Financial Highlights
* Turnover increased by 86% to #23.26 million (2006: #12.54 million)
* Operating profit up 147% at #5.15 million (2006: #2.09 million)
* Profit before tax and goodwill amortisation up 100% at #6.53 million
(2006: #3.26 million)
* Group operating margin before amortisation 29.5% (2006: 23.5%)
* Fully diluted earnings per share up 98% at 20.33p (2006: 10.27p)
* Dividend payment of 1.20p per share (2006: 1.00p)
Commenting on these results, Chairman Faisal Rahmatallah said:
"We remain at the forefront of an industry full of opportunity and possibility.
Others are seeking to recreate the network model, which we take as
acknowledgement of our success. We are confident our proposition is unique and
market-leading, supported by our excellent relationships with key insurer
partners. Despite extremely tough market conditions our retail division
continues to grow and we are extending our presence across the UK.
We look forward to continued growth as we move into 2008 and the foreseeable
future."
For further information, please contact:
Broker Network Holdings plc
Grant Ellis
Chief Executive 01423 877812
Julie Hale
Finance Director 01423 877826
Kelly-Ann Knight
Head of PR & Communications 01423 554147
www.brokernetworkgroup.co.uk
Cenkos Securities
Andy Roberts (Sales) 020 7397 1934
Ian Soanes (Corporate) 020 7397 8921
FULL STATEMENT BELOW
CHAIRMAN'S STATEMENT
I am pleased to report another excellent year for Broker Network. The company
has continued to grow strongly both by acquisition and organically,
profitability has continued to improve, and the reputation of the company within
the insurance industry has been significantly enhanced.
The results for the financial year reflect four primary drivers. First, there
are full year contributions from acquisitions made during 2005-06. Second,
acquisitions made during 2006-07, including the major step of acquiring TLRS,
have provided a significant contribution. Third, the company has generated
growth by increasing the number and size of network Members. Finally, as
insurers have recognised the increasing size and quality of the company,
improved insurer terms have contributed significantly. These same performance
drivers will continue to influence the company over the coming years, although
with the company's greater size, the rate of growth, which has been dramatic
over the last couple of years, can be expected to reduce gradually.
The rate of broker acquisition has slowed somewhat in the last financial year.
This partly reflects the management team's desire to "draw breath" following the
acquisition of TLRS, but also a relative absence of attractive opportunities.
However, a continuous effort has been put into building the acquisitions
pipeline and there are now a good number of potential opportunities. We remain
cognisant of the need not to overpay and this will inevitably influence the rate
at which acquisitions are made.
TLRS has performed in line with our expectations at the time of acquisition.
This acquisition was a particularly significant step because of its size and it
is pleasing that the integration process has progressed smoothly.
The core network business has performed very strongly, mainly through margin
enhancement. We now perceive opportunities for further organic growth in this
area - primarily by adding new members as well as increasing their average size
still further. Resources have been added to the new member sales team to enable
this growth to be achieved.
As the company has grown so has our team and we now employ more than 350 people
in 23 locations around the country. These results have only been attained
through their hard work, dedication and energy. The management team has
developed along with the size of the organisation and it is reassuring that
there is now strength in depth which can be called upon as the company grows
further. My thanks are extended to all employees for the effort that has gone
into achieving these results.
We are pleased to announce the payment of a dividend to shareholders for the
year ended 30 April 2007. This will be payable on 26 October to all shareholders
on the register at 28 September. This is subject to approval at the annual
general meeting of the Company on 17 October 2007.
The outlook for the company is good. We can see the potential to further
consolidate our position as the leading insurance broking network in the
country.
Faisal Rahmatallah
Chairman
CHIEF EXECUTIVE'S REVIEW
Operational Overview
I am delighted to be reporting another year of excellent results for the Broker
Network Group. Despite extremely tough insurance market conditions, we continue
to demonstrate that our diverse business model allows us to prosper whatever
underlying market conditions prevail.
Broker Network Limited
Our Network business continues to thrive with turnover increasing by 45% from
#7.32 million to #10.65 million, and operating profit growing from #3.11 million
to #5.71 million - an increase of 84%. Economies of scale mean we have been able
to increase our profit margin in this business and there remains ample headroom
to grow income and profitability still further.
Recruitment of new Members in the year was in line with our forecast. We are
also now attracting larger firms alongside our traditional broker base,
evidenced by the relative size of new recruits which were, on average 64% larger
than our existing Members. Our service infra-structure and proposition is
sufficiently flexible to meet all our wide-ranging customer requirements
offering real benefit to brokerages of most sizes.
The pipeline of prospective new Members also remains extremely healthy.
Membership numbers have fluctuated throughout the period with Members merging
and a handful deciding to retire. There has also been a small number leaving at
our behest as a result of our performance and suitability monitoring. We believe
this is the right strategy and helps to reinforce our commitment to quality and
the high standards we expect in return for Membership.
Our ultimate Membership goal is to have a Broker Network Member within every
significant community in the UK. Our updated target is 250 firms by 2010 rising
to 500 by 2015. To put this ambition in perspective, there are currently around
4,500 insurance brokers in the UK. This number is declining due to the
consolidation that is taking place, although some of the decline is offset by
new start-up businesses.
The insurance market accepts that membership of a network is a growing necessity
for independent brokers which benefits both them and insurers. As market leaders
we profit from this and believe that penetration of over 10%, whilst a
challenge, is nevertheless achievable.
As part of a Group-wide re-brand we began looking for a phrase that would sum up
the essence and values of our network business from an external perspective. The
process had us consult our own people, our Members and Partner Insurers and
eventually led us to the phrase "Enterprising Champion". We have also taken the
opportunity to document our values and therefore the behaviour that is
consistent with these. In this way we should be able to ensure that as the
business grows we do not lose sight of what has made us so successful to date.
During this exercise we also developed a new visual identity and have re-written
our service proposition to Members to ensure it is consistent with the new
brand.
The Retail Insurance Division (comprising TL Risk Solutions and Broker Network
Insurance Brokers)
Our retail division is represented across the country via our owned brokers -
those Members and others acquired since the formation of this division at the
beginning of 2004. So far we have made 20 retail division acquisitions, our
latest one being completed on 31 August 2007, and we now trade from 23 sites
across mainland UK.
The division hit sales targets for 2006/07 and customer retention remains
extremely high. This is particularly encouraging in the TLRS business where we
were required to relocate five offices into new premises during the period with
the inevitable disruption that this entails. Turnover for the division grew in
the period by 144% to #12.83 million, whilst operating profit before
amortisation rose 385% to # 2.13 million.
Whilst only completing two acquisitions in the current period, we continue
nonetheless to focus on providing an exit route for brokers contemplating
retirement and the purchase of community general insurance brokers remains at
the core of Group strategy
However, the market for broker purchases is fiercely competitive, particularly
since insurers entered the fray last year. We now have to contend with
competitors who are not as disciplined as we are when it comes to the financial
returns they expect from their acquisitions. Despite this, we still firmly
believe that there are those who find our proposition more attractive than the
competition, borne out by the fact that we are at present reviewing a number of
prospects for the current year. We remain confident that we can manage
expectations and complete several transactions which will all be value
enhancing.
Other Developments
Broker Network London Markets (BNLM) was established to provide network Members
with access to Lloyd's and the London markets for insuring clients involved in
specialist or high-risk activities. The division serves us well as an investment
for a cyclical market - less utilised in the current 'soft' market where
premiums are low and traditional insurers are prepared to underwrite to a wider
risk profile, but indispensable once the insurance market once again hardens.
Despite such challenging trading conditions turnover increased by 2% from #0.27
million to #0.28 million although the business continues to make a small loss.
Insurance Market Conditions
It has been a tough year for insurers underwriting business in the UK following
the storms in January 2007 and floods in June and July.
Only days after we announced a trading update in June 2007, where we commented
on prevailing benign weather conditions, the UK experienced some of the worst
flooding in its history. Some industry sources are even suggesting that the cost
to insurers of flood damage could top #5 billion.
The impact of the flooding on insurer rating is unlikely to filter through in
2007, although clearly it will be present when they announce their results. We
have already seen some insurers publicly stating their intention to increase
rates to recover their losses going forwards. In reality the floods are only the
catalyst rather than the root cause of these intentions. Almost all major
insurers were reporting deteriorating results for the first half of 2007 before
the impact of the floods is taken into account.
It is likely therefore that the current action being taken by insurers will
stall deflation in premiums in the remainder of 2007 and we are likely to see
rates rise gradually during the first half of 2008.
As premiums rise our earnings across the Group will increase and we will see
additional organic growth from our network and retail divisions. As we mentioned
on 11 June 2007, we have worked hard to ensure our earnings from our key Partner
Insurers are secure for the longer term, by demonstrating real value in the
service we provide them. As the market hardens, with inevitable downward
pressure on broker margins, we will begin to reap the benefits of these
arrangements.
I reiterate that the diverse nature of our business means the Group is well
placed to trade comfortably at any point in the insurance cycle. We remain
confident that we will have the opportunity to demonstrate this once again in
the coming year.
Outlook for 2007-08
I am delighted to have maintained our market leading position and intend to
build on it.
There are still abundant opportunities for expansion within this fast moving
industry and we are working hard to remain at the forefront in our areas of
expertise. For example we are currently evaluating the opportunity that exists
to expand our Healthcare business following the successful acquisition and
integration of TLRS, which has a sizeable Healthcare division within it. We
remain realistic and prudent in our acquisition programme and we continue to
evaluate critically our offering to network Members and Partner Insurers to
ensure we retain our market-leading position as the UK's number one network for
independent insurance brokers.
We strongly believe that the Broker Network business model remains relevant and
robust. Whilst challenging trading conditions lay ahead we are looking forward
with confidence to another year of good performance and enhanced shareholder
value.
Audited consolidated profit and loss account
for the year ended 30 April 2007
Year ended Year ended Year ended Year ended
30 April 2007 30 April 2007 30 April 2007 30 April 2006
#000 #000 #000 #000
Acquisitions Total Total
Gross commission
receivable (unaudited) 55,734 - 55,734 45,185
Turnover 16,544 6,716 23,260 12,535
Administrative
expenses (12,586) (5,524) (18,110) (10,447)
------ ----- ------ ------
Operating profit 3,958 1,192 5,150 2,088
Net interest (payable)/
receivable (336) 317
----- -----
Profit on ordinary
activities before
taxation 4,814 2,405
Tax on profit on
ordinary activities (1,628) (800)
Profit on ordinary ------ -----
activities after
taxation 3,186 1,605
Minority interests - (13)
----- -----
Profit for the
financial period 3,186 1,592
----- -----
Earnings per share
Basic 20.74p 10.56p
Diluted 20.33p 10.27p
Dividends per share 1.00p -
All of the activities during the year relate to continuing operations of the
group.
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 retained for the financial year stated above, and their
historical cost equivalents.
Audited consolidated balance sheet
at 30 April 2007
Note 30 April 2007 30 April 2006
#000 #000
Fixed assets
Intangible assets - goodwill 18,840 5,659
Tangible assets 1,190 558
----- -----
20,030 6,217
Current assets
Debtors 22,926 13,399
Insurance broking account 12,078 9,513
Cash at bank and in hand 2,801 1,943
----- -----
37,805 24,855
Creditors: amounts falling due within
one year (34,752) (22,848)
----- -----
Net current assets 3,053 2,007
----- -----
Total assets less current liabilities 23,083 8,224
Creditors: amounts falling due after
more than one year (13,414) (1,809)
Provisions for liabilities and charges (88) (19)
----- -----
Net assets 9,581 6,396
----- -----
Capital and reserves
Called up share capital 2 308 301
Share premium account 3 2,274 2,095
Capital reserve 3 454 454
Profit and loss account 3 6,545 3,546
----- -----
Shareholders' funds - equity 9,581 6,396
----- -----
Audited consolidated cash flow statement
for the year ended 30 April 2007
Note Year ended Year ended
30 April 2007 30 April
#000 2006
#000
Net cash inflow from operating activities 4 4,667 3,000
Returns on investment and servicing of
finance
Interest received 789 371
Interest paid (1,125) (54)
----- -----
Net cash (outflow)/inflow from returns on
investment and servicing of finance (336) 317
Capital expenditure and investment
Purchase of tangible fixed assets (904) (241)
----- -----
Net cash outflow from capital expenditure
and investment (904) (241)
Acquisitions and disposals
Purchase of subsidiary undertakings and
broker businesses (12,482) (2,590)
Deferred consideration paid in the year (1,162) (1,496)
----- -----
Net cash outflow from acquisitions and
disposals (13,644) (4,086)
Corporation tax paid (1,233) (409)
Financing
Increase in bank loans 13,026 1,054
Bank loan repayments (750) -
Issue of shares 186 -
----- -----
Total financing 12,462 1,054
----- -----
Dividend paid (154) -
----- -----
Increase/(decrease) in net cash 5 858 (365)
----- -----
Notes
1. The above financial information does not constitute statutory accounts for
the year ended 30 April 2007 or 2006. Statutory accounts for the year ended 30
April 2006 have been delivered to the Registrar of Companies. The auditors have
reported on the year ended 30 April 2006 financial statements and their report
was unqualified and did not contain a statement under section 237(2) or (3) of
the Companies Act 1985. The statutory accounts for the year ended 30 April 2007
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
2. Share capital
Number #'000
Authorised
At 1 May 2006 and 30 April 2007 22,650,000 453
----- -----
Allotted, called up and fully paid
At 1 May 2006 15,064,906 301
Issued in the year 339,318 7
----- -----
At 30 April 2007 15,404,224 308
----- -----
3. Reserves
Share premium Capital reserve Profit and loss
account #'000 #'000 account #'000
At 1 May 2006 2,095 454 3,546
Issue of shares 179 - -
FRS 20 Share based
payment credit - - 45
Treasury shares - - (78)
Dividend paid - - (154)
Retained profit for the
financial period - - 3,186
----- ----- -----
At 30 April 2007 2,274 454 6,545
----- ----- -----
4. Cash flow from operating activities
Audited Audited
Year Year ended
ended 30 April
30 April 2007 2006
#000 #000
Reconciliation of operating profit to net cash inflow:
Operating profit 5,150 2,088
Amortisation charge 1,717 855
Depreciation charge 338 211
FRS 20 charge 45 -
Increase in debtors (4,079) (567)
Increase in creditors 1,496 413
----- -----
Net cash inflow from operating activities 4,667 3,000
----- -----
5. Analysis of net funds
1 May 2006 Cashflow 30 April 2007
#000 #000 #000
Cash at bank and in hand 1,943 858 2,801
Bank loans (1,054) (12,276) (13,330)
----- ----- -----
889 (11,418) (10,529)
----- ----- -----
6. Purchase of subsidiary undertakings and broker businesses
Audited Audited
Year ended Year ended
30 April 2007 30 April
#'000 2006
#'000
Cash outflow on acquisitions 13,677 2,590
Cash acquired (1,195) -
----- -----
12,482 2,590
----- -----
7. Earnings per share
Earnings per Earnings Weighted
share #'000 average
pence No. of shares
2007
Basic earnings per share 20.74 3,186 15,359,610
Diluted earnings per share 20.33 3,186 15,672,828
Adjusted for amortisation
Adjusted basic earnings
per share 31.92 4,903 15,359,610
Adjusted diluted earnings
per share 31.28 4,903 15,672,828
2006
Basic earnings per share 10.56 1,592 15,064,906
Diluted earnings per share 10.27 1,592 15,499,768
Adjusted for amortisation
Adjusted basic
earnings per share 16.18 2,438 15,064,906
Adjusted diluted earnings
per share 15.73 2.438 15,499,768
8. On 30 June 2006 the company completed the acquisition of the general
insurance business of the Towry Law Group. The acquisition consideration was
#12.5m, payable in full on completion, with fees of approximately #0.75m. The
acquisition was funded by #13m 5 year term bank loans from Lloyds TSB.
On 31 August 2007 the company completed the acquisition of Sullivan Garrett
Limited, a Member of Broker Network Limited. The purchase price parameters were
broadly in line with previous Member acquisitions and the acquisition was funded
from the group's own cash resource.
9. Copies of this preliminary report will be distributed to all holders of the
Company's ordinary shares. Copies will also be available at the Company's
registered office: Mowbray House, Mowbray Square, Harrogate HG1 5AU. In
addition, this report will be available on the Company's website:
www.brokernetworkholdingsplc.co.uk .
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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