9th Dec 2013 07:00
Jelf Group plc
("Jelf", the "Group" or the "Company")
Final results for the year ended 30 September 2013
Jelf, an independent consultancy which provides a broad range of insurance, financial services and employee benefit services to corporates and individuals, announces its final results.
Financial highlights
Strong financial performance:
• Revenues increased by 4.4% to £76.2m (2012: £73.0m)
• EBITDAE increased by 11.0% to £12.5m (2012: £11.3m)
• EBITDAE margin increased to 16.4% (2012: 15.4%)
• Net profit after tax increased by 32.1% to £4.6m (2012: £3.5m)
• Fully diluted earnings per share increased by 25% to 4.0p (2012: 3.2p)
Increased dividend payment declared:
• 1.5p per share to be paid on 27 January 2014 to shareholders on the register on 27 December 2013 (2012: 1.3p)
Acquisitions
· Major acquisition of The Insurance Partnership in June 2013 is positively delivering in line with expectations.
Operating highlights
· The acquisition of The Insurance Partnership and Howell Shone Insurance Brokers Limited has extended the Group's presence in the Midlands and North.
· The drive for efficiency improvements in the Insurance business has increased EBITDAE by 14.4% to £6.8m (2012: £5.9m) and consequently EBITDAE margins have improved.
· Organic sales in the Employee Benefits business are up by 4.9% to £20.8m (2012: £19.8m).
· The Financial Planning business has embraced the new environment following the Retail Distribution Review and advisor productivity has increased by 30% to £273k (2012: £210k).
· Continued focus on customer service has delivered the highest possible '3 Star' rating from the Investor in Customers survey.
Alex Alway, Group Chief Executive, commented:
"Strong trading, combined with a focus on achieving efficiencies has enabled us to increase our EBITDAE margin by 6.4% to 16.4% (2012: 15.4%). This in turn has allowed us to increase our dividend to 1.5p per share (2012: 1.3p). Trading since 1 October is in line with expectations as are the benefits from the TIP acquisition. We look forward to the continued profitable growth of the business in the year ahead."
Enquiries
Jelf Group plc Tel: 01454 272727
Alex Alway, Group Chief Executive
John Harding, Group Finance & Operations Director
finnCap - Nomad and Broker Tel: 020 7220 0500
Matt Goode - Corporate Finance
Ben Thompson - Corporate Finance
Stephen Norcross - Corporate Broking
Victoria Bates - Corporate Broking
Chairman's Statement
"Continued strong performance in tough trading conditions"
I am pleased to report that, despite a continuation of the tough market conditions that have prevailed in recent years, Jelf has produced another strong set of results.
Revenues up 4.4% to £76.2m (2012: £73.0m)
EBITDAE up 11.0% to £12.5m (2012: £11.3m)
PAT up 32.1% to £4.6m (2012: £3.5m)
Fully diluted EPS up 25% to 4.0p (2012: 3.2p)
Reflecting this strong performance the Board has declared a dividend for the year of 1.5p (2012: 1.3p)
We are pleased that our strong financial performance and free cash generation, continued focus on a clearly articulated strategy, and the declaration of our maiden dividend last year have contributed to an increase of 39.7% in our share price from 1 October 2012 to 5th December 2013 which compares favourably with an increase of 19.4% in the AIM All-Share Index.
Although we are at last seeing signs of green shoots in the economy we have continued to experience a challenging trading environment over the last 12 months. Our markets remain very competitive and there are only limited and patchy signs of any hardening of insurance rates. In the light of this it is pleasing that our focus on client servicing - we achieved a 3 star rating from Investor in Customers - in our core market segments of SME insurance, employee benefits and healthcare, and financial planning, has delivered further growth in revenue and profit.
In June we completed the acquisition of The Insurance Partnership (TIP). This successful business with operations in Yorkshire and the Midlands expands our geographical presence, fits very well into the Jelf Group and is already contributing to revenue and expense synergies. It has also brought to Jelf a compelling proposition for the larger corporate market. We are pleased to welcome Rob Worrell, the Managing Director of TIP, to the Jelf Executive Committee.
January 2013 saw the commencement of the new regime resulting from the FCA's Retail Distribution Review which has a significant impact upon our corporate pensions, employee benefits and financial planning businesses. I am pleased to report that the substantial pre-planning carried out has meant that the transition to the new regime has been smooth. Our client retention has been excellent through this period of change. Our Corporate Pensions division successfully managed our larger clients through auto-enrolment staging. We also launched our Money After Work service aimed at capturing more of the at retirement market.
Jelf places great importance on ensuring that we have a strong and effective regulatory and governance culture and framework. We have a strong and experienced Board and independent non-executive directors, and active and effective Audit and Risk Committees. The Board pays particular attention to regulatory compliance at each of our meetings.
We are also fortunate to have a strong, experienced and stable executive management team led by Group Chief Executive Alex Alway who continue to produce very good results for all our stakeholders.
Looking forward we hope that the early signs of a return to growth in the economy will benefit the markets we operate in although we expect them to remain very competitive. Our strategy, which has delivered good results in recent years, remains unchanged. We have strong positions in our core segments of insurance and advice for the small/medium commercial sector, healthcare and employee benefits, and high net worth financial planning. We continue to target above market rates of organic growth in revenues and further efficiency and operating margin improvements. We are excited by our newly launched on-line insurance proposition for micro SMEs which will help to grow our affinity partnerships and to service our existing micro SME client base. Our strong balance sheet and financial position mean we are well placed to consider further acquisitions that fit well with Jelf and add shareholder value.
We have highly professional and dedicated people and I thank them on behalf of the Board for continuing to deliver excellent outcomes for our clients and our shareholders.
Les Owen
Non-executive Chairman
Group Chief Executive's Report
"Good trading during 2012-2013 has seen our EBITDAE profit increase by 11% to £12.5m (2012: £11.3m)."
I am pleased to report that we have achieved another good set of trading results in 2013, further improving our margins whilst developing new business. The focus on delivering our strategy continues to pay off, with positive results.
Background
Our industry is changing. We need to adapt and respond, so that we can continue to succeed in this challenging environment. The key forces currently at work are:
Customer evolution: Across all our business sectors, customer expectations are growing. We need to continue to demonstrate that we understand our clients' particular needs when we interact with them.
Pricing pressure: Economic pressures mean that clients are more price conscious than ever. It has therefore never been more important to keep our focus on quality advice, service and added value - pricing advantages are transitory and unsustainable.
Product commoditisation: Brokers are now quicker to duplicate the features of competitor services. We need to continue to provide clearly differentiated services that showcase the value of our skills and knowledge.
Strategic principles
Looking forward, we see successful Client Engagement as fundamental in responding to these key forces. Service excellence has always been a priority for Jelf, but now we need to take this to the next level and think in terms of superior Client Engagement.
We define an Engaged Client as one who is willing to be an advocate and recommend us to their contacts. We are working pro-actively with these clients and also to identify those who are not yet advocates to understand what we need to do to improve our service proposition to them in order to bring about a change in their view of us.
We believe successfully applied Client Engagement is a real differentiator, and that a strategy focused on this will enable us to stand out from the competition in a way that is hard to replicate. Client engagement is essential to organic growth based on the acquisition, retention and development of client relationships.
The underlying principles that drive our strategy will continue to be:
Clients - Listening to our clients, identifying their requirements and working with them to understand their business and/or personal needs and individual circumstances.
People - Our employees are one of our strongest assets and we are keen to promote their skills and experience.
Stakeholders - Our relationships with our strategic partners, providers, our partners (including the regulator) and our shareholders will always remain key to our continued success.
Highlights of the year
Investor in Customers - 3 Star - Exceptional
In February 2013, we were delighted to receive the highest possible '3 Star' rating from Investor in Customers (IIC). Jelf's clients rated our client services as 'exceptional'. Furthermore, by improving our overall score for the fifth consecutive year, we retained our position as the top-rated broker within the UK.
Acquisition: The Insurance Partnership
The acquisition of The Insurance Partnership in June 2013 is a clear signal that we are willing to invest in M&A where we can see value and commitment. Our combined operations now have client mandates for over £240m insurance premiums and the acquisition strengthens our position in the Midlands and the North. The Insurance Partnership also brings additional specialist technical and larger corporate client skills to enhance our corporate proposition.
The benefits we achieve from this acquisition come from enhanced placement opportunities and include better terms for clients and a superior corporate broking proposition.
I would like to welcome Rob Worrell and his team to the Group.
We continue to evaluate acquisition opportunities but will only acquire where we can be sure that there is both a strong cultural fit and the deal is clearly shareholder value enhancing.
Business launch: Jelf Small Business
During 2012-2013 we launched Jelf Small Business, an online solution tailored to meet the specific requirements of the micro SME sector. We will achieve growth through this new initiative from our affinity partners and from engaging with new clients.
To date we have over 9 insurance markets in place supporting 5 product offerings.
Financial results
Our financial performance and strength has continued to improve in this financial year. In the year ended 30 September 2013, our revenue was £76.2m (2012: £73.0m) and EBITDAE increased by 11.0% to £12.5m (2012: £11.3m). The EBITDAE margin was 16.4% (2012: 15.4%). The net profit after tax was £4.6m (2012: £3.5m), an increase of 32%.
New bank facility
We established a new bank facility this year with Barclays to provide finance for investment in organic growth and acquisitions. We continue to generate positive cash flow however following acquisitions and investments during the year we are now in a net debt position standing at £13.5m (2012: net cash of £2.8m). We are in a strong financial position, ideally positioned to invest in organic growth and selected acquisitions in insurance and healthcare broking.
Basic earnings per share was 4.3p (2012: 3.2p) and fully diluted earnings per share was 4.0p (2012: 3.2p).
Share buy-back
In February we gained approval from our shareholders to commence a share buy-back scheme to enhance value for our shareholders. So far purchases have led to a net reduction in the total number of shares of 91,408.
Core business performance
Insurance
Our insurance broking business provides advice on products and services to the UK SME and corporate sectors, and related individual clients. Revenues were ahead of 2012 at £48.3m compared to £46.1m. EBITDAE increased from £5.9m in 2012 to £6.8m and the EBITDAE margin also increased from 12.8% to 14% year on year.
During 2013, our insurance broking business retained the prestigious 'Chartered' status.
The year saw continued growth of the Purple Partnership (our network for independent brokers), which is included within the insurance business segment. Revenue increased by 29.4% to £0.9m in this, its sixth year of operation. This is a pure organic growth business.
Insurance broking is the largest element of the Jelf Group, accounting for 63% of total revenue.
Employee benefits
Our Employee Benefits business achieved revenue levels of £20.8m, (2012: £19.8m), EBITDAE was £5.4m (2012: £5.1m) a increase of 6.4%. EBITDAE margins remain strong at 25.9% (2012: 25.5%).
This business comprises a range of services including pensions, risk and healthcare Employee Benefits (EB). The non-healthcare part of the business provides advice and a range of services to small and large businesses in respect of employee benefit design (including risk and pension benefits), benefit communication and implementation. We have seen continued strong new business levels in this sector during 2012/13 as corporate clients have sought advice in these uncertain times. We expect this to continue through into 2014 as a number of legislation changes come into force such as auto enrolment.
The healthcare EB business provides advice on health-related employee benefits such as private medical insurance and other non-insurance services. Core clients are owner-managed enterprises in England and Wales. The business also provides specialist fee-based advice to larger companies, encompassing wider healthcare EB related issues such as absence management and occupational health as well as international health insurance cover.
The international healthcare insurance business continues to experience good organic growth as our corporate and SME clients expand operations.
Employee Benefits accounts for 27% of Jelf Group total revenue.
Financial planning
This business provides a full range of financial planning services to business owners and individuals. Revenues from financial planning have been maintained at £7.1m (2012: £7.1m), but EBITDAE has increased to £360k (2012: £294k). EBITDAE margin is 5.1% (2012: 4.2%). Advisor productivity has increased by 30% to £273,000 p.a.
We have implemented a post-RDR compliant model. Jelf's Financial Planning advisers have a total mandate for over £547m (2012: £490m) of AUM with third party investment (wrap) platforms.
Looking forward we will be focusing on closely aligning the Financial Planning business to Employee Benefits where we will provide a client service to those business owners and executive who require both "At Work" and "Retirement" planning. It is these activities along with the accumulation of Assets Under Advice (AUA) that will improve the profitability of the business.
During 2013 we retained the prestigious 'Chartered' status for the business.
Financial Planning accounts for 10% of Jelf Group total revenue.
High quality employees
We employed 1,077 people at the end of the 2012-2013 financial year; an increase from 998 at the end of 2012. The increase relates to the staff that joined as a result of the acquisition of The Insurance Partnership. The ratio of male to female staff is 45:55. We offer a comprehensive Employee Benefits package, which is actively promoted across the Group.
In 2012-2013 we made a significant investment in developing the capability of our sales teams. This programme has demonstrated the importance of getting to know each and every client, and their business, ensuring our sales teams become their clients 'trusted advisors'. This investment is a long-term commitment, which has started to see an initial return, and we will continue to embed this ethos over the next financial year.
As part of our people strategy, we undertook a Job Family programme to provide a clear career development structure for our employees. Early feedback on the new framework has been positive from both employees and managers.
We conducted our annual staff survey in June 2013, in part to test how we measure up against our core values. The results and many positive comments were particularly encouraging. Of note was the response to the statement: "I would recommend Jelf to a friend as a good place to work" to which 81% (2012: 81%) of staff responded either "agree" or "strongly agree".
Jelf in the community
We support our employees in recognising the importance of our corporate social responsibility. We believe this encourages a real sense of community and caring within the business.
This year our employees have raised over £43,000 for charities across the UK, and Jelf has been proud to donate a further £17,000.
Thank you to our employees
This year has again seen much change and I would like to put on record our thanks to our employees for their continued hard work, support and commitment. They have all worked with dedication and enthusiasm throughout 2013.
Alex Alway
Group Chief Executive
Consolidated income statement
For the year ended 30 September 2013
| Note | 2013 | 2012 | |||||
£'000 | £'000 | |||||||
Revenue | 2 | 76,186 | 73,006 | |||||
Cost of Sales | (6,862) | (7,233) | ||||||
Gross profit | 69,324 | 65,773 | ||||||
Administrative expenses | (64,443) | (60,978) | ||||||
Operating profit | 4,881 | 4,795 | ||||||
Operating profit consists of: | ||||||||
Earnings before interest, taxation, depreciation, amortisation and exceptional costs (EBITDAE) | 2 | 12,493 | 11,252 | |||||
Depreciation of property, plant and equipment | (1,039) | (896) | ||||||
Amortisation of intangible assets | (5,085) | (4,784) | ||||||
Exceptional costs | (1,488) | (777) | ||||||
Investment revenues | 68 | 46 | ||||||
Finance costs | (839) | (935) | ||||||
Profit before income tax | 4,110 | 3,906 | ||||||
Income tax credit /(charge) | 4 | 498 | (417) | |||||
Profit for the year attributable to the owners of the parent Company | 4,608 | 3,489 | ||||||
Earnings per share attributable to the owners of the parent Company | ||||||||
Basic (pence) | 6 | 4.3 | 3.2 | |||||
Diluted (pence) | 6 | 4.0 | 3.2 | |||||
| ||||||||
There is no other comprehensive income for the year other than the profit for the year noted above.
There are no discontinued operations during the year.
Consolidated balance sheet
As at 30 September 2013
2013 | 2012 | |||||
Note | £'000 | £'000 | ||||
Non-current assets | ||||||
Goodwill | 7 | 71,290 | 58,475 | |||
Intangible assets | 8 | 41,090 | 39,017 | |||
Property, plant and equipment | 5,360 | 4,284 | ||||
Available for sale investments | 16 | 39 | ||||
117,756 | 101,815 | |||||
Current assets | ||||||
Trade and other receivables | 11,965 | 8,385 | ||||
Cash and cash equivalents* | 23,948 | 20,772 | ||||
35,913 | 29,157 | |||||
Total assets | 153,669 | 130,972 | ||||
Current liabilities | ||||||
Trade and other payables | (20,058) | (17,140) | ||||
Deferred consideration | (413) | - | ||||
Obligations under finance leases | (48) | - | ||||
Borrowings | 9 | (3,672) | (4,083) | |||
Income tax liabilities | (667) | (996) | ||||
Deferred income tax liabilities | (949) | (1,045) | ||||
Provisions | (1,848) | (792) | ||||
(27,655) | (24,056) | |||||
Net current assets | 8,258 | 5,101 | ||||
Non-current liabilities | ||||||
Borrowings | 9 | (14,640) | (2,015) | |||
Deferred consideration | (4,063) | - | ||||
Obligations under finance leases | (14) | - | ||||
Deferred income tax liabilities | (6,947) | (7,752) | ||||
Provisions | (902) | (665) | ||||
(26,566) | (10,432) | |||||
Total liabilities | (54,221) | (34,488) | ||||
Net assets | 99,448 | 96,484 | ||||
Equity | ||||||
Share capital | 10 | 1,103 | 1,104 | |||
Share premium | 72,070 | 72,070 | ||||
Merger reserve | 12,333 | 9,282 | ||||
Other reserves | 3,258 | 3,418 | ||||
Retained earnings | 10,684 | 10,610 | ||||
Total equity attributable to the owners of the parent Company | 99,448 | 96,484 | ||||
* Included within cash and cash equivalents is fiduciary cash of £14,493,439 (2012: £11,592,000)
Consolidated statement of changes in equity
For the year ended 30 September 2013
| Sharecapital | Sharepremium | Merger reserve | Sharebasedpayment reserve1,2 | Ownshares held1 | Other reserves1 | Retainedearnings | Total equity |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 1 October 2011 | 1,104 | 72,070 | 9,282 | 3,562 | (634) | 14 | 7,121 | 92,519 |
Share based payments | - | - | - | 1,147 | - | - | - | 1,147 |
Purchase of own shares by EBT3 | - | - | - | - | (671) | - | - | (671) |
Vesting of Employee Benefits Trust shares | - | - | - | (106) | 106 | - | - | - |
Profit for the year and total comprehensive income | - | - | - | - | - | - | 3,489 | 3,489 |
At 30 September 2012 | 1,104 | 72,070 | 9,282 | 4,603 | (1,199) | 14 | 10,610 | 96,484 |
Share issue | 34 | - | 3,051 | - | - | - | 3,085 | |
Dividend paid | - | - | - | - | - | (1,407) | (1,407) | |
Share based payments | - | - | - | 842 | - | - | 842 | |
Purchase of own shares by EBT3 | - | - | - | - | (1,381) | - | - | (1,381) |
Vesting of Employee Benefits Trust shares | - | - | - | (443) | 443 | - | - | - |
Proceeds from vesting of shares | - | - | - | - | 344 | - | - | 344 |
Share Buy-Back | (35) | - | - | - | - | 35 | (3,204) | (3,204) |
Tax credit relating to share schemes | - | - | - | - | - | - | 77 | 77 |
Profit for the year and total comprehensive income | - | - | - | - | - | - | 4,608 | 4,608 |
At 30 September 2013 | 1,103 | 72,070 | 12,333 | 5,002 | (1,793) | 49 | 10,684 | 99,448 |
1 Shown within other reserves on the balance sheet
2 The share based payment reserve is distributable to the equity holders of the Company
3 The EBT purchased 1,538,423 (2012: 992,280) shares in the year
Note | 2013 | 2012 | |
£'000 | £'000 | ||
Cash flows from operating activities | |||
Cash generated from operations | 12 | 10,610 | 10,543 |
Interest paid | (585) | (857) | |
Taxation paid | (2,318) | (2,575) | |
Net cash flow generated from operating activities | 7,707 | 7,111 | |
Cash flows from investing activities | |||
Interest received | 68 | 46 | |
Proceeds on disposal of property, plant and equipment | 22 | - | |
Purchase of property, plant and equipment | (1,865) | (2,232) | |
Purchase of computer software | (952) | (610) | |
Acquisition of client books of business | (27) | (696) | |
Acquisition of subsidiaries and businesses (net of cash acquired) | (8,082) | - | |
Proceeds on disposal of client book and investments | 55 | - | |
Net cash flow used in investing activities | (10,781) | (3,492) | |
Cash flows from financing activities | |||
Repayments of borrowings | (7,850) | (5,767) | |
Purchase of own shares by EBT | (1,381) | (671) | |
Proceeds from vesting of shares | 344 | - | |
Cancellation of own shares through share buyback | (3,204) | - | |
Expenses on issue of shares | (10) | - | |
Repayment of obligations under finance leases | (11) | - | |
Payment of dividend | (1,407) | - | |
New borrowings raised (net of expenses of £231,000) | 19,769 | - | |
Net cash flow generated/(used) in financing activities | 6,250 | (6,438) | |
Net increase/(decrease) in cash and cash equivalents | 3,176 | (2,819) | |
Cash and cash equivalents at beginning of year | 20,772 | 23,591 | |
Cash and cash equivalents at end of year 1 | 23,948 | 20,772 |
1 Included within cash and cash equivalents is fiduciary cash of £14,493,439 (2012: £11,592,000)
Notes to the consolidated financial statements
1. General information
Jelf Group plc is an AIM listed company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The nature of the Group's operations and its principal activities are set out in the Chairman's statement and the Group Chief Executive's report.
The financial information set out in this announcement does not constitute the Group's consolidated financial statements within the meaning of Section 435 of the Companies Act 2006 for the year ended 30 September 2013 and 30 September 2012 but is derived from those statements. This announcement should be read in conjunction with the statutory accounts for the year ended 30 September 2013, which were prepared under International Financial Reporting Standards (IFRSs) and were authorised for issue by the Board of Directors on 13 December 2013 and delivered to the Registrar of Companies. The Independent Auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by the way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.
While the financial information included in this announcement has been prepared in accordance with IFRSs as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group intends to publish full financial statements that comply with IFRS.
2. Segmental Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board, which is responsible for allocating resources, assessing performance of the operating segments and making strategic decisions. Further information about each operating segment can be found in the Group Chief Executive's Report.
All revenue arose within the United Kingdom. No geographical segment information is therefore given. Segment information about these businesses is presented below.
Year-ended 30 September 2013 | Insurance £'000 | Employee Benefits £'000 | Financial Planning £'000 | Total £'000 |
Revenue | 48,269 | 20,804 | 7,113 | 76,186 |
Operating profit/(loss) | 1,052 | 4,114 | (285) | 4,881 |
Operating profit/(loss) consists of: | ||||
EBITDAE | 6,752 | 5,381 | 360 | 12,493 |
Depreciation of property, plant and equipment | (720) | (239) | (80) | (1,039) |
Amortisation of intangible fixed assets | (3,802) | (821) | (462) | (5,085) |
Exceptional costs | (1,178) | (207) | (103) | (1,488) |
Investment revenues | 68 | |||
Finance costs | (839) | |||
Profit before income tax | 4,110 | |||
Income tax credit | 498 | |||
Profit for the year | 4,608 |
Year-ended 30 September 2012 | Insurance £'000 | Employee Benefits £'000 | Financial Planning £'000 | Total £'000 |
Revenue | 46,127 | 19,827 | 7,052 | 73,006 |
Operating profit/(loss) | 1,297 | 4,001 | (503) | 4,795 |
Operating profit/(loss) profit consists of: | ||||
EBITDAE | 5,902 | 5,056 | 294 | 11,252 |
Depreciation of property, plant and equipment | (621) | (198) | (77) | (896) |
Amortisation of intangible fixed assets | (3,547) | (781) | (456) | (4,784) |
Exceptional costs | (437) | (76) | (264) | (777) |
Investment revenues | 46 | |||
Finance costs | (935) | |||
Profit before income tax | 3,906 | |||
Income tax charge | (417) | |||
Profit for the year | 3,489 |
3. Exceptional costs
Exceptional costs are those items the Group considers to be one-off or material in nature that should be brought to the reader's attention in understanding the Group's financial performance. These costs are not associated with the ongoing activities of the Group. Exceptional costs are as follows:
2013 | 2012 | |
£'000 | £'000 | |
Acquisition costs | 698 | - |
Reorganisation and rationalisation costs | 563 | 777 |
Onerous lease provision relating to previous head office | 83 | - |
Share buy back costs | 144 | - |
1,488 | 777 |
4. Income tax charge
2013 £'000 | 2012 £'000 | |
Current tax | ||
Current tax on profit for the year | 2,247 | 2,317 |
Adjustment in respect of prior years | (47) | (95) |
Total current tax | 2,200 | 2,222 |
Deferred tax | ||
Origination and reversal of temporary differences | (1,386) | (995) |
Impact of change in UK tax rate | (1,256) | (794) |
Adjustment in respect of prior years | (56) | (16) |
Total deferred tax | (2,698) | (1,805) |
Income tax (credit)/charge | (498) | 417 |
5. Dividends
2013 | 2012 | ||
£'000 | £'000 | ||
Dividend paid during the year: | |||
Final dividend for the year ended 30 September 2012 of 1.3p (2011: £nil) per share | 1,407 | - | |
Dividend proposed after the end of the reporting period and not recognised as a liability: | |||
Final dividend for the year ended 30 September 2013 of 1.5p (2012: 1.3p) per share | 1,615 | 1,409 | |
The final dividend in respect of the year ended 30 September 2012 of 1.3p per share, amounting to a total dividend of £1,406,658, was paid on 25 January 2013.
The final dividend proposed for the year ended 30 September 2013 will be paid on 27 January 2014 to shareholders on the register on 27 December 2013.
6. Earnings per share
| 2013 | 2012 | |
Profit for the year (£'000) | 4,608 | 3,489 | |
Weighted average shares in issue (number) | Basic | 107,519,379 | 109,029,594 |
Diluted | 115,608,027 | 110,609,236 | |
Earnings per share (pence) | Basic | 4.3 | 3.2 |
Diluted | 4.0 | 3.2 |
7. Goodwill
| 2013 £'000 | 2012 £'000 | ||
Cost and net book value |
|
|
| |
At 1 October |
|
| 58,475 | 58,475 |
Acquisitions |
|
| 12,818 | - |
Disposals |
|
| (3) | - |
At 30 September |
|
| 71,290 | 58,475 |
Impairment tests for goodwill
Goodwill is reviewed at least annually for impairment by comparing the recoverable amount of each cash generating unit ('CGU') with the goodwill, intangible assets and property, plant and equipment allocated to that CGU.
Goodwill has been allocated according to the business segment as follows:
Insurance £'000 | Employee Benefits £'000 | Financial Planning £'000 | Total £'000 | |
At 1 October 2012 | 47,540 | 10,552 | 383 | 58,475 |
Acquisitions | 12,818 | - | - | 12,818 |
Disposals | (3) | - | - | (3) |
At 30 September 2013 | 60,355 | 10,552 | 383 | 71,290 |
At 1 October 2011 and 30 September 2012 | 47,540 | 10,552 | 383 | 58,475 |
The recoverable amount of a CGU is determined based on value in use calculations. These calculations use risk adjusted cash flow projections based on financial budgets approved by management and conservative growth assumptions covering a five year period. The key assumptions used to prepare the financial budgets are based on past experience, strategic plans and management's expectation for the markets in which they operate.
Cash flows beyond the five year period (2012: five years) are extrapolated using an average growth rate of 1.5% (2012: 2.25%). This growth rate is in line with the expected average UK economy long term growth rate.
The cash flows projections are discounted at a post-tax discount rate of 10.3% (2012: 10.7%). The single discount rate, which is consistently applied for all CGUs, is determined with reference to internal measures and available industry information and reflects specific risks relevant to the Group.
Further to the impairment review, the Directors concluded that, particularly in light of the conservative assumptions used, no impairment has arisen during the year.
Impairment testing inherently involves a number of judgemental areas, including the preparation of cash flow forecasts for periods that are beyond the normal requirements of management reporting; the assessment of the discount rate appropriate to the Group and the estimation of the future revenue and expenditure of each CGU. Accordingly, management undertook stress testing to understand the key sensitivities and concluded as follows:
• Insurance is the largest CGU and is also the most sensitive to changes in discount rate and growth rate.
· Financial Planning is the smallest CGU and is currently adapting to a new regulatory regime (Retail Distribution Review) which took effect on 1 January 2013, which could create uncertainty in the short term.
• The discount rate for 2013 would need to increase to 10.8% for an impairment to occur in Insurance and 11.5% in Financial Planning.
• A compound average revenue growth rate of 0.3% in Insurance and (0.8)% in Financial Planning has been assumed for the first five years. If this growth rate were to fall to 0% in Insurance and (1.3)% in Financial Planning, and management made no compensating changes to the budgeted level of administrative expenses in this period, an impairment would occur in the CGU.
8. Intangible assets
| Computer software £'000 | Client books of business £'000 | Total £'000 |
Cost |
|
|
| |
At 1 October 2012 |
| 1,728 | 61,271 | 62,999 |
Additions |
| 952 | 6,220 | 7,172 |
Disposals |
| - | (17) | (17) |
At 30 September 2013 |
| 2,680 | 67,474 | 70,154 |
| ||||
Accumulated amortisation |
| |||
At 1 October 2012 |
| 846 | 23,136 | 23,982 |
Amortisation charge |
| 307 | 4,778 | 5,085 |
Disposals |
| - | (3) | (3) |
At 30 September 2013 |
| 1,153 | 27,911 | 29,064 |
| ||||
Net book value | ||||
At 30 September 2013 | 1,527 | 39,563 | 41,090 | |
At 30 September 2012 | 882 | 38,135 | 39,017 |
9. Borrowings
Loan facility £'000 | Unamortised loan costs £'000 | Net borrowings £'000 | |
Year-ended 30 September 2013 | |||
Current | 3,750 | (78) | 3,672 |
Non current | 14,750 | (110) | 14,640 |
18,500 | (188) | 18,312 | |
Year-ended 30 September 2012 | |||
Current | 4,266 | (183) | 4,083 |
Non current | 2,083 | (68) | 2,015 |
6,349 | (251) | 6,098 |
During the period the Group repaid its existing borrowings and put in place two new borrowing facilities.
The main facility of £12 million comprises a loan of £9 million repayable by February 2016 in six biannual instalments and a revolving loan of £3 million fully repayable in February 2016. Scheduled repayments of £1.5m were made during the year leaving a balance of £10.5m at 30 September 2013.
The second committed borrowing facility of £10 million is available for acquisitions and is repayable by February 2016 in six biannual instalments. The maximum facility available reduces on a biannual basis over the life of the facility. At the balance sheet date £9.25 million was available of which £1.25 million was undrawn.
The loan facility interest floats at a rate of 2.35% above LIBOR. The loan is secured by an unlimited intercompany composite agreement guarantee over all assets in the trading companies within the Group excluding ring fenced regulatory cash as agreed with the FCA. The facility terms and conditions include cashflow cover, interest cover and leverage covenants.
As at 9 December 2013 the total outstanding loan facility was £18,500,000 and unamortised loan costs were £174,908.
The exposure of the borrowings of the Group to interest rate changes and the periods in which the cost of borrowings re-price are as follows:
6 months or less £'000 | 6 - 12 months £'000 | 1 - 5 years £'000 | Over 5 years £'000 | Total £'000 | |
At 30 September 2013 | 18,312 | 18,312 | |||
At 30 September 2012 | 6,098 | - | - | - | 6,098 |
The interest rate on borrowings at the balance sheet date was as follows:
2013 | 2012 | ||||
Borrowings | 2.9% | 7.9% |
The effective interest rate including initial loan fees at the balance sheet date was as follows:
2013 | 2012 | ||||
Borrowings | 3.2% | 8.5% |
The Directors consider that the carrying amount of borrowings approximate to their fair value.
10. Called up share capital
| Group and Company | 2013 £'000 | 2012 £'000 | |||||
| Authorised | |||||||
| 100,000,000 Ordinary shares of 1p each | 1,000 | 1,000 | |||||
| 25,063,838 Non-voting shares of 1p each | 251 | 251 | |||||
| 1,251 | 1,251 | ||||||
|
| |||||||
Ordinary shares | Non-voting shares | Total |
| |||||
No. of shares | £'000 | No. of shares | £'000 | No. of shares | £'000 |
| ||
Allotted, called up and fully paid At 1 October 2011 | 85,333,525 | 853 | 25,063,838 | 251 | 110,397,363 | 1,104 |
| |
Share issue | - | - | - | - | - | - |
| |
At 30 September 2012 | 85,333,525 | 853 | 25,063,838 | 251 | 110,397,363 | 1,104 |
| |
Share issue | 3,364,112 | 34 | - | - | 3,364,112 | 34 |
| |
Share buybacks | (3,455,520) | (35) | - | - | (3,455,520) | (35) |
| |
At 30 September 2013 | 85,242,117 | 852 | 25,063,838 | 251 | 110,305,955 | 1,103 |
| |
During the period 3.5m Ordinary shares of 1p were purchased at market prices between 80p and 92p. These
were then cancelled.
During the period 3.4m Ordinary shares of 1p were issued at 92p in relation to the acquisition of The Insurance Partnership Holdings Limited.
11. Acquisitions
During the year, the Group has made the following acquisitions:
| ||||||||||||||||||||||
As a result of the acquisitions the Group is expected to significantly increase its presence in the Midlands and the North East of England. The goodwill and intangible assets arising on the acquisitions is attributable to the acquired customer base, improved commercial terms and economies of scale expected from combining the operations of the acquired businesses. None of the goodwill recognised is expected to be deductible for income tax purposes.
On 4 February 2013, the Group acquired the remaining 20% of the issued shares of The Purple Partnership Limited for a consideration of £750,000. The Group now holds 100% of the equity share capital of The Purple Partnership Limited.
Howell Shone Insurance Brokers Limited The following table summarises the consideration paid, the fair value of assets acquired and liabilities assumed at the acquisition date. | ||||||||||||||||||||||
Fair valueacquired | ||||||||||||||||||||||
£'000 | ||||||||||||||||||||||
Consideration at 31 January 2013 | ||||||||||||||||||||||
Cash | 587 | |||||||||||||||||||||
Contingent consideration | 315 | |||||||||||||||||||||
Total consideration | 902 | |||||||||||||||||||||
Recognised amounts of identifiable assets acquired and liabilities assumed | ||||||||||||||||||||||
Intangible assets - client book of business | 262 | |||||||||||||||||||||
Property, plant and equipment | - | |||||||||||||||||||||
Current assets - cash (includes £104,000 fiduciary cash) | 184 | |||||||||||||||||||||
Current assets - other | 58 | |||||||||||||||||||||
Current liabilities | (137) | |||||||||||||||||||||
Deferred tax arising on client book | (60) | |||||||||||||||||||||
Total identifiable net assets | 307 | |||||||||||||||||||||
Goodwill | 595 | |||||||||||||||||||||
Total | 902 | |||||||||||||||||||||
The Insurance Partnership Holdings Limited
The following table summarises the consideration paid, the fair value of assets acquired and liabilities assumed at the acquisition date
Fair valueacquired | |||||||||||
£'000 | |||||||||||
Consideration at 28 June 2013 | |||||||||||
Cash | 10,194 | ||||||||||
Equity instruments (3.4 million ordinary shares) | 3,095 | ||||||||||
Contingent consideration | 4,063 | ||||||||||
Total consideration | 17,352 | ||||||||||
Recognised amounts of identifiable assets acquired and liabilities assumed | |||||||||||
Intangible assets - client book of business | 5,924 | ||||||||||
Property, plant and equipment | 307 | ||||||||||
Current assets - cash (includes £2,558,000 fiduciary cash) | 3,265 | ||||||||||
Current assets - other | 5,574 | ||||||||||
Current liabilities | (7,675) | ||||||||||
Non current liabilities | (179) | ||||||||||
Deferred tax arising on client book | (1,337) | ||||||||||
Total identifiable net assets | 5,879 | ||||||||||
Goodwill | 11,473 | ||||||||||
Total | 17,352 | ||||||||||
Acquisition related costs for all acquisitions of £698,000 have been charged to administrative expenses.
Shares issued as consideration were at market value on the date of acquisition.
The contingent consideration arrangements require certain performance related future financial targets to be achieved and also include a final payment for net assets. The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between £563,000 and £4,378,000.
Howell Shone Insurance Brokers Limited ("Howell Shone") and The Insurance Partnership Limited ("TIP") contributed £2.5m to revenue for the period between the date of acquisition and the balance sheet date. It is not possible to separately identify the profit before income tax related to Howell Shone as it has been integrated from day one into Jelf Insurance Brokers Limited. The profit before income tax for TIP was £nil.
Had Howell Shone and TIP been included within the Group from 1 October 2012, the additional revenue would have been £9.9m. It is not possible to separately identify the profit before income tax related to Howell Shone as it has been integrated from day one into Jelf Insurance Brokers Limited. The profit before income tax for TIP would have been £1.1m.
12. Cash generated from operations
2013 £'000 | 2012 £'000 | |||
Profit before tax | 4,110 | 3,906 | ||
Adjustments for: | ||||
Investment revenues | (68) | (46) | ||
Finance costs | 839 | 935 | ||
Depreciation of property, plant and equipment | 1,039 | 896 | ||
Amortisation of intangible assets | 5,085 | 4,784 | ||
Share-based payment expense | 842 | 1,147 | ||
Increase in provisions | 438 | 363 | ||
(Profit)/loss on disposal of intangible assets/investments | (40) | - | ||
Operating cash flows before movement in working capital | 12,245 | 11,985 | ||
Increase in receivables | (1,652) | (1,145) | ||
Increase/(decrease) in payables | 17 | (297) | ||
Cash generated from operations | 10,610 | 10,543 | ||
13. Net debt
| 2013 | 2012 | ||
£'000 | £'000 | |||
Cash | 23,948 | 20,772 | ||
Fiduciary cash | (14,493) | (11,592) | ||
Own funds | 9,455 | 9,180 | ||
Borrowings1 | (18,500) | (6,349) | ||
Deferred consideration | (4,476) | - | ||
Net (debt) /cash | (13,521) | 2,831 | ||
1Borrowings are shown gross of amortised loan costs of £188,000 (2012: £251,000). See note 9 for details.
Related Shares:
JLF.L