(JLF) Jelf Group

Jelf Group plc

("Jelf", the "Group" or the "Company")

Final results for the year ended 30 September 2011

Jelf, an independent full service brokerage that supports businesses and individuals, announces its final results.

Financial highlights

Strong financial performance despite the difficult trading conditions and fragile wider economy:

·      Revenue levels increased by 2% to £72.1m (2010: £70.4m)

·      EBITDAE increased by 3% to £10.1m (2010: £9.8m)

·      EBITDAE margin maintained at 14% (2010: 14%)

·      Earnings per share increased by 136% to 2.6p (2010: 1.1p)

Significantly strengthened the balance sheet:

·      Net debt down to £3.0m (2010: £7.3m)

Cash generated from operations continues to be strong and deferred consideration from previous acquisitions is nil (2010: £0.8m).

Operating highlights

·      Organic sales in the Insurance business are up 4% to £44.8m (2010: £42.9m)

·      Organic sales in the Employee Benefits business are up by 5% to £19.9m (2010: £18.9m)

·      Investment continues in the business aimed at organic growth and developing people and infrastructure

·      Plans in place to embrace the forthcoming Retail Distribution Review changes

·      Drive for operational efficiency continues

Alex Alway, Group Chief Executive, commented:

"Strong trading during 2011 has enabled the Group to increase its income, and margins have been maintained whilst at the same time we have initiated a series of investments aimed at generating future economic growth."

Enquiries

Jelf Group plc

Cenkos Securities plc

Stephen Keys                                                                                        Tel: 020 7397 8900

Chairman's statement

I am delighted to be in a position to report a strong set of results for the year ended 30 September 2011.

We continue to operate in a difficult trading environment and our clients continue to be affected by the uncertain and fragile economic conditions. Despite this we have seen encouraging growth in the business.  We have increased revenue to £72.1m (2010: £70.4m), increased EBITDAE by 3% to £10.1m (2010: £9.8m) and delivered a 136% increase in earnings per share to 2.6p (2010: 1.1p).  This is a strong result. 

Growth has been achieved through a focus on retaining existing clients, by providing clients with a wider range of services, and by winning new clients and new members for our network, The Purple Partnership. 

Underpinning this is the high quality of our client service as reflected in a strong rating in the Investor in Customers survey.  This independent and highly respected award is based solely on feedback from our clients and staff.

We have strengthened Jelf's balance sheet.  As a result of strong trading and prudent financial management, our net debt has been reduced to £3.0m (2010: £7.3m).

Over the course of the last 12 months we have signed off a number of initiatives to provide the foundation for stronger future organic growth.  In addition we are well placed to take advantage of selected acquisition opportunities where there is a good fit to our business and where the price is right.

The governance structure within Jelf is strong and fit for purpose in a regulated environment.

My fellow non-executives continue to be impressed by the high quality of the management team and by the dedication to client service shown by the employees in their everyday activities.

We are in a strong position to take advantage of any upturn in the economy and to generate growth in value for our shareholders.

I look forward to working with the Board and the people of Jelf in the year ahead to deliver another strong set of results.

Les Owen

Non-executive Chairman

Operating and financial review

"Positive trading during 2011 has enabled the Group to increase its income, and margins have been maintained whilst at the same time we have initiated a series of investments aimed at generating future economic growth." Alex Alway, Group Chief Executive

Financial results

In this financial year, we saw a continued improvement in both Jelf's financial performance and strength.  In the year ended 30 September 2011, Jelf's revenue increased by 2% to £72.1m (2010: £70.4m).  EBITDAE increased by 3% to £10.1m (2010: £9.8m) and earnings per share rose by 136% to 2.6p (2010: 1.1p).

EBITDAE margins have been maintained at 14% (2010: 14%) whilst at the same time we have initiated investment in a number of initiatives to generate future organic growth; a good example is the opening of our new London office.

Jelf has concentrated on improving profit levels and I am pleased that we have managed an increase in operating profit of 42% to £4.4m (2010: £3.1m).

Jelf continues to generate strong positive cash flow and all deferred consideration payments have been made.

The net debt position has reduced further and now stands at £3.0m (2010: £7.3m).  This means that Jelf is in a strong and secure financial position, ideally poised to take advantage of any growth in the economy or opportunities for M&A as they arise.

Dividend policy

The Directors do not recommend the payment of a dividend this year (2010: nil).  The Directors intend to commence payment of dividends only when it becomes commercially prudent to do so.  Consideration will be given to:

•    Repayment of existing loan facilities

•    Maximisation of shareholder value

•    Availability of Jelf's distributable profits and cash

•    Level of retained funds required to finance future growth

•    Meeting regulatory capital adequacy requirements.

Strategy

Our objective is to continue upon our strategy of profitable growth as a leading independent intermediary providing a broad and integrated range of products and services to the UK SME and corporate business sectors and the related private individual market.

The principles of Jelf's strategy continue to be:

•    Clients - Doing what our clients tell us they want us to do, which is to work side-by-side with them, as their trusted business adviser, to understand their business needs and individual circumstances.  In this way we provide them with bespoke solutions from our broad range of products and services that mitigate risks and add value. This applies equally to businesses of all sizes, individuals and affinity / specialist trade groups.

•    People - Our people are our key selling point, and we continue to develop them in order to deliver a high value service to our clients. We foster a people centric culture focused on attracting, retaining and developing highly talented individuals.

•    Provider relationships - Strategic and trading relationships with our provider partners across all sectors are a key factor in our success.  These relationships allow us to deliver bespoke products and top quality service to our clients.

•    Shareholders -Prudent management of Jelf's financial resources on behalf of our shareholders.

Throughout 2011, we have focused on achieving organic growth and on driving cross sales through use of the Jelf Menu.  Registered cross sales this year exceeded £1m revenue.   In addition, the Board continues to pursue an opportunistic strategy with regard to M&A. During this period the Board has reviewed a number of opportunities and it will continue to review the market during 2012.

Review of operations

The business continues to offer a wide range of services, which enables us to be flexible and provide a "one stop" for our clients' business and individual needs.

For all of our trading areas we have Directors who have responsibility for the profit and loss account and autonomy in the day-to-day running of their business.  We have focused on investment and growth in our businesses: Insurance, Employee Benefits, Financial Planning and our network, the Purple Partnership. 

Each of these business segments is monitored against key performance indicators (KPIs), which include revenue, EBITDAE and EBITDAE margin.  In addition, we monitor our earnings per share and net debt.  The performance of each business segment is included within the following review.

Insurance

This business provides insurance broking services to corporate and individual clients, directly and through affinity groups and specialist trade groups. It offers advice on all aspects of general insurance, including carrying out risk assessments, designing insurance programmes, reviewing existing insurance arrangements and claims management.

Insurance is the largest segment, accounting for 62% of Jelf's total income. 

Revenues were ahead of 2010, at £44.8m compared to £42.9m.  EBITDAE increased from £4.3m in 2010 to £4.9m and EBITDAE margin also increased from 10% to 11% year-on-year.

During 2011 the management team has implemented development plans as well as continuing to increase the efficiency of the business.  We have invested in new sales people and in systems and prospects at the same time. The quality of these new recruits along with the experience of our existing staff provides us with an excellent platform for growth.

The new business efforts within Insurance have borne fruit and a number of introducer deals have been put in place.  Insurance new business in 2011 was £5.2m.  We expect this to continue into 2012.

During 2011 we achieved chartered status for our Insurance business, a quality mark that is currently awarded to only a small number of insurance brokers.

This year saw The Purple Partnership, Jelf's network for independent brokers which is included within the insurance business segment, exceed its targets and continue to build its membership base.  Revenue increased by 45% to £0.6m in its fourth year of operation. 

Employee Benefits

This business comprises a range of services including group pensions, group risk and healthcare (UK and international). The non-healthcare part of the business provides advice and a range of services to small and large businesses in respect of benefit design (including risk and pension benefits), benefit communication and implementation. This has always been an area of organic growth for Jelf and we have seen continued strong new business levels in this sector during 2011 as corporate clients have sought advice in these uncertain times and ahead of the introduction of the National Employment Savings Trust ('NEST') from October 2012.  We expect this growth to continue through into 2012.

The healthcare business provides advice on health-related employee benefits such as private medical insurance and other non-insurance services. Core clients are owner-managed enterprises based in England and Wales. The business also provides specialist fee-based advice to larger companies, encompassing wider healthcare related issues such as absence management and occupational health as well as international health insurance cover.

The international healthcare business is developing as a centre of excellence and continues to experience strong organic growth.

Employee Benefits accounts for 28% of Jelf's total income.

Despite the challenging economic conditions the Employee Benefits business experienced an increase in revenues of 5% in 2011, to £19.9m (2010: £18.9 m).  Cost management resulted in growth in EBITDAE of 2%.  EBITDAE has increased to £5.2m (2010: £5.0m). EBITDAE margins remain strong at 26% (2010: 27%). 

Financial Planning

This business provides independent financial planning services, including investment planning, portfolio management and retirement planning advice to individuals, especially entrepreneurs; and business assurance advice to SMEs.

Financial Planning accounts for 10% of Jelf's total income. 

There is a difficult wider environment for investments with all the problems associated with sovereign and private debt and directly as a result of these trading conditions revenues from Financial Planning have fallen by 13% to £7.5m (2010: £8.5m).  EBITDAE has decreased by 96% to £18k (2010: £470k).  EBITDAE margin is 0% (2010: 6%). 

We reported last year we were implementing a phased transition to prepare the business for the new regulatory regime that will come into force on 1 January 2013.  These plans continue and have included the development of a new investment proposition, the segmentation of our client base, new literature and a new preferred platform provider.

Jelf's advisers have a mandate for over £450m (2010: £450m) of Funds Under Advice with third party investment (wrap) platforms. These funds have been subject to the wider difficult investment climate.

During 2011 we retained the prestigious 'Chartered Financial Planners' status for our Financial Planning business, a mark that is currently awarded to only a small number of intermediaries.

Jelf in the Community

Due to the efforts of staff members across Jelf, in excess of £17k (2010: £40k) has been raised to support local charities in England and Wales.  This is in addition to £11k (2010: £7k) contributed by Jelf. 

Rebranding

The brand refresh we carried out for all our businesses during September 2010 has been short listed for the Corporate Communications Awards 2011.

Organisational development

Over the last year, we have continued to implement a number of initiatives which will provide efficiency gains and simplify support and back office operations. 

In addition, we have launched another tranche of our SAYE scheme which was significantly over subscribed by our employees.

Despite the difficult markets and the poor economic conditions in 2011, our staff retention remains good as we continue to build a cohesive Jelf culture across the business.

Infrastructure

As at 30 September 2011, Jelf operated out of 32 locations (2010: 31) and staff numbers at the end of the year decreased by 1% to 1,022 (2010: 1,031).  We have continued to invest in our infrastructure to ensure that we develop support for our primary asset, the people within our business, whilst also creating capacity for future growth.

Organic growth

Total revenues increased by 2% on 2010.  Particularly pleasing was the increase achieved by our Insurance business, with organic sales up 4% against a backdrop of a continuing soft market.

We have established a new London office which will act as a base to support the servicing of our existing clients as well as a hub for organic growth in London.

During the 2011 financial period, we have invested heavily in our marketing resources which will assist all business sectors.

Thanks to staff

Jelf remains determined to be responsive to the needs of our clients and to improve the underlying efficiency and quality of the service we deliver.  We will continue to test ourselves and remain poised to capitalise on any improvements in the wider economy.

This year has again seen much change, and on behalf of the Board I would like to put on record our thanks to all our staff for their continued support and commitment.

We remain confident that, by meeting the needs of our clients, Jelf will be in a position to prosper over the next 12 months.

Alex Alway

Group Chief Executive

Consolidated balance sheet

As at 30 September 2011

* Included within cash and cash equivalents is fiduciary cash of £14,485,000 (2010: 11,241,000)

Consolidated income statement

For the year ended 30 September 2011

Consolidated statement of comprehensive income

For the year ended 30 September 2011

Consolidated statement of changes in equity

For the year ended 30 September 2011

¹        Shown within other reserves on the balance sheet

²        Shown net of tax

³        The share based payment reserve is distributable to the equity holders of the Company

⁴        The EBT purchased 400,000 (2010: 616,666) shares in the year

Consolidated cash flow statement

For the year ended 30 September 2011

Included within cash and cash equivalents is fiduciary cash of £14,485,000 (2010: £11,241,000)

Notes to the consolidated financial statements

1.   General information and basis of preparation

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 Operating and Financial Review.

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 2011 and 30 September 2010 but is derived from those statements.  This announcement should be read in conjunction with the statutory accounts for the year ended 30 September 2010, which were prepared under International Financial Reporting Standards (IFRSs) and were authorised for issue by the Board of Directors on 31 January 2011 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 Operating and Financial Review.

All revenue arose within the United Kingdom.  No geographical segment information is therefore given.  Segment information about these businesses is presented below.

3.  Goodwill

Adjustments relate to the revaluation of the Group's estimate of contingent consideration due on acquired businesses.

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 allocated to that CGU.  Goodwill has been allocated according to the business segment.

The recoverable amount of a CGU is determined based on value in use calculations.  These calculations use cash flow projections based on financial budgets approved by management covering a five year period.  The key assumptions used to prepare the financial budgets are based on past experience and management's expectation for the markets in which they operate. 

Cash flows beyond the five year period (2010: 5 years) are extrapolated using an average growth rate of 2.25% (2010: 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 10.80% (2010: 12.50%).  The discount rate 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 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.

•    The discount rate for 2011 is 10.8%. This would need to increase to 14.1% for an impairment to occur.

•    A compound average revenue growth rate of 4.3% has been assumed for the first five years.  If this growth rate were to fall to 2.3% and management made no compensating changes to the budgeted level of administrative expenses in this period, an impairment would occur in the Insurance CGU.

4.  Intangible assets

5.  Borrowings

The Group has no undrawn committed borrowing facilities at 30 September 2011 (2010: £nil). 

As at 13 December 2011 the outstanding loan facility was £11,050,000 and unamortised loan costs were £413,000.  The Directors consider that the carrying amount of borrowings approximate to their fair value.

6.  Called up share capital

On 28 September 2011, the Company settled the last of the deferred consideration liability with 371,112 ordinary shares of 1p each at a price of 36p. This resulted in an increase of £3,711 to share capital and £129,889 to merger reserve.

On 24 May 2011, 12,631 ordinary shares of 1p were issued at 12p to fulfil share options exercised by staff members.

7.  Income tax charge/(credit)

8.  Earnings per share        

9.   Cash generated from operations

10. Net debt

¹Borrowings shown gross of amortised loan costs of £438,000 (2010: £641,000).  See note 5 for details.