Interim Management Statement (0469F)

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RNS Number : 0469F

Mouchel Group plc

11 June 2012

Interim Management Statement

Implementation of strategic review actions on track, capital structure review progressing

Mouchel Group plc ("Mouchel"), the infrastructure and business services Group, today issues its Interim Management Statement for the period from 1 February 2012 to 11 June 2012.

Summary:

   --    Implementation of strategic review actions continues: 

o Reorganisation of business with two clear divisions in place

o Craig Apsey appointed Managing Director of Mouchel Business Services

o Previously announced overhead cost reduction programme on track; at least GBP3 million of additional overhead cost savings identified, increasing target from GBP18m to GBP21m

o Costs reduced in Middle East business, now operating on a break-even basis; one-off cost of GBP2m

-- Review of options to provide Mouchel with a long term sustainable capital structure is progressing with a balance sheet restructuring due to be announced prior to the year end on 31 July 2012

-- All the options being considered will result in there being only limited value for existing shareholders

-- Underlying business continues to perform well despite the on-going uncertainty around the balance sheet; GBP165m of contracts secured in financial year to date. Order book is stable at just over GBP1.1billion and forward orders for 2013 now total over GBP325m

-- Costs related to on-going operational restructuring and anticipated financial restructuring will impact the current year financial performance

Grant Rumbles, CEO of Mouchel said:

"We have continued to work with our clients, employees and key stakeholders to implement our strategic actions and are encouraged by the good progress made since the interim results. Although the environment remains challenging, the actions we are taking will create a platform for long term growth for Mouchel. The final piece to setting this platform for securing the long term future of the business is to complete the restructure of the balance sheet and we remain on track to announce this by our financial year end on 31 July 2012.

Update on Strategic Review actions

As announced at our interim results on 29 March 2012, Mouchel completed a comprehensive strategic review, which identified four key strategic actions to return the business to profitability and create a robust platform to deliver sustainable growth.

1. Simplify organisation structure

We have now successfully implemented the reorganisation of the business into two divisions, Mouchel Infrastructure Services ('MIS') and Mouchel Business Services ('MBS'). We recently announced a key appointment of Craig Apsey, as Managing Director of MBS, who joins from BT, where he previously led the operations and growth strategy for their Local Government division, a business similar to MBS.

This reorganisation is already facilitating a greater focus on our clients and has also led to additional cost synergies being identified.

2. Focus on our core strengths

Mouchel's underlying business continues to remain resilient, despite the ongoing uncertainty around the balance sheet. We have secured GBP165m of contracts this year and the order book is stable at just over GBP1.1 billion and forward orders for 2013 now total over GBP325m.

Our joint venture, EnterpriseMouchel has recently submitted bids for three London Highways Alliance Contracts. We also await the result of our Transerv joint venture bids, in partnership with Balfour Beatty, for two 4G Transport Scotland contracts. Our Australian business continues to demonstrate a number of potential opportunities for growth, including bidding for additional services in the Perth ISA, and with our partner Downer, we are preparing our first private sector bid for asset management.

We have been appointed to provide services to both Anglian Water and Dwr Cymru Welsh Water under the AMP5 framework. Mouchel now serves all 12 water and sewerage companies in England and Wales.

We have reduced costs in our Middle East business, which is now operating on a break-even basis. In order to attain this position we have incurred a loss of approximately GBP2 million in 2012 as we implemented the restructuring We remain confident in the medium and long term prospects for our business in the Middle East where there are multiple opportunities for growth.

In order to focus our resources more efficiently, we are integrating our management consultants directly into MBS. The Management Consulting business has continued to underperform and through this integration, we will further reduce our overhead costs, improve operating margins and ensure that our business is fully focussed on key client delivery.

3. Reduce overhead costs

In our interim results, we announced that we had identified GBP18 million of central cost savings. The cost saving programme is running to plan and we expect the majority of this to be attained by September 2012. In addition, we have identified further central and divisional cost savings such that we now expect total cost savings of at least GBP21 million per annum. The majority of the changes will have been actioned by the end of September and the full benefit of these cost savings will impact the second half of the year to 31 July 2013.

4. Focus on contract profitability

We have commenced a systematic review of our operations to further improve their efficiency. We expect this will enhance both our operational effectiveness and efficiency in the medium term.

Update on capital structure review

We continue actively to progress options to provide Mouchel with a long term sustainable capital structure and we remain on track to announce a balance sheet restructuring prior to the year end on 31 July 2012. All options being considered will result in there being only limited value for existing shareholders.

Financial performance

Performance in the current year continues to be impacted by the financial uncertainty surrounding the Group and associated costs involved in the operational restructuring of the business. Apart from the Middle East and Management Consulting operations the underlying business is performing broadly in line with management expectations. However a combination of the costs involved in the restructuring and one off items relating to legacy issues identified as part of this exercise will impact in the current year.

In addition as part of the balance sheet restructuring exercise we will make provisions for impairment on goodwill and intangible assets to bring the carrying values of those items into line with the new operational structure and recognising the changes in the scale of the business.

We have made improvements to our working capital management and the business will be cash generative in the second half at an operating level before the cash costs associated with the restructuring. Mouchel's banks remain supportive, having agreed amendments at the time of the interim results to provide flexibility in the implementation of our restructuring plans.

Outlook

The Group is in a period of transition as we implement our restructuring plans to achieve the benefits of being a smaller more streamlined organisation with a lower cost base. Once these actions are implemented fully, the Directors believe that Mouchel return to being a profitable and cash generative business with the balance sheet restructured to give us the correct long term funding structure. This will position us well to compete effectively once more in our markets, which continue to provide attractive long term outsourcing opportunities both within the UK and internationally.

For further information, please contact:

Mouchel Group plc

Grant Rumbles, Chief Executive

Rod Harris, Group Finance Director

01483 731731

Brunswick Group

Mike Smith/Azhar Khan

020 7404 5959

This information is provided by RNS

The company news service from the London Stock Exchange

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